UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number | 811-02743 |
DWS Strategic Income Fund
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue
New York, NY 10154-0004
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154-0004
(Name and Address of Agent for Service)
Date of fiscal year end: | 10/31 |
Date of reporting period: | 4/30/2010 |
ITEM 1. | REPORT TO STOCKHOLDERS |
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APRIL 30, 2010 Semiannual Report |
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DWS Strategic Income Fund |
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Contents
4 Performance Summary 7 Information About Your Fund's Expenses 9 Portfolio Summary 11 Investment Portfolio 34 Financial Statements 38 Financial Highlights 42 Notes to Financial Statements 57 Other Information 58 Summary of Management Fee Evaluation by Independent Fee Consultant 63 Account Management Resources 64 Privacy Statement |
This report must be preceded or accompanied by a prospectus. To obtain a summary prospectus, if available, or 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 summary prospectus and prospectus contain this and other important information about the fund. Please read the prospectus carefully before you invest.
Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investments in lower-quality and non-rated securities present greater risk of loss than investments in higher-quality securities. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increased volatility. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. See the prospectus for details.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary April 30, 2010
Average Annual Total Returns as of 4/30/10 | ||||||
Unadjusted for Sales Charge | 6-Month‡ | 1-Year | 3-Year | 5-Year | 10-Year |
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Class A | 7.47% | 23.79% | 6.35% | 6.67% | 6.93% |
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Class B | 7.29% | 23.10% | 5.59% | 5.85% | 6.04% |
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Class C | 7.26% | 22.97% | 5.61% | 5.85% | 6.15% |
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Adjusted for the Maximum Sales Charge |
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Class A (max 2.75% load) | 4.52% | 20.38% | 5.37% | 6.08% | 6.64% |
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Class B (max 4.00% CDSC) | 3.29% | 20.10% | 4.99% | 5.69% | 6.04% |
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Class C (max 1.00% CDSC) | 6.26% | 22.97% | 5.61% | 5.85% | 6.15% |
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No Sales Charges |
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| Life of Class S* |
Class S | 7.84% | 24.35% | 6.66% | 6.93% | N/A | 6.40% |
Barclays Capital US Government/Credit Index+ | 2.33% | 8.62% | 6.06% | 5.11% | 6.40% | 4.89% |
Blended Index++ | 6.03% | 20.91% | 6.46% | 6.77% | 7.61% | 6.34% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
‡ Total returns shown for periods less than one year are not annualized.
* Class S commenced operations on February 1, 2005. Index returns began on January 31, 2005.
Performance in the Average Annual Total Returns table above and the Growth of an Assumed $10,000 Investment line graph that follows is historical and does not guarantee future results. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit www.dws-investments.com for the Fund's most recent month-end performance. Performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had.
The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated February 1, 2010 are 1.14%, 2.00%, 1.90% and 0.98% for Class A, Class B, Class C and Class S shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.
Index returns, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] DWS Strategic Income Fund — Class A [] Barclays Capital US Government/Credit Index+ [] Blended Index++ |
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Yearly periods ended April 30 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 2.75%. This results in a net initial investment of $9,725.
The growth of $10,000 is cumulative.
Performance of other share classes will vary based on the sales charges and the fee structure of those classes.
+ The Barclays Capital US Government/Credit Index is an unmanaged index comprising intermediate- and long-term government and investment-grade corporate debt securities.
++ The Blended Index consists of the Credit Suisse High Yield Index (35%), Barclays Capital US Government/Credit Index (35%), JPMorgan Emerging Markets Bond Index Global Diversified (15%) and Citigroup Non US Hedged WBGI (15%). The Advisor believes this blended benchmark, which is a secondary benchmark, more accurately reflects typical fund asset allocations and represents the overall investment process.
Net Asset Value and Distribution Information | ||||
| Class A | Class B | Class C | Class S |
Net Asset Value: 4/30/10 | $ 4.77 | $ 4.78 | $ 4.80 | $ 4.78 |
10/31/09 | $ 4.57 | $ 4.58 | $ 4.60 | $ 4.58 |
Distribution Information: Six Months as of 4/30/10: Income Dividends | $ .13 | $ .11 | $ .12 | $ .14 |
April Income Dividend | $ .0223 | $ .0193 | $ .0194 | $ .0233 |
Capital Gain Distributions | $ .01 | $ .01 | $ .01 | $ .01 |
SEC 30-day Yield as of 4/30/10+++ | 4.75% | 3.97% | 4.11% | 5.01% |
Current Annualized Distribution Rate as of 4/30/10+++ | 5.61% | 4.85% | 4.85% | 5.85% |
+++ The SEC yield is net investment income per share earned over the month ended April 30, 2010, shown as an annualized percentage of the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on April 30, 2010. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Yields and distribution rates are historical, not guaranteed, and will fluctuate.
Lipper Rankings — Multi-Sector Income Funds Category as of 4/30/10 | ||||
Period | Rank |
| Number of Fund Classes Tracked | Percentile Ranking (%) |
Class A 1-Year | 98 | of | 150 | 65 |
3-Year | 47 | of | 109 | 43 |
5-Year | 34 | of | 98 | 35 |
10-Year | 26 | of | 70 | 37 |
Class B 1-Year | 107 | of | 150 | 71 |
3-Year | 62 | of | 109 | 57 |
5-Year | 61 | of | 98 | 62 |
10-Year | 42 | of | 70 | 60 |
Class C 1-Year | 110 | of | 150 | 73 |
3-Year | 61 | of | 109 | 56 |
5-Year | 60 | of | 98 | 61 |
10-Year | 40 | of | 70 | 57 |
Class S 1-Year | 90 | of | 150 | 60 |
3-Year | 42 | of | 109 | 39 |
5-Year | 30 | of | 98 | 31 |
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, rankings might have been less favorable.
Information About Your Fund's Expenses
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 tables are 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. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (November 1, 2009 to April 30, 2010).
The tables illustrate 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. An account maintenance fee of $6.25 per quarter for Class S shares may apply for certain accounts whose balances do not meet the applicable minimum initial investment. This fee is not included in these tables. If it was, the estimate of expenses paid for Class S shares during the period would be higher, and account value during the period would be lower, by this amount.
Expenses and Value of a $1,000 Investment for the six months ended April 30, 2010 | ||||
Actual Fund Return | Class A | Class B | Class C | Class S |
Beginning Account Value 11/1/09 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 4/30/10 | $ 1,074.70 | $ 1,072.90 | $ 1,072.60 | $ 1,078.40 |
Expenses Paid per $1,000* | $ 5.45 | $ 9.87 | $ 9.30 | $ 4.43 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Class S |
Beginning Account Value 11/1/09 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 4/30/10 | $ 1,019.54 | $ 1,015.27 | $ 1,015.82 | $ 1,020.53 |
Expenses Paid per $1,000* | $ 5.31 | $ 9.59 | $ 9.05 | $ 4.31 |
* 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 | Class S |
DWS Strategic Income Fund | 1.06% | 1.92% | 1.81% | .86% |
For more information, please refer to the Fund's prospectus.
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 4/30/10 | 10/31/09 |
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Corporate Bonds | 63% | 61% |
Government & Agency Obligations | 19% | 21% |
Loan Participations and Assignments* | 5% | 5% |
Cash Equivalents | 3% | 3% |
Mortgage-Backed Securities Pass-Throughs | 3% | 2% |
Collateralized Mortgage Obligations | 3% | 3% |
Commercial Mortgage-Backed Securities | 2% | 2% |
Preferred Securities | 1% | 1% |
Asset Backed | 1% | 1% |
Municipal Bonds and Notes | — | 1% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 4/30/10 | 10/31/09 |
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US Government and Agencies | 8% | 6% |
AAA** | 10% | 9% |
AA | 4% | 6% |
A | 5% | 11% |
BBB | 14% | 15% |
BB | 20% | 16% |
B | 28% | 20% |
CCC and CC | 9% | 12% |
Below CC | — | 1% |
Not Rated | 2% | 4% |
| 100% | 100% |
* Includes DWS Floating Rate Plus Fund "Institutional."
** Includes cash equivalents.
Asset allocation and quality are subject to change.
Interest Rate Sensitivity | 4/30/10 | 10/31/09 |
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Effective Maturity | 6.8 years | 6.6 years |
Effective Duration | 4.0 years | 4.3 years |
Effective maturity is the weighted average of the bonds held by the Fund taking into consideration any maturity shortening features. Effective duration is the measurable change in the value of a security in response to a change in interest rates.
Interest rate sensitivity is subject to change.
The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.
For more complete details about the Fund's investment portfolio, see page 11. A quarterly Fact Sheet is available upon request. 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, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. A complete list of the Fund's portfolio holdings is also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio as of April 30, 2010 (Unaudited)
| Principal Amount ($) (a) | Value ($) | ||
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Corporate Bonds 64.0% | ||||
Consumer Discretionary 10.3% | ||||
Advance Auto Parts, Inc., 5.75%, 5/1/2020 |
| 1,368,000 | 1,392,941 | |
AMC Entertainment, Inc.: | ||||
| 8.0%, 3/1/2014 |
| 225,000 | 228,375 |
| 8.75%, 6/1/2019 |
| 535,000 | 567,100 |
American Achievement Corp., 144A, 8.25%, 4/1/2012 |
| 115,000 | 114,713 | |
Ameristar Casinos, Inc., 9.25%, 6/1/2014 |
| 580,000 | 609,000 | |
Arcos Dorados BV, 144A, 7.5%, 10/1/2019 |
| 180,000 | 187,200 | |
ArvinMeritor, Inc., 10.625%, 3/15/2018 |
| 340,000 | 365,500 | |
Asbury Automotive Group, Inc.: | ||||
| 7.625%, 3/15/2017 |
| 270,000 | 259,200 |
| 8.0%, 3/15/2014 |
| 115,000 | 115,431 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 |
| 295,000 | 300,900 | |
Avis Budget Car Rental LLC, 144A, 9.625%, 3/15/2018 |
| 240,000 | 259,200 | |
Brunswick Corp., 144A, 11.25%, 11/1/2016 |
| 225,000 | 265,500 | |
Cablevision Systems Corp.: | ||||
| 7.75%, 4/15/2018 |
| 65,000 | 65,975 |
