UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM N-CSRS Investment Company Act file number 811-2786 SCUDDER HIGH INCOME SERIES ------------------------------ (Exact Name of Registrant as Specified in Charter) 222 South Riverside Plaza, Chicago, IL 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: 3/31/2004ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
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Semiannual Report to Shareholders | ||
March 31, 2004 |
Contents |
<Click Here> Performance Summary <Click Here> Portfolio Management Review <Click Here> Portfolio Summary <Click Here> Investment Portfolio <Click Here> Financial Statements <Click Here> Financial Highlights <Click Here> Notes to Financial Statements <Click Here> Account Management Resources <Click Here> Privacy Statement |
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. Additionally, the fund may invest in lower-quality and nonrated securities which present greater risk of loss of principal and interest than higher-quality securities All of these factors may result in greater share price volatility. Please read this fund's prospectus for specific details regarding its investments and risk profile.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
All performance shown is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit scudder.com for the product's most recent month-end performance.
The maximum sales charge for Class A shares is 4.5%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had. Class I and Institutional Class shares are not subject to sales charges.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the sale of fund shares. Returns and rankings may differ by share class.
Returns shown for Class B and C shares for the periods prior to their inception on May 31, 1994 are derived from the historical performance of Class A shares of the Scudder 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.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 3/31/04 | |||||
Scudder High Income Fund | 6-Month++ | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 8.19% | 21.29% | 7.44% | 3.36% | 6.24% |
Class B | 7.55% | 20.06% | 6.54% | 2.50% | 5.32% |
Class C | 7.55% | 20.05% | 6.49% | 2.48% | 5.35% |
CS First Boston High Yield Index+ | 8.65% | 22.86% | 10.94% | 6.65% | 7.70% |
Scudder High Income Fund | 6-Month++ | 1-Year | 3-Year | 5-Year | Life of Class* |
Class I | 7.96% | 21.00% | 7.66% | 3.60% | 7.00% |
CS First Boston High Yield Index+ | 8.65% | 22.86% | 10.94% | 6.65% | 8.45% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
++ Total returns shown for periods less than one year are not annualized.* Class I shares commenced operations on December 29, 1994. Index returns begin December 31, 1994.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 3/31/04 | |||
Scudder High Income Fund | 6-Month | 1-Year | Life of Class** |
Institutional Class | 8.14% | 21.30% | 20.96% |
CS First Boston High Yield Index+ | 8.65% | 22.86% | 19.11% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
** Institutional Class shares commenced operations on August 19, 2002. Index returns begin August 31, 2002.Net Asset Value and Distribution Information | |||||
Class A | Class B | Class C | Class I | Institutional Class | |
Net Asset Value: 3/31/04 | $ 5.41 | $ 5.40 | $ 5.41 | $ 5.39 | $ 5.41 |
9/30/03 | $ 5.23 | $ 5.23 | $ 5.24 | $ 5.22 | $ 5.23 |
Distribution Information: Six Months: Income Dividends as of 3/31/04 | $ .23 | $ .21 | $ .21 | $ .24 | $ .24 |
March Income Dividend | $ .0375 | $ .0336 | $ .0339 | $ .0388 | $ .0386 |
SEC 30-day Yield as of 3/31/04++ | 7.10% | 6.55% | 6.57% | 7.76% | 7.74% |
Current Annualized Distribution Rate as of 3/31/04++ | 8.32% | 7.45% | 7.51% | 8.64% | 8.56% |
++ Current annualized distribution rate is the latest monthly dividend as an annualized percentage of net asset value on March 31, 2004. 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 March 31, 2004, shown as an annualized percentage of the net asset value on that date. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Yields and distribution rates are historical and will fluctuate.
Class A Lipper Rankings - High Current Yield Funds Category as of 3/31/04 | ||||
Period | Rank | Number of Funds Tracked | Percentile Ranking | |
1-Year | 131 | of | 413 | 32 |
3-Year | 166 | of | 341 | 49 |
5-Year | 159 | of | 272 | 59 |
10-Year | 27 | of | 76 | 36 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] Scudder High Income Fund - Class A [] CS First Boston High Yield Index+ |
Yearly periods ended March 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.50%. This results in a net initial investment of $9,550.
The growth of $10,000 is cumulative.
Comparative Results (Adjusted for Maximum Sales Charge) as of 3/31/04 | |||||
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $11,583 | $11,845 | $11,266 | $17,490 |
Average annual total return | 15.83% | 5.81% | 2.41% | 5.75% | |
Class B | Growth of $10,000 | $11,706 | $11,910 | $11,242 | $16,790 |
Average annual total return | 17.06% | 6.00% | 2.37% | 5.32% | |
Class C | Growth of $10,000 | $12,005 | $12,077 | $11,303 | $16,848 |
Average annual total return | 20.05% | 6.49% | 2.48% | 5.35% | |
CS First Boston High Yield Index+ | Growth of $10,000 | $12,286 | $13,654 | $13,800 | $20,987 |
Average annual total return | 22.86% | 10.94% | 6.65% | 7.70% |
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class I | Growth of $10,000 | $12,100 | $12,480 | $11,933 | $18,708 |
Average annual total return | 21.00% | 7.66% | 3.60% | 7.00% | |
CS First Boston High Yield Index+ | Growth of $10,000 | $12,286 | $13,654 | $13,800 | $20,968 |
Average annual total return | 22.86% | 10.94% | 6.65% | 8.45% |
The growth of $10,000 is cumulative.
* Class I shares commenced operations on December 29, 1994. Index returns begin December 31, 1994.Comparative Results (Adjusted for Maximum Sales Charge) as of 3/31/04 | |||
Scudder High Income Fund | 1-Year | Life of Class** | |
Institutional Class | Growth of $250,000 | $303,250 | $339,950 |
Average annual total return | 21.30% | 20.96% | |
CS First Boston High Yield Index+ | Growth of $250,000 | $307,150 | $328,500 |
Average annual total return | 22.86% | 19.11% |
The growth of $250,000 is cumulative.
The minimum investment for Institutional Class is $250,000.
** Institutional Class shares commenced operations on August 19, 2002. Index returns begin August 31, 2002.+ CS First Boston High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market.
Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
In the following interview, Portfolio Manager Andrew Cestone discusses Scudder High Income Fund's strategy and the market environment during the six-month period ended March 31, 2004.
Q: How did the high-yield bond market perform during the period?
A: High-yield bonds posted a solid return for the semiannual period, reflecting continued improvement in the fundamentals of the asset class. The CS First Boston High Yield Index - the fund's benchmark - returned 8.65% for the period, which was well ahead of the 2.98% return of the bond market as a whole, as measured by the Lehman Brothers Aggregate Bond Index.1 Improved fundamentals, a robust US economy and lower defaults all contributed to the market's strong performance. High-yield companies continued to improve their financial positions through actions such as cutting costs, reducing debt and refinancing their existing debt at lower interest rates. A key factor supporting the asset class was the continued decline in defaults. At the end of March, Moody's 12-month rolling default rate stood at 4.1%, compared with 5.3% at the end of December 2003 and 7% a year ago.2 These positive factors were reflected in the yield spread of the asset class.3 At the close of the period, the spread stood at 495 basis points (4.95 percentage points), versus 599 six months earlier, with the majority of the move resulting from the gain in high-yield bonds rather than the change in the Treasury yield.
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 that include securities from the following sectors: US Treasuries, agencies, corporate, mortgage-backed and asset-backed securities. The index includes more than 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 are 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.2 Source: Moody's Investors Service.
3 The yield spread is the difference between the yield of a given fixed-income asset class and the yield on Treasuries. 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. A drop in the yield spread is a positive, since it indicates yields are falling and prices are rising.
As has been the case throughout the past year, lower-quality and higher-beta areas of the market delivered the best performance. Keeping in mind that the high-yield market as a whole returned 8.65%, the credit quality segment returns broke down as follows:4
4 Bond ratings are the alphabetical designations indicating the credit quality of a particular bond, as measured by the major agencies. Treasuries, which are backed by the government and therefore free of default risk, are ranked AAA. The riskiest bonds are generally rated CCC and below.Total Returns, 9/30/03 - 3/31/04 | |
Lower-tier (those rated CCC/split CCC and below): Middle-tier (those rated between split BB and split B): Upper-tier (those rated above BB): | 11.8% 8.0% 7.9% |
Q: How did the fund perform during the period?
A: The total return of the fund's Class A shares for the six months ended March 31, 2004 was 8.19% (unadjusted for sales charges which if included, would have reduced performance). Please see page 3 through 7 for performance of other share classes and more complete performance information. The fund underperformed its benchmark, but outperformed the 7.56% average return of the 426 funds in Lipper's High Current Yield Funds category.5 The fund's Class A shares have outperformed the peer group during the one-, three- and 10-year periods ended March 31, 2004.
5 Lipper's High Current Yield Funds category represents funds that aim at a high (relative) current yield from fixed-income securities, have no quality or maturity restrictions and tend to invest in lower-grade debt issues. The fund's Class A shares ranked 131, 166, 159 and 27 for the 1-, 3-, 5- and 10-year periods as of March 31, 2004. There were 413, 341, 272 and 76 funds, respectively, in Lipper's High Current Yield Funds category. Performance includes the reinvestment of dividends and capital gains and is no guarantee of future results. Source: Lipper Inc. as of March 31, 2004.We believe the fund's favorable performance relative to its peer group is the result of our disciplined investment style. In managing the fund, we emphasize individual security and risk management. We believe we can add the most value through fundamental research rather than trying to make broad predictions about sector performance, interest rates or the high-yield market in general. Instead, our emphasis is on finding bonds that offer favorable relative value given their yield and credit outlook. In other words, we look for optimal combinations of risk and return potential. This means that we generally buy bonds that we believe to be undervalued, and we reduce, or sell, our positions in those that have reached what we believe to be fair valuations. We believe this approach will lead to strong performance over a full high-yield market cycle.
