UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number 811-2786
DWS 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: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
Date of fiscal year end: | 09/30 |
Date of reporting period: | 3/31/07 |
ITEM 1. REPORT TO STOCKHOLDERS
MARCH 31, 2007
Semiannual Report
to Shareholders
DWS High Income Fund
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. The fund may invest in lower-quality and nonrated securities which present greater risk of loss of principal and interest than higher-quality securities. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. All of these factors may result in greater share price volatility. Bond investments are subject to interest rate risk such that when interest rates rise, the prices of the bonds, and thus the value of the bond fund, can decline and the investor can lose principal value. Please read the fund's prospectus for specific details regarding the fund's risk profile.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary March 31, 2007
All performance shown is historical, assumes reinvestment of all dividend 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 www.dws-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.
The total annual fund operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated February 1, 2007 are .94%, 1.67%, 1.67% and .67% for Class A, Class B, Class C and Institutional Class shares, respectively. Please see the Information About Your Fund's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended March 31, 2007.
To discourage short-term trading, the Fund imposes a 2% redemption fee on shareholders redeeming shares held less than 30 days, which has the effect of lowering total return.
Returns and rankings during all periods shown 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 3/31/07 | |||||
DWS High Income Fund | 6-Month‡ | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 6.49% | 10.43% | 9.11% | 9.94% | 5.93% |
Class B | 5.87% | 9.54% | 8.21% | 9.03% | 5.04% |
Class C | 5.89% | 9.60% | 8.26% | 9.07% | 5.05% |
Credit Suisse High Yield Index+ | 7.59% | 11.82% | 8.73% | 11.17% | 7.25% |
DWS High Income Fund | 6-Month‡ | 1-Year | 3-Year | Life of Class* |
Institutional Class | 6.44% | 10.75% | 9.44% | 13.36% |
Credit Suisse High Yield Index+ | 7.59% | 11.82% | 8.73% | 13.23% |
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 began on August 31, 2002.
Net Asset Value and Distribution Information | ||||
| Class A | Class B | Class C | Institutional Class |
Net Asset Value: 3/31/07 | $ 5.47 | $ 5.46 | $ 5.47 | $ 5.47 |
9/30/06 | $ 5.37 | $ 5.37 | $ 5.38 | $ 5.38 |
Distribution Information: Six Months as of 3/31/07:Income Dividends | $ .24 | $ .22 | $ .22 | $ .25 |
March Income Dividend | $ .0375 | $ .0337 | $ .0340 | $ .0389 |
SEC 30-day Yield* | 6.82% | 6.40% | 6.39% | 7.38% |
Current Annualized Distribution Rate* | 8.23% | 7.41% | 7.46% | 8.53% |
Class A Lipper Rankings — High Current Yield Funds Category as of 3/31/07 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking (%) |
1-Year | 172 | of | 445 | 39 |
3-Year | 58 | of | 382 | 16 |
5-Year | 93 | of | 315 | 30 |
10-Year | 51 | of | 126 | 41 |
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) |
[] DWS High Income Fund — Class A [] Credit Suisse 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 3/31/07 | |||||
DWS High Income Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,546 | $12,403 | $15,335 | $16,997 |
Average annual total return | 5.46% | 7.44% | 8.93% | 5.45% | |
Class B | Growth of $10,000 | $10,654 | $12,470 | $15,307 | $16,345 |
Average annual total return | 6.54% | 7.64% | 8.89% | 5.04% | |
Class C | Growth of $10,000 | $10,960 | $12,689 | $15,432 | $16,367 |
Average annual total return | 9.60% | 8.26% | 9.07% | 5.05% | |
Credit Suisse High Yield Index+ | Growth of $10,000 | $11,182 | $12,856 | $16,982 | $20,130 |
Average annual total return | 11.82% | 8.73% | 11.17% | 7.25% |
DWS High Income Fund | 1-Year | 3-Year | Life of Class* | |
Institutional Class | Growth of $1,000,000 | $1,107,500 | $1,310,900 | $1,782,600 |
Average annual total return | 10.75% | 9.44% | 13.36% | |
Credit Suisse High Yield Index+ | Growth of $1,000,000 | $1,118,200 | $1,285,600 | $1,766,400 |
Average annual total return | 11.82% | 8.73% | 13.23% |
The growths of $10,000 and $1,000,000 are cumulative.