| 8.0%, 4/15/2020 |
| 65,000 | 66,138 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015** |
| 190,000 | 87,400 | |
Carrols Corp., 9.0%, 1/15/2013 |
| 120,000 | 122,700 | |
CCO Holdings LLC: | ||||
| 144A, 7.875%, 4/30/2018 |
| 220,000 | 223,850 |
| 144A, 8.125%, 4/30/2020 |
| 145,000 | 148,262 |
Cequel Communications Holdings I LLC, 144A, 8.625%, 11/15/2017 |
| 1,190,000 | 1,211,937 | |
Clear Channel Worldwide Holdings, Inc.: | ||||
| Series A, 144A, 9.25%, 12/15/2017 |
| 80,000 | 85,400 |
| Series B, 144A, 9.25%, 12/15/2017 |
| 125,000 | 133,906 |
Comcast Corp., 5.15%, 3/1/2020 |
| 855,000 | 872,717 | |
Cooper-Standard Automotive, Inc., 144A, 8.5%, 5/1/2018 (b) |
| 145,000 | 148,625 | |
CSC Holdings LLC, 144A, 8.5%, 6/15/2015 |
| 710,000 | 756,150 | |
DirecTV Holdings LLC, 144A, 6.35%, 3/15/2040 |
| 1,710,000 | 1,766,350 | |
DISH DBS Corp.: | ||||
| 6.375%, 10/1/2011 |
| 1,825,000 | 1,895,719 |
| 6.625%, 10/1/2014 |
| 335,000 | 338,350 |
| 7.125%, 2/1/2016 |
| 620,000 | 629,300 |
Dollarama Group Holdings LP, 7.206%***, 8/15/2012 (c) |
| 196,000 | 196,000 | |
Easton-Bell Sports, Inc., 144A, 9.75%, 12/1/2016 |
| 60,000 | 63,900 | |
Fontainebleau Las Vegas Holdings LLC, 144A, 11.0%, 6/15/2015** |
| 270,000 | 3,713 | |
Ford Motor Co., 7.45%, 7/16/2031 |
| 370,000 | 344,100 | |
GameStop Corp., 8.0%, 10/1/2012 |
| 290,000 | 300,875 | |
Gannett Co., Inc.: | ||||
| 144A, 8.75%, 11/15/2014 |
| 120,000 | 132,000 |
| 144A, 9.375%, 11/15/2017 |
| 240,000 | 262,800 |
Goodyear Tire & Rubber Co., 10.5%, 5/15/2016 |
| 120,000 | 133,650 | |
Gray Television, Inc., 144A, 10.5%, 6/29/2015 |
| 330,000 | 331,237 | |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 |
| 235,000 | 232,944 | |
Group 1 Automotive, Inc., 144A, 3.0%, 3/15/2020 |
| 350,000 | 330,312 | |
Hanesbrands, Inc., 8.0%, 12/15/2016 |
| 120,000 | 125,400 | |
Harrah's Operating Co., Inc.: | ||||
| 11.25%, 6/1/2017 |
| 1,610,000 | 1,754,900 |
| 144A, 12.75%, 4/15/2018 |
| 290,000 | 286,737 |
Hertz Corp., 8.875%, 1/1/2014 |
| 1,435,000 | 1,481,637 | |
Hyundai Motor Manufacturing Czech sro, 144A, 4.5%, 4/15/2015 |
| 855,000 | 862,865 | |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 |
| 278,000 | 257,150 | |
JC Penney Corp., Inc., Series A, 6.875%, 10/15/2015 |
| 857,000 | 929,845 | |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 |
| 275,000 | 286,687 | |
Lamar Media Corp.: | ||||
| Series C, 6.625%, 8/15/2015 |
| 110,000 | 106,700 |
| 144A, 7.875%, 4/15/2018 |
| 70,000 | 71,575 |
Lear Corp.: | ||||
| 7.875%, 3/15/2018 |
| 220,000 | 224,125 |
| 8.125%, 3/15/2020 |
| 220,000 | 224,400 |
Levi Strauss & Co.: | ||||
| 144A, 7.625%, 5/15/2020 (b) |
| 565,000 | 570,650 |
| 8.625%, 4/1/2013 | EUR | 450,000 | 611,135 |
Libbey Glass, Inc., 144A, 10.0%, 2/15/2015 |
| 135,000 | 142,594 | |
Limited Brands, Inc., 7.0%, 5/1/2020 (b) |
| 120,000 | 122,400 | |
Macy's Retail Holdings, Inc.: | ||||
| 5.35%, 3/15/2012 |
| 480,000 | 501,600 |
| 5.9%, 12/1/2016 |
| 857,000 | 882,710 |
| 8.875%, 7/15/2015 |
| 45,000 | 51,638 |
Mediacom Broadband LLC, 8.5%, 10/15/2015 |
| 370,000 | 380,175 | |
MGM MIRAGE: | ||||
| 144A, 9.0%, 3/15/2020 |
| 460,000 | 483,000 |
| 144A, 10.375%, 5/15/2014 |
| 195,000 | 213,525 |
| 144A, 11.125%, 11/15/2017 |
| 245,000 | 278,381 |
Michaels Stores, Inc., Step-up Coupon, 0% to 11/1/2011, 13.0% to 11/1/2016 |
| 140,000 | 129,675 | |
NBC Universal, Inc.: | ||||
| 144A, 5.15%, 4/30/2020 |
| 1,140,000 | 1,153,305 |
| 144A, 6.4%, 4/30/2040 |
| 1,710,000 | 1,765,799 |
Neiman Marcus Group, Inc.: | ||||
| 9.0%, 10/15/2015 (PIK) |
| 117,802 | 120,747 |
| 10.375%, 10/15/2015 |
| 415,000 | 437,306 |
Netflix, Inc., 8.5%, 11/15/2017 |
| 120,000 | 127,800 | |
Nexstar Broadcasting, Inc., 144A, 8.875%, 4/15/2017 |
| 290,000 | 295,800 | |
Norcraft Companies LP, 144A, 10.5%, 12/15/2015 |
| 520,000 | 552,500 | |
Norcraft Holdings LP, 9.75%, 9/1/2012 |
| 257,000 | 243,186 | |
Nordstrom, Inc., 4.75%, 5/1/2020 |
| 695,000 | 698,275 | |
Penn National Gaming, Inc., 144A, 8.75%, 8/15/2019 |
| 120,000 | 125,100 | |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 |
| 880,000 | 862,400 | |
Phillips-Van Heusen Corp., 7.375%, 5/15/2020 (b) |
| 150,000 | 153,750 | |
Pinnacle Entertainment, Inc.: | ||||
| 7.5%, 6/15/2015 |
| 360,000 | 346,500 |
| 144A, 8.625%, 8/1/2017 |
| 300,000 | 313,500 |
Sabre Holdings Corp., 8.35%, 3/15/2016 |
| 910,000 | 878,150 | |
Seminole Indian Tribe of Florida, 144A, 7.804%, 10/1/2020 |
| 400,000 | 376,672 | |
Simmons Bedding Co., 144A, 11.25%, 7/15/2015 |
| 265,000 | 290,175 | |
Simmons Co., 10.0%, 12/15/2014** |
| 725,000 | 13,594 | |
Sirius XM Radio, Inc., 144A, 8.75%, 4/1/2015 |
| 315,000 | 321,300 | |
Sonic Automotive, Inc.: | ||||
| Series B, 8.625%, 8/15/2013 |
| 150,000 | 153,390 |
| 144A, 9.0%, 3/15/2018 |
| 525,000 | 546,000 |
Standard Pacific Corp.: | ||||
| 8.375%, 5/15/2018 (b) |
| 80,000 | 81,200 |
| 10.75%, 9/15/2016 |
| 430,000 | 486,975 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 |
| 270,000 | 263,925 | |
Travelport LLC: | ||||
| 4.877%***, 9/1/2014 |
| 170,000 | 164,475 |
| 9.875%, 9/1/2014 |
| 355,000 | 373,194 |
| 11.875%, 9/1/2016 |
| 135,000 | 147,825 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015** |
| 55,000 | 275 | |
United Components, Inc., 9.375%, 6/15/2013 |
| 40,000 | 40,200 | |
Unitymedia GmbH, 144A, 9.625%, 12/1/2019 | EUR | 455,000 | 648,216 | |
Unitymedia Hessen GmbH & Co., KG, 144A, 8.125%, 12/1/2017 |
| 430,000 | 438,600 | |
UPC Holding BV: | ||||
| 144A, 7.75%, 1/15/2014 | EUR | 1,065,000 | 1,446,496 |
| 144A, 8.0%, 11/1/2016 | EUR | 580,000 | 778,033 |
Vertis, Inc., 13.5%, 4/1/2014 (PIK) |
| 81,260 | 34,942 | |
Videotron Ltd.: | ||||
| 6.875%, 1/15/2014 |
| 45,000 | 45,563 |
| 9.125%, 4/15/2018 |
| 225,000 | 249,750 |
WMG Acquisition Corp., 144A, 9.5%, 6/15/2016 |
| 210,000 | 226,800 | |
Wyndham Worldwide Corp.: | ||||
| 6.0%, 12/1/2016 |
| 855,000 | 851,429 |
| 7.375%, 3/1/2020 |
| 855,000 | 882,868 |
Young Broadcasting, Inc., 8.75%, 1/15/2014** |
| 1,165,000 | 2,680 | |
Ziggo Bond Co., BV, 144A, 8.0%, 5/15/2018 (b) | EUR | 325,000 | 431,896 | |
| 43,899,465 | |||
Consumer Staples 2.2% | ||||
Alliance One International, Inc., 144A, 10.0%, 7/15/2016 |
| 380,000 | 402,800 | |
Altria Group, Inc., 10.2%, 2/6/2039 |
| 800,000 | 1,102,131 | |
B&G Foods, Inc., 7.625%, 1/15/2018 |
| 140,000 | 143,850 | |
Central Garden & Pet Co., 8.25%, 3/1/2018 |
| 210,000 | 214,725 | |
Cott Beverages, Inc., 144A, 8.375%, 11/15/2017 |
| 120,000 | 125,400 | |
Dole Food Co., Inc., 144A, 8.0%, 10/1/2016 |
| 175,000 | 181,125 | |
FAGE Dairy Industry SA, 144A, 9.875%, 2/1/2020 |
| 470,000 | 441,800 | |
General Nutrition Centers, Inc., 5.75%***, 3/15/2014 (PIK) |
| 145,000 | 138,113 | |
Kraft Foods, Inc., 5.375%, 2/10/2020 |
| 855,000 | 886,818 | |
Lorillard Tobacco Co., 6.875%, 5/1/2020 |
| 1,220,000 | 1,253,983 | |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 |
| 873,750 | 764,531 | |
Reddy Ice Corp., 144A, 11.25%, 3/15/2015 |
| 155,000 | 165,075 | |
Reynolds American, Inc., 6.75%, 6/15/2017 |
| 800,000 | 863,282 | |
Rite Aid Corp., 7.5%, 3/1/2017 |
| 175,000 | 165,375 | |
Smithfield Foods, Inc.: | ||||
| 7.75%, 7/1/2017 |
| 700,000 | 692,125 |
| 144A, 10.0%, 7/15/2014 |
| 420,000 | 471,450 |
SUPERVALU, Inc., 8.0%, 5/1/2016 |
| 175,000 | 178,062 | |
Tops Markets LLC, 144A, 10.125%, 10/15/2015 |
| 325,000 | 342,875 | |
TreeHouse Foods, Inc., 7.75%, 3/1/2018 |
| 135,000 | 140,737 | |
Tyson Foods, Inc.: | ||||
| 7.85%, 4/1/2016 |
| 325,000 | 352,625 |
| 10.5%, 3/1/2014 |
| 195,000 | 231,319 |
| 9,258,201 | |||
Energy 7.6% | ||||
Anadarko Petroleum Corp., 6.2%, 3/15/2040 |
| 1,420,000 | 1,437,323 | |
Atlas Energy Operating Co., LLC: | ||||
| 10.75%, 2/1/2018 |
| 515,000 | 570,362 |
| 12.125%, 8/1/2017 |
| 360,000 | 414,900 |
Belden & Blake Corp., 8.75%, 7/15/2012 |
| 1,150,000 | 1,092,500 | |
Berry Petroleum Co., 10.25%, 6/1/2014 |
| 235,000 | 260,263 | |
Bill Barrett Corp., 9.875%, 7/15/2016 |
| 190,000 | 204,250 | |
Bristow Group, Inc., 7.5%, 9/15/2017 |
| 260,000 | 262,925 | |
Chaparral Energy, Inc., 8.5%, 12/1/2015 |
| 1,255,000 | 1,223,625 | |
Chesapeake Energy Corp.: | ||||
| 6.25%, 1/15/2018 |
| 270,000 | 260,550 |
| 6.875%, 1/15/2016 |
| 325,000 | 324,188 |
| 6.875%, 11/15/2020 |
| 430,000 | 419,250 |
| 7.25%, 12/15/2018 |
| 515,000 | 515,000 |
| 9.5%, 2/15/2015 |
| 975,000 | 1,068,844 |
Cloud Peak Energy Resources LLC: | ||||
| 144A, 8.25%, 12/15/2017 |
| 125,000 | 128,125 |
| 144A, 8.5%, 12/15/2019 |
| 115,000 | 118,450 |
Coffeyville Resources LLC, 144A, 9.0%, 4/1/2015 |
| 390,000 | 397,800 | |
Colorado Interstate Gas Co., 6.8%, 11/15/2015 |
| 115,000 | 131,187 | |
CONSOL Energy, Inc.: | ||||
| 144A, 8.0%, 4/1/2017 |
| 625,000 | 660,156 |
| 144A, 8.25%, 4/1/2020 |
| 625,000 | 665,625 |
Continental Resources, Inc.: | ||||
| 144A, 7.375%, 10/1/2020 |
| 185,000 | 191,475 |
| 8.25%, 10/1/2019 |
| 85,000 | 91,375 |
Crosstex Energy LP, 144A, 8.875%, 2/15/2018 |
| 305,000 | 317,200 | |
DCP Midstream LLC, 144A, 5.35%, 3/15/2020 |
| 835,000 | 856,759 | |
Dynegy Holdings, Inc., 7.75%, 6/1/2019 |
| 350,000 | 280,000 | |
El Paso Corp.: | ||||
| 7.25%, 6/1/2018 |
| 280,000 | 291,034 |
| 8.25%, 2/15/2016 |
| 170,000 | 184,450 |
| 9.625%, 5/15/2012 |
| 1,265,000 | 1,365,894 |
El Paso Pipeline Partners Operating Co., LLC, 6.5%, 4/1/2020 |
| 855,000 | 882,587 | |
Enbridge Energy Partners LP, 5.2%, 3/15/2020 |
| 855,000 | 882,854 | |
EXCO Resources, Inc., 7.25%, 1/15/2011 |
| 355,000 | 354,556 | |
Frontier Oil Corp.: | ||||
| 6.625%, 10/1/2011 |
| 180,000 | 181,125 |
| 8.5%, 9/15/2016 |
| 40,000 | 41,300 |
Global Geophysical Services, Inc., 144A, 10.5%, 5/1/2017 |
| 730,000 | 715,400 | |
Holly Corp., 144A, 9.875%, 6/15/2017 |
| 450,000 | 468,000 | |
Holly Energy Partners LP, 144A, 8.25%, 3/15/2018 |
| 305,000 | 308,050 | |
Husky Energy, Inc., 7.25%, 12/15/2019 |
| 940,000 | 1,109,150 | |
KCS Energy, Inc., 7.125%, 4/1/2012 |
| 945,000 | 945,000 | |
Linn Energy LLC: | ||||
| 144A, 8.625%, 4/15/2020 |
| 295,000 | 306,063 |
| 144A, 11.75%, 5/15/2017 |
| 340,000 | 387,600 |
Mariner Energy, Inc.: | ||||
| 7.5%, 4/15/2013 |
| 215,000 | 222,525 |
| 8.0%, 5/15/2017 |
| 265,000 | 292,163 |
Newfield Exploration Co., 7.125%, 5/15/2018 |
| 660,000 | 679,800 | |
Nexen, Inc., 6.2%, 7/30/2019 |
| 440,000 | 486,141 | |
Niska Gas Storage US LLC, 144A, 8.875%, 3/15/2018 |
| 305,000 | 318,725 | |
OPTI Canada, Inc.: | ||||
| 7.875%, 12/15/2014 |
| 1,215,000 | 1,157,287 |
| 8.25%, 12/15/2014 |
| 395,000 | 379,200 |
| 144A, 9.0%, 12/15/2012 |
| 115,000 | 117,875 |
Petrohawk Energy Corp.: | ||||
| 7.875%, 6/1/2015 |
| 115,000 | 118,738 |
| 9.125%, 7/15/2013 |
| 250,000 | 261,250 |
Plains Exploration & Production Co.: | ||||
| 7.0%, 3/15/2017 |
| 220,000 | 217,800 |
| 7.625%, 6/1/2018 |
| 435,000 | 443,156 |
| 8.625%, 10/15/2019 |
| 450,000 | 475,875 |
Quicksilver Resources, Inc.: | ||||
| 7.125%, 4/1/2016 |
| 640,000 | 619,200 |
| 11.75%, 1/1/2016 |
| 255,000 | 295,800 |
Regency Energy Partners LP: | ||||
| 8.375%, 12/15/2013 |
| 293,000 | 302,523 |
