UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number 811-2743
SCUDDER STRATEGIC INCOME FUND
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(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, IL 60606
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2663
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Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
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(Name and Address of Agent for Service)
Date of fiscal year end: 10/31
Date of reporting period: 4/30/2004
ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
| ||
Semiannual Report to Shareholders | ||
April 30, 2004 | ||
Contents |
<Click Here> Performance Summary <Click Here> Portfolio Management Review <Click Here> Portfolio Summary <Click Here> Investment Portfolio <Click Here> Financial Statements <Click Here> Financial Highlights <Click Here> Notes to Financial Statements <Click Here> Account Management Resources <Click Here> Privacy Statement |
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. The fund invests in individual bonds whose yields and market values fluctuate so that your investment may be worth more or less than its original cost. Additionally, investments by the portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. Finally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. All of these factors may result in greater share price volatility. Please read this fund's prospectus for specific details regarding its investments and risk profile.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
All performance shown is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit scudder.com for the product's most recent month-end performance.
The maximum sales charge for Class A shares is 4.5%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares. Returns and rankings may differ by share class.
Returns shown for Class B and C shares for the periods prior to their inception on May 31, 1994 are derived from the historical performance of Class A shares of the Scudder Strategic Income Fund during such periods and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any difference in expenses will affect performance.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 4/30/04 | |||||
Scudder Strategic Income Fund | 6-Month++ | 1-Year | 3-Year | 5-Year | 10-Year |
| Class A | 4.25% | 9.52% | 9.12% | 4.00% | 6.05% |
| Class B | 3.81% | 8.85% | 8.20% | 3.08% | 5.06% |
| Class C | 3.82% | 8.70% | 8.37% | 3.29% | 5.27% |
| Lehman Brothers Government/Corporate Bond Index+ | 1.17% | 1.80% | 7.15% | 6.84% | 7.40% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
++ Total returns shown for periods less than one year are not annualized.Net Asset Value and Distribution Information | |||
Class A | Class B | Class C | |
| Net Asset Value: 4/30/04 | $ 4.56 | $ 4.55 | $ 4.58 |
| 10/31/03 | $ 4.53 | $ 4.52 | $ 4.56 |
| Distribution Information: Six Months: Income Dividends as of 4/30/04 | $ .15 | $ .13 | $ .13 |
| April Income Dividend | $ .0255 | $ .0222 | $ .0230 |
| SEC 30-day Equivalent Yield as of 4/30/04++ | 5.27% | 4.54% | 4.56% |
| Current Annualized Distribution Rate (based on Net Asset Value) as of 4/30/04++ | 6.71% | 5.85% | 6.03% |
++ The SEC yield is net investment income per share earned over the month ended April 30, 2004, shown as an annualized percentage of the net asset value on that date. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on April 30, 2004. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Yields and distribution rates are historical and will fluctuate.
Class A Lipper Rankings - Multi-Sector Income Funds as of 4/30/04 | ||||
Period | Rank | Number of Funds Tracked | Percentile Ranking | |
| 1-Year | 37 | of | 105 | 35 |
| 3-Year | 37 | of | 96 | 39 |
| 5-Year | 76 | of | 91 | 83 |
| 10-Year | 19 | of | 29 | 64 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, results might have been less favorable. Rankings are for Class A shares; other share classes may vary.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] Scudder Strategic Income Fund - Class A [] Lehman Brothers Government/Corporate Bond Index+ |
 |
Yearly periods ended April 30 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.50%. This results in a net initial investment of $9,550.
Comparative Results (Adjusted for Maximum Sales Charge) as of 4/30/04 | |||||
Scudder Strategic Income Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,459 | $12,408 | $11,619 | $17,178 |
| Average annual total return | 4.59% | 7.46% | 3.05% | 5.56% | |
Class B | Growth of $10,000 | $10,585 | $12,468 | $11,559 | $16,389 |
| Average annual total return | 5.85% | 7.63% | 2.94% | 5.06% | |
Class C | Growth of $10,000 | $10,870 | $12,729 | $11,758 | $16,720 |
| Average annual total return | 8.70% | 8.37% | 3.29% | 5.27% | |
| Lehman Brothers Government/ Corporate Bond Index+ | Growth of $10,000 | $10,180 | $12,301 | $13,922 | $20,421 |
| Average annual total return | 1.80% | 7.15% | 6.84% | 7.40% | |
The growth of $10,000 is cumulative.
+ The Lehman Brothers Government/Corporate Bond Index is an unmanaged index comprising intermediate- and long-term government and investment-grade corporate debt securities. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.In the following interview, Lead Portfolio Manager Jan C. Faller discusses market conditions and investment strategy during Scudder Strategic Income Fund's most recent semiannual period ended April 30, 2004.
Q: How did the fund perform for the six-month period ended April 30?
A: The fund provided a 4.25% total return (Class A shares, unadjusted for sales charges, which, if included, would have been lower) for the six months ended April 30, 2004, outpacing the 1.17% total return of the fund's benchmark, the unmanaged Lehman Brothers Government/Corporate Bond Index.1,2 (Please see pages 3 through 5 for performance of other share classes and more complete performance information.) The fund also outperformed the 2.93% average return of its peers in the Lipper Multi-Sector Income Funds category.3
1 Returns reflect the reinvestment of all distributions.2 The Lehman Brothers Government/Corporate Bond Index is an unmanaged index comprising intermediate- and long-term government and investment-grade corporate debt securities. Index returns assume reinvestment of dividends and capital gains and, unlike fund returns, do not reflect fees or expenses. It is not possible to invest directly in an index.
3 The Lipper Multi-Sector Income Funds category includes funds that seek current income by allocating assets among several fixed-income securities (with no more than 65% in any one sector except for defensive purposes), including US government and foreign governments, with a significant portion of assets in securities rated below investment grade. It is not possible to invest directly in the Lipper category.
Q: Will you discuss the general market environment for the sectors in which the fund was invested during the period?
A: Thematically, the first three months of the reporting period were more eventful and positive than the last three months of the period. In late 2003 and early 2004, yield spreads of both emerging-market bonds and high-yield bonds were still tightening, whereas in the last three months there was reduced market activity and not as much opportunity to add value strategically.4 However, during the reduced activity of the last three months, we succeeded in holding on to most of the gains generated earlier in the period.
4 The yield spread is the difference in yield between non-Treasury bonds, such as emerging-market bonds or high-yield bonds, and Treasury bonds of comparable maturity. If yield spreads are "tightening," for example, it typically means that yields have been declining, and prices rising, compared with Treasury bonds of similar maturity. If yield spreads are "widening," it means that yields have been rising, and prices falling, in relation to the equivalent Treasury issue.In terms of specific sectors, by the middle of 2003, emerging markets had seemed to many observers to be fully valued. But we perceived that technical factors such as supply and demand remained favorable, and the US Federal Reserve was still making it clear in its policy statements that in order to stave off a possible deflationary spiral, it would remain accommodative by keeping short-term interest rates low and maintaining an ample money supply. In addition, investors' risk appetites were still strong, and fundamental economic factors were improving in a number of emerging-market countries. Finally, a global backdrop of political stability and rising commodity prices rounded out a positive environment for emerging markets. Yield spreads responded by continuing to tighten significantly through the end of 2003 and into January. We held an overweight position in emerging-market bonds compared with other multisector income funds during this period, which benefited the fund's total return and peer ranking.
At the end of January, however, with government economic reports growing more and more positive, the Fed signaled that its accommodative stance on interest rates would end fairly soon in order to ward off a resurgence in inflation. In response, emerging-market bond prices fell sharply, and yields rose. Following this quick reversal and widening of yield spreads, emerging-market bond prices stabilized through early April. The fact that emerging-market bonds became range-bound led us to believe that the late-January sell-off was an overreaction to the Fed statement. Demand for emerging-market bonds was holding firm, and fundamentals were still favorable. From February through early April, we were rewarded for this stance as the fund collected high income and spreads tightened modestly.
In early April, we reduced the fund's allocation in emerging-market bonds from an overweight to a neutral position compared with the fund's peers. Then, during the last two weeks of the semiannual period, the combination of (1) investors' concern over anticipated Fed actions to tighten credit, (2) measurably increased US economic activity and (3) hedge funds' reversal of the "carry trade" (borrowing at low short-term rates to invest in higher-coupon issues) led to another sell-off in emerging-market bonds. In retrospect, we would have reduced the fund's emerging-market position even further if we could have predicted the intensity of the late sell-off. Having a neutral position in emerging-market bonds - as opposed to an underweight position - detracted somewhat from performance during the last two weeks of April.
Q: Will you comment on how country-specific events affected emerging-market performance?
A: During the period, we followed events in Brazil especially closely, as economic fundamentals there have grown more difficult. Investors are watching the high-level balancing act that President Lula and his finance minister have been forced to perform: In a difficult economic environment, they must carefully manage the level of short-term interest rates to spur growth yet curb inflation. If Brazil doesn't perform its balancing act just right, inflation there is poised to surge. Alternatively, inordinately high short-term interest rates could severely set back economic recovery. Brazilian bonds are beginning to be hurt by these concerns, as investors had "priced in" a perfect scenario for Brazil's economy. Often, as Brazil goes, so go emerging markets overall. Thus, in addition to the US Federal Reserve's policy shift, worry over Brazil has been the second most important driver in the widening of emerging-market yield spreads. We are hopeful that Brazil's leaders will continue to exhibit prudent judgment in managing the country's economy.
Q: How did the environment for high-yield bonds affect fund performance?
A: High-yield bond prices were relatively stable during the six-month period, though they did exhibit some volatility. The question for high-yield investors during the period was how strong the US economic recovery would be. While the Fed's accommodative interest-rate policy was still firmly in place, the carry trade remained attractive for large high-yield investors. High-yield bonds barely reacted to the Fed's announcement of a policy shift in early January. However, as the government's monthly job-creation statistics continued to disappoint investors, as equity markets faltered on concern over rising interest rates and as economic growth continued to gather momentum, large leveraged high-yield investors began to sell their positions. The sizable volume of these trades put downward pressure on high-yield prices. High yield managed to stage a brief rally in April, however.
During the period, the fund's high-yield bond allocation ranged from 40% of portfolio assets to its current position at 43%. Even when leveraged investors were selling, we believed that the market was overreacting to short-term events. We also thought that the strengthening economy's tendency to improve the balance sheets and credit profiles of high-yield companies would improve the level of fair value spreads in the sector. High-yield bonds outperformed emerging-market bonds dramatically during the latter part of the period, and we continue to hold an overweight position in high yield relative to the fund's peers.
Q: How is the remainder of the fund's portfolio allocated?
A: Much of the remainder of the portfolio is invested in high-quality sovereign bonds. Here we're focused on the major capitalized countries. These include the United Kingdom, countries within the European Union and Japan. The fund also invests in US Treasury bonds. This means that within the fund we have very high-quality as well as lower-quality bonds, but very few investment-grade bonds. We "barbell" the fund's credit exposure this way to make it easier for us to distinguish between the fund's levels of credit risk and interest rate risk, and to manage each type of risk independently.