The minimum investment for Institutional Class is $1,000,000.
* Institutional Class shares commenced operations on August 19, 2002. Index returns began on August 31, 2002.+ Credit Suisse 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.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had they not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (October 1, 2006 to March 31, 2007).
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 and Value of a $1,000 Investment for the six months ended March 31, 2007 | ||||
Actual Fund Return | Class A | Class B | Class C | Institutional Class |
Beginning Account Value 10/1/06 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 3/31/07 | $ 1,064.90 | $ 1,058.70 | $ 1,058.90 | $ 1,064.40 |
Expenses Paid per $1,000* | $ 4.94 | $ 9.19 | $ 8.83 | $ 3.45 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Institutional Class |
Beginning Account Value 10/1/06 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 3/31/07 | $ 1,020.14 | $ 1,016.01 | $ 1,016.36 | $ 1,021.59 |
Expenses Paid per $1,000* | $ 4.84 | $ 9.00 | $ 8.65 | $ 3.38 |
Annualized Expense Ratios | Class A | Class B | Class C | Institutional Class |
DWS High Income Fund | .96% | 1.79% | 1.72% | .67% |
For more information, please refer to the Fund's prospectus.
In the following interview, Portfolio Manager Gary Sullivan discusses DWS High Income Fund's strategy and the market environment during the six-month period ended March 31, 2007.
Q: How did the high-yield bond market perform during the semiannual period?
A: High-yield bonds continued to perform well during the past six months despite a brief flight out of higher-risk assets in the latter part of the period. From October through mid-February, the asset class remained supported by a generally favorable market environment and continued strength in investors' risk appetites. High-yield slumped in the final month and half, however, as a "flight to quality" was sparked by a litany of factors: rising oil prices, tension in the Middle East, a sharp one-day drop in China's stock market, and worries that weakness in the sub-prime mortgage market would spread to the rest of the US economy. Despite the weakness in late February and March, the fund's benchmark — the Credit Suisse High Yield Index — returned 7.59% for the six months, which compared favorably with the return for the bond market as a whole, as measured by the 2.76% of the Lehman Aggregate Bond Index.1
1 Credit Suisse High Yield Index is an unmanaged, unleveraged, 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. Index returns assume reinvestment of all distributions and, unlike fund returns, do not include fees or expenses. It is not possible to invest directly into an index.The solid fundamental underpinning of the high-yield asset class was the key factor in its outperformance. US economic growth has been strong enough to allow corporations to maintain strong financial positions, yet not so strong as to compel the US Federal Reserve Board (the Fed) to resume raising interest rates. The robust health of high-yield companies is illustrated by the continued low level of defaults: as of March 31, 2007, Moody's 12-month rolling default rate stood at 1.4%, compared with 1.6% at the end of 2006.2 Comparatively, the average default rate since 1986 is about 4.85%. As a result, the spread between the yield of the high-yield asset class and the yield on comparable Treasuries closed the period near record low levels at 316 basis points (3.16 percentage points), below the 334 basis points level of a year earlier.3
2 Source: Moody's Investors Service3 Source: Credit Suisse. The long-term historical spread-to-worst average is based upon the average monthly spread-to-worst of the Credit Suisse High Yield Index from January 31, 1986 to March 31, 2007. 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.
Q: How did the fund perform?
A: The fund's Class A shares returned 6.49% during the semiannual period, compared with the 7.59% return of the benchmark and the 6.73% average return of the 458 funds in its Lipper peer group, High Current Yield Funds. More notably, the fund remains ahead of its peer group average over the one-, three-, five-, 10- and 15-year time frames, finishing in the top 39%, 16%, 30%, 41% and 37% of the group during those intervals.4
4 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. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper Category. The fund ranked 172, 58, 93, 51 and 17 for the 1-, 3-, 5-, 10- and 15-year periods as of March 31, 2007. There were 445, 382, 315, 126 and 45 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, 2007.(Fund 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 4 through 6 for the performance of other share classes and more complete performance information.)
Q: What individual securities helped and hurt performance?