| 144A, 9.375%, 6/1/2016 |
| 800,000 | 858,000 |
Sabine Pass LNG LP, 7.25%, 11/30/2013 |
| 630,000 | 605,587 | |
Southwestern Energy Co., 7.5%, 2/1/2018 |
| 320,000 | 349,600 | |
Stone Energy Corp.: | ||||
| 6.75%, 12/15/2014 |
| 430,000 | 397,750 |
| 8.625%, 2/1/2017 |
| 685,000 | 676,437 |
Valero Energy Corp., 6.125%, 2/1/2020 |
| 950,000 | 986,571 | |
Western Refining, Inc., 144A, 10.75%***, 6/15/2014 |
| 140,000 | 131,600 | |
Whiting Petroleum Corp.: | ||||
| 7.25%, 5/1/2012 |
| 450,000 | 450,562 |
| 7.25%, 5/1/2013 |
| 70,000 | 70,875 |
Williams Partners LP, 144A, 5.25%, 3/15/2020 |
| 1,190,000 | 1,223,974 | |
| 32,454,209 | |||
Financials 17.8% | ||||
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 |
| 540,000 | 515,700 | |
American International Group, Inc., Series G, 5.6%, 10/18/2016 |
| 1,710,000 | 1,614,474 | |
Antero Resources Finance Corp., 144A, 9.375%, 12/1/2017 |
| 180,000 | 186,300 | |
Ashton Woods USA LLC, 144A, Step-up Coupon, 0% to 6/30/2012, 11.0% to 6/30/2015 |
| 280,800 | 168,480 | |
Bank of America Corp., 7.625%, 6/1/2019 |
| 820,000 | 936,045 | |
BBVA Bancomer SA, 144A, 7.25%, 4/22/2020 |
| 685,000 | 695,100 | |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014** |
| 115,000 | 19,263 | |
Calpine Construction Finance Co., LP, 144A, 8.0%, 6/1/2016 |
| 605,000 | 626,175 | |
Case New Holland, Inc., 144A, 7.75%, 9/1/2013 |
| 225,000 | 236,813 | |
Cemex Finance LLC, 144A, 9.5%, 12/14/2016 |
| 360,000 | 363,600 | |
CIT Group, Inc., 7.0%, 5/1/2017 |
| 1,200,000 | 1,141,500 | |
Citigroup Funding, Inc., 5.0%***, 4/7/2013 |
| 1,470,000 | 1,425,900 | |
CNA Financial Corp., 6.5%, 8/15/2016 |
| 857,000 | 886,004 | |
Conproca SA de CV, REG S, 12.0%, 6/16/2010 |
| 218,595 | 221,234 | |
Depfa ACS Bank, 144A, 9.118%***, 10/6/2023 |
| 4,000,000 | 3,422,800 | |
Discover Bank, 7.0%, 4/15/2020 |
| 855,000 | 878,474 | |
DuPont Fabros Technology LP, (REIT), 144A, 8.5%, 12/15/2017 |
| 360,000 | 373,500 | |
E*TRADE Financial Corp.: | ||||
| 7.375%, 9/15/2013 |
| 830,000 | 805,100 |
| 12.5%, 11/30/2017 (PIK) |
| 515,000 | 615,425 |
Express LLC, 144A, 8.75%, 3/1/2018 |
| 255,000 | 262,650 | |
Expro Finance Luxembourg SCA, 144A, 8.5%, 12/15/2016 |
| 240,000 | 246,000 | |
FCE Bank PLC, 9.375%, 1/17/2014 | EUR | 600,000 | 862,779 | |
Fibria Overseas Finance Ltd., 144A, 9.25%, 10/30/2019 |
| 180,000 | 209,250 | |
Ford Motor Credit Co., LLC: | ||||
| 7.25%, 10/25/2011 |
| 145,000 | 149,767 |
| 7.375%, 2/1/2011 |
| 190,000 | 194,429 |
| 7.5%, 8/1/2012 |
| 2,500,000 | 2,583,800 |
| 8.125%, 1/15/2020 |
| 100,000 | 105,948 |
| 9.875%, 8/10/2011 |
| 1,155,000 | 1,222,265 |
Fresenius US Finance II, Inc., 144A, 9.0%, 7/15/2015 |
| 210,000 | 236,250 | |
GE Capital European Funding, 4.25%, 3/1/2017 | EUR | 1,710,000 | 2,349,816 | |
General Electric Capital Corp., 5.5%, 1/8/2020 |
| 1,360,000 | 1,417,100 | |
GMAC, Inc.: | ||||
| 6.875%, 9/15/2011 |
| 1,185,000 | 1,205,737 |
| 7.0%, 2/1/2012 |
| 915,000 | 929,869 |
| 7.25%, 3/2/2011 |
| 2,880,000 | 2,934,000 |
| 144A, 8.0%, 3/15/2020 |
| 445,000 | 459,462 |
| 144A, 8.3%, 2/12/2015 |
| 205,000 | 213,969 |
Hana Bank, 144A, 4.5%, 10/30/2015 |
| 1,180,000 | 1,185,060 | |
Hartford Financial Services Group, Inc.: | ||||
| 5.5%, 3/30/2020 |
| 305,000 | 302,986 |
| 6.625%, 3/30/2040 |
| 515,000 | 504,768 |
Health Care REIT, Inc., (REIT), 6.125%, 4/15/2020 |
| 1,285,000 | 1,326,121 | |
Hellas Telecommunications Finance SCA, 144A, 8.644%***, 7/15/2015 (PIK) | EUR | 213,708 | 31 | |
Hexion Finance Escrow LLC, 144A, 8.875%, 2/1/2018 |
| 580,000 | 570,575 | |
Holcim US Finance Sarl & Cie SCS, 144A, 6.0%, 12/30/2019 |
| 790,000 | 850,411 | |
Hospitality Properties Trust, (REIT), 7.875%, 8/15/2014 |
| 1,000,000 | 1,101,397 | |
Host Hotels & Resorts LP, (REIT), 6.875%, 11/1/2014 |
| 1,000,000 | 1,016,250 | |
Hutchison Whampoa Finance 09 Ltd., 4.75%, 11/14/2016 | EUR | 850,000 | 1,185,716 | |
Inmarsat Finance PLC, 144A, 7.375%, 12/1/2017 |
| 475,000 | 495,187 | |
Intergas Finance BV, REG S, 6.875%, 11/4/2011 |
| 1,145,000 | 1,196,525 | |
International Finance Corp., 5.75%, 3/16/2015 | AUD | 1,715,000 | 1,569,157 | |
International Lease Finance Corp.: | ||||
| 144A, 8.625%, 9/15/2015 |
| 225,000 | 222,188 |
| 144A, 8.75%, 3/15/2017 |
| 450,000 | 446,625 |
iPayment, Inc., 9.75%, 5/15/2014 |
| 165,000 | 152,213 | |
LBI Escrow Corp., 144A, 8.0%, 11/1/2017 |
| 830,000 | 860,087 | |
Lincoln National Corp., 8.75%, 7/1/2019 |
| 833,000 | 1,039,111 | |
Macquarie Group Ltd., 144A, 6.0%, 1/14/2020 |
| 1,315,000 | 1,342,856 | |
MetLife, Inc., 7.717%, 2/15/2019 |
| 820,000 | 971,135 | |
Morgan Stanley, Series F, 5.625%, 9/23/2019 |
| 835,000 | 823,536 | |
National Money Mart Co., 144A, 10.375%, 12/15/2016 |
| 655,000 | 694,300 | |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011** |
| 340,000 | 60,350 | |
Nielsen Finance LLC: | ||||
| Step-up Coupon, 0% to 8/1/2011, 12.5% to 8/1/2016 |
| 775,000 | 751,750 |
| 11.5%, 5/1/2016 |
| 80,000 | 90,800 |
Nomura Holdings, Inc., 6.7%, 3/4/2020 |
| 535,000 | 573,081 | |
Nuveen Investments, Inc., 10.5%, 11/15/2015 |
| 325,000 | 325,000 | |
Orascom Telecom Finance SCA, 144A, 7.875%, 2/8/2014 |
| 700,000 | 686,000 | |
Pacific Life Global Funding, 144A, 4.81%***, 2/6/2016 |
| 1,739,000 | 1,668,049 | |
Pinnacle Foods Finance LLC: | ||||
| 9.25%, 4/1/2015 |
| 280,000 | 291,200 |
| 144A, 9.25%, 4/1/2015 |
| 295,000 | 306,800 |
PNC Bank NA, 6.875%, 4/1/2018 |
| 820,000 | 913,927 | |
Principal Financial Group, Inc., 8.875%, 5/15/2019 |
| 820,000 | 1,011,515 | |
ProLogis, (REIT), 6.875%, 3/15/2020 |
| 1,710,000 | 1,693,115 | |
Prudential Financial, Inc., Series D, 4.75%, 9/17/2015 |
| 1,000,000 | 1,037,937 | |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 |
| 151,000 | 158,550 | |
Reynolds Group Issuer, Inc.: | ||||
| 144A, 7.75%, 10/15/2016 |
| 450,000 | 465,750 |
| 144A, 8.5%, 5/15/2018 (b) |
| 630,000 | 634,725 |
Rio Tinto Finance (USA) Ltd., 9.0%, 5/1/2019 |
| 1,050,000 | 1,352,791 | |
SLM Corp., 8.0%, 3/25/2020 |
| 125,000 | 120,313 | |
Sprint Capital Corp.: | ||||
| 7.625%, 1/30/2011 |
| 620,000 | 636,275 |
| 8.375%, 3/15/2012 |
| 765,000 | 807,075 |
Susser Holdings LLC, 144A, 8.5%, 5/15/2016 (b) |
| 165,000 | 163,094 | |
Teachers Insurance & Annuity Association of America, 144A, 6.85%, 12/16/2039 |
| 935,000 | 1,054,274 | |
The Goldman Sachs Group, Inc., 5.375%, 3/15/2020 |
| 855,000 | 830,488 | |
Toyota Motor Credit Corp., 5.25%, 2/3/2012 | EUR | 1,630,000 | 2,293,441 | |
Toys "R" Us Property Co. I, LLC, 144A, 10.75%, 7/15/2017 |
| 245,000 | 278,075 | |
Tropicana Entertainment LLC, 9.625%, 12/15/2014** |
| 660,000 | 66 | |
UCI Holdco, Inc., 8.257%***, 12/15/2013 (PIK) |
| 323,883 | 314,167 | |
Vale Overseas Ltd., 5.625%, 9/15/2019 |
| 790,000 | 828,848 | |
Virgin Media Finance PLC: | ||||
| 8.75%, 4/15/2014 |
| 782,000 | 798,617 |
| Series 1, 9.5%, 8/15/2016 |
| 1,630,000 | 1,788,925 |
Virgin Media Secured Finance PLC, 144A, 6.5%, 1/15/2018 |
| 2,215,000 | 2,226,075 | |
Wind Acquisition Finance SA: | ||||
| 144A, 11.0%, 12/1/2015 | EUR | 900,000 | 1,270,203 |
| 144A, 11.75%, 7/15/2017 |
| 700,000 | 778,750 |
| 144A, 11.75%, 7/15/2017 | EUR | 320,000 | 472,931 |
| 144A, 12.0%, 12/1/2015 |
| 75,000 | 80,063 |
Wind Acquisition Holdings Finance SA, 144A, 12.25%, 7/15/2017 (PIK) | EUR | 430,000 | 585,406 | |
| 75,919,639 | |||
Health Care 3.4% | ||||
Community Health Systems, Inc., 8.875%, 7/15/2015 |
| 2,970,000 | 3,118,500 | |
HCA, Inc.: | ||||
| 144A, 7.875%, 2/15/2020 |
| 2,020,000 | 2,174,025 |
| 144A, 8.5%, 4/15/2019 |
| 200,000 | 219,750 |
| 9.125%, 11/15/2014 |
| 595,000 | 632,931 |
| 9.25%, 11/15/2016 |
| 1,175,000 | 1,270,469 |
| 9.625%, 11/15/2016 (PIK) |
| 415,000 | 451,312 |
| 144A, 9.875%, 2/15/2017 |
| 745,000 | 823,225 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 |
| 180,000 | 196,200 | |
IASIS Healthcare LLC, 8.75%, 6/15/2014 |
| 1,180,000 | 1,212,450 | |
Life Technologies Corp., 6.0%, 3/1/2020 |
| 1,130,000 | 1,188,941 | |
Medtronic, Inc., 4.45%, 3/15/2020 |
| 690,000 | 700,992 | |
Talecris Biotherapeutics Holdings Corp., 144A, 7.75%, 11/15/2016 |
| 60,000 | 60,600 | |
The Cooper Companies, Inc., 7.125%, 2/15/2015 |
| 385,000 | 386,444 | |
Valeant Pharmaceuticals International: | ||||
| 144A, 7.625%, 3/15/2020 |
| 275,000 | 279,812 |
| 8.375%, 6/15/2016 |
| 185,000 | 194,250 |
Vanguard Health Holding Co. II, LLC, 144A, 8.0%, 2/1/2018 |
| 360,000 | 356,400 | |
Watson Pharmaceuticals, Inc., 6.125%, 8/15/2019 |
| 1,000,000 | 1,068,824 | |
| 14,335,125 | |||
Industrials 4.7% | ||||
Acco Brands Corp., 144A, 10.625%, 3/15/2015 |
| 90,000 | 99,675 | |
Actuant Corp., 6.875%, 6/15/2017 |
| 150,000 | 148,313 | |
ARAMARK Corp., 8.5%, 2/1/2015 |
| 365,000 | 374,581 | |
BE Aerospace, Inc., 8.5%, 7/1/2018 |
| 435,000 | 465,450 | |
Belden, Inc.: | ||||
| 7.0%, 3/15/2017 |
| 195,000 | 192,075 |
| 144A, 9.25%, 6/15/2019 |
| 235,000 | 252,625 |
Bombardier, Inc., 144A, 7.75%, 3/15/2020 |
| 315,000 | 334,687 | |
Cenveo Corp.: | ||||
| 144A, 8.875%, 2/1/2018 |
| 670,000 | 691,775 |
| 144A, 10.5%, 8/15/2016 |
| 215,000 | 224,675 |
Clean Harbors, Inc., 7.625%, 8/15/2016 |
| 185,000 | 192,631 | |
Congoleum Corp., 8.625%, 8/1/2008** |
| 480,000 | 93,600 | |
Corrections Corp. of America, 7.75%, 6/1/2017 |
| 285,000 | 302,100 | |
Delta Air Lines, Inc., 144A, 9.5%, 9/15/2014 |
| 90,000 | 95,288 | |
Esco Corp., 144A, 4.132%***, 12/15/2013 |
| 285,000 | 264,337 | |
Garda World Security Corp., 144A, 9.75%, 3/15/2017 |
| 350,000 | 362,687 | |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 |
| 175,000 | 176,969 | |
Hutchison Whampoa International 09/19 Ltd., 144A, 5.75%, 9/11/2019 |
| 1,140,000 | 1,193,528 | |
Iron Mountain, Inc., 8.375%, 8/15/2021 |
| 395,000 | 417,219 | |
K. Hovnanian Enterprises, Inc.: | ||||
| 8.875%, 4/1/2012 |
| 220,000 | 212,300 |
| 10.625%, 10/15/2016 |
| 300,000 | 328,500 |
Kansas City Southern de Mexico SA de CV: | ||||
| 7.375%, 6/1/2014 |
| 530,000 | 540,600 |
| 7.625%, 12/1/2013 |
| 520,000 | 534,300 |
| 144A, 8.0%, 2/1/2018 |
| 595,000 | 620,287 |
Kansas City Southern Railway Co., 8.0%, 6/1/2015 |
| 395,000 | 417,712 | |
Masco Corp., 7.125%, 3/15/2020 |
| 855,000 | 877,078 | |
McJunkin Red Man Corp., 144A, 9.5%, 12/15/2016 |
| 520,000 | 541,450 | |
Mobile Mini, Inc., 9.75%, 8/1/2014 |
| 255,000 | 265,837 | |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 |
| 560,000 | 574,000 | |
Oshkosh Corp.: | ||||
| 144A, 8.25%, 3/1/2017 |
| 70,000 | 73,675 |
| 144A, 8.5%, 3/1/2020 |
| 140,000 | 147,350 |
Owens Corning, Inc., 9.0%, 6/15/2019 |
| 1,198,000 | 1,446,378 | |
Ply Gem Industries, Inc., 144A, 13.125%, 7/15/2014 |
| 425,000 | 442,000 | |
RailAmerica, Inc., 9.25%, 7/1/2017 |
| 207,000 | 223,043 | |
RBS Global & Rexnord Corp.: | ||||
| 144A, 8.5%, 5/1/2018 |
| 675,000 | 676,687 |
| 11.75%, 8/1/2016 |
| 95,000 | 103,194 |
Rearden G Holdings EINS GmbH, 144A, 7.875%, 3/30/2020 |
| 130,000 | 134,355 | |
Republic Services, Inc., 144A, 5.0%, 3/1/2020 |
| 830,000 | 833,717 | |
Sitel LLC, 144A, 11.5%, 4/1/2018 |
