UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM N-CSR Investment Company Act file number 811-2786 SCUDDER HIGH INCOME SERIES -------------------------- (Exact Name of Registrant as Specified in Charter) 222 South Riverside Plaza, Chicago, Illinois 60606 -------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (617) 295-2663 -------------- Salvatore Schiavone Two International Place Boston, Massachusetts 02110 --------------------------------------- (Name and Address of Agent for Service) Date of fiscal year end: 9/30 Date of reporting period: 9/30/03ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
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Annual Report to Shareholders | ||
September 30, 2003 |
Contents |
<Click Here> Performance Summary <Click Here> Portfolio Management Review <Click Here> Portfolio Summary <Click Here> Investment Portfolio <Click Here> Financial Statements <Click Here> Financial Highlights <Click Here> Notes to Financial Statements <Click Here> Report of Independent Auditors <Click Here> Tax Information <Click Here> Trustees and Officers <Click Here> Account Management Resources |
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. The prospectus contains more complete information, including a description of the risks of investing in the fund, management fees and expenses. Please read it carefully before you invest or send money.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
Average Annual Total Returns (Unadjusted for Sales Charge) | ||||
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 23.92% | 4.38% | 3.07% | 5.86% |
Class B | 22.88% | 3.55% | 2.24% | 4.96%(a) |
Class C | 23.11% | 3.51% | 2.23% | 5.00%(a) |
CS First Boston High Yield Index++ | 28.05% | 7.78% | 5.81% | 7.15% |
Citigroup Long-Term High Yield Bond Index+++ | 49.78% | 16.16% | 10.99% | 11.09% |
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | Life of Class* |
Class I** | 24.08% | 4.72% | 3.38% | 6.48% |
CS First Boston High Yield Index++ | 28.05% | 7.78% | 5.81% | 7.92% |
Citigroup Long-Term High Yield Bond Index+++ | 49.78% | 16.16% | 10.99% | 13.01% |
Scudder High Income Fund | 1-Year | Life of Class** |
Institutional Class** | 24.33% | 22.83% |
CS First Boston High Yield Index++ | 28.05% | 24.58% |
Citigroup Long-Term High Yield Bond Index+++ | 49.78% | 42.56% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
Net Asset Value and Distribution Information | |||||
Class A | Class B | Class C | Class I | Institutional Class | |
Net Asset Value: 9/30/03 | $ 5.23 | $ 5.23 | $ 5.24 | $ 5.22 | $ 5.23 |
9/30/02 | $ 4.62 | $ 4.62 | $ 4.63 | $ 4.62 | $ 4.63 |
Distribution Information: Twelve Months: Income Dividends | $ .44 | $ .40 | $ .40 | $ .46 | $ .46 |
September Income Dividend | $ .0350 | $ .0313 | $ .0314 | $ .0364 | $ .0357 |
SEC 30-day Yield+ | 7.79% | 7.00% | 7.11% | 8.37% | 8.19% |
Current Annualized Distribution Rate+ | 8.03% | 7.18% | 7.19% | 8.37% | 8.19% |
+ Current annualized distribution rate is the latest monthly dividend as an annualized percentage of net asset value on September 30, 2003. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The SEC yield is net investment income per share earned over the month ended September 30, 2003, shown as an annualized percentage of the net asset value on that date. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Yields and distribution rates are historical and will fluctuate.
Class A Lipper Rankings - High Current Yield Funds Category | ||||
Period | Rank | Number of Funds Tracked | Percentile Ranking | |
1-Year | 218 | of | 395 | 56 |
3-Year | 167 | of | 323 | 52 |
5-Year | 130 | of | 238 | 55 |
10-Year | 22 | of | 69 | 32 |
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.
Source: Lipper Inc.
Growth of an Assumed $10,000 Investment(b) (Adjusted for Sales Charge) |
[] Scudder High Income Fund - Class A [] CS First Boston High Yield Index++[] Citigroup Long-Term High Yield Bond Index+++ |
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Yearly periods ended September 30 |
The growth of $10,000 is cumulative.
Comparative Results (Adjusted for Sales Charge) | |||||
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A(c) | Growth of $10,000 | $11,834 | $10,860 | $11,109 | $16,879 |
Average annual total return | 18.34% | 2.79% | 2.13% | 5.37% | |
Class B(c) | Growth of $10,000 | $11,988 | $10,939 | $11,106 | $16,232 |
Average annual total return | 19.88% | 3.04% | 2.12% | 4.96%(a) | |
Class C(c) | Growth of $10,000 | $12,188 | $10,978 | $11,054 | $16,124 |
Average annual total return | 21.88% | 3.16% | 2.02% | 4.89%(a) | |
CS First Boston High Yield Index++ | Growth of $10,000 | $12,805 | $12,520 | $13,264 | $19,954 |
Average annual total return | 28.05% | 7.78% | 5.81% | 7.15% | |
Citigroup Long-Term High Yield Bond Index+++ | Growth of $10,000 | $14,978 | $15,672 | $16,841 | $28,616 |
Average annual total return | 49.78% | 16.16% | 10.99% | 11.09% |
The growth of $10,000 is cumulative.
Comparative Results | |||||
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class I++++ | Growth of $10,000 | $12,408 | $11,485 | $11,811 | $17,329 |
Average annual total return | 24.08% | 4.72% | 3.38% | 6.48% | |
CS First Boston High Yield Index++ | Growth of $10,000 | $12,805 | $12,520 | $13,264 | $19,299 |
Average annual total return | 28.05% | 7.78% | 5.81% | 7.92% | |
Citigroup Long-Term High Yield Bond Index+++ | Growth of $10,000 | $14,978 | $15,672 | $16,841 | $28,713 |
Average annual total return | 49.78% | 16.16% | 10.99% | 13.01% |
The growth of $10,000 is cumulative.
Comparative Results | |||
Scudder High Income Fund | 1-Year | Life of Class** | |
Institutional Class++++ | Growth of $250,000 | $310,825 | $314,375 |
Average annual total return | 24.33% | 22.83% | |
CS First Boston High Yield Index++ | Growth of $250,000 | $320,125 | $316,175 |
Average annual total return | 28.05% | 24.58% | |
Citigroup Long-Term High Yield Bond Index+++ | Growth of $250,000 | $374,450 | $365,175 |
Average annual total return | 49.78% | 42.56% |
The growth of $250,000 is cumulative.
The minimum investment for Institutional Class is $250,000.
Notes to Performance Summary |
* Class I shares commenced operations on December 29, 1994. Index comparisons begin December 31, 1994.
** Institutional Class shares commenced operations on August 19, 2002. Index comparisons begin August 31, 2002.
a Returns shown for Class B and C shares for the periods prior to their inception on May 31, 1994 are derived from the historical performance of Class A shares of the Scudder High Income Fund during such periods and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any difference in expenses will affect performance.
b The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.50%. This results in a net initial investment of $9,550.
c Returns shown for Class A, B and C shares have been adjusted to reflect the current applicable sales charges of each specific class. Returns for Class A reflect the current maximum initial sales charge of 4.50%. Class B share performance is adjusted for the applicable contingent deferred sales charge ("CDSC"), which is 4% within the first year after purchase, declining to 0% after six years. Returns for Class C reflect an initial sales charge of 1%. Redemptions on Class C shares within one year of purchase may be subjected to a CDSC of 1%. Any difference in expenses will affect performance.
++++ Class I and Institutional Class shares are not subject to sales charges.
++ CS First Boston High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market.
+++ The Citigroup Long-Term High Yield Bond Index is an unmanaged index comprised of high-yield bonds with a par value of $50 million or higher and a remaining maturity of 10 years or longer rated BB+ or lower by Standard & Poor's Corporation or Ba1 or lower by Moody's Investors Service, Inc.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Effective January, 2003, the CS First Boston High Yield Index replaced the Citigroup Long-Term High Yield Bond Index as the Fund's primary index as the CS First Boston High Yield Index is most representative of the high yield market and best represents the Fund's investment objective and process.
All performance is historical, assumes reinvestment of all dividends and capital gains, and is not indicative of future results. Investment return and principal value will fluctuate, so an investor's shares, when redeemed, may be worth more or less than when purchased. Performance figures do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Investments in funds involve risk. Some funds have more risk than others. These include funds that allow exposure to or otherwise concentrate investments in certain sectors, geographic regions, security types, market capitalization or foreign securities (e.g., political or economic instability, which can be accentuated in emerging market countries). Please read the fund's prospectus for specific details regarding its investments and risk profile.
Please call (800) 621-1048 for the Fund's most up-to-date performance. On the Web, go to scudder.com.
Scudder High Income Fund: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for Scudder High Income Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients. DeIM is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Andrew P. Cestone
Managing Director of Deutsche Asset Management and Lead Manager of the fund.
• Joined Deutsche Asset Management in 1998 and the fund in 2002.
• Prior to that, five years of experience as an investment analyst at Phoenix Investment Partners and credit officer in the asset-based lending group at Fleet Bank.
In the following interview, Portfolio Manager Andrew Cestone discusses Scudder High Income Fund's strategy and the market environment during the 12-month period ended September 30, 2003.
Q: The high-yield sector delivered an excellent performance over the past year. What factors do you believe underpinned this rise?
A: High-yield bonds produced stellar relative performance during the past 12 months. The CS First Boston High Yield Index - the fund's benchmark - returned 28.05% for the year ended September 30, compared with a return of 5.41% for the investment-grade bond market as a whole (as measured by the Lehman Brothers Aggregate Bond Index).1
1 The CS First Boston High Yield Index is an unmanaged trader-priced portfolio, constructed to mirror the global high-yield debt market. The Lehman Brothers Aggregate Bond Index represents US domestic taxable investment grade bonds which include securities from the following sectors: US Treasuries, agencies, corporate, mortgage-backed and asset-backed securities. The index includes over 5,500 publicly issued securities with a minimum one year to final maturity and $150 million par amount outstanding. The average maturity and duration of the index is in the intermediate range. Index returns assume reinvestment of all distributions and do not reflect any fees or expenses. It is not possible to invest directly in an index.The rally in high-yield over the past year was driven by declining risk, an overall improvement in market fundamentals and stepped-up investor demand for the asset class. High-yield companies showed improved financial positions during the period as a result of such actions as cost cutting, refinancing debt obligations at lower interest rates and deleveraging. In addition, defaults continued to decline. For the period ended September 30, 2003, the trailing 12-month default rate was 5.7%, compared with 9.8% a year earlier.2 These favorable trends, which reflect improving credit conditions, have been a significant positive for the high-yield market.
2 Source: Moody's Investors Service.Demand from yield-hungry investors also helped the performance of high-yield bonds during the reporting period. Year-to-date through September 30, the market had absorbed approximately $24 billion in cash inflows, well above the $7 billion level for the same period last year.3 Performance of high-yield bond funds, including the Scudder High Income Fund, was affected by cash flows in and out of the funds during the period in varying degrees.
3 Source: JP Morgan Global High Yield Research.The improvement in fundamentals, increased investor demand and declining defaults helped decrease the yield spread of the high-yield market to 599 basis points (5.99 percentage points) at the end of September.4 In comparison, the spread stood at 1,080 basis points at the end of October 2002 and 947 basis points on December 31, 2002.5
4 A large spread indicates that investors require yields substantially above those of Treasuries in order to invest in high yield bonds. This is generally indicative of a higher-risk environment. A smaller spread generally indicates a more positive environment, since investors are less concerned about risk and therefore willing to accept lower yields.5 Source for ratings: CS First Boston High Yield Index.
Q: What areas of the market provided the best performance?