Q: What factors helped and hurt performance?
A: The fund's performance was helped by our decision to increase its overweight position in lower-quality securities, most notably those rated CCC/split CCC.6 This quality shift reflects our investment approach of finding risk-adjusted relative value among individual issues, and is not the result of a top-down decision-making process. The increased weighting in the CCC-rated credit segment worked to the fund's advantage, since this credit segment outperformed the broader high-yield market, with a return of 10.87%. On the other hand, an underweight position in bonds rated CC and default - which outperformed the market as a whole - was a detractor. We maintained an underweight in this quality segment through the entire period, since historically it has not produced favorable risk-adjusted performance. We intend to remain conservative in our approach to investing in this area. The fund is underweight in upper-tier securities, as we continue to find better relative value opportunities in securities in the middle, and lower-quality spectrums. We likely will maintain an overweight in CCC/split CCC-rated securities in the portfolio; we anticipate that a number of credits held in this quality segment will be upgraded to single B or higher.
6 "Overweight" means a fund holds a higher weighting in a given sector than the benchmark index; "underweight" means a fund holds a lower weighting than the benchmark.In terms of sector allocations, performance was helped by an overweight in chemicals (which, as a group, outperformed with a return of 10.32%). Performance was also helped by an overweight in land transportation (which returned 9.7%) and underweights in retail (8.15%) and leisure (6.08%). Detractors from return included underweights in financials (which returned 13.56% as a group), utilities (10.62%) and international cable (17.76%).
We generally maintain portfolio duration within half a year of the index. At the close of the period the portfolio maintained a neutral duration position of approximately 3.92 years.
Q: How did individual security selection affect performance?
A: Securities that added to performance include Georgia Pacific, Petro Stopping Centers, Parker Drilling and Qwest Corp. Georgia Pacific, a paper and pulp company, continued to gain as the company has been selling assets and paying down debt. The fund has maintained an overweight in this credit for some time, and the credit has continued to add value. During the period, the bonds of Petro Shopping Centers, a truck stop service company, added to performance in two ways. The fund benefited first from having its existing bonds called at a premium, and second from the fact that newly issued bonds traded up in value. Parker Drilling is an oil field services company that also added to return. We have since sold the bonds, as they reached levels that we viewed as their intrinsic value. Qwest, which is the largest holding in the fund, helped performance for the full period despite giving back some ground in the first calendar quarter of 2004.
Securities that detracted from performance for the period include El Paso Production Holdings Corp., Dobson Communications, FINOVA, Dan River and Avondale Mills, Inc. El Paso - a pipeline and natural gas producer - - traded lower after the company wrote down a portion of its oil and gas reserves, an event that we did not anticipate. (As of 3/31/04, positions in FINOVA and Dan River were sold.) Dobson Communications, a wireless company, reported lower-than-expected earnings during the period, which resulted in the bonds' drifting lower in price. Two holdings in the textile industry, Dan River and Avondale Mills, Inc. also negatively affected fund returns. We have exited the position in Dan River. These companies' bond prices drifted lower on weaker retail demand and increased global competition in the textile industry. Finally, an underweight in FINOVA, a financial services company whose bonds gained in price during the period, detracted from results.
Q: What is your view on the current state of the high-yield market?
A: We continue to believe that the fundamentals of the asset class are strong for the short- and mid-term. As economic activity is robust, defaults should remain low and valuations are reasonable. However, the longer-term picture is less clear as the market begins to discount uncertainties such as potentially slower economic activity or higher interest rates. Still, it is important to keep in mind that the high-yield market is cyclical, and the cyclical undercurrent of improved credit conditions remains in place - a positive for the asset class. High-yield cycles tend to last a number of years and, although rising interest rates may cause spreads to widen, we would not expect spreads to back up to the high levels of the recent past. In addition, high yield is currently a lower-duration asset class (3.9 years) and, therefore, high-yield has the potential to outperform other fixed-income instruments with a longer duration and lower yields in an environment of rising interest rates. Given our positive outlook for the asset class as a whole, we will continue to remain modestly aggressive, and we believe that we can add value over the long term through our security selection. Fundamental security analysis and diversification remain essential as a means of mitigating risk.
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 | 3/31/04 | 9/30/03 |
Corporate Bonds | 79% | 80% |
Foreign Bonds - US$ Denominated | 15% | 12% |
Cash Equivalents, net | 3% | 3% |
Convertible Bonds | 1% | 2% |
Stocks | 1% | 1% |
Foreign Bonds - Non US$ Denominated | 1% | 1% |
US Government Backed | - | 1% |
100% | 100% |
Corporate Bond Diversification (Excludes Cash Equivalents) | 3/31/04 | 9/30/03 |
Consumer Discretionary | 28% | 30% |
Industrials | 16% | 17% |
Telecommunication Services | 13% | 10% |
Materials | 13% | 13% |
Energy | 9% | 11% |
Financials | 8% | 6% |
Utilities | 7% | 5% |
Health Care | 3% | 3% |
Consumer Staples | 2% | 4% |
Information Technology | 1% | 1% |
100% | 100% |
Asset allocation and corporate bond diversification are subject to change.
Quality | 3/31/04 | 9/30/03 |
US Government Backed | - | 1% |
Cash Equivalents | 2% | 2% |
BBB | 3% | 1% |
BB | 22% | 22% |
B | 53% | 53% |
CCC | 16% | 18% |
CC | 1% | - |
Not Rated | 3% | 3% |
100% | 100% |
Effective Maturity | 3/31/04 | 9/30/03 |
Less than 1 year | 1% | 3% |
1 < 5 years | 50% | 26% |
5 < 7 years | 38% | 28% |
7 years or greater | 11% | 43% |
100% | 100% |
Asset allocation, 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 is available upon request. Information concerning portfolio holdings of the Fund as of month end is available upon request on the 16th of the following month. Please see the Account Management Resources section for contact information.
Principal Amount ($)(d) | Value ($) | |
