Putnam
Convertible
Opportunities
and Income Trust
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
2-29-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on fiscal year 2000. In the
following report, the fund's managers discuss performance for the period
and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Convertible Opportunities and Income Trust that I will be signing. After
more than 30 years as Chairman of the Trustees and President of the Putnam
Funds, the time has come for me to step aside. In June, John Hill will
become Chairman. John is currently an independent Trustee and has served
on the board for the past 14 years. In addition, my son, George Putnam,
III, will take on the role of President. I am confident that the
leadership of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
April 19, 2000
Report from the Fund Managers
Charles G. Pohl
Rosemary H. Thomsen
Strength in the high-yield sector of a challenging overall bond market,
combined with a healthy convertibles market, enabled Putnam Convertible
Opportunities and Income Trust to deliver solid results for the fiscal
year ended February 2000. Our emphasis on the best-performing industries
in the market -- technology, telecommunications, and biotechnology --
further enhanced returns.
Total return for 12 months ended 2/29/00
NAV Market price
- ----------------------------------------------------------------------
16.33% -7.49%
- ----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* FUND'S CONVERTIBLE HOLDINGS RETAINED SMALL-CAP BIAS
In the convertible portion of the fund, we attempt to emphasize smaller
companies with attractive valuations. While this style has been out of
favor in recent years, we believe that over time these companies can
perform well because of their solid fundamentals and attractive
valuations. Convertible bonds can be a worthwhile way to capture equity
performance because they offer opportunities to participate in the
appreciation with less downside risk than a stock investment.
Because of the fund's small-cap bias, a useful convertible benchmark for
its convertible holdings is the Merrill Lynch Small Cap Convertible Index,
an unmanaged index of small-capitalization convertible bonds. The fund's
convertible bond portion had a total return of 20.0% for the 12-month
period, while the Merrill Lynch Small Cap Convertible Index's total return
was -9.74%. By comparison, the Merrill Lynch All-Convertible Index, which
encompasses all convertible bonds, had a total return of 56.21% for the
12-month period. Most of this return came disproportionately from
technology companies in the fourth calendar quarter of 1999.
[GRAPHIC OMITTED: pie chart PORTFOLIO COMPOSITION]
PORTFOLIO COMPOSITION*
Common stocks,
including warrants -- 1.5%
Preferred stocks -- 2.7%
Other -- 1.0%
Convertible securities -- 53.8%
Corporate bonds and notes -- 41.0%
Footnote reads:
*Based on total market value of assets as of 2/29/00. Composition will vary
over time.
* TECHNOLOGY, TELECOMMUNICATIONS SECTORS PERFORMED WELL
The fund's convertible holdings performed well relative to the Merrill
Lynch Small Cap Convertible Index primarily because the fund held a number
of strong-performing securities in the high-growth technology and telecom
areas. However, in order to stick to the fund's objective and keep the
portfolio diversified, we trimmed dramatic appreciation, as many of the
big winners in the technology sector had reached questionable levels of
valuation.
The fund's top-performing holdings included Level One Communications,
Inc., a fiber-optic networking company, and Exodus Communications, which
provides companies with comprehensive Internet management and network
services. QUALCOMM, which provides digital wireless communications
products and services based on a proprietary technology, also performed
well for the fund. Finally, two broadcasting firms in the portfolio,
Comcast Corp. and Cox Communications, benefited significantly from their
investments in Sprint PCS, a national leader in wireless
telecommunications. These companies exemplify the tremendous growth in the
technology sector's performance in the final calendar quarter. While these
holdings and others discussed in this report were viewed favorably at the
end of the fiscal period, all holdings are subject to review and
adjustment in accordance with the fund's investment strategy and may well
vary in the future.
[GRAPHIC OMITTED: TOP FIVE CONVERTIBLE SECURITY HOLDINGS]
TOP FIVE CONVERTIBLE SECURITY HOLDINGS*
EMC Corp., 3.25%, 2002
Computer services and software
MediaOne Group, Inc.,
$6.25 cv. pfd. into Vodaphone
Wireless
Exodus Communications,
Inc. 4.75%, 2008
Networking
Houston Industries, Inc.
$3.22 cv. pfd. into Time Warner
Media
Veritas Software Corp., 1.856%, 2006
Computer services and software
[GRAPHIC OMITTED: TOP FIVE CORPORATE BONDS AND NOTES HOLDINGS]
TOP FIVE CORPORATE BONDS AND NOTES HOLDINGS+
Midland Funding II Corp.,
11.75%, 2005
Electric utilities
Benedek Communications Corp., 0%, 2006
Broadcasting
Global Crossing Holdings, Ltd., 9.625%, 2008
Telecommunications
AMFM Operating, Inc., 12.625%, 2006
Broadcasting
L-3 Communication, Inc.,
11.25%, 2010
Telecommunications
Footnotes read:
*These holdings represented 5.1% of the fund's net assets as of 2/29/00.
Portfolio holdings will vary over time.
+These holdings represented 2.9% of the fund's net assets as of 2/29/00.
Portfolio holdings will vary over time.
The impact of the technology sector on the convertible market in the past
year cannot be overstated. In the Merrill Lynch All-Convertible Index,
which reflects the entire universe of convertible bonds, the technology
holdings include both traditional high-technology companies as well as
telecommunications companies. The combination of new convertible issuance
and price appreciation has resulted in an increase in the index's
technology sector weighting. It has risen from less than 30% at the end of
1998 to over 50% at the end of 1999.
While we are pleased with the performance of the fund's technology
holdings, we believe that, over time, remaining diversified across a broad
range of holdings and sectors is the best way to manage for consistent
long-term returns. For example, we are well represented in more
traditional sectors such as financial services, energy, and cable and
media. Many of the fund's holdings in these sectors were acquired at
attractive valuations, and we believe that our patience will be rewarded
when these areas eventually recover.
* BIOTECHNOLOGY HOLDINGS MADE SOLID CONTRIBUTION
In addition to technology and telecommunications, the biotechnology sector
performed well during the period and continues to show strength. One
example of a biotech holding in the fund is Sepracor, Inc., a specialty
pharmaceutical company. Sepracor's products are designed to help reduce
side effects and improve the effectiveness of a wide range of drugs,
including those used to treat respiratory, urology, and psychiatric
conditions. Another holding, Human Genome Sciences, Inc. (HGSI) was added
late in the fiscal period. HGSI's products are based on the company's
extensive genetic research, which includes one of the largest proprietary
databases of human and microbial genes in the nation. Currently the
company is developing a gene therapy treatment for vascular disease. The
outlook for biotech companies became somewhat uncertain after President
Clinton and British Prime Minister Tony Blair made statements in March,
shortly after the close of the reporting period, calling for public access
to important elements of genetic research. We remain optimistic about the
sector, but as with our technology holdings, we have reduced our biotech
positions into market strength.
* SECURITY SELECTION HELPED FUND'S HIGH-YIELD HOLDINGS OUTPERFORM
In an environment in which high-yield bonds outperformed the bond market
as a whole, the fund's high-yield holdings outperformed the sector
average, as measured by the First Boston High Yield Index. The period was
characterized by generally narrowing spreads -- the difference between the
yields on Treasury bonds and high-yield bonds -- as well as continued
economic strength with low inflation.
The fund's high-yield holdings performed well primarily because of bias
toward lower-rated securities and overweight positions in the
telecommunications and to a lesser extent, energy sectors. The fund
experienced some difficulty in the health-care sector, in which
significant upheaval occurred as a result of major cutbacks in Medicare
reimbursements. Stocks of nursing home providers held by the fund were
particularly hard hit by this industry-wide event. However, the fund's
health-care weighting was relatively small, so the damage to performance
was not significant.
The telecommunications industry has experienced tremendous growth in the
past several years, and high-yield bonds have financed much of this
growth. The fund's high-yield holdings in this sector include Covad
Communications Group, a high-speed Internet and network access provider.
Covad's services are provided over standard copper telephone lines, and
its customers include Cisco Systems, Oracle, and Stanford University. A
second telecommunications holding is IPC Information Systems, which
provides equipment and services to facilitate securities trading for
financial institutions.
* OUTLOOK FOR CONVERTIBLES CONTINGENT ON MARKET PREFERENCES
The outlook for the smaller-capitalization convertible bonds for the
remainder of 2000 will depend on investor preferences. Specifically, if
the market continues to favor the relatively small group of growth
companies in the technology, telecommunications, and biotechnology
sectors, diversified mutual funds will have a hard time keeping pace with
overweight benchmarks. However, if the market begins to broaden to include
a more diverse range of sectors -- value-oriented companies, for example
- -- then the fund would be well positioned to benefit. We are beginning to
see some broadening occur, but we believe that the stronger growth sectors
will continue to dominate at least through the first half of the year. We
will remain invested in these stronger sectors until we see signs of
weakness.
For high-yield bonds, our current analysis suggests that the U.S. economy
should continue to show solid but moderating growth in the coming year,
which would be favorable for high-yield bonds. We anticipate that yields
will remain relatively stable, given that the market has already
discounted one or two more interest-rate increases before the end of June.
A key factor will be inflation, which is beginning to show signs of
increasing. The rise in oil prices and the tight U.S. labor markets have
become concerns, but strong productivity growth and global competition
have thus far kept inflation at bay.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 2/29/00, there is no guarantee the fund will
continue to hold these securities in the future. The lower credit ratings
of high-yield bonds reflect a greater possibility that adverse changes in
the economy or poor performance by the issuers of these bonds may affect
the issuers' ability to pay principal and interest.
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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 2/29/00
Merrill Lynch
Small Cap Merrill Lynch First Boston Consumer
Market Convertible All-Convertible High-Yield price
NAV price Index Index Bond Index index
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 16.33% -7.49% -9.74% 56.21% 2.76% 3.16%
- ------------------------------------------------------------------------------------------
Life of fund
(since 6/29/95) 64.07 27.27 N/A* 149.83 39.68 11.48
Annual average 11.18 5.30 N/A* 21.67 7.42 2.35
- ------------------------------------------------------------------------------------------
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.
*Because the index was not in existence at the time of the fund's inception, a Life of fund
comparison cannot be made. The index's inception was December 1996.
</TABLE>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 2/29/00
- -----------------------------------------------------------------------
Distributions
- -----------------------------------------------------------------------
Number 12
- -----------------------------------------------------------------------
Income $1.7328
- -----------------------------------------------------------------------
Capital gains
Long-term 0.0960
- -----------------------------------------------------------------------
Short-term 0.2622
- -----------------------------------------------------------------------
Total $2.0910
- -----------------------------------------------------------------------
Share value NAV Market price
- -----------------------------------------------------------------------
2/28/99 $22.93 $22.500
- -----------------------------------------------------------------------
2/29/00 24.03 18.750
- -----------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------
Current dividend rate1 7.74% 9.92%
- -----------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Market
NAV price
- -----------------------------------------------------------------------
1 year 13.79% 2.19%
- -----------------------------------------------------------------------
Life of fund
(since 6/29/95) 63.49 32.57
Annual average 10.88 6.10
- -----------------------------------------------------------------------
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.
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.
Merrill Lynch Small Cap Convertible Index* is a sub-index of the Merrill
Lynch All-Convertible Index and is an unmanaged list of
small-capitalization convertible securities that measures performance for
small-capitalization convertible securities. The index's inception was
December 1996.
