UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
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: 10/31/04
ITEM 1. REPORT TO STOCKHOLDERS
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| Annual Report to Shareholders | |
| October 31, 2004 | |
Contents |
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Click Here Performance Summary Click Here Information About Your Fund's Expenses 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 Report of Independent Registered Public Accounting Firm Click Here Tax Information Click Here Trustees and Officers Click Here Account Management Resources |
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.
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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.
Returns and rankings during the 5 and 10-year periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 10/31/04 | ||||
Scudder Strategic Income Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 12.01% | 10.94% | 6.34% | 6.63% |
Class B | 11.03% | 10.09% | 5.39% | 5.64% |
Class C | 11.08% | 10.23% | 5.61% | 5.83% |
Lehman Brothers Government/Credit Index+ | 5.57% | 5.74% | 7.87% | 7.86% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
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Net Asset Value and Distribution Information | |||
| Class A | Class B | Class C |
Net Asset Value: 10/31/04 | $ 4.76 | $ 4.76 | $ 4.79 |
10/31/03 | $ 4.53 | $ 4.52 | $ 4.56 |
Distribution Information: Twelve Months: Income Dividends as of 10/31/04 | $ .30 | $ .25 | $ .26 |
October Income Dividend | $ .0235 | $ .0195 | $ .0200 |
Class A Lipper Rankings — Multi-Sector Income Funds as of 10/31/04 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking |
1-Year | 5 | of | 111 | 5 |
3-Year | 31 | of | 94 | 33 |
5-Year | 60 | of | 90 | 66 |
10-Year | 27 | of | 38 | 70 |
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.
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Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] Scudder Strategic Income Fund — Class A [] Lehman Brothers Government/Credit Index+ |
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Yearly periods ended October 31 |
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 10/31/04 | |||||
Scudder Strategic Income Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,697 | $13,039 | $12,988 | $18,139 |
Average annual total return | 6.97% | 9.25% | 5.37% | 6.14% | |
Class B | Growth of $10,000 | $10,803 | $13,143 | $12,909 | $17,309 |
Average annual total return | 8.03% | 9.54% | 5.24% | 5.64% | |
Class C | Growth of $10,000 | $11,108 | $13,392 | $13,139 | $17,628 |
Average annual total return | 11.08% | 10.23% | 5.61% | 5.83% | |
Lehman Brothers Government/ Credit Index+ | Growth of $10,000 | $10,557 | $11,824 | $14,607 | $21,316 |
Average annual total return | 5.57% | 5.74% | 7.87% | 7.86% | |
The growth of $10,000 is cumulative.
+ The Lehman Brothers Government/Credit 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.
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As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following table is intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The table is based on an investment of $1,000 made at the beginning of the six-month period ended October 31, 2004.
The table illustrates your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A | Class B | Class C |
Scudder Strategic Income Fund | 1.02% | 1.84% | 1.83% |
For more information, please refer to the Fund's prospectus.
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Scudder Strategic Income Fund: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for Scudder Strategic Income Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients. DeIM is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Jan C. Faller, CFA
Managing Director of Deutsche Asset Management and Lead Manager of the fund.
Joined Deutsche Asset Management in 1999 and the fund in 2000 after nine years of experience as investment manager for PanAgora Asset Management and banking officer for Wainwright Bank & Trust Co.
Portfolio manager for Enhanced Strategies & Mutual Funds Group: New York.
MBA, Amos Tuck School, Dartmouth College.
Andrew P. Cestone
Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
Joined Deutsche Asset Management in March 1998 and the fund in 2002.
Prior to that, Investment Analyst, Phoenix Investment Partners, from 1997 to 1998. Prior to that, Credit Officer, asset based lending group, Fleet Bank, from 1995 to 1997.
Sean P. McCaffrey, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
Joined Deutsche Asset Management in 1996 and the fund in 2002 after five years as a fixed income analyst at Fidelity Investments.
Head of Fixed Income Enhanced Strategies and Mutual Funds Group and portfolio manager for structured grade and enhanced fixed income strategies underlying retail mutual fund and institutional mandates: New York.
MBA, Yale University.
In the following interview, Portfolio Manager Jan C. Faller discusses market conditions and investment strategy during Scudder Strategic Income Fund's most recent fiscal year ended October 31, 2004.
Q: How did the fund perform over the 12-month period ended October 31?
A: For the 12-month period ended October 31, 2004, the fund's Class A shares provided a strong 12.01% total return (unadjusted for sales charges, which, if included, would have reduced performance), compared with the 5.57% total return of the fund's benchmark, the unhedged Lehman Brothers Government/Credit Index.1 (Please see pages 3 through 5 for performance of other share classes.) The fund also outperformed the 9.06% average return of its peers in the Lipper Multi-Sector Income Funds category.2
1 The Lehman Brothers Government/Credit Index is composed of US government Treasury and agency securities, and corporate Yankee bonds. 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.
2 The Lipper Multi-Sector Income Funds category includes funds that seek current income by allocating assets among several different fixed-income securities (with no more than 65% in any one sector except for defensive purposes), including US 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: The past 12 months provided a healthy fixed-income environment and an especially favorable one for emerging markets and high-yield bonds. The environment began to shift somewhat in early April when the Federal Reserve Board (the "Fed") said it would begin to move away from its accommodative stance, and hinted that it would soon begin to raise short-term interest rates. At first, the fixed-income markets reacted to the announcement by driving bond prices sharply lower, causing yields to spike. But investors gradually regrouped as they realized growth was not sufficiently strong to cause the Fed to move as aggressively as it had in 1994 (when at one point the Fed raised short-term interest rates 75 basis points at one meeting). In turn, high-yield and emerging markets spreads versus Treasuries gradually tightened, and high-yield and emerging markets bond prices rose. Thus, the past 12 months were a positive environment for so-called spread sectors, such as high yield and emerging-market bonds, because just enough economic recovery was present to keep corporate balance sheets of high-yield issuers healthy and allow the "carry trade" profitable for emerging markets investors.3 In addition, because central banks around the world could raise interest rates at a measured, rather than an aggressive, pace the fundamental outlook for emerging market countries improved.
3 The carry trade is accomplished when investors borrow short-term and invest longer-term in fixed-income instruments such as emerging markets bonds to capture higher yields.
Q: How did the fund's allocations and country selection affect performance?
A: Compared with its peers, the fund held overweight positions in high-yield bonds, emerging-market bonds and non-US dollar currencies during the 12-month period. Each of these positions significantly helped performance during a portion of the period. Among emerging markets investments, country selection also boosted performance. Early in the period, the fund emphasized lower-quality emerging markets credits because of our positive outlook for the sector. When we decided that the market had become fairly valued, we began to focus on short-term trades within particular countries. This strategy also worked well for the fund.
Q: Will you comment on how country-specific events have affected emerging markets' performance?
A: In the early part of the period, all eyes were fixed on Brazil to see whether President Lula could succeed at reining in inflation without jeopardizing economic growth. The news was as good as could have been hoped for — so far, the Lula administration's monetary and fiscal policies have worked well. As Brazil's performance sets the tone for emerging markets, its success has sowed additional confidence among emerging markets investors. In addition, sharp increases in crude oil prices have boosted the balance sheets of several emerging markets countries, most notably Russia. Turkey also benefited from demonstrable progress toward eventually joining the European Economic Union. The only unfavorable news for the emerging markets during the period came from the Kirchner administration in Argentina. President Kirchner has been far less sensitive to market interests than his counterpart in Brazil has been. Kirchner initially offered unattractive terms for the restructuring of Argentina's defaulted debt, and while his stance has since softened moderately, we continue to await the results of ongoing debt negotiations. The fund has a small position in Argentinean debt, which we acquired after the country declared bankruptcy. This position has performed well for the fund thus far.
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, focusing on the major capitalized countries, including the United Kingdom, countries within the European Union and Japan. The fund also invests in US Treasury bonds. As a result, the fund is invested in high-quality as well as lower-quality bonds but no 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 both types of risk.
Q: How did the fund's currency stance influence performance?
A: Approximately 23% of the portfolio was invested in nondollar assets in the period. Currency exposure benefited the fund early as well as late in the period. The dollar weakened significantly last November as it became clear that the United States labor market was not growing as rapidly as expected and that the economic recovery in the United States would be moderate. The prospect of lower rates for a longer time made the US dollar less attractive relative to other currencies. The dollar remained in a trading range until October 2004, when pressures grew on the dollar over investor dissatisfaction with the Bush administration's deficit-spending policies (when the market perceived that Bush would win the presidential election) and concerns over the United States' continued need for heavy capital flows from around the world to finance its debt. The dollar fell sharply against all major currencies in October. The fund's exposure in non-US assets proved beneficial and contributed to total return.
Q: How do you assess emerging markets and the high-yield market at present?
A: At the moment, we are reasonably confident that inflation will not be a major obstacle to favorable fixed-income performance. US wages are stable and major corporations can still export labor to countries where it is less expensive, which we believe means that a worldwide economic recovery can take place without significant wage and price inflation. In turn, the Fed can move at a measured pace to raise short-term interest rates. This scenario continues to be favorable for the bond market.
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.