Corporate Bonds 78.6% | ||
Consumer Discretionary 21.3% | ||
Advantica Restaurant Co., 12.75%, 9/30/2007 | 4,250,000 | 4,632,500 |
AMC Entertainment, Inc., 144A, 8.0%, 3/1/2014 | 7,625,000 | 7,567,813 |
American Lawyer Media, Inc., Series B, 9.75%, 12/15/2007 | 8,275,000 | 8,068,125 |
AMF Bowling Worldwide, Inc., 144A, 10.0%, 3/1/2010 | 4,365,000 | 4,517,775 |
Atlantic Broadband Finance LLC, 144A, 9.375%, 1/15/2014 | 5,085,000 | 4,996,013 |
Avalon Cable Holdings Co., Step-up Coupon 11.875% to 12/1/2008 | 1,852,817 | 1,954,722 |
Bally Total Fitness Holdings, 10.5%, 7/15/2011 (f) | 7,920,000 | 7,444,800 |
Boca Resorts, Inc., 9.875%, 4/15/2009 | 7,455,000 | 7,846,387 |
Buffets, Inc., 11.25%, 7/15/2010 | 6,795,000 | 7,474,500 |
Cablevision Systems Corp.: | ||
144A, 5.67%, 4/1/2009** | 2,255,000 | 2,255,000 |
144A, 8.0%, 4/15/2012 | 1,495,000 | 1,495,000 |
Carrols Corp., 9.5%, 12/1/2008 | 6,490,000 | 6,506,225 |
Charter Communications Holdings LLC: | ||
Step-up Coupon, 0% to 5/15/2006, 11.75 to 5/15/2011 (f) | 525,000 | 333,375 |
Step-up Coupon, 0% to 1/15/2006, 13.5% to 1/15/2011 (f) | 8,885,000 | 6,243,575 |
9.625%, 11/15/2009 (f) | 14,785,000 | 12,493,325 |
144A, 10.25%, 9/15/2010 (f) | 15,510,000 | 15,975,300 |
Choctaw Resort Development Enterprises, 9.25%, 4/1/2009 | 7,205,000 | 7,781,400 |
Cinemark USA, Inc., 8.5%, 8/1/2008 | 4,905,000 | 5,125,725 |
Cinemark, Inc., 144A, Step-up Coupon, 9.75%, 3/15/2014 | 3,540,000 | 2,194,800 |
Circus & Eldorado, 10.125%, 3/1/2012 (f) | 8,130,000 | 8,272,275 |
CKE Restaurants, Inc., 9.125%, 5/1/2009 | 2,420,000 | 2,510,750 |
CSC Holdings, Inc.: | ||
7.875%, 12/15/2007 (f) | 7,045,000 | 7,573,375 |
Senior Note, 7.25%, 7/15/2008 (f) | 805,000 | 849,275 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 33,520,000 | 39,134,600 |
DIMON, Inc.: | ||
7.75%, 6/1/2013 | 2,175,000 | 2,164,125 |
Series B, 9.625%, 10/15/2011 | 20,200,000 | 21,816,000 |
Dyersburg Corp., Series B, 9.75%, 9/1/2007* | 18,155,000 | 1,816 |
EchoStar DBS Corp., 144A, 6.375%, 10/1/2011 (f) | 1,530,000 | 1,625,625 |
Eldorado Resorts LLC, 10.5%, 8/15/2006 | 12,888,000 | 12,952,440 |
EPL Intermediate, Inc., Step-up Coupon, 0% to 3/2009, 144A, 12.5%, 3/15/2010 | 6,100,000 | 3,416,000 |
Finlay Fine Jewelry Corp., 8.375%, 5/1/2008 | 5,756,000 | 5,914,290 |
General Motors Corp., 8.25%, 7/15/2023 (f) | 7,870,000 | 8,784,541 |
Herbst Gaming, Inc., 10.75%, 9/1/2008 | 13,317,000 | 15,014,917 |
Imperial Home Decor Group, Inc., Series B, 11.0%, 3/15/2008* | 12,740,000 | 0 |
Inn of the Mountain Gods, 144A, 12.0%, 11/15/2010 | 3,465,000 | 3,750,863 |
Interep National Radio Sales, Inc., 10.0%, 7/1/2008 | 7,685,000 | 6,926,106 |
International Game Technology, 8.375%, 5/15/2009 (f) | 6,320,000 | 7,680,468 |
J.C. Penney Co., Inc., 6.875%, 10/15/2015 (f) | 2,205,000 | 2,431,013 |
Jacobs Entertainment Co., 11.875%, 2/1/2009 | 6,910,000 | 7,497,350 |
Kellwood Co., 7.625%, 10/15/2017 | 4,255,000 | 4,701,775 |
Krystal, Inc., 10.25%, 10/1/2007 | 6,430,000 | 6,526,450 |
Laidlaw International, Inc., 144A, 10.75%, 6/15/2011 | 7,185,000 | 8,047,200 |
Levi Strauss & Co., 12.25%, 12/15/2012 (f) | 1,825,000 | 1,377,875 |
LIN Television Corp., 6.5%, 5/15/2013 (f) | 2,590,000 | 2,687,125 |
Mail-Well I Corp., 144A, 7.875%, 12/1/2013 | 3,860,000 | 3,647,700 |
Mediacom Broadband LLC, 11.0%, 7/15/2013 (f) | 4,105,000 | 4,392,350 |
Mediacom LLC, 9.5%, 1/15/2013 (f) | 4,600,000 | 4,554,000 |
Nebraska Book Co., Inc., 144A, 8.625%, 3/15/2012 | 3,480,000 | 3,584,400 |
Norcraft Co., 144A, 9.0%, 11/1/2011 | 3,035,000 | 3,232,275 |
Old Evangeline Downs, 13.0%, 3/1/2010 | 2,055,000 | 2,322,150 |
PEI Holding, Inc., 11.0%, 3/15/2010 | 6,055,000 | 6,993,525 |
Petro Stopping Centers, 144A, 9.0%, 2/15/2012 | 14,605,000 | 15,043,150 |
Premier Entertainment Biloxi LLC\Finance, 144A, 10.75%, 2/1/2012 | 4,910,000 | 5,302,800 |
PRIMEDIA, Inc.: | ||
7.625%, 4/1/2008 (f) | 5,005,000 | 5,017,512 |
8.875%, 5/15/2011 (f) | 6,290,000 | 6,447,250 |
Reader's Digest Association, Inc., 144A, 6.5%, 3/1/2011 | 3,905,000 | 4,022,150 |
Remington Arms Co., Inc., 10.5%, 2/1/2011 | 8,366,000 | 8,470,575 |
Renaissance Media Group, 10.0%, 4/15/2008 | 10,295,000 | 10,603,850 |
Restaurant Co., Step-up Coupon 0% to 5/15/2003, 11.25% to 5/15/2008 | 10,072,955 | 10,022,591 |
Rite Aid Corp.: | ||
144A, 6.125%, 12/15/2008 | 4,675,000 | 4,347,750 |
7.3%, 3/10/2019 | 8,009,659 | 7,368,886 |
11.25%, 7/1/2008 | 2,805,000 | 3,092,513 |
River Rock Entertainment, 144A, 9.75%, 11/1/2011 | 5,805,000 | 6,269,400 |
Samsonite Corp., 10.75%, 6/15/2008 | 15,585,000 | 16,247,362 |
Schuler Homes, Inc., 10.5%, 7/15/2011 (f) | 8,552,000 | 10,091,360 |
Scientific Games Corp., 12.5%, 8/15/2010 | 2,495,000 | 2,931,625 |
Sealy Mattress Co., Series B, 9.875%, 12/15/2007 | 4,671,000 | 4,836,447 |
Simmons Co., 144A, 7.875%, 1/15/2014 | 5,215,000 | 5,228,038 |
Sinclair Broadcast Group, Inc.: | ||
8.0%, 3/15/2012 | 13,465,000 | 14,592,694 |
8.75%, 12/15/2011 | 8,135,000 | 9,009,512 |
Six Flags, Inc., 8.875%, 2/1/2010 | 215,000 | 221,988 |
Sonic Automotive, Inc., 8.625%, 8/15/2013 (f) | 10,465,000 | 11,354,525 |
Toys "R" Us, Inc.: | ||
7.375%, 10/15/2018 | 10,600,000 | 10,388,000 |
7.875%, 4/15/2013 | 2,585,000 | 2,714,250 |
Trump Holdings & Funding, 11.625%, 3/15/2010 (f) | 7,630,000 | 7,630,000 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 2,685,000 | 2,993,775 |
United Rentals, Inc., 144A, 6.5%, 2/15/2012 | 6,500,000 | 6,467,500 |
Venetian Casino Resort LLC, 11.0%, 6/15/2010 | 4,140,000 | 4,761,000 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 8,290,000 | 8,953,200 |
Worldspan LP\ WS Finance Corp., 9.625%, 6/15/2011 (f) | 4,860,000 | 5,017,950 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14% to 12/31/2009 | 7,430,000 | 6,835,600 |
Young Broadcasting, Inc., 144A, 8.75%, 1/15/2014 (f) | 5,003,000 | 5,153,090 |
546,725,357 | ||
Consumer Staples 1.9% | ||
Agrilink Foods, Inc., 11.875%, 11/1/2008 | 3,575,000 | 3,789,500 |
National Beef Pack, 144A, 10.5%, 8/1/2011 | 3,775,000 | 3,888,250 |
North Atlantic Trading Co., 144A, 9.25%, 3/1/2012 | 6,580,000 | 6,580,000 |
Pilgrim's Pride Corp., 9.625%, 9/15/2011 | 3,055,000 | 3,291,763 |
Rent-Way Inc., 11.875%, 6/15/2010 | 3,625,000 | 4,060,000 |
Salton, Inc., 10.75%, 12/15/2005 (f) | 1,870,000 | 1,804,550 |
Standard Commercial Corp., 144A, 8.0%, 4/15/2012 | 2,240,000 | 2,324,000 |
Stater Brothers Holdings, Inc., 10.75%, 8/15/2006 | 5,725,000 | 6,011,250 |
Swift & Co.: | ||
10.125%, 10/1/2009 | 4,920,000 | 5,313,600 |
12.5%, 1/1/2010 | 880,000 | 941,600 |
Williams Scotsman, Inc., 9.875%, 6/1/2007 (f) | 8,955,000 | 8,955,000 |
United Agri Products, 144A, 8.25%, 12/15/2011 (f) | 1,500,000 | 1,573,125 |
48,532,638 | ||
Energy 7.3% | ||
Avista Corp., 9.75%, 6/1/2008 | 19,385,000 | 23,358,925 |
Citgo Petroleum Corp., 11.375%, 2/1/2011 | 21,700,000 | 25,334,750 |
Continental Resources, Inc., 10.25%, 8/1/2008 | 12,724,000 | 13,042,100 |