A: The lower-quality segment outperformed the broader high-yield market by a wide margin. For the full year, the CCC/split CCC-rated and distressed (CC, C and defaulted issues) sectors were the top-performing credit quality categories with returns of 50.90% and 42.98%, respectively. In comparison, BB-rated and B-rated securities returned 19.37% and 25.86%, respectively.5 The outsized return of the distressed credit quality space illustrated the extent to which investors were reaching for yield. Similarly, some of the best-performing industries were higher-beta6 areas such as the wireless communications, international cable, utility and airline sectors, which posted gains of 77.85%, 62.99%, 43.71% and 40.24%, respectively, for the period.5
6 Higher-beta refers to sectors that tend to have price fluctuations greater than that of the market as a whole.Q: How did the fund perform in this environment?
A: The fund produced a strong total return on an absolute basis but trailed both its benchmark and its peer group. For the 12-month period ended September 30, 2003, Class A shares of the fund produced a total return of 23.92% (unadjusted for sales charges). (Please see pages 3 through 6 for the performance of other share classes.) This return compares with the 28.05% return of the fund's benchmark and the 24.96% average return of the 395 funds in its Lipper High Current Yield Funds category.7
7 The Lipper High Current Yield Funds category includes funds that aim at high (relative) current yield from fixed income securities, has no quality or maturity restrictions and tends to invest in lower-grade-debt issues.Q: What factors helped and hurt the fund's performance?
A: At the onset of the period, the portfolio had been positioned more conservatively than the index and its peers due to our concerns regarding weak economic fundamentals, uncertainty around the war with Iraq (and a potential oil price shock), and the potential for retaliatory terrorist attacks amid frequent warnings from the US Department of Homeland Security. In addition, given the already large compression in spreads from a wide margin of 1,116 basis points in mid-October 2002, we believed prudence dictated continued caution and a continued focus on protection of principal. As a result of these concerns, the portfolio remained underweight in lower-tier securities at the beginning of the fiscal year and, on average, throughout the period. This average underweight was the largest detractor from performance for the period. Most notably, the fund was underweight for much of the period in securities rated CCC/split CCC and below - the top-performing credit quality sector. However, our bottom-up analysis led us to take a larger position in this area as the year progressed. By the close of the period, the fund was overweight in the B-rated and CCC/split CCC-rated credit quality segments. This increased allocation to single B and CCC/split CCC securities benefited performance in the last quarter of the fiscal year, as the fund was ahead of the Lipper High Current Yield Funds category average return for the period. The fund remains underweight in the distressed sector - CC and below - as over time this segment of the market has not produced favorable risk-adjusted performance. We intend to remain conservative in our approach to investing in this area even if that approach contributes to short-term underperformance.
On a sector basis, the fund's performance was hurt by an underweight position in some of the higher-beta industries that performed well during the year. These include the airline, utilities, and media and telecommunications sectors. In particular, in the utilities sector, many companies had poor disclosure, which made them, in our opinion, unsuitable for investment. Given that situation, we believed caution was prudent. The fund was also overweight versus the index in the gaming and the commodity and fertilizer sectors, which underperformed the high-yield market as a whole. On the positive side, underweights in building materials and steel - both of which underperformed - proved helpful.
Among individual securities, the fund was helped by its positions in Tyco (industrial conglomerates), Qwest (telecommunications), Pioneer (energy) and Georgia-Pacific (pulp and paper). Qwest is one of the many companies owned by the fund whose bonds have gained in price due to an improved liquidity position. Qwest continued to improve its financial position as a result of cost cutting and asset sales. The company's substantial cash balances are viewed as favorable by investors. The largest individual detractors to performance from the full year were bonds of companies we mentioned in March's semiannual report: Healthsouth (health services), and Flemming Companies (food wholesaling and distribution). We have since sold the Flemming bonds, but continue to hold Healthsouth. In addition, an underweight in WorldCom (telecommunications) also dampened return. WorldCom's bonds rallied during the period in anticipation of the company's emergence from bankruptcy. (As of September 30, 2003, positions in WorldCom were sold.)
Q: Will you review your management style?
A: We continue to employ a disciplined approach that is focused on individual security and risk management. We believe we can add the most value through fundamental research, our emphasis is on finding bonds that offer favorable relative value given their yield and credit outlook. Additionally, we tend to invest in the bonds of companies that we believe offer a better combination of risk and return potential than the market as a whole. This means that we generally buy bonds that we believe to be undervalued and reduce or sell our positions in those that have reached what we believe to be fair valuations.
Given our disciplined and risk-focused investment approach, the fund may not rank in the top quartile of its peer universe in exuberant market periods in which higher-risk investments outperform the market as a whole, such as the environment encountered in the fiscal year just ended. However, we would also not expect to be in the bottom quartile of the peer universe in rough market stretches, as our disciplined investment approach should help to mitigate overall downside risk.
Because risk management is also an important consideration, we strive to maintain a diversified portfolio and to limit the size of individual positions in lower-quality securities. Believing this approach will help the fund deliver outperformance over the long term, we do not seek to boost its short-term return by changing our investment approach or taking on imprudent risk. The result of this approach is that the fund now holds approximately 301 issuers, versus 254 a year ago.
Q: How is the fund positioned?
A: The credit quality and sector weightings within the portfolio are, for the most part, the result of our bottom-up, research-driven approach, not a top-down strategic decision. On a credit quality basis, the fund is underweight in upper-quality securities (those rated BB and above), with approximately 23% of assets, versus the benchmark weight of about 31%. The fund maintains an overweight in the middle-tier credit quality segment, with about 60% of assets, versus 53% for the benchmark. As discussed, the fund is overweight in CCC/split CCC-rated securities, with an allocation of about 11%, compared with the benchmark allocation of about 8%. It is also underweight in distressed issues (those rated CC and below), with a weighting of about 1%, versus 7% in the benchmark.
The fund's key over- and underweights on a sector basis (as of September 30, 2003) are as follows:
Overweight | Underweight |
Commodity and Fertilizer Land Transportation Consumer Nondurables Specialty Chemicals | Utilities Leisure/Other US Cable Retail |
Industries are listed in order of the size of the fund's overweight or underweight position from largest to smallest.
Overall, we believe our focus on fundamental research and relative value has positioned the fund to perform in any market environment.
The views expressed in this report reflect those of the portfolio manager only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Asset Allocation | 9/30/03 | 9/30/02 |
Corporate Bonds | 80% | 82% |
Foreign Bonds - US$ Denominated | 12% | 13% |
Cash Equivalents, net | 3% | 3% |
Convertible Bonds | 2% | - |
Stocks | 1% | 2% |
Foreign Bonds - Non US$ Denominated | 1% | - |
US Treasury Obligations | 1% | - |
100% | 100% |
Corporate Bond Diversification (Excludes Cash Equivalents) | 9/30/03 | 9/30/02 |
Consumer Discretionary | 30% | 32% |
Industrials | 17% | 24% |
Materials | 13% | 10% |
Energy | 11% | 9% |