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Portfolio Composition (Excludes Securities Lending Collateral) | 10/31/04 | 10/31/03 |
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Corporate Bonds | 42% | 42% |
Foreign Bonds — US Denominated | 23% | 18% |
Foreign Currency Bonds | 22% | 14% |
US Government Backed | 8% | 23% |
Cash Equivalents | 1% | 2% |
Other | 4% | 1% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 10/31/04 | 10/31/03 |
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AAA* | 22% | 31% |
AA | 9% | 6% |
A | 6% | 6% |
BBB | 6% | 4% |
BB | 18% | 15% |
B | 31% | 31% |
CCC and CC | 8% | 6% |
Below CC | — | 1% |
| 100% | 100% |
* Includes cash equivalents
Interest Rate Sensitivity | 10/31/04 | 10/31/03 |
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Average maturity | 7.5 years | 7.2 years |
Average duration | 5.2 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 15. 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.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
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| Principal Amount ($) (c) | Value ($) |
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Corporate Bonds 42.1% | ||
Consumer Discretionary 8.7% | ||
Adesa, Inc., 7.625%, 6/15/2012 | 260,000 | 271,700 |
Advertising Directory Solution, 144A, 9.25%, 11/15/2012 | 270,000 | 281,813 |
AMC Entertainment, Inc., 144A, 8.0%, 3/1/2014 | 605,000 | 580,800 |
American Lawyer Media, Inc., Series B, 9.75%, 12/15/2007 | 455,000 | 457,275 |
Atlantic Broadband Finance LLC, 144A, 9.375%, 1/15/2014 | 525,000 | 491,531 |
Bally Total Fitness Holdings Corp., 10.5%, 7/15/2011 | 485,000 | 471,662 |
Cablevision Systems New York Group: |
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144A, 6.669%**, 4/1/2009 (f) | 150,000 | 158,250 |
144A, 8.0%, 4/15/2012 | 190,000 | 204,250 |
Caesars Entertainment, Inc., 9.375%, 2/15/2007 | 170,000 | 189,975 |
Carrols Corp., 9.5%, 12/1/2008 (f) | 310,000 | 319,688 |
Charter Communications Holdings LLC: |
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Step-up Coupon, 0% to 5/15/2006, 11.75% to 5/15/2011 | 1,245,000 | 793,537 |
9.625%, 11/15/2009 (f) | 855,000 | 692,550 |
10.25%, 9/15/2010 | 1,435,000 | 1,492,400 |
Choctaw Resort Development Enterprises, 9.25%, 4/1/2009 | 585,000 | 627,412 |
CSC Holdings, Inc., 7.875%, 12/15/2007 (f) | 610,000 | 657,275 |
Denny's Corp/Holdings, Inc., 144A, 10.0%, 10/1/2012 (f) | 225,000 | 233,438 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 1,730,000 | 2,149,525 |
DIMON, Inc.: |
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7.75%, 6/1/2013 | 385,000 | 383,075 |
Series B, 9.625%, 10/15/2011 | 1,150,000 | 1,227,625 |
Dura Operating Corp.: |
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Series B, 8.625%, 4/15/2012 | 160,000 | 165,000 |
Series B, 9.0%, 5/1/2009 | 40,000 | 37,350 |
Series D, 9.0%, 5/1/2009 (f) | 355,000 | 339,912 |
EchoStar DBS Corp.: |
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6.375%, 10/1/2011 | 180,000 | 186,525 |
144A, 6.625%, 10/1/2014 | 245,000 | 250,513 |
EPL Intermediate, Inc., Step-up Coupon, 0% to 3/15/2009, 12.5% to 3/15/2010 | 315,000 | 203,175 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 175,000 | 187,250 |
Friendly Ice Cream Corp., 8.375%, 6/15/2012 (f) | 535,000 | 510,925 |
General Motors Corp., 8.25%, 7/15/2023 | 340,000 | 354,177 |
Icon Health & Fitness, Inc., 11.25%, 4/1/2012 | 190,000 | 158,650 |
Imperial Home Decor Group, Inc., Series B, 11.0%, 3/15/2008* | 720,000 | 0 |
Interep National Radio Sales, Inc., Series B, 10.0%, 7/1/2008 | 485,000 | 374,663 |
J Crew Intermediate LLC, Step-up Coupon, 0% to 11/15/2005, 16.0% to 5/15/2008 | 455,000 | 424,288 |
Jacobs Entertainment Co., 11.875%, 2/1/2009 | 840,000 | 957,600 |
Kellwood Co., 7.625%, 10/15/2017 | 100,000 | 110,344 |
Levi Strauss & Co.: |
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7.0%, 11/1/2006 (f) | 385,000 | 376,819 |
12.25%, 12/15/2012 (f) | 285,000 | 294,262 |
LIN Television Corp., 6.5%, 5/15/2013 | 25,000 | 25,750 |
Mediacom LLC, 9.5%, 1/15/2013 (f) | 910,000 | 891,800 |
MGM MIRAGE, 8.375%, 2/1/2011 (f) | 800,000 | 902,000 |
NCL Corp., 144A, 10.625%, 7/15/2014 | 445,000 | 462,800 |
Norcraft Holdings/Capital, 144A, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 480,000 | 352,800 |
Paxson Communications Corp., 10.75%, 7/15/2008 (f) | 365,000 | 367,738 |
PEI Holding, Inc., 11.0%, 3/15/2010 | 485,000 | 563,206 |
Petro Stopping Centers, 9.0%, 2/15/2012 | 765,000 | 818,550 |
Premier Entertainment Biloxi LLC\Finance, 10.75%, 2/1/2012 | 415,000 | 441,975 |
PRIMEDIA, Inc.: |
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144A, 7.086%**, 5/15/2010 | 680,000 | 705,500 |
8.875%, 5/15/2011 (f) | 310,000 | 323,175 |
Remington Arms Co., Inc., 10.5%, 2/1/2011 | 328,000 | 290,280 |
Renaissance Media Group LLC, 10.0%, 4/15/2008 | 490,000 | 507,150 |
Rent-Way, Inc., 11.875%, 6/15/2010 | 325,000 | 362,375 |
Restaurant Co., 11.25%, 5/15/2008 | 680,410 | 683,812 |
Sbarro, Inc., 11.0%, 9/15/2009 (f) | 480,000 | 455,400 |
Schuler Homes, Inc., 10.5%, 7/15/2011 | 530,000 | 609,500 |
Sinclair Broadcast Group, Inc.: |
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8.0%, 3/15/2012 | 1,170,000 | 1,228,500 |
8.75%, 12/15/2011 | 530,000 | 577,700 |
Sonic Automotive, Inc., 8.625%, 8/15/2013 | 695,000 | 734,962 |
Toys "R" Us, Inc.: |
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7.375%, 10/15/2018 | 860,000 | 799,800 |
7.875%, 4/15/2013 | 445,000 | 446,112 |
True Temper Sports, Inc., 8.375%, 9/15/2011 | 275,000 | 250,250 |
Trump Holdings & Funding, 12.625%, 3/15/2010 | 380,000 | 404,700 |
TRW Automotive, Inc., 11.0%, 2/15/2013 | 405,000 | 481,950 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 525,000 | 584,062 |
Venetian Casino Resort LLC, 11.0%, 6/15/2010 | 350,000 | 402,063 |
VICORP Restaurants, Inc., 10.5%, 4/15/2011 | 235,000 | 235,000 |
Visteon Corp.: |
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7.0%, 3/10/2014 (f) | 255,000 | 239,700 |
8.25%, 8/1/2010 (f) | 495,000 | 514,800 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 380,000 | 404,700 |
Williams Scotsman, Inc., 9.875%, 6/1/2007 (f) | 650,000 | 624,000 |
Worldspan LP/WS Finance Corp., 9.625%, 6/15/2011 (f) | 415,000 | 394,250 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14% to 12/31/2009 | 508,778 | 511,958 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 (f) | 720,000 | 698,400 |
| 34,911,952 | |
Consumer Staples 1.3% | ||
Agrilink Foods, Inc., 11.875%, 11/1/2008 | 258,000 | 268,965 |
B&G Foods, Inc.: |
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8.0%, 10/1/2011 | 90,000 | 94,950 |
12.0%, 10/30/2016 | 10,000 | 74,600 |
Duane Reade, Inc., 144A, 9.75%, 8/1/2011 (f) | 525,000 | 504,000 |
Gold Kist, Inc., 10.25%, 3/15/2014 | 198,000 | 221,760 |
North Atlantic Holding, Inc., Step-up Coupon, 0% to 3/1/2008, 12.25% to 3/1/2014 | 425,000 | 221,000 |
Pierre Foods, Inc., 144A, 9.875%, 7/15/2012 (f) | 210,000 | 213,150 |
Pinnacle Foods Holding Corp.: |
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144A, 8.25%, 12/1/2013 | 535,000 | 505,575 |
Prestige Brands, Inc., 144A, 9.25%, 4/15/2012 | 180,000 | 181,800 |
Revlon Consumer Products Corp., 9.0%, 11/1/2006 | 450,000 | 443,250 |
Rite Aid Corp.: |
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6.875%, 8/15/2013 (f) | 598,000 | 535,210 |
11.25%, 7/1/2008 | 665,000 | 724,850 |
Standard Commercial Corp., 8.0%, 4/15/2012 | 255,000 | 262,650 |
Swift & Co., 12.5%, 1/1/2010 | 425,000 | 472,812 |
United Agri Products, Inc., 144A, 8.25%, 12/15/2011 | 100,000 | 108,000 |
Wornick Co., 144A, 10.875%, 7/15/2011 | 445,000 | 480,600 |
| 5,313,172 | |
Energy 2.5% | ||
Avista Corp., 9.75%, 6/1/2008 | 730,000 | 861,651 |
Chesapeake Energy Corp.: |
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6.875%, 1/15/2016 | 495,000 | 529,650 |
9.0%, 8/15/2012 | 165,000 | 190,162 |