Edison Mission Energy, 7.73%, 6/15/2009 (f) | 19,564,000 | 18,879,260 |
El Paso Production Holdings Corp., 7.75%, 6/1/2013 (f) | 32,280,000 | 29,939,700 |
MAPCO, Inc., 7.25%, 3/1/2009 | 2,810,000 | 2,859,175 |
Mission Energy Holding, 13.5%, 7/15/2008 (f) | 4,865,000 | 5,010,950 |
Newpark Resources, Inc., 8.625%, 12/15/2007 | 9,080,000 | 9,261,600 |
On Semiconductor Corp., 12.0%, 5/15/2008 (f) | 3,074,000 | 3,719,540 |
Pioneer Natural Resources Co., 9.625%, 4/1/2010 | 9,036,000 | 11,596,631 |
Southern Natural Gas, 8.875%, 3/15/2010 | 7,680,000 | 8,524,800 |
Stone Energy Corp., 8.25%, 12/15/2011 | 7,790,000 | 8,646,900 |
Westport Resources Corp., 8.25%, 11/1/2011 | 6,165,000 | 6,858,562 |
Williams Co., Inc., 8.75%, 3/15/2032 | 7,010,000 | 7,430,600 |
Williams Holdings of Delaware, Inc., 6.5%, 12/1/2008 (f) | 4,475,000 | 4,648,406 |
Wiser Oil Co., 9.5%, 5/15/2007 | 8,300,000 | 8,258,500 |
187,370,399 | ||
Financials 6.1% | ||
Ahold Finance USA, Inc., 6.25%, 5/1/2009 | 12,835,000 | 13,091,700 |
Alamosa Delaware, Inc.: | ||
Step-up Coupon, 0% to 7/31/2005, 12% to 7/31/2009 | 2,616,000 | 2,380,560 |
144A, 8.5%, 1/31/2012 | 6,520,000 | 6,194,000 |
American Commercial Bank, 3.0%, 6/30/2006 | 1,000,000 | 880,000 |
AmeriCredit Corp., 9.25%, 5/1/2009 | 12,965,000 | 14,034,612 |
Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028 | 3,525,000 | 2,290,626 |
BF Saul REIT, 144A, 7.5%, 3/1/2014 | 11,170,000 | 11,309,625 |
CB Richard Ellis Services, Inc., 9.75%, 5/15/2010 | 3,955,000 | 4,439,488 |
Dollar Financial Group, Inc., 9.75%, 11/15/2011 | 5,660,000 | 6,141,100 |
Eaton Vance Corp., CDO "C", 13.68%, 7/15/2012 (PIK) | 1,392,097 | 13,921 |
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 10,925,000 | 12,853,088 |
FRD Acquisition Co., Series B, 12.5%, 7/15/2004* | 2,450,000 | 0 |
Global Cash Access LLC, 144A, 8.75%, 3/15/2012 | 3,655,000 | 3,801,200 |
Global Exchange Services, 144A, 12.0%**, 7/15/2008 | 7,890,000 | 7,495,500 |
IOS Capital LLC, 7.25%, 6/30/2008 | 6,650,000 | 7,265,125 |
iStar Financial, Inc., 6.0%, 12/15/2010 | 2,440,000 | 2,562,000 |
Poster Financial Group, 144A, 8.75%, 12/1/2011 (f) | 8,900,000 | 9,345,000 |
PXRE Capital Trust I, 8.85%, 2/1/2027 | 3,800,000 | 3,885,500 |
Qwest Capital Funding, Inc.: | ||
6.5%, 11/15/2018 | 6,070,000 | 4,825,650 |
7.75%, 2/15/2031 | 3,889,000 | 3,188,980 |
R.H. Donnelly Finance Corp.: | ||
10.875%, 12/15/2012 (f) | 6,785,000 | 8,091,112 |
144A, 10.875%, 12/15/2012 | 5,610,000 | 6,689,925 |
Thornburg Mortgage, Inc., 8.0%, 5/15/2013 | 5,285,000 | 5,575,675 |
UAP Holdings Corp., 144A, Step-up Coupon 0% to 1/2008, 10.75%, 7/15/2012 | 5,175,000 | 3,467,250 |
Universal City Development, 11.75%, 4/1/2010 | 8,715,000 | 10,142,081 |
WMC Finance Co., 144A, 11.75%, 12/15/2008 | 6,500,000 | 6,955,000 |
156,918,718 | ||
Health Care 2.3% | ||
aaiPharma, Inc., 11.0%, 4/1/2010 (f) | 4,245,000 | 3,396,000 |
AmeriPath, Inc.: | ||
10.5%, 4/1/2013 (f) | 3,810,000 | 3,886,200 |
144A, 10.5%, 4/1/2013 | 4,090,000 | 4,171,800 |
AmerisourceBergen Corp., 7.25%, 11/15/2012 (f) | 8,350,000 | 9,080,625 |
Interactive Health LLC, 144A, 7.25%, 4/1/2011 | 4,390,000 | 3,555,900 |
Team Health, Inc., 144A, 9.0%, 4/1/2012 | 2,175,000 | 2,115,188 |
Tenet Healthcare Corp.: | ||
6.375%, 12/1/2011 (f) | 29,985,000 | 25,937,025 |
7.375%, 2/1/2013 (f) | 6,015,000 | 5,428,537 |
57,571,275 | ||
Industrials 12.6% | ||
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 5,015,000 | 5,265,750 |
Allied Waste North America, Inc.: | ||
144A, 5.75%, 2/15/2011 | 3,800,000 | 3,676,500 |
Series B, 8.875%, 4/1/2008 (f) | 5,915,000 | 6,639,587 |
American Rock Salt Co., 144A, 9.5%, 3/15/2014 | 3,045,000 | 3,121,125 |
AMH Holdings, Inc., 144A Step-Up Coupon, 0.0% to 3/1/2009, 11.25% to 3/1/2014 | 12,380,000 | 7,520,850 |
AMI Semiconductor, Inc., 10.75%, 2/1/2013 | 3,123,000 | 3,646,103 |
Amsted Industries, Inc., 144A, 10.25%, 10/15/2011 | 6,620,000 | 7,480,600 |
Argo-Tech Corp., 8.625%, 10/1/2007 (f) | 7,745,000 | 7,841,812 |
Avondale Mills, Inc., 10.25%, 7/1/2013 | 8,980,000 | 5,792,100 |
Browning-Ferris Industries: | ||
7.4%, 9/15/2035 | 6,425,000 | 6,087,687 |
9.25%, 5/1/2021 | 4,245,000 | 4,775,625 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 (f) | 11,555,000 | 12,363,850 |
Collins & Aikman Products, 10.75%, 12/31/2011 | 12,070,000 | 12,401,925 |
Congoleum Corp., 8.625%, 8/1/2008* | 7,925,000 | 5,230,500 |
Continental Airlines, Inc., 8.0%, 12/15/2005 (f) | 5,455,000 | 5,073,150 |
Corrections Corp. of America, 9.875%, 5/1/2009 | 9,000,000 | 10,125,000 |
CP Ships Ltd., 10.375%, 7/15/2012 | 8,910,000 | 10,547,212 |
Dana Corp., 7.0%, 3/1/2029 | 11,310,000 | 11,281,725 |
Delta Air Lines, Inc.: | ||
7.7%, 12/15/2005 (f) | 7,275,000 | 6,183,750 |
7.9%, 12/15/2009 (f) | 3,955,000 | 2,610,300 |
Eagle-Picher, Inc., 9.75%, 9/1/2013 | 7,175,000 | 7,856,625 |
Erico International Corp., 144A, 8.875%, 3/1/2012 | 3,775,000 | 3,954,313 |
Evergreen International Aviation, 144A, 12.0%, 5/15/2010 | 4,110,000 | 2,614,988 |
Gold Kist, Inc., 144A, 10.25%, 3/15/2014 | 6,360,000 | 6,423,600 |
Golden State Petroleum Transportation, 8.04%, 2/1/2019 | 5,185,000 | 5,405,259 |
GS Technologies, 12.0%, 9/1/2004* | 4,577,117 | 11,443 |
Hercules, Inc., 11.125%, 11/15/2007 (f) | 14,059,000 | 16,870,800 |
Hornbeck Offshore Services, Inc., 10.625%, 8/1/2008 | 7,870,000 | 8,657,000 |
Interface, Inc., 144A, "A", 9.5%, 2/1/2014 | 3,655,000 | 3,618,450 |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 6,455,000 | 7,310,287 |
ISP Holdings, Inc., Series B, 10.625%, 12/15/2009 | 2,265,000 | 2,514,150 |
Kansas City Southern: | ||
7.5%, 6/15/2009 | 3,560,000 | 3,666,800 |
9.5%, 10/1/2008 | 11,050,000 | 12,265,500 |
Millennium America, Inc.: | ||
7.625%, 11/15/2026 (f) | 9,309,000 | 8,424,645 |
9.25%, 6/15/2008 (f) | 13,795,000 | 14,726,162 |
144A, 9.25%, 6/15/2008 | 9,110,000 | 9,724,925 |
Mobile Mini, Inc., 9.5%, 7/1/2013 | 5,980,000 | 6,518,200 |
Motors and Gears, Inc., 10.75%, 11/15/2006 | 8,490,000 | 7,301,400 |
Plainwell, Inc., Series B, 11.0%, 3/1/2008* | 18,860,000 | 1,131,600 |
Ply Gem Industries, Inc., 144A, 9.0%, 2/15/2012 | 4,705,000 | 4,728,525 |
Republic Engineered Products LLC, 10.0%, 8/16/2009* | 5,803,294 | 4,062,306 |
Seabulk International, Inc., 9.5%, 8/15/2013 | 7,765,000 | 8,114,425 |
Ship Finance International Ltd., 144A, 8.5%, 12/15/2013 | 10,395,000 | 10,187,100 |
Tech Olympic USA, Inc.: | ||
144A, 7.5%, 3/15/2011 | 3,340,000 | 3,335,825 |
10.375%, 7/1/2012 | 6,230,000 | 7,024,325 |
Tenneco Automotive, Inc., 11.625%, 10/15/2009 (f) | 4,685,000 | 5,071,513 |
The Brickman Group, Ltd., Series B, 11.75%, 12/15/2009 | 4,580,000 | 5,312,800 |
Thermadyne Holdings Corp., 144A, 9.25%, 2/1/2014 | 6,175,000 | 6,298,500 |
Trinity Industries, Inc., 144A, 6.5%, 3/15/2014 | 2,415,000 | 2,415,000 |
323,211,617 | ||
Information Technology 1.0% | ||
Activant Solutions, Inc., 10.5%, 6/15/2011 | 5,665,000 | 5,919,925 |