| 520,000 | 527,800 | |
Spirit AeroSystems, Inc., 144A, 7.5%, 10/1/2017 |
| 175,000 | 178,938 | |
Textron, Inc., 7.25%, 10/1/2019 |
| 1,688,000 | 1,856,093 | |
Titan International, Inc., 8.0%, 1/15/2012 |
| 730,000 | 737,300 | |
TransDigm, Inc.: | ||||
| 7.75%, 7/15/2014 |
| 115,000 | 117,444 |
| 144A, 7.75%, 7/15/2014 |
| 240,000 | 245,700 |
Triumph Group, Inc., 8.0%, 11/15/2017 |
| 60,000 | 60,000 | |
United Rentals North America, Inc.: | ||||
| 7.0%, 2/15/2014 |
| 570,000 | 557,175 |
| 9.25%, 12/15/2019 |
| 510,000 | 545,700 |
| 10.875%, 6/15/2016 |
| 250,000 | 281,250 |
USG Corp., 144A, 9.75%, 8/1/2014 |
| 220,000 | 237,600 | |
| 20,219,678 | |||
Information Technology 2.0% | ||||
Alcatel-Lucent USA, Inc., 6.45%, 3/15/2029 |
| 310,000 | 227,075 | |
Amkor Technology, Inc., 144A, 7.375%, 5/1/2018 |
| 235,000 | 238,525 | |
Aspect Software, Inc., 144A, 10.625%, 5/15/2017 (b) |
| 725,000 | 725,000 | |
Equinix, Inc., 8.125%, 3/1/2018 |
| 695,000 | 723,669 | |
First Data Corp., 9.875%, 9/24/2015 |
| 210,000 | 192,150 | |
Freescale Semiconductor, Inc.: | ||||
| 8.875%, 12/15/2014 |
| 690,000 | 679,650 |
| 144A, 9.25%, 4/15/2018 |
| 1,120,000 | 1,164,800 |
Jabil Circuit, Inc., 7.75%, 7/15/2016 |
| 145,000 | 153,700 | |
JDA Software Group, Inc., 144A, 8.0%, 12/15/2014 |
| 120,000 | 125,700 | |
L-3 Communications Corp.: | ||||
| 5.875%, 1/15/2015 |
| 1,470,000 | 1,492,050 |
| Series B, 6.375%, 10/15/2015 |
| 270,000 | 276,412 |
ManTech International Corp., 144A, 7.25%, 4/15/2018 |
| 115,000 | 117,444 | |
MasTec, Inc., 7.625%, 2/1/2017 |
| 270,000 | 262,237 | |
Seagate HDD Cayman, 144A, 6.875%, 5/1/2020 (b) |
| 120,000 | 120,300 | |
Seagate Technology International, 144A, 10.0%, 5/1/2014 |
| 120,000 | 142,200 | |
SunGard Data Systems, Inc.: | ||||
| 10.25%, 8/15/2015 |
| 1,065,000 | 1,122,244 |
| 10.625%, 5/15/2015 |
| 300,000 | 330,750 |
Unisys Corp., 144A, 12.75%, 10/15/2014 |
| 395,000 | 464,125 | |
Vangent, Inc., 9.625%, 2/15/2015 |
| 155,000 | 146,088 | |
| 8,704,119 | |||
Materials 6.4% | ||||
AngloGold Ashanti Holdings PLC, 5.375%, 4/15/2020 |
| 870,000 | 879,588 | |
Appleton Papers, Inc., 144A, 11.25%, 12/15/2015 |
| 111,000 | 100,455 | |
ArcelorMittal, 6.125%, 6/1/2018 |
| 1,250,000 | 1,347,485 | |
Ashland, Inc., 144A, 9.125%, 6/1/2017 |
| 275,000 | 313,500 | |
Ball Corp.: | ||||
| 7.125%, 9/1/2016 |
| 135,000 | 143,438 |
| 7.375%, 9/1/2019 |
| 135,000 | 142,088 |
Berry Plastics Corp.: | ||||
| 8.25%, 11/15/2015 |
| 540,000 | 545,400 |
| 144A, 9.5%, 5/15/2018 |
| 355,000 | 351,894 |
Boise Paper Holdings LLC, 144A, 8.0%, 4/1/2020 |
| 160,000 | 164,800 | |
CF Industries, Inc., 6.875%, 5/1/2018 |
| 145,000 | 151,163 | |
Clondalkin Acquisition BV, 144A, 2.257%***, 12/15/2013 |
| 215,000 | 203,175 | |
Compass Minerals International, Inc., 144A, 8.0%, 6/1/2019 |
| 235,000 | 244,694 | |
CPG International I, Inc., 10.5%, 7/1/2013 |
| 520,000 | 525,200 | |
Crown Americas LLC, 144A, 7.625%, 5/15/2017 |
| 230,000 | 239,488 | |
Domtar Corp., 10.75%, 6/1/2017 |
| 230,000 | 281,750 | |
Dow Chemical Co., 7.375%, 11/1/2029 |
| 1,710,000 | 1,950,212 | |
Essar Steel Algoma, Inc., 144A, 9.375%, 3/15/2015 |
| 1,250,000 | 1,281,250 | |
Exopack Holding Corp., 11.25%, 2/1/2014 |
| 580,000 | 610,450 | |
Freeport-McMoRan Copper & Gold, Inc.: | ||||
| 8.25%, 4/1/2015 |
| 580,000 | 631,475 |
| 8.375%, 4/1/2017 |
| 1,140,000 | 1,278,225 |
GEO Specialty Chemicals, Inc.: | ||||
| 144A, 7.5%, 3/31/2015 (PIK) |
| 468,054 | 397,846 |
| 10.0%, 3/31/2015 |
| 460,160 | 391,136 |
Georgia-Pacific LLC: | ||||
| 144A, 7.0%, 1/15/2015 |
| 330,000 | 343,200 |
| 144A, 7.125%, 1/15/2017 |
| 180,000 | 189,900 |
| 144A, 8.25%, 5/1/2016 |
| 300,000 | 328,500 |
| 9.5%, 12/1/2011 |
| 1,380,000 | 1,512,825 |
Graphic Packaging International, Inc., 9.5%, 6/15/2017 |
| 630,000 | 677,250 | |
Greif, Inc., 7.75%, 8/1/2019 |
| 995,000 | 1,047,237 | |
Hexcel Corp., 6.75%, 2/1/2015 |
| 1,030,000 | 1,024,850 | |
Innophos, Inc., 8.875%, 8/15/2014 |
| 100,000 | 103,000 | |
Jefferson Smurfit Corp., 8.25%, 10/1/2012** |
| 565,000 | 567,119 | |
Koppers, Inc., 144A, 7.875%, 12/1/2019 |
| 365,000 | 375,950 | |
Kronos International, Inc., 6.5%, 4/15/2013 | EUR | 150,000 | 171,757 | |
Lumena Resources Corp., 144A, 12.0%, 10/27/2014 |
| 925,000 | 882,709 | |
MeadWestvaco Corp., 7.375%, 9/1/2019 |
| 855,000 | 954,950 | |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 |
| 110,000 | 101,475 | |
NewMarket Corp., 7.125%, 12/15/2016 |
| 455,000 | 452,725 | |
Newmont Mining Corp., 5.125%, 10/1/2019 |
| 490,000 | 505,128 | |
Novelis, Inc.: | ||||
| 7.25%, 2/15/2015 |
| 435,000 | 428,475 |
| 11.5%, 2/15/2015 |
| 295,000 | 324,500 |
Owens-Brockway Glass Container, Inc., 7.375%, 5/15/2016 |
| 418,000 | 443,080 | |
Plastipak Holdings, Inc., 144A, 10.625%, 8/15/2019 |
| 85,000 | 94,456 | |
Radnor Holdings Corp., 11.0%, 3/15/2010** |
| 100,000 | 10 | |
Silgan Holdings, Inc., 7.25%, 8/15/2016 |
| 440,000 | 458,700 | |
Solo Cup Co., 10.5%, 11/1/2013 |
| 755,000 | 804,075 | |
Southern Copper Corp., 5.375%, 4/16/2020 |
| 710,000 | 715,637 | |
United States Steel Corp., 7.375%, 4/1/2020 |
| 445,000 | 457,237 | |
Viskase Companies, Inc., 144A, 9.875%, 1/15/2018 |
| 805,000 | 821,100 | |
Weyerhaeuser Co., 7.375%, 10/1/2019 |
| 855,000 | 933,462 | |
Wolverine Tube, Inc., 15.0%, 3/31/2012 (PIK) |
| 340,157 | 290,834 | |
| 27,184,853 | |||
Telecommunication Services 6.0% | ||||
America Movil SAB de CV, 144A, 5.0%, 10/16/2019 |
| 833,000 | 837,901 | |
CC Holdings GS V, LLC, 144A, 7.75%, 5/1/2017 |
| 1,700,000 | 1,848,750 | |
Cincinnati Bell, Inc.: | ||||
| 8.25%, 10/15/2017 |
| 255,000 | 258,825 |
| 8.75%, 3/15/2018 |
| 735,000 | 744,187 |
Clearwire Communications LLC, 144A, 12.0%, 12/1/2015 |
| 225,000 | 234,563 | |
Cricket Communications, Inc.: | ||||
| 9.375%, 11/1/2014 |
| 1,150,000 | 1,188,812 |
| 10.0%, 7/15/2015 |
| 430,000 | 454,725 |
Crown Castle International Corp., 9.0%, 1/15/2015 |
| 565,000 | 606,669 | |
Digicel Group Ltd., 144A, 10.5%, 4/15/2018 |
| 480,000 | 512,400 | |
Digicel Ltd., 144A, 8.25%, 9/1/2017 |
| 1,010,000 | 1,032,725 | |
ERC Ireland Preferred Equity Ltd., 144A, 7.662%***, 2/15/2017 (PIK) | EUR | 252,509 | 129,115 | |
Frontier Communications Corp., 6.25%, 1/15/2013 |
| 164,000 | 167,690 | |
GCI, Inc., 144A, 8.625%, 11/15/2019 |
| 90,000 | 91,575 | |
Grupo Iusacell Celular SA de CV, 10.0%, 3/31/2012** |
| 112,247 | 42,654 | |
Hughes Network Systems LLC, 9.5%, 4/15/2014 |
| 910,000 | 937,300 | |
Intelsat Corp.: | ||||
| 9.25%, 8/15/2014 |
| 160,000 | 165,600 |
| 9.25%, 6/15/2016 |
| 1,915,000 | 2,020,325 |
Intelsat Jackson Holdings SA: | ||||
| 144A, 8.5%, 11/1/2019 |
| 305,000 | 321,013 |
| 11.25%, 6/15/2016 |
| 330,000 | 357,225 |
Intelsat Subsidiary Holding Co. SA: | ||||
| 8.875%, 1/15/2015 |
| 975,000 | 1,014,000 |
| Series B, 144A, 8.875%, 1/15/2015 |
| 395,000 | 408,825 |
iPCS, Inc., 2.374%***, 5/1/2013 |
| 110,000 | 103,950 | |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 |
| 2,870,000 | 2,977,625 | |
Millicom International Cellular SA, 10.0%, 12/1/2013 |
| 1,010,000 | 1,047,875 | |
New Communications Holdings, Inc.: | ||||
| 144A, 7.875%, 4/15/2015 |
| 60,000 | 61,950 |
| 144A, 8.25%, 4/15/2017 |
| 375,000 | 386,250 |
| 144A, 8.5%, 4/15/2020 |
| 500,000 | 515,000 |
| 144A, 8.75%, 4/15/2022 |
| 65,000 | 66,950 |
Nextel Communications, Inc., Series E, 6.875%, 10/31/2013 |
| 335,000 | 329,137 | |
Qwest Communications International, Inc.: | ||||
| 144A, 7.125%, 4/1/2018 |
| 295,000 | 304,588 |
| 144A, 8.0%, 10/1/2015 |
| 655,000 | 702,487 |
Qwest Corp.: | ||||
| 7.5%, 10/1/2014 |
| 1,654,000 | 1,809,062 |
| 7.875%, 9/1/2011 |
| 585,000 | 620,831 |
SBA Telecommunications, Inc.: | ||||
| 144A, 8.0%, 8/15/2016 |
| 190,000 | 200,450 |
| 144A, 8.25%, 8/15/2019 |
| 115,000 | 123,338 |
Sprint Nextel Corp., 8.375%, 8/15/2017 |
| 640,000 | 661,600 | |
Telesat Canada, 11.0%, 11/1/2015 |
| 820,000 | 918,400 | |
tw telecom holdings, Inc., 144A, 8.0%, 3/1/2018 |
| 125,000 | 129,375 | |
West Corp., 9.5%, 10/15/2014 |
| 375,000 | 388,125 | |
Windstream Corp.: | ||||
| 7.0%, 3/15/2019 |
| 255,000 | 240,338 |
| 7.875%, 11/1/2017 |
| 815,000 | 808,887 |
| 8.625%, 8/1/2016 |
| 40,000 | 40,950 |
| 25,812,047 | |||
Utilities 3.6% | ||||
AES Corp.: | ||||
| 8.0%, 6/1/2020 |
| 930,000 | 953,250 |
| 144A, 8.75%, 5/15/2013 |
| 934,000 | 948,010 |
AmerenEnergy Generating Co., 6.3%, 4/1/2020 |
| 1,000,000 | 1,013,818 | |
CMS Energy Corp., 8.5%, 4/15/2011 |
| 880,000 | 925,669 | |
Energy Future Holdings Corp., 10.875%, 11/1/2017 |
| 420,000 | 330,750 | |
IPALCO Enterprises, Inc., 144A, 7.25%, 4/1/2016 |
| 205,000 | 214,738 | |
Kinder Morgan, Inc., 6.5%, 9/1/2012 |
| 1,005,000 | 1,056,506 | |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 |
| 980,000 | 1,006,950 | |
Mirant North America LLC, 7.375%, 12/31/2013 |
| 150,000 | 154,125 | |
NRG Energy, Inc.: | ||||
| 7.25%, 2/1/2014 |
| 2,205,000 | 2,235,319 |
| 7.375%, 2/1/2016 |
| 2,120,000 | 2,098,800 |
| 7.375%, 1/15/2017 |
| 1,795,000 | 1,768,075 |
NV Energy, Inc.: | ||||
| 6.75%, 8/15/2017 |
| 415,000 | 425,205 |
| 8.625%, 3/15/2014 |
| 100,000 | 102,625 |
RRI Energy, Inc., 7.875%, 6/15/2017 |
| 145,000 | 139,200 | |
Suburban Propane Partners LP, 7.375%, 3/15/2020 |
| 90,000 | 91,800 | |
Texas Competitive Electric Holdings Co., LLC, Series A, 10.25%, 11/1/2015 |
| 840,000 | 630,000 | |
The Toledo Edison Co., 7.25%, 5/1/2020 |
| 1,040,000 | 1,216,774 | |
| 15,311,614 | |||
Total Corporate Bonds (Cost $263,892,060) | 273,098,950 | |||
| ||||
Mortgage-Backed Securities Pass-Throughs 2.9% | ||||
Federal National Mortgage Association, 5.0%, 11/1/2035 (b) | 4,000,000 | 4,140,000 | ||
Government National Mortgage Association, 4.5%, 4/1/2039 (b) | 8,000,000 | 8,120,625 | ||
Total Mortgage-Backed Securities Pass-Throughs (Cost $12,090,469) | 12,260,625 | |||
| ||||
Asset-Backed 0.6% | ||||
Miscellaneous | ||||
Babson CLO Ltd., "A", Series 2005-3A, 144A, 0.5%***, 11/10/2019 | 1,740,824 | 1,629,585 | ||
Duane Street CLO, "A", Series 2005-1A, 144A, 0.499%***, 11/8/2017 | 970,375 | 890,320 | ||
Total Asset-Backed (Cost $2,337,836) | 2,519,905 | |||
| ||||
Commercial Mortgage-Backed Securities 2.0% | ||||
Credit Suisse Mortgage Capital Certificates, "A2", Series 2007-C1, 5.268%, 2/15/2040 | 3,719,000 | 3,843,912 | ||
Greenwich Capital Commercial Funding Corp., "A2", Series 2007-GG9, 5.381%, 3/10/2039 | 1,000,000 | 1,029,947 | ||
JPMorgan Chase Commercial Mortgage Securities Corp., "F", Series 2004-LN2, 144A, 5.454%***, 7/15/2041 | 2,000,000 | 1,216,283 | ||
LB-UBS Commercial Mortgage Trust, "A3", Series 2006-C7, 5.347%, 11/15/2038 | 2,560,000 | 2,570,115 | ||
Total Commercial Mortgage-Backed Securities (Cost $8,711,686) | 8,660,257 | |||
| ||||
Collateralized Mortgage Obligations 2.7% | ||||
Banc of America Mortgage Securities, "2A2", Series 2004-A, 3.516%***, 2/25/2034 | 1,034,802 | 947,977 | ||
Bear Stearns Adjustable Rate Mortgage Trust, "2A1", Series 2005-11, 4.514%***, 12/25/2035 | 3,039,075 | 2,938,360 | ||