Q: How did the fund's currency stance influence performance?
A: Overall, the fund's currency positions had a neutral effect on performance. The value of the yen versus the dollar, for example, is now very close to where it was at the beginning of the period. Our currency stance has assumed continuing weakness in the US dollar, and we have tried to capitalize on this by holding yen, euros, pound sterling and Swedish krona. That trade worked very well for the fund at the beginning of the period, but more recently it detracted from performance as the dollar strengthened. We are nevertheless maintaining our position, as our outlook for the dollar remains moderately bearish.
In the latter part of the period, the dollar rallied on news of the Fed's shift to an anti-inflation bias. We felt that the rally was overdone, that the need to fuel US fiscal spending in this country with foreign capital inflows would continue to put negative pressure on the dollar. In addition, the Bush administration's rhetoric had demonstrated to the market that they are not concerned by the weaker dollar. We felt as though this rally in the dollar in response to the potential for higher interest rates was overdone. The longer-term direction of the dollar remains to be seen, but the more that the Fed exhibits caution and acts deliberately, the more we think that the US dollar can fall further.
Q: Will you comment on the fund's diversification strategy?
A: One aspect of our strategy that has helped performance is global diversification of the fund's interest rate exposure. Over the semiannual period, the fund had exposure to Japanese interest rate markets as well as European markets. In the recent sell-off in US markets, the fund's Japanese exposure was beneficial, as yields in Japanese fixed-income markets didn't rise as much as US yields.
Going forward, we will carefully monitor the statements and actions of the US Federal Reserve as well as those of other major central banks. We believe that Scudder Strategic Income Fund remains an attractive vehicle for investors seeking high current return.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Portfolio Composition | 4/30/04 | 10/31/03 |
| High-Yield Corporate Bonds | 43% | 42% |
| Emerging Market Bonds | 23% | 18% |
| Foreign Currency Bonds | 19% | 14% |
| US Government Backed | 10% | 23% |
| Cash Equivalents | 3% | 2% |
| Other | 2% | 1% |
| 100% | 100% | |
Quality | 4/30/04 | 10/31/03 |
| AAA* | 23% | 31% |
| AA | 9% | 6% |
| A | 7% | 6% |
| BBB | 4% | 4% |
| BB | 14% | 15% |
| B | 34% | 31% |
| CCC and CC | 8% | 6% |
| Below CC | 1% | 1% |
| 100% | 100% | |
* Includes cash equivalents
Interest Rate Sensitivity | 4/30/04 | 10/31/03 |
| Average maturity | 7.4 years | 7.2 years |
| Average duration | 5.1 years | 5.1 years |
Portfolio composition, quality and interest rate sensitivity are subject to change.
For more complete details about the fund's investment portfolio, see page 13. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end is available upon request on the 16th of the following month. Please see the Account Management Resources section for contact information.
Principal Amount ($)(c) | Value ($) | |
Corporate Bonds 42.2% | ||
| Consumer Discretionary 8.6% | ||
| Advantica Restaurant Co., 12.75%, 9/30/2007 | 315,000 | 342,563 |
| AMC Entertainment, Inc., 144A, 8.0%, 3/1/2014 | 510,000 | 499,800 |
| American Lawyer Media, Inc., Series B, 9.75%, 12/15/2007 | 520,000 | 508,300 |
| AMF Bowling Worldwide, Inc., 144A, 10.0%, 3/1/2010 | 255,000 | 264,563 |
| Amscan Holdings, Inc., 144A, 8.75%, 5/1/2014 | 145,000 | 147,175 |
| Atlantic Broadband Finance LLC, 144A, 9.375%, 1/15/2014 | 335,000 | 324,950 |
| Avalon Cable LLC, 11.875%, 12/1/2008 | 122,891 | 130,572 |
| Bally Total Fitness Holdings Corp., 10.5%, 7/15/2011 | 465,000 | 432,450 |
| Boca Resorts, Inc., 9.875%, 4/15/2009 | 500,000 | 526,250 |
| Buffets, Inc., 11.25%, 7/15/2010 | 240,000 | 263,400 |
| Cablevision Systems Corp.: | ||
144A, 5.67%, 4/1/2009** | 150,000 | 154,500 |
144A, 8.0%, 4/15/2012 | 180,000 | 180,450 |
| Carrols Corp., 9.5%, 12/1/2008 | 435,000 | 450,225 |
| Charter Communications Holdings LLC: | ||
9.625%, 11/15/2009 (f) | 880,000 | 748,000 |
144A, 10.25%, 9/15/2010 | 1,090,000 | 1,122,700 |
Step-up Coupon, 0% to 5/15/2006, 11.75% to 5/15/2011 (f) | 800,000 | 522,000 |
Step-up Coupon, 0% to 1/15/2007, 12.125% to 1/15/2012 | 45,000 | 26,887 |
| Choctaw Resort Development Enterprises, 9.25%, 4/1/2009 | 485,000 | 525,012 |
| Circus & Eldorado, 10.125%, 3/1/2012 | 545,000 | 553,175 |
| CKE Restaurants, Inc., 9.125%, 5/1/2009 | 370,000 | 385,725 |
| CSC Holdings, Inc., 7.875%, 12/15/2007 | 525,000 | 559,125 |
| Dex Media East LLC, 12.125%, 11/15/2012 | 2,335,000 | 2,708,600 |
| DIMON, Inc.: | ||
144A, 7.75%, 6/1/2013 | 330,000 | 322,575 |
Series B, 9.625%, 10/15/2011 | 1,110,000 | 1,187,700 |
| EchoStar DBS Corp., 144A, 6.375%, 10/1/2011 | 100,000 | 101,125 |
| Eldorado Resorts LLC, 10.5%, 8/15/2006 | 888,000 | 903,540 |
| EPL Intermediate, Inc., 144A, Step-up Coupon, 0% to 3/15/2009, 12.50% to 3/15/2010 | 410,000 | 229,600 |
| Finlay Fine Jewelry Corp., 8.375%, 5/1/2008 | 325,000 | 334,344 |
| General Motors Corp., 8.25%, 7/15/2023 | 560,000 | 599,300 |
| Herbst Gaming, Inc., 10.75%, 9/1/2008 | 895,000 | 1,006,875 |
| Imperial Home Decor Group, Inc., Series B, 11.0%, 3/15/2008* | 720,000 | 0 |
| Inn of the Mountain Gods, 144A, 12.0%, 11/15/2010 | 70,000 | 76,650 |
| Interep National Radio Sales, Inc., Series B, 10.0%, 7/1/2008 | 495,000 | 444,262 |
| International Game Technology, 8.375%, 5/15/2009 | 495,000 | 579,617 |
| Jacobs Entertainment Co., 11.875%, 2/1/2009 | 455,000 | 500,500 |
| Kellwood Co., 7.625%, 10/15/2017 | 295,000 | 314,274 |
| Krystal, Inc., 10.25%, 10/1/2007 | 435,000 | 440,981 |
| Laidlaw International, Inc., 144A, 10.75%, 6/15/2011 | 450,000 | 505,125 |
| Levi Strauss & Co., 12.25%, 12/15/2012 (f) | 250,000 | 223,750 |
| Lin Television Corp., 144A, 6.5%, 5/15/2013 | 105,000 | 103,425 |
| Mail-Well I Corp., 144A, 7.875%, 12/1/2013 | 255,000 | 240,975 |
| Mediacom LLC, 9.5%, 1/15/2013 (f) | 365,000 | 363,175 |
| Nebraska Book Co., Inc., 144A, 8.625%, 3/15/2012 | 165,000 | 166,238 |
| PEI Holding, Inc., 11.0%, 3/15/2010 | 400,000 | 465,000 |
| Petro Stopping Centers, 144A, 9.0%, 2/15/2012 | 980,000 | 1,024,100 |
| Premier Entertainment Biloxi LLC\Finance, 144A, 10.75%, 2/1/2012 | 240,000 | 259,200 |
| PRIMEDIA, Inc.: | ||
7.625%, 4/1/2008 (f) | 450,000 | 453,375 |
8.875%, 5/15/2011 | 355,000 | 361,212 |
| Remington Arms Co., Inc., 10.5%, 2/1/2011 | 423,000 | 420,885 |
| Renaissance Media Group, 144A, 10.0%, 4/15/2008 | 685,000 | 707,262 |
| Rent-Way Inc., 144A, 11.875%, 6/15/2010 | 205,000 | 228,575 |
| Restaurant Co., 144A, 11.25%, 5/15/2008 | 671,724 | 667,526 |
| River Rock Entertainment, 144A, 9.75%, 11/1/2011 | 160,000 | 170,400 |
| Samsonite Corp., 10.75%, 6/15/2008 | 1,050,000 | 1,092,000 |
| Schuler Homes, Inc., 10.5%, 7/15/2011 | 650,000 | 747,500 |
| Scientific Games Corp., 12.5%, 8/15/2010 | 250,000 | 291,250 |
| Sealy Mattress Co., Series B, 9.875%, 12/15/2007 | 311,000 | 321,238 |
| Seneca Gaming Corp., 144A, 7.25%, 5/1/2012 | 225,000 | 228,994 |
| Simmons Co., 144A, 7.875%, 1/15/2014 | 165,000 | 163,350 |
| Sinclair Broadcast Group, Inc.: | ||
8.0%, 3/15/2012 | 1,085,000 | 1,152,812 |
8.75%, 12/15/2011 | 385,000 | 423,500 |
| Six Flags, Inc., 8.875%, 2/1/2010 (f) | 15,000 | 15,263 |
| Sonic Automotive, Inc., 144A, 8.625%, 8/15/2013 (f) | 485,000 | 522,587 |
| The Reader's Digest Association, Inc., 144A, 6.5%, 3/1/2011 | 260,000 | 262,600 |
| Toys "R" Us, Inc.: | ||
7.375%, 10/15/2018 | 720,000 | 689,400 |
7.875%, 4/15/2013 (f) | 165,000 | 169,950 |
| Trump Holdings & Funding, 11.625%, 3/15/2010 (f) | 500,000 | 506,250 |
| United Auto Group, Inc., 9.625%, 3/15/2012 (f) | 180,000 | 201,150 |
| United Rentals North America, Inc., 144A, 6.5%, 2/15/2012 | 425,000 | 410,125 |
| Venetian Casino Resort LLC, 11.0%, 6/15/2010 | 215,000 | 251,550 |
| VICORP Restaurants, Inc., 144A, 10.5%, 4/15/2011 | 370,000 | 366,300 |
| Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 375,000 | 405,000 |
| Williams Scotsman, Inc., 9.875%, 6/1/2007 (f) | 450,000 | 447,750 |
| Worldspan LP/WS Finance Corp., 144A, 9.625%, 6/15/2011 (f) | 495,000 | 530,887 |
| XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14% to 12/31/2009 | 375,000 | 360,938 |
| Young Broadcasting, Inc., 144A, 8.75%, 1/15/2014 | 335,000 | 338,350 |
34,676,732 | ||
| Consumer Staples 0.8% | ||
| Agrilink Foods, Inc., 11.875%, 11/1/2008 | 258,000 | 273,480 |
| Gold Kist, Inc., 144A, 10.25%, 3/15/2014 | 425,000 | 446,250 |
| North Atlantic Trading Co., 144A, 9.25%, 3/1/2012 | 445,000 | 450,562 |
| Pilgrim's Pride Corp., 9.625%, 9/15/2011 | 185,000 | 201,650 |
| Rite Aid Corp.: | ||
144A, 6.125%, 12/15/2008 | 345,000 | 324,300 |
7.3%, 3/10/2019 | 537,932 | 484,139 |
"C1", Series 97, 11.25%, 7/1/2008 | 275,000 | 304,563 |
| Salton, Inc., 10.75%, 12/15/2005 | 125,000 | 120,000 |
| Standard Commercial Corp., 144A, 8.0%, 4/15/2012 | 150,000 | 154,875 |
| Swift & Co.: | ||
10.125%, 10/1/2009 | 330,000 | 352,688 |
12.5%, 1/1/2010 | 60,000 | 63,600 |
| United Agri Products, 144A, 8.25%, 12/15/2011 | 100,000 | 113,250 |
3,289,357 | ||
| Energy 3.1% | ||
| Avista Corp., 9.75%, 6/1/2008 | 1,305,000 | 1,566,000 |
| Citgo Petroleum Corp., 11.375%, 2/1/2011 | 1,505,000 | 1,738,275 |
| Continental Resources, Inc., 10.25%, 8/1/2008 | 895,000 | 924,087 |
| Edison Mission Energy, 7.73%, 6/15/2009 | 1,200,000 | 1,134,000 |
| El Paso Production Holdings Corp., 7.75%, 6/1/2013 | 1,770,000 | 1,681,500 |
| FirstEnergy Corp., Series B, 6.45%, 11/15/2011 | 335,000 | 352,688 |
| MAPCO, Inc., 7.25%, 3/1/2009 | 235,000 | 236,763 |
| Newpark Resources, Inc., Series B, 8.625%, 12/15/2007 | 610,000 | 626,775 |
| On Semiconductor Corp., 13.0%, 5/15/2008 (f) | 250,000 | 301,250 |
| Pemex Project Funding Master Trust, 7.375%, 12/15/2014 | 900,000 | 940,500 |
| Pioneer Natural Resources Co., 9.625%, 4/1/2010 (f) | 200,000 | 247,804 |
| Southern Natural Gas, 8.875%, 3/15/2010 | 510,000 | 563,550 |
| Stone Energy Corp., 8.25%, 12/15/2011 | 445,000 | 480,600 |
| Westport Resources Corp., 8.25%, 11/1/2011 | 225,000 | 252,562 |
| Williams Cos., Inc.: | ||
144A, 6.75%, 4/15/2009 | 290,000 | 287,100 |
8.75%, 3/15/2032 | 470,000 | 479,400 |
| Wiser Oil Co., 9.5%, 5/15/2007 | 560,000 | 558,600 |
12,371,454 | ||
| Financials 11.0% | ||
| Ahold Finance USA, Inc., 6.25%, 5/1/2009 | 860,000 | 869,675 |
| Alamosa Delaware, Inc.: | ||
Step-up Coupon, 0% to 7/31/2005, 12.0% to 7/31/2009 | 256,000 | 240,640 |
144A, 8.5%, 1/31/2012 | 360,000 | 348,300 |
| AmeriCredit Corp., 9.25%, 5/1/2009 | 880,000 | 937,200 |
| Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028 | 235,000 | 145,612 |
| BF Saul REIT, 144A, 7.5%, 3/1/2014 | 740,000 | 741,850 |
| CB Richard Ellis Services, Inc., 9.75%, 5/15/2010 | 215,000 | 239,725 |
| Consolidated Communications Holdings, 144A, 9.75%, 4/1/2012 | 375,000 | 386,250 |
| Dollar Financial Group, Inc., 9.75%, 11/15/2011 | 390,000 | 419,250 |
| Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 795,000 | 899,226 |
| FRD Acquisition Co., Series B, 12.5%, 7/15/2004* | 230,000 | 0 |
| Global Exchange Services, 144A, 12.0%, 7/15/2008** | 520,000 | 494,000 |
| IOS Capital LLC, 7.25%, 6/30/2008 | 39,000 | 41,584 |
| iStar Financial, Inc., 6.0%, 12/15/2010 | 165,000 | 165,701 |
| Poster Financial Group, 144A, 8.75%, 12/1/2011 | 530,000 | 556,500 |
| PXRE Capital Trust I, 8.85%, 2/1/2027 | 180,000 | 182,250 |
| Qwest Capital Funding, Inc.: | ||
6.5%, 11/15/2018 | 385,000 | 283,938 |
6.875%, 7/15/2028 | 430,000 | 308,525 |
7.75%, 2/15/2031 | 350,000 | 264,250 |
| R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 (f) | 705,000 | 838,950 |
| Tennessee Valley Authority, "A", 6.79%, 5/23/2012 | 5,750,000 | 6,567,845 |
| Thornburg Mortgage, Inc., 8.0%, 5/15/2013 | 355,000 | 364,763 |
| Trac-X North America Holdings, 144A, 7.375%, 3/25/2009 (f) | 28,000,000 | 27,265,000 |
| UAP Holdings Corp., 144A, Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012 | 335,000 | 274,281 |
| Universal City Development, 11.75%, 4/1/2010 | 660,000 | 762,300 |
| WMC Finance Co., 144A, 11.75%, 12/15/2008 | 530,000 | 654,550 |
44,252,165 | ||
| Health Care 1.3% | ||
| aaiPharma, Inc., 144A, 11.0%, 4/1/2010 | 455,000 | 409,500 |
| AmeriPath, Inc.: | ||
10.5%, 4/1/2013 | 255,000 | 261,375 |
144A, 10.5%, 4/1/2013 | 275,000 | 281,875 |
| AmerisourceBergen Corp., 7.25%, 11/15/2012 | 415,000 | 441,975 |
| Biovail Corp., 7.875%, 4/1/2010 | 840,000 | 825,300 |
| Curative Health Services, Inc., 144A, 10.75%, 5/1/2011 | 240,000 | 240,900 |
| Interactive Health LLC, 144A, 7.25%, 4/1/2011 | 310,000 | 269,700 |
| Team Health, Inc., 144A, 9.0%, 4/1/2012 | 185,000 | 177,600 |
| Tenet Healthcare Corp., 6.375%, 12/1/2011 | 2,445,000 | 2,133,263 |
5,041,488 | ||
| Industrials 5.5% | ||
| Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 335,000 | 355,100 |
| Aearo Co. I, 144A, 8.25%, 4/15/2012 | 130,000 | 133,250 |
| Allied Waste North America, Inc.: | ||
144A, 5.75%, 2/15/2011 | 315,000 | 302,400 |
Series B, 8.875%, 4/1/2008 | 610,000 | 677,100 |
| AMI Semiconductor, Inc., 10.75%, 2/1/2013 | 232,000 | 272,020 |
| Amsted Industries, Inc., 144A, 10.25%, 10/15/2011 | 490,000 | 553,700 |
| Argo-Tech Corp., 8.625%, 10/1/2007 | 540,000 | 540,000 |
| Avondale Mills, Inc., 144A, 10.25%, 7/1/2013 | 600,000 | 348,000 |
| Browning-Ferris Industries: | ||
7.4%, 9/15/2035 | 380,000 | 351,500 |
9.25%, 5/1/2021 | 180,000 | 198,900 |
| CHC Helicopter Corp., 144A, 7.375%, 5/1/2014 | 270,000 | 273,375 |
| Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 | 780,000 | 826,800 |
| Collins & Aikman Products, 10.75%, 12/31/2011 | 845,000 | 874,575 |
| Congoleum Corp., 144A, 8.625%, 8/1/2008* | 625,000 | 418,750 |
| Continental Airlines, Inc., 8.0%, 12/15/2005 (f) | 410,000 | 389,500 |
| Corrections Corp. of America, 9.875%, 5/1/2009 | 545,000 | 614,487 |
| CP Ships Ltd., 10.375%, 7/15/2012 | 530,000 | 614,800 |
| Dana Corp.: | ||
7.0%, 3/1/2029 | 810,000 | 777,600 |
9.0%, 8/15/2011 | 210,000 | 247,800 |
| Delta Air Lines, Inc.: | ||
7.7%, 12/15/2005 (f) | 460,000 | 354,200 |
7.9%, 12/15/2009 (f) | 205,000 | 110,700 |
| Eagle-Pitcher, Inc., 9.75%, 9/1/2013 | 480,000 | 525,600 |
| Erico International Corp., 144A, 8.875%, 3/1/2012 | 255,000 | 263,925 |
| Evergreen International Aviation, Inc., 144A, 12.0%, 5/15/2010 (f) | 205,000 | 141,450 |
| Golden State Petroleum Transportation, 8.04%, 2/1/2019 | 330,000 | 327,225 |
| GS Technologies, 12.0%, 9/1/2004* | 269,411 | 674 |
| Hercules, Inc.: | ||
144A, 6.75%, 10/15/2029 | 85,000 | 84,150 |
11.125%, 11/15/2007 | 932,000 | 1,118,400 |
| Hornbeck Offshore Services, Inc., 10.625%, 8/1/2008 | 530,000 | 581,675 |
| Interface, Inc., 144A, "A", 9.5%, 2/1/2014 | 375,000 | 376,875 |
| ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 430,000 | 485,900 |
| ISP Holdings, Inc., Series B, 10.625%, 12/15/2009 | 150,000 | 166,500 |
| J Crew Operating Corp., 10.375%, 10/15/2007 | 15,000 | 15,150 |
| Kansas City Southern: | ||
7.5%, 6/15/2009 | 160,000 | 164,800 |
9.5%, 10/1/2008 | 810,000 | 897,075 |
| MemberWorks, Inc., 144A, 9.25%, 4/1/2014 | 150,000 | 149,625 |
| Meritage Corp., 144A, 7.0%, 5/1/2014 | 310,000 | 300,700 |
| Millennium America, Inc.: | ||
7.625%, 11/15/2026 | 720,000 | 648,000 |
9.25%, 6/15/2008 (f) | 640,000 | 697,600 |
144A, 9.25%, 6/15/2008 | 625,000 | 681,250 |
| Mobile Mini, Inc., 9.5%, 7/1/2013 | 400,000 | 448,000 |
| Motors and Gears, Inc., 10.75%, 11/15/2006 | 580,000 | 513,300 |
| Plainwell, Inc., Series B, 11.0%, 3/1/2008* | 2,200,000 | 132,000 |
| Ply Gem Industries, Inc., 144A, 9.0%, 2/15/2012 | 315,000 | 322,875 |
| Republic Engineered Products LLC, 10.0%, 8/16/2009* | 523,294 | 366,306 |
| Sea Containers Ltd., 10.5%, 5/15/2012 | 375,000 | 368,437 |
| Seabulk International, Inc., 144A, 9.5%, 8/15/2013 | 520,000 | 540,800 |
| Ship Finance International Ltd., 144A, 8.5%, 12/15/2013 | 720,000 | 694,800 |
| Tech Olympic USA, Inc.: | ||
144A, 7.5%, 3/15/2011 | 255,000 | 244,800 |
10.375%, 7/1/2012 | 415,000 | 456,500 |
| Tenneco Automotive, Inc., 11.625%, 10/15/2009 | 315,000 | 344,925 |