CITGO Petroleum Corp., 144A, 6.0%, 10/15/2011 | 530,000 | 539,275 |
Dynegy Holdings, Inc.: |
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6.875%, 4/1/2011 (f) | 110,000 | 106,425 |
7.125%, 5/15/2018 | 425,000 | 376,125 |
7.625%, 10/15/2026 | 90,000 | 78,525 |
144A, 9.875%, 7/15/2010 | 435,000 | 494,269 |
Edison Mission Energy, 7.73%, 6/15/2009 | 1,010,000 | 1,075,650 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 620,000 | 646,350 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 90,000 | 114,075 |
Mission Resources Corp., 9.875%, 4/1/2011 | 405,000 | 431,325 |
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007 | 600,000 | 609,000 |
ON Semiconductor Corp., 13.0%, 5/15/2008 (f) | 845,000 | 954,850 |
Pemex Project Funding Master Trust, 6.375%, 8/5/2016 | 400,000 | 528,902 |
Pride International, Inc., 144A, 7.375%, 7/15/2014 | 80,000 | 90,000 |
Southern Natural Gas, 8.875%, 3/15/2010 (f) | 330,000 | 371,663 |
Stone Energy Corp., 8.25%, 12/15/2011 | 660,000 | 716,100 |
Williams Cos., Inc.: |
|
|
8.125%, 3/15/2012 (f) | 650,000 | 763,750 |
8.75%, 3/15/2032 | 395,000 | 448,325 |
| 9,926,072 | |
Financials 11.4% | ||
Ahold Finance USA, Inc., 6.25%, 5/1/2009 | 855,000 | 899,887 |
Alamosa Delaware, Inc.: |
|
|
Step-up Coupon, 0% to 7/31/2005, 12.0% to 7/31/2009 | 256,000 | 272,640 |
8.5%, 1/31/2012 (f) | 55,000 | 58,300 |
AmeriCredit Corp., 9.25%, 5/1/2009 | 1,075,000 | 1,142,187 |
Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028 | 235,000 | 143,488 |
BF Saul REIT, 7.5%, 3/1/2014 | 745,000 | 761,763 |
Consolidated Communications Holdings, 144A, 9.75%, 4/1/2012 | 340,000 | 351,900 |
DFG Holdings, Inc.: |
|
|
144A, 13.95%, 5/15/2012 | 174,496 | 174,496 |
144A, 16.0%, 5/15/2012 | 176,208 | 194,710 |
Dow Jones CDX, 144A, Series 3-1, 7.75%, 12/29/2009 | 28,000,000 | 28,787,500 |
E*TRADE Financial Corp., 144A, 8.0%, 6/15/2011 | 690,000 | 727,950 |
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 635,000 | 740,479 |
FINOVA Group, Inc., 7.5%, 11/15/2009 | 3,110,800 | 1,415,414 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 (f) | 350,000 | 366,625 |
PXRE Capital Trust I, 8.85%, 2/1/2027 | 410,000 | 410,000 |
Qwest Capital Funding, Inc., 6.5%, 11/15/2018 | 650,000 | 508,625 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 | 155,000 | 189,488 |
Tennessee Valley Authority, "A", 6.79%, 5/23/2012 | 5,750,000 | 6,673,565 |
Thornburg Mortgage, Inc., 8.0%, 5/15/2013 | 110,000 | 115,500 |
TIG Capital Holdings Trust, 144A, 8.597%, 1/15/2027 | 665,000 | 555,275 |
UAP Holdings Corp., 144A, Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012 | 335,000 | 256,275 |
UGS Corp., 144A, 10.0%, 6/1/2012 | 205,000 | 229,600 |
Universal City Development, 11.75%, 4/1/2010 | 695,000 | 809,675 |
| 45,785,342 | |
Health Care 1.1% | ||
AmeriPath, Inc., 10.5%, 4/1/2013 (f) | 410,000 | 401,800 |
AmerisourceBergen Corp., 7.25%, 11/15/2012 | 85,000 | 92,225 |
Curative Health Services, Inc., 10.75%, 5/1/2011 | 370,000 | 329,300 |
Encore Medical Corp., 144A, 9.75%, 10/1/2012 | 270,000 | 264,600 |
Hanger Orthopedic Group, Inc., 10.375%, 2/15/2009 (f) | 450,000 | 452,250 |
HEALTHSOUTH Corp., 10.75%, 10/1/2008 | 250,000 | 260,625 |
InSight Health Services Corp., Series B, 9.875%, 11/1/2011 (f) | 280,000 | 280,000 |
Interactive Health LLC, 144A, 7.25%, 4/1/2011 | 325,000 | 282,750 |
National Mentor, Inc., 144A, 9.625%, 12/1/2012 | 200,000 | 200,000 |
Tenet Healthcare Corp., 6.375%, 12/1/2011 | 2,050,000 | 1,870,625 |
| 4,434,175 | |
Industrials 5.2% | ||
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 335,000 | 361,800 |
Allied Security Escrow Corp., 144A, 11.375%, 7/15/2011 | 420,000 | 441,000 |
Allied Waste North America, Inc., Series B, 5.75%, 2/15/2011 | 1,530,000 | 1,411,425 |
AMI Semiconductor, Inc., 10.75%, 2/1/2013 | 77,000 | 90,283 |
Avondale Mills, Inc.: |
|
|
144A, 8.75%, 7/1/2012 | 469,000 | 422,100 |
10.25%, 7/1/2013 (f) | 180,000 | 106,200 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 135,000 | 115,087 |
9.25%, 5/1/2021 | 180,000 | 188,550 |
Cenveo Corp., 7.875%, 12/1/2013 | 355,000 | 342,575 |
Clean Harbors, Inc., 144A, 11.25%, 7/15/2012 | 315,000 | 337,050 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 | 925,000 | 988,594 |
Collins & Aikman Products, 10.75%, 12/31/2011 (f) | 705,000 | 703,237 |
Congoleum Corp., 8.625%, 8/1/2008* | 310,000 | 279,000 |
Continental Airlines, Inc., 8.0%, 12/15/2005 (f) | 465,000 | 427,800 |
Cornell Cos., Inc., 144A, 10.75%, 7/1/2012 | 545,000 | 568,162 |
Corrections Corp. of America, 9.875%, 5/1/2009 | 560,000 | 630,000 |
Dana Corp.: |
|
|
7.0%, 3/1/2029 | 730,000 | 715,400 |
9.0%, 8/15/2011 | 470,000 | 559,300 |
Delta Air Lines, Inc.: |
|
|
7.9%, 12/15/2009 (f) | 400,000 | 186,000 |
8.3%, 12/15/2029 (f) | 200,000 | 72,000 |
Erico International Corp., 8.875%, 3/1/2012 | 300,000 | 313,500 |
Evergreen International Aviation, Inc., 12.0%, 5/15/2010 (f) | 205,000 | 127,100 |
Golden State Petroleum Transportation Co., 8.04%, 2/1/2004 | 330,000 | 336,290 |
GS Technologies Operating Co., 12.0%, 9/1/2024* | 269,411 | 674 |
Hornbeck Offshore Services, Inc., 10.625%, 8/1/2008 | 490,000 | 540,225 |
IMCO Recycling Escrow, Inc., 144A, 9.0%, 11/15/2014 | 20,000 | 20,000 |
Interface, Inc., 9.5%, 2/1/2014 | 165,000 | 178,613 |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 700,000 | 780,500 |
Joy Global, Inc., Series B, 8.75%, 3/15/2012 | 60,000 | 67,800 |
Kansas City Southern: |
|
|
7.5%, 6/15/2009 | 620,000 | 644,800 |
9.5%, 10/1/2008 | 780,000 | 867,750 |
Laidlaw International, Inc., 10.75%, 6/15/2011 | 460,000 | 529,000 |
Meritage Homes Corp., 7.0%, 5/1/2014 (f) | 360,000 | 369,450 |
Millennium America, Inc.: |
|
|
7.625%, 11/15/2026 (f) | 875,000 | 840,000 |
9.25%, 6/15/2008 (f) | 160,000 | 178,400 |
144A, 9.25%, 6/15/2008 | 625,000 | 696,875 |
Motors and Gears, Inc., 10.75%, 11/15/2006 | 850,000 | 807,500 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 360,000 | 392,400 |
Samsonite Corp., 8.875%, 6/1/2011 | 165,000 | 175,725 |
Sea Containers Ltd., 10.5%, 5/15/2012 | 305,000 | 314,531 |
Securus Technologies, Inc., 144A, 11.0%, 9/1/2011 | 400,000 | 398,500 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 855,000 | 867,825 |
Technical Olympic USA, Inc.: |
|
|
7.5%, 3/15/2011 | 460,000 | 468,050 |
10.375%, 7/1/2012 | 460,000 | 517,500 |
The Brickman Group, Ltd., Series B, 11.75%, 12/15/2009 | 305,000 | 352,275 |
Thermadyne Holdings Corp., 9.25%, 2/1/2014 | 355,000 | 337,250 |
United Rentals North America, Inc.: |
|
|
6.5%, 2/15/2012 | 500,000 | 495,000 |
7.0%, 2/15/2014 (f) | 140,000 | 129,150 |
7.75%, 11/15/2013 (f) | 215,000 | 208,012 |
Westlake Chemical Corp., 8.75%, 7/15/2011 | 75,000 | 84,563 |
| 20,984,821 | |
Information Technology 0.5% | ||
Activant Solutions, Inc., 10.5%, 6/15/2011 | 490,000 | 510,825 |
Itron, Inc., 144A, 7.75%, 5/15/2012 | 210,000 | 212,625 |
Lucent Technologies, Inc.: |
|
|
6.45%, 3/15/2029 | 1,130,000 | 970,388 |
7.25%, 7/15/2006 (f) | 260,000 | 275,600 |
| 1,969,438 | |
Materials 4.8% | ||
Aqua Chemical, Inc., 11.25%, 7/1/2008 | 555,000 | 427,350 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 2,070,000 | 2,297,700 |
Associated Materials, Inc., 144A, Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 1,150,000 | 856,750 |
Boise Cascade LLC: |
|
|
144A, 5.005%**, 10/15/2012 | 170,000 | 173,825 |
144A, 7.125%, 10/15/2014 | 85,000 | 88,724 |
Caraustar Industries, Inc., 9.875%, 4/1/2011 (f) | 380,000 | 412,300 |
Constar International, Inc., 11.0%, 12/1/2012 (f) | 335,000 | 319,925 |
Dayton Superior Corp.: |
|
|
10.75%, 9/15/2008 | 425,000 | 452,625 |
13.0%, 6/15/2009 | 685,000 | 678,150 |
GEO Specialty Chemicals, Inc., 10.125%, 8/1/2008* | 535,000 | 278,200 |
Georgia-Pacific Corp.: |
|
|
8.0%, 1/15/2024 | 1,210,000 | 1,400,575 |
9.375%, 2/1/2013 | 765,000 | 900,787 |
Graham Packaging Co., Inc., 144A, 8.5%, 10/15/2012 | 445,000 | 467,250 |