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 the bonds in which the fund customarily
invests.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take into 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, preceded by the Report of independent
accountants, 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 are determined. All investment and noninvestment 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-end funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended February 29, 2000
To the Trustees and Shareholders of
Putnam Convertible Opportunities and Income Trust
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Convertible
Opportunities and Income Trust (the "fund") at February 29, 2000, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with accounting
principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at February 29, 2000 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 10, 2000
<TABLE>
<CAPTION>
The fund's portfolio
February 29, 2000
CORPORATE BONDS AND NOTES (41.0%) (a)
PRINCIPAL AMOUNT VALUE
<S> <C> <C>
Advertising (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
$ 90,000 Adams Outdoor Advertising sr. notes 10 3/4s, 2006 $ 93,375
Aerospace and Defense (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Argo-Tech Corp. 144A sr. sub. notes 8 5/8s, 2007 136,800
50,000 Argo-Tech Corp. company guaranty 8 5/8s, 2007 41,000
120,000 Aviation Sales Co. company guaranty 8 1/8s, 2008 79,800
80,000 BE Aerospace, Inc. sr. sub. notes 9 1/2s, 2008 73,600
60,000 BE Aerospace, Inc. sr. sub. notes Ser. B, 8s, 2008 51,000
40,000 Decrane Aircraft Holdings company guaranty
Ser. B, 12s, 2008 36,400
120,000 Moog, Inc. sr. sub. notes Ser. B, 10s, 2006 121,800
100,000 Sequa Corp. med. term notes 10s, 2001 101,314
--------------
641,714
Agriculture (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
284,643 Premium Standard Farms, Inc. sr. sec. notes 11s, 2003
(acquired on various dates from 9/14/96 to 4/8/97
cost $278,167) (RES) (PIK) 259,025
Airlines (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Airbus Industries 144A 12.266s, 2020 102,190
80,000 Calair LLC 144A company guaranty 8 1/8s, 2008 68,900
160,000 Cathay International Ltd. 144A sr. notes 13s, 2008 (China) 80,000
130,000 Canadian Airlines Corp. sr. sec. notes 10s, 2005
(In default) (NON) (Canada) 105,300
45,000 Trans World Airlines, Inc. sr. notes 11 1/2s, 2004 28,575
50,000 Trans World Airlines, Inc. sr. notes 11 3/8s, 2006 19,875
--------------
404,840
Apparel (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
65,000 William Carter Holdings Co. sr. sub. notes
Ser. A, 12s, 2008 60,450
Automotive Parts (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
188,000 Aftermarket Technology Corp. sr. sub. notes 12s, 2004 188,940
80,000 Dura Operating Corp. company guaranty Ser. B, 9s, 2009 75,200
170,000 Federal Mogul Corp. 144A notes 7 1/2s, 2009 147,444
80,000 Hayes Lemmerz International, Inc. company guaranty
Ser. B, 8 1/4s, 2008 70,600
55,000 Hayes Wheels International, Inc. company guaranty
Ser. B, 9 1/8s, 2007 52,938
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 166,500
250,000 Oxford Automotive, Inc. company guaranty Ser. D,
10 1/8s, 2007 235,000
15,000 San Luis Corp. S.A. de CV sr. notes 8 7/8s, 2008
(Mexico) 13,650
170,000 Talon Automotive Group sr. sub. notes Ser. B,
9 5/8s, 2008 88,400
60,000 Transportation Manufacturing Operations, Inc.
company guaranty 11 1/4s, 2009 60,150
--------------
1,167,772
Banks (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
75,000 Chevy Chase Savings Bank, Inc. sub. deb. 9 1/4s, 2008 70,125
70,000 Delta Financial Corp. sr. notes 9 1/2s, 2004 45,500
125,000 Hanvit Bank 144A sub. notes 11 3/4s, 2010 (Korea) 125,938
25,000 Ocwen Capital Trust I company guaranty 10 7/8s, 2027 16,250
80,000 Ocwen Federal Bank sub. deb. 12s, 2005 75,200
50,000 Ocwen Financial Corp. notes 11 7/8s, 2003 46,000
70,000 Provident Capital Trust company guaranty 8.6s, 2026 65,650
40,000 Riggs Capital Trust 144A bonds 8 5/8s, 2026 35,601
70,000 Sovereign Bancorp, Inc. sr. notes 10 1/2s, 2006 70,000
60,000 Sovereign Capital Trust company guaranty 9s, 2027 44,350
50,000 Webster Capital Trust 144A bonds 9.36s, 2027 47,496
--------------
642,110
Basic Industrial Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
80,000 Azurix Corp. 144A notes 10 3/8s, 2007 80,600
310,000 Grove Holdings LLC deb. stepped-coupon zero %
(11 5/8s, 5/1/03), 2009 (STP) 31,000
50,000 Paragon Corp. Holdings, Inc. company guaranty
Ser. B, 9 5/8s, 2008 17,500
40,000 Roller Bearing Co. company guaranty Ser. B,
9 5/8s, 2007 36,600
--------------
165,700
Broadcasting (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
225,000 Acme Television sr. disc. notes stepped-coupon zero %
(10 7/8s, 9/30/00), 2004 (STP) 207,000
75,000 Affinity Group Holdings sr. notes 11s, 2007 69,000
379,900 AMFM Operating, Inc. deb. 12 5/8s, 2006 (PIK) 431,167
2,044 Australis Media, Ltd. sr. disc. notes stepped-coupon zero %
(15 3/4s 5/15/00), 2003 (In default) (Australia) (NON) (STP) (PIK) 20
500,000 Benedek Communications Corp. sr. disc. notes
stepped-coupon zero % (13 1/4s, 5/15/01), 2006 (STP) 460,625
205,000 Capstar Broadcasting sr. disc. notes stepped-coupon
zero % (12 3/4s, 2/1/02), 2009 (STP) 180,400
75,800 Capstar Broadcasting sub. deb. 12s, 2009 85,654
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) 30,750
79,370 Citadel Broadcasting Co. sr. sub. notes 10 1/4s, 2007 80,759
10,000 Citadel Broadcasting Co. company guaranty
9 1/4s, 2008 9,625
250,000 Comcast UK Cable, Ltd. deb. stepped-coupon zero %
(11.2s, 11/15/00), 2007 (Bermuda) (STP) 240,625
310,000 Echostar DBS Corp. sr. notes 9 3/8s, 2009 303,025
40,000 Fox Family Worldwide, Inc. sr. disc. notes stepped-coupon
zero % (10 1/4s, 11/1/02), 2007 (STP) 25,400
115,000 Fox Family Worldwide, Inc. sr. notes 9 1/4s, 2007 104,075
80,000 Granite Broadcasting Corp. sr. sub. notes 8 7/8s, 2008 72,000
300,000 Heritage Media Services Corp. sr. sub. notes
8 3/4s, 2006 302,250
180,000 Lenfest Communications, Inc. sr. sub. notes
8 1/4s, 2008 181,884
50,000 LIN Television Corp. company guaranty 8 3/8s, 2008 44,500
30,000 Pegasus Communications Corp. sr. notes Ser. B,
9 3/4s, 2006 29,100
247,000 PHI Holdings, Inc. sr. sub. notes zero %, 2001 208,715
110,000 Radio One, Inc. company guaranty stepped-coupon
Ser. B, 7s, (12s, 5/15/00), 2004 (STP) 117,700
75,000 SFX Entertainment, Inc. 144A Ser. B, 9 1/8s, 2008 70,500
80,000 SFX Entertainment, Inc. company guaranty
9 1/8s, 2008 82,000
150,000 Spanish Broadcasting Systems sr. sub notes
9 5/8s, 2009 147,750
50,000 TV Azteca Holdings S.A. de C.V. sr. notes
11s, 2002 (Mexico) 47,750
60,000 TV Azteca Holdings S.A. de C.V. sr. notes
10 1/2s, 2007 (Mexico) 55,200
20,000 TV Azteca Holdings S.A. de C.V. sr. notes Ser. A,
10 1/8s, 2004 (Mexico) 18,750
--------------
3,692,074
Building and Construction (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 American Architectural Products Corp. company guaranty
11 3/4s, 2007 12,500
30,000 Atrium Companies, Inc. company guaranty Ser. B,
10 1/2s, 2009 28,725
150,000 D.R. Horton, Inc. company guaranty 8s, 2009 132,375
180,000 GS Superhighway Holdings sr. notes 9 7/8s,
2004 (China) 127,800
60,000 NCI Building Systems, Inc. sr. sub. notes Ser. B,
9 1/4s, 2009 57,000
80,000 Toll Corp. company guaranty 8 1/8s, 2009 73,000
--------------
431,400
Building Products (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 Albecca, Inc. 144A sr. sub. notes 10 3/4s, 2008 67,788
80,000 Building Materials Corp. 144A sr. notes 8s, 2008 69,600
--------------
137,388
Business Equipment and Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Iron Mountain, Inc. company guaranty 8 3/4s, 2009 98,450
50,000 Outsourcing Solutions, Inc. sr. sub. notes Ser. B, 11s, 2006 44,500
49,000 Pierce Leahy Corp. sr. sub. notes 11 1/8s, 2006 50,470
28,000 U.S. Office Products Co. company guaranty 9 3/4s, 2008 10,920
--------------
204,340
Cable Television (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Adelphia Communications Corp. sr. notes 7 7/8s, 2009 77,850
200,000 Century Communications Corp. sr. notes 8 7/8s, 2007 186,500
210,000 Charter Communications Holdings LLC sr. disc. notes
stepped-coupon zero % (9.92s, 4/1/04), 2011 (STP) 120,750
180,000 Charter Communications Holdings LLC sr. notes
8 5/8s, 2009 163,800
100,000 Classic Cable, Inc. 144A sr. sub. notes 10 1/2s, 2010 100,125
30,000 CSC Holdings, Inc. sr. sub. deb. 9 7/8s, 2013 30,975
30,000 CSC Holdings, Inc. deb. 7 7/8s, 2018 28,139
295,000 Diamond Cable Communication Co. sr. disc. notes
stepped-coupon zero % (10 3/4s, 2/15/02), 2007
(United Kingdom) (STP) 233,788
40,000 Lamar Media Corp. company guaranty 9 5/8s, 2006 40,100
100,000 Lamar Media Corp. sr. sub. notes 9 1/4s, 2007 99,000
45,000 Lamar Media Corp. company guaranty 8 5/8s, 2007 43,200
70,000 TeleWest Communications PLC 144A sr. disc. notes
stepped-coupon zero %, (9 1/4, 4/15/04), 2009
(United Kingdom) (STP) 41,300
200,000 TeleWest Communications PLC 144A sr. notes
9 7/8s, 2010 (United Kingdom) 200,000
100,000 United Pan-Europe N.V. 144A sr. notes Ser. B
10 7/8s, 2009 (Netherlands) 97,500
50,000 United Pan-Europe N.V. 144A sr. disc.
notes, Ser. B, stepped-coupon zero %
(12 1/2s, 8/01/04), 2010 (Netherlands) (STP) 26,500
260,000 United Pan-Europe N.V. 144A sr. disc.