A: Given the fund's bottom-up approach, individual security performance is typically the primary driver of its return. Top contributors to performance included the fund's positions in Young Broadcasting Inc., which benefited from a better outlook for the broadcasting sector overall; and Wolverine Tube Inc., whose credit quality improved following its announcement of a recapitalization plan designed to strengthen its balance sheet, reduce its financing costs and enhance its overall capital structure. Also benefiting performance were the fund's holdings in Resorts International and Celanese Corp., both of which refinanced a portion of their existing debt. This involved the two companies retiring their bonds — which the fund held — by buying them back at a premium.
Leading individual detractors from performance were holdings the fund did not own: the distressed securities of Calpine Corp. and Adelphia Communications Corp., both of which are benchmark components that outperformed during the past six months. Similarly, an underweight in the newly-issued bonds of Freeport McMoran Copper and Gold Inc., which it issued to fund the purchase of its competitor Phelps Dodge, dampened relative performance when the bonds traded higher.5
5 "Overweight" means the fund holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the fund holds a lower weighting.Also detracting was an overweight position in the bonds of the homebuilder Hovanian Enterprises, Inc., which was hurt by concerns about the housing slowdown. Still, performance was helped by the portfolio's underweight position in the homebuilding sector as a whole. The fund's holding in French Lick Resorts and Casinos lost ground following the company's announcement that the opening of a new resort would be delayed. We view this as a short-term problem, and we continue to hold the bond in the portfolio on the view that it offers a favorable risk/reward profile. Finally, the fund's relative performance was hurt by having no exposure to the airlines sector, a group that performed very well during the past six months.
Q: Outside of individual security selection, what factors helped and hurt performance?
A: An element of the fund's positioning that weighed on relative performance was its position in yield-to-call securities. "Yield-to-call" measures the yield that would be realized on a callable bond in the event that the bond was redeemed by the issuer on the next available call date. (A bond is called when it is redeemed before its maturity by the issuer, typically at a premium.) Our increased weighting on this area was not the result of a top-down decision, but rather it was the result of our finding a number of yield-to-call securities that offered attractive risk-adjusted relative value. Unfortunately, this type of issue — which is typically viewed as being lower-risk — lagged the overall market. As a result, our increased weighting in this area detracted from performance.
Q: What is your view on the high-yield market as a whole?
A: High-yield spreads remain at record lows on a historical basis, but we believe this is justified due to the continued strength in the fundamentals of the asset class. The prospect of a soft landing for the US economy, together with the continued improvement in the credit quality of high-yield issuers, provides a firm underpinning for continued outperformance. While it is possible that the default rate will tick higher from its exceptionally low level, we do not foresee a significant rise. As a result, the higher coupon rates of the asset class should help drive continued outperformance versus other areas of the fixed income market through the remainder of the year.
Overall, we remain focused on adding value by emphasizing fundamental analysis and searching for individual securities with the most attractive risk-adjusted relative value.
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 management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results.
Asset Allocation (Excludes Securities Lending Collateral) | 3/31/07 | 9/30/06 |
|
|
|
Corporate Bonds | 85% | 84% |
Foreign Bonds — US$ Denominated | 12% | 13% |
Foreign Bonds — Non US$ Denominated | 2% | 1% |
Other Investments | 1% | 1% |
Cash Equivalents, net | — | 1% |
| 100% | 100% |
Corporate and Foreign Bond Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 3/31/07 | 9/30/06 |
|
|
|
Consumer Discretionary | 25% | 26% |
Materials | 14% | 15% |
Financials | 14% | 13% |
Industrials | 11% | 10% |
Telecommunication Services | 9% | 8% |
Utilities | 8% | 9% |
Energy | 7% | 9% |
Information Technology | 5% | 4% |
Consumer Staples | 3% | 3% |
Health Care | 3% | 2% |
Sovereign Bonds | 1% | 1% |
| 100% | 100% |
Quality | 3/31/07 | 9/30/06 |
|
|
|
Cash Equivalents | — | 1% |
BBB | 4% | 4% |
BB | 28% | 29% |
B | 54% | 51% |
CCC | 13% | 14% |
D | 1% | 1% |
| 100% | 100% |
Asset allocation, corporate and foreign bond diversification and quality 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.