Hercules, Inc.: |
|
|
6.75%, 10/15/2029 | 375,000 | 382,500 |
11.125%, 11/15/2007 | 632,000 | 764,720 |
Hexcel Corp., 9.75%, 1/15/2009 (f) | 435,000 | 457,837 |
Huntsman Advanced Materials, 144A, 11.0%, 7/15/2010 | 620,000 | 716,100 |
Huntsman LLC, 11.625%, 10/15/2010 | 685,000 | 807,444 |
IMC Global, Inc., 10.875%, 8/1/2013 (f) | 50,000 | 63,125 |
Intermet Corp., 9.75%, 6/15/2009* | 280,000 | 110,600 |
International Steel Group, Inc., 6.5%, 4/15/2014 | 995,000 | 1,064,650 |
MMI Products, Inc., Series B, 11.25%, 4/15/2007 (f) | 305,000 | 308,050 |
Neenah Corp.: |
|
|
144A, 11.0%, 9/30/2010 | 665,000 | 731,500 |
144A, 13.0%, 9/30/2013 | 428,070 | 440,912 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 385,000 | 427,350 |
Owens-Brockway Glass Container, 8.25%, 5/15/2013 (f) | 335,000 | 368,500 |
Oxford Automotive Inc, 144A, 12.0%, 10/15/2010 (f)* | 880,000 | 325,600 |
Pliant Corp.: |
|
|
Step-up Coupon, 0% to 12/15/2006, 11.125% to 6/15/2009 | 110,000 | 97,900 |
11.125%, 9/1/2009 | 495,000 | 532,125 |
13.0%, 6/1/2010 (f) | 50,000 | 46,625 |
Portola Packaging, Inc., 8.25%, 2/1/2012 (f) | 270,000 | 211,950 |
Radnor Holdings Corp., 11.0%, 3/15/2010 | 455,000 | 350,350 |
Sheffield Steel Corp., 144A, 11.375%, 8/15/2011 | 255,000 | 261,375 |
Tekni-Plex, Inc., 144A, 8.75%, 11/15/2013 | 90,000 | 85,838 |
TriMas Corp., 9.875%, 6/15/2012 | 1,115,000 | 1,142,875 |
United States Steel LLC, 9.75%, 5/15/2010 (f) | 522,000 | 597,690 |
| 19,049,777 | |
Telecommunication Services 4.5% | ||
AirGate PCS, Inc., 144A, 5.85%**, 10/15/2011 | 225,000 | 230,625 |
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 1,750,000 | 1,470,000 |
American Tower Corp., 144A, 7.125%, 10/15/2012 | 225,000 | 228,938 |
AT&T Corp., 8.0%, 11/15/2031 | 325,000 | 376,188 |
Cincinnati Bell, Inc.: |
|
|
7.2%, 11/29/2023 | 190,000 | 185,012 |
8.375%, 1/15/2014 (f) | 1,755,000 | 1,676,025 |
Crown Castle International Corp., 9.375%, 8/1/2011 | 310,000 | 351,850 |
Dobson Cellular Systems, Inc.: |
|
|
144A, 6.96%**, 11/1/2011 | 280,000 | 287,700 |
144A, 8.375%, 11/1/2011 | 200,000 | 206,250 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 660,000 | 443,850 |
GCI, Inc., 7.25%, 2/15/2014 | 350,000 | 346,500 |
Insight Midwest LP, 9.75%, 10/1/2009 | 270,000 | 283,838 |
LCI International, Inc., 7.25%, 6/15/2007 | 685,000 | 628,487 |
Level 3 Financing, Inc., 144A, 10.75%, 10/15/2011 | 200,000 | 172,000 |
MCI, Inc.: |
|
|
6.688%, 5/1/2009 | 740,000 | 729,825 |
7.735%, 5/1/2014 | 1,390,000 | 1,339,612 |
Nextel Communications, Inc., 5.95%, 3/15/2014 | 285,000 | 291,413 |
Nextel Partners, Inc., 8.125%, 7/1/2011 | 400,000 | 438,000 |
Northern Telecom Capital, 7.875%, 6/15/2026 | 965,000 | 945,700 |
PanAmSat Corp., 144A, 9.0%, 8/15/2014 | 890,000 | 943,400 |
Qwest Corp.: |
|
|
7.25%, 9/15/2025 (f) | 2,450,000 | 2,241,750 |
144A, 7.875%, 9/1/2011 | 10,000 | 10,650 |
Qwest Services Corp.: |
|
|
144A, 13.5%, 12/15/2010 | 865,000 | 1,027,187 |
144A, 14.0%, 12/15/2014 | 760,000 | 942,400 |
Rural Cellular Corp., 9.875%, 2/1/2010 (f) | 350,000 | 352,625 |
SBA Telecom, Inc., Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011 | 270,000 | 227,475 |
Triton PCS, Inc., 8.5%, 6/1/2013 | 405,000 | 371,588 |
Ubiquitel Operating Co., 9.875%, 3/1/2011 | 535,000 | 579,137 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 400,000 | 433,000 |
Western Wireless Corp., 9.25%, 7/15/2013 | 110,000 | 117,150 |
| 17,878,175 | |
Utilities 2.1% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 235,000 | 271,425 |
Allegheny Energy Supply Co. LLC, 144A, 8.25%, 4/15/2012 (f) | 335,000 | 377,712 |
Aquila, Inc., 14.875%, 7/1/2012 (f) | 180,000 | 246,600 |
Calpine Corp.: |
|
|
8.25%, 8/15/2005 (f) | 380,000 | 371,450 |
144A, 8.5%, 7/15/2010 (f) | 490,000 | 360,150 |
CMS Energy Corp., 8.5%, 4/15/2011 | 510,000 | 578,850 |
DPL, Inc., 6.875%, 9/1/2011 | 1,340,000 | 1,460,600 |
Illinova Corp., 11.5%, 12/15/2010 (f) | 976,000 | 1,157,463 |
Midwest Generation LLC, 8.75%, 5/1/2034 | 235,000 | 266,138 |
NorthWestern Corp., 144A, 5.875%, 11/1/2014 | 250,000 | 257,813 |
NRG Energy, Inc., 144A, 8.0%, 12/15/2013 | 1,650,000 | 1,817,062 |
PSE&G Energy Holdings LLC: |
|
|
8.5%, 6/15/2011 | 135,000 | 153,900 |
10.0%, 10/1/2009 | 200,000 | 241,000 |
TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010 | 735,000 | 790,125 |
| 8,350,288 | |
Total Corporate Bonds (Cost $166,373,671) | 168,603,212 | |
| ||
Foreign Bonds — US$ Denominated 22.6% | ||
Alestra SA de RL de CV, 8.0%, 6/30/2010 | 135,000 | 109,350 |
Antenna TV SA, 9.0%, 8/1/2007 | 350,000 | 353,500 |
Aries Vermogensverwaltung GmbH: |
|
|
144A, Series C, 9.6%, 10/25/2014 | 750,000 | 875,625 |
Series C, 9.6%, 10/25/2014 | 750,000 | 877,275 |
Avecia Group PLC, 11.0%, 7/1/2009 | 1,205,000 | 1,132,700 |
Axtel SA, 11.0%, 12/15/2013 | 615,000 | 639,600 |
Biovail Corp., 7.875%, 4/1/2010 (f) | 200,000 | 207,500 |
Burns Philp Capital Property, 10.75%, 2/15/2011 | 140,000 | 156,800 |
Calpine Canada Energy Finance, 8.5%, 5/1/2008 (f) | 915,000 | 562,725 |
Cascades, Inc., 7.25%, 2/15/2013 | 745,000 | 804,600 |
Citigroup (JSC Severstal), 144A, 9.25%, 4/19/2014 | 720,000 | 705,600 |
Conproca SA de CV, 12.0%, 6/16/2010 | 395,000 | 501,650 |
Corp. Durango SA: |
|
|
13.125%, 8/1/2006* (f) | 150,000 | 93,000 |
144A, 13.75%, 7/15/2009* | 500,000 | 310,000 |
Cosan SA Industria E Comercio, 144A, 9.0%, 11/1/2009 | 165,000 | 166,650 |
CP Ships Ltd., 10.375%, 7/15/2012 | 500,000 | 576,250 |
Crown Euro Holdings SA, 10.875%, 3/1/2013 | 345,000 | 409,688 |
Dominican Republic: |
|
|
9.04%, 1/23/2013 | 980,000 | 795,025 |
144A, 9.04%, 1/23/2013 | 225,000 | 182,531 |
9.5%, 9/27/2006 | 150,000 | 131,813 |
Dresdner Bank (Kyivstar), 144A, 10.375%, 8/17/2009 | 200,000 | 221,000 |
Eircom Funding, 8.25%, 8/15/2013 | 490,000 | 545,125 |
Embratel, Series B, 11.0%, 12/15/2008 | 440,000 | 489,500 |
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 | 1,280,000 | 1,286,400 |
Federative Republic of Brazil: |
|
|
Floating Rate Note Debt Conversion Bond, LIBOR plus ..875%, Series L, 3.125%**, 4/15/2012 | 441,180 | 402,841 |
8.875%, 10/14/2019 (f) | 505,000 | 498,688 |
9.25%, 10/22/2010 | 380,000 | 407,170 |
11.0%, 8/17/2040 | 1,900,000 | 2,143,200 |
11.5%, 3/12/2008 | 1,100,000 | 1,272,150 |
14.5%, 10/15/2009 | 1,400,000 | 1,799,000 |
Flextronics International Ltd., 6.5%, 5/15/2013 | 340,000 | 357,000 |
Gaz Capital SA, 144A, 8.625%, 4/28/2034 | 425,000 | 472,812 |
Gazprom OAO, 144A, 9.625%, 3/1/2013 | 380,000 | 437,000 |
Government of Ukraine: |
|
|
6.875%, 3/4/2011 | 500,000 | 503,100 |
7.65%, 6/11/2013 | 2,000,000 | 2,056,600 |
Grupo Posadas SA de CV, 144A, 8.75%, 10/4/2011 | 200,000 | 205,000 |
Inmarsat Finance PLC, 144A, 7.625%, 6/30/2012 | 640,000 | 646,400 |
Innova S. de R.L., 9.375%, 9/19/2013 (f) | 405,000 | 450,562 |
INTELSAT, 6.5%, 11/1/2013 | 520,000 | 445,917 |
ISPAT Inland ULC, 9.75%, 4/1/2014 | 595,000 | 722,925 |
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 650,000 | 741,000 |
Kabel Deutschland GmbH, 144A, 10.625%, 7/1/2014 | 810,000 | 907,200 |
LeGrand SA, 8.5%, 2/15/2025 | 455,000 | 522,112 |
LG Telecom Ltd., 144A, 8.25%, 7/15/2009 | 355,000 | 378,139 |
Luscar Coal Ltd., 9.75%, 10/15/2011 | 585,000 | 666,900 |
Millicom International Cellular SA, 144A, 10.0%, 12/1/2013 | 920,000 | 929,200 |
Mizuho Financial Group , 8.375%, 12/29/2049 | 345,000 | 376,016 |
Mobifon Holdings BV, 12.5% , 7/31/2010 | 785,000 | 930,225 |
Mobile Telesystems Financial, 144A, 8.375%, 10/14/2010 | 355,000 | 362,988 |
New ASAT (Finance) Ltd., 144A, 9.25%, 2/1/2011 | 705,000 | 616,875 |
Nigeria, Promissory Note, Series RC, 5.092%, 1/5/2010 | 788,061 | 752,500 |
Nortel Networks Corp., 6.875%, 9/1/2023 (f) | 150,000 | 139,500 |
Nortel Networks Ltd., 6.125%, 2/15/2006 | 1,765,000 | 1,804,712 |
Petroleos Mexicanos SA, 9.5%, 9/15/2027 | 800,000 | 986,000 |
Petroleum Geo-Services ASA, 10.0%, 11/5/2010 | 2,005,027 | 2,285,731 |