notes, stepped-coupon zero %
(13 3/4s, 2/01/05), 2009 (Netherlands) (STP) 144,950
--------------
1,634,477
Cellular Communications (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
210,000 Celcaribe S.A. sr. notes stepped-coupon zero %
(13 1/2s, 3/15/04), 2004 (Colombia) (STP) 183,750
380,000 CellNet Data Systems, Inc. sr. disc. notes stepped-coupon
zero % (14s, 10/1/02), 2007 (STP) 45,600
100,000 Conecel Holdings 144A notes Ser. A, 14s, 2000 (In default) (NON) 25,000
450,000 McCaw International Ltd sr. disc. notes stepped-coupon
zero % (13s, 4/15/02), 2007 (STP) 325,125
240,000 Millicom International Cellular S.A. sr. disc. notes
stepped-coupon zero % (13 1/2s, 6/1/01), 2006
(Luxembourg) (STP) 207,000
30,000 Price Communications Wireless, Inc. 144A sr. notes
9 1/8s, 2006 30,000
130,000 US Unwired, Inc. sr. disc. notes stepped-coupon zero %
(13 3/8s, 11/1/04), 2009 (STP) 75,075
--------------
891,550
Chemicals (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Geo Specialty Chemicals, Inc. 144A sr. sub. notes
10 1/8s, 2008 51,000
80,000 Georgia Gulf Corp. 144A sr. sub. notes 10 3/8s, 2007 82,200
20,000 Huntsman Corp. 144A sr. sub. notes 9 1/2s, 2007 18,900
90,000 Huntsman Corp. 144A sr. sub. notes FRN 9.38s, 2007 83,700
310,000 Huntsman ICI Chemicals, Inc. 144A sr. sub. notes
10 1/8s, 2009 308,450
90,000 Lyondell Petrochemical Co. sr. sub. notes 10 7/8s, 2009 85,050
290,000 Lyondell Petrochemical Co. sec. notes Ser. B, 9 7/8s, 2007 278,400
200,000 PCI Chemicals & Pharmaceuticals company guaranty
9 1/4s, 2007 (India) 164,000
100,000 Pioneer Americas Acquisition 144A sr. notes
9 1/4s, 2007 86,000
131,707 Polytama International notes 11 1/4s, 2007 (Indonesia) 15,805
80,000 Royster-Clark, Inc. 144A 1st mtge. 10 1/4s, 2009 71,200
75,000 Sterling Chemicals Holdings sr. disc. notes stepped-coupon
zero % (13 1/2s, 8/15/01), 2008 (STP) 24,750
90,000 Trikem S.A. 144A bonds 10 5/8s, 2007 (Brazil) 71,100
--------------
1,340,555
Computer Services (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Concentric Network Corp. sr. notes 12 3/4s, 2007 32,325
100,000 Globix Corp. 144A sr. notes 12 1/2s, 2010 99,250
100,000 Interact Operating Co. notes 14s, 2003 30,000
100,000 PSINet, Inc. sr. notes 11 1/2s, 2008 101,000
110,000 PSINet, Inc. sr. notes 11s, 2009 112,200
55,000 PSINet, Inc. 144A sr. notes 10 1/2s, 2006 54,175
235,000 Unisys Corp. sr. notes 11 3/4s, 2004 253,800
60,000 Verio, Inc. sr. notes 11 1/4s, 2008 60,900
--------------
743,650
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
120,000 Axia, Inc. company guaranty 10 3/4s, 2008 102,000
Consumer Durable Goods (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Iron Age Corp. company guaranty 9 7/8s, 2008 21,600
140,000 Samsonite Corp. sr. sub. notes 10 3/4s, 2008 117,600
45,000 Sealy Mattress Co. sr. sub. notes Ser. B, 9 7/8s, 2007 44,100
--------------
183,300
Consumer Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 Coinmach Corp. sr. notes 11 3/4s, 2005 182,700
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 French Fragrances, Inc. company guaranty Ser. D,
10 3/8s, 2007 28,800
35,000 French Fragrances, Inc. sr. notes Ser. B, 10 3/8s, 2007 33,250
60,000 Revlon Consumer Products sr. notes 9s, 2006 42,900
250,000 Revlon Consumer Products sr. notes 8 1/8s, 2006 177,500
--------------
282,450
Electric Utilities (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
85,000 AES China Generating Co. sr. notes 10 1/8s, 2006 (China) 59,500
40,000 Applied Power, Inc. sr. sub. notes 8 3/4s, 2009 41,000
880,000 Midland Funding II Corp. deb. Ser. A, 11 3/4s, 2005 941,970
100,843 Northeast Utilities System notes Ser. A, 8.58s, 2006 100,558
68,000 Northeast Utilities System notes Ser. B, 8.38s, 2005 67,674
--------------
1,210,702
Electronics and Electrical Equipment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
35,000 Celestica International Ltd. 144A sr. sub. notes
10 1/2s, 2006 (Canada) 35,700
80,000 DII Group, Inc. (The) sr. sub. notes 8 1/2s, 2007 78,400
80,000 Flextronics International Ltd. sr. sub. notes Ser. B,
8 3/4s, 2007 76,400
10,000 HCC Industries, Inc. company guaranty 10 3/4s, 2007 5,700
145,000 Viasystems, Inc. sr. sub notes 9 3/4s, 2007 113,100
--------------
309,300
Energy Related (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Calpine Corp. sr. notes 9 1/4s, 2004 101,000
170,000 CMS Energy Corp. sr. notes 6 3/4s, 2004 158,525
290,000 Panda Global Energy Co. company guaranty
12 1/2s, 2004 (China) 145,000
60,000 RAM Energy, Inc. sr. notes 11 1/2s, 2008 28,800
140,000 York Power Funding 144A notes 12s, 2007
(Cayman Islands) 144,200
--------------
577,525
Entertainment (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
10,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2011 7,600
170,000 AMC Entertainment, Inc. sr. sub. notes 9 1/2s, 2009 130,900
70,000 Cinemark USA, Inc. sr. sub. notes 8 1/2s, 2008 (Mexico) 56,700
293,000 Diva Systems Corp. sr. disc. notes, stepped-coupon
Ser. B, zero % (12 5/8s, 3/1/03), 2008 (STP) 155,290
180,000 ITT Corp. notes 6 3/4s, 2005 158,432
180,000 Premier Parks, Inc. sr. notes 9 1/4s, 2006 169,200
50,000 Regal Cinemas, Inc. sr. sub. notes 9 1/2s, 2008 32,500
100,000 Silver Cinemas, Inc. sr. sub. notes 10 1/2s, 2005 32,500
110,000 United Artists Theatre sr. sub. notes 9 3/4s, 2008 (NON) 8,800
--------------
751,922
Environmental Control (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
315,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 10s, 2009 256,725
130,000 Allied Waste Industries, Inc. company guaranty
Ser. B, 7 7/8s, 2009 109,525
250,000 Waste Management, Inc. company guaranty
6 7/8s, 2009 212,100
--------------
578,350
Financial Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Aames Financial Corp. sr. notes 9 1/8s, 2003 36,000
250,000 Advanta Corp. med. term notes Ser. B, 7s, 2001 234,058
40,000 AMRESCO, Inc. sr. sub. notes Ser. 98-A, 9 7/8s, 2005 28,000
40,000 Cellco Finance Corp. NV sr. sub. notes 15s, 2005
(Netherlands) 43,900
85,000 Cellco Finance Corp. NV 144A sr. notes
12 3/4s, 2005 (Netherlands) 90,100
100,000 Colonial Capital II 144A company guaranty 8.92s, 2027 90,823
115,000 Contifinancial Corp. sr. notes 8 3/8s, 2003 10,350
110,000 Contifinancial Corp. sr. notes 8 1/8s, 2008 9,900
80,000 Contifinancial Corp. sr. notes 7 1/2s, 2002 7,000
140,000 GS Escrow Corp. sr. notes 7 1/8s, 2005 125,191
75,000 Imperial Credit Capital Trust I 144A company guaranty
10 1/4s, 2002 58,125
45,000 Imperial Credit Industries, Inc. sr. notes 9 7/8s, 2007 34,200
40,000 Nationwide Credit, Inc. sr. notes Ser. A, 10 1/4s, 2008 29,200
130,000 RBF Finance Co. company guaranty 11 3/8s, 2009 137,800
20,000 RBF Finance Co. company guaranty 11s, 2006 20,800
80,000 Resource America, Inc. 144A sr. notes 12s, 2004 63,200
--------------
1,018,647
Food and Beverages (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Aurora Foods, Inc. 144A ser. sub. notes Ser. D,
9 7/8s, 2007 60,500
35,000 Aurora Foods, Inc. sr. sub. notes Ser. B, 9 7/8s, 2007 19,250
75,000 Eagle Family Foods company guaranty Ser. B,
8 3/4s, 2008 59,625
150,000 RAB Enterprises, Inc. 144A sr. notes 10 1/2s, 2005 103,500
108,000 Triarc Consumer Products, Inc. 144A sr. notes
10 1/4s, 2009 103,410
130,000 Vlassic Foods Intl., Inc. sr. sub notes Ser. B,
10 1/4s, 2009 74,100
--------------
420,385
Gaming (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
90,000 Argosy Gaming Co. company guaranty 10 3/4s, 2009 92,700
100,000 Boyd Gaming Corp. sr. sub. notes 9 1/2s, 2007 94,000
160,000 Fitzgeralds Gaming Corp. company guaranty Ser. B,
12 1/4s, 2004 (In default) (NON) 81,600
50,000 Harrahs Entertainment, Inc. company guaranty
7 1/2s, 2009 47,017
240,000 Hollywood Casino Corp. company guaranty
11 1/4s, 2007 247,800
60,000 Hollywood Park, Inc. company guaranty Ser. B,
9 1/4s, 2007 57,750
70,000 Horseshoe Gaming Holdings company guaranty
8 5/8s, 2009 64,400
60,000 Isle of Capri Black Hawk LLC 144A 1st mtge.
