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) 295-3488 -------------- Charles Rizzo Two International Place Boston, Massachusetts 02110 --------------------------------------- (Name and Address of Agent for Service) Date of fiscal year end: 9/30 Date of reporting period: 03/31/2005ITEM 1. REPORT TO STOCKHOLDERS
| ||
| ||
| Semiannual Report to Shareholders | |
| March 31, 2005 |
Contents |
|
Click Here Performance Summary Click Here Information About Your Fund's Expenses Click Here Portfolio Management Review Click Here Portfolio Summary Click Here Investment Portfolio Click Here Financial Statements Click Here Financial Highlights Click Here Notes to Financial Statements Click Here 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 gain distributions, 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 Fund'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. Institutional Class shares are not subject to sales charges.
To discourage short-term trading, shareholders redeeming shares held less than 60 days will have a lower total return due to the effect of the 2% short-term redemption fee.
Returns for all periods shown for the Institutional Class reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 3/31/05 | |||||
Scudder High Income Fund | 6-Month* | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 4.51% | 9.39% | 10.59% | 5.64% | 6.63% |
Class B | 4.28% | 8.68% | 9.74% | 4.79% | 5.74% |
Class C | 4.30% | 8.73% | 9.76% | 4.77% | 5.75% |
CS First Boston High Yield Index+ | 3.39% | 7.84% | 13.37% | 8.21% | 8.00% |
Scudder High Income Fund | 6-Month* | 1-Year | Life of Class* |
Institutional Class | 4.67% | 9.69% | 16.52% |
CS First Boston High Yield Index+ | 3.39% | 7.84% | 16.45% |
Sources: Lipper Inc. and Deutsche Asset Management, Inc.
* Total returns shown for periods less than one year are not annualized.
* 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 | Institutional Class |
Net Asset Value: 3/31/05 | $ 5.47 | $ 5.46 | $ 5.47 | $ 5.47 |
9/30/04 | $ 5.43 | $ 5.43 | $ 5.44 | $ 5.43 |
Distribution Information: Six Months: Income Dividends as of 3/31/05 | $ .23 | $ .20 | $ .20 | $ .23 |
March Income Dividend | $ .0375 | $ .0336 | $ .0338 | $ .0389 |
SEC 30-day Yield as of 3/31/05* | 6.89% | 6.34% | 6.43% | 7.69% |
Current Annualized Distribution Rate (Based on Net Asset Value) as of 3/31/05* | 8.23% | 7.38% | 7.41% | 8.53% |
* The SEC yield is net investment income per share earned over the month ended March 31, 2005, divided by the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. The SEC yield would have been 7.49% for the Institutional Class had certain expenses not been reduced. In addition, the current annualized distribution rate would have been 8.31% for the Institutional Class had certain expenses not been reduced. Current annualized distribution rate is the latest monthly dividend as an annualized percentage of net asset value on March 31, 2005. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Yields and distribution rates are historical and will fluctuate.
Class A Lipper Rankings — High Current Yield Funds Category as of 3/31/05 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking |
1-Year | 32 | of | 415 | 8 |
3-Year | 91 | of | 350 | 26 |
5-Year | 138 | of | 284 | 49 |
10-Year | 36 | of | 92 | 39 |
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.
Comparative Results (Adjusted for Maximum Sales Charge) as of 3/31/05 | |||||
Scudder High Income Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,447 | $12,916 | $12,562 | $18,138 |
Average annual total return | 4.47% | 8.90% | 4.67% | 6.14% | |
Class B | Growth of $10,000 | $10,568 | $13,016 | $12,555 | $17,478 |
Average annual total return | 5.68% | 9.18% | 4.66% | 5.74% | |
Class C | Growth of $10,000 | $10,873 | $13,224 | $12,626 | $17,497 |
Average annual total return | 8.73% | 9.76% | 4.77% | 5.75% | |
CS First Boston High Yield Index+ | Growth of $10,000 | $10,784 | $14,571 | $14,836 | $21,595 |
Average annual total return | 7.84% | 13.37% | 8.21% | 8.00% |
The growth of $10,000 is cumulative.
+ 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.
|
|
Comparative Results as of 3/31/05 | |||
Scudder High Income Fund | 1-Year | Life of Class* | |
Institutional Class | Growth of $1,000,000 | $1,096,900 | $1,491,600 |
Average annual total return | 9.69% | 16.52% | |
CS First Boston High Yield Index+ | Growth of $1,000,000 | $1,078,400 | $1,481,700 |
Average annual total return | 7.84% | 16.45% |
The growth of $1,000,000 is cumulative.
The minimum investment for Institutional Class is $1,000,000.
* 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.
|
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Institutional Class limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended March 31, 2005.
The tables illustrate your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A | Class B | Class C | Institutional Class |
Scudder High Income Fund | .92% | 1.73% | 1.69% | .60% |
For more information, please refer to the Fund's prospectus.
|
In the following interview, Portfolio Manager Andrew Cestone discusses the Scudder High Income Fund's strategy and the market environment during the six-month period ended March 31, 2005.
Q: How did the high-yield bond market perform during the period?
A: High-yield bonds provided both positive absolute returns and strong relative performance during the past six months. High-yield was one of the best performing areas within the bond market for the period, reflecting the sound fundamentals of the asset class. The CS First Boston High Yield Index — the fund's benchmark — returned 3.39%, strongly ahead of the 0.47% return of the bond market as a whole, as measured by the Lehman Brothers Aggregate Bond Index.1
1 The CS First Boston High-yield Index is an unmanaged, trader-priced portfolio constructed to mirror the global high-yield debt market. The Lehman Brothers Aggregate Bond Index represents US domestic taxable investment-grade bonds that include securities from the following sectors: US Treasuries, agencies, corporate bonds, mortgage-backed bonds 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 is in the intermediate range.
2 Source: Moody's Investors Service
Despite concerns about rising interest rates, higher commodity prices and the US Presidential election, the solid fundamental underpinnings of the market remained in place. Helped by strength in the US economy and low interest rates, high-yield companies generally had sound financial positions through actions such as cutting costs, reducing debt and refinancing their existing debt at lower interest rates. Probably the best indication of solid fundamentals in the high-yield market was the continuation of low defaults. At the end of March 2005, Moody's 12-month rolling default rate stood at 2.2%, compared with 2.5% at the end of September 2004.2 In addition to low defaults, higher recovery rates remained intact.3 Lastly, the ratio of rating upgrades to downgrades continued to improve — another indication of the market's solid fundamentals.4
These favorable fundamentals were reflected in the compression of the high-yield market's yield spread versus Treasuries during the period.5 At the close of the period, the spread stood at 373 basis points (3.73 percentage points), versus 430 basis points six months ago.
3 The recovery rate is the amount investors recover when a bond defaults.
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.
5 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.
Q: How did the fund perform?
A: The fund's Class A shares returned 4.51%, outperforming both its benchmark and its Lipper peer group average return for the period. (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results. Please see pages 3 through 6 for the performance of other share classes and for more complete performance information.)
The fund ranked in the 10th percentile of the 423 funds in its Lipper peer group, High Current Yield Funds, for the six-month period ended March 31, 2005. The fund also outperformed the average return of the peer group for the one- and three-year periods ended March 31, 2005, ranking in the 8th and 26th percentiles, respectively.6 As noted, the fund's benchmark, the CS First Boston High-Yield Index, gained 3.39% for the period.
6 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 ranked 32, 91, and 138, for the 1-, 3- and 5-year periods as of March 31, 2005. There were 415, 350, and 284 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, 2005.
Q: How did individual security selection affect performance?
A: Individual security selection was one of the larger contributors to return for the period. Adding to performance was security selection and overweight positions in Qwest Capital Funding, Inc., ARCO/Lyondell Chemical Co., DIMON, Inc., Avecia Group PLC, Dobson Communications, MCI Communications Corp. and Ispat Inland ULC.
Qwest, a US telecommunications company and one of the fund's largest holdings, is a security that we held in the CCC/split CCC quality segment in anticipation of an upgrade. In the second quarter of 2004 Qwest was in fact upgraded to single B, and the company's bonds continued to gain in price as a result. The bond prices of the chemical company, ARCO, increased from undervalued levels following favorable indications of improved demand and pricing in the chemical sector. The bond prices of DIMON, a tobacco processing company, appreciated on news that the company intended to tender its bonds at a premium. The bonds of Avecia, a specialty chemicals company, increased in price as the company continued to sell assets. In the second half of 2004, we pared back our overweight position in Dobson Communications, a wireless telecommunications company, after it reported lower-than-expected results. Although we reduced our position in Dobson, we still maintained an overweight. This overweight position benefited return after the company subsequently reported better-than-expected and improved results, as we anticipated it would. MCI's bonds gained in price on an offer from Verizon to acquire the company. Overseas holdings such as Ispat Europe, a steel company, also helped performance.
Q: What individual security positions detracted from performance?
A: The fund's overweight positions in North Atlantic Holding, Inc. and Dayton Superior Corp., coupled with underweight positions in AT&T Corp. and our nonholding in Mirant (a significant part of the benchmark), detracted from performance.
The bonds of AT&T, a telecommunications company and the largest issuer in the benchmark, rallied after it was announced in early 2005 that SBC Communications intended to purchase AT&T. Our underweight in AT&T was the result of our finding better risk-adjusted relative value in the bonds of MCI, another telecommunications company. Our decision to overweight MCI has recently benefited fund performance. The fund did not own Mirant, whose bonds outperformed, which dampened returns. North Atlantic Trading Company, a tobacco producer, reported softer-than expected financial results, which caused its bond prices to decline. Upon this disappointing news, we reassessed the position. The outcome of our analysis led us to exit the company's holding company bonds and take a relatively larger position in the bonds of its operating company. This decision was based on our assessment that the operating company bonds offered better risk-adjusted relative value. Dayton Superior, a building materials company, announced disappointing financial results in the first quarter of 2005, and this announcement caused the company's bonds to drift lower in price. We continue to hold the bonds on our belief that they offer value as Dayton Superior should ultimately benefit from growth and a recovery in demand in the commercial construction market.