| The Brickman Group, Ltd., Series B, 11.75%, 12/15/2009 | 305,000 | 352,275 |
| Thermadyne Holdings Corp., 144A, 9.25%, 2/1/2014 | 410,000 | 416,150 |
| Westlake Chemical Corp., 144A, 8.75%, 7/15/2011 (f) | 200,000 | 219,500 |
22,281,799 | ||
| Information Technology 0.4% | ||
| Activant Solutions, Inc., 10.5%, 6/15/2011 | 380,000 | 394,250 |
| Communications & Powers Industry, Inc., 144A, 8.0%, 2/1/2012 | 300,000 | 306,000 |
| DigitalNet, Inc., 144A, 9.0%, 7/15/2010 | 324,000 | 348,300 |
| Lucent Technologies, Inc., 6.45%, 3/15/2029 (f) | 130,000 | 103,025 |
| Mediacom Broadband LLC, 11.0%, 7/15/2013 (f) | 200,000 | 214,000 |
| Telex Communications, Inc., 144A, 11.5%, 10/15/2008 | 270,000 | 288,900 |
1,654,475 | ||
| Materials 4.6% | ||
| American Rock Salt Co. LLC, 144A, 9.5%, 3/15/2014 | 240,000 | 249,000 |
| AMH Holdings, Inc., 144A, Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 1,030,000 | 669,500 |
| Aqua Chemical, Inc., 11.25%, 7/1/2008 | 605,000 | 502,150 |
| ARCO Chemical Co., 9.8%, 2/1/2020 | 1,925,000 | 1,915,375 |
| Caraustar Industries, Inc., 9.875%, 4/1/2011 (f) | 425,000 | 433,500 |
| Dayton Superior Corp.: | ||
10.75%, 144A, 9/15/2008 | 425,000 | 425,000 |
13.0%, 6/15/2009 | 380,000 | 277,400 |
| Equistar Chemicals LP: | ||
8.75%, 2/15/2009 | 1,325,000 | 1,394,562 |
144A, 10.625%, 5/1/2011 (f) | 35,000 | 39,200 |
| Euramax International, Inc., 8.5%, 8/15/2011 | 410,000 | 434,600 |
| Fibermark, Inc., 144A, 10.75%, 4/15/2011* (f) | 720,000 | 381,600 |
| Foamex LP, 10.75%, 4/1/2009 | 20,000 | 18,700 |
| GEO Specialty Chemicals, Inc., 10.125%, 8/1/2008* | 675,000 | 216,000 |
| Georgia-Pacific Corp.: | ||
7.375%, 12/1/2025 (f) | 1,025,000 | 999,375 |
7.7%, 6/15/2015 | 135,000 | 147,488 |
144A, 8.0%, 1/15/2024 | 635,000 | 666,750 |
9.375%, 2/1/2013 | 775,000 | 900,937 |
| Hexcel Corp., 144A, 9.75%, 1/15/2009 (f) | 360,000 | 378,000 |
| Huntsman Advanced Materials LLC, 144A, 11.0%, 7/15/2010 | 455,000 | 516,425 |
| Huntsman International LLC: | ||
10.125%, 7/1/2009 | 505,000 | 608,243 |
144A, 11.625%, 10/15/2010 | 385,000 | 423,500 |
| IMC Global, Inc., 144A, 10.875%, 8/1/2013 (f) | 470,000 | 576,925 |
| International Steel Group, Inc., 144A, 6.5%, 4/15/2014 | 710,000 | 681,600 |
| ISPAT Inland ULC, 144A, 9.75%, 4/1/2014 | 595,000 | 606,900 |
| MMI Products, Inc., Series B, 11.25%, 4/15/2007 | 80,000 | 72,000 |
| Mueller Group Inc., 144A, 5.919%, 11/1/2011** | 200,000 | 205,500 |
| Neenah Corp.: | ||
144A, 11.0%, 9/30/2010 | 550,000 | 599,500 |
144A, 13.0%, 9/30/2013 | 428,070 | 434,491 |
| Omnova Solutions, Inc., 144A, 11.25%, 6/1/2010 | 205,000 | 225,500 |
| Owens-Brockway Glass Container, 8.25%, 5/15/2013 (f) | 890,000 | 918,925 |
| Pliant Corp.: | ||
144A, Step-up Coupon, 0% to 12/15/2006, 11.15% to 6/15/2009 | 115,000 | 96,025 |
11.125%, 9/1/2009 | 430,000 | 457,950 |
13.0%, 6/1/2010 (f) | 130,000 | 117,650 |
| Port Townsend Paper Corp., 144A, 11.0%, 4/15/2011 | 24,500 | 24,561 |
| TriMas Corp., 9.875%, 6/15/2012 | 830,000 | 896,400 |
| United States Steel LLC, 9.75%, 5/15/2010 | 307,000 | 347,678 |
| US Can Corp., Series B, 12.375%, 10/1/2010 (f) | 225,000 | 207,000 |
| Valmont Industries, Inc., 144A, 6.875%, 5/1/2014 | 265,000 | 265,223 |
| Waste Services, Inc., 144A, 9.5%, 4/15/2014 | 210,000 | 215,250 |
18,546,383 | ||
| Telecommunication Services 4.5% | ||
| American Cellular Corp., Series B, 10.0%, 8/1/2011 | 1,395,000 | 1,346,175 |
| American Tower Corp.: | ||
144A, 7.5%, 5/1/2012 | 240,000 | 231,600 |
9.375%, 2/1/2009 | 790,000 | 847,275 |
| American Tower Escrow Corp., Zero Coupon, 8/1/2008 | 585,000 | 425,588 |
| Cincinnati Bell, Inc.: | ||
7.2%, 11/29/2023 | 335,000 | 310,712 |
144A, 8.375%, 1/15/2014 (f) | 1,220,000 | 1,152,900 |
| Crown Castle International Corp.: | ||
7.5%, 12/1/2013 (f) | 125,000 | 124,687 |
7.5%, 12/1/2013 | 170,000 | 169,575 |
9.375%, 8/1/2011 | 465,000 | 509,175 |
| Dobson Communications Corp., 144A, 8.875%, 10/1/2013 | 1,870,000 | 1,463,275 |
| GCI, Inc., 144A, 7.25%, 2/15/2014 | 250,000 | 242,500 |
| Insight Midwest LP: | ||
9.75%, 10/1/2009 (f) | 430,000 | 453,650 |
10.5%, 11/1/2010 | 185,000 | 201,650 |
144A, 10.5%, 11/1/2010 | 180,000 | 196,200 |
| LCI International, Inc., 7.25%, 6/15/2007 | 715,000 | 629,200 |
| Level 3 Financing, Inc., 144A, 10.75%, 10/15/2011 (f) | 375,000 | 331,875 |
| MCI, Inc.: | ||
6.688%, 5/1/2009 (f) | 525,000 | 498,750 |
7.735%, 5/1/2014 (f) | 835,000 | 774,460 |
| Nextel Communications, Inc., 5.95%, 3/15/2014 | 335,000 | 314,900 |
| Nextel Partners, Inc.: | ||
8.125%, 7/1/2011 | 675,000 | 685,125 |
11.0%, 3/15/2010 | 105,000 | 118,650 |
| Nortel Networks Corp., 7.4% , 6/15/2006 | 455,000 | 457,275 |
| Northern Telecom Capital, 7.875%, 6/15/2026 | 1,045,000 | 992,750 |
| Qwest Corp.: | ||
5.625%, 11/15/2008 | 760,000 | 737,200 |
7.25%, 9/15/2025 | 860,000 | 748,200 |
| Qwest Services Corp.: | ||
144A, 13.5%, 12/15/2010 | 1,285,000 | 1,490,600 |
144A, 14.0%, 12/15/2014 | 514,000 | 612,945 |
| Rural Cellular Corp., 144A, 9.875%, 2/1/2010 | 400,000 | 411,000 |
| SBA Communications Corp., 144A, Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011 | 715,000 | 529,100 |
| Triton PCS, Inc., 8.5%, 6/1/2013 (f) | 100,000 | 104,000 |
| Ubiquitel Operating Co., 144A, 9.875%, 3/1/2011 | 605,000 | 605,000 |
| Western Wireless Corp., 144A, 9.25%, 7/15/2013 (f) | 315,000 | 323,663 |
18,039,655 | ||
| Utilities 2.4% | ||
| Calpine Corp., 144A, 8.5%, 7/15/2010 | 2,635,000 | 2,331,975 |
| Calpine Generating Co., 144A, 10.25%, 4/1/2011** | 455,000 | 410,638 |
| CMS Energy Corp.: | ||
7.5%, 1/15/2009 | 550,000 | 554,125 |
144A, 7.75%, 8/1/2010 | 345,000 | 348,450 |
8.5%, 4/15/2011 | 505,000 | 528,987 |
| DPL, Inc.: | ||
6.875%, 9/1/2011 (f) | 855,000 | 842,175 |
8.125%, 9/1/2031 | 155,000 | 143,375 |
| Illinova Corp., 11.5%, 12/15/2010 | 860,000 | 1,019,100 |
| NRG Energy, Inc., 144A, 8.0%, 12/15/2013 | 2,000,000 | 2,015,000 |
| PG&E Corp., 144A, 6.875%, 7/15/2008 | 450,000 | 479,250 |
| Sensus Metering Systems, 144A, 8.625%, 12/15/2013 | 365,000 | 359,525 |
| TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010 | 580,000 | 633,650 |
9,666,250 | ||
| Total Corporate Bonds (Cost $168,546,286) | 169,819,758 | |
Foreign Bonds - US$ Denominated 23.0% | ||
| Alestra SA de RL de CV, 8.0%, 6/30/2010 | 425,000 | 365,500 |
| Antenna TV SA, 9.0%, 8/1/2007 | 235,000 | 237,644 |
| Avecia Group PLC, 11.0%, 7/1/2009 | 1,125,000 | 894,375 |
| Axtel SA, 144A, 11.0%, 12/15/2013 | 580,000 | 577,100 |
| Banque Centrale de Tunisie, 7.375%, 4/25/2012 | 500,000 | 548,750 |
| Cablecom Luxembourg SCA, 144A, 9.375%, 4/15/2014 | 185,000 | 221,713 |
| Cascades, Inc., 7.25%, 2/15/2013 | 545,000 | 568,162 |
| Citigroup (JSC Severstal), 144A, 9.25%, 4/19/2014 (f) | 520,000 | 478,400 |
| Conproca SA de CV, 12.0%, 6/16/2010 | 395,000 | 501,650 |
| Corp Durango SA, 144A, 13.75%, 7/15/2009* | 345,000 | 227,700 |
| Crown Euro Holdings SA, 10.875%, 3/1/2013 | 495,000 | 576,675 |
| Eircom Funding, 144A, 8.25%, 8/15/2013 | 390,000 | 421,200 |
| Empresa Brasileira de Telecom SA, 144A, 11.0%, 12/15/2008 | 415,000 | 439,900 |
| Esprit Telecom Group PLC: | ||
10.875%, 6/15/2008* | 800,000 | 80 |
11.5%, 12/15/2007* | 2,345,000 | 235 |
| Fage Dairy Industry SA, 9.0%, 2/1/2007 | 1,110,000 | 1,126,650 |
| Federative Republic of Brazil: | ||
Floating Rate Note Debt Conversion Bond, LIBOR plus ..875%, Series L, 2.063%**, 4/15/2012 | 1,500,000 | 1,245,000 |
Bond, 8.0%, 4/15/2014 | 467,057 | 428,758 |
8.875%, 4/15/2024 | 605,000 | 485,815 |
11.5%, 3/12/2008 | 1,700,000 | 1,802,000 |
14.5%, 10/15/2009 | 1,300,000 | 1,524,250 |
| Gaz Capital SA, 144A, 8.625%, 4/28/2034 | 455,000 | 439,075 |
| Gazprom OAO, 144A, 9.625%, 3/1/2013 (f) | 550,000 | 565,125 |
| Government of Jamaica, 10.625%, 6/20/2017 | 830,000 | 825,850 |
| Government of Ukraine, 7.65%, 6/11/2013 | 2,050,000 | 1,956,725 |
| Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 105,000 | 56,700 |
| Inmarsat Finance PLC, 144A, 7.625%, 6/30/2012 | 605,000 | 617,100 |
| Innova S. de R.L., 144A, 9.375%, 9/19/2013 (f) | 680,000 | 738,650 |