Ser. B, 13s, 2004 65,400
100,000 Mohegan Tribal Gaming, Auth. sr. sub. notes 8 3/4s, 2009 95,750
90,000 Park Place Entertainment sr. notes 8 1/2s, 2006 86,730
50,000 Riviera Black Hawk, Inc. 1st mtge. 13s, 2005 53,500
200,000 Trump A.C. 1st mtge. 11 1/4s, 2006 137,000
320,000 Trump Castle Funding 144A sub. notes 10 1/4s, 2003 323,200
40,000 Venetian Casino company guaranty 12 1/4s, 2004 36,400
--------------
1,483,247
Health Care (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
30,000 Bio-Rad Labs Corp. 144A sr. sub. notes 11 5/8s, 2007 30,338
30,000 Columbia/HCA Healthcare Corp. deb. 8.36s, 2024 26,775
30,000 Columbia/HCA Healthcare Corp. med term notes
7.69s, 2025 24,300
20,000 Columbia/HCA Healthcare Corp. notes 7 1/4s, 2008 17,550
130,000 Columbia/HCA Healthcare Corp. med term notes
6.63s, 2045 122,477
225,000 Conmed Corp. company guaranty 9s, 2008 207,000
205,000 Extendicare Health Services, Inc. company guaranty
9.35s, 2007 129,150
100,000 Hudson Respiratory Care, Inc. sr. sub. notes 9 1/8s, 2008 80,000
90,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/2s, 2007 (In default) (NON) 1,800
60,000 Integrated Health Services, Inc. sr. sub. notes Ser. A,
9 1/4s, 2008 (In default) (NON) 1,200
150,000 Mariner Post-Acute Network, Inc. sr. sub. notes
stepped-coupon Ser. B, zero % (10 1/2s, 11/1/02),
2007 (In default) (STP) (NON) 750
245,000 Multicare Cos., Inc. sr. sub. notes 9s, 2007 36,750
145,000 Sun Healthcare Group, Inc. sr. sub. notes Ser. B, 9 1/2s, 2007
(In default) (NON) 2,900
60,000 Sun Healthcare Group, Inc. 144A sr. sub. notes
9 3/8s, 2008 (In default) (NON) 1,200
90,000 Tenet Healthcare Corp. sr. notes 8 5/8s, 2003 88,650
70,000 Tenet Healthcare Corp. sr. notes 8s, 2005 66,500
70,000 Triad Hospitals Holdings company guaranty
Ser. B, 11s, 2009 71,575
--------------
908,915
Lodging (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Epic Resorts LLC company guaranty Ser. B, 13s, 2005 51,100
210,000 HMH Properties, Inc. company guaranty Ser. B, 7 7/8s, 2008 182,175
30,000 Host Marriott L.P. 144A sr. notes Ser. E, 8 3/8s, 2006 27,675
120,000 Prime Hospitality Corp. sub. notes 9 3/4s, 2007 114,900
--------------
375,850
Manufacturing (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Blount, Inc. company guaranty 13s, 2009 147,700
90,000 Insilco Holding Co. sr. disc. notes stepped-coupon
zero % (14s, 8/15/03), 2008 (STP) 43,200
--------------
190,900
Media (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 RBS Participacoes S.A. 144A company guaranty
11s, 2007 (Brazil) 43,000
Medical Supplies and Devices (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 ALARIS Medical Systems, Inc. company guaranty
9 3/4s, 2006 103,750
85,000 Mediq, Inc. deb. stepped-coupon zero %
(13s, 6/1/03), 2009 (STP) 4,250
80,000 Mediq, Inc. company guaranty 11s, 2008 8,000
--------------
116,000
Metals and Mining (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
64,000 Anker Coal Group, Inc. 144A sec. notes 14 1/4s, 2007 46,720
80,000 Continental Global Group sr. notes Ser. B, 11s, 2007 39,200
50,000 Kaiser Aluminum & Chemical Corp. sr. sub. notes
12 3/4s, 2003 49,125
110,000 Lodestar Holdings, Inc. company guaranty 11 1/2s, 2005 33,000
90,000 Weirton Steel Co. sr. notes 11 3/8s, 2004 92,025
80,000 WHX Corp. sr. notes 10 1/2s, 2005 75,400
--------------
335,470
Networking (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
20,000 Exodus Communications, Inc. sr. notes 11 1/4s, 2008 20,400
120,000 Exodus Communications, Inc. 144A sr. notes 10 3/4s, 2009 121,800
--------------
142,200
Oil and Gas (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Belco Oil & Gas Corp. company guaranty Ser. B,
10 1/2s, 2006 164,000
90,000 Benton Oil & Gas Co. sr. notes 9 3/8s, 2007 53,775
70,000 Gulf Canada Resources, Ltd. sr. notes 8 3/8s,
2005 (Canada) 68,250
70,000 HS Resources, Inc. sr. sub. notes Ser. B, 9 1/4s, 2006 67,200
40,000 Leviathan Gas Corp. company guaranty Ser. B, 10
3/8s, 2009 40,800
10,000 Ocean Energy, Inc. company guaranty Ser. B, 8 7/8s, 2007 9,750
150,000 Ocean Energy, Inc. company guaranty Ser. B, 8 3/8s, 2008 142,875
90,000 R&B Falcon Corp. sr. notes 12 1/4s, 2006 96,750
55,000 Seven Seas Petroleum sr. notes Ser. B, 12 1/2s, 2005 16,500
35,000 Snyder Oil Corp. sr. sub. notes 8 3/4s, 2007 34,650
150,000 Vintage Petroleum 144A sr. sub. notes 9 3/4s, 2009 151,500
--------------
846,050
Packaging and Containers (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
180,000 AEP Industries, Inc. sr. sub. notes 9 7/8s, 2007 158,400
150,000 Consumers International 144A sr. notes 10 1/4s, 2005 106,500
150,000 Gaylord Container Corp. sr. sub. notes 9 7/8s, 2008 123,000
80,000 Huntsman Packaging Corp. company guaranty
9 1/8s, 2007 76,000
100,000 Innova S De R.L. sr. notes 12 7/8s, 2007 (Mexico) 92,500
20,000 Owens-Illinois, Inc. deb. 7.8s, 2018 17,487
140,000 Owens-Illinois, Inc. sr. notes 7.35s, 2008 126,673
100,000 Packaging Corp. company guaranty 9 5/8s, 2009 100,250
40,000 Radnor Holdings, Inc. sr. notes 10s, 2003 37,000
--------------
837,810
Paper and Forest Products (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
145,000 APP Finance II Mauritius Ltd. bonds stepped-coupon
zero % (16s, 2/15/04), 2049 (Indonesia) (STP) 91,350
100,000 APP Global Finance III sec. notes FRN 10.345s, 2002
(Cayman Islands) 73,000
90,000 Indah Kiat Financial Mauritius Ltd. company guaranty
10s, 2007 (Indonesia) 61,200
150,000 Pacifica Papers, Inc. sr. notes 10s, 2009 (Canada) 149,250
240,000 Pindo Deli Finance Mauritius Ltd. company guaranty
10 3/4s, 2007 (Indonesia) 163,200
195,000 Repap New Brunswick sr. notes 10 5/8s, 2005 (Canada) 180,375
30,000 Republic Group, Inc. sr. sub. notes 9 1/2s, 2008 27,000
350,000 Riverwood International Corp. company guaranty
10 7/8s, 2008 335,125
60,000 Tembec Industries, Inc. company guaranty 8 5/8s,
2009 (Canada) 57,750
--------------
1,138,250
Pharmaceuticals (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 Biovail Corp. International sr. notes 10 7/8s, 2005 45,200
155,000 ICN Pharmaceuticals, Inc. 144A sr. notes 9 1/4s, 2005 147,638
10,000 ICN Pharmaceuticals, Inc. 144A sr. notes 8 3/4s, 2008 9,250
--------------
202,088
Publishing (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 American Media Operation, Inc. sr. sub. notes
10 1/4s, 2009 59,550
180,000 Garden State Newspapers, Inc. sr. sub. notes Ser. B,
8 3/4s, 2009 164,700
50,000 Perry-Judd company guaranty 10 5/8s, 2007 41,875
32,932 Von Hoffman Press, Inc. 144A sr. sub. notes
13 1/2s, 2009 29,968
40,000 Von Hoffman Press, Inc. 144A sr. sub. notes
10 3/8s, 2007 38,400
--------------
334,493
Railroads (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
25,000 MRS Logistica, S.A. bonds Ser. B, 10 5/8s, 2005 (Brazil) 21,500
155,000 TFM S.A. de C.V. company guaranty stepped-coupon
zero %, (11 3/4s, 6/15/02), 2009 (Mexico) (STP) 109,663
--------------
131,163
REITs (Real Estate Investment Trust) (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Tanger Properties Ltd. partnership gtd. notes
8 3/4s, 2001 168,302
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 FRD Acquisition Co. sr. notes Ser. B, 12 1/2s, 2004 60,000
Retail (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
140,000 Home Interiors & Gifts, Inc. company guaranty
10 1/8s, 2008 116,200
100,000 K mart Corp. deb. 7 3/4s, 2012 91,939
110,000 Kasper A.S.L. Ltd. sr. notes 12 3/4s, 2004 71,500
165,000 Mothers Work, Inc. sr. notes 12 5/8s, 2005 160,050
65,000 NBTY, Inc. 144A sr. sub. notes 8 5/8s, 2007 58,500
160,000 North Atlantic Trading Co. company guaranty
Ser. B, 11s, 2004 152,800
100,000 Zale Corp. sr. notes Ser. B, 8 1/2s, 2007 96,500
--------------
747,489
Satellite Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
125,000 Golden Sky DBS, Inc. sr. disc. notes, stepped-coupon
Ser. B, zero % (13 1/2s, 3/1/04), 2007 (STP) 82,500
65,000 Golden Sky Systems sr. sub. notes Ser. B, 12 3/8s, 2006 71,825
--------------
154,325
Semiconductors (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Amkor Technology, Inc. sr. notes 9 1/4s, 2006 97,000
40,000 Chippic Intl., Ltd. 144A company guaranty
12 3/4s, 2009 42,000
135,000 Fairchild Semiconductor Corp. sr. sub. notes
10 1/8s, 2007 132,975
90,000 Zilog, Inc. company guaranty Ser. B, 9 1/2s, 2005 81,900
--------------
353,875
Specialty Consumer Products (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Decora Industries, Inc. sr. sec. notes Ser. B, 11s, 2005 53,000
Steel (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
230,000 AK Steel Corp. company guaranty 7 7/8s, 2009 208,150
40,000 Armco, Inc. sr. notes 8 7/8s, 2008 38,800
180,000 LTV Corp. sr. notes 11 3/4s, 2009 183,600
70,000 National Steel Corp. 1st mtge. Ser. D, 9 7/8s, 2009 69,300
100,000 Wheeling-Pittsburgh Steel Corp. sr. notes 9 1/4s, 2007 93,750
--------------
593,600
Telecommunications (7.5%)
- --------------------------------------------------------------------------------------------------------------------------
325,000 21st Century Telecom Group sub. deb. 13 3/4s, 2010 (PIK) 292,500
80,000 Alaska Communications Systems Corp. company
guaranty 9 3/8s, 2009 74,600
20,000 Allegiance Telecom, Inc. sr. notes 12 7/8s, 2008 22,300
130,000 Allegiance Telecom, Inc. sr. disc. notes stepped-coupon
Ser. B, zero % (11 3/4s, 2/15/03), 2008 (STP) 94,900