Citicorp Mortgage Securities, Inc., "1A7", Series 2006-4, 6.0%, 8/25/2036 | 956,653 | 928,861 | ||
Merrill Lynch Mortgage Investors Trust: | ||||
| "2A", Series 2003-A6, 3.618%***, 10/25/2033 |
| 1,611,851 | 1,552,987 |
| "2A1A", Series 2005-A9, 5.131%***, 12/25/2035 |
| 1,052,419 | 1,055,919 |
MLCC Mortgage Investors, Inc., "1A", Series 2005-2, 4.25%***, 10/25/2035 | 2,355,185 | 2,218,973 | ||
Provident Funding Mortgage Loan Trust, "2A1", Series 2005-1, 3.06%***, 5/25/2035 | 529,416 | 534,931 | ||
Residential Funding Mortgage Securities I, "3A1", Series 2005-SA2, 5.133%***, 6/25/2035 | 296,416 | 290,783 | ||
Washington Mutual Mortgage Pass-Through Certificates Trust, "1A1", Series 2005-AR12, 4.817%***, 10/25/2035 | 1,034,254 | 977,074 | ||
Total Collateralized Mortgage Obligations (Cost $10,266,962) | 11,445,865 | |||
| ||||
Government & Agency Obligations 19.5% | ||||
Other Government Related (d) 5.5% | ||||
Citibank NA, FDIC Guaranteed, 0.279%***, 5/7/2012 |
| 3,250,000 | 3,251,320 | |
JPMorgan Chase & Co., Series 3, FDIC Guaranteed, 0.535%***, 12/26/2012 |
| 1,158,000 | 1,165,203 | |
Kreditanstalt fuer Wiederaufbau, 1.35%, 1/20/2014 | JPY | 1,599,000,000 | 17,613,731 | |
Pemex Project Funding Master Trust, 5.75%, 3/1/2018 |
| 1,570,000 | 1,622,647 | |
| 23,652,901 | |||
Sovereign Bonds 8.9% | ||||
Federative Republic of Brazil: | ||||
| 8.875%, 10/14/2019 |
| 950,000 | 1,235,000 |
| 12.5%, 1/5/2016 | BRL | 1,155,000 | 717,434 |
Government of Canada, 4.5%, 6/1/2015 | CAD | 2,700,000 | 2,846,748 | |
Republic of Argentina, 5.83%, 12/31/2033 | ARS | 446 | 100 | |
Republic of Croatia, 144A, 6.75%, 11/5/2019 |
| 805,000 | 868,737 | |
Republic of El Salvador, 144A, 7.65%, 6/15/2035 |
| 745,000 | 804,600 | |
Republic of Ghana, 144A, 8.5%, 10/4/2017 |
| 125,000 | 138,438 | |
Republic of Greece, 3.6%, 7/20/2016 | EUR | 8,250,000 | 7,555,661 | |
Republic of Indonesia, 144A, 6.875%, 3/9/2017 |
| 2,035,000 | 2,269,025 | |
Republic of Lithuania, 144A, 7.375%, 2/11/2020 |
| 1,835,000 | 1,997,825 | |
Republic of Panama, 9.375%, 1/16/2023 |
| 2,075,000 | 2,718,250 | |
Republic of Peru, 7.35%, 7/21/2025 |
| 1,590,000 | 1,852,350 | |
Republic of Poland, 6.375%, 7/15/2019 |
| 1,740,000 | 1,917,842 | |
Republic of South Africa, 6.875%, 5/27/2019 |
| 1,215,000 | 1,365,356 | |
Republic of Sri Lanka, 144A, 7.4%, 1/22/2015 |
| 390,000 | 411,450 | |
Republic of Uruguay: | ||||
| 7.625%, 3/21/2036 |
| 605,000 | 686,675 |
| 9.25%, 5/17/2017 |
| 735,000 | 935,288 |
Republic of Venezuela, 9.25%, 9/15/2027 |
| 770,000 | 598,675 | |
Russian Federation, REG S, 7.5%, 3/31/2030 |
| 2,295,060 | 2,629,220 | |
Socialist Republic of Vietnam, 144A, 6.875%, 1/15/2016 |
| 385,000 | 412,913 | |
United Kingdom Treasury Bond, 3.75%, 9/7/2019 | GBP | 4,000,000 | 6,071,242 | |
| 38,032,829 | |||
US Government Sponsored Agencies 1.2% | ||||
Federal Home Loan Bank: | ||||
| 1.75%, 8/22/2012 (e) |
| 2,500,000 | 2,524,037 |
| 7.2%***, 3/18/2024 |
| 850,000 | 828,750 |
Federal National Mortgage Association, 1.75%, 3/23/2011 (e) |
| 1,640,000 | 1,656,984 | |
| 5,009,771 | |||
US Treasury Obligations 3.9% | ||||
US Treasury Bill, 0.22%****, 9/16/2010 (f) |
| 6,353,000 | 6,348,394 | |
US Treasury Bond, 4.375%, 11/15/2039 |
| 2,542,000 | 2,478,450 | |
US Treasury Notes: | ||||
| 2.5%, 3/31/2015 |
| 2,900,000 | 2,914,500 |
| 3.625%, 2/15/2020 |
| 4,712,000 | 4,698,010 |
| 16,439,354 | |||
Total Government & Agency Obligations (Cost $82,631,288) | 83,134,855 | |||
| ||||
Loan Participations and Assignments 3.4% | ||||
Senior Loans*** 3.1% | ||||
Big West Oil LLC, Term Loan, LIBOR plus 9.5%, 2/19/2015 |
| 210,000 | 212,756 | |
Buffets, Inc.: | ||||
| Letter of Credit Term Loan B, 7.44%, 5/1/2013 (PIK) |
| 42,728 | 41,660 |
| Term Loan B, 10.0%, 4/21/2015 |
| 405,000 | 388,294 |
Charter Communications Operating LLC: | ||||
| Term Loan, 3.55%, 9/6/2016 |
| 1,329,060 | 1,261,617 |
| Term Loan, 7.25%, 3/6/2014 |
| 922,040 | 937,890 |
Clarke American Corp., Term Loan B, 2.79%, 6/30/2014 |
| 131,073 | 121,570 | |
Ford Motor Co., Term Loan, 3.31%, 12/16/2013 |
| 1,393,514 | 1,348,051 | |
Hawker Beechcraft Acquisition Co., LLC: | ||||
| Term Loan, 2.273%, 3/26/2014 |
| 972,120 | 836,330 |
| Letter of Credit, 2.29%, 3/26/2014 |
| 57,818 | 49,742 |
Hexion Specialty Chemicals, Inc.: | ||||
| Term Loan C1, 2.563%, 5/6/2013 |
| 661,881 | 639,543 |
| Term Loan C2, 2.563%, 5/6/2013 |
| 324,912 | 313,946 |
IASIS Healthcare LLC, Term Loan, 5.588%, 6/13/2014 (PIK) |
| 549,012 | 524,993 | |
Kabel Deutschland GmbH, Term Loan, 7.99%, 11/18/2014 (PIK) | EUR | 1,606,137 | 2,157,526 | |
Nuveen Investments, Inc., Term Loan, 3.323%, 11/13/2014 |
| 241,337 | 220,461 | |
OSI Restaurant Partners LLC: | ||||
| Term Loan, 2.507%, 6/14/2013 |
| 59,203 | 53,814 |
| Term Loan B, 2.625%, 6/14/2014 |
| 655,212 | 595,578 |
Sabre, Inc., Term Loan B, 2.273%, 9/30/2014 |
| 178,147 | 169,500 | |
Sbarro, Inc., Term Loan, 4.762%, 1/31/2014 |
| 198,000 | 189,338 | |
Scorpion Holding Ltd., Second Lien Term Loan, 7.752%, 11/29/2010 |
| 690,000 | 690,000 | |
Texas Competitive Electric Holdings Co., LLC: | ||||
| Term Loan B2, 3.751%, 10/10/2014 |
| 96,564 | 79,445 |
| Term Loan B3, 3.751%, 10/10/2014 |
| 1,784,250 | 1,457,884 |
Tribune Co., Term Loan B, 5.25%, 6/4/2014** |
| 365,375 | 245,777 | |
US Foodservice, Inc., Term Loan B, 2.77%, 5/29/2012 |
| 493,731 | 450,324 | |
VML US Finance LLC: | ||||
| Term Delay Draw B, 4.8%, 5/25/2012 |
| 97,703 | 96,476 |
| Term Loan B, 4.8%, 5/27/2013 |
| 169,149 | 167,025 |
| 13,249,540 | |||
Sovereign Loans 0.3% | ||||
BOM Capital PLC, 144A, 6.699%, 3/11/2015 |
| 1,050,000 | 1,053,938 | |
Total Loan Participations and Assignments (Cost $14,252,446) | 14,303,478 | |||
| ||||
Municipal Bonds and Notes 0.4% | ||||
California, State General Obligation, Build America Bonds, 7.625%, 3/1/2040 | 885,000 | 991,704 | ||
Oregon, State Department of Transportation Highway User Tax Revenue, Build America Bonds, Series A, 5.834%, 11/15/2034 | 480,000 | 507,456 | ||
Total Municipal Bonds and Notes (Cost $1,380,054) | 1,499,160 | |||
| ||||
Preferred Securities 0.9% | ||||
Financials 0.8% | ||||
Capital One Capital VI, 8.875%, 5/15/2040 |
| 1,670,000 | 1,854,243 | |
JPMorgan Chase Capital XXIII, 1.25%***, 5/15/2047 |
| 1,000,000 | 776,629 | |
USB Capital XIII Trust, 6.625%, 12/15/2039 |
| 855,000 | 899,126 | |
| 3,529,998 | |||
Materials 0.1% | ||||
Hercules, Inc., 6.5%, 6/30/2029 |
| 530,000 | 434,600 | |
Total Preferred Securities (Cost $3,553,749) | 3,964,598 | |||
|
| Value ($) | ||
|
| |||
Common Stocks 0.2% | ||||
Consumer Discretionary 0.0% | ||||
Buffets Restaurants Holdings, Inc.* | 8,766 | 54,349 | ||
Dex One Corp.* | 2,278 | 69,046 | ||
SuperMedia, Inc.* | 426 | 19,128 | ||
Vertis Holdings, Inc.* | 3,350 | 0 | ||
| 142,523 | |||
Industrials 0.0% | ||||
World Color Press, Inc.* | 1,292 | 15,633 | ||
Materials 0.2% | ||||
GEO Specialty Chemicals, Inc.* | 10,608 | 9,017 | ||
GEO Specialty Chemicals, Inc. 144A* | 966 | 821 | ||
LyondellBasell Industries "A"* | 21,472 | 444,470 | ||
LyondellBasell Industries "B"* | 19,383 | 436,118 | ||
| 890,426 | |||
Total Common Stocks (Cost $2,225,134) | 1,048,582 | |||
| ||||
Warrants 0.0% | ||||
Consumer Discretionary 0.0% | ||||
Readers Digest Association, Inc., Expiration Date 2/15/2017* | 574 | 0 | ||
Financials 0.0% | ||||
New ASAT (Finance) Ltd., Expiration Date 2/1/2011* | 52,000 | 0 | ||
Industrials 0.0% | ||||
World Color Press, Inc., Expiration Date 7/20/2014* | 1,464 | 6,954 | ||
Materials 0.0% | ||||
Ashland, Inc., Expiration Date 3/31/2029* | 315 | 0 | ||
Total Warrants (Cost $70,220) | 6,954 | |||
| ||||
Open-End Investment Company 2.5% | ||||
DWS Floating Rate Plus Fund "Institutional" (g) (Cost $9,239,065) | 1,114,287 | 10,440,869 | ||
| Contract Amount | Value ($) | ||
|
| |||
Call Options Purchased 0.0% | ||||
Floating Rate — LIBOR, Effective Date 5/16/2011, Expiration Date 5/12/2016, Cap Rate 3.0% (Cost $334,540) | 86,000,000 | 188,796 | ||
|
| Value ($) | ||
|
| |||
Cash Equivalents 3.0% | ||||
Central Cash Management Fund, 0.21% (h) (Cost $12,894,467) | 12,894,467 | 12,894,467 | ||
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $423,879,976)+ | 102.1 | 435,467,361 |
Other Assets and Liabilities, Net | (2.1) | (9,042,448) |
Net Assets | 100.0 | 426,424,913 |
* Non-income producing security.
** Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest or has filed for bankruptcy. The following table represents bonds and senior loans that are in default:
Securities | Coupon | Maturity Date | Principal Amount ($) | Acquisition Cost ($) | Value ($) | |
Buffalo Thunder Development Authority | 9.375% | 12/15/2014 | 115,000 | USD | 115,147 | 19,263 |
CanWest MediaWorks LP | 9.25% | 8/1/2015 | 190,000 | USD | 190,000 | 87,400 |
Congoleum Corp. | 8.625% | 8/1/2008 | 480,000 | USD | 451,750 | 93,600 |
Fontainebleau Las Vegas Holdings LLC | 11.0% | 6/15/2015 | 270,000 | USD | 272,475 | 3,713 |
Grupo Iusacell Celular SA de CV | 10.0% | 3/31/2012 | 112,247 | USD | 106,814 | 42,654 |
Jefferson Smurfit Corp. | 8.25% | 10/1/2012 | 565,000 | USD | 469,675 | 567,119 |
New ASAT (Finance) Ltd. | 9.25% | 2/1/2011 | 340,000 | USD | 293,669 | 60,350 |
Radnor Holdings Corp. | 11.0% | 3/15/2010 | 100,000 | USD | 88,363 | 10 |
Simmons Co. | 10.0% | 12/15/2014 | 725,000 | USD | 608,431 | 13,594 |
Tribune Co. | 5.25% | 6/4/2014 | 365,375 | USD | 365,147 | 245,777 |
Tropicana Entertainment LLC | 9.625% | 12/15/2014 | 660,000 | USD | 520,338 | 66 |
Trump Entertainment Resorts, Inc. | 8.5% | 6/1/2015 | 55,000 | USD | 56,100 | 275 |
Young Broadcasting, Inc. | 8.75% | 1/15/2014 | 1,165,000 | USD | 1,079,224 | 2,680 |
|
|
|
| 4,617,133 | 1,136,501 | |
*** These securities are shown at their current rate as of April 30, 2010. Floating rate securities' yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate.
**** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $424,711,810. At April 30, 2010, net unrealized appreciation for all securities based on tax cost was $10,755,551. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $21,225,528 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $10,469,977.
(a) Principal amount stated in US dollars unless otherwise noted.
(b) When-issued or delayed delivery securities included.
(c) Security has deferred its 6/15/2008, 12/15/2008 and 6/15/2009 interest payments until 8/15/2012.
(d) Government-backed debt issued by financial companies or government sponsored enterprises.
(e) At April 30, 2010, this security has been pledged, in whole or in part, as collateral for open swaps contracts.
(f) At April 30, 2010, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(g) Affiliated fund managed by Deutsche Investment Management Americas Inc.
(h) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
CLO: Collateralized Loan Obligation
FDIC: Federal Deposit Insurance Corp.
PIK: Denotes that all or a portion of the income is paid in-kind.
REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, US persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933.