| Jefra Cosmetics International, Inc., 10.75%, 5/15/2011 | 610,000 | 690,825 |
| LeGrand SA, 8.5%, 2/15/2025 | 420,000 | 442,575 |
| Luscar Coal Ltd., 9.75%, 10/15/2011 | 375,000 | 425,625 |
| Millicom International Cellular SA, 144A, 10.0%, 12/1/2013 | 695,000 | 712,375 |
| Mizuho Financial Group, 8.375%, 12/29/2049 | 245,000 | 258,230 |
| Mobifon Holdings BV, 12.5%, 7/31/2010 | 595,000 | 678,300 |
| Mobile Telesystems Financial, 144A, 8.375%, 10/14/2010 | 445,000 | 429,425 |
| Morroco Resources, 2.031%, 1/5/2009** | 470,000 | 461,775 |
| New ASAT (Finance) Ltd., 144A, 9.25%, 2/1/2011 | 535,000 | 564,425 |
| Nigeria, Promissory Note, Series RC, 5.092%, 1/5/2010 | 1,051,070 | 980,500 |
| Nortel Networks Corp., 6.875%, 9/1/2023 | 200,000 | 179,000 |
| Nortel Networks Ltd., 6.125%, 2/15/2006 (f) | 435,000 | 430,106 |
| Petroleos Mexicanos SA, 9.5%, 9/15/2027 | 800,000 | 916,000 |
| Petroleum Geo-Services ASA: | ||
8.0%, 11/5/2006 | 165,000 | 168,713 |
10.0%, 11/5/2010 | 1,243,027 | 1,354,899 |
| Petroliam Nasional Berhad: | ||
7.625%, 10/15/2026 | 700,000 | 768,896 |
7.75%, 8/15/2015 | 4,500,000 | 5,179,415 |
| Province of Ontario, 2.65%, 12/15/2006 | 8,000,000 | 7,924,688 |
| Republic of Argentina: | ||
8.375%, 12/20/2049* | 1,000,000 | 308,750 |
9.75%, 9/19/2027* | 1,100,000 | 330,000 |
11.375%, 3/15/2010* | 650,000 | 209,950 |
12.25%, 6/19/2018* | 424,500 | 118,860 |
| Republic of Bulgaria, 8.25%, 1/15/2015 | 5,070,000 | 5,817,825 |
| Republic of Colombia: | ||
8.125%, 5/21/2024 | 1,030,000 | 875,500 |
10.0%, 1/23/2012 | 900,000 | 958,500 |
| Republic of Ecuador, Step-up Coupon, 7.0% to 8/15/2004, 8.0% to 8/15/2005 | 2,050,000 | 1,440,125 |
| Republic of Indonesia: | ||
6.75%, 3/10/2014 | 400,000 | 359,436 |
144A, 6.75%, 3/10/2014 | 60,000 | 53,700 |
| Republic of Philippines: | ||
9.5%, 10/21/2024 | 750,000 | 817,500 |
9.875%, 3/16/2010 | 700,000 | 761,250 |
9.875%, 1/15/2019 | 1,400,000 | 1,438,500 |
| Republic of South Africa, 8.5%, 6/23/2017 | 1,700,000 | 1,963,500 |
| Republic of Turkey: | ||
9.5%, 1/15/2014 | 200,000 | 215,500 |
10.5%, 1/13/2008 | 290,000 | 324,800 |
11.0%, 1/14/2013 | 1,600,000 | 1,856,000 |
11.75%, 6/15/2010 | 1,000,000 | 1,181,250 |
11.875%, 1/15/2030 | 1,000,000 | 1,296,250 |
12.375%, 6/15/2009 | 2,820,000 | 3,341,700 |
| Republic of Uruguay: | ||
7.5%, 3/15/2015 | 940,000 | 723,800 |
7.875%, 1/15/2033 | 380,000 | 250,800 |
| Republic of Venezuela: | ||
5.375%, 8/7/2010 | 300,000 | 229,500 |
Series A, Collateralized Par Bond, 6.75%, 3/31/2020 | 1,250,000 | 1,087,500 |
9.25%, 9/15/2027 (f) | 20,000 | 16,600 |
9.375%, 1/13/2034 | 300,000 | 246,750 |
144A, 10.75%, 9/19/2013 | 2,900,000 | 2,827,500 |
| Rhodia SA, 144A, 7.625%, 6/1/2010 (f) | 500,000 | 452,500 |
| Rogers Wireless Communications, Inc., 144A, 6.375%, 3/1/2014 | 165,000 | 155,100 |
| Russian Federation: | ||
Step-up Coupon, 5.0% to 3/31/2007, 7.5% to 3/31/2030 | 3,020,000 | 2,769,340 |
12.75%, 6/24/2028 | 600,000 | 886,500 |
| Russian Ministry of Finance: | ||
3.0%, 5/14/2011 | 3,200,000 | 2,448,000 |
3.5%, 5/14/2008 | 1,800,000 | 1,584,000 |
| Shaw Communications, Inc.: | ||
Series B, 7.25%, 4/6/2011 | 335,000 | 358,583 |
8.25%, 4/11/2010 (f) | 155,000 | 174,065 |
| Sistema Capital SA, 144A, 8.875%, 1/28/2011 | 345,000 | 338,100 |
| Stena AB, 9.625% , 12/1/2012 | 130,000 | 146,250 |
| Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 1,575,000 | 960,750 |
| Tembec Industries, Inc., 144A, 8.5%, 2/1/2011 (f) | 1,615,000 | 1,647,300 |
| TFM SA de CV: | ||
10.25%, 6/15/2007 | 1,655,000 | 1,721,200 |
11.75%, 6/15/2009 | 50,000 | 49,625 |
12.5%, 6/15/2012 | 455,000 | 507,325 |
| United Mexican States: | ||
5.875%, 1/15/2014 | 150,000 | 145,200 |
7.5%, 4/8/2033 | 1,700,000 | 1,644,750 |
8.0%, 9/24/2022 | 2,660,000 | 2,806,300 |
8.125%, 12/30/2019 | 1,300,000 | 1,413,750 |
9.875%, 2/1/2010 | 600,000 | 735,900 |
| Vicap SA, 11.375%, 5/15/2007 | 430,000 | 434,300 |
| Vitro SA de CV, Series A, 144A, 11.75%, 11/1/2013 | 530,000 | 500,850 |
| Vivendi Universal SA, Series B, 144A, 9.25%, 4/15/2010 | 980,000 | 1,144,150 |
| Total Foreign Bonds - US$ Denominated (Cost $98,263,973) | 92,511,738 | |
Foreign Bonds - Non US$ Denominated 19.0% | ||
| Ispat Europe Group SA, 11.875%, 2/1/2011 EUR | 970,000 | 1,220,621 |
| Kingdom of Spain, 6.0%, 1/31/2008 EUR | 16,000,000 | 21,162,118 |
| Province of Ontario, 1.875%, 1/25/2010 JPY | 875,000,000 | 8,229,084 |
| Republic of Argentina: | ||
7.0%, 3/18/2049* EUR | 2,965,493 | 841,459 |
7.5%, 5/23/2049* EUR | 1,400,353 | 419,563 |
7.875%, 7/29/2005* EUR | 409,034 | 137,258 |
8.5%, 2/23/2005* EUR | 153,388 | 26,317 |
8.75%, 2/4/2049* EUR | 1,100,000 | 375,780 |
9.0%, 6/20/2049* EUR | 1,400,000 | 478,685 |
9.0%, 9/19/2049* EUR | 373,243 | 62,895 |
10.5%, 11/29/2049* EUR | 1,022,584 | 175,447 |
12.0%, 9/19/2016* EUR | 204,517 | 36,969 |
| Republic of Greece, 4.6%, 5/20/2013 EUR | 17,250,000 | 21,225,965 |
| Republic of Italy, 10.5%, 4/28/2014 GBP | 7,450,000 | 18,372,650 |
| Republic of Romania, 8.5%, 5/8/2012 EUR | 2,620,000 | 3,667,449 |
| Total Foreign Bonds - Non US$ Denominated (Cost $72,814,855) | 76,432,260 | |
US Government Backed 10.2% | ||
| US Treasury Bond: | ||
5.375%, 2/15/2031 (f) | 1,160,000 | 1,175,225 |
6.25%, 8/15/2023 (f) | 6,400,000 | 7,111,501 |
7.25%, 5/15/2016 (f) | 5,075,000 | 6,182,776 |
12.0%, 8/15/2013 (f) | 2,880,000 | 3,860,888 |
12.75%, 11/15/2010 (d) (f) | 6,100,000 | 7,065,990 |
| US Treasury Note: | ||
4.75%, 11/15/2008 (f) | 1,250,000 | 1,315,479 |
5.75%, 8/15/2010 (f) | 5,000,000 | 5,495,705 |
6.125%, 8/15/2007 (f) | 1,850,000 | 2,029,724 |
6.5%, 8/15/2005 (f) | 6,200,000 | 6,566,432 |
| Total US Government Backed (Cost $43,339,816) | 40,803,720 | |
| Value ($) | |
Common Stocks 0.1% | ||
| Catalina Restaurant Group, Inc.* | 4,239 | 6,782 |
| ICG Communications, Inc.* | 4,026 | 40 |
| IMPSAT Fiber Networks, Inc.* | 20,919 | 153,755 |
| Total Common Stocks (Cost $1,283,345) | 160,577 | |
Warrants 0.0% | ||
| DeCrane Aircraft Holdings, Inc., 144A* | 2,740 | 27 |
| Destia Communications, Inc., 144A* | 1,425 | 0 |
| Empire Gas Corp.* | 2,208 | 0 |
| Waxman Industries, Inc.* | 222,607 | 0 |
| Total Warrants (Cost $445,229) | 27 | |
Preferred Stocks 0.3% | ||
| Paxson Communications Corp., (PIK) | 93 | 869,550 |
| TNP Enterprises, Inc. "D" | 3,146 | 363,387 |
| Total Preferred Stocks (Cost $1,179,945) | 1,232,937 | |
Convertible Preferred Stock 0.2% | ||
| Hercules Trust II | ||
| (Cost $658,996) | 1,040 | 832,000 |
Principal Amount ($) | Value ($) | |
Convertible Bonds 0.3% | ||
| Aspen Technology, Inc., 5.25%, 6/15/2005* | 175,000 | 175,000 |
| DIMON, Inc., 6.25%, 3/31/2007 | 555,000 | 518,370 |
| HIH Capital Ltd., 144A, 7.5%, 9/25/2006 | 120,000 | 105,400 |
| Nortel Networks Corp., 4.25%, 9/1/2008* | 380,000 | 358,625 |
| Total Convertible Bonds (Cost $1,147,985) | 1,157,395 | |
Asset Backed 0.1% | ||
| Automobile Receivables | ||
| MMCA Automobile Trust, "C", Series 2002-1, 6.2%, 1/15/2010 | ||
| (Cost $392,839) | 473,799 | 404,279 |
Loan Participation 0.5% | ||
| Republic of Algeria, Floating Rate Debt Conversion Bond, LIBOR plus .8125%, 2.0%**, 3/4/2010 | ||
| (Cost $2,051,676) | 2,111,729 | 2,058,936 |
| Value ($) | |
Other 0.0% | ||
| SpinCycle, Inc.* | 26,151 | 147,753 |
| SpinCycle, Inc. "F"* | 184 | 1,040 |
| Total Other (Cost $63,913) | 148,793 | |
| Value ($) | |
Purchased Foreign Currency Options 0.1% | ||
| JPY Call / USD Put July 2004, 109.3 Strike Price | 4,466,325 | 65,164 |
| SEK Call / USD Put July 2004, 7.6755 Strike Price | 624,410 | 208,491 |
| Total Purchased Foreign Currency Options (Cost $280,948) | 273,655 | |
| Value ($) | |
Securities Lending Collateral 21.7% | ||
| Daily Assets Fund Institutional, 1.08% (e) (g) (Cost $87,265,925) | 87,265,925 | 87,265,925 |
Cash Equivalents 3.3% | ||
| Scudder Cash Management QP Trust, 1.08% (b) (Cost $13,290,851) | 13,290,851 | 13,290,851 |
% of | Value ($) | |
| Total Investment Portfolio (Cost $491,026,582) (a) | 121.0 | 486,392,851 |
| Other Assets and Liabilities, Net | (21.0) | (84,357,555) |
| Net Assets | 100.0 | 402,035,296 |
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest.
** Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of April 30, 2004.
(a) The cost for federal income tax purposes was $495,362,688. At April 30, 2004, net unrealized depreciation for all securities based on tax cost was $8,969,837. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $10,123,941 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $19,093,778.
(b) Scudder Cash Management QP Trust is also managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Principal amount in US dollars unless otherwise noted.
(d) At April 30, 2004, this security has been pledged to cover, in whole or in part, initial margin requirements for open futures contracts.
(e) Daily Assets Fund Institutional, an affiliated fund, is also managed by Deutsche Investment Management, Inc. The rate shown is the annualized seven-day yield at period end.
(f) All or a portion of these securities were on loan (see Notes to Financials Statements). The value of all securities loaned at April 30, 2004 amounted to $85,384,940, which is 21.2% of total net assets.
(g) Represents collateral held in connection with securities lending.
PIK denotes that interest or dividend is paid in kind.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transaction exempt from registration, normally to qualified institutional buyers.
At April 30, 2004, open futures contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation (Depreciation) ($) |
| 10 Year Germany Bond | 6/8/2004 | 9 | 873,538 | 856,782 | 16,756 |
| UK Treasury Bond | 6/28/2004 | 101 | 6,196,901 | 6,072,325 | 124,576 |
| 5 Year US Treasury Note | 6/21/2004 | 169 | 19,135,595 | 18,579,437 | 556,158 |
| 2 Year Treasury Note | 6/29/2004 | 131 | 28,072,105 | 27,843,641 | 228,464 |
| Total net unrealized appreciation | 925,954 | ||||
At April 30, 2004, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation (Depreciation) ($) |
| 10 Year Canada Bond | 6/21/2004 | 87 | 7,081,192 | 6,949,980 | (131,212) |
| 10 Year Japan Bond | 6/10/2004 | 45 | 55,926,110 | 56,010,421 | 84,311 |
| 10 Year US Treasury Note | 6/21/2004 | 96 | 10,905,576 | 10,608,000 | (297,576) |
| Total net unrealized depreciation | (344,477) | ||||
Written Options | Contracts | Expiration Date | Strike Price ($) | Value ($) |
| Put Options | ||||
| JPY Put / USD Call | 446,632,500 | July 2004 | 109.30 | 95,115 |
| SEK Put / USD Call | 62,441,000 | July 2004 | 7.6755 | 208,491 |
| Total outstanding written options (Premiums received $274,626) | 303,606 | |||
Currency Abbreviation | |||
| EUR | Euro | JPY | Japanese Yen |
| GBP | British Pounds | ||
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of April 30, 2004 (Unaudited) | |
| Assets | |
| Investments: Investments in securities, at value (cost $390,469,806) | $ 385,836,075 |
| Investment in Scudder Cash Management QP Trust (cost $13,290,851) | 13,290,851 |
| Investment in Daily Assets Fund Institutional (cost $87,265,925)* | 87,265,925 |
| Total investments in securities, at value (cost $491,026,582) | 486,392,851 |
| Cash | 2,995,326 |
| Foreign currency, at value (cost $2,680,140) | 2,685,999 |
| Receivable for investments sold | 10,777,329 |
| Interest receivable | 8,263,558 |
| Receivable for Fund shares sold | 155,694 |
| Unrealized appreciation on forward foreign currency exchange contracts | 201,026 |
| Other assets | 64,076 |
| Total assets | 511,535,859 |
| Liabilities | |
| Payable for investments purchased | 20,068,213 |
| Payable upon return of securities loaned | 87,265,925 |
| Payable for Fund shares redeemed | 934,100 |
| Net payable for closed forward foreign currency exchange contracts | 29,884 |
| Payable for daily variation margin on open futures contracts | 23,693 |
| Unrealized depreciation on forward foreign currency exchange contracts | 163,688 |
| Written options, at value (premiums received $274,626) | 303,606 |
| Accrued management fee | 190,844 |
| Other accrued expenses and payables | 520,610 |
| Total liabilities | 109,500,563 |
| Net assets, at value | $ 402,035,296 |
* Represents collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of April 30, 2004 (Unaudited) (continued) | |
| Net Assets | |
| Net assets consist of: Accumulated distributions in excess of net investment income | (1,166,109) |
| Net unrealized appreciation (depreciation) on: Investments | (4,633,731) |
| Futures | 581,477 |
| Written options | (28,980) |
| Foreign currency related transactions | (82,124) |
| Accumulated net realized gain (loss) | (112,717,761) |
| Paid-in capital | 520,082,524 |
| Net assets, at value | $ 402,035,296 |
| Net Asset Value | |
| Class A Net Asset Value and redemption price per share ($326,684,559 / 71,684,883 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 4.56 |
| Maximum offering price per share (100 / 95.5 of $4.56) | $ 4.77 |
| Class B Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($55,045,631 / 12,095,147 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 4.55 |
| Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($20,305,106 / 4,430,363 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 4.58 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended April 30, 2004 (Unaudited) | |
| Investment Income | |
| Income: Dividends | $ 131,790 |
| Interest | 14,448,025 |
| Interest - Scudder Cash Management QP Trust | 65,132 |
| Securities lending income | 160,338 |
| Total Income | 14,805,285 |
| Expenses: Management fee | 1,194,167 |
| Services to shareholders | 472,513 |
| Custodian fees | 41,180 |
| Distribution service fees | 817,828 |
| Auditing | 25,480 |
| Legal | 5,460 |
| Trustees' fees and expenses | 16,950 |
| Reports to shareholders | 36,400 |
| Registration fees | 27,300 |
| Other | 8,281 |
| Total expenses, before expense reductions | 2,645,559 |
| Expense reductions | (1,140) |
| Total expenses, after expense reductions | 2,644,419 |
| Net investment income | 12,160,866 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended April 30, 2004 (Unaudited) (continued) | |
| Realized and Unrealized Gain (Loss) on Investment Transactions | |
| Net realized gain (loss) from: Investments | 564,250 |
| Futures | 74,137 |
| Written options | (437,923) |
| Foreign currency related transactions | (417,672) |
| (217,208) | |
| Net unrealized appreciation (depreciation) during the period on: Investments | 3,613,518 |
| Futures | 705,899 |
| Written options | (28,980) |
| Foreign currency related transactions | 27,618 |
| 4,318,055 | |
| Net gain (loss) on investment transactions | 4,100,847 |
| Net increase (decrease) in net assets resulting from operations | $ 16,261,713 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Increase (Decrease) in Net Assets | Six Months Ended April 30, 2004 (Unaudited) | Year Ended October 31, 2003 |
| Operations: Net investment income | $ 12,160,866 | $ 24,678,544 |
| Net realized gain (loss) on investment transactions | (217,208) | (19,925,447) |
| Net unrealized appreciation (depreciation) on investment transactions during the period | 4,318,055 | 66,338,898 |
| Net increase (decrease) in net assets resulting from operations | 16,261,713 | 71,091,995 |
| Distributions to shareholders from: Net investment income: Class A | (11,096,607) | (6,871,503) |
| Class B | (1,805,681) | (1,462,167) |
| Class C | (595,797) | (349,565) |
| Tax return of capital: Class A | - | (15,461,203) |
| Class B | - | (3,289,942) |
| Class C | - | (786,536) |
| Fund share transactions: Proceeds from shares sold | 40,198,183 | 99,273,790 |
| Reinvestment of distributions | 8,987,651 | 18,557,361 |
| Cost of shares redeemed | (69,990,383) | (137,586,945) |
| Net increase (decrease) in net assets from Fund share transactions | (20,804,549) | (19,755,794) |
| Increase (decrease) in net assets | (18,040,921) | 23,115,285 |
| Net assets at beginning of period | 420,076,217 | 396,960,932 |
| Net assets at end of period (including distributions in excess of net investment income and undistributed net investment income of $1,166,109 and $171,110, respectively) | $ 402,035,296 | $ 420,076,217 |
The accompanying notes are an integral part of the financial statements.