80,000 Bestel S.A. de C.V. sr. disc. notes stepped-coupon zero %
(12 3/4s, 5/15/03), 2005 (Mexico) (STP) 61,600
70,000 Birch Telecommunications, Inc. sr. notes 14s, 2008 70,000
30,000 CapRock Communications Corp. sr. notes Ser. B,
12s, 2008 30,900
50,000 CapRock Communications Corp. sr. notes 11 1/2s, 2009 51,000
110,000 Carrier1 Intl. S.A. sr. notes Ser. B, 13 1/4s, 2009
(Luxembourg) 115,500
95,000 Colt Telecommunications Group PLC sr. disc. notes
stepped-coupon zero %, (12s, 12/15/01), 2006
(United Kingdom) (STP) 84,550
125,000 Covad Communications Group 144A sr. notes 12s, 2010 124,063
90,000 Covad Communications Group, Inc. sr. notes
12 1/2s, 2009 92,700
60,000 Esprit Telecom Group PLC sr. notes 11 1/2s, 2007
(United Kingdom) 57,600
400,000 Firstworld Communication Corp. sr. disc. notes
stepped-coupon zero % (13, 4/15/03), 2008 (STP) 204,000
450,000 Global Crossing Holdings, Ltd. company guaranty
9 5/8s, 2008 438,750
30,000 Globe Telecom, Inc. 144A sr. notes 13s, 2009 (Philippines) 33,225
95,000 Globo Communicacoes 144A company guaranty
10 1/2s, 2006 (Brazil) 82,650
20,000 Hermes Europe Railtel 144A sr. notes 11 1/2s, 2007
(Netherlands) 20,000
129,200 Hyperion Telecommunications Corp., Inc. sr. notes
Ser. B, 12 1/4s, 2004 137,921
590,000 ICG Services, Inc. sr. disc. notes stepped-coupon zero %
(9 7/8s, 5/1/03), 2008 (STP) 337,775
150,000 Intermedia Communications, Inc. sr. notes Ser. B,
8.6s, 2008 136,875
170,000 IPC Information Systems, Inc. sr. disc. notes stepped-coupon
zero % (10 7/8s, 11/1/01), 2008 (STP) 147,900
460,000 KMC Telecom Holdings, Inc. sr. disc. notes stepped-
coupon zero % (12 1/2s, 2/15/03), 2008 (STP) 266,800
215,000 Knology Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 7/8s, 10/15/02), 2007 (STP) 139,750
340,000 L-3 Communication, Inc. 144A sr. notes 11 1/4s, 2010 338,300
40,000 L-3 Communication, Inc. 144A sr. notes 11s, 2008 40,100
60,000 L-3 Communications Corp. sr. sub. notes Ser. B,
10 3/8s, 2007 60,300
50,000 L-3 Communications Corp. sr. sub. notes 8 1/2s, 2008 45,250
40,000 L-3 Communications Corp. company guaranty
Ser. B, 8s, 2008 35,100
130,000 Logix Communications Enterprises sr. notes
12 1/4s, 2008 94,250
200,000 Madison River Capital 144A sr. notes 13 1/4s, 2010 197,000
20,000 Metromedia Fiber Network, Inc. sr. notes 10s, 2009 19,700
170,000 Metromedia Fiber Network, Inc. sr. notes Ser. B,
10s, 2008 167,450
135,000 Microcell Telecommunications sr. disc. notes
stepped-coupon Ser. B, zero % (14s, 12/1/01), 2006
(Canada) (STP) 121,500
40,000 Netia Holdings B.V. 144A company guaranty
stepped-coupon zero % (11 1/4s, 11/1/01), 2007
(Poland) (STP) 28,100
40,000 Netia Holdings B.V. 144A company guaranty
10 1/4s, 2007 (Poland) 35,300
180,000 Nextel Communications, Inc. sr. notes 12s, 2008 196,650
10,000 Nextel Communications, Inc. sr. notes 9 3/8s, 2009 9,675
100,000 Nextel Partners, Inc. 144A sr. notes 11s, 2010 100,000
40,000 Nextlink Communications, Inc. 144A sr. notes
10 1/2s, 2009 39,500
140,000 NorthEast Optic Network, Inc. sr. notes 12 3/4s, 2008 147,000
90,000 NTL, Communications Corp. sr. notes Ser. B, 11 1/2s, 2008 94,725
170,000 NTL, Inc. sr. notes Ser. B, 10s, 2007 (United Kingdom) 169,575
45,000 Onepoint Communications, Inc. company guaranty
Ser. B, 14 1/2s, 2008 29,250
150,000 Pathnet, Inc. sr. notes 12 1/4s, 2008 99,000
250,000 Primus Telecommunications Group, Inc. sr. notes
12 3/4s, 2009 257,500
135,000 Qwest Communications International, Inc. sr. disc. notes
stepped-coupon zero % (9.47s, 10/15/02), 2007 (STP) 111,236
100,000 Rhythms Netconnections, Inc. 144A sr. notes 14s, 2010 98,500
60,000 Satelites Mexicanos S.A. de C.V. 144A sr. notes
10 1/8s, 2004 (Mexico) 46,800
40,000 Spectrasite Holdings, Inc. sr. disc. notes stepped-coupon
zero %, (11 1/4s, 4/15/04), 2009 (STP) 23,200
80,000 Startec Global Communications Corp. sr. notes 12s, 2008 66,800
60,000 Telecommunications Techniques, Inc. company guaranty
9 3/4s, 2008 54,750
50,000 Telehub Communications Corp. company guaranty
stepped-coupon zero % (13 7/8s, 7/31/02), 2005 (STP) 2,500
185,000 Time Warner Telecom, Inc. sr. notes 9 3/4s, 2008 185,925
115,000 Versatel Telecom B.V. sr. notes 13 1/4s, 2008 (Netherlands) 125,350
250,000 Williams Communications Group Inc. sr. notes
10 7/8s, 2009 254,375
100,000 WinStar Communications, Inc. sr. sub. notes stepped-
coupon zero % (15s, 3/1/02), 2007 (STP) 148,000
115,000 World Access, Inc. sr. notes Ser. B, 13 1/4s, 2008 104,506
--------------
6,665,026
Telephone Services (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
240,000 Alamosa PCS Holdings, Inc. company guaranty
stepped-coupon zero % (12 7/8s, 2/15/05), 2010 (STP) 127,200
190,000 BTI Telecom Corp. sr. notes 10 1/2s, 2007 167,200
170,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (10.8s, 5/15/04), 2009 (Canada) (STP) 78,200
70,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (9.27s, 8/15/02), 2007 (Canada) (STP) 41,300
170,000 Call-Net Enterprises, Inc. sr. disc. notes stepped-coupon
zero % (8.94s, 8/15/03), 2008 (Canada) (STP) 82,238
60,000 Call-Net Enterprises, Inc. sr. notes 8s, 2008 (Canada) 46,200
150,000 Flag Ltd. 144A sr. notes 8 1/4s, 2008 (Bermuda) 135,000
20,000 Long Distance International, Inc. 144A sr. notes
12 1/4s, 2008 14,000
30,000 RCN Corp. sr. disc. notes stepped-coupon zero %,
(11 1/8s, 10/15/02), 2007 (STP) 19,950
55,000 RSL Communications, Ltd. company guaranty
12 1/4s, 2006 55,688
70,000 RSL Communications, Ltd. 144A 10 1/2s, 2008 61,250
80,000 RSL Communications, Ltd. company guaranty
9 1/8s, 2008 64,000
45,000 Transtel S.A. pass-through certificates 12 1/2s, 2007
(Colombia) 26,100
50,000 US Xchange LLC sr. notes 15s, 2008 30,000
110,000 Viatel, Inc. sr. disc. notes stepped-coupon zero %
(12 1/2s, 4/15/03), 2008 (STP) 64,350
157,000 Viatel, Inc. sr. notes 11 1/2s, 2009 147,580
210,000 Viatel, Inc. sr. notes 11 1/4s, 2008 196,350
--------------
1,356,606
Textiles (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
235,000 Day International Group, Inc. company guaranty
9 1/2s, 2008 192,700
110,000 Galey & Lord, Inc. company guaranty 9 1/8s, 2008 33,550
80,000 Polymer Group, Inc. company guaranty Ser. B, 9s, 2007 75,200
30,000 Polymer Group, Inc. company guaranty Ser. B,
8 3/4s, 2008 27,825
--------------
329,275
Transportation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,000 International Shipholding Corp. sr. notes 7 3/4s, 2007 35,600
100,000 Johnstown America Industries, Inc. company guaranty
Ser. C, 11 3/4s, 2005 107,750
50,000 Kitty Hawk, Inc. company guaranty 9.95s, 2004 47,625
30,000 Transportacion Maritima Mexicana S.A. de C.V. notes
9 1/4s, 2003 (Mexico) 26,250
--------------
217,225
Wireless Communications (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
160,000 Allbritton Communications Co. sr. sub. notes
Ser. B, 8 7/8s, 2008 149,600
85,000 Neuvo Grupo Iusacell S.A. 144A sr. notes 14 1/4s,
2006 (Mexico) 93,394
90,000 Orbital Imaging Corp. sr. notes Ser. B, 11 5/8s, 2005 63,000
55,000 Paging Network Do Brasil sr. notes 13 1/2s, 2005 (Brazil) 6,050
110,000 Telecorp PCS Inc. company guaranty stepped-coupon
zero % (11 5/8s, 4/15/04), 2009 (STP) 71,500
240,000 Voicestream Wire Corp. 144A sr. notes 10 3/8s, 2009 248,400
--------------
631,944
--------------
Total Corporate Bonds and Notes (cost $41,403,200) $ 36,543,804
CONVERTIBLE BONDS AND NOTES (32.9%) (a)
PRINCIPAL AMOUNT VALUE
Aerospace and Defense (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
$ 160,000 Diagnostic Retrieval Systems, Inc. cv. sr. sub. deb 9s, 2003 $ 176,000
95,000 Kellstrom Industries, Inc. cv. sub. notes 5 1/2s, 2003 51,538
210,000 SPACEHAB, Inc. 144A cv. sub. notes 8s, 2007 154,613
--------------
382,151
Airlines (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
55,000 Atlantic Coast Airlines, Inc. cv. sub. notes 7s, 2004 110,000
458,000 World Airways, Inc. cv. sr. sub. deb 8s, 2004 137,400
--------------
247,400
Automotive Parts (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
375,000 Magna International cv. sub. deb. 5s, 2002 358,594
144,000 Standard Motor Products, Inc. cv. sub. deb. 6 3/4s, 2009 98,280
380,000 Tower Automotive, Inc. cv. sub. notes 5s, 2004 287,375
--------------
744,249
Biotechnology (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
70,000 Affymetrix, Inc. 144A cv. sub. notes 4 3/4s, 2007 75,250
70,000 Alkermes, Inc. 144A cv. sub. notes 3 3/4s, 2007 105,000
219,000 Athena Neurosciences, Inc. cv. notes 4 3/4s, 2004 266,906
37,000 Aviron cv. sub. notes 5 3/4s, 2005 51,800
218,000 Centocor, Inc. cv. sub. deb. 4 3/4s, 2005 240,890
160,000 Cor Therapeutics, Inc. 144A cv. notes 5s, 2007 231,700
45,000 Genzyme Corp. cv. sub. notes 5 1/4s, 2005 73,688
45,000 Human Genome Sciences, Inc. 144A cv. sub. notes
5s, 2006 142,763
70,000 Imclone Systems, Inc 144A cv. sub. notes 5 1/2s, 2005 90,300
140,000 Millennium Pharmaceuticals, Inc. 144A cv. sub. notes
5 1/2s, 2015 234,150
120,000 Protein Design Labs, Inc. 144A cv. sub. notes 5 1/2s, 2007 205,200
50,000 ViroPharma, Inc. 144A cv. sub. notes 6s, 2007 50,188
--------------
1,767,835
Broadcasting (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
27,000 CD Radio, Inc. cv. sub. notes 8 3/4s, 2009 59,873
320,000 Clear Channel Communications, Inc. cv. sr. notes
1 1/2s, 2002 291,600
380,000 Echostar Communications Corp. 144A cv. sub. notes
4 7/8s, 2007 524,400