Telecommunication Services | 10% | 7% |
Financials | 6% | 3% |
Utilities | 5% | 3% |
Consumer Staples | 4% | 6% |
Health Care | 3% | 5% |
Information Technology | 1% | 1% |
100% | 100% |
Asset allocation and corporate bond diversification are subject to change.
Quality | 9/30/03 | 9/30/02 |
US Treasury Obligations | 1% | - |
Cash Equivalents | 2% | - |
BBB | 1% | 15% |
BB | 22% | 30% |
B | 53% | 45% |
CCC | 18% | 5% |
CC | - | 2% |
Not Rated | 3% | 3% |
100% | 100% |
Effective Maturity | 9/30/03 | 9/30/02 |
Less than 1 year | 3% | 2% |
1 < 5 years | 26% | 27% |
5 < 7 years | 28% | 44% |
7 years or greater | 43% | 27% |
100% | 100% |
Quality and effective maturity are subject to change. The ratings of Moody's Investors Service, Inc. and Standard & Poor's Corporation represent these companies' 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 complete details about the Fund's investment portfolio, see page 16. A quarterly Fact Sheet and Portfolio Holdings are available upon request.
Principal Amount($)(c) | Value ($) | |
Corporate Bonds 79.7% | ||
Consumer Discretionary 23.6% | ||
Adelphia Communications Corp.: | ||
Series B, 8.125%, 1/15/2004* | 2,295,000 | 1,583,550 |
10.25%, 6/15/2011* | 1,770,000 | 1,265,550 |
Advantica Restaurant Co.: | ||
11.25%, 1/15/2008 | 1,869,934 | 1,075,212 |
12.75%, 9/30/2007 | 4,250,000 | 4,186,250 |
American Achieve Corp., 11.625%, 1/1/2007 | 8,690,000 | 9,689,350 |
American Lawyer Media, Inc., Series B, 9.75%, 12/15/2007 | 10,180,000 | 9,518,300 |
Ameristar Casino, Inc., 10.75%, 2/15/2009 | 6,090,000 | 6,927,375 |
Bally Total Fitness Holdings, 144A, 10.5%, 7/15/2011 | 1,240,000 | 1,305,100 |
Boca Resorts, Inc., 9.875%, 4/15/2009 | 13,520,000 | 14,415,700 |
Broder Brothers Co., 144A, 11.25%, 10/15/2010 | 2,460,000 | 2,490,750 |
Buffets, Inc., 11.25%, 7/15/2010 | 10,480,000 | 10,899,200 |
Carrols Corp., 9.5%, 12/1/2008 | 1,095,000 | 1,108,688 |
Central Garden & Pet Co., 9.125%, 2/1/2013 | 3,380,000 | 3,684,200 |
Charter Communications Holdings LLC: | ||
8.25%, 4/1/2007 | 175,000 | 148,750 |
8.625%, 4/1/2009 | 8,170,000 | 6,250,050 |
144A, 10.25%, 9/15/2010 | 8,590,000 | 8,654,425 |
Step-up Coupon, 0% to 5/15/2006, 11.75 to 5/15/2011 | 525,000 | 288,750 |
Step-up Coupon, 0% to 1/15/2007, 12.125% to 1/15/2012 | 1,040,000 | 535,600 |
Step-up Coupon, 0% to 1/15/2006, 13.5% to 1/15/2011 | 8,695,000 | 5,434,375 |
Charter Communications, Inc., 11.125%, 1/15/2011 | 3,000,000 | 2,452,500 |
Choctaw Resort Development Enterprises, 9.25%, 4/1/2009 | 9,830,000 | 10,542,675 |
Chumash Casino & Resort Enterprise, 144A, 9.0%, 7/15/2010 | 745,000 | 800,875 |
Cinemark USA, Inc., 8.5%, 8/1/2008 | 11,855,000 | 12,299,563 |
Circus & Eldorado, 10.125%, 3/1/2012 | 9,050,000 | 9,004,750 |
CKE Restaurants, Inc., 9.125%, 5/1/2009 | 4,395,000 | 4,416,975 |
CSC Holdings, Inc.: | ||
7.875%, 12/15/2007 | 6,895,000 | 7,050,138 |
Senior Note, 7.25%, 7/15/2008 | 325,000 | 324,188 |
Dex Media East LLC/ Financial, 12.125%, 11/15/2012 | 24,410,000 | 29,475,075 |
Dex Media West/Finance Co., 144A, 9.875%, 8/15/2013 | 10,755,000 | 12,153,150 |
DIMON, Inc.: | ||
144A, 7.75%, 6/1/2013 | 4,290,000 | 4,397,250 |
Series B, 9.625%, 10/15/2011 | 15,540,000 | 17,288,250 |
EchoStar Communications Corp., 9.375%, 2/1/2009 | 5,605,000 | 5,976,331 |
Echostar DBS Corp., 144A, 6.375%, 10/1/2011 | 595,000 | 595,000 |
Eldorado Resorts LLC, 10.5%, 8/15/2006 | 14,330,000 | 14,473,300 |
Finlay Fine Jewelry Corp., 8.375%, 5/1/2008 | 6,264,000 | 6,451,920 |
General Motors Corp., 8.25%, 7/15/2023 | 8,310,000 | 8,690,407 |
Group 1 Automotive, Inc., 144A, 8.25%, 8/15/2013 | 6,990,000 | 7,531,725 |
Herbst Gaming, Inc., 10.75%, 9/1/2008 | 17,022,000 | 18,915,698 |
Hines Horticulture, Inc., Series B, 12.75%, 10/15/2005 | 3,513,000 | 3,723,780 |
Imperial Home Decor Group, Inc., Series B, 11.0%, 3/15/2008* | 12,740,000 | 1,274 |
Interep National Radio Sales, Inc., 10.0%, 7/1/2008 | 9,975,000 | 9,027,375 |
International Game Technology, 8.375%, 5/15/2009 | 8,055,000 | 9,766,398 |
Intrawest Corp., 10.5%, 2/1/2010 | 7,890,000 | 8,708,588 |
Jacobs Entertainment Co., 11.875%, 2/1/2009 | 5,850,000 | 6,259,500 |
Jefra Cosmetics, 10.75%, 5/15/2011 | 9,540,000 | 10,350,900 |
Kellwood Co., 7.625%, 10/15/2017 | 4,255,000 | 4,318,825 |
Krystal, Inc., 10.25%, 10/1/2007 | 5,705,000 | 5,697,869 |
Laidlaw International, Inc., 144A, 10.75%, 6/15/2011 | 3,550,000 | 3,807,375 |
Levi Strauss & Co., 12.25%, 12/15/2012 | 1,865,000 | 1,492,000 |
Lin Television Corp., 144A, 6.5%, 5/15/2013 | 2,445,000 | 2,377,763 |
Meritage Corp., 9.75%, 6/1/2011 | 2,295,000 | 2,513,025 |
MGM Mirage, Inc., 6.0%, 10/1/2009 | 4,565,000 | 4,587,825 |
Mortons Restaurant Group, 144A, 7.5%, 7/1/2010 | 2,470,000 | 2,247,700 |
National Vision, Inc., 12.0%, 3/30/2009 (d) | 1,353,475 | 735,952 |
Old Evangeline Downs, 13.0%, 3/1/2010 | 3,410,000 | 3,482,463 |
Park Place Entertainment Corp., 9.375%, 2/15/2007 | 7,675,000 | 8,480,875 |
Payless Shoesource, Inc., 144A, 8.25%, 8/1/2013 | 1,205,000 | 1,223,075 |
PEI Holding, Inc., 11.0%, 3/15/2010 | 6,700,000 | 7,403,500 |
Petro Stopping Centers, 10.5%, 2/1/2007 | 23,410,000 | 23,527,050 |
PRIMEDIA, Inc.: | ||
7.625%, 4/1/2008 | 1,035,000 | 1,019,475 |
8.875%, 5/15/2011 | 5,405,000 | 5,607,688 |
Rayovac Corp., 144A, 8.5%, 10/1/2013 | 5,845,000 | 6,020,350 |
Remington Arms Co., Inc., 10.5%, 2/1/2011 | 8,855,000 | 9,076,375 |
Renaissance Media Group, 10.0% to 4/15/2008 | 12,180,000 | 12,180,000 |
Rent-Way, Inc., 144A, 11.875%, 6/15/2010 | 3,150,000 | 3,283,875 |
Restaurant Co., 11.25% to 5/15/2008 | 10,663,610 | 10,290,384 |
Rite Aid Corp.: | ||
144A, 6.125%, 12/15/2008 | 3,960,000 | 3,682,800 |
6.875%, 8/15/2013 | 12,395,000 | 11,589,325 |
Samsonite Corp., 10.75%, 6/15/2008 | 16,880,000 | 17,639,600 |
Schuler Homes, Inc.: | ||
9.375%, 7/15/2009 | 2,040,000 | 2,279,700 |
10.5%, 7/15/2011 | 11,020,000 | 12,493,925 |
Scientific Games Corp., 12.5%, 8/15/2010 | 1,675,000 | 1,961,844 |
Sealy Mattress Co.: | ||
Series B, 9.875%, 12/15/2007 | 2,743,000 | 2,756,715 |
Series F, 9.875%, 12/15/2007 | 2,845,000 | 2,859,225 |
Sinclair Broadcast Group, Inc.: | ||
8.0%, 3/15/2012 | 6,090,000 | 6,424,950 |
8.0%, 3/15/2012 | 8,065,000 | 8,528,738 |
8.75%, 12/15/2011 | 6,630,000 | 7,210,125 |
Six Flags, Inc.: | ||
8.875%, 2/1/2010 | 14,230,000 | 13,056,025 |
9.5%, 2/1/2009 | 3,900,000 | 3,714,750 |
Sonic Automotive, Inc., 144A, 8.625%, 8/15/2013 | 10,910,000 | 11,782,800 |
Transwestern Publishing, Series F, 9.625%, 11/15/2007 | 13,855,000 | 14,305,288 |
Trump Holdings & Funding, 11.625%, 3/15/2010 | 7,360,000 | 6,578,000 |
Venetian Casino Resort LLC, 144A, 11.0%, 6/15/2010 | 5,740,000 | 6,543,600 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 10,215,000 | 10,636,369 |
Williams Scotsman, Inc., 144A, 10.0%, 8/15/2008 | 3,585,000 | 3,818,025 |
Worldspan LP/ WS Finance Corp., 144A, 9.625%, 6/15/2011 | 5,755,000 | 6,028,363 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14% to 12/31/2009 | 7,335,000 | 6,088,050 |
589,490,421 | ||
Consumer Staples 3.2% | ||
Agrilink Foods, Inc., 11.875%, 11/1/2008 | 14,890,000 | 15,727,563 |
Elizabeth Arden, Inc., Series B, 11.75%, 2/1/2011 | 11,710,000 | 13,349,400 |
Hines Nurseries, Inc., 144A, 10.25%, 10/1/2011 | 4,885,000 | 5,104,825 |
La Petite Academy, Inc., 10.0%, 5/15/2008 | 7,305,000 | 4,383,000 |
Michael Foods, Inc., Series B, 11.75%, 4/1/2011 | 3,645,000 | 4,264,650 |
National Beef Pack, 144A, 10.5%, 8/1/2011 | 2,110,000 | 2,299,900 |
Pilgrim's Pride Corp., 9.625%, 9/15/2011 | 1,710,000 | 1,846,800 |
Salton, Inc., 10.75%, 12/15/2005 | 5,525,000 | 5,428,313 |
Seminis Vegetables Seeds, 144A, 10.25%, 10/1/2013 | 2,460,000 | 2,607,600 |
Stater Brothers Holdings, Inc., 10.75%, 8/15/2006 | 14,355,000 | 15,036,863 |
Swift & Co., 10.125%, 10/1/2009 | 3,240,000 | 3,580,200 |
Williams Scotsman, Inc., 9.875%, 6/1/2007 | 5,375,000 | 5,294,375 |
78,923,489 | ||
Energy 8.5% | ||
ANR Pipeline Co., 8.875%, 3/15/2010 | 2,395,000 | 2,562,650 |
Avista Corp., 9.75%, 6/1/2008 | 20,545,000 | 23,934,925 |
Chesapeake Energy Corp., 8.125%, 4/1/2011 | 6,295,000 | 6,830,075 |
Citgo Petroleum Corp., 144A, 11.375%, 2/1/2011 | 21,480,000 | 24,272,400 |
Coastal Corp., 6.5%, 6/1/2008 | 1,825,000 | 1,469,125 |
Continental Resources, Inc., 10.25%, 8/1/2008 | 12,640,000 | 12,387,200 |
Dynegy Holdings, Inc.: | ||
144A, 9.875%, 7/15/2010 | 9,515,000 | 9,943,175 |
144A, 10.125%, 7/15/2013 | 965,000 | 1,018,075 |
Edison Mission Energy, 7.73%, 6/15/2009 | 23,755,000 | 19,360,325 |
El Paso Corp., 7.375%, 12/15/2012 | 3,105,000 | 2,538,338 |
Gulfterra Energy Partner, 144A, 6.25%, 6/1/2010 | 1,815,000 | 1,805,925 |
Lone Star Technologies, Inc., Series B, 9.0%, 6/1/2011 | 7,370,000 | 7,296,300 |