Class A | ||||||
Years Ended October 31, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
| Selected Per Share Data | ||||||
| Net asset value, beginning of period | $ 4.53 | $ 4.08 | $ 4.33 | $ 4.57 | $ 5.26 | $ 5.60 |
| Income (loss) from investment operations: Net investment income (loss)c | .13 | .27 | .32 | .39 | .48 | .49 |
| Net realized and unrealized gain (loss) on investment transactions | .05 | .49 | (.21) | (.20) | (.72) | (.35) |
Total from investment operations | .18 | .76 | .11 | .19 | (.24) | .14 |
| Less distributions from: Net investment income | (.15) | (.10) | (.25) | (.34) | (.34) | (.48) |
| Tax return of capital | - | (.21) | (.11) | (.09) | (.11) | - |
Total distributions | (.15) | (.31) | (.36) | (.43) | (.45) | (.48) |
| Net asset value, end of period | $ 4.56 | $ 4.53 | $ 4.08 | $ 4.33 | $ 4.57 | $ 5.26 |
| Total Return (%)d | 4.25** | 19.05 | 2.38 | 4.47 | (4.91) | 2.43 |
| Ratios to Average Net Assets and Supplemental Data | ||||||
| Net assets, end of period ($ millions) | 327 | 329 | 300 | 322 | 359 | 492 |
| Ratio of expenses before expense reductions (%) | 1.07* | 1.12 | 1.12 | 1.21e | 1.10 | 1.11 |
| Ratio of expenses after expense reductions (%) | 1.07* | 1.12 | 1.12 | 1.19e | 1.09 | 1.10 |
| Ratio of net investment income (loss) (%) | 5.96* | 6.11 | 7.54 | 8.78 | 9.55 | 8.80 |
| Portfolio turnover rate (%) | 222* | 180 | 86 | 124 | 37 | 92 |
| a For the six months ended April 30, 2004 (Unaudited). b As required, effective November 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of these changes for the year ended October 31, 2002 was to decrease net investment income by $.02, increase net realized and unrealized gain (loss) per share by $.02, and decrease the ratio of net investment income to average net assets from 8.04% to 7.54%. Per share data and ratios for periods prior to November 1, 2001 have not been restated to reflect this change in presentation. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.18% and 1.18%, respectively. * Annualized ** Not annualized | ||||||
Class B | ||||||
Years Ended October 31, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
| Selected Per Share Data | ||||||
| Net asset value, beginning of period | $ 4.52 | $ 4.08 | $ 4.33 | $ 4.57 | $ 5.26 | $ 5.59 |
| Income (loss) from investment operations: Net investment income (loss)c | .11 | .23 | .29 | .35 | .43 | .43 |
| Net realized and unrealized gain (loss) on investment transactions | .05 | .48 | (.21) | (.21) | (.72) | (.34) |
Total from investment operations | .16 | .71 | .08 | .14 | (.29) | .09 |
| Less distributions from: Net investment income | (.13) | (.08) | (.23) | (.30) | (.30) | (.42) |
| Tax return of capital | - | (.19) | (.10) | (.08) | (.10) | - |
Total distributions | (.13) | (.27) | (.33) | (.38) | (.40) | (.42) |
| Net asset value, end of period | $ 4.55 | $ 4.52 | $ 4.08 | $ 4.33 | $ 4.57 | $ 5.26 |
| Total Return (%)d | 3.81** | 18.08 | 1.77 | 3.20 | (5.85) | 1.57 |
| Ratios to Average Net Assets and Supplemental Data | ||||||
| Net assets, end of period ($ millions) | 55 | 71 | 82 | 100 | 119 | 198 |
| Ratio of expenses before expense reductions (%) | 2.00* | 1.94 | 1.94 | 2.22e | 2.11 | 2.06 |
| Ratio of expenses after expense reductions (%) | 2.00* | 1.94 | 1.94 | 2.22e | 2.10 | 2.05 |
| Ratio of net investment income (loss) (%) | 5.03* | 5.29 | 6.73 | 7.75 | 8.50 | 7.85 |
| Portfolio turnover rate (%) | 222* | 180 | 86 | 124 | 37 | 92 |
| a For the six months ended April 30, 2004 (Unaudited). b As required, effective November 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of these changes for the year ended October 31, 2002 was to decrease net investment income by $.02, increase net realized and unrealized gain (loss) per share by $.02, and decrease the ratio of net investment income to average net assets from 7.23% to 6.73%. Per share data and ratios for periods prior to November 1, 2001 have not been restated to reflect this change in presentation. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 2.19% and 2.19%, respectively. * Annualized ** Not annualized | ||||||
Class C | ||||||
Years Ended October 31, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
| Selected Per Share Data | ||||||
| Net asset value, beginning of period | $ 4.56 | $ 4.11 | $ 4.36 | $ 4.60 | $ 5.29 | $ 5.62 |
| Income (loss) from investment operations: Net investment income (loss)c | .11 | .24 | .29 | .37 | .45 | .45 |
| Net realized and unrealized gain (loss) on investment transactions | .04 | .49 | (.20) | (.21) | (.72) | (.34) |
Total from investment operations | .15 | .73 | .09 | .16 | (.27) | .11 |
| Less distributions from: Net investment income | (.13) | (.09) | (.23) | (.31) | (.32) | (.44) |
| Tax return of capital | - | (.19) | (.11) | (.09) | (.10) | - |
Total distributions | (.13) | (.28) | (.34) | (.40) | (.42) | (.44) |
| Net asset value, end of period | $ 4.58 | $ 4.56 | $ 4.11 | $ 4.36 | $ 4.60 | $ 5.29 |
| Total Return (%)d | 3.82** | 18.20 | 2.00 | 3.55 | (5.51) | 1.78 |
| Ratios to Average Net Assets and Supplemental Data | ||||||
| Net assets, end of period ($ millions) | 20 | 20 | 15 | 16 | 19 | 30 |
| Ratio of expenses before expense reductions (%) | 1.96* | 1.79 | 1.76 | 1.87e | 1.76 | 1.87 |
| Ratio of expenses after expense reductions (%) | 1.96* | 1.79 | 1.76 | 1.84e | 1.75 | 1.85 |
| Ratio of net investment income (loss) (%) | 5.07* | 5.44 | 6.90 | 8.13 | 8.87 | 8.05 |
| Portfolio turnover rate (%) | 222* | 180 | 86 | 124 | 37 | 92 |
| a For the six months ended April 30, 2004 (Unaudited). b As required, effective November 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of these changes for the year ended October 31, 2002 was to decrease net investment income by $.02, increase net realized and unrealized gain (loss) per share by $.02, and decrease the ratio of net investment income to average net assets from 7.40% to 6.90%. Per share data and ratios for periods prior to November 1, 2001 have not been restated to reflect this change in presentation. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.83% and 1.83%, respectively. * Annualized ** Not annualized | ||||||
A. Significant Accounting Policies
Scudder Strategic Income Fund (the ``Fund'') is registered under the Investment Company Act of 1940, as amended (the ``1940 Act''), as an open-end, diversified management investment company organized as a Massachusetts business trust.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Prior to March 31, 2004, Class C shares were offered with an initial sales charge. Class C shares do not convert into another class. Class I shares (none sold through April 30, 2004) are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution service fees, administrative fees and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Trustees of the Fund. If the pricing services are unable to provide valuations, securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Fund may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes, and for duration management, risk management and return enhancement purposes.
Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Fund's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities or currencies hedged. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and to facilitate transactions in foreign currency denominated securities.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. Sales and purchases of forward currency contracts having the same settlement date and broker are offset and any gain (loss) is realized on the date of offset; otherwise, gain (loss) is realized on settlement date. Realized and unrealized gains and losses which represent the difference between the value of a forward currency contract to buy and a forward currency contract to sell are included in net realized and unrealized gain (loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
Options. An option contract is a contract in which the writer of the option grants the buyer of the option the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices, will require cash settlement by the Fund if the option is exercised. The Fund may enter into option contracts in order to hedge against potential adverse price movements in the value of portfolio assets; as a temporary substitute for selling selected investments; to lock in the purchase price of a security or currency which it expects to purchase in the near future; as a temporary substitute for purchasing selected investments; and to enhance potential gain.
The liability representing the Fund's obligation under an exchange traded written option or investment in a purchased option is valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid and asked price are available. Over-the-counter written or purchased options are valued using dealer supplied quotations. Gain or loss is recognized when the option contract expires or is closed.
If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
At October 31, 2003, the Fund had a net tax basis capital loss carryforward of approximately $109,116,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2006 ($2,523,000), October 31, 2007 ($18,866,000), October 31, 2008 ($25,665,000), October 31, 2009 ($20,682,000), October 31, 2010 ($38,904,000) and October 31, 2011 ($2,476,000), the respective expiration dates, whichever occurs first.
Distribution of Income and Gains. Distributions of net investment income, if any, are made monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to securities sold at a loss, premium amortization on debt securities and investments held in partnerships. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes.
Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust.
B. Purchases and Sales of Securities
During the six months ended April 30, 2004, purchases and sales of investment securities (excluding short-term investments and US Treasury securities) aggregated $320,709,997 and $386,386,805, respectively. Purchases and sales of US Treasury securities aggregated $112,856,512 and $68,950,139, respectively.