350,000 Jacor Communications, Inc. cv. sr. notes zero %, 2011 364,438
314,000 News America Holdings, Inc. cv. Liquid Yield Option
Note (LYON) zero %, 2013 368,558
210,000 Scandinavian Broadcasting System SA cv. sub. notes
7s, 2004 (Luxembourg) 389,025
--------------
1,997,894
Business Equipment and Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 National Data Corp. cv. sub. notes 5s, 2003 149,388
Cable Television (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
123,000 Commscope, Inc. 144A cv. sub. notes 4s, 2006 133,609
Computer Equipment (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
130,000 Digital Island, Inc. cv. bonds 6s, 2005 138,531
410,000 Hewlett-Packard Co. cv. sub. notes zero %, 2017 320,825
470,000 Intevac, Inc. 144A cv. sub. notes 6 1/2s, 2004 246,750
220,000 Quantum Corp. cv. sub. 7s, 2004 171,189
--------------
877,295
Computer Services and Software (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
50,000 America Online, Inc. cv. sub. notes 4s, 2002 451,438
190,000 America Online, Inc. cv. sub. notes zero %, 2019 97,375
178,000 Aspen Technology, Inc. cv. sub. deb. 5 1/4s, 2005 181,783
24,000 BEA Systems, Inc. cv. sub. notes 4s, 2005 230,310
150,000 BEA Systems, Inc. 144A cv. sub. notes 4s, 2006 289,875
146,000 CheckFree Holdings Corp. 144A cv. sub. notes
6 1/2s, 2006 202,210
380,000 Cybernet Internet Service 144A cv. sr. disc. notes
stepped-coupon zero %, (13s, 8/15/04), 2009 (STP) 197,600
47,000 EarthWeb, Inc. 144A cv. sub. notes 7s, 2005 37,953
116,000 EMC Corp. cv. sub. notes 3 1/4s, 2002 1,218,435
146,000 I2 Technologies, Inc. 144A cv. sub. notes 5 1/4s, 2006 330,690
20,000 Interliant, Inc. 144A cv. sub. notes 7s, 2005 18,800
71,000 Internet Capital Group, Inc. cv. sub. notes
5 1/2s, 2004 69,048
897,000 Network Associates, Inc. cv. sub deb. zero %, 2018 335,254
221,000 Rational Software Corp. 144A cv. sub. notes 5s, 2007 261,609
86,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 5s, 2006 204,035
41,000 Siebel Systems, Inc. 144A cv. sub. notes 5 1/2s, 2006 125,204
573,000 System Software Associates, Inc. cv. sub. notes 7s, 2002 189,090
250,000 S3, Inc. 144A cv. sub. notes 5 3/4s, 2003 246,875
52,000 Vantive Corp. (The) cv. sub. notes 4 3/4s, 2002 43,095
193,000 Veritas Software Corp. cv. disc. notes 1.856s, 2006 715,306
--------------
5,445,985
Conglomerates (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
147,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 128,441
Consumer Durable Goods (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,380,000 Sunbeam Corp. 144A cv. sr. sub. notes zero %, 2018 225,975
Consumer Services (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
43,000 Doubleclick, Inc. 144A cv. sub. notes 4 3/4s, 2006 95,460
279,000 Interpublic Group Cos. cv. sub. notes 1.8s, 2004 313,526
212,000 Omnicom Group, Inc. cv. sub. deb. 2 1/4s, 2013 410,485
125,000 Personnel Group of America, Inc. cv. sub. notes
5 3/4s, 2004 89,844
159,000 Young & Rubicam, Inc. 144A cv. sub. notes 3s, 2005 153,236
--------------
1,062,551
Consumer Staples (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
371,000 Cendant Corp. cv. sub. notes 3s, 2002 342,248
Electronics and Electrical Equipment (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
74,000 ADT Operations, Inc. cv. sub. notes zero %, 2010 152,995
210,000 Benchmark Electronics, Inc. 144A cv. sub. notes 6s, 2006 199,500
70,000 Burr-Brown Corp. 144A cv. sub. notes 4 1/4s, 2007 81,200
140,000 Cypress Semiconductor Corp. cv. sub. notes 4s, 2005 167,650
287,000 Integrated Device Technology, Inc. cv. sub. notes
5 1/2s, 2002 374,176
108,000 Kent Electronics Corp. cv. sub. notes 4 1/2s, 2004 99,630
155,000 Kulicke & Soffa Industries, Inc. 144A cv. sub. notes
4 3/4s, 2006 285,588
102,000 Lam Research Corp. cv. sub. notes 5s, 2002 184,493
49,000 Lam Research Corp. 144A cv. sub. notes 5s, 2002 88,629
42,000 Level One Communications, Inc. cv. sub. notes 4s, 2004 153,825
25,000 LSI Logic Corp. cv. sub. notes 4 1/4s, 2004 103,250
72,000 LSI Logic Corp. 144A cv. sub. notes 4 1/4s, 2004 297,360
86,000 Micron Technology, Inc. cv. sub. notes 7s, 2004 127,603
132,000 Motorola, Inc. cv. sub. deb. LYON zero %, 2013 251,295
334,000 Park Electrochemical Corp. cv. sub. notes 5 1/2s, 2006 276,385
160,000 Sanmina Corp. 144A cv. sub. notes 4 1/4s, 2004 235,000
90,000 Semtech Corp. 144A cv. sub. notes 4 1/2s, 2007 83,475
276,000 Solectron Corp. 144A cv. notes zero %, 2019 159,390
42,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 43,470
23,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 23,230
--------------
3,388,144
Environmental Control (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
110,000 Automatic Data Processing cv. deb. zero %, 2012 127,188
29,000 Thermo Ecotek Corp. 144A cv. bonds 4 7/8s, 2004 23,889
159,000 Waste Management, Inc. cv. sub. notes 4s, 2002 140,914
--------------
291,991
Health Care Services (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
60,000 Invitrogen Corp. 144A cv. sub. notes 5 1/2s, 2007 67,200
138,000 Omnicare, Inc. cv. bonds 5s, 2007 95,220
--------------
162,420
Insurance and Finance (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
81,000 Berkshire Hathaway, Inc. cv. sr. notes 1s, 2001 189,439
600,000 Mutual Risk Management cv. sub. deb. zero %, 2015 264,750
--------------
454,189
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
23,000 Curagen, Corp. 144A cv. sub. deb. 6s, 2007 43,499
350,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000
(In default) (Ireland) (NON) 3,500
291,000 Thermo Cardiosystems, Inc. 144A cv. company guaranty
4 3/4s, 2004 246,986
119,000 Thermo Instrument Systems, Inc. cv. company guaranty
Ser. RG, 4s, 2005 94,159
--------------
388,144
Metals and Mining (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Inco Ltd. cv. deb. 5 3/4s, 2004 (Canada) 91,125
440,000 Quanex Corp. cv. sub. deb. 6.88s, 2007 402,600
--------------
493,725
Networking (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
424,000 Exodus Communications, Inc. 144A cv. sub. notes
4 3/4s, 2008 893,050
Oil and Gas (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
445,000 Devon Energy Corp. cv. deb. 4.95s, 2008 398,831
274,000 Diamond Offshore Drilling, Inc. cv. sub. notes
3 3/4s, 2007 283,590
71,000 Kerr-McGee Corp. cv. sub. deb. 5 1/4s, 2010 69,935
330,000 Lomak Petroleum, Inc. 144A cv. sub. deb. 6s, 2007 178,200
115,000 Seacor Holdings, Inc. cv. sub. notes 5.38s, 2006 106,375
380,000 Swift Energy Co. cv. sub. notes 6 1/4s, 2006 324,425
--------------
1,361,356
Pharmaceuticals (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 Alza Corp. cv. sub. LYON zero %, 2014 206,000
70,000 Inhale Therapeutic Systems 144A cv. sub. notes 5s, 2007 98,175
526,000 Roche Holdings, Inc. 144A cv. bonds zero %, 2015 (Switzerland) 497,728
435,000 Roche Holdings, Inc. 144A cv. unsub. LYON zero %,
2010 (Switzerland) 247,137
236,000 Sepracor, Inc. cv. sub. deb. 7s, 2005 412,115
100,000 Sepracor, Inc. cv. sub. deb. 6 1/4s, 2005 433,250
--------------
1,894,405
Retail (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
170,000 Amazon.com, Inc. cv. sub. deb. 4 3/4s, 2009 175,100
70,000 Ann Taylor Stores Corp. cv. company guaranty
0.55s, 2019 28,350
50,000 Ann Taylor Stores Corp. 144A cv. company guaranty
0.55s, 2019 20,250
221,000 Costco Cos, Inc. cv. sub. notes zero %, 2017 255,255
370,000 Etoys, Inc. 144A cv. sub. notes 6 1/4s, 2004 181,300
72,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 66,690
494,000 Office Depot, Inc. cv. LYON zero %, 2007 334,068
202,000 Pier 1 Imports, Inc. cv. sub. notes 5 3/4s, 2003 237,350
693,000 Rite Aid Corp. cv. sub. notes 5 1/4s, 2002 343,035
--------------
1,641,398
Semiconductor (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
87,000 Advanced Energy Industries, Inc. cv. sub. notes
5 1/4s, 2006 138,548
117,000 ASM Lithography Holdings 144A cv. bonds 4 1/4s, 2004
(Netherlands) 153,563
76,000 Conexant Systems, Inc. cv. sub. notes 4 1/4s, 2006 325,660
200,000 Conexant Systems, Inc. 144A cv. sub. notes 4s, 2007 220,500
104,000 Credence Systems Corp. cv. sub. notes 5 1/4s, 2002 201,890
60,000 Photronics, Inc. cv. sub. notes 6s, 2004 91,875
160,000 TriQuint Semiconductor, Inc. 144A cv. sub.
notes 4s, 2007 166,400
--------------
1,298,436
Supermarkets (--%)
- --------------------------------------------------------------------------------------------------------------------------
100,000 Whole Foods Market, Inc. cv. sub. deb. zero %, 2018 34,625
Telecommunications (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
36,000 American Tower Corp. 144A cv. bonds 6 1/4s, 2009 76,590
140,000 American Tower Corp. 144A cv. notes 5s, 2010 152,600
160,000 Corecomm Ltd. 144A cv. sub. notes 6s, 2006 246,800
48,000 Comverse Technology, Inc. cv. sub. deb. 4 1/2s, 2005 220,680
93,000 Gilat Satellite Networks Ltd. cv. 6 1/2s, 2004 (Israel) 334,800
62,000 GST Telecommunications, Inc. 144A cv. sr. disc. notes
stepped-coupon zero %, (13 7/8s, 12/15/00), 2005 (STP) 52,700
230,000 L-3 Communication, Inc. cv. sub. deb. 6s, 2010 242,075
92,000 L-3 Communication, Inc. cv. sub. notes 6s, 2009 171,580
280,000 Liberty Media Corp. 144A cv. deb. 4s, 2029 351,050
120,000 Liberty Media Corp. 144A cv. deb. 3 3/4s, 2030 115,350
465,000 MIDCOM Communications, Inc. 144A cv. sub. deb.