Newpark Resources, Inc., 8.625%, 12/15/2007 | 7,565,000 | 7,791,950 |
On Semiconductor Corp., 12.0%, 5/15/2008 | 7,315,000 | 8,339,100 |
Parker Drilling Co., Series B, 10.125%, 11/15/2009 | 13,250,000 | 13,647,500 |
Pen Holdings, Inc., Series B, 9.875%, 6/15/2008* | 4,520,000 | 452,000 |
Pioneer Natural Resources Co., 9.625%, 4/1/2010 | 16,751,000 | 20,854,995 |
Southern Natural Gas Co., 8.875%, 3/15/2010 | 3,305,000 | 3,536,350 |
Stone Energy Corp., 8.25%, 12/15/2011 | 3,550,000 | 3,763,000 |
Tom Brown, Inc., 7.25%, 9/15/2013 | 1,140,000 | 1,179,900 |
Trico Marine Services, Inc., 8.875%, 5/15/2012 | 12,780,000 | 9,329,400 |
Westport Resources Corp., 144A, 8.25%, 11/1/2011 | 8,765,000 | 9,575,763 |
Williams Co., Inc.: | ||
8.125%, 3/15/2012 | 2,415,000 | 2,511,600 |
8.625%, 6/1/2010 | 4,455,000 | 4,733,438 |
8.75%, 3/15/2032 | 1,845,000 | 1,821,938 |
Williams Holdings of Delaware, Inc., 6.5%, 12/1/2008 | 9,505,000 | 9,219,850 |
Wiser Oil Co., 9.5%, 5/15/2007 | 975,000 | 921,375 |
211,096,672 | ||
Financials 4.7% | ||
Ahold Finance USA, Inc., 6.25%, 5/1/2009 | 12,335,000 | 12,211,650 |
AmeriCredit Corp.: | ||
9.25%, 5/1/2009 | 8,470,000 | 8,131,200 |
9.875%, 4/15/2006 | 8,907,000 | 8,817,930 |
CBRE Escrow, Inc., 144A, 9.75%, 5/15/2010 | 6,970,000 | 7,545,025 |
Corrections Corp. of America, 144A, 7.5%, 5/1/2011 | 95,000 | 97,969 |
Dollar Financial Group, Series A, 10.875%, 11/15/2006 | 100,000 | 98,125 |
Eaton Vance Corp. CDO "C", 13.68%, 7/15/2012 (PIK) | 1,302,973 | 13,030 |
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 9,440,000 | 9,628,800 |
FRD Acquisition, Series B, 12.5%, 7/15/2004* | 2,450,000 | 0 |
Global Exchange Services, 144A, 12.0%**, 7/15/2008 | 7,890,000 | 7,515,225 |
IOS Capital LLC, 7.25%, 6/30/2008 | 6,120,000 | 5,936,400 |
LaBranche & Co., Inc., 12.0%, 3/2/2007 | 13,885,000 | 15,690,050 |
Pxre Capital Trust I, 8.85%, 2/1/2027 | 3,865,000 | 3,343,225 |
Qwest Capital Funding, Inc.: | ||
5.875%, 8/3/2004 | 5,545,000 | 5,489,550 |
7.0%, 8/3/2009 | 2,715,000 | 2,423,138 |
7.75%, 8/15/2006 | 6,985,000 | 6,845,300 |
R.H. Donnelly Finance Corp., 144A, 10.875%, 12/15/2012 | 6,515,000 | 7,687,700 |
Thornburg Mortgage, Inc., 8.0%, 5/15/2013 | 7,315,000 | 7,497,875 |
Universal City Development, 11.75%, 4/1/2010 | 5,830,000 | 6,558,750 |
US West Communications, Inc., 7.25%, 10/25/2035 | 2,915,000 | 2,594,350 |
118,125,292 | ||
Health Care 2.4% | ||
AmerisourceBergen Corp., 7.25%, 11/15/2012 | 7,370,000 | 7,498,975 |
Ardent Health Services, 144A, 10.0%, 8/15/2013 | 945,000 | 989,888 |
HEALTHSOUTH Corp., 7.625%, 6/1/2012 | 8,280,000 | 7,120,800 |
HMP Equity Holdings Corp., 144A, Zero Coupon, 5/15/2008 | 5,705,000 | 2,766,925 |
Medco Health Solutions, Inc., 7.25%, 8/15/2013 | 2,665,000 | 2,840,554 |
Norcross Safety Products, 144A, 9.875%, 8/15/2011 | 4,610,000 | 4,863,550 |
Quintiles Transnational Corp., 144A, 10.0%, 10/1/2013 | 4,290,000 | 4,429,425 |
Tenet Healthcare Corp.: | ||
6.375%, 12/1/2011 | 16,700,000 | 15,990,250 |
7.375%, 2/1/2013 | 10,135,000 | 10,211,013 |
Vanguard Health Systems, Inc., 9.75%, 8/1/2011 | 2,750,000 | 2,928,750 |
59,640,130 | ||
Industrials 13.4% | ||
Allied Waste North America, Inc.: | ||
Series B, 8.5%, 12/1/2008 | 6,360,000 | 6,868,800 |
Series B, 8.875%, 4/1/2008 | 6,505,000 | 7,041,663 |
Series B, 10.0%, 8/1/2009 | 17,885,000 | 19,382,869 |
AMI Semiconductor, Inc., 10.75%, 2/1/2013 | 2,735,000 | 3,090,550 |
Amsted Industries, Inc., 144A, 10.25%, 10/15/2011 | 7,305,000 | 7,862,006 |
Argo-Tech Corp., 8.625%, 10/1/2007 | 5,820,000 | 5,645,400 |
AutoNation, Inc., 9.0%, 8/1/2008 | 7,295,000 | 8,170,400 |
Avondale Mills, Inc., 144A, 10.25%, 7/1/2013 | 11,390,000 | 10,080,150 |
Browning-Ferris Industries: | ||
7.4%, 9/15/2035 | 5,210,000 | 4,793,200 |
9.25%, 5/1/2021 | 3,250,000 | 3,436,875 |
Case New Holland, Inc., 144A, 9.25%, 8/1/2011 | 5,515,000 | 5,928,625 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 | 5,495,000 | 5,797,225 |
Collins & Aikman Products, 10.75%, 12/31/2011 | 8,455,000 | 7,313,575 |
Congoleum Corp., 8.625%, 8/1/2008 | 6,405,000 | 3,867,019 |
Continental Airlines, Inc., 8.0%, 12/15/2005 | 2,770,000 | 2,541,475 |
Corrections Corp. of America, 9.875%, 5/1/2009 | 8,430,000 | 9,462,675 |
CP Ships Ltd., 10.375%, 7/15/2012 | 8,980,000 | 10,237,200 |
Dana Corp., 9.0%, 8/15/2011 | 10,905,000 | 11,940,975 |
DeCrane Aircraft Holdings, Inc., Series B, 12.0%, 9/30/2008 | 12,795,000 | 6,013,650 |
Delta Air Lines, Inc.: | ||
7.7%, 12/15/2005 | 3,170,000 | 2,821,300 |
Series 02-1, 7.779%, 1/2/2012 | 2,281,709 | 1,874,389 |
7.9%, 12/15/2009 | 610,000 | 452,925 |
Dyersburg Corp., Series B, 9.75%, 9/1/2007* | 18,155,000 | 1,816 |
Eagle-Picher, Inc., 144A, 9.75%, 9/1/2013 | 5,205,000 | 5,465,250 |
Evergreen International Aviation, 144A, 12.0%, 5/15/2010 | 4,405,000 | 4,008,550 |
Flextronics International Ltd., 144A, 6.5%, 5/15/2013 | 7,150,000 | 7,096,375 |
Golden State Petroleum Transportation, 8.04%, 2/1/2019 | 5,185,000 | 5,065,641 |
Grove Holdings LLC 11.625% to 5/1/2009* | 3,905,000 | 0 |
Grove Investors, Inc., 14.50%, 5/2/2010* | 12,273,673 | 0 |
GS Technologies, 12.0%, 9/1/2004* | 4,577,117 | 251,741 |
Hercules, Inc., 11.125%, 11/15/2007 | 16,869,000 | 19,483,695 |
Hornbeck Offshore Services, Inc., 10.625%, 8/1/2008 | 4,485,000 | 4,922,288 |
Huntsman International LLC, 10.125%, 7/1/2009 | 1,235,000 | 1,086,800 |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 5,990,000 | 6,678,850 |
ISP Holdings, Inc., Series B, 10.625%, 12/15/2009 | 4,175,000 | 4,550,750 |
Kansas City Southern: | ||
7.5%, 6/15/2009 | 2,065,000 | 2,142,438 |
9.5%, 10/1/2008 | 8,980,000 | 9,900,450 |
Metaldyne Corp., 11.0%, 6/15/2012 | 4,495,000 | 4,023,025 |
Millennium America, Inc.: | ||
7.625%, 11/15/2026 | 5,144,000 | 4,166,640 |
9.25%, 6/15/2008 | 20,915,000 | 21,699,313 |
144A, 9.25%, 6/15/2008 | 6,310,000 | 6,546,625 |
Mobile Mini, Inc., 144A, 9.5%, 7/1/2013 | 6,865,000 | 7,345,550 |
Motors and Gears, Inc., 10.75%, 11/15/2006 | 4,575,000 | 3,477,000 |
Neenah Corp.: | ||
Series B, 144A, 11.25%, 5/1/2007* | 3,135,000 | 1,786,950 |
Series F, 11.125%, 5/1/2007* | 2,205,000 | 1,256,850 |
Overseas Shipholding Group, 8.75%, 12/1/2013 | 3,155,000 | 3,364,019 |
Plainwell, Inc., Series B, 11.0%, 3/1/2008* | 18,860,000 | 943,000 |
Republic Engineered Products LLC, 10.0%, 8/16/2009* | 5,803,294 | 1,508,856 |
Resolution Performance Products LLC, 13.5%, 11/15/2010 | 19,070,000 | 17,067,650 |
Seabulk International, Inc., 144A, 9.5%, 8/15/2013 | 7,610,000 | 7,638,538 |
Tech Olympic USA, Inc., 10.375%, 7/1/2012 | 6,875,000 | 7,390,625 |
Tenneco Automotive, Inc.: | ||
144A, 10.25%, 7/15/2013 | 5,710,000 | 6,195,350 |
11.625%, 10/15/2009 | 4,935,000 | 4,860,975 |
The Brickman Group, Ltd., Series B, 11.75%, 12/15/2009 | 3,085,000 | 3,470,625 |
Travelcenters of America, Inc., 12.75%, 5/1/2009 | 685,000 | 780,900 |
Westlake Chemical Corp., 8.75%, 7/15/2011 | 15,820,000 | 16,413,250 |
335,213,331 | ||
Information Technology 1.1% | ||
Cooperative Computing, 144A, 10.5%, 6/15/2011 | 2,995,000 | 3,234,600 |
Digitalnet, Inc., 144A, 9.0%, 7/15/2010 | 2,070,000 | 2,194,200 |
Lucent Technologies, Inc.: 6.45%, 3/15/2029 | 9,225,000 | 6,365,250 |
7.25%, 7/15/2006 | 6,920,000 | 6,660,500 |
Mediacom Broadband LLC, 11.0%, 7/15/2013 | 1,240,000 | 1,305,100 |
Xerox Corp.: | ||
7.125%, 6/15/2010 | 4,310,000 | 4,277,675 |
7.625%, 6/15/2013 | 3,810,000 | 3,757,613 |
27,794,938 | ||
Materials 10.6% | ||
Aqua Chemical, Inc., 11.25%, 7/1/2008 | 3,390,000 | 2,847,600 |
ARCO Chemical Co.: | ||
9.8%, 2/1/2020 | 19,910,000 | 15,928,000 |
10.25%, 11/1/2010 | 4,355,000 | 3,984,825 |
Buckeye Technologies, Inc., 144A, 8.5%, 10/1/2013 | 4,035,000 | 4,156,050 |
Caraustar Industries, Inc., 9.875%, 4/1/2011 | 12,605,000 | 12,352,900 |
Cascades, Inc., 144A, 7.25%, 2/15/2013 | 6,285,000 | 6,410,700 |
Crown Cork & Seal, 8.0%, 4/15/2023 | 5,070,000 | 4,132,050 |
Dan River, Inc., 144A, 12.75%, 4/15/2009 | 7,115,000 | 5,549,700 |
Dayton Superior Corp.: | ||
144A, 10.75%, 9/15/2008 | 5,685,000 | 5,827,125 |
13.0%, 6/15/2009 | 4,300,000 | 3,827,000 |
DIMAC Corp., 144A, 12.5%, 10/1/2008* | 22,110,000 | 221,100 |
Equistar Chemical/ Funding Corp., 144A, 10.625%, 5/1/2011 | 2,045,000 | 2,024,550 |
Equistar Chemicals LP, 8.75%, 2/15/2009 | 39,715,000 | 37,133,525 |
Euramax International PLC, 144A, 8.5%, 8/15/2011 | 5,800,000 | 6,003,000 |
Fibermark, Inc., 10.75%, 4/15/2011 | 7,955,000 | 5,329,850 |
Foamex LP, 10.75%, 4/1/2009 | 9,800,000 | 8,746,500 |
Fonda Group, 9.5%, 3/1/2007 | 4,150,000 | 3,320,000 |
Georgia-Pacific Corp.: | ||
144A, 7.375%, 7/15/2008 | 2,990,000 | 3,083,438 |
144A, 8.0%, 1/15/2014 | 720,000 | 746,100 |
8.875%, 2/1/2010 | 9,195,000 | 10,068,525 |
8.875%, 5/15/2031 | 15,888,000 | 15,967,440 |