Q: Outside of individual security selection, what factors affected performance?
A: Our more aggressive quality mix also added to return. Lower quality securities (split CCC/CCC/split CC/CC/default) were the best performing credit quality segment for the period, returning 7.09%, followed by middle-tier (split BB/B/split B) and upper-tier (BB and better) securities, which returned 3.28% and 1.85%, respectively. Our overweight positions in lower- and middle-tier securities, and corresponding underweight in upper-tier securities, helped relative returns.
In addition, the fund's duration was less than that of its benchmark as a result of us finding better value in shorter duration securities. Having a lower duration than the benchmark helped mitigate interest rate volatility.7
7 Duration is a measure of interest rate sensitivity. Being long duration means a portfolio's value should outperform if interest rates fall and underperform if interest rates rise. Being short duration means a portfolio's value should outperform if interest rates rise and underperform if interest rates fall.
Q: What is your view on the current state of the high-yield market?
A: The high-yield market continues to exhibit sound fundamentals as the economy remains robust, resulting in low default rates. These low default rates will not last forever, however, which means good security selection is paramount at this point in the cycle. Given that, we continue to be overweight middle-tier securities whose underlying fundamentals are improving or that are trading at what we believe are undervalued levels.
We remain focused on adding value by doing fundamental research rather than making broad predictions about sector performance or interest rates. The fund's current positioning, being shorter duration than the benchmark, should help mitigate the negative effects of a spike in interest rates or a pick-up in volatility.
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 (Excludes Securities Lending Collateral) | 3/31/05 | 9/30/04 |
| ||
Corporate Bonds | 75% | 74% |
Foreign Bonds — US$ Denominated | 18% | 19% |
Foreign Bonds — Non US$ Denominated | 2% | 3% |
Loan Participation | 1% | — |
Cash Equivalents, net | 1% | 2% |
Stocks | 1% | 1% |
Convertible Bonds | 1% | 1% |
Other Investments | 1% | — |
| 100% | 100% |
Corporate and Foreign Bond Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 3/31/05 | 9/30/04 |
| ||
Consumer Discretionary | 25% | 23% |
Materials | 15% | 14% |
Industrials | 15% | 15% |
Telecommunication Services | 13% | 15% |
Utilities | 7% | 5% |
Energy | 7% | 9% |
Financials | 7% | 9% |
Health Care | 3% | 3% |
Consumer Staples | 3% | 4% |
Sovereign Bonds | 3% | 2% |
Information Technology | 2% | 1% |
| 100% | 100% |
Asset allocation and corporate and foreign bond diversification are subject to change.
|
|
Quality | 3/31/05 | 9/30/04 |
| ||
Cash Equivalents | 2% | 4% |
BBB | 2% | 2% |
BB | 23% | 26% |
B | 59% | 51% |
CCC | 11% | 16% |
CC | — | 1% |
D | 3% | — |
| 100% | 100% |
Effective Maturity | 3/31/05 | 9/30/04 |
| ||
Less than 1 year | 7% | 9% |
1 < 5 years | 46% | 59% |
5 < 7 years | 21% | 22% |
7 years or greater | 26% | 10% |
| 100% | 100% |
Quality and effective maturity are subject to change.
The quality ratings represents the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.
For complete details about the Fund's investment portfolio, see page 17. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to scudder.com on the 15th of the following month. Please see the Account Management Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
![]() | |
|
| Principal Amount ($) (d) | Value ($) |
|
| |
Corporate Bonds 73.8% | ||
Consumer Discretionary 19.4% | ||
155 East Tropicana LLC, 144A, 8.75%, 4/1/2012 | 3,370,000 | 3,327,875 |
Adesa, Inc., 7.625%, 6/15/2012 | 2,367,000 | 2,367,000 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 (e) | 6,830,000 | 6,522,650 |
Ames True Temper, Inc., 144A, 6.64%**, 1/15/2012 | 3,405,000 | 3,200,700 |
AutoNation, Inc., 9.0%, 8/1/2008 | 2,350,000 | 2,585,000 |
Aztar Corp., 7.875%, 6/15/2014 (e) | 3,910,000 | 4,154,375 |
Bally Total Fitness Holdings Corp., 10.5%, 7/15/2011 (e) | 5,500,000 | 5,417,500 |
Cablevision Systems New York Group, 144A, 6.669%**, 4/1/2009 | 6,590,000 | 6,985,400 |
Caesars Entertainment, Inc.: |
|
|
8.875%, 9/15/2008 | 3,265,000 | 3,579,256 |
9.375%, 2/15/2007 | 2,310,000 | 2,457,263 |
Charter Communications Holdings LLC: Step-up Coupon, 0% to 5/15/2006, 11.75% to 5/15/2011 | 13,280,000 | 9,163,200 |
9.625%, 11/15/2009 (e) | 12,015,000 | 9,401,737 |
10.25%, 9/15/2010 (e) | 20,525,000 | 20,935,500 |
Cooper-Standard Automotive, Inc., 144A, 8.375%, 12/15/2014 (e) | 7,579,000 | 6,157,937 |
CSC Holdings, Inc., 7.875%, 12/15/2007 | 9,045,000 | 9,406,800 |
Dex Media East LLC, 12.125%, 11/15/2012 (e) | 27,470,000 | 32,551,950 |
DIMON, Inc.: |
|
|
7.75%, 6/1/2013 | 3,295,000 | 3,690,400 |
Series B, 9.625%, 10/15/2011 | 17,405,000 | 19,645,894 |
Dura Operating Corp.: |
|
|
Series B, 8.625%, 4/15/2012 (e) | 2,617,000 | 2,414,183 |
Series B, 9.0%, 5/1/2009 EUR | 2,185,000 | 2,265,933 |
Dyersburg Corp., Series B, 9.75%, 9/1/2007* | 18,155,000 | 1,816 |
EchoStar DBS Corp., 144A, 6.625%, 10/1/2014 (e) | 4,280,000 | 4,135,550 |
Eye Care Centers of America, Inc., 144A, 10.75%, 2/15/2015 | 3,135,000 | 2,993,925 |
Friendly Ice Cream Corp., 8.375%, 6/15/2012 (e) | 4,939,000 | 4,692,050 |
General Motors Corp., 8.25%, 7/15/2023 | 1,250,000 | 1,079,793 |
Icon Health & Fitness, Inc., 11.25%, 4/1/2012 (e) | 5,660,000 | 3,962,000 |
Imperial Home Decor Group, Inc., Series B, 11.0%, 3/15/2008* | 12,740,000 | 0 |
Interep National Radio Sales, Inc., Series B, 10.0%, 7/1/2008 (e) | 5,400,000 | 4,252,500 |
ITT Corp., 7.375%, 11/15/2015 | 5,500,000 | 5,912,500 |
Jacobs Entertainment, Inc.: |
|
|
11.875%, 2/1/2009 | 13,153,000 | 14,336,770 |
144A, 11.875%, 2/1/2009 | 5,090,000 | 5,548,100 |
Kellwood Co., 7.625%, 10/15/2017 | 1,680,000 | 1,757,162 |
Levi Strauss & Co., 144A, 7.73%**, 4/1/2012 | 4,640,000 | 4,558,800 |
Mediacom LLC, 9.5%, 1/15/2013 (e) | 9,455,000 | 9,431,362 |
MGM MIRAGE: |
|
|
8.375%, 2/1/2011 (e) | 12,475,000 | 13,473,000 |
9.75%, 6/1/2007 | 3,395,000 | 3,649,625 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 2,780,000 | 3,030,200 |
NCL Corp., 144A, 10.625%, 7/15/2014 | 6,896,000 | 7,128,740 |
Norcraft Holdings, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 8,290,000 | 5,885,900 |
Paxson Communications Corp.: |
|
|
10.75%, 7/15/2008 (e) | 2,675,000 | 2,654,938 |
Step-up Coupon, 0% to 1/15/2006, 12.25% to 1/15/2009 (e) | 2,290,000 | 2,129,700 |
Petro Stopping Centers, 9.0%, 2/15/2012 (e) | 10,840,000 | 11,165,200 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 5,005,000 | 5,180,175 |
Premier Entertainment Biloxi LLC, 10.75%, 2/1/2012 | 6,125,000 | 6,247,500 |
PRIMEDIA, Inc.: |
|
|