Effective Maturity | 3/31/07 | 9/30/06 |
|
|
|
Less than 1 year | 13% | 12% |
1-4.99 years | 41% | 47% |
5-6.99 years | 32% | 14% |
7 years or greater | 14% | 27% |
| 100% | 100% |
Effective maturity is subject to change.
For complete details about the Fund's investment portfolio, see page 16. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to www.dws-scudder.com as of each calendar quarter-end on or after the last day 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.
Investment Portfolio as of March 31, 2007 (Unaudited)
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 84.2% | ||
Consumer Discretionary 22.8% | ||
AAC Group Holding Corp., 14.75%, 10/1/2012 (PIK) (b) | 2,949,635 | 3,318,339 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 6,005,000 | 6,095,075 |
Alliance One International, Inc., 144A, 8.5%, 5/15/2012 | 1,700,000 | 1,713,748 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 (b) | 9,013,000 | 9,170,727 |
American Achievement Corp., 8.25%, 4/1/2012 | 1,705,000 | 1,739,100 |
American Media Operations, Inc., Series B, 10.25%, 5/1/2009 (b) | 2,275,000 | 2,155,563 |
Asbury Automotive Group, Inc.: |
|
|
144A, 7.625%, 3/15/2017 | 3,960,000 | 3,969,900 |
8.0%, 3/15/2014 | 1,690,000 | 1,728,025 |
Buffets, Inc., 12.5%, 11/1/2014 | 2,280,000 | 2,371,200 |
Burlington Coat Factory Warehouse Corp., 11.125%, 4/15/2014 (b) | 3,440,000 | 3,508,800 |
Cablevision Systems Corp., Series B, 9.87%**, 4/1/2009 | 1,972,000 | 2,090,320 |
Caesars Entertainment, Inc., 8.875%, 9/15/2008 | 4,105,000 | 4,279,463 |
Charter Communications Holdings LLC: |
|
|
8.625%, 4/1/2009 | 270,000 | 270,000 |
10.25%, 9/15/2010 | 18,650,000 | 19,675,750 |
Series B, 10.25%, 9/15/2010 | 5,540,000 | 5,837,775 |
11.0%, 10/1/2015 (b) | 17,769,000 | 18,435,337 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 (b) | 4,409,000 | 3,692,538 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 3,185,000 | 3,228,794 |
7.875%, 12/15/2007 | 10,350,000 | 10,466,437 |
Series B, 8.125%, 7/15/2009 | 1,115,000 | 1,154,025 |
Series B, 8.125%, 8/15/2009 (b) | 1,125,000 | 1,164,375 |
Denny's Corp. Holdings, Inc., 10.0%, 10/1/2012 | 1,100,000 | 1,172,875 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 31,250,000 | 34,179,687 |
EchoStar DBS Corp.: |
|
|
6.625%, 10/1/2014 | 4,985,000 | 5,016,156 |
7.125%, 2/1/2016 | 3,820,000 | 3,944,150 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 1,168,000 | 1,197,200 |
Ford Motor Co., 7.45%, 7/16/2031 (b) | 3,520,000 | 2,723,600 |
French Lick Resorts & Casinos, 144A, 10.75%, 4/15/2014 | 12,555,000 | 10,546,200 |
General Cable Corp.: |
|
|
144A, 7.125%, 4/1/2017 | 3,025,000 | 3,043,906 |
144A, 7.725%**, 4/1/2015 | 4,230,000 | 4,230,000 |
General Motors Corp.: |
|
|
7.2%, 1/15/2011 (b) | 8,545,000 | 8,117,750 |
7.4%, 9/1/2025 | 3,135,000 | 2,555,025 |
8.375%, 7/15/2033 (b) | 11,495,000 | 10,316,762 |
General Nutrition Center, 144A, 9.796%**, 3/15/2014 (PIK) | 3,985,000 | 3,905,300 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 20,785,000 | 22,837,519 |