REIT: Real Estate Investment Trust
At April 30, 2010, open futures contracts purchased were as follows:
Futures | Currency | Expiration Date | Contracts | Notional Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Canadian Government Bond | CAD | 6/21/2010 | 17 | 1,970,782 | (13,706) |
10 Year US Treasury Note | USD | 6/21/2010 | 340 | 40,088,125 | 844,617 |
5 Year US Treasury Note | USD | 6/30/2010 | 442 | 51,209,844 | 728,905 |
CAC 40 Index | EUR | 5/21/2010 | 94 | 4,684,600 | (310,622) |
DJ Euro Stoxx 50 Index | EUR | 6/18/2010 | 247 | 9,037,295 | (239,986) |
Federal Republic of Germany Euro-Bund | EUR | 6/8/2010 | 22 | 3,657,093 | 77,582 |
Federal Republic of Germany Euro-Schatz | EUR | 6/8/2010 | 124 | 18,027,244 | 85,407 |
FTSE 100 Index | GBP | 6/18/2010 | 85 | 7,162,742 | (58,461) |
IBEX 35 Index | EUR | 5/21/2010 | 39 | 5,364,531 | (518,943) |
NASDAQ E-Mini 100 Index | USD | 6/18/2010 | 63 | 2,518,110 | 102,436 |
TOPIX Index | JPY | 6/11/2010 | 40 | 4,185,873 | 95,066 |
United Kingdom Long Gilt Bond | GBP | 6/28/2010 | 13 | 2,306,123 | 27,013 |
Total net unrealized appreciation | 819,308 | ||||
At April 30, 2010, open futures contracts sold were as follows:
Futures | Currency | Expiration Date | Contracts | Notional Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Australian Treasury Bond | AUD | 6/15/2010 | 86 | 8,125,487 | 97,692 |
10 Year Japanese Government Bond | JPY | 6/10/2010 | 25 | 37,174,642 | (354,188) |
2 Year US Treasury Note | USD | 6/30/2010 | 176 | 38,293,750 | (189,055) |
AEX Index | EUR | 5/21/2010 | 2 | 182,994 | 4,466 |
ASX SPI 200 Index | AUD | 6/17/2010 | 37 | 4,124,593 | 56,873 |
DAX Index | EUR | 6/18/2010 | 36 | 7,346,208 | (22,058) |
Federal Republic of Germany Euro-Bund | EUR | 6/8/2010 | 112 | 18,617,929 | (260,547) |
Federal Republic of Germany Euro-Schatz | EUR | 6/8/2010 | 525 | 76,325,026 | (374,257) |
FTSE MIB Index | EUR | 6/18/2010 | 1 | 140,761 | 6,361 |
Hang Seng Index | HKD | 5/28/2010 | 5 | 672,385 | 5,152 |
Russell E-Mini 2000 Index | USD | 6/18/2010 | 35 | 2,504,250 | (81,242) |
S&P 500 E-Mini Index | USD | 6/18/2010 | 246 | 14,555,820 | (456,503) |
S&P TSX 60 Index | CAD | 6/17/2010 | 17 | 2,390,510 | (41,589) |
Total net unrealized depreciation | (1,608,895) | ||||
At April 30, 2010, open written interest rate options contract was as follows:
Effective/ Expiration Date | Cash Flows Paid | Contract Amount | Strike Rate (%) | Value ($) | Premiums Received ($) | Unrealized Appreciation ($) |
Call Option |
|
|
|
|
| |
5/16/2011 | 30-year USD Swap Rate — 10-year USD Swap Rate | 171,000,000 | 0.6 | (131,730) | 181,260 | 49,530 |
At April 30, 2010, open credit default swap contracts purchased were as follows:
Effective/ Expiration Dates | Notional Amount ($) | Fixed Cash Flows Paid | Underlying Debt Obligation/ Quality Rating (i) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
9/21/2009 | 2,250,0001 | 1.0% | Eli Lilly & Co., 6.57%, 1/1/2016, A+ | (47,533) | (59,343) | 11,810 |
9/21/2009 | 2,250,0002 | 1.0% | Hewlett-Packard Co., 5.4%, 3/1/2017, A | (66,275) | (75,116) | 8,841 |
9/21/2009 | 2,250,0001 | 1.0% | Home Depot, Inc., 5.875%, 12/16/2036, BBB+ | (47,133) | (36,563) | (10,570) |
3/22/2010 | 4,800,0001 | 1.0% | Markit CDX.NA.IG | (25,144) | (6,869) | (18,275) |
3/22/2010 | 400,0002 | 1.0% | Markit iTraxx SovX Western Europe | 3,388 | 1,878 | 1,510 |
9/21/2009 | 2,250,0001 | 1.0% | McKesson Corp., 7.65%, 3/1/2027, BBB- | (38,898) | (62,784) | 23,886 |
Total net unrealized appreciation | 17,202 | |||||
At April 30, 2010, open credit default swap contracts sold were as follows:
Effective/ Expiration Dates | Notional Amount ($) (j) | Fixed Cash Flows Received | Underlying Debt Obligation/ Quality Rating (i) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
9/21/2009 | 1,710,0003 | 1.0% | Berkshire Hathaway Finance Corp., 4.625%, 10/15/2013, AA | (3,754) | (43,280) | 39,526 |
3/22/2010 | 1,710,0001 | 1.0% | Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/2017, BB | (12,327) | (9,701) | (2,626) |
9/21/2009 | 3,430,0003 | 1.0% | Prudential Financial, Inc., 4.5%, 7/15/2013, BBB | (52,963) | (162,387) | 109,424 |
12/21/2009 | 2,250,0003 | 1.0% | Weatherford International Ltd., 4.95%, 10/15/2013, BBB | 8,433 | (29,145) | 37,578 |
Total net unrealized appreciation | 183,902 | |||||
(i) The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings.
(j) The maximum potential amount of future undiscounted payments that the Fund could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Fund for the same referenced debt obligation.
At April 30, 2010, open interest rate swaps were as follows:
Effective/ Expiration Dates | Notional Amount ($) | Cash Flows Paid by the Fund | Cash Flows Received by the Fund | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
10/27/2010 | 6,500,0001 | Fixed — 4.12% | Floating — LIBOR | (120,687) | 2,275 | (122,962) |
11/24/2010 | 9,700,0004 | Fixed — 3.96% | Floating — LIBOR | (18,690) | 4,409 | (23,099) |
4/20/2009 | 2,500,0001 | Floating — LIBOR | Fixed — 7.5% | (78,453) | — | (78,453) |
5/15/2009 | 2,500,0001 | Floating — LIBOR | Fixed — 7.5% | (9,890) | — | (9,890) |
11/15/2009 | 3,000,0004 | Floating — LIBOR | Fixed — 8.7% | 175,337 | — | 175,337 |
Total net unrealized depreciation | (59,067) | |||||
LIBOR: London InterBank Offered Rate
At April 30, 2010, open total return swaps were as follows:
Effective/ Expiration Dates | Notional Amount ($) | Fixed Cash Flows Paid | Reference Entity | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Depreciation ($) |
12/14/2009 | 15,300,0005 | 0.425% | Global Interest Rate Strategy Index | (292,786) | — | (292,786) |
Counterparties: 1 Morgan Stanley 2 The Goldman Sachs & Co. 3 JPMorgan Chase Securities, Inc. 4 Barclays Bank LLC 5 Citigroup, Inc. |
As of April 30, 2010, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver |
| In Exchange For |
| Settlement Date | Unrealized Appreciation ($) | Counterparty | ||
USD | 2,208,400 |
| NZD | 3,105,000 |
| 5/20/2010 | 61,807 | The Goldman Sachs & Co. |
USD | 18,812,152 |
| AUD | 20,256,000 |
| 5/20/2010 | 3,038 | Royal Bank of Scotland PLC |
EUR | 20,716,000 |
| USD | 28,072,044 |
| 5/20/2010 | 516,297 | UBS AG |
GBP | 3,744,000 |
| USD | 5,789,647 |
| 5/20/2010 | 58,897 | HSBC Bank USA |
JPY | 1,069,336,000 |
| USD | 11,451,262 |
| 5/20/2010 | 104,209 | Bank of New York Mellon Corp. |
CAD | 2,384,000 |
| USD | 2,386,339 |
| 5/20/2010 | 28,875 | The Goldman Sachs & Co. |
CAD | 10,250,000 |
| USD | 10,282,596 |
| 6/15/2010 | 146,653 | Morgan Stanley |
EUR | 13,350,000 |
| USD | 18,182,046 |
| 6/16/2010 | 422,921 | Morgan Stanley |
JPY | 1,450,000,000 |
| USD | 15,577,278 |
| 6/21/2010 | 186,222 | Morgan Stanley |
GBP | 4,150,000 |
| USD | 6,395,698 |
| 6/21/2010 | 44,303 | Morgan Stanley |
Total unrealized appreciation |
|
| 1,573,222 | |||||
Contracts to Deliver |
| In Exchange For |
| Settlement Date | Unrealized Depreciation ($) | Counterparty | ||
USD | 4,519,910 |
| NOK | 26,565,000 |
| 5/20/2010 | (22,389) | UBS AG |
USD | 4,284,813 |
| SEK | 30,632,000 |
| 5/20/2010 | (52,761) | UBS AG |
USD | 593,203 |
| CHF | 628,000 |
| 5/20/2010 | (10,060) | Royal Bank of Scotland PLC |
EUR | 6,848,000 |
| USD | 9,106,658 |
| 5/26/2010 | (12,000) | Citigroup, Inc. |
EUR | 344,200 |
| USD | 453,164 |
| 5/26/2010 | (5,166) | JPMorgan Chase Securities, Inc. |
Total unrealized depreciation |
|
| (102,376) | |||||
Currency Abbreviations |
ARS Argentine Peso AUD Australian Dollar BRL Brazilian Real CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound HKD Hong Kong Dollar JPY Japanese Yen NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona USD United States Dollar |
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of April 30, 2010 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
Assets | Level 1 | Level 2 | Level 3 | Total |
| ||||
Fixed Income (k) |
|
|
|
|
Corporate Bonds | $ — | $ 267,292,788 | $ 5,806,162 | $ 273,098,950 |
Mortgage-Backed Securities Pass-Throughs | — | 12,260,625 | — | 12,260,625 |
Asset-Backed | — | 1,629,585 | 890,320 | 2,519,905 |
Commercial Mortgage-Backed Securities | — | 8,660,257 | — | 8,660,257 |
Collateralized Mortgage Obligations | — | 11,445,865 | — | 11,445,865 |
Government & Agency Obligations | — | 75,957,711 | 828,750 | 76,786,461 |
Loan Participations and Assignments | — | 13,359,062 | 944,416 | 14,303,478 |
Municipal Bonds and Notes | — | 1,499,160 | — | 1,499,160 |
Preferred Securities | — | 3,964,598 | — | 3,964,598 |
Common Stocks (k) | 984,395 | 54,349 | 9,838 | 1,048,582 |
Warrants (k) | — | 6,954 | 0 | 6,954 |
Open-End Investment Company | 10,440,869 | — | — | 10,440,869 |
Short-Term Investments (k) | 12,894,467 | 6,348,394 | — | 19,242,861 |
Derivatives (l) | — | 1,981,134 | 188,796 | 2,169,930 |
Total | $ 24,319,731 | $ 404,460,482 | $ 8,668,282 | $ 437,448,495 |
Liabilities |
|
|
|
|
Derivatives (l) | $ (789,587) | $ (661,037) | $ (131,730) | $ (1,582,354) |
Total | $ (789,587) | $ (661,037) | $ (131,730) | $ (1,582,354) |
(k) See Investment Portfolio for additional detailed categorizations.
(l) Derivatives include value of open options purchased, unrealized appreciation (depreciation) on open futures contracts, credit default swap contracts, interest rate swap contracts, total return swap contracts, forward foreign currency exchange contracts and written options, at value.
Level 3 Reconciliation
The following is a reconciliation of the Fund's Level 3 investments for which significant unobservable inputs were used in determining value:
| Corporate Bonds | Asset- Backed | Government & Agency Obligations | Loan Participations and Assignments | Common Stocks |
Balance as of October 31, 2009 | $ 5,599,096 | $ 2,349,728 | $ 797,848 | $ 1,010,846 | $ 9,838 |
Total realized gain (loss) | — | 1,865 | (32,000) | (124,769) | — |
Change in unrealized appreciation (depreciation) | 296,917 | 77,602 | 61,477 | 214,250 | — |
Amortization premium/discount | 54,149 | — | 1,425 | 9,699 | — |
Net purchases (sales) | — | (11,302) | — | (165,610) | — |
Net transfers in (out) of Level 3 | (144,000) | (1,527,573) | — | — | — |
Balance as of April 30, 2010 | $ 5,806,162 | $ 890,320 | $ 828,750 | $ 944,416 | $ 9,838 |
Net change in unrealized appreciation (depreciation) from investments still held at April 30, 2010 | $ 296,917 | $ 77,602 | $ 35,063 | $ 63,601 | $ — |
| Convertible Preferred Stocks | Warrants | Call Options Purchased | Total | Written Options |
Balance as of October 31, 2009 | $ 0 | $ 8,324 | $ — | $ 9,775,680 | $ — |
Total realized gain (loss) | (13,911) | — | — | (168,815) | — |
Change in unrealized appreciation (depreciation) | 13,911 | (8,324) | (145,744) | 510,089 | 49,530 |
Amortization premium/discount | — | — | — | 65,273 | — |
Net purchases (sales) | 0 | 0 | 334,540 | 157,628 | (181,260) |
Net transfers in (out) of Level 3 | — | — | — | (1,671,573) | — |
Balance as of April 30, 2010 | $ — | $ 0 | $ 188,796 | $ 8,668,282 | $ (131,730) |
Net change in unrealized appreciation (depreciation) from investments still held at April 30, 2010 | $ — | $ (8,324) | $ (145,744) | $ 319,115 | $ 49,530 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of April 30, 2010 (Unaudited) | |
Assets | |
Investments: Investments in securities, at value (cost $401,746,444) | $ 412,132,025 |
Investment in DWS Floating Rate Plus Fund (cost $9,239,065) | 10,440,869 |
Investment in Central Cash Management Fund (cost $12,894,467) | 12,894,467 |
Total investments, at value (cost $423,879,976) | 435,467,361 |
Cash | 1,319,230 |
Foreign currency, at value (cost $5,684,145) | 5,679,660 |
Deposits with brokers for open futures contracts | 3,790 |
Receivable for investments sold | 6,415,301 |
Receivable for Fund shares sold | 419,208 |
Receivable for daily variation margin on open futures contracts | 131,842 |
Interest receivable | 5,904,550 |
Net receivable for open swap contracts | 25,828 |
Net receivable on closed forward foreign currency exchange contracts | 71,323 |
Unrealized appreciation on forward foreign currency exchange contracts | 1,573,222 |
Unrealized appreciation on swap contracts | 407,912 |
Foreign taxes recoverable | 218,181 |
Other assets | 43,203 |
Total assets | 457,680,611 |
Liabilities | |
Payable for investments purchased | 13,857,882 |
Payable for investments purchased — when-issued and delayed delivery securities | 15,239,344 |
Payable for Fund shares redeemed | 640,935 |
Options written, at value (premiums received $181,260) | 131,730 |
Unrealized depreciation on forward foreign currency exchange contracts | 102,376 |
Unrealized depreciation on swap contracts | 558,661 |
Accrued management fee | 168,385 |
Other accrued expenses and payables | 556,385 |
Total liabilities | 31,255,698 |
Net assets, at value | $ 426,424,913 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of April 30, 2010 (Unaudited) (continued) | |
Net Assets Consist of | |
Undistributed net investment income | $ 101,084 |
Net unrealized appreciation (depreciation) on: Investments | 11,587,385 |
Swap contracts | (150,749) |
Futures | (789,587) |
Written options | 49,530 |
Foreign currency | 1,479,600 |
Accumulated net realized gain (loss) | (44,941,209) |
Paid-in capital | 459,088,859 |
Net assets, at value | $ 426,424,913 |
Net Asset Value | |
Class A Net Asset Value and redemption price per share ($357,011,070 ÷ 74,808,182 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | $ 4.77 |
Maximum offering price per share (100 ÷ 97.25 of $4.77) | $ 4.90 |
Class B Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($7,765,829 ÷ 1,626,147 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | $ 4.78 |
Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($40,268,447 ÷ 8,380,724 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | $ 4.80 |
Class S Net Asset Value, offering and redemption price per share ($21,379,567 ÷ 4,474,418 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | $ 4.78 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended April 30, 2010 (Unaudited) | |
Investment Income | |
Income: Dividends — DWS Floating Rate Plus Fund | $ 323,255 |
Interest (net of foreign taxes withheld of $7,428) | 13,468,853 |
Income distributions — Central Cash Management Fund | 15,792 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 9,847 |
Total Income | 13,817,747 |
Expenses: Management fee | 956,536 |
Administration fee | 204,299 |
Services to shareholders | 324,611 |
Custodian fee | 36,101 |
Distribution and service fees | 614,374 |
Professional fees | 55,246 |
Trustees' fees and expenses | 6,184 |
Reports to shareholders | 39,463 |
Registration fees | 49,695 |
Other | 37,867 |
Total expenses before expense reductions | 2,324,376 |
Expense reductions | (2,731) |
Total expenses after expense reductions | 2,321,645 |
Net investment income | 11,496,102 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 8,979,960 |
Swap contracts | 175,909 |
Futures | 2,172,201 |
Foreign currency | 4,980,326 |
| 16,308,396 |
Change in net unrealized appreciation (depreciation) on: Investments | 2,972,972 |
Swap contracts | 306,036 |
Futures | (1,262,448) |
Written options | 49,530 |
Foreign currency | 599,352 |
| 2,665,442 |
Net gain (loss) | 18,973,838 |
Net increase (decrease) in net assets resulting from operations | $ 30,469,940 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Six Months Ended April 30, 2010 (Unaudited) | Year Ended October 31, 2009 |
Operations: Net investment income | $ 11,496,102 | $ 18,511,215 |
Net realized gain (loss) | 16,308,396 | (4,444,020) |
Change in net unrealized appreciation (depreciation) | 2,665,442 | 69,637,358 |
Net increase (decrease) in net assets resulting from operations | 30,469,940 | 83,704,553 |
Distributions to shareholders from: Net investment income: Class A | (9,885,324) | (16,380,126) |
Class B | (203,985) | (434,831) |
Class C | (944,816) | (1,363,094) |
Class S | (494,956) | (420,182) |
Net realized gains: Class A | (1,063,300) | — |
Class B | (27,164) | — |
Class C | (115,796) | — |
Class S | (45,507) | — |
Total distributions | (12,780,848) | (18,598,233) |
Fund share transactions: Proceeds from shares sold | 45,342,015 | 86,014,213 |
Reinvestment of distributions | 10,424,609 | 14,537,789 |
Cost of shares redeemed | (45,869,963) | (84,660,615) |
Redemption fees | — | 4,207 |
Net increase (decrease) in net assets from Fund share transactions | 9,896,661 | 15,895,594 |
Increase (decrease) in net assets | 27,585,753 | 81,001,914 |
Net assets at beginning of period | 398,839,160 | 317,837,246 |
Net assets at end of period (including undistributed net investment income of $101,084 and $134,063, respectively) | $ 426,424,913 | $ 398,839,160 |
The accompanying notes are an integral part of the financial statements.