8.164%**, 5/15/2010 | 10,220,000 | 10,833,200 |
8.875%, 5/15/2011 | 11,335,000 | 11,816,737 |
Renaissance Media Group LLC, 10.0%, 4/15/2008 | 5,805,000 | 5,863,050 |
Resorts International Hotel & Casino, Inc., 11.5%, 3/15/2009 | 2,665,000 | 3,034,769 |
Restaurant Co., 11.25%, 5/15/2008 | 8,147,515 | 7,984,565 |
Sbarro, Inc., 11.0%, 9/15/2009 (e) | 3,685,000 | 3,556,025 |
Schuler Homes, Inc., 10.5%, 7/15/2011 (e) | 7,785,000 | 8,609,984 |
Simmons Bedding Co., 144A, Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 10,235,000 | 6,396,875 |
Sinclair Broadcast Group, Inc.: |
|
|
8.0%, 3/15/2012 (e) | 14,080,000 | 14,361,600 |
8.75%, 12/15/2011 (e) | 11,530,000 | 12,106,500 |
Sonic Automotive, Inc., Series B, 8.625%, 8/15/2013 | 4,930,000 | 4,905,350 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 | 11,715,000 | 9,782,025 |
Trump Holdings & Funding, 11.625%, 3/15/2010* (e) | 4,975,000 | 5,410,313 |
TRW Automotive, Inc.: |
|
|
11.0%, 2/15/2013 (e) | 9,302,000 | 10,418,240 |
11.75%, 2/15/2013 EUR | 2,285,000 | 3,428,569 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 8,400,000 | 8,862,000 |
Visteon Corp.: |
|
|
7.0%, 3/10/2014 (e) | 13,710,000 | 11,653,500 |
8.25%, 8/1/2010 (e) | 1,275,000 | 1,211,250 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 5,828,000 | 6,265,100 |
Williams Scotsman, Inc., 9.875%, 6/1/2007 (e) | 13,068,000 | 13,002,660 |
Wynn Las Vegas LLC, 144A, 6.625%, 12/1/2014 | 12,795,000 | 12,155,250 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14.0% to 12/31/2009 | 2,707,489 | 2,761,639 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 (e) | 8,980,000 | 8,508,550 |
462,365,610 | ||
Consumer Staples 2.7% | ||
Agrilink Foods, Inc., 11.875%, 11/1/2008 (e) | 3,575,000 | 3,709,063 |
Del Laboratories, Inc., 144A, 8.0%, 2/1/2012 | 4,805,000 | 4,612,800 |
Duane Reade, Inc.: |
|
|
144A, 7.51%**, 12/15/2010 | 646,000 | 652,460 |
9.75%, 8/1/2011 (e) | 4,825,000 | 4,246,000 |
GNC Corp.: |
|
|
8.5%, 12/1/2010 (e) | 2,895,000 | 2,460,750 |
144A, 8.625%, 1/15/2011 | 455,000 | 427,700 |
National Beef Packing Co., 10.5%, 8/1/2011 (e) | 1,820,000 | 1,856,400 |
North Atlantic Holding, Inc., Step-up Coupon, 0% to 3/1/2008, 12.25% to 3/1/2014 (e) | 2,245,000 | 426,550 |
North Atlantic Trading Co., 9.25%, 3/1/2012 (e) | 11,650,000 | 8,737,500 |
Pinnacle Foods Holding Corp., 8.25%, 12/1/2013 (e) | 7,037,000 | 6,016,635 |
Revlon Consumer Products Corp., 9.0%, 11/1/2006 | 6,543,000 | 6,543,000 |
Rite Aid Corp., 11.25%, 7/1/2008 (e) | 9,520,000 | 10,138,800 |
Standard Commercial Corp., 8.0%, 4/15/2012 | 3,665,000 | 4,214,750 |
Swift & Co., 12.5%, 1/1/2010 (e) | 6,451,000 | 7,273,502 |
Wornick Co., 10.875%, 7/15/2011 | 3,400,000 | 3,553,000 |
64,868,910 | ||
Energy 4.5% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 (e) | 6,895,000 | 6,843,288 |
Chesapeake Energy Corp.: |
|
|
6.875%, 1/15/2016 (e) | 3,530,000 | 3,565,300 |
9.0%, 8/15/2012 | 3,934,000 | 4,342,152 |
CITGO Petroleum Corp., 6.0%, 10/15/2011 | 8,478,000 | 8,372,025 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 (e) | 1,495,000 | 1,326,812 |
7.125%, 5/15/2018 (e) | 7,190,000 | 5,644,150 |
7.625%, 10/15/2026 | 2,385,000 | 1,839,431 |
144A, 9.875%, 7/15/2010 | 8,615,000 | 9,228,819 |
Edison Mission Energy, 7.73%, 6/15/2009 (e) | 8,960,000 | 9,340,800 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 7,470,000 | 7,563,375 |
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007 | 9,155,000 | 9,063,450 |
NGC Corp. Capital Trust I, Series B, 8.316%, 6/1/2027 (e) | 2,950,000 | 2,330,500 |
Southern Natural Gas, 8.875%, 3/15/2010 (e) | 7,095,000 | 7,693,109 |
Stone Energy Corp.: |
|
|
6.75%, 12/15/2014 | 3,600,000 | 3,492,000 |
8.25%, 12/15/2011 | 9,550,000 | 9,955,875 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 (e) | 9,711,000 | 10,633,545 |
8.75%, 3/15/2032 (e) | 4,407,000 | 5,233,312 |
106,467,943 | ||
Financials 5.7% | ||
AAC Group Holding Corp., 144A, Step-up Coupon, 0% to 10/1/2008, 10.25% to 10/1/2012 | 1,585,000 | 1,141,200 |
Affinia Group, Inc., 144A, 9.0%, 11/30/2014 | 10,665,000 | 9,865,125 |
Alamosa Delaware, Inc., Step-up Coupon, 0% to 7/31/2005, 12.0% to 7/31/2009 (e) | 3,740,000 | 4,067,250 |
AmeriCredit Corp., 9.25%, 5/1/2009 | 15,942,000 | 17,077,867 |
Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028 | 3,525,000 | 2,186,780 |
BF Saul Real Estate Investment Trust, 7.5%, 3/1/2014 (e) | 5,690,000 | 5,903,375 |
E*TRADE Financial Corp., 8.0%, 6/15/2011 (e) | 8,093,000 | 8,335,790 |
Eaton Vance Corp., CDO, Series C-X, 13.68%, 7/15/2012* | 1,487,316 | 14,873 |
FINOVA Group, Inc., 7.5%, 11/15/2009 | 46,046,699 | 19,915,197 |
FRD Acquisition Co., Series B, 12.5%, 7/15/2004* | 2,450,000 | 0 |
General Motors Acceptance Corp.: |
|
|
5.625%, 5/15/2009 | 710,000 | 647,714 |
6.75%, 12/1/2014 (e) | 3,930,000 | 3,394,750 |
H&E Equipment, 11.125%, 6/15/2012 | 5,575,000 | 6,271,875 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 (e) | 7,370,000 | 7,664,800 |
PXRE Capital Trust I, 8.85%, 2/1/2027 | 6,650,000 | 6,916,000 |
Qwest Capital Funding, Inc., 6.5%, 11/15/2018 | 2,738,000 | 2,176,710 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 (e) | 4,237,000 | 4,883,143 |
Radnor Holdings Corp., 11.0%, 3/15/2010 (e) | 8,045,000 | 5,953,300 |
RC Royalty Subordinated LLC, 7.0%, 1/1/2018 | 3,795,000 | 3,453,450 |
TIG Capital Holdings Trust, 144A, 8.597%, 1/15/2027 | 7,930,000 | 6,819,800 |
UGS Corp., 144A, 10.0%, 6/1/2012 | 7,135,000 | 7,884,175 |
Universal City Development, 11.75%, 4/1/2010 | 10,105,000 | 11,519,700 |
136,092,874 | ||
Health Care 2.9% | ||
Cinacalcet Royalty Subordinated LLC, 8.0%, 3/30/2017 | 6,310,000 | 6,467,750 |
Curative Health Services, Inc., 10.75%, 5/1/2011 (e) | 4,360,000 | 3,586,100 |
Encore Medical Corp., 144A, 9.75%, 10/1/2012 | 4,565,000 | 4,450,875 |
Hanger Orthopedic Group, Inc., 10.375%, 2/15/2009 (e) | 6,000,000 | 5,955,000 |
HEALTHSOUTH Corp., 10.75%, 10/1/2008 (e) | 8,715,000 | 8,932,875 |
IDI Acquisition Corp., 144A, 10.75%, 12/15/2011 | 4,685,000 | 4,685,000 |
InSight Health Services Corp., Series B, 9.875%, 11/1/2011 (e) | 5,160,000 | 5,056,800 |
Interactive Health LLC, 144A, 7.25%, 4/1/2011 | 5,398,000 | 4,912,180 |
Tenet Healthcare Corp.: |
|
|
6.375%, 12/1/2011 (e) | 12,550,000 | 11,577,375 |
144A, 9.25%, 2/1/2015 | 14,465,000 | 14,428,838 |
70,052,793 | ||
Industrials 11.1% | ||
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 7,653,000 | 8,265,240 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 6,845,000 | 7,016,125 |
Allied Waste North America, Inc.: |
|
|
Series B, 5.75%, 2/15/2011 (e) | 16,301,000 | 14,833,910 |
Series B, 9.25%, 9/1/2012 (e) | 5,236,000 | 5,602,520 |
AMI Semiconductor, Inc., 10.75%, 2/1/2013 (e) | 2,053,000 | 2,458,468 |
Avondale Mills, Inc., 144A, 9.56%**, 7/1/2012 | 5,945,000 | 5,945,000 |
Bear Creek Corp., 144A, 7.873%**, 3/1/2012 | 4,495,000 | 4,517,475 |