Province of Ontario, 2.65%, 12/15/2006 (f) | 8,000,000 | 7,939,608 |
Republic of Argentina: |
|
|
Series BGLO, 8.375%, 12/20/2049* | 1,000,000 | 296,250 |
9.75%, 9/19/2027* | 3,449,000 | 1,017,455 |
11.375%, 3/15/2010* | 2,945,000 | 905,587 |
Series BGL5, 11.375%, 1/30/2017* | 85,000 | 26,988 |
11.75%, 4/7/2009* | 800,000 | 246,000 |
11.75%, 12/31/2049* | 670,000 | 211,050 |
Series 2018, 12.25%, 6/19/2018* | 424,500 | 127,350 |
12.375%, 2/21/2012* | 1,900,000 | 589,000 |
Republic of Bulgaria, 8.25%, 1/15/2015 | 3,070,000 | 3,838,728 |
Republic of Ecuador, Step-up Coupon, 8.0% to 8/15/2005, 9.0% to 8/15/2006, 10.0% to 8/15/2030 | 1,700,000 | 1,423,750 |
Republic of Peru, 8.375%, 5/3/2016 | 500,000 | 521,250 |
Republic of Philippines: |
|
|
9.375%, 1/18/2017 | 1,600,000 | 1,650,000 |
9.5%, 10/21/2024 | 750,000 | 811,875 |
9.875%, 1/15/2019 | 250,000 | 251,562 |
Republic of Turkey: |
|
|
7.25%, 3/15/2015 (f) | 285,000 | 285,000 |
9.0%, 6/30/2011 | 280,000 | 311,150 |
9.5%, 1/15/2014 | 225,000 | 258,188 |
10.5%, 1/13/2008 | 290,000 | 331,122 |
11.0%, 1/14/2013 | 1,150,000 | 1,418,812 |
11.75%, 6/15/2010 | 250,000 | 310,000 |
11.875%, 1/15/2030 | 2,450,000 | 3,344,250 |
12.375%, 6/15/2009 | 1,320,000 | 1,638,450 |
Republic of Uruguay: |
|
|
7.5%, 3/15/2015 | 110,000 | 96,800 |
(PIK), 7.875%, 1/15/2033 | 699 | 568 |
Republic of Venezuela: |
|
|
3.09%**, 4/20/2011 | 900,000 | 783,000 |
5.375%, 8/7/2010 | 300,000 | 274,140 |
Series A, Collateralized Par Bond, 6.75%, 3/31/2020 | 500,000 | 491,250 |
8.5%, 10/8/2014 | 700,000 | 710,500 |
9.375%, 1/13/2034 | 300,000 | 306,300 |
10.75%, 9/19/2013 | 1,700,000 | 1,965,200 |
Rhodia SA: |
|
|
7.625%, 6/1/2010 (f) | 310,000 | 303,800 |
8.875%, 6/1/2011 (f) | 310,000 | 289,850 |
10.25%, 6/1/2010 (f) | 180,000 | 195,300 |
Rogers Wireless Communications, Inc., 6.375%, 3/1/2014 | 355,000 | 339,025 |
Russian Federation: |
|
|
Series REGS, Step-up Coupon 5.0% to 3/31/2007, 7.5% to 3/31/2030 | 5,590,000 | 5,590,000 |
12.75%, 6/24/2028 | 200,000 | 318,000 |
Russian Ministry of Finance: |
|
|
Series V, 3.0%, 5/14/2008 | 100,000 | 92,500 |
Series VII, 3.0%, 5/14/2011 | 210,000 | 173,523 |
Secunda International Ltd., 144A, 9.76%**, 9/1/2012 | 275,000 | 270,875 |
Shaw Communications, Inc.: |
|
|
Series B, 7.2%, 12/15/2011 (f) | 85,000 | 93,500 |
Series B, 7.25%, 4/6/2011 | 335,000 | 368,500 |
Series B, 8.25%, 4/11/2010 | 1,000,000 | 1,147,500 |
Sino-Forest Corp., 144A, 9.125%, 8/17/2011 | 280,000 | 290,500 |
Sistema Capital SA, 144A, 8.875%, 1/28/2011 | 85,000 | 86,913 |
Stena AB, 9.625% , 12/1/2012 | 175,000 | 197,094 |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 935,000 | 710,600 |
Tembec Industries, Inc., 8.5%, 2/1/2011 (f) | 1,675,000 | 1,712,687 |
TFM SA de CV: |
|
|
10.25%, 6/15/2007 | 1,655,000 | 1,737,750 |
11.75%, 6/15/2009 | 690,000 | 702,075 |
12.5%, 6/15/2012 | 40,000 | 45,400 |
United Mexican States: |
|
|
7.5%, 4/8/2033 | 1,700,000 | 1,812,200 |
8.0%, 9/24/2022 | 960,000 | 1,101,600 |
8.125%, 12/30/2019 | 1,300,000 | 1,522,950 |
9.875%, 2/1/2010 | 600,000 | 744,600 |
Vicap SA, 11.375%, 5/15/2007 | 160,000 | 161,600 |
Vitro Envases Norteamrca SA, 144A, 10.75%, 7/23/2011 | 285,000 | 282,150 |
Vitro SA de CV, Series A, 144A, 11.75%, 11/1/2013 (f) | 490,000 | 472,850 |
Total Foreign Bonds — US$ Denominated (Cost $86,535,410) | 90,498,210 | |
| ||
Foreign Bonds — Non US$ Denominated 22.6% | ||
Aries Vermogensverwaltung GmbH, Series B, 7.75%, 10/25/2009 EUR | 1,500,000 | 2,086,915 |
Cablecom Luxembourg SCA, 144A, 9.375%, | 535,000 | 721,843 |
Federative Republic of Brazil, 11.0%, 2/4/2010 EUR | 720,000 | 1,040,513 |
Grohe Holdings GmbH, 144A, 8.625%, 10/1/2014 EUR | 455,000 | 602,266 |
Huntsman International LLC, 10.125%, 7/1/2009 EUR | 445,000 | 597,566 |
Ispat Europe Group SA, 11.875%, 2/1/2011 EUR | 1,070,000 | 1,566,844 |
Kingdom of Spain, 6.0%, 1/31/2008 EUR | 16,000,000 | 22,460,102 |
Mexican Fixed Rate Bonds: |
|
|
Series M-20, 8.0%, 12/7/2023 MXN | 38,000,000 | 2,598,623 |
Series MI-10, 8.0%, 12/19/2013 MXN | 7,192,500 | 546,688 |
Province of Ontario, 1.875%, 1/25/2010 JPY | 875,000,000 | 8,754,817 |
Republic of Argentina: |
|
|
7.5%, 5/23/2049* EUR | 1,400,353 | 501,456 |
12.0%, 9/19/2016* EUR | 204,517 | 76,505 |
Republic of Greece, 4.6%, 5/20/2013 EUR | 17,250,000 | 23,107,731 |
Republic of Italy, 10.5%, 4/28/2014 GBP | 7,450,000 | 19,094,988 |
Republic of Peru, 7.5%, 10/14/2014 EUR | 620,000 | 786,971 |
Republic of Philippines, 9.125%, 2/22/2010 EUR | 600,000 | 794,197 |
Republic of Romania, 8.5%, 5/8/2012 EUR | 1,970,000 | 3,136,694 |
Republic of Turkey, Zero Coupon, 12/7/2005 TRL | 2,500,000,000,000 | 1,346,527 |
TRW Automotive, Inc., 11.75%, 2/15/2013 EUR | 220,000 | 332,003 |
Victoria Acquisition III BV, 144A, 7.875%, 10/1/2014 EUR | 230,000 | 289,735 |
Total Foreign Bonds — Non US$ Denominated (Cost $81,130,308) | 90,442,984 | |
| ||
US Government Backed 8.2% | ||
US Treasury Bond: |
|
|
5.375%, 2/15/2031 (f) | 1,080,000 | 1,173,024 |
6.25%, 8/15/2023 (f) | 6,400,000 | 7,560,000 |
7.25%, 5/15/2016 (f) | 5,075,000 | 6,438,115 |
7.5%, 11/15/2016 | 1,200,000 | 1,554,140 |
12.0%, 8/15/2013 (f) | 2,880,000 | 3,791,137 |
12.75%, 11/15/2010 (d) | 6,100,000 | 6,745,740 |
US Treasury Note: |
|
|
4.75%, 11/15/2008 (f) | 1,250,000 | 1,328,515 |
5.75%, 8/15/2010 (f) | 2,000,000 | 2,236,640 |
6.125%, 8/15/2007 (f) | 1,850,000 | 2,015,632 |
Total US Government Backed (Cost $34,434,646) | 32,842,943 | |
|
| Value ($) |
|
| |
Common Stocks 0.0% | ||
Catalina Restaurant Group, Inc.* | 4,239 | 6,782 |
IMPSAT Fiber Networks, Inc.* | 20,919 | 113,172 |
Total Common Stocks (Cost $1,220,346) | 119,954 | |
| ||
Warrants 0.0% | ||
DeCrane Aircraft Holdings, Inc., 144A* | 2,740 | 27 |
Destia Communications, Inc., 144A* | 1,425 | 0 |
Total Warrants (Cost $14) | 27 | |
| ||
Preferred Stocks 0.3% | ||
Paxson Communications Corp., 14.25% (PIK) | 84 | 638,400 |
TNP Enterprises, Inc., 14.50%, "D" (PIK) | 3,500 | 402,500 |
Total Preferred Stocks (Cost $1,168,823) | 1,040,900 | |
| ||
Convertible Preferred Stocks 0.2% | ||
Hercules Trust II, 6.50% (Cost $703,990) | 1,085 | 868,000 |
| Principal Amount ($) (c) | Value ($) |
|
| |
Convertible Bonds 0.2% | ||
Consumer Discretionary 0.2% | ||
DIMON, Inc., 6.25%, 3/31/2007 | 655,000 | 614,062 |
HIH Capital Ltd.: Series Dom, 144A, 7.5%, 9/25/2006 | 110,000 | 103,130 |
Series Euro, 7.5%, 9/25/2006 | 45,000 | 42,189 |
Total Convertible Bonds (Cost $745,978) | 759,381 | |
| ||
Asset Backed 0.1% | ||
Automobile Receivables 0.1% | ||
MMCA Automobile Trust, "B", Series 2002-2, 4.67%, 3/15/2010 (Cost $274,781) | 294,264 | 291,080 |
Loan Participations 0.5% | ||
Kingdom of Morocco, Series A, 2.78%**, 1/5/2009 | 470,000 | 462,950 |
Republic of Algeria, Floating Rate Debt Conversion Bond, LIBOR plus .8125%, 2.813%**, 3/4/2010 | 1,301,004 | 1,287,995 |
Total Loan Participation (Cost $1,736,086) | 1,750,945 | |
| Units | Value ($) |
|
| |
Other 0.0% | ||
SpinCycle, Inc. | 26,151 | 147,230 |
SpinCycle, Inc., "F" | 184 | 1,036 |
Total Other (Cost $63,913) | 148,266 | |
| ||
| Contracts | Value ($) |
|
| |
Purchased Foreign Currency Options 0.2% | ||
SEK Call/USD Put January 2005, 7.33 Strike Price | 62,441,000 | 358,397 |
JPY Call/USD Put January 2005, 109.1 Strike Price | 868,332,500 | 317,436 |
Total Purchased Foreign Currency Options (Cost $305,989) | 675,833 | |
| ||
| Shares | Value ($) |
|
| |
Securities Lending Collateral 13.4% | ||
Daily Assets Fund Institutional, 1.80% (e) (g) (Cost $53,661,030) | 53,661,030 | 53,661,030 |
| ||
Cash Equivalents 1.1% | ||
Scudder Cash Management QP Trust, 1.80% (b) (Cost $4,475,818) | 4,475,818 | 4,475,818 |
|
| Value ($) |
|
| |
Total Investment Portfolio (Cost $432,830,803) (a) | 111.5 | 446,178,583 |
Other Assets and Liabilities, Net | (11.5) | (45,893,111) |
Net Assets | 100.0 | 400,285,472 |
* 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 October 31, 2004.