9.375%, 2/1/2013 | 2,315,000 | 2,584,119 |
Debenture, 7.7%, 6/15/2015 | 17,220,000 | 16,789,500 |
Hexcel Corp., 144A, 9.75%, 1/15/2009 | 2,510,000 | 2,616,675 |
Huntsman ADV Materials, 144A, 11.0%, 7/15/2010 | 4,825,000 | 5,018,000 |
Huntsman LLC, 11.625%, 10/15/2010 | 2,460,000 | 2,398,500 |
Huntsman Packaging Corp., 13.0%, 6/1/2010 | 555,000 | 516,150 |
IMC Global, Inc., 144A, 10.875%, 8/1/2013 | 9,570,000 | 9,904,950 |
Koppers Industry, Inc., 144A, 9.875%, 10/15/2013 | 4,105,000 | 4,105,000 |
Metals USA, Inc., 8.625%, 2/15/2008* | 13,150,000 | 0 |
MMI Products, Inc., Series B, 11.25%, 4/15/2007 | 5,190,000 | 3,010,200 |
Omnova Solutions, Inc., 144A, 11.25%, 6/1/2010 | 3,195,000 | 3,386,700 |
Owens-Brockway Glass Container, 8.25%, 5/15/2013 | 7,950,000 | 8,109,000 |
Owens-Illinois, Inc., 7.5%, 5/15/2010 | 2,490,000 | 2,402,850 |
Pliant Corp.: | ||
144A, 11.125%, 9/1/2009 | 6,215,000 | 6,681,125 |
13.0%, 6/1/2010 | 1,905,000 | 1,771,650 |
Rockwood Specialties Corp., 144A, 10.625%, 5/15/2011 | 5,190,000 | 5,527,350 |
Sweetheart Cup Co., Inc., 12.0%, 7/15/2004 | 2,490,000 | 2,433,975 |
Texas Industries, Inc., 144A, 10.25%, 6/15/2011 | 7,140,000 | 7,818,300 |
Toll Corp., 8.25%, 2/1/2011 | 3,500,000 | 3,815,000 |
Trimas Corp., 9.875%, 6/15/2012 | 6,400,000 | 6,496,000 |
United States Steel LLC, 9.75%, 5/15/2010 | 8,325,000 | 8,533,125 |
US Can Corp., Series B, 12.375%, 10/1/2010 | 4,895,000 | 4,111,800 |
265,689,947 | ||
Telecommunication Services 7.8% | ||
ACC Escrow Corp., 144A, 10.0%, 8/1/2011 | 17,440,000 | 18,747,985 |
Century Communications Corp.: | ||
8.75%, 10/1/2007* | 1,735,000 | 1,214,500 |
8.375%, 11/15/2017* | 2,010,000 | 1,407,000 |
Alamosa Delaware, Inc., 13.625%, 8/15/2011 | 1,270,000 | 1,231,900 |
Alamosa Holdings, Inc., Step-up Coupon, 0% to 2/15/2005, 12.875% to 2/15/2010 | 1,180,000 | 932,200 |
American Tower Corp., 9.375%, 2/1/2009 | 13,345,000 | 13,611,900 |
American Tower Escrow Corp., Zero Coupon, 8/1/2008 | 6,465,000 | 4,299,225 |
Cincinnati Bell, Inc., 144A, 7.25%, 7/15/2013 | 6,305,000 | 6,241,950 |
Crown Castle International Corp., 9.375%, 8/1/2011 | 9,265,000 | 9,890,388 |
Dobson Communications Corp., 144A, 8.875%, 10/1/2013 | 7,665,000 | 7,751,231 |
Insight Midwest: | ||
9.75%, 10/1/2009 | 5,915,000 | 5,959,363 |
10.5%, 11/1/2010 | 1,240,000 | 1,295,800 |
LCI International, Inc., 7.25%, 6/15/2007 | 1,880,000 | 1,504,000 |
Level 3 Communications, Inc., 11.0%, 3/15/2008 | 5,555,000 | 5,068,938 |
Level 3 Financing, Inc., 144A, 10.75%, 10/15/2011 | 9,690,000 | 9,641,550 |
Nextel Communications, Inc.: | ||
9.375%, 11/15/2009 | 7,850,000 | 8,517,250 |
9.5%, 2/1/2011 | 4,105,000 | 4,536,025 |
Nextel Partners, Inc.: | ||
144A, 8.125%, 7/1/2011 | 11,910,000 | 11,612,250 |
11.0%, 3/15/2010 | 4,150,000 | 4,533,875 |
12.5%, 11/15/2009 | 1,020,000 | 1,162,800 |
Nortel Networks Corp., 7.4%, 6/15/2006 | 3,115,000 | 3,185,088 |
Qwest Corp., 6.95%, 6/30/2010 | 8,000,000 | 7,848,336 |
Qwest Services Corp.: | ||
5.625%, 11/15/2008 | 8,617,000 | 8,401,575 |
144A, 13.5%, 12/15/2010 | 6,685,000 | 7,788,025 |
144A, 14.0%, 12/15/2014 | 17,334,000 | 20,844,135 |
Rural Cellular Corp., 144A, 9.875%, 2/1/2010 | 5,355,000 | 5,288,063 |
Shaw Communications, Inc., 8.25%, 4/11/2010 | 4,530,000 | 4,994,325 |
Triton PCS, Inc., 8.5%, 6/1/2013 | 1,780,000 | 1,909,050 |
US West Communication, Inc., 7.25%, 9/15/2025 | 10,500,000 | 9,555,000 |
Western Wireless Corp., 144A, 9.25%, 7/15/2013 | 5,245,000 | 5,349,900 |
194,323,627 | ||
Utilities 4.4% | ||
AES Corp.: | ||
144A, 9.0%, 5/15/2015 | 3,030,000 | 3,204,225 |
9.375%, 9/15/2010 | 976,000 | 995,520 |
Calpine Corp., 144A, 8.5%, 7/15/2010 | 17,205,000 | 15,828,600 |
CMS Energy Corp.: | ||
7.5%, 1/15/2009 | 14,015,000 | 13,874,850 |
144A, 7.75%, 8/1/2010 | 5,980,000 | 5,920,200 |
8.5%, 4/15/2011 | 15,200,000 | 15,466,000 |
8.9%, 7/15/2008 | 2,775,000 | 2,872,125 |
El Paso Production Holding Corp., 144A, 7.75%, 6/1/2013 | 10,995,000 | 10,445,250 |
MSW Energy Holdings/Finance, 144A, 8.5%, 9/1/2010 | 2,945,000 | 3,077,525 |
PG&E Corp., 144A, 6.875%, 7/15/2008 | 4,295,000 | 4,509,750 |
Reliant Resources, Inc.: | ||
9.25%, 7/15/2010 | 5,620,000 | 5,086,100 |
144A, 9.5%, 7/15/2013 | 1,195,000 | 1,075,500 |
Sonat, Inc., 7.625%, 7/15/2011 | 3,115,000 | 2,569,875 |
TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010 | 10,735,000 | 11,057,050 |
Western Resources, Inc., 9.75%, 5/1/2007 | 12,060,000 | 13,537,350 |
109,519,920 | ||
Total Corporate Bonds (Cost $1,997,155,262) | 1,989,817,767 | |
Foreign Bonds - US$ Denominated 11.6% | ||
Antenna TV SA, 9.0%, 8/1/2007 | 4,240,000 | 4,075,700 |
Avecia Group PLC, 11.0%, 7/1/2009 | 4,335,000 | 3,793,125 |
Burns, Philp & Co., Ltd.: | ||
144A, 9.5%, 11/15/2010 | 915,000 | 956,175 |
144A, 9.75%, 7/15/2012 | 8,400,000 | 8,400,000 |
144A, 10.75%, 2/15/2011 | 605,000 | 632,225 |
Conproca SA de CV, 12.0%, 6/16/2010 | 4,090,000 | 5,296,550 |
Corp Durango SA, 144A, 13.75%, 7/15/2009* | 4,640,000 | 2,412,800 |
Crown Euro Holdings SA, 144A, 10.875%, 3/1/2013 | 7,260,000 | 8,004,150 |
Dolphin Telecom PLC, Series B, Step-up Coupon, 0% to 5/15/2004, 14.0% to 5/15/2009* | 15,831,164 | 1,583 |
Eircom Funding, 144A, 8.25%, 8/15/2013 | 6,395,000 | 6,874,625 |
Fage Dairy Industry SA, 9.0%, 2/1/2007 | 11,957,000 | 11,957,000 |
Federative Republic of Brazil C Bond, 8.0%, 4/15/2014 | 18,612,762 | 17,123,741 |
Gazprom OAO, 144A, 9.625%, 3/1/2013 | 10,645,000 | 11,390,150 |
Gerdau Ameristeel Corp., 144A, 10.375%, 7/15/2011 | 3,285,000 | 3,301,425 |
Global Telesystems, Inc.: | ||
11.50%, 12/15/2007* | 23,720,000 | 2,372 |
10.875%, 6/15/2008* | 10,060,000 | 1,006 |
Grupo Elektra SA de CV, 12.0%, 4/1/2008 | 5,745,000 | 6,161,513 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004 | 1,590,000 | 954,000 |
Innova S de R.L.: | ||
144A, 9.375%, 9/19/2013 | 9,140,000 | 9,197,125 |
12.875%, 4/1/2007 | 2,842,439 | 2,934,818 |
LeGrand SA, 8.5%, 2/15/2025 | 4,610,000 | 4,679,150 |
Luscar Coal Ltd., 9.75%, 10/15/2011 | 5,075,000 | 5,785,500 |
Millicom International Cellular SA, 144A, 11.0%, 6/1/2006 | 3,738,000 | 3,822,105 |
Mobifon Holdings BV, 144A, 12.5%, 7/31/2010 | 10,300,000 | 11,227,000 |
Nortel Networks Corp., 6.125%, 2/15/2006 | 16,595,000 | 16,677,975 |
PTC International Finance II SA, 11.25%, 12/1/2009 | 3,210,000 | 3,482,850 |
Republic of Argentina: | ||
Series BGL4, 11.0%, 10/9/2006* | 690,000 | 194,925 |
11.75%, 6/15/2015* | 5,045,000 | 1,437,825 |
12.375%, 2/21/2012* | 5,575,000 | 1,574,938 |
12.0%, 6/19/2031* | 2,809,000 | 724,722 |
Republic of Bulgaria, 144A, 8.25%, 1/15/2015 | 2,325,000 | 2,656,313 |
Republic of Turkey, 11.0%, 1/14/2013 | 300,000 | 330,750 |
Republic of Uruguay, 7.875%, 1/15/2033 | 4,295,000 | 2,888,388 |
Republic of Venezuela: | ||
9.25%, 9/15/2027 | 3,785,000 | 2,925,805 |
144A, 10.75%, 9/19/2013 | 1,140,000 | 1,054,500 |
Royal Caribbean Cruises Ltd., 7.5%, 10/15/2027 | 4,780,000 | 4,325,900 |
Telus Corp., 8.0%, 6/1/2011 | 5,320,000 | 6,210,605 |
Tembec Industries, Inc.: | ||
144A, 8.5%, 2/1/2011 | 11,785,000 | 11,490,375 |
8.625%, 6/30/2009 | 6,205,000 | 6,111,925 |
TFM SA de CV: | ||
10.25%, 6/15/2007 | 13,185,000 | 13,580,550 |
11.75%, 6/15/2009 | 9,965,000 | 10,214,125 |
12.5%, 6/15/2012 | 9,390,000 | 10,329,000 |
Tyco International Group SA: | ||
6.125%, 1/15/2009 | 1,700,000 | 1,776,500 |
6.375%, 10/15/2011 | 17,145,000 | 17,680,781 |
6.75%, 2/15/2011 | 1,580,000 | 1,666,900 |
Ukraine Government, 144A, 7.65%, 6/11/2013 | 5,715,000 | 5,686,425 |
Vicap SA, 11.375%, 5/15/2007 | 16,360,000 | 15,991,900 |
Vivendi Universal SA: | ||
144A, 6.25%, 7/15/2008 | 12,945,000 | 13,333,350 |
144A, 9.25%, 4/15/2010 | 5,650,000 | 6,490,438 |
Yell Finance BV, Step-up Coupon, 0% to 8/1/2006, 13.5% to 8/1/2011 | 2,743,000 | 2,441,270 |
Total Foreign Bonds - US$ Denominated (Cost $316,154,462) | 290,262,873 | |
Foreign Bonds - Non US$ Denominated 0.9% | ||
Antenna TV SA, 9.75%, 7/1/2008 EUR | 770,000 | 865,356 |
EMI Group PLC, 144A, 8.625%, 10/15/2013 EUR | 3,655,000 | 4,256,613 |
Ispat Europe Group SA, 11.875%, 2/1/2011 EUR | 11,120,000 | 12,950,351 |
Republic of Argentina: | ||
10.25%, 2/6/2049* EUR | 7,091,618 | 2,188,608 |
10.50%, 11/29/2049* EUR | 3,273,291 | 1,153,152 |
11.25%, 4/10/2006* EUR | 368,130 | 120,043 |
12.0%, 9/19/2016* EUR | 263,315 | 85,864 |
Total Foreign Bonds - Non US$ Denominated (Cost $18,813,960) | 21,619,987 | |
Convertible Bonds 1.5% | ||
Consumer Discretionary 0.4% | ||
Aristocrat Leisure Ltd., 144A, 5.0%, 5/31/2006 | 5,230,000 | 4,890,050 |
DIMON, Inc., 6.25%, 3/31/2007 | 6,760,000 | 6,354,400 |
Energy 0.5% | ||
Parker Drilling Co., 5.5%, 8/1/2004 | 13,332,000 | 13,198,680 |
Information Technology 0.4% | ||
Aspen Technology, Inc., 5.25%, 6/15/2005 | 2,490,000 | 2,415,300 |