Beazer Homes USA, Inc., 8.625%, 5/15/2011 | 540,000 | 572,400 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 7,483,000 | 6,136,060 |
9.25%, 5/1/2021 | 3,665,000 | 3,719,975 |
Cenveo Corp., 7.875%, 12/1/2013 (e) | 7,160,000 | 6,390,300 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 (e) | 13,250,000 | 14,111,250 |
Columbus McKinnon Corp., 10.0%, 8/1/2010 (e) | 5,480,000 | 5,959,500 |
Congoleum Corp., 8.625%, 8/1/2008* | 4,015,000 | 4,075,225 |
Cornell Companies, Inc., 10.75%, 7/1/2012 (e) | 6,925,000 | 7,167,375 |
Dana Corp., 7.0%, 3/1/2029 (e) | 7,005,000 | 6,151,651 |
Eagle-Picher Industries, Inc., 9.75%, 9/1/2013* | 1,328,000 | 849,920 |
Erico International Corp., 8.875%, 3/1/2012 | 4,310,000 | 4,530,077 |
Evergreen International Aviation, Inc., 12.0%, 5/15/2010 (e) | 2,315,000 | 1,736,250 |
Goodman Global Holding Co., Inc., 144A, 7.875%, 12/15/2012 (e) | 11,410,000 | 10,440,150 |
GS Technologies Operating Co., Inc., 12.0%, 9/1/2004* | 4,577,117 | 11,443 |
HydroChem Industrial Services, Inc., 144A, 9.25%, 2/15/2013 (e) | 3,125,000 | 3,062,500 |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 11,111,000 | 12,027,657 |
Joy Global, Inc., Series B, 8.75%, 3/15/2012 | 2,525,000 | 2,777,500 |
Kansas City Southern: |
|
|
7.5%, 6/15/2009 | 5,105,000 | 5,207,100 |
9.5%, 10/1/2008 | 15,455,000 | 16,845,950 |
Kinetek, Inc., Series D, 10.75%, 11/15/2006 (e) | 12,637,000 | 11,594,447 |
Laidlaw International, Inc., 10.75%, 6/15/2011 | 7,960,000 | 9,014,700 |
Metaldyne Corp.: |
|
|
144A, 10.0%, 11/1/2013 (e) | 7,145,000 | 6,501,950 |
11.0%, 6/15/2012 (e) | 1,452,000 | 1,176,120 |
Millennium America, Inc.: |
|
|
7.625%, 11/15/2026 (e) | 4,909,000 | 4,761,730 |
9.25%, 6/15/2008 (e) | 9,785,000 | 10,494,412 |
NTK Holdings, Inc., 144A, Step-up Coupon, 0% to 9/1/2009, 10.75% to 3/1/2014 (e) | 7,655,000 | 4,076,288 |
Remington Arms Co., Inc., 10.5%, 2/1/2011 (e) | 3,637,000 | 3,582,445 |
Securus Technologies, Inc., 144A, 11.0%, 9/1/2011 | 5,251,000 | 5,277,255 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 8,780,000 | 8,692,200 |
Technical Olympic USA, Inc.: |
|
|
7.5%, 3/15/2011 (e) | 3,410,000 | 3,273,600 |
10.375%, 7/1/2012 | 9,645,000 | 10,561,275 |
The Brickman Group Ltd., Series B, 11.75%, 12/15/2009 | 4,550,000 | 5,141,500 |
United Rentals North America, Inc., 7.0%, 2/15/2014 (e) | 15,245,000 | 13,949,175 |
Westlake Chemical Corp., 8.75%, 7/15/2011 | 4,285,000 | 4,686,719 |
263,194,837 | ||
Information Technology 1.5% | ||
Activant Solutions, Inc.: |
|
|
144A, 9.09%**, 4/1/2010 | 2,465,000 | 2,514,300 |
10.5%, 6/15/2011 | 6,418,000 | 6,835,170 |
Eschelon Operating Co.: |
|
|
8.375%, 3/15/2010 | 1,425,000 | 1,218,375 |
144A, 8.375%, 3/15/2010 | 2,000,000 | 1,710,000 |
Lucent Technologies, Inc.: |
|
|
6.45%, 3/15/2029 (e) | 13,945,000 | 12,027,562 |
7.25%, 7/15/2006 (e) | 1,190,000 | 1,216,775 |
Sanmina-SCI Corp., 144A, 6.75%, 3/1/2013 | 10,645,000 | 9,979,688 |
35,501,870 | ||
Materials 10.6% | ||
Aqua Chemical, Inc., 11.25%, 7/1/2008 | 5,714,000 | 4,885,470 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 28,926,000 | 32,686,380 |
Associated Materials, Inc., Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 17,555,000 | 12,200,725 |
Caraustar Industries, Inc., 9.875%, 4/1/2011 (e) | 6,107,000 | 6,412,350 |
Constar International, Inc., 144A, 6.149%**, 2/15/2012 | 4,330,000 | 4,330,000 |
Dayton Superior Corp.: |
|
|
10.75%, 9/15/2008 (e) | 5,815,000 | 5,698,700 |
13.0%, 6/15/2009 (e) | 14,365,000 | 12,928,500 |
Edgen Acquisition Corp., 144A, 9.875%, 2/1/2011 | 4,040,000 | 4,050,100 |
GEO Specialty Chemicals, Inc., 11.06%, 12/31/2009 | 2,075,000 | 2,158,000 |
Georgia-Pacific Corp.: |
|
|
8.0%, 1/15/2024 | 9,880,000 | 11,016,200 |
9.375%, 2/1/2013 | 6,480,000 | 7,241,400 |
Hercules, Inc., 6.75%, 10/15/2029 | 5,930,000 | 5,811,400 |
Huntsman Advanced Materials LLC, 144A, 11.0%, | 7,540,000 | 8,652,150 |
Huntsman International LLC, 10.125%, 7/1/2009 EUR | 4,363,000 | 5,896,129 |
Huntsman LLC, 11.625%, 10/15/2010 | 9,920,000 | 11,606,400 |
IMC Global, Inc.: |
|
|
7.375%, 8/1/2018 | 2,410,000 | 2,482,300 |
10.875%, 8/1/2013 | 4,285,000 | 5,120,575 |
Intermet Corp., 9.75%, 6/15/2009* (e) | 3,010,000 | 1,685,600 |
MMI Products, Inc., Series B, 11.25%, 4/15/2007 | 7,166,000 | 7,130,170 |
Neenah Corp.: |
|
|
144A, 11.0%, 9/30/2010 | 11,479,000 | 12,741,690 |
144A, 13.0%, 9/30/2013 | 6,432,827 | 6,593,648 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 12,450,000 | 13,010,250 |
Owens-Brockway Glass Container, 8.25%, 5/15/2013 | 10,000 | 10,575 |
Oxford Automotive, Inc., 144A, 12.0%, 10/15/2010* (e) | 12,003,715 | 6,962,155 |
Pliant Corp.: |
|
|
Step-up Coupon, 0% to 12/15/2006, 11.125% to 6/15/2009 | 1,500,000 | 1,350,000 |
11.125%, 9/1/2009 | 7,145,000 | 7,145,000 |
Portola Packaging, Inc., 8.25%, 2/1/2012 (e) | 7,085,000 | 5,313,750 |
Rockwood Specialties Group, Inc., 144A, 7.625%, | 5,835,000 | 7,658,463 |
Sheffield Steel Corp., 144A, 11.375%, 8/15/2011 | 3,750,000 | 3,834,375 |
Texas Industries, Inc., 10.25%, 6/15/2011 | 4,275,000 | 4,841,438 |
TriMas Corp., 9.875%, 6/15/2012 | 16,678,000 | 17,011,560 |
UAP Holding Corp., Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012 | 6,355,000 | 5,052,225 |
United States Steel LLC: |
|
|
9.75%, 5/15/2010 | 7,434,000 | 8,233,155 |
10.75%, 8/1/2008 (e) | 796,000 | 915,400 |
252,666,233 | ||
Telecommunication Services 8.9% | ||
AirGate PCS, Inc., 144A, 6.41%**, 10/15/2011 | 3,150,000 | 3,213,000 |
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 13,408,000 | 12,335,360 |
AT&T Corp.: |
|
|
9.05%, 11/15/2011 | 18,660,000 | 21,202,425 |
9.75%, 11/15/2031 | 10,325,000 | 12,596,500 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 (e) | 2,580,000 | 2,567,100 |
8.375%, 1/15/2014 (e) | 21,705,000 | 21,379,425 |
144A, 8.375%, 1/15/2014 | 1,925,000 | 1,896,125 |
Crown Castle International Corp., 9.375%, 8/1/2011 | 4,325,000 | 4,703,437 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 5,175,000 | 4,062,375 |
Insight Midwest LP, 9.75%, 10/1/2009 (e) | 3,530,000 | 3,688,850 |
LCI International, Inc., 7.25%, 6/15/2007 | 9,215,000 | 8,685,137 |
Level 3 Financing, Inc., 144A, 10.75%, 10/15/2011 (e) | 3,990,000 | 3,501,225 |
MCI, Inc., 8.735%, 5/1/2014 (e) | 24,150,000 | 26,565,000 |
Nextel Communications, Inc.: |
|
|
5.95%, 3/15/2014 | 7,935,000 | 7,895,325 |
7.375%, 8/1/2015 | 19,360,000 | 20,449,000 |
Nextel Partners, Inc., 8.125%, 7/1/2011 (e) | 5,540,000 | 5,886,250 |
Northern Telecom Capital, 7.875%, 6/15/2026 (e) | 3,279,000 | 3,295,395 |
NTELOS, Inc., 144A, 13.0%, 8/15/2010* | 500,000 | 510,625 |
Qwest Corp., 7.25%, 9/15/2025 (e) | 11,130,000 | 10,406,550 |
Qwest Services Corp.: |
|
|
144A, 14.0%, 12/15/2010 | 11,099,000 | 12,847,092 |
144A, 14.5%, 12/15/2014 | 7,110,000 | 8,585,325 |
Rural Cellular Corp., 9.875%, 2/1/2010 (e) | 1,755,000 | 1,763,775 |
SBA Telecom, Inc., Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011 (e) | 2,275,000 | 1,962,188 |