Class A Years Ended October 31, | 2010a | 2009 | 2008 | 2007 | 2006 | 2005 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 4.57 | $ 3.80 | $ 4.70 | $ 4.68 | $ 4.69 | $ 4.76 |
Income (loss) from investment operations: Net investment incomeb | .13 | .22 | .22 | .25 | .24 | .26 |
Net realized and unrealized gain (loss) | .21 | .78 | (.85) | .07 | .13 | (.05) |
Total from investment operations | .34 | 1.00 | (.63) | .32 | .37 | .21 |
Less distributions from: Net investment income | (.13) | (.23) | (.20) | (.28) | (.38) | (.28) |
Net realized gains | (.01) | — | — | (.02) | — | — |
Return of capital | — | — | (.07) | — | — | — |
Total distributions | (.14) | (.23) | (.27) | (.30) | (.38) | (.28) |
Redemption fees | — | .00*** | .00*** | .00*** | .00*** | .00*** |
Net asset value, end of period | $ 4.77 | $ 4.57 | $ 3.80 | $ 4.70 | $ 4.68 | $ 4.69 |
Total Return (%)c | 7.47d** | 27.28d | (14.22)d | 7.01d | 8.37d | 4.48 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 357 | 340 | 280 | 345 | 314 | 320 |
Ratio of expenses before expense reductions (%) | 1.06* | 1.08 | 1.12 | 1.08 | 1.14 | 1.16 |
Ratio of expenses after expense reductions (%) | 1.06* | 1.07 | 1.11 | 1.07 | 1.13 | 1.16 |
Ratio of net investment income (%) | 5.71* | 5.42 | 4.76 | 5.30 | 5.24 | 5.53 |
Portfolio turnover rate (%) | 62** | 252 | 185 | 137 | 175 | 130 |
a For the six months ended April 30, 2010 (Unaudited). b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | ||||||
Class B Years Ended October 31, | 2010a | 2009 | 2008 | 2007 | 2006 | 2005 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 4.58 | $ 3.80 | $ 4.71 | $ 4.68 | $ 4.69 | $ 4.76 |
Income (loss) from investment operations: Net investment incomeb | .11 | .19 | .18 | .21 | .20 | .22 |
Net realized and unrealized gain (loss) | .21 | .78 | (.86) | .08 | .13 | (.05) |
Total from investment operations | .32 | .97 | (.68) | .29 | .33 | .17 |
Less distributions from: Net investment income | (.11) | (.19) | (.16) | (.24) | (.34) | (.24) |
Net realized gains | (.01) | — | — | (.02) | — | — |
Return of capital | — | — | (.07) | — | — | — |
Total distributions | (.12) | (.19) | (.23) | (.26) | (.34) | (.24) |
Redemption fees | — | .00*** | .00*** | .00*** | .00*** | .00*** |
Net asset value, end of period | $ 4.78 | $ 4.58 | $ 3.80 | $ 4.71 | $ 4.68 | $ 4.69 |
Total Return (%)c,d | 7.29** | 26.29 | (15.09) | 6.37 | 7.45 | 3.53 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 8 | 9 | 10 | 17 | 22 | 29 |
Ratio of expenses before expense reductions (%) | 1.93* | 1.94 | 1.96 | 1.86 | 2.16 | 2.22 |
Ratio of expenses after expense reductions (%) | 1.92* | 1.83 | 1.88 | 1.85 | 1.94 | 2.04 |
Ratio of net investment income (%) | 4.84* | 4.66 | 3.99 | 4.52 | 4.43 | 4.65 |
Portfolio turnover rate (%) | 62** | 252 | 185 | 137 | 175 | 130 |
a For the six months ended April 30, 2010 (Unaudited). b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | ||||||
Class C Years Ended October 31, | 2010a | 2009 | 2008 | 2007 | 2006 | 2005 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 4.60 | $ 3.82 | $ 4.73 | $ 4.71 | $ 4.72 | $ 4.79 |
Income (loss) from investment operations: Net investment incomeb | .11 | .19 | .18 | .21 | .20 | .22 |
Net realized and unrealized gain (loss) | .22 | .79 | (.86) | .07 | .13 | (.05) |
Total from investment operations | .33 | .98 | (.68) | .28 | .33 | .17 |
Less distributions from: Net investment income | (.12) | (.20) | (.16) | (.24) | (.34) | (.24) |
Net realized gains | (.01) | — | — | (.02) | — | — |
Return of capital | — | — | (.07) | — | — | — |
Total distributions | (.13) | (.20) | (.23) | (.26) | (.34) | (.24) |
Redemption fees | — | .00*** | .00*** | .00*** | .00*** | .00*** |
Net asset value, end of period | $ 4.80 | $ 4.60 | $ 3.82 | $ 4.73 | $ 4.71 | $ 4.72 |
Total Return (%)c | 7.26d** | 26.48d | (14.98)d | 6.16d | 7.41d | 3.58 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 40 | 37 | 24 | 28 | 22 | 20 |
Ratio of expenses before expense reductions (%) | 1.81* | 1.84 | 1.89 | 1.84 | 1.94 | 2.04 |
Ratio of expenses after expense reductions (%) | 1.81* | 1.82 | 1.87 | 1.84 | 1.93 | 2.04 |
Ratio of net investment income (%) | 4.95* | 4.66 | 4.00 | 4.53 | 4.44 | 4.65 |
Portfolio turnover rate (%) | 62** | 252 | 185 | 137 | 175 | 130 |
a For the six months ended April 30, 2010 (Unaudited). b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | ||||||
Class S Years Ended October 31, | 2010a | 2009 | 2008 | 2007 | 2006 | 2005b |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 4.58 | $ 3.80 | $ 4.70 | $ 4.68 | $ 4.69 | $ 4.88 |
Income (loss) from investment operations: Net investment incomec | .14 | .23 | .22 | .26 | .25 | .20 |
Net realized and unrealized gain (loss) | .21 | .78 | (.85) | .07 | .13 | (.17) |
Total from investment operations | .35 | 1.01 | (.63) | .33 | .38 | .03 |
Less distributions from: Net investment income | (.14) | (.23) | (.20) | (.29) | (.39) | (.22) |
Net realized gains | (.01) | — | — | (.02) | — | — |
Return of capital | — | — | (.07) | — | — | — |
Total distributions | (.15) | (.23) | (.27) | (.31) | (.39) | (.22) |
Redemption fees | — | .00*** | .00*** | .00*** | .00*** | .00*** |
Net asset value, end of period | $ 4.78 | $ 4.58 | $ 3.80 | $ 4.70 | $ 4.68 | $ 4.69 |
Total Return (%) | 7.84d** | 27.56d | (14.06)d | 7.25d | 8.57d | .54** |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 21 | 13 | 4 | 3 | 2 | 1 |
Ratio of expenses before expense reductions (%) | .86* | .92 | 1.03 | .92 | .96 | 1.01* |
Ratio of expenses after expense reductions (%) | .86* | .81 | .89 | .90 | .95 | 1.01* |
Ratio of net investment income (%) | 5.91* | 5.68 | 4.97 | 5.47 | 5.42 | 5.76* |
Portfolio turnover rate (%) | 62** | 252 | 185 | 137 | 175 | 130 |
a For the six months ended April 30, 2010 (Unaudited). b For the period from February 1, 2005 (commencement of operations of Class S shares) to October 31, 2005. c Based on average shares outstanding during the period. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. | ||||||
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS 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 of the Fund are closed to new purchases, except exchanges or the reinvestment of dividends or other distributions. Class B shares were offered to investors without an initial sales charge and are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not automatically convert into another class. Class S shares are not subject to initial or contingent deferred sales charges and are generally not available to new investors except under certain circumstances.
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 and 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 one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which they trade. 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 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. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security, the size of the holding, the initial cost of the security, the existence of any contractual restrictions on the security's disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies, quotations or evaluated prices from broker-dealers and/or pricing services, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company's or issuer's financial statements, an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination, and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
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 gain/appreciation and loss/depreciation on investments.
Securities Lending. The Fund may lend securities to certain financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of 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 either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best efforts to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. 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 borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Loan Participations and Assignments. Loan Participations and Assignments are portions of loans originated by banks and sold in pieces to investors. These US dollar-denominated fixed and floating rate loans ("Loans") in which the Fund invests, are arranged between the borrower and one or more financial institutions ("Lenders"). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy-outs and refinancings, and Sovereign Loans, which are debt instruments between a foreign sovereign entity and one or more financial institutions. The Fund invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, or any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. All Loan Participations and Assignments involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
When-Issued/Delayed Delivery Securities. The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
Derivatives. Authorized accounting guidance requires that disclosures about the Fund's derivative and hedging activities and derivatives accounted for as hedging instruments must be disclosed separately from derivatives that do not qualify for hedge accounting. Because investment companies account for their derivatives at fair value and record any changes in fair value in current period earnings, the Fund's derivatives are not accounted for as hedging instruments. As such, even though the Fund may use derivatives in an attempt to achieve an economic hedge, the Fund's derivatives are not considered to be hedging instruments. The disclosure below is presented in accordance with authoritative accounting guidance.
Interest Rate Swap Contracts. The Fund enters into interest rate swap transactions to gain exposure to different parts of the yield curve while managing overall duration. The value of the Fund's underlying bond investments are subject to interest rate risk. As interest rates increase, the value of the Fund's fixed rate bonds may fall. The longer the duration of the Fund's securities, the more sensitive the Fund will be to interest rate changes. To help mitigate this interest rate risk, the Fund invests in interest rate swap contracts to reduce the duration of the investment portfolio. The use of interest rate swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund agrees to pay to the other party to the interest rate swap (which is known as the "counterparty") a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment. The payment obligations are based on the notional amount of the swap. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in interest rates. In connection with these agreements, securities and or cash may be identified as collateral in accordance with the terms of the swap agreements to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the interest rate swap contract, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by a Board-approved pricing vendor and the change in value is recorded as unrealized appreciation or depreciation.
A summary of the open interest rate swap contracts as of April 30, 2010 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2010, the Fund invested in interest rate swap contracts with a total notional amount generally indicative of a range from approximately $17,750,000 to $27,450,000.
Credit Default Swap Contracts. A credit default swap is a contract between a buyer and a seller of protection against pre-defined credit events for the reference entity. The Fund buys or sells credit default swap contracts to gain exposure to an underlying issuer's credit quality characteristics without directly investing in that issuer, or to hedge the risk of default on Fund securities. As a seller in the credit default swap contract, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a US or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swap contracts in order to hedge against the risk of a credit event on debt securities, in which case the Fund functions as the counterparty referenced above. This involves the risk that the contract may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap contract it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swap contracts sold by the Fund.
Credit default swap contracts are marked to market daily based upon quotations from a Board-approved pricing vendor and the change in value, if any, is recorded daily as unrealized gain or loss. An upfront payment made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Under the terms of the credit default swap contracts, the Fund receives or makes quarterly payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses.
A summary of the open credit default swap contracts as of April 30, 2010 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2010, the Fund invested in credit default swap contracts with a total notional amount generally indicative of a range from approximately $10,060,000 to $23,410,000.
Total Return Swap Contracts. Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. The Fund enters into total return swap transactions to gain exposure to different parts of the yield curve while managing overall duration. To the extent the total return of the reference security or index underlying the total return swap exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment or make a payment to the counterparty, respectively. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in the value of underlying reference security or index. An upfront payment made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Payments received or made at the end of each measurement period are recorded as realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by a Board-approved pricing vendor and the change in value is recorded as unrealized appreciation or depreciation.
A summary of the open total return swap contracts as of April 30, 2010 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2010, the Fund invested in total return swap contracts with total notional amounts of $15,300,000.
Options. An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, 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 and interest rate options, will require cash settlement by the Fund if the option is exercised. Interest rate options are comprised of multiple European style options that have periodic exercise dates within the terms of the contract. The Fund enters into options on interest rate swaps. The Fund enters into option contracts in order to hedge against potential adverse interest rate movements of portfolio assets.
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 market 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.
A summary of the open purchased option contracts as of April 30, 2010 is included in the Fund's Investment Portfolio. A summary of open written option contracts is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2010, the Fund invested in written option contracts with a total value generally indicative of a range from $0 to approximately $181,000 and purchased option contracts with a total value generally indicative of a range from $0 to approximately $335,000.