Infineon Technologies AG, Series IFX, 4.25%, 2/6/2007 | 6,250,000 | 6,778,699 |
Telecommunication Services 0.2% | ||
Aether Systems, 6.0%, 3/22/2005 | 2,465,000 | 2,403,375 |
Nortel Networks Corp., 4.25%, 9/1/2008 | 3,035,000 | 2,744,399 |
Total Convertible Bonds (Cost $37,014,716) | 38,784,903 | |
Asset Backed 0.1% | ||
Miscellaneous | ||
Golden Tree High Yield Opportunities LP "D1", Series 1, 144A, 13.054%, 10/31/2007 (Cost $2,500,000) | 2,500,000 | 2,275,000 |
US Treasury Obligations 0.7% | ||
US Treasury STRIP, Principal only, 4.319%***, 8/15/2013 | 3,125,000 | 2,049,294 |
US Treasury Bond, 5.375%, 2/15/2031 | 13,305,000 | 14,277,928 |
Total US Treasury Obligations (Cost $16,357,783) | 16,327,222 |
| Value ($) | |
Other 0.2% | ||
SpinCycle, Inc.* (d) | 752,852(e) | 3,914,830 |
SpinCycle, Inc. "F"* (d) | 4,930(e) | 269 |
Total Other (Cost $1,839,949) | 3,915,099 | |
Common Stocks 0.1% | ||
Catalina Restaurant Group, Inc.* | 45,157 | 72,251 |
ICG Communications, Inc.* | 39,226 | 274,582 |
ICG Communications, Inc.* | 67,617 | 676 |
IMPSAT Fiber Networks, Inc.* | 252,348 | 1,867,375 |
MEDIQ, Inc., 144A* | 8,934 | 38,800 |
National Vision, Inc.* (d) | 319,191 | 209,708 |
XO Communications, Inc.* | 10,519 | 61,010 |
Total Common Stocks (Cost $33,937,216) | 2,524,402 | |
Warrants 0.0% | ||
Communication Cellular SA* | 30,800 | 308 |
DeCrane Aircraft Holdings, Inc.* | 16,090 | 161 |
Destia Communications, Inc.* | 19,865 | 0 |
Empire Gas Corp.* | 31,795 | 0 |
Hayes Lemmerz Intl, Inc.* | 14,564 | 10,923 |
ICG Communications, Inc.* | 27,253 | 3,268 |
Mariner Health Care, Inc.* | 32,692 | 19,779 |
Republic Technologies International LLC* | 30,830 | 308 |
Stations Holding Co., Inc.* | 90,000 | 0 |
UIH Australia Pacific, Inc.* | 14,150 | 0 |
Waxman Industries, Inc.* | 800,453 | 0 |
XO Communications, Inc., Series A* | 21,040 | 38,398 |
XO Communications, Inc., Series B* | 15,780 | 25,248 |
XO Communications, Inc., Series C* | 15,780 | 16,253 |
Total Warrants (Cost $31,875,104) | 114,646 | |
Preferred Stocks 0.5% | ||
Paxson Communications Corp. | 1,167 | 10,503,000 |
TNP Enterprises, Inc. | 27,606 | 2,539,764 |
Total Preferred Stocks (Cost $13,159,653) | 13,042,764 | |
Convertible Preferred Stocks 0.3% | ||
Hercules Trust II | 12,765 | 8,474,977 |
World Access, Inc. "D"* | 11,693 | 0 |
Total Convertible Preferred Stocks (Cost $25,170,725) | 8,474,977 | |
Cash Equivalents 2.7% | ||
Scudder Cash Management QP Trust, 1.08% (b) (Cost $68,009,780) | 68,009,780 | 68,009,780 |
% of Net Assets | Value ($) | |
Total Investment Portfolio (Cost $2,561,988,610) (a) | 98.3 | 2,455,169,420 |
Other Assets and Liabilities, Net | 1.7 | 41,929,958 |
Net Assets | 100.0 | 2,497,099,378 |
* 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.
** Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of September 30, 2003.
*** Bond equivalent yield to maturity; not a coupon rate.
(a) The cost for federal income tax purposes was $2,582,289,588. At September 30, 2003, net unrealized depreciation for all securities based on tax cost was $127,120,168. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $142,319,424 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $269,439,592.
(b) Scudder Cash Management QP Trust is also managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Principal amount is stated in US dollars unless otherwise noted.
(d) Affiliated issuers (see notes to Financial statements)
(e) Represents number of units.
PIK denotes that interest or dividend is paid in kind.
Currency Abbreviation | |
EUR | Euro |
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.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of September 30, 2003 | |
Assets | |
Investments in Securities, at value: Unaffiliated issuers (cost $2,489,966,016) | $ 2,382,298,881 |
Affiliated issuers (Note I) (cost $4,012,814) | 4,860,759 |
Investment in Scudder Cash Management QP Trust (cost $68,009,780) | 68,009,780 |
Total investments in securities, at value (cost $2,561,988,610) | 2,455,169,420 |
Receivable for investments sold | 53,430,269 |
Interest receivable | 57,972,557 |
Receivable for Fund shares sold | 1,765,081 |
Foreign taxes recoverable | 17,410 |
Total assets | 2,568,354,737 |
Liabilities | |
Due to custodian bank | 17,398 |
Payable for investments purchased | 64,304,885 |
Payable for Fund shares redeemed | 3,088,708 |
Unrealized depreciation on forward foreign currency exchange contracts | 1,155,722 |
Accrued management fee | 1,144,012 |
Other accrued expenses and payables | 1,544,634 |
Total liabilities | 71,255,359 |
Net assets, at value | $ 2,497,099,378 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 7,198,295 |
Net unrealized appreciation (depreciation) on: Investments | (106,819,190) |
Foreign currency related transactions | (1,139,349) |
Accumulated net realized gain (loss) | (1,555,388,435) |
Paid-in capital | 4,153,248,057 |
Net assets, at value | $ 2,497,099,378 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of September 30, 2003 (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price per share ($1,868,487,817 / 357,077,765 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.23 |
Maximum offering price per share (100 / 95.50 of $5.23) | $ 5.48 |
Class B Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($462,369,764 / 88,449,466 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.23 |
Class C Net Asset Value and redemption price (subject to contingent deferred sales charge) per share ($165,084,342 / 31,529,073 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.24 |
Maximum offering price per share (100 / 99 of $5.24) | $ 5.29 |
Class I Net Asset Value, offering and redemption price per share ($196,716 / 37,715 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.22 |
Institutional Class Net Asset Value, offering and redemption price per share ($960,739 / 183,532 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.23 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended September 30, 2003 | |
Investment Income | |
Income: Interest - unaffiliated issuers | $ 244,374,545 |
Interest - affiliated issuers | 612,258 |
Interest - Scudder Cash Management QP Trust | 623,029 |
Dividends | 1,982,509 |
Total Income | 247,592,341 |
Expenses: Management fee | 13,530,045 |
Administrative fee | 5,496,427 |
Distribution service fees | 10,766,214 |
Trustees' fees and expenses | 71,352 |
Other | 72,238 |
Total expenses, before expense reductions | 29,936,276 |
Expense reductions | (2,737) |
Total expenses, after expense reductions | 29,933,539 |
Net investment income | 217,658,802 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments - unaffiliated issuers | (325,241,647) |
Investments - affiliated issuers | (2,832,368) |
Foreign currency related transactions | (1,578,807) |
(329,652,822) | |
Net unrealized appreciation (depreciation) during the period on: Investments | 646,907,630 |
Foreign currency related transactions | (1,123,191) |
645,784,439 | |
Net gain (loss) on investment transactions | 316,131,617 |
Net increase (decrease) in net assets resulting from operations | $ 533,790,419 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Years Ended September 30, | ||
2003 | 2002 | |
Operations: Net investment income | $ 217,658,802 | $ 280,561,814 |
Net realized gain (loss) on investment transactions | (329,652,822) | (570,684,404) |
Net unrealized appreciation (depreciation) on investment transactions during the period | 645,784,439 | 299,572,215 |
Net increase (decrease) in net assets resulting from operations | 533,790,419 | 9,449,625 |
Distributions to shareholders from: Net investment income: Class A | (165,927,046) | (209,936,251) |
Class B | (40,955,239) | (63,770,561) |
Class C | (12,795,316) | (14,299,511) |
Class I | (337,009) | (1,158,577) |
Institutional Class | (26,602) | (18) |
Return of capital: Class A | - | (1,951,381) |
Class B | - | (592,755) |
Class C | - | (132,916) |
Class I | - | (10,769) |
Fund share transactions: Proceeds from shares sold | 991,504,559 | 1,528,792,618 |
Reinvestment of distributions | 125,157,426 | 163,895,256 |
Cost of shares redeemed | (1,183,436,875) | (1,777,114,163) |
Net increase (decrease) in net assets from Fund share transactions | (66,774,890) | (84,426,289) |
Increase (decrease) in net assets | 246,974,317 | (366,829,403) |
Net assets at beginning of period | 2,250,125,061 | 2,616,954,464 |
Net assets at end of period (including undistributed net investment income and accumulated distributions in excess of net investment income of $7,198,295 and $7,961, respectively) | $ 2,497,099,378 | $ 2,250,125,061 |
The accompanying notes are an integral part of the financial statements.