Triton PCS, Inc., 8.5%, 6/1/2013 (e) | 2,530,000 | 2,327,600 |
Ubiquitel Operating Co., 9.875%, 3/1/2011 (e) | 2,315,000 | 2,552,288 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 (e) | 4,396,000 | 4,868,570 |
Western Wireless Corp., 9.25%, 7/15/2013 | 1,135,000 | 1,293,900 |
211,039,842 | ||
Utilities 6.5% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 13,210,000 | 14,398,900 |
Allegheny Energy Supply Co. LLC: |
|
|
144A, 8.25%, 4/15/2012 (e) | 13,740,000 | 14,564,400 |
144A, 10.25%, 11/15/2007 | 1,145,000 | 1,265,225 |
Aquila, Inc., 14.875%, 7/1/2012 (e) | 1,495,000 | 2,048,150 |
Calpine Corp.: |
|
|
8.25%, 8/15/2005 (e) | 8,722,000 | 8,722,000 |
144A, 8.5%, 7/15/2010 (e) | 11,650,000 | 9,145,250 |
CMS Energy Corp.: |
|
|
7.5%, 1/15/2009 | 4,540,000 | 4,676,200 |
8.5%, 4/15/2011 (e) | 10,060,000 | 10,864,800 |
9.875%, 10/15/2007 (e) | 9,435,000 | 10,236,975 |
DPL, Inc., 6.875%, 9/1/2011 | 7,970,000 | 8,467,878 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 11,614,000 | 13,936,800 |
NorthWestern Corp., 144A, 5.875%, 11/1/2014 | 4,090,000 | 4,068,818 |
NRG Energy, Inc., 144A, 8.0%, 12/15/2013 | 19,474,000 | 20,593,755 |
PSE&G Energy Holdings LLC: |
|
|
8.5%, 6/15/2011 | 8,835,000 | 9,497,625 |
10.0%, 10/1/2009 | 12,693,000 | 14,247,892 |
TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010 | 8,355,000 | 8,814,525 |
155,549,193 | ||
Total Corporate Bonds (Cost $1,824,006,014) | 1,757,800,105 | |
| ||
Foreign Bonds — US$ Denominated 17.9% | ||
Consumer Discretionary 2.8% | ||
Advertising Directory Solutions, Inc., 144A, 9.25%, 11/15/2012 | 4,670,000 | 4,903,500 |
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 11,176,000 | 12,852,400 |
Kabel Deutschland GmbH, 144A, 10.625%, 7/1/2014 | 8,915,000 | 9,851,075 |
Shaw Communications, Inc.: |
|
|
7.25%, 4/6/2011 (e) | 2,090,000 | 2,231,075 |
8.25%, 4/11/2010 | 14,035,000 | 15,438,500 |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 12,774,000 | 9,660,337 |
Vitro Envases Norteamerica SA, 144A, 10.75%, 7/23/2011 | 3,665,000 | 3,738,300 |
Vitro SA de CV, Series A, 144A, 11.75%, 11/1/2013 (e) | 7,460,000 | 7,087,000 |
65,762,187 | ||
Consumer Staples 0.4% | ||
Burns Philp Capital Property Ltd., 10.75%, 2/15/2011 | 7,055,000 | 7,831,050 |
Grupo Cosan SA, 144A, 9.0%, 11/1/2009 | 2,259,000 | 2,179,935 |
10,010,985 | ||
Energy 2.3% | ||
Luscar Coal Ltd., 9.75%, 10/15/2011 | 7,750,000 | 8,525,000 |
OAO Gazprom, 144A, 9.625%, 3/1/2013 | 10,565,000 | 12,070,512 |
Petroleum Geo-Services ASA, 10.0%, 11/5/2010 | 25,944,187 | 29,122,350 |
Secunda International Ltd., 144A, 10.66%**, 9/1/2012 | 5,515,000 | 5,528,788 |
55,246,650 | ||
Financials 0.8% | ||
Conproca SA de CV, 12.0%, 6/16/2010 | 4,920,000 | 6,002,400 |
Eircom Funding, 8.25%, 8/15/2013 (e) | 5,721,000 | 6,221,587 |
Mizuho Financial Group, 8.375%, 12/29/2049 | 2,195,000 | 2,371,114 |
New Asat (Finance) Ltd., 9.25%, 2/1/2011 (e) | 6,110,000 | 5,071,300 |
19,666,401 | ||
Health Care 0.2% | ||
Biovail Corp., 7.875%, 4/1/2010 (e) | 5,605,000 | 5,576,975 |
Industrials 2.3% | ||
CP Ships Ltd., 10.375%, 7/15/2012 | 7,285,000 | 8,323,112 |
Grupo Transportacion Ferroviaria Mexicana SA de CV: |
|
|
10.25%, 6/15/2007 | 15,840,000 | 16,790,400 |
11.75%, 6/15/2009 | 7,825,000 | 7,825,000 |
12.5%, 6/15/2012 | 8,079,000 | 9,210,060 |
LeGrand SA, 8.5%, 2/15/2025 | 5,780,000 | 6,964,900 |
Stena AB: |
|
|
7.0%, 12/1/2016 | 2,802,000 | 2,591,850 |
9.625%, 12/1/2012 | 2,165,000 | 2,397,738 |
Supercanal Holding SA, 11.5%, 5/15/2005* | 441,000 | 57,330 |
54,160,390 | ||
Information Technology 0.2% | ||
Flextronics International Ltd., 6.25%, 11/15/2014 (e) | 5,045,000 | 4,792,750 |
Materials 3.6% | ||
Alrosa Finance SA, 144A, 8.875%, 11/17/2014 | 5,805,000 | 6,000,919 |
Avecia Group PLC, 11.0%, 7/1/2009 | 1,416,000 | 1,479,720 |
Cascades, Inc.: |
|
|
7.25%, 2/15/2013 (e) | 7,460,000 | 7,646,500 |
144A, 7.25%, 2/15/2013 | 600,000 | 615,000 |
Citigroup (JSC Severstal), 144A, 9.25%, 4/19/2014 | 3,920,000 | 3,998,400 |
Crown Euro Holdings SA, 10.875%, 3/1/2013 | 5,050,000 | 5,858,000 |
ISPAT Inland ULC, 9.75%, 4/1/2014 | 8,408,000 | 9,837,360 |
Novelis, Inc., 144A, 7.25%, 2/15/2015 (e) | 7,340,000 | 7,193,200 |
Rhodia SA, 8.875%, 6/1/2011 (e) | 15,410,000 | 14,986,225 |
Tembec Industries, Inc.: |
|
|
8.5%, 2/1/2011 (e) | 28,210,000 | 26,728,975 |
8.625%, 6/30/2009 | 795,000 | 767,175 |
85,111,474 | ||
Sovereign Bonds 1.4% | ||
Aries Vermogensverwaltung GmbH, 144A, Series C, 9.6%, 10/25/2014 (e) | 3,750,000 | 4,509,375 |
Dominican Republic, 144A, 9.04%, 1/23/2013 | 4,600,000 | 4,197,500 |
Federative Republic of Brazil, 8.875%, 10/14/2019 (e) | 8,205,000 | 8,008,080 |
Republic of Argentina: |
|
|
Series BGLO, 8.375%, 12/20/2049* | 35,000 | 10,150 |
11.375%, 3/15/2010* | 8,595,000 | 2,578,500 |
Series BGL5, 11.375%, 1/30/2017* | 5,429,000 | 1,628,700 |
Series BGL5, 11.375%, 1/30/2017* | 980,000 | 254,800 |
11.75%, 4/7/2009* | 4,530,000 | 1,359,000 |
11.75%, 6/15/2015* | 2,990,000 | 897,000 |
Series 2031, 12.0%, 6/19/2031* | 2,809,000 | 842,700 |
12.375%, 2/21/2012* | 7,405,000 | 2,221,500 |
Republic of Turkey, 7.25%, 3/15/2015 (e) | 1,070,000 | 1,045,925 |
Republic of Uruguay, 7.875%, 1/15/2033 (PIK) | 912 | 787 |
Republic of Venezuela, 10.75%, 9/19/2013 (e) | 4,175,000 | 4,644,687 |
32,198,704 | ||
Telecommunication Services 3.6% | ||
Alestra SA de RL de CV, 8.0%, 6/30/2010 | 1,466,000 | 1,271,755 |
Axtel SA: |
|
|
11.0%, 12/15/2013 (e) | 5,940,000 | 6,281,550 |
144A, 11.0%, 12/15/2013 | 925,000 | 978,188 |
Embratel, Series B, 11.0%, 12/15/2008 | 5,865,000 | 6,480,825 |
Esprit Telecom Group PLC: |
|
|
10.875%, 6/15/2008* | 10,060,000 | 1,006 |
11.5%, 12/15/2007* | 23,720,000 | 2,372 |
Global Crossing UK Finance, 144A, 10.75%, 12/15/2014 | 7,060,000 | 6,512,850 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 1,590,000 | 1,144,800 |
INTELSAT, 6.5%, 11/1/2013 (e) | 2,895,000 | 2,323,238 |
INTELSAT Bermuda Ltd., 144A, 7.805%**, 1/15/2012 (e) | 2,770,000 | 2,811,550 |
Millicom International Cellular SA, 144A, 10.0%, 12/1/2013 | 12,826,000 | 13,082,520 |
Mobifon Holdings BV, 12.5%, 7/31/2010 (e) | 11,850,000 | 14,471,812 |
Mobile Telesystems Financial, 144A, 8.375%, 10/14/2010 | 4,800,000 | 4,908,000 |
Nortel Networks Corp., 6.875%, 9/1/2023 (e) | 2,945,000 | 2,724,125 |
Nortel Networks Ltd., 6.125%, 2/15/2006 (e) | 23,055,000 | 23,112,637 |
Rogers Wireless Communications, Inc., 6.375%, 3/1/2014 (e) | 206,000 | 199,820 |
86,307,048 | ||
Utilities 0.3% | ||
Calpine Canada Energy Finance, 8.5%, 5/1/2008 (e) | 9,645,000 | 6,847,950 |
Total Foreign Bonds — US$ Denominated (Cost $455,025,809) | 425,681,514 | |
Foreign Bonds — Non US$ Denominated 1.3% | ||
Consumer Discretionary 0.2% | ||
Victoria Acquisition III BV, 144A, 7.875%, 10/1/2014 EUR | 2,828,000 | 3,500,971 |
Industrials 0.2% | ||