(a) The cost for federal income tax purposes was $437,245,048. At October 31, 2004, net unrealized appreciation for all securities based on tax cost was $8,933,535. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $19,591,612 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $10,658,077.
(b) Scudder Cash Management QP Trust is 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 October 31, 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 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 October 31, 2004 amounted to $52,766,693, which is 13.2% of total net assets.
(g) Represents collateral held in connection with securities lending.
PIK denotes that interest or dividend is paid in kind.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
At October 31, 2004, open futures contracts sold were as follows:
Futures | Expiration Date | Contract Amounts | Aggregate Face Value ($) | Value ($) | Unrealized Depreciation ($) |
UK Treasury Bond | 12/29/2004 | 198 | 38,697,951 | 39,407,599 | (709,648) |
5 Year US Treasury Note | 12/20/2004 | 204 | 22,447,270 | 22,720,500 | (273,230) |
2 Year US Treasury Note | 12/30/2004 | 221 | 46,702,623 | 46,800,203 | (97,580) |
Total unrealized depreciation | (1,080,458) | ||||
The accompanying notes are an integral part of the financial statements.
At October 31, 2004, open futures contracts purchased were as follows:
Futures | Expiration Date | Contract Amounts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation ($) |
10 Year Canadian Government Bonds | 12/20/2004 | 137 | 12,257,652 | 12,483,033 | 225,381 |
10 Year Germany Treasury Bond | 12/8/2004 | 169 | 24,740,732 | 25,274,721 | 533,989 |
10 Year Japan Bond | 12/9/2004 | 13 | 16,643,340 | 16,959,724 | 316,384 |
10 Year US Treasury Note | 12/20/2004 | 128 | 14,264,517 | 14,536,000 | 271,483 |
Total unrealized appreciation | 1,347,237 | ||||
Written Options | Contract Amounts | Expiration Date | Strike Price ($) | Value ($) |
Put Options SEK Put / USD Call | 62,441,000 | 1/21/2005 | 7.33 | 77,278 |
JPY Put / USD Call | 868,332,500 | 1/21/2005 | 109.10 | 48,531 |
Total outstanding written options (Premiums received $296,926) | 125,809 | |||
Currency Abbreviations | |||
EUR | Euro | MXN | Mexican Pesos |
GBP | British Pounds | SEK | Swedish Krona |
JPY | Japanese Yen | TRL | Turkish Lire |
The accompanying notes are an integral part of the financial statements.
|
Statement of Assets and Liabilities as of October 31, 2004 | |
Assets | |
Investments: Investments in securities, at value (cost $374,693,955) including $52,766,693 of securities loaned | $ 388,041,735 |
Investment in Scudder Cash Management QP Trust (cost $4,475,818) | 4,475,818 |
Investment in Daily Assets Fund Institutional (cost $53,661,030)* | 53,661,030 |
Total investments in securities, at value (cost $432,830,803) | 446,178,583 |
Cash | 966,034 |
Foreign currency, at value (cost $3,020,627) | 3,070,468 |
Receivable for investments sold | 5,801,498 |
Interest receivable | 9,160,775 |
Receivable for Fund shares sold | 320,633 |
Receivable for daily variation margin on open futures contracts | 67,293 |
Unrealized appreciation on forward foreign currency exchange contracts | 69,686 |
Other assets | 31,157 |
Total assets | 465,666,127 |
Liabilities | |
Payable for investments purchased | 8,310,692 |
Payable upon return of securities loaned | 53,661,030 |
Payable for Fund shares redeemed | 1,186,824 |
Unrealized depreciation on forward foreign currency exchange contracts | 1,522,255 |
Written options, at value (premiums received $296,926) | 125,809 |
Accrued management fee | 190,448 |
Other accrued expenses and payables | 383,597 |
Total liabilities | 65,380,655 |
Net assets, at value | $ 400,285,472 |
* Represents collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Assets and Liabilities as of October 31, 2004 (continued) | |
Net Assets | |
Net assets consist of: Undistributed net investment income | 1,410,316 |
Net unrealized appreciation (depreciation) on: Investments | 13,347,780 |
Futures | 266,779 |
Written options | 171,117 |
Foreign currency related transactions | (1,325,518) |
Accumulated net realized gain (loss) | (114,670,684) |
Paid-in capital | 501,085,682 |
Net assets, at value | $ 400,285,472 |
Net Asset Value | |
Class A Net Asset Value and redemption price per share ($334,173,556 ÷ 70,192,040 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 4.76 |
Maximum offering price per share (100 ÷ 95.5 of $4.76) | $ 4.98 |
Class B Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($45,723,691 ÷ 9,610,832 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 4.76 |
Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($20,388,225 ÷ 4,259,238 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 4.79 |
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Operations for the year ended October 31, 2004 | |
Investment Income | |
Income: Dividends | $ 260,170 |
Interest | 28,309,913 |
Interest — Scudder Cash Management QP Trust | 128,764 |
Securities lending income, including income from Daily Assets Fund Institutional | 114,490 |
Total Income | 28,813,337 |
Expenses: Management fee | 2,319,802 |
Services to shareholders | 799,972 |
Custodian fees | 93,288 |
Distribution service fees | 1,513,612 |
Auditing | 56,505 |
Legal | 19,437 |
Trustees' fees and expenses | 36,635 |
Reports to shareholders | 57,000 |
Registration fees | 37,350 |
Other | 16,663 |
Total expenses, before expense reductions | 4,950,264 |
Expense reductions | (2,887) |
Total expenses, after expense reductions | 4,947,377 |
Net investment income | 23,865,960 |
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Operations for the year ended October 31, 2004 (continued) | |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | $ 1,155,667 |
Futures | 868,112 |
Written options | 231,511 |
Foreign currency related transactions | (1,701,995) |
| 553,295 |
Net unrealized appreciation (depreciation) during the period on: Investments | 21,595,029 |
Futures | 371,680 |
Written options | 171,117 |
Foreign currency related transactions | (1,215,776) |
| 20,922,050 |
Net gain (loss) on investment transactions | 21,475,345 |
Net increase (decrease) in net assets resulting from operations | $ 45,341,305 |
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Changes in Net Assets | ||
| Years Ended October 31, | |
Increase (Decrease) in Net Assets | 2004 | 2003 |
Operations: Net investment income | $ 23,865,960 | $ 24,678,544 |
Net realized gain (loss) on investment transactions | 553,295 | (19,925,447) |
Net unrealized appreciation (depreciation) on investment transactions during the period | 20,922,050 | 66,338,898 |
Net increase (decrease) in net assets resulting from operations | 45,341,305 | 71,091,995 |
Distributions to shareholders from: Net investment income: Class A | (21,182,999) | (6,871,503) |
Class B | (3,091,322) | (1,462,167) |
Class C | (1,131,402) | (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 | 67,182,472 | 99,273,790 |
Reinvestment of distributions | 17,048,946 | 18,557,361 |
Cost of shares redeemed | (123,957,745) | (137,586,945) |
Net increase (decrease) in net assets from Fund share transactions | (39,726,327) | (19,755,794) |
Increase (decrease) in net assets | (19,790,745) | 23,115,285 |
Net assets at beginning of period | 420,076,217 | 396,960,932 |
Net assets at end of period (including undistributed net investment income of $1,410,316 and $171,110, respectively) | $ 400,285,472 | $ 420,076,217 |
The accompanying notes are an integral part of the financial statements.
|
Class A | |||||
Years Ended October 31, | 2004 | 2003 | 2002a | 2001 | 2000 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.53 | $ 4.08 | $ 4.33 | $ 4.57 | $ 5.26 |
Income (loss) from investment operations: Net investment income (loss)b | .28 | .27 | .32 | .39 | .48 |
Net realized and unrealized gain (loss) on investment transactions | .25 | .49 | (.21) | (.20) | (.72) |
Total from investment operations | .53 | .76 | .11 | .19 | (.24) |
Less distributions from: Net investment income | (.30) | (.10) | (.25) | (.34) | (.34) |
Tax return of capital | — | (.21) | (.11) | (.09) | (.11) |
Total distributions | (.30) | (.31) | (.36) | (.43) | (.45) |
Net asset value, end of period | $ 4.76 | $ 4.53 | $ 4.08 | $ 4.33 | $ 4.57 |
Total Return (%)c | 12.01 | 19.05 | 2.38 | 4.47 | (4.91) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 334 | 329 | 300 | 322 | 359 |
Ratio of expenses before expense reductions (%) | 1.05 | 1.12 | 1.12 | 1.21d | 1.10 |
Ratio of expenses after expense reductions (%) | 1.05 | 1.12 | 1.12 | 1.19d | 1.09 |
Ratio of net investment income (loss) (%) | 6.01 | 6.11 | 7.54 | 8.78 | 9.55 |
Portfolio turnover rate (%) | 169 | 180 | 86 | 124 | 37 |
a As required, effective November 1, 2001, the Fund 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. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d 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. | |||||
| |||||
Class B | |||||
Years Ended October 31, | 2004 | 2003 | 2002a | 2001 | 2000 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.52 | $ 4.08 | $ 4.33 | $ 4.57 | $ 5.26 |
Income (loss) from investment operations: Net investment income (loss)b | .24 | .23 | .29 | .35 | .43 |
Net realized and unrealized gain (loss) on investment transactions | .25 | .48 | (.21) | (.21) | (.72) |
Total from investment operations | .49 | .71 | .08 | .14 | (.29) |
Less distributions from: Net investment income | (.25) | (.08) | (.23) | (.30) | (.30) |
Tax return of capital | — | (.19) | (.10) | (.08) | (.10) |
Total distributions | (.25) | (.27) | (.33) | (.38) | (.40) |
Net asset value, end of period | $ 4.76 | $ 4.52 | $ 4.08 | $ 4.33 | $ 4.57 |
Total Return (%)c | 11.03 | 18.08 | 1.77 | 3.20 | (5.85) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 46 | 71 | 82 | 100 | 119 |
Ratio of expenses before expense reductions (%) | 1.94 | 1.94 | 1.94 | 2.22d | 2.11 |
Ratio of expenses after expense reductions (%) | 1.94 | 1.94 | 1.94 | 2.22d | 2.10 |
Ratio of net investment income (loss) (%) | 5.12 | 5.29 | 6.73 | 7.75 | 8.50 |
Portfolio turnover rate (%) | 169 | 180 | 86 | 124 | 37 |
a As required, effective November 1, 2001, the Fund 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. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d 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. | |||||
| |||||
Class C | |||||
Years Ended October 31, | 2004 | 2003 | 2002a | 2001 | 2000 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.56 | $ 4.11 | $ 4.36 | $ 4.60 | $ 5.29 |
Income (loss) from investment operations: Net investment income (loss)b | .24 | .24 | .29 | .37 | .45 |
Net realized and unrealized gain (loss) on investment transactions | .25 | .49 | (.20) | (.21) | (.72) |
Total from investment operations | .49 | .73 | .09 | .16 | (.27) |
Less distributions from: Net investment income | (.26) | (.09) | (.23) | (.31) | (.32) |
Tax return of capital | — | (.19) | (.11) | (.09) | (.10) |
Total distributions | (.26) | (.28) | (.34) | (.40) | (.42) |
Net asset value, end of period | $ 4.79 | $ 4.56 | $ 4.11 | $ 4.36 | $ 4.60 |
Total Return (%)c | 11.08 | 18.20 | 2.00 | 3.55 | (5.51) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 20 | 20 | 15 | 16 | 19 |
Ratio of expenses before expense reductions (%) | 1.90 | 1.79 | 1.76 | 1.87d | 1.76 |
Ratio of expenses after expense reductions (%) | 1.90 | 1.79 | 1.76 | 1.84d | 1.75 |
Ratio of net investment income (loss) (%) | 5.16 | 5.44 | 6.90 | 8.13 | 8.87 |
Portfolio turnover rate (%) | 169 | 180 | 86 | 124 | 37 |
a As required, effective November 1, 2001, the Fund 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. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d 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. | |||||
|
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 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.