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 enters into interest rate futures to gain exposure to different parts of the yield curve while managing overall duration. In addition, the Fund seeks to enhance returns by employing a global tactical asset allocation overlay strategy. The Fund enters into futures contracts on global equities and bonds, including indices, as part of its global tactical asset allocation overlay strategy. As part of this strategy, the Fund uses futures contracts to attempt to take advantage of short-term and medium-term inefficiencies within the global equity, bond and currency markets. Futures contracts are valued at the most recent settlement price. Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount 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 and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange traded, counterparty risk is minimized as the exchange's clearinghouse acts as the counterparty, and guarantees the futures against default.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid 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 underlying hedged security, index or currency. Risk of loss may exceed amounts recognized in the Statement of Assets and Liabilities.
A summary of the open futures contracts as of April 30, 2010 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2010, the Fund invested in futures contracts with a total notional value generally indicative of a range from approximately $231,704,000 to $360,667,000.
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 enters 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. In addition, the Fund seeks to enhance returns by employing a global tactical asset allocation overlay strategy. As part of this strategy, the Fund uses forward currency exchange contracts to gain exposure to changes in the value of foreign currencies, and to attempt to take advantage of short-term and medium-term inefficiencies within the currency markets.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated 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.
A summary of the open forward foreign currency exchange contracts as of April 30, 2010 is included in a table following the Fund's Investment Portfolio. For the six months ended April 30, 2010, the Fund invested in forward foreign currency exchange contracts with a total contract value generally indicative of a range from approximately $111,553,000 to $138,115,000.
The following tables summarize the value of the Fund's derivative instruments held as of April 30, 2010 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
Asset Derivatives | Purchased Options | Forward Contracts | Swap Contracts | Futures Contracts | Total |
Equity Contracts (a) | $ — | $ — | $ — | $ (1,459,050) | $ (1,459,050) |
Interest Rate Contracts (a) | 188,796 | — | 175,337 | 669,463 | 1,033,596 |
Credit Contracts (a) | — | — | 232,575 | — | 232,575 |
Foreign Exchange Contracts (b) | — | 1,644,545 | — | — | 1,644,545 |
| $ 188,796 | $ 1,644,545 | $ 407,912 | $ (789,587) | $ 1,451,666 |
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:
(a) Investments in securities, at value (includes purchased options), net unrealized appreciation (depreciation) on futures and unrealized appreciation on swap contracts. Asset of Receivable for daily variation margin on open futures contracts reflects unsettled variation margin.
(b) Unrealized appreciation on forward foreign currency exchange contracts and net receivable on closed forward foreign currency exchange contracts
Liability Derivatives | Written Options | Forward Contracts | Swap Contracts | Total |
Interest Rate Contracts (a) | $ (131,730) | $ — | $ (527,190) | $ (658,920) |
Credit Contracts (a) | — | — | (31,471) | (31,471) |
Foreign Exchange Contracts (b) | — | (102,376) | — | (102,376) |
| $ (131,730) | $ (102,376) | $ (558,661) | $ (792,767) |
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:
(a) Options written, at value and unrealized depreciation on swap contracts
(b) Unrealized depreciation on forward foreign currency exchange contracts
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended April 30, 2010 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:
Realized Gain (Loss) | |||||
| Purchased Options | Forward Contracts | Swap Contracts | Futures Contracts | Total |
Equity Contracts (a) | $ — | $ — | $ — | $ 386,942 | $ 386,942 |
Interest Rate Contracts (a) | 173,363 | — | 365,085 | 1,785,259 | 2,323,707 |
Credit Contracts (a) | — | — | (189,176) | — | (189,176) |
Foreign Exchange Contracts (b) | — | 5,130,057 | — | — | 5,130,057 |
| $ 173,363 | $ 5,130,057 | $ 175,909 | $ 2,172,201 | $ 7,651,530 |
Each of the above derivatives is located in the following Statement of Operations accounts:
(a) Net realized gain (loss) from investments (includes purchased options), swaps and futures, respectively
(b) Net realized gain (loss) from foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)
Change in Net Unrealized Appreciation (Depreciation) | ||||||
| Purchased Options | Written Options | Forward Contracts | Swap Contracts | Futures Contracts | Total |
Equity Contracts (a) | $ — | $ — | $ — | $ — | $ (1,236,593) | $ (1,236,593) |
Interest Rate Contracts (a) | (159,721) | 49,530 | — | 49,051 | (25,855) | (86,995) |
Credit Contracts (a) | — | — | — | 256,985 | — | 256,985 |
Foreign Exchange Contracts (b) | — | — | 667,393 | — | — | 667,393 |
| $ (159,721) | $ 49,530 | $ 667,393 | $ 306,036 | $ (1,262,448) | $ (399,210) |
Each of the above derivatives is located in the following Statement of Operations accounts:
(a) Change in net unrealized appreciation (depreciation) on investments (includes purchased options), written options, swaps and futures, respectively
(b) Change in net unrealized appreciation (depreciation) on foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)
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.
At October 31, 2009, the Fund had a net tax basis capital loss carryforward of approximately $58,652,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2010 ($38,904,000), October 31, 2011 ($2,469,000), October 31, 2012 ($1,247,000), October 31, 2014 ($4,983,000), October 31, 2016 ($5,169,000) and October 31, 2017 ($5,880,000), the respective expiration dates, whichever occurs first.
The Fund has reviewed the tax positions for the open tax years as of October 31, 2009 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. Net investment income of the Fund is declared and distributed to shareholders 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 certain securities sold at a loss, premium amortization on debt securities, investments in futures, forward currency contracts and recognition of certain foreign currency gain (loss) as ordinary income. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis net of foreign withholding taxes. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. 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 in default of principal.
B. Purchases and Sales of Securities
During the six months ended April 30, 2010, purchases and sales of investment securities (excluding short-term investments and US Treasury securities) aggregated $165,492,800 and $153,307,793, respectively. Purchases and sales of US Treasury securities aggregated $98,423,160 and $93,161,328, respectively.
For the six months ended April 30, 2010, transactions for the written options on interest rates were as follows:
| Contract Amount | Premium |
Outstanding, beginning of period | $ — | $ — |
Options written | $ 171,000,000 | $ 181,260 |
Outstanding, end of period | $ 171,000,000 | $ 181,260 |
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" 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 or delegates such responsibility to the Fund's subadvisor.
On January 26, 2010, the Advisor announced its intention to transition members of its Quantitative Strategies Group (the "QS Group"), including members of the Fund's portfolio management team, out of the Advisor into a separate investment advisory firm named QS Investors, LLC ("QS Investors") that will be unaffiliated with the Advisor (the "Separation"). The Separation is expected to be completed during the third quarter of 2010. In order for the Fund to continue to access the investment expertise offered by the members of the QS Group following the Separation, the Advisor recommended that the Fund's Board approve a sub-advisory agreement between the Advisor and QS Investors (the "Sub-Advisory Agreement"). On May 4, 2010, following a review of QS Investors' capabilities, the terms of the Separation and Sub-Advisory Agreement, the Fund's Board approved the Sub-Advisory Agreement. This action was taken pursuant to an order the Fund and the Advisor requested and received from the Securities and Exchange Commission that permits the Advisor, with the approval of the Fund's Board, to appoint subadvisors that are not affiliated with the Advisor to manage all or a portion of the Fund's assets without the need for a shareholder meeting or vote. The Sub-Advisory Agreement will become effective upon the effective date of the Separation. As a subadvisor to the Fund, QS Investors will manage the portion of assets allocated to the Fund's iGAP strategy. Pursuant to the Sub-Advisory Agreement, QS Investors is paid for its services by the Advisor from its fees as investment advisor to the Fund.
Under the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly at the following annual rates:
First $250 million of the Fund's average daily net assets | .480% |
Next $750 million of such net assets | .450% |
Next $1.5 billion of such net assets | .430% |
Next $2.5 billion of such net assets | .410% |
Next $2.5 billion of such net assets | .380% |
Next $2.5 billion of such net assets | .360% |
Next $2.5 billion of such net assets | .340% |
Over $12.5 billion of such net assets | .320% |
The Fund did not impose a portion of its management fee by an amount equal to the amount of management fee borne by the Fund as a shareholder of the DWS Floating Rate Plus Fund ("DWS affiliated mutual fund").
For the period from November 1, 2009 through January 31, 2011, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and indirect expenses of underlying DWS funds) for certain classes as follows:
Class B | 1.92% |
Class S | .92% |
Accordingly, for the six months ended April 30, 2010, the Advisor waived a portion of its management fee pursuant to the Investment Management Agreement aggregating $2,523 and the amount charged aggregated $954,013, which was equivalent to an annualized effective rate of 0.47% of the Fund's average daily net assets.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the six months ended April 30, 2010, the Administration Fee was $204,299, of which $34,877 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent of the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended April 30, 2010, the amounts charged to the Fund by DISC were as follows:
Service Provider Fee | Total Aggregated | Waived | Unpaid at April 30, 2010 |
Class A | $ 199,167 | $ — | $ 142,161 |
Class B | 9,519 | 208 | 8,077 |
Class C | 20,952 | — | 14,415 |
Class S | 7,502 | — | 4,127 |
| $ 237,140 | $ 208 | $ 168,780 |
Distribution and Service Fees. Under the Fund's Class B and Class C 12b-1 Plans, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of each of Class B and C shares. In accordance with the Fund's Underwriting and Distribution Services Agreement, DIDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the six months ended April 30, 2010, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at April 30, 2010 |
Class B | $ 31,157 | $ 4,320 |
Class C | 142,933 | 24,341 |
| $ 174,090 | $ 28,661 |
In addition, DIDI provides information and administrative services for a fee ("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. DIDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the six months ended April 30, 2010, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at April 30, 2010 | Annualized Effective Rate |
Class A | $ 385,441 | $ 192,087 | .22% |
Class B | 9,447 | 4,134 | .23% |
Class C | 45,396 | 20,789 | .24% |
| $ 440,284 | $ 217,010 |
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Underwriting and Contingent Deferred Sales Charge. DIDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the six months ended April 30, 2010 aggregated $2,391.
In addition, DIDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the six months ended April 30, 2010, the CDSC for Class B and C shares aggregated $5,889 and $3,801, respectively. A deferred sales charge of up to 0.50% is assessed on certain redemptions of Class A shares. For the six months ended April 30, 2010, DIDI received $741 for Class A shares.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory, filing services to the Fund. For the six months ended April 30, 2010, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $16,274, of which $12,004 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Central Cash Management Fund and other affiliated money market funds managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of the underlying money market funds. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
D. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
E. 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.
F. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in developed markets. These risks include revaluation of currencies, high rates of inflation or deflation, 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 or delayed settlements, and may have prices that are more volatile or less easily assessed than those of comparable securities of issuers in developed markets.
G. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Six Months Ended April 30, 2010 | Year Ended October 31, 2009 | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 5,961,498 | $ 27,836,437 | 13,517,448 | $ 56,341,961 |
Class B | 201,025 | 937,602 | 503,270 | 2,065,896 |
Class C | 1,247,325 | 5,845,791 | 4,206,863 | 17,540,755 |
Class S | 2,286,780 | 10,722,185 | 2,353,286 | 10,065,601 |
|
| $ 45,342,015 |
| $ 86,014,213 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 1,945,457 | $ 9,052,488 | 3,139,715 | $ 12,969,889 |
Class B | 36,748 | 170,984 | 70,946 | 291,412 |
Class C | 169,017 | 792,104 | 226,519 | 946,602 |
Class S | 87,716 | 409,033 | 78,461 | 329,886 |
|
| $ 10,424,609 |
| $ 14,537,789 |
Shares redeemed | ||||
Class A | (7,472,400) | $ (34,876,944) | (15,987,580) | $ (65,539,189) |
Class B | (573,076) | (2,678,492) | (1,299,404) | (5,317,890) |
Class C | (975,410) | (4,577,942) | (2,693,064) | (11,042,953) |
Class S | (798,777) | (3,736,585) | (647,016) | (2,760,583) |
|
| $ (45,869,963) |
| (84,660,615) |
Redemption fees |
| $ — |
| $ 4,207 |
Net increase (decrease) | ||||
Class A | 434,555 | $ 2,011,981 | 669,583 | $ 3,775,783 |
Class B | (335,303) | (1,569,906) | (725,188) | (2,960,578) |
Class C | 440,932 | 2,059,953 | 1,740,318 | 7,445,467 |
Class S | 1,575,719 | 7,394,633 | 1,784,731 | 7,634,922 |
|
| $ 9,896,661 |
| $ 15,895,594 |
H. Review for Subsequent Events
Management has evaluated the events and transactions subsequent to period end through the date the financial statements were available to be issued, and has determined that there were no material events that would require disclosure in the Fund's financial statements.
Gary Sullivan, CFA, lead portfolio manager of the Fund, has changed his name to Gary Russell.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 9, 2009, As Revised November 20, 2009
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2009, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007 and 2008.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and serve in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 124 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper, Strategic Insight, and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
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For More Information | The automated telephone system allows you to access personalized account information and obtain information on other DWS funds using either your voice or your telephone keypad. Certain account types within Classes A, B, C and S also have the ability to purchase, exchange or redeem shares using this system. For more information, contact your financial advisor. You may also access our automated telephone system or speak with a DWS Investments representative by calling the appropriate number below: For shareholders of Classes A, B and C: (800) 621-1048 For shareholders of Class S: (800) 728-3337 |
Web Site | www.dws-investments.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 DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
Written Correspondence | DWS Investments PO Box 219151 |
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 — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — 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: DWS Investments Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class A | Class B | Class C | Class S |
Nasdaq Symbol | KSTAX | KSTBX | KSTCX | KSTSX |
CUSIP Number | 23337K 101 | 23337K 200 | 23337K 309 | 23337K 507 |
Fund Number | 010 | 210 | 310 | 2391 |
Dear Valued Client:
Your confidence is important to us. So we want to make sure you know our policies regarding the handling of our clients' private information. The following information is issued by DWS Investments Distributors, Inc., Deutsche Investment Management Americas Inc., DeAM Investor Services, Inc., DWS Trust Company and the DWS Funds.
We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. We never sell customer lists or individual client information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal and state standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our Web sites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number, and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third-party service providers such as transfer agents, custodians and broker-dealers to assist us in processing transactions and servicing your account.
In addition, we may disclose the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. These organizations may only use client information for the purpose designated by the companies listed above. Additional requirements beyond federal law may be imposed by certain states. To the extent that these state laws apply, we will comply with them before we share information about you.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required to or may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
At any time, if you have questions about our policy, please write to us at:
DWS Investments
Attention: Correspondence — Chicago
P.O. Box 219415
Kansas City, MO 64121-9415 September 2009
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ITEM 2. | CODE OF ETHICS |
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| Not applicable. |
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ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
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| Not applicable. |
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ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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| Not applicable. |
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ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
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| Not Applicable |
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ITEM 6. | SCHEDULE OF INVESTMENTS |
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| Not Applicable |
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ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
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ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
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ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
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| Not applicable. |
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ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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| There were no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board. 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 Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Paul K. Freeman, Independent Chairman, DWS Funds, P.O. Box 101833, Denver, CO 80250-1833. |
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ITEM 11. | CONTROLS AND PROCEDURES |
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| (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. |
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| (b) There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
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ITEM 12. | EXHIBITS |
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| (a)(1) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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| (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-CSRS 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: | DWS Strategic Income Fund |
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By: | /s/Michael G. Clark Michael G. Clark President |
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Date: | June 29, 2010 |
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: | DWS Strategic Income Fund |
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By: | /s/Michael G. Clark Michael G. Clark President |
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Date: | June 29, 2010 |
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By: | /s/Paul Schubert Paul Schubert Chief Financial Officer and Treasurer |
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Date: | June 29, 2010 |