Gregg Appliances, Inc., 9.0%, 2/1/2013 | 2,125,000 | 2,231,250 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 1,685,000 | 1,748,188 |
Hanesbrands, Inc., 144A, 8.735%**, 12/15/2014 | 5,085,000 | 5,180,344 |
Hertz Corp.: |
|
|
8.875%, 1/1/2014 | 8,265,000 | 8,905,537 |
10.5%, 1/1/2016 (b) | 1,940,000 | 2,211,600 |
Idearc, Inc., 144A, 8.0%, 11/15/2016 | 17,020,000 | 17,509,325 |
ION Media Networks, Inc., 144A, 11.61%**, 1/15/2013 | 3,375,000 | 3,518,438 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 11,805,000 | 11,568,900 |
Jacobs Entertainment, Inc., 9.75%, 6/15/2014 | 6,295,000 | 6,436,637 |
Jarden Corp., 7.5%, 5/1/2017 | 3,950,000 | 3,989,500 |
Lear Corp., Series B, 8.75%, 12/1/2016 (b) | 2,840,000 | 2,712,200 |
Levi Strauss & Co., 10.11%**, 4/1/2012 | 275,000 | 280,500 |
Liberty Media Corp.: |
|
|
5.7%, 5/15/2013 | 540,000 | 517,736 |
8.25%, 2/1/2030 (b) | 4,510,000 | 4,508,688 |
8.5%, 7/15/2029 (b) | 5,890,000 | 6,025,028 |
Majestic Star Casino LLC, 9.5%, 10/15/2010 | 635,000 | 665,956 |
Mediacom Broadband LLC, 8.5%, 10/15/2015 (b) | 275,000 | 281,188 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 1,705,000 | 1,792,381 |
Metaldyne Corp.: |
|
|
10.0%, 11/1/2013 (b) | 2,840,000 | 2,903,900 |
11.0%, 6/15/2012 (b) | 1,270,000 | 1,203,262 |
MGM MIRAGE: |
|
|
6.75%, 9/1/2012 | 1,405,000 | 1,396,219 |
8.375%, 2/1/2011 (b) | 3,110,000 | 3,273,275 |
9.75%, 6/1/2007 | 5,545,000 | 5,572,725 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 6,135,000 | 6,395,737 |
NCL Corp., 10.625%, 7/15/2014 | 1,250,000 | 1,237,500 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 9,505,000 | 8,554,500 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 3,550,000 | 3,771,875 |
Pokagon Gaming Authority, 144A, 10.375%, 6/15/2014 | 1,675,000 | 1,846,688 |
Premier Entertainment Biloxi LLC/Finance, 10.75%, 2/1/2012 | 22,243,000 | 23,021,505 |
PRIMEDIA, Inc., 8.875%, 5/15/2011 | 3,680,000 | 3,781,200 |
Quiksilver, Inc., 6.875%, 4/15/2015 | 3,225,000 | 3,039,563 |
Reader's Digest Association, Inc., 144A, 9.0%, 2/15/2017 | 2,200,000 | 2,117,500 |
Resorts International Hotel & Casino, Inc., 11.5%, 3/15/2009 (b) | 21,311,000 | 22,589,660 |
Rite Aid Corp.: |
|
|
7.5%, 3/1/2017 | 5,660,000 | 5,589,250 |
8.625%, 3/1/2015 | 1,165,000 | 1,103,838 |
Seminole Hard Rock Entertainment, Inc., 144A, 7.848%**, 3/15/2014 | 3,945,000 | 4,023,900 |
Simmons Co., Step-up Coupon, 0% to 12/15/2009, 10% to 12/15/2014 | 3,980,000 | 3,273,550 |
Sinclair Broadcast Group, Inc., 8.0%, 3/15/2012 | 4,010,000 | 4,150,350 |
Sirius Satellite Radio, Inc., 9.625%, 8/1/2013 | 8,125,000 | 8,155,469 |
Six Flags, Inc., 9.75%, 4/15/2013 (b) | 4,865,000 | 4,633,912 |
Sonic Automotive, Inc., Series B, 8.625%, 8/15/2013 | 1,690,000 | 1,757,600 |
Station Casinos, Inc., 6.5%, 2/1/2014 | 4,535,000 | 4,172,200 |
TDS Investor Corp., 144A, 9.985%**, 9/1/2014 | 1,705,000 | 1,739,100 |
The Bon-Ton Department Stores, Inc., 10.25%, 3/15/2014 (b) | 3,645,000 | 3,913,819 |