Communications & Powers Industry, Inc., 144A, 8.0%, 2/1/2012 | 4,640,000 | 4,715,400 |
DigitalNet, Inc., 9.0%, 7/15/2010 | 4,983,000 | 5,375,411 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 (f) | 6,130,000 | 5,179,850 |
Telex Communications, Inc., 144A, 11.5%, 10/15/2008 | 3,645,000 | 3,900,150 |
25,090,736 | ||
Materials 10.1% | ||
Aqua Chemical, Inc., 11.25%, 7/1/2008 | 9,070,000 | 7,437,400 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 25,981,000 | 24,941,760 |
Buckeye Technologies, Inc., 8.5%, 10/1/2013 | 1,200,000 | 1,290,000 |
California Steel Industries, Inc., 144A, 6.125%, 3/15/2014 | 2,070,000 | 2,085,525 |
Caraustar Industries, Inc., 9.875%, 4/1/2011 (f) | 6,355,000 | 6,355,000 |
Dayton Superior Corp.: | ||
144A, 10.75%, 9/15/2008 | 5,735,000 | 5,907,050 |
13.0%, 6/15/2009 (f) | 5,560,000 | 4,587,000 |
Equistar Chemicals LP: | ||
8.75%, 2/15/2009 (f) | 26,820,000 | 27,356,400 |
10.625%, 5/1/2011 (f) | 2,725,000 | 2,936,188 |
Fibermark, Inc., 10.75%, 4/15/2011* (f) | 10,720,000 | 6,056,800 |
Foamex LP, 10.75%, 4/1/2009 | 305,000 | 277,550 |
GEO Specialty Chemicals, Inc.: | ||
7.11%, 12/31/2007 | 3,148,091 | 3,006,427 |
10.125%, 8/1/2008* | 9,094,000 | 3,001,020 |
Georgia-Pacific Corp.: | ||
7.375%, 12/1/2025 (f) | 8,010,000 | 7,929,900 |
7.7%, 6/15/2015 (f) | 7,680,000 | 8,409,600 |
144A, 8.0%, 1/15/2024 | 13,755,000 | 14,511,525 |
9.375%, 2/1/2013 | 11,580,000 | 13,635,450 |
Hexcel Corp., 9.75%, 1/15/2009 (f) | 4,740,000 | 4,929,600 |
Huntsman ADV Materials LLC, 144A, 11.0%, 7/15/2010 | 6,765,000 | 7,644,450 |
Huntsman ICI Chemical, 10.125%, 7/1/2009 | 7,595,000 | 8,899,558 |
Huntsman LLC, 11.625%, 10/15/2010 (f) | 5,780,000 | 6,069,000 |
IMC Global, Inc., 10.875%, 8/1/2013 (f) | 10,855,000 | 13,595,888 |
ISPAT Inland ULC, 144A, 9.75%, 4/1/2014 | 8,535,000 | 8,876,400 |
Neenah Corp.: | ||
144A, 11.0%, 9/30/2010 | 8,221,000 | 9,043,100 |
144A, 13.0%, 9/30/2013 | 6,432,827 | 6,529,319 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 3,195,000 | 3,546,450 |
Owens-Brockway Glass Container, 8.25%, 5/15/2013 (f) | 11,885,000 | 12,241,550 |
Pliant Corp.: | ||
Step-up Coupon, 0% to 12/2006, 144A, 11.125%, 6/15/2009 | 1,750,000 | 1,400,000 |
11.125%, 9/1/2009 | 6,395,000 | 6,682,775 |
13.0%, 6/1/2010 (f) | 1,205,000 | 1,042,325 |
13.0%, 6/1/2010 (f) | 1,835,000 | 1,587,275 |
Trimas Corp., 9.875%, 6/15/2012 | 11,550,000 | 12,589,500 |
United States Steel LLC, 9.75%, 5/15/2010 (f) | 3,747,000 | 4,271,580 |
US Can Corp., Series B, 12.375%, 10/1/2010 (f) | 4,070,000 | 3,805,450 |
US Concrete, Inc., 144A, 8.375%, 4/1/2014 | 2,785,000 | 2,840,700 |
Westlake Chemical Corp., 8.75%, 7/15/2011 (f) | 3,005,000 | 3,320,525 |
258,640,040 | ||
Telecommunication Services 10.6% | ||
American Cellular Corp., 10.0%, 8/1/2011 (f) | 21,105,000 | 20,260,800 |
American Tower Corp: | ||
144A, 7.5%, 5/1/2012 (f) | 3,581,000 | 3,419,855 |
9.375%, 2/1/2009 (f) | 11,760,000 | 12,406,800 |
American Tower Escrow Corp., Zero Coupon, 8/1/2008 | 9,170,000 | 6,441,925 |
Cincinnati Bell, Inc.: | ||
7.2%, 11/29/2023 | 5,230,000 | 4,968,500 |
8.375%, 1/15/2014 | 17,965,000 | 17,605,700 |
Crown Castle International Corp.: | ||
7.5%, 12/1/2013 | 1,635,000 | 1,606,388 |
7.5%, 12/1/2013 (f) | 2,145,000 | 2,107,462 |
9.375%, 8/1/2011 | 8,600,000 | 9,331,000 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 28,943,000 | 22,720,255 |
GCI, Inc., 144A, 7.25%, 2/15/2014 | 3,765,000 | 3,689,700 |
Insight Midwest LP: | ||
9.75%, 10/1/2009 (f) | 5,475,000 | 5,707,688 |
10.5%, 11/1/2010 (f) | 4,245,000 | 4,563,375 |
144A, 10.5%, 11/1/2010 | 2,630,000 | 2,827,250 |
LCI International, Inc., 7.25%, 6/15/2007 | 10,900,000 | 9,973,500 |
Level 3 Communications, Inc., Step-up Coupon, 10.500% to 12/01/2008 (f) | 3,035,000 | 2,488,700 |
Level 3 Financing, Inc., 144A, 10.75%, 10/15/2011 (f) | 5,170,000 | 5,040,750 |
MCI Communications Corp., 8.0%, 1/31/2014 | 10,155,000 | 10,459,650 |
Nextel Communications, Inc., 5.95%, 3/15/2014 | 5,010,000 | 4,972,425 |
Nextel Partners, Inc.: | ||
8.125%, 7/1/2011 (f) | 10,155,000 | 10,738,912 |
11.0%, 3/15/2010 (f) | 2,875,000 | 3,191,250 |
Nortel Networks Corp.: | ||
6.125%, 2/15/2006 (f) | 1,140,000 | 1,168,500 |
7.4%, 6/15/2006 | 9,465,000 | 9,796,275 |
Northern Telecom Capital, 7.875%, 6/15/2026 | 9,650,000 | 9,891,250 |
Qwest Corp.: | ||
5.625%, 11/15/2008 (f) | 1,212,000 | 1,208,970 |
6.875%, 7/15/2028 | 6,460,000 | 5,006,500 |
7.25%, 9/15/2025 (f) | 14,810,000 | 13,773,300 |
Qwest Services Corp.: | ||
6.95%, 6/30/2010 | 8,000,000 | 8,124,000 |
144A, 13.5%, 12/15/2010 | 18,230,000 | 21,192,375 |
144A, 14.0%, 12/15/2014 | 8,634,000 | 10,425,555 |
Rural Cellular Corp., 9.875%, 2/1/2010 (f) | 5,980,000 | 5,994,950 |
SBA Communications Corp., Step-up Coupon, 0% to 12/2007, 144A, 9.75%, 12/15/2011 (f) | 10,670,000 | 7,495,675 |
Triton PCS, Inc., 8.5%, 6/1/2013 (f) | 1,530,000 | 1,629,450 |
Ubiquitel Operating Co., 144A, 9.875%, 3/1/2011 | 7,640,000 | 7,449,000 |
Western Wireless Corp., 9.25%, 7/15/2013 (f) | 4,695,000 | 4,824,113 |
272,501,798 | ||
Utilities 5.4% | ||
Calpine Corp., 144A, 8.5%, 7/15/2010 (f) | 37,340,000 | 34,352,800 |
Calpine Generating Co., 144A, 10.25%**, 4/1/2011 (f) | 6,110,000 | 5,789,225 |
CMS Energy Corp.: | ||
7.5%, 1/15/2009 (f) | 5,995,000 | 6,159,863 |
144A, 7.75%, 8/1/2010 | 3,295,000 | 3,418,563 |
8.5%, 4/15/2011 | 10,785,000 | 11,512,987 |
DPL, Inc.: | ||
6.875%, 9/1/2011 (f) | 5,970,000 | 6,059,550 |
8.125%, 9/1/2031 (f) | 2,165,000 | 2,056,750 |
Illinova Corp., 11.5%, 12/15/2010 | 12,875,000 | 15,514,375 |
NRG Energy, Inc., 144A, 8.0%, 12/15/2013 | 30,550,000 | 31,542,875 |
PG&E Corp., 144A, 6.875%, 7/15/2008 | 6,720,000 | 7,333,200 |
Sensus Metering Systems, 144A, 8.625%, 12/15/2013 | 5,930,000 | 5,870,700 |
TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010 | 8,695,000 | 9,477,550 |
139,088,438 | ||
Total Corporate Bonds (Cost $2,006,312,093) | 2,015,651,016 | |
Foreign Bonds - US$ Denominated 14.9% | ||
Alestra SA de RL de CV, 8.0%, 6/30/2010 | 6,350,000 | 5,540,375 |
Antenna TV SA, 9.0%, 8/1/2007 | 3,538,000 | 3,573,380 |
Avecia Group PLC, 11.0%, 7/1/2009 | 15,805,000 | 13,434,250 |
Axtel SA, 144A, 11.0%, 12/15/2013 | 7,980,000 | 8,099,700 |
Biovail Corp., 7.875%, 4/1/2010 (f) | 13,365,000 | 13,030,875 |
Cascades, Inc., 7.25%, 2/15/2013 | 8,130,000 | 8,556,825 |
Conproca SA de CV, 12.0%, 6/16/2010 | 5,945,000 | 7,728,500 |
Corp Durango SA, 144A, 13.75%, 7/15/2009* | 4,640,000 | 2,992,800 |
Crown Euro Holdings SA, 10.875%, 3/1/2013 | 7,405,000 | 8,626,825 |
Dolphin Telecom PLC, Series B, Step-Up Coupon, 0% to 5/15/2004, 14.0% to 5/15/2009* | 15,815,431 | 1,582 |
Eircom Funding, 8.25%, 8/15/2013 | 5,840,000 | 6,511,600 |
Embratel Participacoes SA, 144A, 11.0%, 12/15/2008 | 6,175,000 | 6,669,000 |
Esprit Telecom Group PLC: | ||
10.875, 6/15/2008* | 10,060,000 | 1,006 |
11.5, 12/15/2007* | 23,720,000 | 2,372 |
Euramax International PLC, 144A, 8.5%, 8/15/2011 | 6,375,000 | 6,757,500 |