Class A | |||||
Years Ended September 30, | 2003 | 2002a | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.62 | $ 5.18 | $ 6.34 | $ 7.23 | $ 7.68 |
Income (loss) from investment operations: Net investment incomeb | .44 | .53 | .64 | .77 | .78 |
Net realized and unrealized gain (loss) on investment transactions | .61 | (.53) | (1.09) | (.89) | (.46) |
Total from investment operations | 1.05 | - | (.45) | (.12) | .32 |
Less distributions from: Net investment income | (.44) | (.55) | (.68) | (.77) | (.77) |
Return of capital | - | (.01) | (.03) | - | - |
Total distributions | (.44) | (.56) | (.71) | (.77) | (.77) |
Net asset value, end of period | $ 5.23 | $ 4.62 | $ 5.18 | $ 6.34 | $ 7.23 |
Total Return (%)c | 23.92 | (.60) | (7.68) | (1.88) | 4.11 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 1,868 | 1,603 | 1,831 | 2,277 | 2,945 |
Ratio of expenses before expense reductions (%) | .97 | .96 | 1.11d | .93 | .96 |
Ratio of expenses after expense reductions (%) | .97 | .96 | 1.09d | .92 | .96 |
Ratio of net investment income (%) | 8.92 | 10.39 | 10.94 | 11.10 | 10.15 |
Portfolio turnover rate (%) | 149 | 154 | 69 | 52 | 67 |
a As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended September 30, 2002 was to decrease net investment income per share by $.04, increase net realized and unrealized gain (loss) per share by $.04, and decrease the ratio of net investment income to average net assets from 11.14% to 10.39%. Per share data and ratios for periods prior to October 1, 2001 have not been restated to reflect this change in presentation. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.09% and 1.09%, respectively. |
Class B | |||||
Years Ended September 30, | 2003 | 2002a | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 | $ 7.67 |
Income (loss) from investment operations: Net investment incomeb | .40 | .48 | .59 | .71 | .71 |
Net realized and unrealized gain (loss) on investment transactions | .61 | (.52) | (1.09) | (.88) | (.45) |
Total from investment operations | 1.01 | (.04) | (.50) | (.17) | .26 |
Less distributions from: Net investment income | (.40) | (.50) | (.63) | (.72) | (.71) |
Return of capital | - | (.01) | (.03) | - | - |
Total distributions | (.40) | (.51) | (.66) | (.72) | (.71) |
Net asset value, end of period | $ 5.23 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 |
Total Return (%)c | 22.88 | (1.23) | (8.50) | (2.68) | 3.26 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 462 | 514 | 659 | 792 | 1,145 |
Ratio of expenses before expense reductions (%) | 1.82 | 1.79 | 1.94d | 1.78 | 1.78 |
Ratio of expenses after expense reductions (%) | 1.82 | 1.79 | 1.91d | 1.77 | 1.78 |
Ratio of net investment income (%) | 8.07 | 9.56 | 10.12 | 10.24 | 9.33 |
Portfolio turnover rate (%) | 149 | 154 | 69 | 52 | 67 |
a As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended September 30, 2002 was to decrease net investment income per share by $.04, increase net realized and unrealized gain (loss) per share by $.04, and decrease the ratio of net investment income to average net assets from 10.31% to 9.56%. Per share data and ratios for periods prior to October 1, 2001 have not been restated to reflect this change in presentation. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.91% and 1.91%, respectively. |
Class C | |||||
Years Ended September 30, | 2003 | 2002a | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.63 | $ 5.19 | $ 6.35 | $ 7.24 | $ 7.69 |
Income (loss) from investment operations: Net investment incomeb | .40 | .48 | .59 | .72 | .72 |
Net realized and unrealized gain (loss) on investment transactions | .61 | (.53) | (1.09) | (.89) | (.46) |
Total from investment operations | 1.01 | (.05) | (.50) | (.17) | .26 |
Less distributions from: Net investment income | (.40) | (.50) | (.63) | (.72) | (.71) |
Return of capital | - | (.01) | (.03) | - | - |
Total distributions | (.40) | (.51) | (.66) | (.72) | (.71) |
Net asset value, end of period | $ 5.24 | $ 4.63 | $ 5.19 | $ 6.35 | $ 7.24 |
Total Return (%)c | 23.11 | (1.61) | (8.46) | (2.66) | 3.30 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 165 | 127 | 119 | 124 | 176 |
Ratio of expenses before expense reductions (%) | 1.82 | 1.79 | 1.98d | 1.77 | 1.73 |
Ratio of expenses after expense reductions (%) | 1.82 | 1.79 | 1.95d | 1.76 | 1.73 |
Ratio of net investment income (%) | 8.07 | 9.56 | 10.09 | 10.25 | 9.38 |
Portfolio turnover rate (%) | 149 | 154 | 69 | 52 | 67 |
a As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended September 30, 2002 was to decrease net investment income per share by $.04, increase net realized and unrealized gain (loss) per share by $.04, and decrease the ratio of net investment income to average net assets from 10.31% to 9.56%. Per share data and ratios for periods prior to October 1, 2001 have not been restated to reflect this change in presentation. b Based on average shares outstanding during the period. c Total return does not reflect the effect of sales charges. d The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.95% and 1.95%, respectively. |
Class I | |||||
Years Ended September 30, | 2003 | 2002a | 2001 | 2000 | 1999 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 | $ 7.68 |
Income (loss) from investment operations: Net investment incomeb | .46 | .54 | .66 | .80 | .82 |
Net realized and unrealized gain (loss) on investment transactions | .60 | (.52) | (1.09) | (.90) | (.48) |
Total from investment operations | 1.06 | .02 | (.43) | (.10) | .34 |
Less distributions from: Net investment income | (.46) | (.56) | (.69) | (.79) | (.80) |
Return of capital | - | (.01) | (.04) | - | - |
Total distributions | (.46) | (.57) | (.73) | (.79) | (.80) |
Net asset value, end of period | $ 5.22 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 |
Total Return (%) | 24.08 | (.06) | (7.39) | (1.60) | 4.36 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | .2 | 6 | 9 | 12 | 15 |
Ratio of expenses before expense reductions (%) | .65 | .63 | .73c | .64 | .62 |
Ratio of expenses after expense reductions (%) | .65 | .63 | .72c | .63 | .62 |
Ratio of net investment income (%) | 9.24 | 10.72 | 11.30 | 11.40 | 10.49 |
Portfolio turnover rate (%) | 149 | 154 | 69 | 52 | 67 |
a As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of this change for the year ended September 30, 2002 was to decrease net investment income per share by $.04, increase net realized and unrealized gain (loss) per share by $.04, and decrease the ratio of net investment income to average net assets from 11.47% to 10.72%. Per share data and ratios for periods prior to October 1, 2001 have not been restated to reflect this change in presentation. b Based on average shares outstanding during the period. c The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were .72% and .72%, respectively. |
Institutional Class | ||
Years Ended September 30, | 2003 | 2002a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 4.63 | $ 4.65 |
Income (loss) from investment operations: Net investment incomeb | .44 | .08 |
Net realized and unrealized gain (loss) on investment transactions | .62 | (.02) |
Total from investment operations | 1.06 | .06 |
Less distributions from: Net investment income | (.46) | (.08) |
Net asset value, end of period | $ 5.23 | $ 4.63 |
Total Return (%) | 24.33 | 1.14** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 1 | .001 |
Ratio of expenses (%) | .83 | .82* |
Ratio of net investment income (%) | 9.06 | 14.14* |
Portfolio turnover rate (%) | 149 | 154 |
a For the period from August 19, 2002 (commencement of sales of Institutional Class shares) to September 30, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
A. Significant Accounting Policies
Scudder High Income Fund (the "Fund"), is a diversified series of Scudder High Income Series (the "Trust") which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company organized as a Massachusetts business trust.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors subject to 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 within one year of purchase. Prior to February 3, 2003, Class C shares were offered without an initial sales charge. Class C shares do not convert into another class. Class I and Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution service fees, administrative fees and certain other class specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Debt securities are valued by independent pricing services approved by the Trustees of the Fund. If the pricing services are unable to provide valuations, the 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.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the securities.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and to facilitate transactions in foreign currency denominated securities.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. Sales and purchases of forward currency contracts having the same settlement date and broker are offset and any gain (loss) is realized on the date of offset; otherwise, gain (loss) is realized on settlement date. Realized and unrealized gains and losses which represent the difference between the value of a forward currency contract to buy and a forward currency contract to sell are included in net realized and unrealized gain (loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
At September 30, 2003 the Fund had a net tax basis capital loss carryforward of approximately $1,249,356,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until September 30, 2004 ($6,237,000), September 30, 2007 ($39,696,000), September 30, 2008 ($126,549,000), September 30, 2009 ($173,248,000), September 30, 2010 ($283,200,000) and September 30, 2011 ($620,426,000), the respective expiration dates, whichever occurs first, which may be subject to certain limitations under Sections 382-384 of the Internal Revenue Code. In addition, from November 1, 2002 through September 30, 2003, the Fund incurred approximately $285,764,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ending September 30, 2004.
Distribution of Income and Gains. All of the 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 premium amortization on debt securities. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
At September 30, 2003, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income | $ 6,120,362 |
Undistributed net long-term capital gains | $ - |
Capital loss carryforwards | $ (1,249,356,000) |
Net unrealized appreciation (depreciation) on investments | $ (127,120,168) |
In addition, during the years ended September 30, 2003 and September 30, 2002, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
Year ended September 30, | ||
2003 | 2002 | |
Distributions from ordinary income* | $ 220,041,212 | $ 289,164,918 |
Return of capital distributions | $ - | $ 2,687,821 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
Other. Investment transactions are accounted for on the trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities bought in default.
B. Purchases and Sales of Securities
During the year ended September 30, 2003, purchases and sales of investment securities (excluding short-term investments and US Treasury Securities) aggregated $3,450,370,815 and $3,591,545,597, respectively. Purchases and sales of US Treasury Securities aggregated $139,637,594 and $124,723,037, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.58% of the first $250,000,000 of the Fund's average daily net assets, 0.55% of the next $750,000,000 of such net assets, 0.53% of the next $1,500,000,000 of such net assets, 0.51% of the next $2,500,000,000 of such net assets, 0.48% of the next $2,500,000,000 of such net assets, 0.46% of the next $2,500,000,000 of such net assets, 0.44% of the next $2,500,000,000 of such net assets and 0.42% of such net assets in excess of $12,500,000,000, computed and accrued daily and payable monthly. Accordingly, for the year ended September 30, 2003, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.54% of the Fund's average daily net assets.
Administrative Fee. Under the Administrative Agreement (the "Administrative Agreement"), the Advisor provides or pays others to provide substantially all of the administrative services required by the Fund (other than those provided by the Advisor under its Management Agreement with the Fund, as described above) in exchange for the payment by each class of the Fund of an administrative services fee (the "Administrative Fee") of 0.200%, 0.275%, 0.275%, 0.100% and 0.275% of the average daily net assets for Class A, B, C, I and Institutional Class shares, respectively, computed and accrued daily and payable monthly.
Various third-party service providers, some of which are affiliated with the Advisor, provide certain services to the Fund under the Administrative Agreement. Scudder Investments Service Company, an affiliate of the Advisor, is the transfer, shareholder service and dividend-paying agent for Class A, B, C, I and Institutional Class shares of the Fund. These affiliated entities have in turn entered into various agreements with third-party service providers to provide these services. In addition, other service providers not affiliated with the Advisor provide certain services (i.e., custody, legal and audit) to the Fund under the Administrative Agreement. The Advisor pays the service providers for the provision of their services to the Fund and pays other Fund expenses, including insurance, registration, printing, postage and other costs. Certain expenses of the Fund will not be borne by the Advisor under the Administrative Agreement, such as taxes, brokerage, interest and extraordinary expenses, and the fees and expenses of the Independent Trustees (including the fees and expenses of their independent counsel). For the year ended September 30, 2003, the Administrative Fee was as follows:
Administrative Fee | Total Aggregated | Unpaid at September 30, 2003 |
Class A | $ 3,683,042 | $ 319,287 |
Class B | 1,377,345 | 105,762 |
Class C | 431,855 | 32,545 |
Class I | 3,327 | 60 |
Institutional Class | 858 | 181 |
$ 5,496,427 | $ 457,835 |
The Administrative Agreement between the Advisor and the Fund terminated September 30, 2003 and the Fund will directly bear the cost of the expenses formerly covered under the Administrative Agreement.
Effective October 1, 2003 through September 30, 2005, the Advisor has agreed to contractually waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses of each class at 0.90%, 0.90%, 0.90%, 0.75% and 0.82% of average daily net assets for Class A, B, C, I, and Institutional Class shares, respectively (excluding certain expenses such as Rule 12b-1 and/or service fees, trustee and trustee counsel fees, extraordinary expenses, taxes, brokerage and interest).
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc. ("SDI"), a subsidiary of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and C shares. Pursuant to the agreement, SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended September 30, 2003, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at September 30, 2003 |
Class B | $ 3,756,410 | $ 279,906 |
Class C | 1,177,791 | 100,212 |
$ 4,934,201 | $ 380,118 |
In addition, SDI provides information and administrative services ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. SDI in turn has various agreements with financial services firms that provide these services and pay these fees based upon the assets of shareholder accounts the firms service. For the year ended September 30, 2003, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at September 30, 2003 | Effective Rate |
Class A | $ 4,181,910 | $ 452,669 | .23% |
Class B | 1,260,538 | 157,170 | .25% |
Class C | 389,565 | 39,872 | .25% |
$ 5,832,013 | $ 649,711 |
Underwriting Agreement and Contingent Deferred Sales Charge. SDI is the principal underwriter for Class A, B and C shares. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended September 30, 2003 aggregated $255,383. There were no underwriting commissions paid in connection with the distributions of Class C shares for the year ended September 30, 2003.
In addition, SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended September 30, 2003, the CDSC for Class B and C shares aggregated $1,017,697 and $27,597, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the year ended September 30, 2003, SDI received $108,600.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. 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.
E. Expense Off-Set Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. During the year ended September 30, 2003, pursuant to the Administrative Agreement, the Administrative Fee was reduced by $2,737 for custodian credits earned.