8 1/4s, 2003 (In default) (NON) 69,750
61,000 Nextel Communications, Inc. cv. sr. notes 4 3/4s, 2007 180,941
150,000 Nextel Communications, Inc. 144A cv. sr. notes
5 1/4s, 2010 166,500
131,000 Nextel Communications, Inc. 144A cv. sr. notes
4 3/4s, 2007 388,579
46,000 NTL, Inc. 144A cv. sub. notes 7s, 2008 115,230
210,000 NTL, Inc. cv. sub. notes 7s, 2008 513,188
60,000 Primus Telecommunications Group, Inc. 144A cv. sub.
deb. 5 3/4s, 2007 62,700
--------------
3,461,113
Tobacco (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
270,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 125,550
--------------
Total Convertible Bonds and Notes (cost $26,226,092) $ 29,393,567
CONVERTIBLE PREFERRED STOCKS (20.4%) (a)
NUMBER OF SHARES VALUE
Automotive Parts (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,840 Federal-Mogul Financial Trust $3.50 cum. cv. pfd. $ 83,780
5,820 Tower Automotive Capital Trust 144A $3.375 cv. pfd. 193,515
--------------
277,295
Banks (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,836 CNB Capital Trust I $1.50 cum. cv. pfd. 133,595
5,035 National Australia Bank Ltd. $1.969 cv. pfd. (Australia) 124,616
5,880 Union Planters Corp. Ser. E, $2.00 cv. cum. pfd. 200,655
--------------
458,866
Biotechnology (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
844 Alkermes, Inc. $3.25 cv. pfd. 273,562
Broadcasting (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,900 Comcast Corp. $2.00 cv. pfd. 287,100
1,700 Comcast Corp. 2.00% cv. pfd. 168,300
4,897 Cox Communications, Inc. 7.75% cv. pfd. 477,458
2,802 Cox Communications, Inc. $3.50 c.v. pfd. 171,973
189 Echostar Communications Corp. Ser. C, $3.375
cum. cv. pfd. 168,777
2,496 Emmis Broadcasting Corp. Ser. A, $3.13 cv. pfd. 137,592
2,049 Pegasus Communications Corp. 144A $6.50 cv. pfd. 229,488
4,830 Sinclair Broadcast Group, Inc. $3.00 cv. pfd. 143,693
803 XM Satellite Radio Holdings Ser. B, $4.13cv. pfd. 46,875
--------------
1,831,256
Cable Television (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
828 Adelphia Communications Corp. Ser. D, $5.50 cv. pfd. 138,483
8,664 MediaOne Group, Inc. $6.25 cv. pfd. 1,037,514
--------------
1,175,997
Computer Services (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,408 Lernout & Hauspie Speech Products N.V. 144A
$2.375 cv. pfd (Belgium) 310,554
500 NBC Internet, Inc. 7.25% cv. pfd. 29,156
4,644 PSINet, Inc. 144A $3.50 cv. pfd. 239,166
2,013 PSINet, Inc. Ser. C, $3.38 cv. pfd. 161,166
3,273 United global com, Inc. Ser. D, $3.50 cv. pfd. 283,524
1,659 Verio Inc. 144A $3.375 cv. pfd. 139,563
--------------
1,163,129
Consumer Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,600 Carriage Services, Inc. 144A $3.50 c.v. pfd. 90,000
Cosmetics (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,898 Estee Lauder ACES Trust II $5.41 cv. pfd. 236,912
Electric Utilities (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,106 AES Trust II $3.38 cv. pfd. 142,945
5,096 Houston Industries, Inc. $3.22 cv. pfd 721,721
3,100 NiSource, Inc. $3.875 c.v. pfd. 89,125
--------------
953,791
Electronics and Electrical Equipment (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
200 Interact Electronic 14.00% cv. pfd 200
2,034 Pioneer Standard Electronics, Inc. 144A $3.375 cv. pfd. 130,176
10,440 Sensormatic Electronics Corp. 144A $1.625 cv. pfd. 285,795
1,500 Titan Corp. 144A $2.875 cv. pfd. 72,375
--------------
488,546
Energy-Related (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,679 Evi, Inc. $2.50 cum. cv. pfd. 145,780
5,500 Alliant Energy 144A 7.25% cv. pfd. 473,000
1,758 Calpine Capital Trust $2.88 cv. pfd. 149,650
5,700 Calpine Corp. 144A $2.25 cv. pfd. 317,063
931 Hanover Compressor $3.625 cv. pfd. 67,847
--------------
1,153,340
Entertainment (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
7,930 Metromedia International Group, Inc. $3.625 cv. cum. pfd. 262,681
Financial Services (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
1,535 Finova Finance Trust $2.75 cv. cum. pfd. 68,116
4,090 Penncorp Financial Group, Inc. $3.50 cv. pfd. 36,810
--------------
104,926
Food and Beverages (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,994 Ralston Purina Co. $4.336 cv. pfd. 47,856
13,753 Monsanto Co. $2.60 cv. pfd. 481,355
--------------
529,211
Insurance and Finance (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,445 American General Delaware Corp. $3.00 cv. cum. pfd. 354,606
1,516 American Heritage Life Investment Corp. $4.25 cv. pfd. 108,205
2,080 Decs Trust VI 6.25% cv. pfd. 133,640
3,029 Decs Trust IV $0.91 cv. pfd. 24,989
16,300 Lincoln National Corp. $0.463 cv. cum. pfd. 248,575
6,700 Newell Financial Trust I $2.625 cv. cum. pfd. 216,913
4,800 Protective Life Corp. $3.25 cv. cum. pfd. 178,800
882 QUALCOMM Financial Trust $2.875 cum. cv. pfd. 704,939
474 St. Paul Capital LLC $3.00 cv. cum. pfd. 22,219
--------------
1,992,886
Investment Companies (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
5,300 Suiza Capital Trust II $2.75 cv. pfd. 188,150
Machinery (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,865 Ingersoll-Rand Co. $0.195 cv. pfd. 71,019
Media (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,422 Seagram Co., Ltd. $3.76 cv. pfd. (Canada) 131,394
Metals and Mining (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
11,970 Pittston Mineral Corp. 144A $3.125 dep. shs. cv. pfd. 299,250
Medical Supplies and Devices (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,940 Owens & Minor Trust I 144A Ser. A, $2.688 cv. cum. pfd. 320,565
Oil and Gas (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,611 Apache Corp. $2.015 c.v. pfd. 235,517
560 Chesapeake Energy Corp. $3.50 cum. cv. pfd. 20,720
3,495 Coastal Corp. $1.656 cv. pfd. 89,123
2,608 Kerr-McGee Corp. $1.825 cv. pfd. 94,377
2,000 Newfield Exploration Co. $3.25 cv. pfd. 101,500
4,900 Pogo Producing Co. Ser. A, $3.25 cv. pfd. 274,400
4,573 Tosco Financing Trust $2.875 cv. pfd. 212,645
12,390 Unocal Capital Trust $3.125 cv. cum. pfd. 517,283
115 XCL Ltd 144A Ser. A, $9.50 cv. cum. pfd. 115
--------------
1,545,680
Packaging and Containers (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,540 Owens-Illinois, Inc. $2.375 cv.pfd. 172,478
11,103 Sealed Air Corp. Ser. A, $2.00 cv.pfd. 537,108
--------------
709,586
Paper & Forest Products (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,276 Georgia Pacific Group $3.75 cv. pfd. 165,962
10,113 International Paper Co. $2.625 cv. pfd. 429,769
--------------
595,731
Publishing (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,604 Readers Digest $0.453 cv. pfd. 110,373
4,076 Tribune Co. 2.00% cv. pfd. 515,105
--------------
625,478
Railroads (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,079 Canadian National Railway Co. $2.625 c.v. pfd. (Canada) 43,160
5,850 Union Pacific Capital Trust $3.125 cum. cv. pfd. 226,688
--------------
269,848
Recreation (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,211 Royal Caribbean Cruises Ltd. Ser. A, $3.625 cum. cv. pfd. 133,816
REITs (Real Estate Investment Trust) (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,814 Equity Residential Property Ser. E, $1.75 cv. pfd. 152,463
2,337 Vornado Realty Trust Ser. A, $3.25 cv. cum. pfd. 102,244
--------------
254,707
Restaurants (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,386 Wendy's Financing Ser. A, $2.50 cv. pfd. 96,037
Retail (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,056 CVS Auto Exchange $6.00 cv. pfd. 67,452
9,736 K mart Financing I $3.875 cum. cv. pfd. 395,525
--------------
462,977
Steel (--%)
- --------------------------------------------------------------------------------------------------------------------------
600 LTV Corp. (The) 144A $4.13 cv. pfd. 30,900
Telecommunications (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,022 Global Crossing 144A $6.375 cv. pfd. (Bermuda) 365,036
2,447 Global TeleSystems Group, Inc. $3.63 cv. pfd. 115,232
700 MGC Communications, Inc. Ser. D, cv. pfd. (PIK) 42,525
965 Omnipoint Corp. $3.50 cv. pfd. 183,591
2,296 Qwest Trends Trust 144A $5.75 cv. pfd. 173,922
245 TCI Pacific Comm $5.00 cv. pfd. 76,777
--------------
957,083
Tobacco (--%)
- --------------------------------------------------------------------------------------------------------------------------
8,900 DIMON, Inc. $2.00 cv. pfd. 26,700
Transportation (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,439 CNF Trust I Ser. A, $2.50 cv. cum. pfd. 112,804