Fage Dairy Industry SA, 9.0%, 2/1/2007 | 16,612,000 | 16,861,180 |
Federative Republic of Brazil: | ||
C Bond, 8.0%, 4/15/2014 | 3,835,842 | 3,739,946 |
8.875%, 4/15/2024 | 8,840,000 | 8,088,600 |
Gazprom OAO, 144A, 9.625%, 3/1/2013 | 9,595,000 | 11,034,250 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 1,590,000 | 874,500 |
Inmarsat Finance PLC, 144A, 7.625%, 6/30/2012 | 8,965,000 | 9,346,012 |
Innova S de R.L., 144A, 9.375%, 9/19/2013 (f) | 9,465,000 | 10,269,525 |
Jefra Cosmetics International, Inc., 10.75%, 5/15/2011 | 9,160,000 | 10,396,600 |
LeGrand SA, 8.5%, 2/15/2025 | 7,215,000 | 7,683,975 |
Luscar Coal Ltd., 9.75%, 10/15/2011 | 5,425,000 | 6,184,500 |
Millicom International Cellular SA, 144A, 10.0%, 12/1/2013 | 11,470,000 | 11,928,800 |
Mizuho Financial Group, 8.375%, 12/29/2049 | 2,975,000 | 3,198,720 |
Mobifon Holdings BV, 12.5%, 7/31/2010 | 9,360,000 | 10,764,000 |
Mobile Telesystems Financial, 144A, 8.375%, 10/14/2010 | 6,210,000 | 6,458,400 |
New Asat (Finance) Ltd., 144A, 9.25%, 2/1/2011 (f) | 7,995,000 | 8,574,637 |
Norske Skog Canada Ltd., 144A, 7.375%, 3/1/2014 | 2,795,000 | 2,878,850 |
Petroleum Geo-Services ASA, 10.0%, 11/5/2010 | 18,538,389 | 20,253,190 |
PTC International Finance II SA, 11.25%, 12/1/2009 | 2,680,000 | 2,867,600 |
Republic of Argentina: | ||
12.375%, 2/21/2012* | 8,480,000 | 2,650,000 |
Series 2031, 12.0%, 6/19/2031* | 2,809,000 | 779,497 |
Series BGL4, 11.0%, 10/9/2006* | 690,000 | 208,725 |
11.375%, 3/15/2010* | 8,130,000 | 2,520,300 |
11.375%, 1/30/2017* | 4,350,000 | 1,374,600 |
11.75%, 4/7/2009* | 3,800,000 | 1,170,400 |
Republic of Turkey, 11.0%, 1/14/2013 | 1,770,000 | 2,244,581 |
Republic of Uruguay, 7.875%, 1/15/2033 | 35,922 | 26,942 |
Republic of Venezuela: | ||
5.375%, 8/7/2010 | 3,315,000 | 2,753,108 |
9.25%, 9/15/2027 | 310,000 | 275,745 |
Rhodia SA, 144A, 7.625%, 6/1/2010 (f) | 4,265,000 | 3,923,800 |
Riverside Forest Product, 144A, 7.875%, 3/1/2014 | 2,240,000 | 2,318,400 |
Rogers Wireless Communications, Inc., 144A, 6.375%, 3/1/2014 | 890,000 | 904,463 |
Shaw Communications, Inc.: | ||
Series B, 7.25%, 4/6/2011 | 4,175,000 | 4,676,000 |
8.25%, 4/11/2010 | 2,430,000 | 2,843,100 |
Sistema Capital SA, 144A, 8.875%, 1/28/2011 | 4,935,000 | 5,076,881 |
Stena AB, 9.625%, 12/1/2012 | 1,735,000 | 1,969,225 |
Telenet Group Holding NV, Step-up Coupon, 0% to 12/2008, 144A, 11.5%, 6/15/2014 | 21,330,000 | 13,011,300 |
Tembec Industries, Inc., 8.5%, 2/1/2011 (f) | 25,335,000 | 25,335,000 |
TFM SA de CV: | ||
10.25%, 6/15/2007 | 13,185,000 | 13,646,475 |
11.75%, 6/15/2009 | 9,965,000 | 10,014,825 |
12.5%, 6/15/2012 | 9,390,000 | 10,516,800 |
Vicap SA, 11.375%, 5/15/2007 | 6,340,000 | 6,308,300 |
Vitro SA de CV, Series A, 144A, 11.75%, 11/1/2013 | 6,615,000 | 6,284,250 |
Vivendi Universal SA, 9.25%, 4/15/2010 (f) | 14,685,000 | 17,548,575 |
Total Foreign Bonds - US$ Denominated (Cost $417,008,309) | 381,311,167 | |
Foreign Bonds - Non US$ Denominated 0.8% | ||
Ispat Europe Group SA, 11.875%, 2/1/2011 EUR | 12,910,000 | 16,437,747 |
Republic of Argentina: | ||
8.0%, 2/26/2008* EUR | 3,220,000 | 1,049,729 |
8.0%, 2/26/2008* EUR | 4,450,000 | 1,491,771 |
10.25%, 2/6/2049* EUR | 7,091,618 | 1,165,903 |
10.5%, 11/14/2049* EUR | 3,273,291 | 525,012 |
11.25%, 4/10/2006* EUR | 2,326,378 | 414,106 |
12.0%, 9/19/2016* EUR | 263,315 | 45,215 |
Total Foreign Bonds - Non US$ Denominated (Cost $19,216,457) | 21,129,483 | |
Convertible Bond 0.4% | ||
Information Technology 0.1% | ||
Aspen Technology, Inc., 5.25%, 6/15/2005 | 2,490,000 | 2,490,000 |
Consumer Discretionary 0.3% | ||
DIMON, Inc., 6.25%, 3/31/2007 | 6,760,000 | 6,388,200 |
HIH Capital Ltd., 144A, 7.5%, 9/25/2006 | 1,625,000 | 1,409,688 |
7,797,888 | ||
Total Convertible Bond (Cost $9,996,618) | 10,287,888 | |
Asset Backed 0.2% | ||
Automobile Receivables 0.1% | ||
MMCA Automobile Trust, "C", Series 2002-1, 6.2%, 1/15/2010 | 3,576,395 | 3,084,346 |
Miscellaneous 0.1% | ||
Golden Tree High Yield Opportunities LP, "D1", Series 1, 13.054%, 10/31/2007 | 2,500,000 | 2,300,000 |
Total Asset Backed (Cost $5,479,743) | 5,384,346 | |
US Government Backed 0.2% | ||
US Treasury Bond, 5.375%, 2/15/2031 (f) (Cost $3,805,036) | 3,465,000 | 3,776,850 |
| Value ($) | |
Other 0.0% | ||
SpinCycle, Inc.* (e) | 187,460 (g) | 1,059,149 |
SpinCycle, Inc., "F"* (e) | 1,228 (g) | 6,938 |
Total Other (Cost $458,147) | 1,066,087 | |
Common Stocks 0.1% | ||
Catalina Restaurant Group, Inc.* | 45,157 | 72,251 |
ICG Communications, Inc.* | 67,617 | 676 |
IMPSAT Fiber Networks, Inc., 144A* | 280,597 | 1,944,537 |
MEDIQ, Inc.* | 8,934 | 32,243 |
National Vision, Inc. (e) | 219,191 | 335,363 |
Total Common Stocks (Cost $22,786,210) | 2,385,070 | |
Warrants 0.0% | ||
DeCrane Aircraft Holdings, Inc.,144A* | 16,090 | 161 |
Destia Communications, Inc., 144A* | 19,865 | 0 |
Empire Gas Corp.* | 31,795 | 0 |
Hayes Lemmerz International, Inc.* | 14,564 | 49,153 |
UIH Australia Pacific, Inc., 144A* | 14,150 | 0 |
Waxman Industries, Inc.* | 800,453 | 0 |
Total Warrants (Cost $1,602,562) | 49,314 | |
Preferred Stock 0.7% | ||
Paxson Communications Corp. | 1,400 | 12,600,000 |
TNP Enterprises, Inc. | 46,662 | 5,319,453 |
Total Preferred Stock (Cost $17,625,736) | 17,919,453 | |
Convertible Preferred Stocks 0.5% | ||
Hercules Trust II (Cost $9,747,703) | 15,550 | 12,362,250 |
Cash Equivalents 16.7% | ||
Scudder Cash Management QP Trust, 1.10% (b) | 23,705,928 | 23,705,928 |
Daily Assets Fund Institutional, 1.06% (c) (h) | 403,755,738 | 403,755,738 |
Total Cash Equivalents (Cost $427,461,666) | 427,461,666 |
% of Net Assets | Value ($) | |
Total Investment Portfolio (Cost $2,941,500,280) (a) | 113.1 | 2,898,784,590 |
Other Assets and Liabilities, Net | (13.1) | (336,450,833) |
Net Assets | 100.0 | 2,562,333,757 |
* Non-income producing security. In case of a bond, generally denotes that the issuer has defaulted on the payment or 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 March 31, 2004.
(a) The cost for federal income tax purposes was $2,945,917,480. At March 31, 2004, net unrealized depreciation for all securities based on tax cost was $47,132,890. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $110,749,246 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $157,882,136.
(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) Daily Assets Fund Institutional, an affiliated fund, is also managed by Deutsche Investment Management, Inc. The rate shown is the annualized seven-day yield at period end.
(d) Principal amount is stated in US dollars unless otherwise noted.
(e) Affiliated issuers (see notes to Financial statements)
(f) All or a portion of these securities were on loan (see Notes to Financials Statements). The value of all securities loaned at March 31, 2004 amounted to $396,134,987, which is 15.5% of total net assets.
(g) Represents number of units.
(h) Represents collateral held in connection with securities lending.