Grohe Holdings GmbH, 144A, 8.625%, 10/1/2014 EUR | 4,158,000 | 5,524,769 |
Sovereign Bonds 0.9% | ||
Mexican Fixed Rate Bonds, Series MI-10, 8.0%, | 94,222,000 | 7,296,538 |
Republic of Argentina: |
|
|
7.82%, 12/31/2033 (g) EUR | 5,490,000 | 7,288,041 |
8.0%, 2/26/2008* EUR | 4,450,000 | 1,701,719 |
Series FEB, 8.0%, 2/26/2008* EUR | 3,220,000 | 1,231,356 |
10.25%, 2/6/2049* EUR | 7,091,618 | 2,022,431 |
10.5%, 11/14/2049* EUR | 3,273,291 | 891,066 |
11.25%, 4/10/2006* EUR | 2,326,378 | 678,529 |
12.0%, 9/19/2016* EUR | 263,315 | 73,387 |
21,183,067 | ||
Total Foreign Bonds — Non US$ Denominated (Cost $28,183,354) | 30,208,807 | |
| ||
Convertible Bond 0.6% | ||
Consumer Discretionary | ||
DIMON, Inc., 6.25%, 3/31/2007 | 9,048,000 | 8,889,660 |
HIH Capital Ltd.: |
|
|
144A, Series DOM, 7.5%, 9/25/2006 | 3,770,000 | 3,751,150 |
144A, Series EURO, 7.5%, 9/25/2006 | 655,000 | 651,725 |
Total Convertible Bond (Cost $12,721,264) | 13,292,535 | |
| ||
Asset Backed 0.1% | ||
Golden Tree High Yield Opportunities LP, "D1", Series 1, 13.054%, 10/31/2007 (Cost $2,500,000) | 2,500,000 | 2,588,000 |
|
| Value ($) |
|
| |
Other Investments 0.4% | ||
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 12,895,000 | 10,316,000 |
SpinCycle, Inc., "F" (Common Stock Unit)* | 1,228 | 1,351 |
SpinCycle, Inc., (Common Stock Unit)* (g) | 187,460 | 206,206 |
Total Other Investments (Cost $10,359,197) | 10,523,557 |
| Shares | Value ($) |
|
| |
Common Stocks 0.2% | ||
Catalina Restaurant Group, Inc.* | 45,157 | 72,251 |
GEO Specialty Chemicals, Inc.* | 136,705 | 1,777,165 |
GEO Specialty Chemicals, Inc., 144A* | 12,448 | 186,720 |
IMPSAT Fiber Networks, Inc.* | 280,597 | 1,795,821 |
Total Common Stocks (Cost $17,724,671) | 3,831,957 | |
| ||
Warrants 0.0% | ||
Dayton Superior Corp., 144A* | 528 | 5 |
DeCrane Aircraft Holdings, Inc., 144A* | 16,090 | 161 |
Destia Communications, Inc., 144A* | 19,865 | 0 |
TravelCenters of America, Inc.* | 1,627 | 212 |
UIH Australia Pacific, Inc.* | 14,150 | 0 |
Total Warrants (Cost $8,340) | 378 | |
| ||
Preferred Stocks 0.6% | ||
Paxson Communications Corp., 14.25% (PIK) | 1,144 | 7,782,060 |
TNP Enterprises, Inc., 14.5%, "D" (PIK) | 5,624 | 6,230,196 |
Total Preferred Stocks (Cost $16,810,519) | 14,012,256 |
| Principal Amount ($) | Value ($) |
|
| |
Loan Participations 1.4% | ||
Anthony Crane Rental Corp.: |
|
|
LIBOR plus 3.50%, 6.62%**, 7/22/2004 | 8,500,000 | 7,820,000 |
LIBOR plus 4.25%, 7.37%**, 7/20/2006 | 2,800,000 | 2,576,000 |
Citigroup Global (Severstal), 8.625%, 2/24/2009 | 3,596,000 | 3,666,841 |
Intermet Corp., PRIME plus 3.25%, 9.0%**, 3/31/2009 (PIK) | 18,500,000 | 18,453,750 |
Total Loan Participations (Cost $31,288,958) | 32,516,591 | |
| ||
Credit Linked Note 0.1% | ||
Dow Jones CDX HY-3, 144A, Series 3-3, 8.0%, 12/29/2009 (Cost $3,296,775) | 3,390,000 | 3,292,538 |
| Shares | Value ($) |
|
| |
Securities Lending Collateral 18.4% | ||
Daily Assets Fund Institutional, 2.83% (c) (f) (Cost $438,308,796) | 438,308,796 | 438,308,796 |
Cash Equivalents 0.4% | ||
Scudder Cash Management QP Trust, 2.69% (b) (Cost $10,879,376) | 10,879,376 | 10,879,376 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $2,851,113,073) (a) | 115.2 | 2,742,936,410 |
Other Assets and Liabilities, Net | (15.2) | (361,045,909) |
Net Assets | 100.0 | 2,381,890,501 |
* Non-income producing security. In case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest or has filed for bankruptcy. The following table represents bonds that are in default.
Security | Coupon | Maturity Date | Principal | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 4,015,000 | USD | 3,949,924 | 4,075,225 |
Dyersburg Corp. | 9.75% | 9/1/2007 | 18,155,000 | USD | 18,706,213 | 1,816 |
Eagle-Picher Industries, Inc. | 9.75% | 9/1/2013 | 1,328,000 | USD | 1,371,641 | 849,920 |
Eaton Vance Corp. | 13.68% | 7/15/2012 | 1,487,316 | USD | 1,487,316 | 14,873 |
Esprit Telecom Group PLC: | ||||||
| 10.875% | 6/15/2008 | 10,060,000 | USD | 9,957,478 | 1,006 |
| 11.5% | 12/15/2007 | 23,720,000 | USD | 23,884,968 | 2,372 |
FRD Acquisition Co. | 12.5% | 7/15/2004 | 2,450,000 | USD | 0 | 0 |
Grupo Iusacell SA de CV | 10.0% | 7/15/2004 | 1,590,000 | USD | 960,713 | 1,144,800 |
GS Technologies Operating Co., Inc. | 12.0% | 9/1/2004 | 4,577,117 | USD | 4,431,689 | 11,443 |
Imperial Home Decor Group, Inc. | 11.0% | 3/15/2008 | 12,740,000 | USD | 12,246,351 | 0 |
Intermet Corp. | 9.75% | 6/15/2009 | 3,010,000 | USD | 1,234,100 | 1,685,600 |
NTELOS, Inc. | 13.0% | 8/15/2010 | 500,000 | USD | 500,000 | 510,625 |
Oxford Automotive, Inc. | 12.0% | 10/15/2010 | 12,003,715 | USD | 8,103,094 | 6,962,155 |
Republic of Argentina: | ||||||
| 8.0% | 2/26/2008 | 3,220,000 | EUR | 1,039,807 | 1,231,356 |
| 8.0% | 2/26/2008 | 4,450,000 | EUR | 1,433,891 | 1,701,719 |
| 8.375% | 12/20/2049 | 35,000 | USD | 11,148 | 10,150 |
| 10.25% | 2/6/2049 | 7,091,618 | EUR | 1,552,588 | 2,022,431 |
| 10.50% | 11/14/2049 | 3,273,291 | EUR | 698,184 | 891,066 |
| 11.25% | 4/10/2006 | 2,326,378 | EUR | 738,469 | 678,529 |
| 11.375% | 3/15/2010 | 8,595,000 | USD | 2,344,354 | 2,578,500 |
| 11.375% | 1/30/2017 | 5,429,000 | USD | 1,627,616 | 1,628,700 |
| 11.375% | 1/30/2017 | 980,000 | USD | 323,235 | 254,800 |
| 11.75% | 4/7/2009 | 4,530,000 | USD | 1,417,988 | 1,359,000 |
| 11.75% | 6/15/2015 | 2,990,000 | USD | 935,844 | 897,000 |
| 12.0% | 9/19/2016 | 263,315 | EUR | 60,510 | 73,387 |
| 12.0% | 6/19/2031 | 2,809,000 | USD | 610,957 | 842,700 |
| 12.375% | 2/21/2012 | 7,405,000 | USD | 2,013,372 | 2,221,500 |
Supercanal Holding SA | 11.5% | 5/15/2005 | 441,000 | USD | 44,100 | 57,330 |
Trump Holdings & Funding | 11.625% | 3/15/2010 | 4,975,000 | USD | 5,069,242 | 5,410,313 |
| $106,754,792 | $37,118,316 |
** 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, 2005.
(a) The cost for federal income tax purposes was $2,858,591,897. At March 31, 2005, net unrealized depreciation for all securities based on tax cost was $115,655,487. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $42,039,888 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $157,695,375.
(b) Scudder Cash Management QP Trust is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) 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) All or a portion of these securities were on loan (see Notes to Financials Statements). The value of all securities loaned at March 31, 2005 amounted to $429,261,935, which is 18.0% of total net assets.
(f) Represents collateral held in connection with securities lending.
(g) When-issued or forward delivery security (see Notes to Financial Statements).
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.
CDO: Collateralized Debt Obligation
LIBOR: London InterBank Offer Rate
PIK: Denotes that all or a portion of interest or dividend is paid in kind.
PRIME: Interest rate charged by banks to their most creditworthy customers.