F. Forward Foreign Currency Commitments
As of September 30, 2003, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver | In Exchange For | Settlement Date | Net Unrealized (Depreciation) | ||
USD | 2,190,180 | EUR | 1,873,550 | 12/10/2003 | $ (12,460) |
EUR | 1,382,133 | USD | 1,512,053 | 12/10/2003 | (94,468) |
EUR | 1,409,448 | USD | 1,522,345 | 12/10/2003 | (115,926) |
EUR | 18,688,418 | USD | 20,846,183 | 12/10/2003 | (876,287) |
EUR | 1,155,925 | USD | 1,313,293 | 12/10/2003 | (30,296) |
EUR | 5,653,398 | USD | 6,544,939 | 12/10/2003 | (26,285) |
$ (1,155,722) |
Currency Abbreviations | |
EUR | Euro |
USD | United States Dollar |
G. Line of Credit
The Fund and several other affiliated funds (the "Participants") share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, pro rata based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
H. Share Transactions
The following table summarizes share and dollar activity in the Fund:
Year Ended September 30, 2003 | Year Ended September 30, 2002 | |||
Shares | Dollars | Shares | Dollars | |
Shares sold | ||||
Class A | 161,986,122 | $ 782,828,987 | 232,090,103 | $ 1,199,152,814 |
Class B | 21,058,314 | 102,037,049 | 32,996,254 | 172,015,822 |
Class C | 20,836,847 | 101,122,037 | 25,587,300 | 132,375,871 |
Class I | 972,873 | 4,604,560 | 4,884,429 | 25,247,111 |
Institutional Class | 182,933 | 911,926 | 215* | 1,000* |
$ 991,504,559 | $ 1,528,792,618 | |||
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 19,929,574 | $ 97,575,789 | 24,107,982 | $ 123,663,827 |
Class B | 4,080,301 | 19,895,753 | 6,066,427 | 31,084,511 |
Class C | 1,490,629 | 7,322,275 | 1,553,651 | 7,977,556 |
Class I | 71,496 | 337,007 | 227,060 | 1,169,344 |
Institutional Class | 5,266 | 26,602 | 4* | 18* |
$ 125,157,426 | $ 163,895,256 | |||
Shares redeemed | ||||
Class A | (171,495,172) | $ (846,402,239) | (262,998,211) | $ (1,351,647,435) |
Class B | (48,083,027) | (236,109,785) | (54,979,144) | (280,961,075) |
Class C | (18,266,842) | (89,797,382) | (22,534,465) | (116,057,247) |
Class I | (2,305,783) | (11,103,069) | (5,509,369) | (28,448,406) |
Institutional Class | (4,886) | (24,400) | - | - |
$ (1,183,436,875) | $ (1,777,114,163) | |||
Net increase (decrease) | ||||
Class A | 10,420,524 | $ 34,002,537 | (6,800,126) | $ (28,830,794) |
Class B | (22,944,412) | (114,176,983) | (15,916,463) | (77,860,742) |
Class C | 4,060,634 | 18,646,930 | 4,606,486 | 24,296,180 |
Class I | (1,261,414) | (6,161,502) | (397,880) | (2,031,951) |
Institutional Class | 183,313 | 914,128 | 219* | 1,018* |
$ (66,774,890) | $ (84,426,289) |
* For the period from August 19, 2002 (commencement of sales of Institutional Class shares) to September 30, 2002.
I. Transactions in Securities of Affiliated Issuers
An affiliated issuer is a company in which the Fund has ownership of at least 5% of the voting securities. A summary of the Fund's transactions during the year ended September 30, 2003 with companies which are or were affiliates is as follows:
Affiliate | Shares/ | Purchase Cost ($) | Sales Cost ($) | Realized Gain/ (Loss) ($) | Dividend/ Interest Income ($) | Value ($) |
National Vision, Inc. | 1,353,475 | - | 9,822,124 | (1,743,577) | 612,258 | 735,952 |
National Vision, Inc. | 319,191 | - | 1,237,388 | (1,088,791) | - | 209,708 |
SpinCycle, Inc. | 752,852 | - | - | - | - | 3,914,830 |
SpinCycle, Inc. "F" | 4,930 | - | - | - | - | 269 |
11,059,512 | (2,832,368) | 612,258 | 4,860,759 |
To the Board of Trustees and Shareholders of Scudder High Income Fund:
We have audited the accompanying statement of assets and liabilities, including the investment portfolio of Scudder High Income Fund, formerly Scudder High Yield Fund, (the "Fund") a series of Scudder High Income Series, formerly Scudder High Yield Series, as of September 30, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of investments owned as of September 30, 2003, by correspondence with the custodian and brokers or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Scudder High Income Fund at September 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States.
Boston, Massachusetts
November 14, 2003
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-SCUDDER.
The following table presents certain information regarding the Trustees and Officers of the fund as of September 30, 2003. Each individual's age is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois, 60606. Each Trustee's term of office extends until the next shareholder's meeting called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, resigns or is removed as provided in the governing documents of the fund.
Independent Trustees | ||
Name, Age, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
John W. Ballantine (57) Trustee, 1999-present | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Enron Corporation (energy trading firm) (effective May 30, 2002); First Oak Brook Bancshares, Inc.; Oak Brook Bank; Tokheim Corporation (designer, manufacturer and servicer of electronic and mechanical petroleum marketing systems); American Healthways, Inc. (provider of disease and care management services). | 82 |
Lewis A. Burnham (70) Trustee, 1977-present | Retired; formerly, Director of Management Consulting, McNulty & Company (1990-1998); prior thereto, Executive Vice President, Anchor Glass Container Corporation. | 82 |
Donald L. Dunaway (66) Trustee, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994). | 82 |
James R. Edgar (57) Trustee, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: Kemper Insurance Companies; John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty-care products). | 82 |
Paul K. Freeman (53) Trustee, 2002-present | President, Cook Street Holdings (consulting); Adjunct Professor, University of Denver; Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998). | 82 |
Robert B. Hoffman (66) Trustee, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2000); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). | 82 |
Shirley D. Peterson (62) Trustee, 1995-present | Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), US Department of Justice. Directorships: Bethlehem Steel Corp.; Federal Mogul Corp. (supplier of automotive components and subsystems); Trustee, Bryn Mawr College. | 82 |
Fred B. Renwick (73) Trustee, 1988-present | Retired; Professor Emeritus of Finance, New York University, Stern School of Business (2001-present); formerly, Professor, New York University Stern School of Business (1965-2001). Directorships: The Wartburg Foundation; Chairman, Finance Committee of Morehouse College Board of Trustees; formerly, Director of Board of Pensions, Evangelical Lutheran Church in America; member of the Investment Committee of Atlanta University Board of Trustees; Chair of the Investment Committee, American Bible Society Board of Trustees. | 82 |
William P. Sommers (70) Trustee, 1979-present5 | Retired; formerly, President and Chief Executive Officer, SRI International (research and development) (1994-1998); prior thereto, Executive Vice President, lameter (medical information and educational service provider); Senior Vice President and Director, Booz, Allen & Hamilton Inc. (management consulting firm). Directorships: PSI Inc. (satellite engineering and components); Evergreen Solar, Inc. (develop/manufacture solar electric system engines); H2 Gen (manufacture hydrogen generators); Zassi Medical Evolutions, Inc. (specialists in intellectual property opportunities in medical device arena); Guckenheimer Enterprises (executive food services). | 82 |
John G. Weithers (70) Trustee, 1993-present | Retired; formerly, Chairman of the Board and Chief Executive Officer, Chicago Stock Exchange. Directorships: Federal Life Insurance Company; Chairman of the Members of the Corporation and Trustee, DePaul University; formerly, International Federation of Stock Exchanges; Records Management Systems. | 82 |
Interested Trustees and Officers2 | ||
Name, Age, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
Richard T. Hale3 (58) Chairman and Trustee, 2002-present President, 2003-present | Managing Director, Deutsche Investment Management Americas Inc. (2003-present); Managing Director, Deutsche Bank Securities Inc. (formerly Deutsche Banc Alex. Brown Inc.) and Deutsche Asset Management (1999 to present); Director and President, Investment Company Capital Corp. (registered investment advisor) (1996 to present); Director, Deutsche Global Funds, Ltd. (2000 to present), CABEI Fund (2000 to present), North American Income Fund (2000 to present) (registered investment companies); Director, Scudder Global Opportunities Fund (since 2003); Director/Officer Deutsche/Scudder Mutual Funds (various dates); President, Montgomery Street Income Securities, Inc. (2002 to present) (registered investment companies); Vice President, Deutsche Asset Management, Inc. (2000 to present); formerly, Director, ISI Family of Funds (registered investment companies; 4 funds overseen) (1992-1999) | 201 |
Andrew P. Cestone (33) Vice President, 2002-present | Managing Director, Deutsche Asset Management | n/a |
Philip J. Collora (57) Vice President and Assistant Secretary, 1986-present | Director, Deutsche Asset Management | n/a |
Daniel O. Hirsch3 (49) Vice President and Assistant Secretary, 2002-present | Managing Director, Deutsche Asset Management (2002-present) and Director, Deutsche Global Funds Ltd. (2002-present); formerly, Director, Deutsche Asset Management (1999-2002); Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998) | n/a |
Kenneth Murphy4 (39) Vice President, 2002-present | Vice President, Deutsche Asset Management (2000-present); Vice President, Scudder Distributors, Inc. (December 2002-present); formerly, Director, John Hancock Signature Services (1992-2000) | n/a |
Charles A. Rizzo4 (46) Treasurer, 2002-present | Director, Deutsche Asset Management (April 2000-present). Formerly, Vice President and Department Head, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998) | n/a |
Salvatore Schiavone4 (37) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
Lucinda H. Stebbins4 (57) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
Kathleen Sullivan D'Eramo4 (46) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management | n/a |
John Millette4 (41) Secretary, 2001-present | Director, Deutsche Asset Management | n/a |
Lisa Hertz3 (33) Assistant Secretary, 2003-present | Assistant Vice President, Deutsche Asset Management | n/a |
Caroline Pearson4 (41) Assistant Secretary, 1998-present | Managing Director, Deutsche Asset Management | n/a |
1 Length of time served represents the date that each Trustee was first elected to the common board of trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, length of time served represents the date that each Officer was first elected to serve as an officer of any fund overseen by the aforementioned common board of trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act, as amended. Interested persons receive no compensation from the fund.
3 Address: One South Street, Baltimore, Maryland
4 Address: Two International Place, Boston, Massachusetts
5 Mr. Sommers has taken a leave of absence from the fund's Board until December 31, 2003.
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
For shareholders of Classes A, B and C and Institutional
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day.Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found on our Web site - scudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov. To obtain a written copy without charge, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 |
Class A | Class B | Class C | Institutional Class | |
Nasdaq Symbol | KHYAX | KHYBX | KHYCX | KHYIX |
CUSIP Number | 81115L-105 | 81115L-204 | 81115L-303 | 81115L-501 |
Fund Number | 8 | 208 | 308 | 513 |
Notes |
ITEM 2. CODE OF ETHICS. As of the end of the period, September 30, 2003, the Scudder High Income Fund has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its President and Treasurer and its Chief Financial Officer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Fund's Board of Directors/Trustees has determined that the Fund has at least one "audit committee financial expert" serving on its audit committee: Mr. Donald L. Dunaway. This audit committee member is "independent," meaning that he is not an "interested person" of the Fund (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) and he does not accept any consulting, advisory, or other compensatory fee from the Fund (except in the capacity as a Board or committee member). An "audit committee financial expert" is not an "expert" for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an "audit committee financial expert." Further, the designation of a person as an "audit committee financial expert" does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the "audit committee financial expert" designation. Similarly, the designation of a person as an "audit committee financial expert" does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not currently applicable. ITEM 5. [RESERVED] ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation and until the filing of this report, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 10. EXHIBITS. (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Scudder High Income Fund By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: November 24, 2003 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Scudder High Income Fund By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: November 24, 2003 --------------------------- By: /s/Charles A. Rizzo --------------------------- Charles A. Rizzo Chief Financial Officer Date: November 24, 2003 ---------------------------