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 March 31, 2004 (Unaudited) | |
Assets | |
Investments in Securities, at value: Unaffiliated issuers (cost $2,512,791,379) | $ 2,469,921,474 |
Affiliated issuers (Note I) (cost $1,247,235) | 1,401,450 |
Investment in Daily Assets Fund Institutional (cost $403,755,738) | 403,755,738 |
Investment in Scudder Cash Management QP Trust (cost $23,705,928) | 23,705,928 |
Total investments in securities, at value (cost $2,941,500,280) | 2,898,784,590 |
Cash | 9,041,335 |
Receivable for investments sold | 45,995,492 |
Dividends receivable | 612,278 |
Interest receivable | 57,516,952 |
Receivable for Fund shares sold | 2,375,091 |
Other assets | 97,356 |
Total assets | 3,014,423,094 |
Liabilities | |
Payable upon return of securities loaned | 403,755,738 |
Payable for investments purchased | 40,966,944 |
Payable for Fund shares redeemed | 3,567,213 |
Unrealized depreciation on forward currency exchange contracts | 470,587 |
Accrued management fee | 1,186,999 |
Other accrued expenses and payables | 2,141,856 |
Total liabilities | 452,089,337 |
Net assets, at value | $ 2,562,333,757 |
Net Assets | |
Net assets consist of: Accumulated distributions in excess of net investment income | (84,599) |
Net unrealized appreciation (depreciation) on: Investments | (42,715,690) |
Foreign currency related transactions | (482,161) |
Accumulated net realized gain (loss) | (1,527,007,168) |
Paid-in capital | 4,132,623,375 |
Net assets, at value | $ 2,562,333,757 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2004 (Unaudited) (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price per share ($1,972,307,453 / 364,583,247 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.41 |
Maximum offering price per share (100 / 94.25 of $5.41) | $ 5.74 |
Class B Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($406,178,759 / 75,163,410 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.40 |
Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($176,279,809 / 32,562,953 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.41 |
Class I Net Asset Value, offering and redemption price per share ($361,092 / 67,037 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.39 |
Institutional Class Net Asset Value, offering and redemption price per share ($7,206,644 / 1,332,046 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.41 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended March 31, 2004 (Unaudited) | |
Investment Income | |
Income: Interest | $ 114,338,847 |
Interest - Scudder Cash Management QP Trust | 76,880 |
Securities lending income | 57,461 |
Dividends - unaffiliated issuers | 1,896,905 |
Dividends - affiliated issuers | 37,820 |
Total Income | 116,407,913 |
Expenses: Management fee | 7,008,417 |
Service to shareholders | 1,902,492 |
Distribution service fees | 5,306,447 |
Custodian fees | 52,489 |
Auditing | 29,088 |
Legal | 40,059 |
Trustees' fees and expenses | 41,186 |
Reports to shareholders | 116,875 |
Registration fees | 60,619 |
Other | 41,598 |
Total expenses, before expense reductions | 14,599,270 |
Expense reductions | (9,890) |
Total expenses, after expense reductions | 14,589,380 |
Net investment income | 101,818,533 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments - unaffiliated issuers | 28,935,309 |
Investments - affiliated issuers | 1,347,301 |
Foreign currency related transactions | (1,901,343) |
28,381,267 | |
Net unrealized appreciation (depreciation) during the period on: Investments | 64,103,500 |
Foreign currency related transactions | 657,188 |
64,760,688 | |
Net gain (loss) on investment transactions | 93,141,955 |
Net increase (decrease) in net assets resulting from operations | $ 194,960,488 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Six Months Ended March 31, 2004 (Unaudited) | Year Ended September 30, 2003 |
Operations: Net investment income | $ 101,818,533 | $ 217,658,802 |
Net realized gain (loss) on investment transactions | 28,381,267 | (329,652,822) |
Net unrealized appreciation (depreciation) on investment transactions during the period | 64,760,688 | 645,784,439 |
Net increase (decrease) in net assets resulting from operations | 194,960,488 | 533,790,419 |
Distributions to shareholders from: Net investment income: Class A | (84,834,651) | (165,927,046) |
Class B | (17,105,534) | (40,955,239) |
Class C | (6,955,285) | (12,795,316) |
Class I | (12,198) | (337,009) |
Institutional Class | (193,759) | (26,602) |
Fund share transactions: Proceeds from shares sold | 276,184,070 | 991,504,559 |
Reinvestment of distributions | 63,581,899 | 125,157,426 |
Cost of shares redeemed | (360,390,651) | (1,183,436,875) |
Net increase (decrease) in net assets from Fund share transactions | (20,624,682) | (66,774,890) |
Increase (decrease) in net assets | 65,234,379 | 246,974,317 |
Net assets at beginning of period | 2,497,099,378 | 2,250,125,061 |
Net assets at end of period (including accumulated distributions in excess of net investment income and undistributed net investment income of $84,599 and $7,198,295, respectively) | $ 2,562,333,757 | $ 2,497,099,378 |
The accompanying notes are an integral part of the financial statements.
Class A | ||||||
Years Ended September 30, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.23 | $ 4.62 | $ 5.18 | $ 6.34 | $ 7.23 | $ 7.68 |
Income (loss) from investment operations: Net investment incomec | .22 | .44 | .53 | .64 | .77 | .78 |
Net realized and unrealized gain (loss) on investment transactions | .19 | .61 | (.53) | (1.09) | (.89) | (.46) |
Total from investment operations | .41 | 1.05 | - | (.45) | (.12) | .32 |
Less distributions from: Net investment income | (.23) | (.44) | (.55) | (.68) | (.77) | (.77) |
Return of capital | - | - | (.01) | (.03) | - | - |
Total distributions | (.23) | (.44) | (.56) | (.71) | (.77) | (.77) |
Net asset value, end of period | $ 5.41 | $ 5.23 | $ 4.62 | $ 5.18 | $ 6.34 | $ 7.23 |
Total Return (%)d | 8.19** | 23.92 | (.60) | (7.68) | (1.88) | 4.11 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 1,972 | 1,868 | 1,603 | 1,831 | 2,277 | 2,945 |
Ratio of expenses before expense reductions (%) | .92* | .97 | .96 | 1.11e | .93 | .96 |
Ratio of expenses after expense reductions (%) | .92* | .97 | .96 | 1.09e | .92 | .96 |
Ratio of net investment income (%) | 8.05* | 8.92 | 10.39 | 10.94 | 11.10 | 10.15 |
Portfolio turnover rate (%) | 178* | 149 | 154 | 69 | 52 | 67 |
a For the six months ended March 31, 2004 (Unaudited). b As required, effective October 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of 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. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.09% and 1.09%, respectively. * Annualized ** Not Annualized |
Class B | ||||||
Years Ended September 30, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.23 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 | $ 7.67 |
Income (loss) from investment operations: Net investment incomec | .20 | .40 | .48 | .59 | .71 | .71 |
Net realized and unrealized gain (loss) on investment transactions | .18 | .61 | (.52) | (1.09) | (.88) | (.45) |
Total from investment operations | .38 | 1.01 | (.04) | (.50) | (.17) | .26 |
Less distributions from: Net investment income | (.21) | (.40) | (.50) | (.63) | (.72) | (.71) |
Return of capital | - | - | (.01) | (.03) | - | - |
Total distributions | (.21) | (.40) | (.51) | (.66) | (.72) | (.71) |
Net asset value, end of period | $ 5.40 | $ 5.23 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 |
Total Return (%)d | 7.55** | 22.88 | (1.23) | (8.50) | (2.68) | 3.26 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 406 | 462 | 514 | 659 | 792 | 1,145 |
Ratio of expenses before expense reductions (%) | 1.79* | 1.82 | 1.79 | 1.94e | 1.78 | 1.78 |
Ratio of expenses after expense reductions (%) | 1.79* | 1.82 | 1.79 | 1.91e | 1.77 | 1.78 |
Ratio of net investment income (%) | 7.18* | 8.07 | 9.56 | 10.12 | 10.24 | 9.33 |
Portfolio turnover rate (%) | 178* | 149 | 154 | 69 | 52 | 67 |
a For the six months ended March 31, 2004 (Unaudited). b As required, effective October 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of 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. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.91% and 1.91%, respectively. * Annualized ** Not Annualized |
Class C | ||||||
Years Ended September 30, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.24 | $ 4.63 | $ 5.19 | $ 6.35 | $ 7.24 | $ 7.69 |
Income (loss) from investment operations: Net investment incomec | .20 | .40 | .48 | .59 | .72 | .72 |
Net realized and unrealized gain (loss) on investment transactions | .18 | .61 | (.53) | (1.09) | (.89) | (.46) |
Total from investment operations | .38 | 1.01 | (.05) | (.50) | (.17) | .26 |
Less distributions from: Net investment income | (.21) | (.40) | (.50) | (.63) | (.72) | (.71) |
Return of capital | - | - | (.01) | (.03) | - | - |
Total distributions | (.21) | (.40) | (.51) | (.66) | (.72) | (.71) |
Net asset value, end of period | $ 5.41 | $ 5.24 | $ 4.63 | $ 5.19 | $ 6.35 | $ 7.24 |
Total Return (%)d | 7.55** | 23.11 | (1.61) | (8.46) | (2.66) | 3.30 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 176 | 165 | 127 | 119 | 124 | 176 |
Ratio of expenses before expense reductions (%) | 1.70* | 1.82 | 1.79 | 1.98e | 1.77 | 1.73 |
Ratio of expenses after expense reductions (%) | 1.70* | 1.82 | 1.79 | 1.95e | 1.76 | 1.73 |
Ratio of net investment income (%) | 7.27* | 8.07 | 9.56 | 10.09 | 10.25 | 9.38 |
Portfolio turnover rate (%) | 178* | 149 | 154 | 69 | 52 | 67 |
a For the six months ended March 31, 2004 (Unaudited). b As required, effective October 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of 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. c Based on average shares outstanding during the period. d Total return does not reflect the effect of sales charges. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.95% and 1.95%, respectively. * Annualized ** Not Annualized |
Class I | ||||||
Years Ended September 30, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.22 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 | $ 7.68 |
Income (loss) from investment operations: Net investment incomec | .23 | .46 | .54 | .66 | .80 | .82 |
Net realized and unrealized gain (loss) on investment transactions | .18 | .60 | (.52) | (1.09) | (.90) | (.48) |
Total from investment operations | .41 | 1.06 | .02 | (.43) | (.10) | .34 |
Less distributions from: Net investment income | (.24) | (.46) | (.56) | (.69) | (.79) | (.80) |
Return of capital | - | - | (.01) | (.04) | - | - |
Total distributions | (.24) | (.46) | (.57) | (.73) | (.79) | (.80) |
Net asset value, end of period | $ 5.39 | $ 5.22 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 |
Total Return (%) | 7.96** | 24.08 | (.06) | (7.39) | (1.60) | 4.36 |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | .4 | .2 | 6 | 9 | 12 | 15 |
Ratio of expenses before expense reductions (%) | .59* | .65 | .63 | .73d | .64 | .62 |
Ratio of expenses after expense reductions (%) | .59* | .65 | .63 | .72d | .63 | .62 |
Ratio of net investment income (%) | 8.38* | 9.24 | 10.72 | 11.30 | 11.40 | 10.49 |
Portfolio turnover rate (%) | 178* | 149 | 154 | 69 | 52 | 67 |
a For the six months ended March 31, 2004 (Unaudited). b As required, effective October 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. The effect of 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. c Based on average shares outstanding during the period. d 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. * Annualized ** Not Annualized |
Institutional Class | |||
Years Ended September 30, | 2004a | 2003 | 2002b |
Selected Per Share Data | |||
Net asset value, beginning of period | $ 5.23 | $ 4.63 | $ 4.65 |
Income (loss) from investment operations: Net investment incomec | .23 | .44 | .08 |
Net realized and unrealized gain (loss) on investment transactions | .19 | .62 | (.02) |
Total from investment operations | .42 | 1.06 | .06 |
Less distributions from: Net investment income | (.24) | (.46) | (.08) |
Net asset value, end of period | $ 5.41 | $ 5.23 | $ 4.63 |
Total Return (%) | 8.14** | 24.33 | 1.14** |
Ratios to Average Net Assets and Supplemental Data | |||
Net assets, end of period ($ millions) | 7 | 1 | .001 |
Ratio of expenses (%) | .63* | .83 | .82* |
Ratio of net investment income (%) | 8.34* | 9.06 | 14.14* |
Portfolio turnover rate (%) | 178* | 149 | 154 |
a For the six months ended March 31, 2004 (Unaudited). b For the period from August 19, 2002 (commencement of sales of Institutional Class shares) to September 30, 2002. c 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 without an initial sales charge and are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Prior to March 1, 2004, Class C shares were offered with 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 or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
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. The Fund may also engage in forward currency contracts for non-hedging purposes.