Currency Abbreviation | |
EUR | Euro |
MXN | Mexican Peso |
The accompanying notes are an integral part of the financial statements.
|
Statement of Assets and Liabilities as of March 31, 2005 (Unaudited) | |
Assets | |
Investments in Securities, at value: Investments in securities, at value (cost $2,401,924,901) — including $429,261,935 of securities loaned | $ 2,293,748,238 |
Investment in Daily Assets Fund Institutional (cost $438,308,796)* | 438,308,796 |
Investment in Scudder Cash Management QP Trust (cost $10,879,376) | 10,879,376 |
Total investments in securities, at value (cost $2,851,113,073) | 2,742,936,410 |
Cash | 3,483,428 |
Foreign currency (cost $9,467,886) | 9,285,902 |
Receivable for investments sold | 54,108,142 |
Interest receivable | 52,717,755 |
Receivable for Fund shares sold | 3,349,206 |
Net receivable on closed forward foreign currency exchange contracts | 21,508 |
Unrealized appreciation on forward foreign currency exchange contracts | 1,173,467 |
Other assets | 237,136 |
Total assets | 2,867,312,954 |
Liabilities | |
Payable for when-issued and forward delivery securities | 6,406,412 |
Payable upon return of securities loaned | 438,308,796 |
Payable for investments purchased | 32,532,680 |
Payable for Fund shares redeemed | 5,209,006 |
Unrealized depreciation on forward foreign currency exchange contracts | 31,911 |
Accrued management fee | 1,156,685 |
Other accrued expenses and payables | 1,776,963 |
Total liabilities | 485,422,453 |
Net assets, at value | $ 2,381,890,501 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 7,892,358 |
Net unrealized appreciation (depreciation) on: Investments | (108,176,663) |
Foreign currency related transactions | 1,165,584 |
Accumulated net realized gain (loss) | (1,439,908,915) |
Paid-in capital | 3,920,918,137 |
Net assets, at value | $ 2,381,890,501 |
* Represents cash collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Assets and Liabilities as of March 31, 2005 (Unaudited) (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price(a) per share ($1,948,460,873 ÷ 356,517,221 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.47 |
Maximum offering price per share (100 ÷ 95.5 of $5.47) | $ 5.73 |
Class B Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($266,609,758 ÷ 48,810,673 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.46 |
Class C Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($158,789,857 ÷ 29,030,901 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.47 |
Institutional Class Net Asset Value, offering and redemption price(a) per share ($8,030,013 ÷ 1,468,827 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.47 |
a Redemption price per share for shares held less than 60 days is equal to net asset value less a 2% redemption fee.
The accompanying notes are an integral part of the financial statements.
|
|
Statement of Operations for the six months ended March 31, 2005 (Unaudited) | |
Investment Income | |
Income: Interest | $ 117,356,203 |
Interest — Scudder Cash Management QP Trust | 254,559 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 715,503 |
Dividends | 1,050,568 |
Total Income | 119,376,833 |
Expenses: Management fee | 6,760,165 |
Services to shareholders | 1,671,083 |
Distribution service fees | 4,609,387 |
Custodian and accounting fees | 45,987 |
Auditing | 32,391 |
Legal | 35,476 |
Trustees' fees and expenses | 62,071 |
Reports to shareholders | 123,464 |
Registration fees | 27,033 |
Interest expense | 17,673 |
Other | 21,094 |
Total expenses, before expense reductions | 13,405,824 |
Expense reductions | (59,806) |
Total expenses, after expense reductions | 13,346,018 |
Net investment income | 106,030,815 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 78,200,706 |
Foreign currency related transactions | (5,159,241) |
| 73,041,465 |
Net unrealized appreciation (depreciation) during the period on: Investments | (65,882,650) |
Foreign currency related transactions | 1,785,189 |
| (64,097,461) |
Net gain (loss) on investment transactions | 8,944,004 |
Net increase (decrease) in net assets resulting from operations | $ 114,974,819 |
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, 2005 (Unaudited) | Year Ended September 30, 2004 |
Operations: Net investment income | $ 106,030,815 | $ 199,582,457 |
Net realized gain (loss) on investment transactions | 73,041,465 | 38,710,784 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (64,097,461) | 65,044,921 |
Net increase (decrease) in net assets resulting from operations | 114,974,819 | 303,338,162 |
Distributions to shareholders from: Net investment income: Class A | (81,312,423) | (164,679,269) |
Class B | (10,972,285) | (30,394,836) |
Class C | (6,014,511) | (12,906,907) |
Class I | — | (21,737) |
Institutional Class | (554,751) | (572,241) |
Fund share transactions: Proceeds from shares sold | 251,765,310 | 523,445,284 |
Net assets acquired in tax-free exchange | — | 319,028 |
Reinvestment of distributions | 58,731,539 | 122,233,160 |
Cost of shares redeemed | (392,537,143) | (790,061,582) |
Redemption fees | 11,506 | — |
Net increase (decrease) in net assets from Fund share transactions | (82,028,788) | (144,064,110) |
Increase (decrease) in net assets | (65,907,939) | (49,300,938) |
Net assets at beginning of period | 2,447,798,440 | 2,497,099,378 |
Net assets at end of period (including undistributed net investment income of $7,892,358 and $715,513, respectively) | $ 2,381,890,501 | $ 2,447,798,440 |
The accompanying notes are an integral part of the financial statements.
|
Class A | ||||||
Years Ended September 30, | 2005a | 2004 | 2003 | 2002b | 2001 | 2000 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.43 | $ 5.23 | $ 4.62 | $ 5.18 | $ 6.34 | $ 7.23 |
Income (loss) from investment operations: Net investment incomec | .24 | .44 | .44 | .53 | .64 | .77 |
Net realized and unrealized gain (loss) on investment transactions | .03 | .22 | .61 | (.53) | (1.09) | (.89) |
Total from investment operations | .27 | .66 | 1.05 | — | (.45) | (.12) |
Less distributions from: Net investment income | (.23) | (.46) | (.44) | (.55) | (.68) | (.77) |
Return of capital | — | — | — | (.01) | (.03) | — |
Total distributions | (.23) | (.46) | (.44) | (.56) | (.71) | (.77) |
Redemption fees | .00*** | — | — | — | — | — |
Net asset value, end of period | $ 5.47 | $ 5.43 | $ 5.23 | $ 4.62 | $ 5.18 | $ 6.34 |
Total Return (%)d | 4.51** | 13.24 | 23.92 | (.60) | (7.68) | (1.88) |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 1,948 | 1,950 | 1,868 | 1,603 | 1,831 | 2,277 |
Ratio of expenses before expense reductions (%) | .92* | .94 | .97 | .96 | 1.11e | .93 |
Ratio of expenses after expense reductions (%) | .92* | .94 | .97 | .96 | 1.09e | .92 |
Ratio of net investment income (%) | 8.63* | 8.13 | 8.92 | 10.39 | 10.94 | 11.10 |
Portfolio turnover rate (%) | 135* | 162 | 149 | 154 | 69 | 52 |
a For the six months ended March 31, 2005 (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. *** Amount is less than $.005. |
| ||||||
Class B | ||||||
Years Ended September 30, | 2005a | 2004 | 2003 | 2002b | 2001 | 2000 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.43 | $ 5.23 | $ 4.62 | $ 5.17 | $ 6.33 | $ 7.22 |
Income (loss) from investment operations: Net investment incomec | .22 | .39 | .40 | .48 | .59 | .71 |
Net realized and unrealized gain (loss) on investment transactions | .01 | .22 | .61 | (.52) | (1.09) | (.88) |
Total from investment operations | .23 | .61 | 1.01 | (.04) | (.50) | (.17) |
Less distributions from: Net investment income | (.20) | (.41) | (.40) | (.50) | (.63) | (.72) |
Return of capital | — | — | — | (.01) | (.03) | — |
Total distributions | (.20) | (.41) | (.40) | (.51) | (.66) | (.72) |
Redemption fees | .00*** | — | — | — | — | — |
Net asset value, end of period | $ 5.46 | $ 5.43 | $ 5.23 | $ 4.62 | $ 5.17 | $ 6.33 |
Total Return (%)d | 4.28** | 12.09 | 22.88 | (1.23) | (8.50) | (2.68) |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 267 | 332 | 462 | 514 | 659 | 792 |
Ratio of expenses before expense reductions (%) | 1.73* | 1.75 | 1.82 | 1.79 | 1.94e | 1.78 |
Ratio of expenses after expense reductions (%) | 1.73* | 1.75 | 1.82 | 1.79 | 1.91e | 1.77 |
Ratio of net investment income (%) | 7.82* | 7.32 | 8.07 | 9.56 | 10.12 | 10.24 |
Portfolio turnover rate (%) | 135* | 162 | 149 | 154 | 69 | 52 |
a For the six months ended March 31, 2005 (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. *** Amount is less than $.005. |
| ||||||
Class C | ||||||
Years Ended September 30, | 2005a | 2004 | 2003 | 2002b | 2001 | 2000 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.44 | $ 5.24 | $ 4.63 | $ 5.19 | $ 6.35 | $ 7.24 |
Income (loss) from investment operations: Net investment incomec | .22 | .40 | .40 | .48 | .59 | .72 |
Net realized and unrealized gain (loss) on investment transactions | .01 | .22 | .61 | (.53) | (1.09) | (.89) |
Total from investment operations | .23 | .62 | 1.01 | (.05) | (.50) | (.17) |
Less distributions from: Net investment income | (.20) | (.42) | (.40) | (.50) | (.63) | (.72) |
Return of capital | — | — | — | (.01) | (.03) | — |
Total distributions | (.20) | (.42) | (.40) | (.51) | (.66) | (.72) |
Redemption fees | .00*** | — | — | — | — | — |
Net asset value, end of period | $ 5.47 | $ 5.44 | $ 5.24 | $ 4.63 | $ 5.19 | $ 6.35 |
Total Return (%)d | 4.30** | 12.12 | 23.11 | (1.61) | (8.46) | (2.66) |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 159 | 156 | 165 | 127 | 119 | 124 |
Ratio of expenses before expense reductions (%) | 1.69* | 1.71 | 1.82 | 1.79 | 1.98e | 1.77 |
Ratio of expenses after expense reductions (%) | 1.69* | 1.71 | 1.82 | 1.79 | 1.95e | 1.76 |
Ratio of net investment income (%) | 7.86* | 7.36 | 8.07 | 9.56 | 10.09 | 10.25 |
Portfolio turnover rate (%) | 135* | 162 | 149 | 154 | 69 | 52 |
a For the six months ended March 31, 2005 (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. *** Amount is less than $.005. |
| ||||
Institutional Class | ||||
Years Ended September 30, | 2005a | 2004 | 2003 | 2002b |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 5.43 | $ 5.23 | $ 4.63 | $ 4.65 |
Income (loss) from investment operations: Net investment incomec | .25 | .45 | .44 | .08 |
Net realized and unrealized gain (loss) on investment transactions | .02 | .22 | .62 | (.02) |
Total from investment operations | .27 | .67 | 1.06 | .06 |
Less distributions from: Net investment income | (.23) | (.47) | (.46) | (.08) |
Redemption fees | .00*** | — | — | — |
Net asset value, end of period | $ 5.47 | $ 5.43 | $ 5.23 | $ 4.63 |
Total Return (%) | 4.67d** | 13.32 | 24.33 | 1.14** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 8 | 10 | 1 | .001 |
Ratio of expenses before expense reductions (%) | .64* | .65 | .83 | .82* |
Ratio of expenses after expense reductions (%) | .60* | .65 | .83 | .82* |
Ratio of net investment income (%) | 8.95* | 8.42 | 9.06 | 14.14* |
Portfolio turnover rate (%) | 135* | 162 | 149 | 154 |
a For the six months ended March 31, 2005 (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. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. |
|
A. Significant Accounting Policies
Scudder High Income Fund (the "Fund"), is a diversified series of the 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. Class C shares do not convert into another class. 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, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. 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 a broker-dealer. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Securities Lending. The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of fees paid to the lending agent Either the Fund or the borrower may terminate the loan. The Fund is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities.