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, services to shareholders 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 a broker-dealer. 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.
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 consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. 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.
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, 2004, the Fund had a net tax basis capital loss carryforward of approximately $110,356,000 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), October 31, 2011 ($2,469,000), and October 31, 2012 ($1,247,000), 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. 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.
At October 31, 2004, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* | $ — |
Undistributed net long-term capital gains | $ — |
Capital loss carryforwards | $ (110,356,000) |
Net unrealized appreciation (depreciation) on investments | $ 8,933,535 |
In addition, the tax character of distributions paid to shareholders by the Fund are summarized as follows:
Distribution Fee | Years Ended October 31, | |
2004 | 2003 | |
Distributions from ordinary income* | $ 25,405,723 | $ 8,683,235 |
Distributions from return of capital | $ — | $ 19,537,681 |
* For tax purposes, short-term capital gains distributions are considered ordinary income distributions.
Other. Investment transactions are accounted for on a trade date plus one basis. 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, with the exception of securities bought in default.
B. Purchases and Sales of Securities
During the year ended October 31, 2004, purchases and sales of investment securities (excluding short-term investments and US Treasury securities) aggregated $530,091,168 and $602,241,933, respectively. Purchases and sales of US Treasury securities aggregated $117,177,903 and $81,592,041, respectively.
For the year ended October 31, 2004, transactions for written options were as follows:
| Contract Amounts | Premium ($) |
Outstanding at October 31, 2003 | — | — |
Options written | 5,133,558,350 | 1,759,271 |
Options closed | (4,202,784,850) | (781,706) |
Options exercised | — | — |
Options expired | — | (680,639) |
Outstanding at October 31, 2004 | 930,773,500 | 296,926 |
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, 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 year ended October 31, 2004, the fee pursuant to the Management Agreement was equivalent to an annual 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.
In addition, for the year ended October 31, 2004, the Advisor agreed to reimburse the Fund $2,539, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.
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 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 year ended October 31, 2004, the amount charged to the Fund by SISC was as follows:
Service Provider Fee | Total Aggregated | Unpaid at October 31, 2004 |
Class A | $ 486,665 | $ 60,852 |
Class B | 156,220 | 20,440 |
Class C | 48,370 | 5,815 |
| $ 691,255 | $ 87,107 |
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 year ended October 31, 2004, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at October 31, 2004 |
Class B | $ 423,694 | $ 27,923 |
Class C | 151,747 | 12,728 |
| $ 575,441 | $ 40,651 |
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 year ended October 31, 2004, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at October 31, 2004 | Annual Effective Rate |
Class A | $ 752,173 | $ 127,385 | .23% |
Class B | 137,324 | 19,637 | .24% |
Class C | 48,674 | 8,439 | .24% |
| $ 938,171 | $ 155,461 |
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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 year ended October 31, 2004 aggregated $32,811 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 year ended October 31, 2004, the CDSC for Class B and C shares aggregated $148,008 and $2,585, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the year ended October 31, 2004, SDI received $5.
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 year ended October 31, 2004, the custodian fees were reduced by $348 for the Fund's custodian credits earned.
E. 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, pro rata 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.
F. 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.
G. 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, social 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.
H. Forward Foreign Currency Commitments
As of October 31, 2004, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver | In Exchange For | Settlement Date | Unrealized Appreciation | ||
CAD | 20,550 | USD | 16,859 | 11/2/2004 | $ 12 |
MXN | 5,758,801 | USD | 491,617 | 3/9/2005 | 4,045 |
MXN | 13,772,000 | USD | 1,179,514 | 1/27/2005 | 5,011 |
USD | 7,356 | JPY | 780,000 | 11/1/2004 | 10 |
USD | 62,823 | CAD | 76,720 | 11/1/2004 | 74 |
USD | 66,588 | EUR | 52,390 | 11/1/2004 | 413 |
USD | 92,646 | EUR | 75,066 | 3/9/2005 | 3,372 |
USD | 111,227 | EUR | 90,282 | 3/9/2005 | 4,254 |
USD | 461,526 | EUR | 366,000 | 1/27/2005 | 6,528 |
USD | 518,445 | EUR | 407,000 | 1/27/2005 | 2,042 |
USD | 620,000 | TRL | 1,001,920,000,000 | 1/27/2005 | 29,583 |
USD | 631,249 | EUR | 495,000 | 1/27/2005 | 1,776 |
USD | 919,706 | EUR | 729,000 | 1/27/2005 | 12,566 |
Total unrealized appreciation | $ 69,686 | ||||
Contracts to Deliver | In Exchange For | Settlement Date | Unrealized Depreciation | ||
BRL | 1,909,500 | USD | 640,342 | 1/27/2005 | $ (19,130) |
EUR | 5,070 | USD | 6,479 | 11/2/2004 | (5) |
EUR | 53,314 | USD | 65,683 | 3/9/2005 | (2,512) |
EUR | 53,626 | USD | 68,448 | 3/9/2005 | (146) |
EUR | 53,626 | USD | 67,730 | 3/9/2005 | (864) |
EUR | 58,235 | USD | 71,395 | 3/9/2005 | (3,093) |
EUR | 133,273 | USD | 169,407 | 3/9/2005 | (1,065) |
EUR | 136,281 | USD | 173,604 | 3/9/2005 | (716) |
EUR | 206,667 | USD | 256,167 | 3/9/2005 | (8,184) |
EUR | 223,603 | USD | 271,454 | 3/9/2005 | (14,561) |
EUR | 241,485 | USD | 196,329 | 3/9/2005 | (112,558) |
EUR | 263,447 | USD | 324,435 | 3/9/2005 | (12,545) |
EUR | 274,931 | USD | 350,000 | 1/27/2005 | (1,592) |
EUR | 616,000 | USD | 785,720 | 1/27/2005 | (2,044) |
EUR | 2,195,491 | USD | 2,694,394 | 3/9/2005 | (113,900) |
EUR | 8,287,998 | USD | 10,455,310 | 1/27/2005 | (143,696) |
EUR | 13,751,595 | USD | 16,873,207 | 1/21/2005 | (712,707) |
GBP | 33,660 | USD | 61,547 | 11/1/2004 | (278) |
GBP | 55,440 | USD | 101,483 | 11/2/2004 | (339) |
GBP | 6,045,828 | USD | 10,731,345 | 1/21/2005 | (307,704) |
TRL | 1,001,920,000,000 | USD | 615,808 | 1/27/2005 | (33,775) |
TRL | 1,818,267,000,000 | USD | 1,165,182 | 1/27/2005 | (13,670) |
USD | 51,592 | JPY | 5,460,000 | 11/2/2004 | (26) |
USD | 648,748 | ARS | 1,943,000 | 1/27/2005 | (4,891) |
USD | 1,300,000 | BRL | 3,961,750 | 1/28/2004 | (12,254) |
Total unrealized depreciation | $ (1,522,255) | ||||
Currency Abbreviations | |||||
ARS | Argentine Peso | GBP | British Pounds | USD | US Dollar |
BRL | Brazilian Real | JPY | Japanese Yen |
|
|
CAD | Canadian Dollars | MXN | Mexican Pesos |
|
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EUR | Euro | TRL | Turkish Lira |
|
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I. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Year Ended October 31, 2004 | Year Ended October 31, 2003 | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 10,954,051 | $ 50,935,228 | 16,206,491 | $ 70,571,666 |
Class B | 2,283,959 | 10,540,041 | 4,742,267 | 20,786,178 |
Class C | 1,219,779 | 5,707,203 | 1,787,554 | 7,915,946 |
|
| $ 67,182,472 |
| $ 99,273,790 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 3,086,200 | $ 14,253,270 | 3,371,804 | $ 14,745,891 |
Class B | 432,069 | 1,993,261 | 691,174 | 3,013,350 |
Class C | 172,733 | 802,415 | 181,140 | 798,120 |
|
| $ 17,048,946 |
| $ 18,557,361 |
Shares redeemed | ||||
Class A | (16,487,130) | $ (76,257,916) | (20,400,596) | $ (88,779,082) |
Class B | (8,866,661) | (40,897,932) | (9,712,491) | (42,613,467) |
Class C | (1,465,845) | (6,801,897) | (1,408,124) | (6,194,396) |
|
| $ (123,957,745) |
| $ (137,586,945) |
Net increase (decrease) | ||||
Class A | (2,446,879) | $ (11,069,418) | (822,301) | $ (3,461,525) |
Class B | (6,150,633) | (28,364,630) | (4,279,050) | (18,813,939) |
Class C | (73,333) | (292,279) | 560,570 | 2,519,670 |
|
| $ (39,726,327) |
| $ (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. It is not possible 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, the funds' investment advisors and their affiliates, certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each Scudder fund's investment advisor has agreed to indemnify the applicable Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. Based on currently available information, the funds' investment advisors believe 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 their ability to perform under their investment management agreements with the Scudder funds.
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To the Trustees and Shareholders of Scudder Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of the Scudder Strategic Income Fund, (the "Fund"), as of October 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Scudder Strategic Income Fund, at October 31, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts |  |
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For corporate shareholders, 100% of the income dividends paid during the Fund's fiscal year ended October 31, 2004, qualified for the dividends received deduction.
For federal income tax purposes, the Fund designates approximately $290,000, or the maximum amount allowable under tax law, as qualified dividend income.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-SCUDDER.
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The following table presents certain information regarding the Trustees and Officers of the fund as of October 31, 2004. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois, 60606. Each Trustee's term of office extends until the next shareholder's meeting called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, retires, resigns or is removed as provided in the governing documents of the fund.