The Toy Bank, 9.61%**, 7/1/2012 | 4,000,000 | 4,105,640 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 (b) | 7,405,000 | 7,479,050 |
TRW Automotive, Inc., 144A, 7.0%, 3/15/2014 (b) | 4,810,000 | 4,713,800 |
United Auto Group, Inc., 144A, 7.75%, 12/15/2016 | 8,465,000 | 8,549,650 |
Univision Communications, Inc., 144A, 9.75%, 3/15/2015 (PIK) (b) | 5,690,000 | 5,668,662 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 2,633,000 | 2,672,495 |
XM Satellite Radio, Inc., 9.75%, 5/1/2014 (b) | 15,165,000 | 15,297,694 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 16,620,000 | 15,498,150 |
| 497,138,055 | |
Consumer Staples 2.9% | ||
Del Laboratories, Inc., 8.0%, 2/1/2012 | 3,130,000 | 2,918,725 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 (b) | 1,070,000 | 1,136,104 |
9.0%, 4/15/2031 | 16,040,000 | 19,272,397 |
Harry & David Holdings, Inc., 10.36%**, 3/1/2012 | 3,410,000 | 3,486,725 |
North Atlantic Trading Co., 9.25%, 3/1/2012 | 8,255,000 | 8,089,900 |
Pilgrim's Pride Corp., 7.625%, 5/1/2015 | 1,410,000 | 1,406,475 |
Sally Holdings LLC, 144A, 9.25%, 11/15/2014 | 5,685,000 | 5,841,337 |
Sbarro, Inc., 144A, 10.375%, 2/1/2015 | 1,990,000 | 2,069,600 |
Viskase Co., Inc., 11.5%, 6/15/2011 | 18,895,000 | 19,083,950 |
| 63,305,213 | |
Energy 6.8% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 15,730,000 | 16,083,925 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 4,050,000 | 3,999,375 |
Chesapeake Energy Corp.: |
|
|
6.25%, 1/15/2018 | 3,900,000 | 3,851,250 |
6.875%, 1/15/2016 | 11,060,000 | 11,198,250 |
7.75%, 1/15/2015 (b) | 1,468,000 | 1,530,390 |
Complete Production Services, Inc., 144A, 8.0%, 12/15/2016 | 5,115,000 | 5,242,875 |
Delta Petroleum Corp., 7.0%, 4/1/2015 (b) | 7,735,000 | 6,961,500 |
Denbury Resources, Inc., 7.5%, 12/15/2015 | 1,140,000 | 1,151,400 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 | 1,130,000 | 1,132,825 |
7.625%, 10/15/2026 | 3,951,000 | 3,832,470 |
8.375%, 5/1/2016 | 7,490,000 | 7,789,600 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 6,300,000 | 6,583,500 |
Frontier Oil Corp., 6.625%, 10/1/2011 (b) | 2,470,000 | 2,463,825 |
Longview Power, Term Loan B, 144A, 7.625%, 4/1/2014 | 565,000 | 569,593 |
Longview Power Demand Draw, 144A, 7.55%, 4/1/2014 | 653,333 | 658,645 |
Longview Power Letter of Credit, 144A, 7.61%, 4/1/2014 | 181,667 | 183,173 |
Peabody Energy Corp., 7.375%, 11/1/2016 | 2,280,000 | 2,399,700 |
Plains Exploration & Production Co., 7.0%, 3/15/2017 (b) | 2,825,000 | 2,839,125 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 2,180,000 | 2,147,300 |
Sabine Pass LNG LP: |
|
|
144A, 7.25%, 11/30/2013 | 875,000 | 881,563 |
144A, 7.5%, 11/30/2016 | 2,705,000 | 2,725,287 |
Seitel, Inc., 144A, 9.75%, 2/15/2014 | 5,680,000 | 5,751,000 |
Stone Energy Corp.: |
|
|
6.75%, 12/15/2014 | 9,750,000 | 9,116,250 |
144A, 8.11%**, 7/15/2010 | 2,955,000 | 2,955,000 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 2,825,000 | 3,245,852 |