Utilities (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
1,886 El Paso Energy Capital Trust $2.375 cv. pfd. 93,593
3,200 KN Energy, Inc. $3.55 cv. pfd. 130,400
2,629 Texas Utilities Co. $4.625 cv. pfd. 107,789
600 Texas Utilities Co. $0.205 cv. pfd. 22,950
--------------
354,732
--------------
Total Convertible Preferred Stocks (cost $19,170,525) $ 18,178,855
PREFERRED STOCKS (2.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
2,926 AmeriKing, Inc. $3.25 pfd. (PIK) $ 32,186
2,970 Chevy Chase Capital Corp. Ser. A, $5.19 pfd. 157,410
893 Citadel Broadcasting, Inc. 144A $13.25 cum. pfd. (PIK) 99,793
56 Concentric Network Corp. Ser. B, $13.50 pfd. (PIK) 57,015
1 CSC Holdings, Inc. Ser. H, $11.75 cum. pfd. (PIK) 111
3,426 CSC Holdings, Inc. Ser. M, $11.125 cum. pfd. (PIK) 370,865
7,510 Diva Systems Corp. Ser. C, $6.00 pfd. 37,550
109 Dobson Communications $13.00 pfd. 118,265
111 Dobson Communications Corp. 144A $12.25 pfd. (PIK) 111,000
125 Fresenius Medical Capital Trust I Ser. D, $9.00 pfd.
(Germany) 120,938
135 Fresenius Medical Capital Trust II $7.875 company
guaranty, pfd. (Germany) 121,838
2,247 Lady Luck Gaming Corp. $11.25 pfd. 116,844
87 Nextel Communications, Inc. Ser. D, 13.00%
cum. pfd. (PIK) 92,220
128 Nextlink Communications, Inc. 144A $7.00
cum. pfd. (PIK) 6,656
423 Packaging Corp. of America $12.375 pfd. (PIK) 49,385
19 Paxson Communications Corp. $13.25 cum. pfd. (PIK) 194,750
76 R&B Falcon Corp. $13.875 pfd. 78,280
120 Rural Cellular Corp. $12.25 pfd. (PIK) 120,300
1,762 Trikon Technologies, Inc. Ser. H, $8.125 pfd. (PIK) 10,572
228 Trikon Technologies, Inc. Ser. I, $8.125 pfd. 319,368
150 WinStar Communications, Inc. 144A 14.25%
cum. pfd. (PIK) 172,500
--------------
Total Preferred Stocks (cost $2,266,880) $ 2,387,846
COMMON STOCKS (0.9%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
50 AmeriKing, Inc. (NON) $ 500
1,200 AMFM, Inc. (NON) 73,650
4,704 BB&T Corp. 110,544
561 Cablevision Systems Corp. Class A (NON) 36,009
24,313 Celcaribe S.A. (Colombia) 9,117
34,146 Celcaribe S.A. 144A (Colombia) (NON) 59,756
1,379 Fitzgerald Gaming Corp. 345
1,537 MGC Communications, Inc. 106,053
58 Mothers Work, Inc. (NON) 660
55 Paging Do Brazil Holdings Co., LLC 144A
Class B, (Brazil) (NON) 1
3,071 Pride International, Inc. (NON) 45,489
22,025 PSF Holdings LLC Class A 220,250
2,621 Sensormatic Electronics Corp. 144A (NON) 49,799
305 Sensormatic Electronics Corp. (NON) 5,795
2,100 Spanish Broadcasting Systems 32,130
91 U.S. Interactive, Inc. (NON) 4,141
757 Viatel, Inc. (NON) 42,629
--------------
Total Common Stocks (cost $1,220,439) $ 796,868
UNITS (0.6%) (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
150 Equinix, Inc. 144A units 13s, 2007 154,500
150 GT Group Telecom 144A units stepped-coupon zero %
(13 1/4s, 2/1/05), 2010 (Canada) (STP) 87,750
100 Leap Wireless 144A units 12 1/2s, 2010 101,500
3,000 Sovereign Bancorp, Inc. units zero %, 2000 143,250
200 XCL Ltd. units sr. sec. notes 13 1/2s, 2004
(In default) (NON) 20,000
600 XCL Ltd. units cum. pfd. 9.50%, 2006
(In default) (NON) (PIK) 600
--------------
Total Units (cost $990,983) $ 507,625
WARRANTS (0.6%) (a) (NON) EXPIRATION
NUMBER OF WARRANTS DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
80 Bestel S.A. (Mexico) 5/15/05 $ 9,600
70 Birch Telecommunications, Inc. 144A 6/15/08 3,850
690 Cellnet Data Systems, Inc. 10/1/07 3,450
80 Club Regina, Inc. 144A 12/1/04 1
1,350 Consorcio Ecuatoriano 144A (Ecuador) 10/1/00 135
200 Decrane Holdings 9/30/08 2
185 Diva Systems Corp. 5/15/06 74,000
879 Diva Systems Corp. 3/1/08 7,032
90 Esat Holdings, Inc. (Ireland) 2/1/07 20,250
400 Firstworld Communication 4/15/08 80,000
6,534 ICG Communications 10/15/05 114,345
90 Insilco Holding Co. 8/15/08 315
200 Interact Systems, Inc. 8/1/03 2
200 Interact Systems, Inc. 144A 12/15/09 2
85 International Wireless Communications
Holdings 144A 8/15/01 1
175 Iridium World Com 144A 7/15/05 1
200 KMC Telecom Holdings, Inc. 4/15/08 700
235 Knology Holdings 10/22/07 527
20 Long Distance International, Inc. 144A 4/13/08 25
650 McCaw International Ltd. 4/15/07 2,925
85 Mediq Inc. 144A 6/1/09 1
110 Network Plus Corp. 2/19/09 71,500
45 Onepoint Communications, Inc. 6/1/08 450
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 19,250
80 Startec Global Communications Corp. 5/15/08 1,440
75 Sterling Chemicals Holdings 8/15/08 1,350
50 Telehub Communications Corp. 7/31/05 25
250 21st Century Telecom Group 144A 2/15/10 6,875
435 UIH Australia/Pacific, Inc. 144A 5/15/06 13,050
115 Versatel Telecom B.V. 144A (Netherlands) 5/15/08 89,700
--------------
Total Warrants (cost $162,273) $ 524,104
SHORT-TERM INVESTMENTS (0.1%) (a) (cost $88,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 88,000 Interest in $702,886,000 joint repurchase agreement
dated February 29, 2000, with Morgan (J.P.) & Co., Inc.
due March 1, 2000, with respect to various U.S. Treasury
obligations -- maturity value of $88,014 for an effective
yield of 5.76% $ 88,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $91,528,392) (b) $ 88,420,669
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $89,213,947.
(b) The aggregate identified cost on a tax basis is $91,623,430 resulting in gross unrealized appreciation and
depreciation of $10,131,631 and $13,334,392, respectively, or net unrealized depreciation of $3,202,761.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities as to public resale. The total market value of restricted securities held at
February 29, 2000 was $259,025 or 0.3% of net assets.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(PIK) Income may be received in cash or additional securities at the discretion of the issuer.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional
buyers.
The rates shown on Floating Rate Notes (FRN) are the current interest rates shown at February 29, 2000, 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
February 29, 2000
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $91,528,392) (Note 1) $88,420,669
- -----------------------------------------------------------------------------------------------
Cash 146,949
- -----------------------------------------------------------------------------------------------
Dividends and interest receivables 1,147,652
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,008,645
- -----------------------------------------------------------------------------------------------
Total assets 90,723,915
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 582,546
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 604,082
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 284,030
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,131
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 13,667
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 704
- -----------------------------------------------------------------------------------------------
Other accrued expenses 2,808
- -----------------------------------------------------------------------------------------------
Total liabilities 1,509,968
- -----------------------------------------------------------------------------------------------
Net assets $89,213,947
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (unlimited shares authorized) (Note 1) $91,878,793
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (799,226)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 1,242,103
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (3,107,723)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $89,213,947
Computation of net asset value
- -----------------------------------------------------------------------------------------------
Net asset value per share ($89,213,947 divided by 3,712,567 shares) $24.03
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended February 29, 2000
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Interest income $ 5,086,637
- -----------------------------------------------------------------------------------------------
Dividends 1,478,378
- -----------------------------------------------------------------------------------------------
Total investment income 6,565,015
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,168,131
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 169,995
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,581
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,449
- -----------------------------------------------------------------------------------------------
Reports to shareholders 30,961
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Exchange listing fees 16,183
- -----------------------------------------------------------------------------------------------
Auditing 48,007
- -----------------------------------------------------------------------------------------------
Legal 18,489
- -----------------------------------------------------------------------------------------------
Postage 5,643
- -----------------------------------------------------------------------------------------------
Other 14,606
- -----------------------------------------------------------------------------------------------
Total expenses 1,488,120
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (39,035)
- -----------------------------------------------------------------------------------------------
Net expenses 1,449,085
- -----------------------------------------------------------------------------------------------
Net investment income 5,115,930
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,164,770
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 3,562,128
- -----------------------------------------------------------------------------------------------
Net gain on investments 6,726,898
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,842,828
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended Year ended
February 29 February 28
2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 5,115,930 $ 6,888,744
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 3,164,770 1,118,740
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 3,562,128 (14,771,161)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 11,842,828 (6,763,677)
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (5,539,578) (7,065,789)
- ---------------------------------------------------------------------------------------------------------------
In excess of net investment income (893,174) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments (1,329,775) (3,348,343)
- ---------------------------------------------------------------------------------------------------------------
Increase in capital share transactions from
reinvestment of dividends -- 199,702
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 4,080,301 (16,978,107)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 85,133,646 102,111,753
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $799,226 and
$378,403, respectively) $89,213,947 $85,133,646
- ---------------------------------------------------------------------------------------------------------------
Number of fund shares
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at the beginning of year 3,712,567 3,704,000
- ---------------------------------------------------------------------------------------------------------------
Shares issued in connection with reinvestment
of distributions -- 8,567
- ---------------------------------------------------------------------------------------------------------------
Shares outstanding at the end of year 3,712,567 3,712,567
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------------------------------------------------------
Year For the period
Per-share ended June 29, 1995+
operating performance February 29 Year ended February 28 to February 29
- --------------------------------------------------------------------------------------------------------------------------------
2000 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 1.38 1.86 1.76 1.77 1.17
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.81 (3.69) 2.49 1.54 1.63
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.19 (1.83) 4.25 3.31 2.80
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
From net
investment income (1.49) (1.91) (1.77) (1.83) (1.15)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income (.24) -- -- (.17) --
- --------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.36) (.90) (1.31) (1.34) (.07)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.09) (2.81) (3.08) (3.34) (1.22)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $24.03 $22.93 $27.57 $26.40 $26.43
- --------------------------------------------------------------------------------------------------------------------------------
Market value,
end of period $18.750 $22.500 $27.312 $24.375 $22.625
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return
at market value (%)(a) (7.49) (7.47) 26.03 23.54 (4.53)*
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $89,214 $85,134 $102,112 $97,791 $97,881
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.71 1.78 1.71 1.72 1.14*
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.89 7.31 6.45 6.66 4.56*
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 65.85 56.58 60.69 70.33 38.92*
- --------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Represents initial net asset value of $25.00 less offering expenses of $0.15. Original offering costs were reduced by $0.03
to reflect actual cost incurred.
</TABLE>
Notes to financial statements
February 29, 2000
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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 on its principal exchange, or if no sales are
reported -- as in the case of some securities traded over-the-counter --
the last reported bid price. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. Other investments, including restricted
securities, are stated at fair value following procedures approved by the
Trustees. Market quotations are not considered to be readily available for
certain debt obligations; such investments are stated at fair value on the
basis of valuations furnished by a pricing service or dealers, approved by
the Trustees, which determine valuations for normal institutional-size
trading units of such securities using methods based on market
transactions for comparable securities and variable relationships between
securities that are generally recognized by institutional traders.
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 from net
investment income 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. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, post-October loss deferrals, organization costs, non
taxable dividends, dividends payable, defaulted bond interest, paydown
gains and losses on mortgage-backed securities, market discount and
interest on payment-in-kind securities. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended February 29, 2000, the fund reclassified
$895,999 to decrease distributions in excess of net investment income and
$526,534 to decrease paid-in-capital, with a decrease to accumulated net
realized gains of $369,465. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
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.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide additional administrative services to the fund.
The aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended February 29, 2000, fund expenses were reduced by
$39,035 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 $492 has
been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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
Purchases and sales of securities
During the year ended February 29, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $55,733,163 and $58,625,848, respectively. There were no
purchases or sales of U.S. government obligations.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $355,733 as capital gain at the 20% rate capital gain
dividends for its taxable year ended February 29, 2000.
The fund has designated 16.30% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
The Form 1099 you receive in January 2001 will show the tax status of all
distributions paid to your account in calendar 2000.
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
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
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
Stephen Oristaglio
Vice President
Thomas V. Reilly
Vice President
Charles G. Pohl
Vice President and Fund Manager
Rosemary H. Thomsen
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
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
59732 224 4/00