Independent Trustees | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and | Number of Funds in Fund Complex Overseen |
Shirley D. Peterson (1941) Chairman, 2004-present Trustee, 1995-present | Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), US Department of Justice. Directorships: Federal Mogul Corp. (supplier of automotive components and subsystems); AK Steel (steel production); Goodyear Tire & Rubber Co.; Trustee, Bryn Mawr College. Former Directorship: Bethlehem Steel Corp. | 85 |
John W. Ballantine (1946) Trustee, 1999-present | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Enron Corporation (energy trading firm) (effective May 30, 2002); First Oak Brook Bancshares, Inc.; Oak Brook Bank; American Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company) | 85 |
Lewis A. Burnham (1933) Trustee, 1977-present | Retired; formerly, Director of Management Consulting, McNulty & Company (1990-1998); prior thereto, Executive Vice President, Anchor Glass Container Corporation | 85 |
Donald L. Dunaway (1937) Trustee, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994) | 85 |
James R. Edgar (1946) Trustee, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: Kemper Insurance Companies; John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty care products) | 85 |
Paul K. Freeman (1950) Trustee, 2002-present | President, Cook Street Holdings (consulting); Senior Visiting Research Scholar, Graduate School of International Studies, University of Denver; Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998) | 85 |
Robert B. Hoffman (1936) Trustee, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2000); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). Directorships: RCP Advisors, LLC (a private equity investment advisory firm) | 85 |
Fred B. Renwick (1930) Trustee, 1988-present | Retired; Professor Emeritus of Finance, New York University, Stern School of Business (2001-present); formerly, Professor, New York University Stern School of Business (1965-2001). Directorships: The Wartburg Foundation; Chairman, Finance Committee of Morehouse College Board of Trustees; formerly, Director of Board of Pensions, Evangelical Lutheran Church in America; member of the Investment Committee of Atlanta University Board of Trustees; Chair of the Investment Committee, American Bible Society Board of Trustees | 85 |
John G. Weithers (1933) Trustee, 1993-present | Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago Stock Exchange. Directorships: Federal Life Insurance Company; Chairman of the Members of the Corporation and Trustee, DePaul University; formerly, International Federation of Stock Exchanges; Records Management Systems | 85 |
Interested Trustee and Officers2 | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and | Number of Funds in Fund Complex Overseen |
William N. Shiebler3 (1942) Trustee, 2004-present | Chief Executive Officer in the Americas for Deutsche Asset Management ("DeAM") and a member of the DeAM Global Executive Committee (since 2002); Vice Chairman of Putnam Investments, Inc. (1999); Director and Senior Managing Director of Putnam Investments, Inc. and President, Chief Executive Officer, and Director of Putnam Mutual Funds Inc. (1990-1999) | 139 |
Julian F. Sluyters4 (1960) President and Chief Executive Officer, 2004-present | Managing Director, Deutsche Asset Management (since May 2004); President and Chief Executive Officer of The Germany Fund, Inc., The New Germany Fund, Inc., The Central Europe and Russia Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., Scudder Global High Income Fund, Inc. and Scudder New Asia Fund, Inc. (since May 2004); President and Chief Executive Officer, UBS Fund Services (2001-2003); Chief Administrative Officer (1998-2001) and Senior Vice President and Director of Mutual Fund Operations (1991-1998) UBS Global Asset Management | n/a |
Philip J. Collora (1945) Vice President and Assistant Secretary, 1986-present | Director, Deutsche Asset Management | n/a |
Kenneth Murphy5 (1963) Vice President, 2002-present | Vice President, Deutsche Asset Management (2000-present); formerly, Director, John Hancock Signature Services (1992-2000) | n/a |
Paul H. Schubert4 (1963) Chief Financial Officer, 2004-present | Managing Director, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds at UBS Global Asset Management (1994-2004) | n/a |
Charles A. Rizzo5 (1957) Treasurer, 2002-present | Managing Director, Deutsche Asset Management (since April 2004); formerly, Director, Deutsche Asset Management (April 2000-March 2004); Vice President and Department Head, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998) | n/a |
John Millette5 (1962) Secretary, 2001-present | Director, Deutsche Asset Management | n/a |
Lisa Hertz4 (1970) Assistant Secretary, 2003-present | Assistant Vice President, Deutsche Asset Management | n/a |
Daniel O. Hirsch6 (1954) Assistant Secretary, 2002-present | Managing Director, Deutsche Asset Management (2002-present) and Director, Deutsche Global Funds Ltd. (2002-present); formerly, Director, Deutsche Asset Management (1999-2002); Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998) | n/a |
Caroline Pearson5 (1962) Assistant Secretary, 1998-present | Managing Director, Deutsche Asset Management | n/a |
Kevin M. Gay5 (1959) Assistant Treasurer, 2004-present | Vice President, Deutsche Asset Management | n/a |
Salvatore Schiavone5 (1965) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
Kathleen Sullivan D'Eramo5 (1957) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
1 Length of time served represents the date that each Trustee was first elected to the common board of Trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each Officer was first elected to serve as an Officer of any fund overseen by the aforementioned common board of Trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
3 Address: 280 Park Avenue, New York, New York
4 Address: 345 Park Avenue, New York, New York
5 Address: Two International Place, Boston, Massachusetts
6 Address: One South Street, Baltimore, Maryland
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
|
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 219356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available 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 of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside Plaza (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 |
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2004, Scudder Strategic Income Fund has
adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to
its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of
ethics during the period covered by this report that would require disclosure
under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors/Trustees has determined that the Fund has at least
one "audit committee financial expert" serving on its audit committee: Mr.
Donald L. Dunaway. This audit committee member is "independent," meaning that he
is not an "interested person" of the Fund (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940) and he does not accept any
consulting, advisory, or other compensatory fee from the Fund (except in the
capacity as a Board or committee member).
An "audit committee financial expert" is not an "expert" for any purpose,
including for purposes of Section 11 of the Securities Act of 1933, as a result
of being designated as an "audit committee financial expert." Further, the
designation of a person as an "audit committee financial expert" does not mean
that the person has any greater duties, obligations, or liability than those
imposed on the person without the "audit committee financial expert"
designation. Similarly, the designation of a person as an "audit committee
financial expert" does not affect the duties, obligations, or liability of any
other member of the audit committee or board of directors.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
SCUDDER STRATEGIC INCOME FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young, LLP
("E&Y"), the Fund's auditor, billed to the Fund during the Fund's last two
fiscal years. For engagements with E&Y entered into on or after May 6, 2003,
the Audit Committee approved in advance all audit services and non-audit
services that E&Y provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund's Auditor Billed to the Fund
- --------------------------------------------------------------------------------
Fiscal Year Audit Fees Audit-Related Tax Fees All Other
Ended Billed Fees Billed Billed to Fees Billed
October 31, to Fund to Fund Fund to Fund
- --------------------------------------------------------------------------------
2004 $47,833 $0 $8,441 $0
- --------------------------------------------------------------------------------
2003 $43,984 $0 $7,676 $0
- --------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services rendered for tax
compliance and tax return preparation.
Services that the Fund's Auditor Billed to the Adviser and
Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche
Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity
controlling, controlled by or under common control with DeIM ("Control
Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service
Provider"), for engagements directly related to the Fund's operations and
financial reporting, during the Fund's last two fiscal years.
- --------------------------------------------------------------------------------
Audit-Related Tax Fees All Other
Fees Billed Billed to Fees Billed
Fiscal to Adviser and Adviser and to Adviser and
Year Affiliated Affiliated Affiliated
Ended Fund Service Fund Service Fund Service
October 31, Providers Providers Providers
- --------------------------------------------------------------------------------
2004 $281,500 $0 $0
- --------------------------------------------------------------------------------
2003 $137,900 $0 $0
- --------------------------------------------------------------------------------
The "Audit-Related Fees" were billed for services in connection with the
assessment of internal controls and additional related procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the
Fund's last two fiscal years for non-audit services. For engagements entered
into on or after May 6, 2003, the Audit Committee pre-approved all non-audit
services that E&Y provided to the Adviser and any Affiliated Fund Service
Provider that related directly to the Fund's operations and financial reporting.
The Audit Committee requested and received information from E&Y about any
non-audit services that E&Y rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating E&Y's independence.
- --------------------------------------------------------------------------------
Total Non-Audit
Fees billed to Total
Adviser and Non-Audit Fees
Affiliated Fund billed to
Service Providers Adviser and
(engagements related Affiliated
Total directly to the Fund Service
Non-Audit operations and Providers
Fiscal Fees Billed financial reporting (all other Total of
Year to Fund of the Fund) engagements) (A),(B)
Ended
October 31, (A) (B) (C) and (C)
- --------------------------------------------------------------------------------
2004 $8,441 $0 $386,601 $395,042
- --------------------------------------------------------------------------------
2003 $7,676 $0 $3,879,685 $3,887,361
- --------------------------------------------------------------------------------
All other engagement fees were billed for services in connection with risk
management and process improvement initiatives for DeIM and other related
entities that provide support for the operations of the fund.
***
The Fund's independent accountant, Ernst & Young LLP ("E&Y"), recently
advised the Fund's Audit Committee that E&Y's member firms in China and
Japan ("E&Y China" and "E&Y Japan," respectively) provided certain
non-audit services to Deutsche Bank entities and affiliates (collectively, the
"DB entities") during 2003 and 2004 that raise issues under the SEC auditor
independence rules. The DB entities are within the "Investment Company Complex"
(as defined by SEC rules) and therefore covered by the SEC auditor independence
rules applicable to the Fund.
E&Y advised the Audit Committee that in connection with providing permitted
expatriate tax compliance services during 2003 and 2004, E&Y China and
E&Y Japan received funds from the DB entities into E&Y "representative
bank trust accounts" that were used to pay the foreign income taxes of the
expatriates. E&Y has advised the Audit Committee that handling those funds
was in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)4(viii)), which
states that
"... an accountant's independence will be impaired if the accountant has ...
custody of client assets.")
The Audit Committee was informed that E&Y China received approximately
$1,500 in fees for these services, while E&Y Japan received approximately
$41,000. E&Y advised the Audit Committee that it conducted an internal
review of the situation and, in view of the fact that similar activities
occurred vis-a-vis a number of E&Y audit clients unrelated to DB or the
Fund, E&Y has advised the SEC and the PCAOB of the matter. E&Y advised
the Audit Committee that E&Y believes its independence as auditors for the
Fund was not impaired during the period the services were provided. In reaching
this conclusion, E&Y noted a number of factors, including that none of the
E&Y personnel who provided the non-audit services to the DB entities were
involved in the provision of audit services to the Fund, the E & Y
professionals responsible for the Fund's audits were not aware that these
non-audit services took place until October, 2004, and that the fees charged are
not significant to E&Y overall or to the fees charged to the Investment
Company Complex.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not Applicable.
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.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) 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: January 4, 2005
-----------------------------------------
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: January 4, 2005
-----------------------------------------
By: /s/Paul Schubert
-----------------------------------------
Paul Schubert
Chief Financial Officer
Date: January 4, 2005
-----------------------------------------