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.
Loan Participations/Assignments. The Fund may invest in US dollar-denominated fixed and floating rate loans ("Loans") arranged through private negotiations between a foreign sovereign entity and one or more financial institutions ("Lenders"). The Fund invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship only with the Lender, not with the sovereign borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation.
When-Issued/Delayed Delivery Securities. Several of the portfolios may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the portfolio enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the portfolio until payment takes place. At the time the portfolio enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
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, 2004, the Fund had a net tax basis capital loss carryforward of approximately $1,437,130,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until September 30, 2007 ($39,695,000), September 30, 2008 ($126,550,000), September 30, 2009 ($173,248,000), September 30, 2010 ($283,199,000), September 30, 2011 ($620,426,000), and September 30, 2012 ($194,012,000), 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, 2003 through September 30, 2004, the Fund incurred approximately $67,818,000 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 ended September 30, 2005.
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.
Redemption Fees. Effective February 1, 2005, the Fund imposes a redemption fee of 2% of the total redemption amount on the Fund shares redeemed or exchanged within 60 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in-capital.
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.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment 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, 2005, purchases and sales of investment securities (excluding short-term investments) aggregated $1,637,585,198 and $1,750,015,780, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.58% of the first $250,000,000 of the Fund's average daily net assets, 0.55% of the next $750,000,000 of such net assets, 0.53% of the next $1,500,000,000 of such net assets, 0.51% of the next $2,500,000,000 of such net assets, 0.48% of the next $2,500,000,000 of such net assets, 0.46% of the next $2,500,000,000 of such net assets, 0.44% of the next $2,500,000,000 of such net assets and 0.42% of such net assets in excess of $12,500,000,000, computed and accrued daily and payable monthly. Accordingly, for the six months ended March 31, 2005, the fee pursuant to the Management Agreement was equivalent to an annualized effective rate of 0.54% of the Fund's average daily net assets.
Effective October 1, 2003 through January 31, 2006, 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% and 0.59% of average daily net assets for Class A, B, C and Institutional Class shares, respectively (excluding certain expenses such as Rule 12b-1 distribution 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, C 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. SISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended March 31, 2005, the amount charged to the Fund by SISC were as follows:
Service Provider Fees | Total Aggregated | Waived | Unpaid at March 31, 2005 |
Class A | $ 832,406 | $ — | $ 476,057 |
Class B | 188,635 | — | 105,058 |
Class C | 72,541 | — | 35,923 |
Institutional Class | 2,896 | 2,865 | — |
| $ 1,096,478 | $ 2,865 | $ 617,038 |
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, 2005, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at March 31, 2005 |
Class B | $ 1,148,046 | $ 176,158 |
Class C | 616,409 | 106,488 |
| $ 1,764,455 | $ 282,646 |
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, 2005, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at March 31, 2005 | Annualized Effective Rate |
Class A | $ 2,276,650 | $ 426,001 | .23% |
Class B | 369,669 | 95,062 | .24% |
Class C | 198,613 | 42,043 | .24% |
| $ 2,844,932 | $ 563,106 |
|
Underwriting Agreement and Contingent Deferred Sales Charge. SDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the six months ended March 31, 2005 aggregated $149,162.
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, 2005, the CDSC for Class B and C shares aggregated $306,227 and $7,542, 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, 2005, SDI received $11,404.
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.
Insurance Brokerage Commissions. The Fund paid insurance premiums to an unaffiliated insurance broker in 2002 and 2003. This broker in turn paid a portion of its commissions to an affiliate of the Advisor, which performed certain insurance brokerage services for the broker. The Advisor has reimbursed the Fund for the portion of commissions (plus interest) paid to the affiliate of the Advisor attributable to the premiums paid by the Fund. The amounts for 2002 and 2003 were $0 and $794, respectively.
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 Reductions
For the six months ended March 31, 2005, the Advisor agreed to reimburse the Fund $13,433, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an affiliated service provider.
In addition, 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, 2005, the custodian fees were reduced by $43,508 for custodian credits earned.
F. Forward Foreign Currency Exchange Contracts
The Fund had the following open forward foreign currency exchange contracts at March 31, 2005:
Contracts to Deliver | In Exchange For | Settlement Date | Net Unrealized Appreciation | ||
EUR | 3,796,714 | USD | 4,893,615 | 5/27/2005 | $ 51,271 |
EUR | 4,886,100 | USD | 6,342,839 | 5/27/2005 | 83,311 |
EUR | 33,551,190 | USD | 43,554,124 | 5/27/2005 | 941,632 |
EUR | 247,146 | USD | 335,017 | 9/9/2005 | 9,008 |
EUR | 570,530 | USD | 743,302 | 9/9/2005 | 25,935 |
MXN | 82,614,211 | USD | 7,311,894 | 5/27/2005 | 62,310 |
Total unrealized appreciation | $ 1,173,467 |
Contracts to Deliver | In Exchange For | Settlement Date | Net Unrealized Depreciation | ||
USD | 2,886,782 | EUR | 3,747,446 | 5/27/2005 | $ (26,127) |
MXN | 4,224,448 | USD | 373,896 | 5/27/2005 | (5,784) |
Total unrealized depreciation | $ (31,911) |
Currency Abbreviations | |
EUR | Euro |
MXN | Mexico Peso |
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. There were no borrowings outstanding at the end for the period. Interest expense incurred on borrowings amounted to $17,673 during the six months ended March 31, 2005. The average dollar amount of the borrowing was $12,996,667 and the weighted average interest rate on these borrowing was 3.31%.
H. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Six Months Ended | Year Ended September 30, 2004 | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 35,943,925 | $ 200,712,500 | 79,009,775 | $ 424,259,682 |
Class B | 2,696,663 | 15,033,359 | 8,779,256 | 47,108,253 |
Class C | 3,963,435 | 22,095,140 | 8,035,867 | 43,236,507 |
Class I* | — | — | 64,219 | 343,465 |
Institutional Class | 2,495,225 | 13,924,311 | 1,581,002 | 8,497,377 |
|
| $ 251,765,310 |
| $ 523,445,284 |
Shares issued in tax-free exchange | ||||
Institutional Class | — | $ — | 59,631 | $ 319,028 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 8,867,185 | $ 49,212,115 | 18,416,283 | $ 98,812,152 |
Class B | 1,000,768 | 5,551,009 | 2,841,255 | 15,228,701 |
Class C | 621,672 | 3,454,414 | 1,417,537 | 7,614,634 |
Class I* | — | — | 4,072 | 21,737 |
Institutional Class | 92,484 | 514,001 | 103,605 | 555,936 |
|
| $ 58,731,539 |
| $ 122,233,160 |
Shares redeemed | ||||
Class A | (47,141,374) | $ (262,804,045) | (95,656,338) | $ (513,769,559) |
Class B | (16,033,706) | (89,519,634) | (38,923,029) | (209,168,259) |
Class C | (4,265,254) | (23,787,856) | (12,271,429) | (65,928,919) |
Class I* | — | — | (106,006) | (563,469) |
Institutional Class | (2,929,387) | (16,425,608) | (117,265) | (631,376) |
|
| $ (392,537,143) |
| $ (790,061,582) |
Redemption fees | $ 11,506 |
| $ — | |
Net increase (decrease) | ||||
Class A | (2,330,264) | $ (12,870,706) | 1,769,720 | $ 9,302,275 |
Class B | (12,336,275) | (68,934,270) | (27,302,518) | (146,831,305) |
Class C | 319,853 | 1,763,484 | (2,818,025) | (15,077,778) |
Class I* | — | — | (37,715) | (198,267) |
Institutional Class | (341,678) | (1,987,296) | 1,626,973 | 8,740,965 |
|
| $ (82,028,788) |
| $ (144,064,110) |
* On August 13, 2004, Class I shares of the Fund consolidated with Institutional Class shares.
I. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. It is not possible to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, the funds' investment advisors and their affiliates, certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each Scudder fund's investment advisor has agreed to indemnify the applicable Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. Based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the Scudder funds.
|
For shareholders of Classes A, B, C and Institutional
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — scudder.com (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class A | Class B | Class C | 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 and state standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our 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
September 2004
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. AUDIT COMMITTEE OF LISTED REGISTRANTS Not Applicable ITEM 6. SCHEDULE OF INVESTMENTS Not Applicable ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not Applicable. ITEM 10. 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 11. CONTROLS AND PROCEDURES. (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. (b) There have been no changes in the registrant's internal control over financial reporting that occurred during the registrant's last half-year (the registrant's second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting. ITEM 12. 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/ Julian Sluyters --------------------------- Julian Sluyters Chief Executive Officer Date: May 31, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Scudder High Income Fund By: /s/ Julian Sluyters --------------------------- Julian Sluyters Chief Executive Officer Date: May 31, 2005 By: /s/ Paul Schubert --------------------------- Paul Schubert Chief Financial Officer Date: May 31, 2005