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. The Fund may also engage in forward currency contracts for non-hedging purposes.
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. 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.
The tax character of current year distributions, if any, will be determined at the end of the current fiscal year.
Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Trust.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. 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 six months ended March 31, 2004, purchases and sales of investment securities (excluding short-term investments and US Government Backed Securities) aggregated $2,193,184,254 and $2,193,634,145, respectively. Purchases and sales of US Government Backed Securities aggregated $7,730,003 and $21,167,031, 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 six months ended March 31, 2004, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of .54% of the Fund's average daily net assets.
Effective October 1, 2003 through September 30, 2005, the Advisor has contractually agreed to 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 and organizational and offering expenses).
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer, dividend-paying agent and shareholder service agent for Class A, B, I and Institutional shares of the Fund. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are borne by SISC, not by the Fund. For the six months ended March 31, 2004 the amount charged to the Fund by SISC were as follows:
Service Provider Fees | Total Aggregated | Unpaid at March 31, 2004 |
Class A | $ 1,234,394 | $ 642,632 |
Class B | 463,499 | 275,021 |
Class C | 119,259 | 60,925 |
Class I | 50 | - |
Institutional Class | 1,718 | 1,238 |
$ 1,818,920 | $ 979,816 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc. ("SDI"), a subsidiary of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and C shares. Pursuant to the agreement, SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the six months ended March 31, 2004, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at March 31, 2004 |
Class B | $ 1,665,069 | $ 255,701 |
Class C | 666,573 | 112,233 |
$ 2,331,642 | $ 367,934 |
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 six months ended March 31, 2004, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at March 31, 2004 | Annualized Effective Rate |
Class A | $ 2,228,680 | $ 473,572 | .23% |
Class B | 532,861 | 131,644 | .24% |
Class C | 213,264 | 56,752 | .24% |
$ 2,974,805 | $ 661,968 |
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 and C shares for the six months ended March 31, 2004 aggregated $133,109 and $351, respectively.
In addition, SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the six months ended March 31, 2004, the CDSC for Class B and C shares aggregated $434,105 and $9,218, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the six months ended March 31, 2004, SDI received $27,778.
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 are used to reduce a portion of the Fund's custodian expenses. During the six months ended March 31, 2004, the custodian fee was reduced by $9,890 for custodian credits earned.
F. Forward Foreign Currency Commitments
As of March 31, 2004, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver | In Exchange For | Settlement Date | Net Unrealized (Depreciation) | ||
USD | 27,094,324 | EUR | 32,776,004 | 6/10/2004 | $ (470,587) |
$ (470,587) |
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, 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. Securities Lending
The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund in the form of cash and/or government securities equal to 102 percent of the value of domestic securities on loan. The Fund may invest the cash collateral in an affiliated money market fund. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral. Either the Fund or the borrower may terminate the loan. The Fund is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
I. Share Transactions
The following table summarizes share and dollar activity in the Fund:
Six Months Ended March 31, 2004 | Year Ended September 30, 2003 | |||
Shares | Dollars | Shares | Dollars | |
Shares sold | ||||
Class A | 39,383,369 | $ 212,402,331 | 161,986,122 | $ 782,828,987 |
Class B | 5,255,817 | 28,266,420 | 21,058,314 | 102,037,049 |
Class C | 5,440,737 | 29,289,095 | 20,836,847 | 101,122,037 |
Class I | 37,361 | 202,598 | 972,873 | 4,604,560 |
Institutional Class | 1,115,385 | 6,023,626 | 182,933 | 911,926 |
$ 276,184,070 | $ 991,504,559 | |||
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 9,408,801 | $ 50,681,612 | 19,929,574 | $ 97,575,789 |
Class B | 1,583,477 | 8,519,197 | 4,080,301 | 19,895,753 |
Class C | 774,293 | 4,175,133 | 1,490,629 | 7,322,275 |
Class I | 2,269 | 12,198 | 71,496 | 337,007 |
Institutional Class | 35,821 | 193,759 | 5,266 | 26,602 |
$ 63,581,899 | $ 125,157,426 | |||
Shares redeemed | ||||
Class A | (41,286,688) | $ (223,386,162) | (171,495,172) | $ (846,402,239) |
Class B | (20,125,350) | (108,789,205) | (48,083,027) | (236,109,785) |
Class C | (5,181,150) | (28,144,600) | (18,266,842) | (89,797,382) |
Class I | (10,308) | (55,762) | (2,305,783) | (11,103,069) |
Institutional Class | (2,692) | (14,922) | (4,886) | (24,400) |
$ (360,390,651) | $ (1,183,436,875) | |||
Net increase (decrease) | ||||
Class A | 7,505,482 | $ 39,697,781 | 10,420,524 | $ 34,002,537 |
Class B | (13,286,056) | (72,003,588) | (22,944,412) | (114,176,983) |
Class C | 1,033,880 | 5,319,628 | 4,060,634 | 18,646,930 |
Class I | 29,322 | 159,034 | (1,261,414) | (6,161,502) |
Institutional Class | 1,148,514 | 6,202,463 | 183,313 | 914,128 |
$ (20,624,682) | $ (66,774,890) |
J. Transactions in Securities of Affiliated Issuers
An affiliated issuer includes any company in which the Fund has ownership of at least 5% of the voting securities. A summary of the Fund's transactions during the six
months ended March 31, 2004 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. | - | - | 832,469 | (193,952) | - | - |
National Vision, Inc. | 219,191 | - | 360,000 | (289,942) | 37,820 | 335,363 |
SpinCycle, Inc. | 187,460 | - | 3,192,094 | 1,810,494 | - | 1,059,149 |
SpinCycle, Inc. "F" | 1,228 | - | 20,903 | 20,701 | - | 6,938 |
4,405,466 | 1,347,301 | 37,820 | 1,401,450 |
K. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. We are unable to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisers. Publicity about mutual fund practices arising from these industry wide inquiries serves as the general basis of a number of private lawsuits against the Scudder Funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, Deutsche Asset Management ("DeAM") and its affiliates, certain individuals, including in some cases Fund Trustees/Directors, and other parties. DeAM has undertaken to bear all liabilities and expenses incurred by the Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding fund valuation, market timing, revenue sharing or other subjects of the pending inquiries. Based on currently available information, DeAM believes the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect its ability to perform under its investment management agreements with the Scudder funds.
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day.Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found on our Web site - scudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov. To obtain a written copy without charge, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 |
Class A | Class B | Class C | Institutional Class | |
Nasdaq Symbol | KHYAX | KHYBX | KHYCX | KHYIX |
CUSIP Number | 81115L-105 | 81115L-204 | 81115L-303 | 81115L-501 |
Fund Number | 8 | 208 | 308 | 513 |
This privacy statement is issued by Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Scudder Distributors, Inc., Scudder Investor Services, Inc., Scudder Trust Company and the Scudder Funds.
We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the Scudder Companies listed above.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
Questions on this policy may be sent to:
Scudder Investments
Attention: Correspondence - Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
August 2003
Notes |
Notes |
ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. [RESERVED] ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Procedures and Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to the Fund's Secretary for the attention of the Chairman of the Nominating and Governance Committee, Two International Place, Boston, MA 02110. Suggestions for candidates must include a resume of the candidate. ITEM 10. CONTROLS AND PROCEDURES. (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. Fund management has previously identified a significant deficiency relating to the overall fund expense payment and accrual process. This matter relates primarily to a bill payment processing issue. There was no material impact to shareholders, fund net asset value, fund performance or the accuracy of any fund's financial statements. Fund management discussed this matter with the Registrant's Audit Committee and auditors, instituted additional procedures to enhance its internal controls and will continue to develop additional controls and redesign work flow to strengthen the overall control environment associated with the processing and recording of fund expenses. (b) There have been no changes in the registrant's internal control over financial reporting that occurred during the filing period that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting. ITEM 11. EXHIBITS. (a)(1) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.Form N-CSR Item F SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Scudder High Income Fund By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: May 28, 2004 --------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Scudder High Income Fund By: /s/Richard T. Hale --------------------------- Richard T. Hale Chief Executive Officer Date: May 28, 2004 --------------------------- By: /s/Charles A. Rizzo --------------------------- Charles A. Rizzo Chief Financial Officer Date: May 28, 2004 ---------------------------