For the six months ended April 30, 2004, transactions for written options were as follows:
Contracts | Premiums Received ($) | |
| Outstanding at October 31, 2003 | - | - |
| Options written | 1,979,271,350 | 950,373 |
| Options closed | (1,437,093,870) | (587,757) |
| Options exercised | - | - |
| Options expired | (33,103,980) | (87,990) |
| Outstanding at April 30, 2004 | 509,073,500 | 274,626 |
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.58% of the first $250,000,000 of the Fund's average daily net assets, 0.55% of the next $750,000,000 of such net assets, 0.53% of the next $1,500,000,000 of such net assets, 0.51% of the next $2,500,000,000 of such net assets, 0.48% of the next $2,500,000,000 of such net assets, 0.46% of the next $2,500,000,000 of such net assets, 0.44% of the next $2,500,000,000 of such net assets and 0.42% of such net assets in excess of $12,500,000,000, computed and accrued daily and payable monthly. Accordingly, for the six months ended April 30, 2004, the fee pursuant to the Management Agreement was equivalent to an annualized effective rate of 0.57% of the Fund's average daily net assets. Deutsche Asset Management Investment Services Ltd. ("DeAMIS"), an affiliate of the Advisor, serves as subadvisor with respect to the investment and reinvestment of the portion of the Fund's net assets invested in emerging market debt securities. The subadvisor is paid by the Advisor for its services.
Effective October 1, 2003 through September 30, 2005, the Advisor has agreed to contractually waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses of each class at 1.05% of average daily net assets for Class A, B and C shares, respectively (excluding certain expenses such as Rule 12b-1 distribution and/or service fees, trustees and trustee counsel fees, extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses).
Service Provider Fees.
Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the Fund's transfer, dividend-paying agent and shareholder service agent. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are borne by SISC, not by the Fund. For the six month period ended April 30, 2004, the amount charged to the Fund by SISC was as follows:
Service Provider Fee | Total Aggregated | Unpaid at April 30, 2004 |
| Class A | $ 326,522 | $ 196,671 |
| Class B | 113,728 | 75,731 |
| Class C | 32,263 | 20,256 |
$ 472,513 | $ 292,658 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc. ("SDI"), a subsidiary of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and C shares. Pursuant to the agreement, SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the six months ended April 30, 2004, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at April 30, 2004 |
| Class B | $ 238,975 | $ 33,784 |
| Class C | 77,453 | 12,768 |
$ 316,428 | $ 46,552 |
In addition, SDI provides information and administrative services ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. SDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the six months ended April 30, 2004, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at April 30, 2004 | Annualized Effective Rate |
| Class A | $ 395,651 | $ 79,746 | .23% |
| Class B | 79,591 | 14,658 | .25% |
| Class C | 26,158 | 5,948 | .25% |
$ 501,400 | $ 100,352 |
Underwriting and Contingent Deferred Sales Charge. SDI is the principal underwriter for the fund. Underwriting commissions paid in connection with the distribution of Class A and C shares for the six months ended April 30, 2004 aggregated $15,051 and $226, respectively.
In addition, SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the six months ended April 30, 2004, the CDSC for Class B and C shares aggregated $85,364 and $0, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the six months ended April 30, 2004, SDI received $2.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Expense Off-Set Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. During the six months ended April 30, 2004, the custodian fees were reduced by $1,140 for custodian credits earned.
E. Securities Lending
The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund in the form of cash and/or government securities equal to 102 percent of the value of domestic securities and 105 percent of the value of foreign denominated securities on loan. The Fund may invest the cash collateral in an affiliated money market fund. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of fees paid to lending agent. Either the Fund or the borrower may terminate the loan. The Fund is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
F. Line of Credit
The Fund and several other affiliated funds (the ``Participants'') share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
G. Investing in High-Yield Securities
Investing in high-yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high-yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid due to the extent that there is no established retail secondary market and because of a decline in the value of such securities.
H. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in the United States of America. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements and their prices more volatile than those of comparable securities in the United States of America.
I. Forward Foreign Currency Commitments
As of April 30, 2004, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver | In Exchange For | Settlement Date | Unrealized Appreciation | ||
| USD | 153,165,600 | CLP | 252,000 | 8/6/2004 | $ 6,286 |
| USD | 485,134,000 | CLP | 797,263 | 8/6/2004 | 18,994 |
| USD | 1,050,000 | COP | 2,861,250,000 | 8/6/2004 | 13,662 |
| USD | 2,472,904,000 | COP | 927,919 | 8/6/2004 | $ 8,624 |
| USD | 388,346,000 | COP | 146,050 | 8/6/2004 | 1,737 |
| USD | 7,485,000 | PLN | 1,864,723 | 8/6/2004 | 20,519 |
| USD | 4,000,000 | PLN | 996,254 | 8/6/2004 | 10,707 |
| USD | 2,297,357 | PLN | 9,370,000 | 8/6/2004 | 11,286 |
| USD | 1,552,809 | EUR | 1,878,191 | 6/10/2004 | 20,807 |
| USD | 128,000 | EUR | 154,880 | 6/10/2004 | 1,754 |
| USD | 62,000,000 | EUR | 76,570 | 6/10/2004 | 2,399 |
| USD | 6,045,828 | GBP | 10,737,391 | 7/16/2004 | 84,251 |
| Total unrealized appreciation | $ 201,026 | ||||
Contracts to Deliver | In Exchange For | Settlement Date | Unrealized Depreciation | ||
| CLP | 1,040,000 | USD | 638,300,000 | 8/6/2004 | $ (16,017) |
| EUR | 3,975,000 | USD | 4,719,915 | 7/29/2004 | (29,723) |
| PLN | 578,635 | USD | 2,340,000 | 8/6/2004 | (2,090) |
| CAD | 15,246 | USD | 20,880 | 5/3/2004 | (18) |
| CAD | 15,871 | USD | 21,750 | 5/3/2004 | (8) |
| EUR | 900 | USD | 1,075 | 5/3/2004 | (3) |
| EUR | 630 | USD | 753 | 5/3/2004 | (1) |
| EUR | 16,741,406 | USD | 19,893,796 | 7/16/2004 | (115,785) |
| GBP | 12,120 | USD | 21,458 | 5/4/2004 | (37) |
| GBP | 1,797 | USD | 1,010 | 5/4/2004 | (6) |
| Total unrealized depreciation | $ (163,688) | ||||
As of April 30, 2004, the Fund had the following closed forward foreign currency exchange contracts:
Contracts to Deliver | In Exchange For | Settlement Date | Receivable (Payable) | ||
| USD | 1,603,163 | TRL | 2,318,174,000,000 | 7/29/2004 | |
| TRL | 1,205,810,000,000 | USD | 820,000 | 7/29/2004 | |
| TRL | 1,112,364,000,000 | USD | 754,913 | 7/29/2004 | $ (28,250) |
| USD | 520,000 | RUB | 16,484,000 | 10/27/2004 | |
| RUB | 16,484,000 | USD | 518,365 | 10/27/2004 | (1,634) |
| Total net receivable (payable) | $ (29,884) | ||||
Currency Abbreviations | |||||
| CAD | Canadian Dollars | PLN | Polish Zloty | ||
| CLP | Chilean Peso | RUB | Russian Rubles | ||
| COP | Colombian Pesos | TRL | Turkish Lira | ||
| EUR | Euro | USD | US Dollar | ||
| GBP | British Pounds | ||||
J. Share Transactions
The following table summarizes share and dollar activity in the Fund:
Six Months Ended April 30, 2004 | Year Ended October 31, 2003 | |||
Shares | Dollars | Shares | Dollars | |
| Shares sold | ||||
| Class A | 6,461,352 | $ 30,291,443 | 16,206,491 | $ 70,571,666 |
| Class B | 1,328,682 | 6,164,142 | 4,742,267 | 20,786,178 |
| Class C | 795,064 | 3,742,598 | 1,787,554 | 7,915,946 |
$ 40,198,183 | $ 99,273,790 | |||
| Shares issued to shareholders in reinvestment of distributions | ||||
| Class A | 1,596,948 | $ 7,413,354 | 3,371,804 | $ 14,745,891 |
| Class B | 250,288 | 1,160,553 | 691,174 | 3,013,350 |
| Class C | 88,538 | 413,744 | 181,140 | 798,120 |
$ 8,987,651 | $ 18,557,361 | |||
| Shares redeemed | ||||
| Class A | (9,012,336) | $ (41,978,799) | (20,400,596) | $ (88,779,082) |
| Class B | (5,245,288) | (24,325,601) | (9,712,491) | (42,613,467) |
| Class C | (785,810) | (3,685,983) | (1,408,124) | (6,194,396) |
$ (69,990,383) | $ (137,586,945) | |||
| Net increase (decrease) | ||||
| Class A | (954,036) | $ (4,274,002) | (822,301) | $ (3,461,525) |
| Class B | (3,666,318) | (17,000,906) | (4,279,050) | (18,813,939) |
| Class C | 97,792 | 470,359 | 560,570 | 2,519,670 |
$ (20,804,549) | $ (19,755,794) | |||
J. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. We are unable to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, Deutsche Asset Management ("DeAM") and its affiliates, certain individuals, including in some cases Fund Trustees/Directors, and other parties. DeAM has undertaken to bear all liabilities and expenses incurred by the Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding fund valuation, market timing, revenue sharing or other subjects of the pending inquiries. Based on currently available information, DeAM believes the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect its ability to perform under its investment management agreements with the Scudder funds.
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day.Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found on our Web site - scudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov. To obtain a written copy without charge, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 |
Class A | Class B | Class C | |
Nasdaq Symbol | KSTAX | KSTBX | KSTCX |
CUSIP Number | 81123J-100 | 81123J-209 | 81123J-308 |
Fund Number | 010 | 210 | 310 |
This privacy statement is issued by Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Scudder Distributors, Inc., Scudder Investor Services, Inc., Scudder Trust Company and the Scudder Funds.
We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the Scudder Companies listed above.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
Questions on this policy may be sent to:
Scudder Investments
Attention: Correspondence - Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
August 2003
Notes |
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The primary function of the Nominating and Governance Committee is to identify
and recommend individuals for membership on the Board and oversee the
administration of the Board Governance Procedures and Guidelines. Shareholders
may recommend candidates for Board positions by forwarding their correspondence
by U.S. mail or courier service to the Fund's Secretary for the attention of the
Chairman of the Nominating and Governance Committee, Two International Place,
Boston, MA 02110. Suggestions for candidates must include a resume of the
candidate.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
During the filing period of the report, fund management identified a significant
deficiency relating to the overall fund expense payment and accrual process.
This matter relates primarily to a bill payment processing issue. There was no
material impact to shareholders, fund net asset value, fund performance or the
accuracy of any fund's financial statements. Fund management discussed this
matter with the Registrant's Audit Committee and auditors, instituted additional
procedures to enhance its internal controls and will continue to develop
additional controls and redesign work flow to strengthen the overall control
environment associated with the processing and recording of fund expenses.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the filing period that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Scudder Strategic Income Fund
By: /s/Julian Sluyters
------------------------------------
Julian Sluyters
Chief Executive Officer
Date: June 29, 2004
------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: Scudder Strategic Income Fund
By: /s/Julian Sluyters
------------------------------------
Julian Sluyters
Chief Executive Officer
Date: June 29, 2004
------------------------------------
By: /s/Charles A. Rizzo
------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: June 29, 2004
------------------------------------