Transmeridian Exploration, Inc., 12.0%, 12/15/2010 (b) | 5,554,000 | 5,262,415 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 (b) | 22,201,000 | 24,143,586 |
8.75%, 3/15/2032 | 9,752,000 | 11,239,180 |
Williams Partners LP, 144A, 7.25%, 2/1/2017 | 2,835,000 | 2,998,012 |
| 148,936,866 | |
Financials 11.6% | ||
Alamosa Delaware, Inc., 11.0%, 7/31/2010 | 3,663,000 | 3,914,937 |
Ashton Woods USA LLC, 9.5%, 10/1/2015 | 9,075,000 | 8,643,937 |
BCP Crystal Holdings Corp., 9.625%, 6/15/2014 | 1,130,000 | 1,283,590 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 1,695,000 | 1,728,900 |
E*TRADE Financial Corp.: |
|
|
7.375%, 9/15/2013 | 3,105,000 | 3,244,725 |
7.875%, 12/1/2015 (b) | 2,310,000 | 2,491,912 |
8.0%, 6/15/2011 | 5,413,000 | 5,697,182 |
Ford Motor Credit Co.: |
|
|
7.25%, 10/25/2011 (b) | 23,115,000 | 22,465,538 |
7.375%, 10/28/2009 | 44,700,000 | 44,617,841 |
7.875%, 6/15/2010 | 11,255,000 | 11,296,857 |
8.0%, 12/15/2016 | 1,530,000 | 1,472,232 |
8.11%**, 1/13/2012 | 2,710,000 | 2,649,087 |
GMAC LLC: |
|
|
6.875%, 9/15/2011 | 48,885,000 | 48,932,370 |
8.0%, 11/1/2031 | 21,433,000 | 22,979,262 |
Hexion US Finance Corp., 144A, 9.75%, 11/15/2014 | 2,270,000 | 2,380,663 |
iPayment, Inc., 9.75%, 5/15/2014 | 3,140,000 | 3,218,500 |
K&F Acquisition, Inc., 7.75%, 11/15/2014 | 1,135,000 | 1,205,938 |
PGS Solutions, Inc., 144A, 9.625%, 2/15/2015 | 2,250,000 | 2,268,295 |
Pinnacle Foods Finance LLC: |
|
|
144A, 9.25%, 4/1/2015 | 2,315,000 | 2,274,488 |
144A, 10.625%, 4/1/2017 | 1,160,000 | 1,141,150 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 (b) | 10,940,000 | 11,377,600 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 | 12,752,000 | 13,772,160 |
Triad Acquisition Corp., Series B, 11.125%, 5/1/2013 | 4,980,000 | 4,656,300 |
UCI Holding Co., Inc., 144A, 12.355%**, 12/15/2013 (PIK) | 3,519,864 | 3,493,465 |
Universal City Development, 11.75%, 4/1/2010 | 14,315,000 | 15,156,006 |
Wimar Opco LLC, 144A, 9.625%, 12/15/2014 | 7,965,000 | 7,994,869 |
Yankee Acquisition Corp.: |
|
|
144A, 8.5%, 2/15/2015 | 2,275,000 | 2,303,438 |
144A, 9.75%, 2/15/2017 (b) | 850,000 | 860,625 |
| 253,521,867 | |
Health Care 2.5% | ||
Advanced Medical Optics, Inc., 144A, 7.5%, 5/1/2017 | 4,030,000 | 4,060,225 |
Cooper Companies, Inc., 144A, 7.125%, 2/15/2015 | 5,655,000 | 5,739,825 |
HCA, Inc.: |
|
|
6.5%, 2/15/2016 (b) | 3,025,000 | 2,575,031 |
144A, 9.125%, 11/15/2014 | 4,520,000 | 4,830,750 |
144A, 9.25%, 11/15/2016 | 9,975,000 | 10,760,531 |
HEALTHSOUTH Corp.: |
|
|
144A, 10.75%, 6/15/2016 | 7,395,000 | 8,042,063 |
144A, 11.354%**, 6/15/2014 | 1,130,000 | 1,220,400 |
Sun Healthcare Group, Inc., 144A, 9.125%, 4/15/2015 | 2,895,000 | 2,967,375 |
Tenet Healthcare Corp., 9.25%, 2/1/2015 (b) | 14,390,000 | 14,246,100 |
| 54,442,300 | |
Industrials 9.6% | ||
Aleris International, Inc., 144A, 9.0%, 12/15/2014 (PIK) | 3,955,000 | 4,172,525 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 5,135,000 | 5,237,700 |
Allied Waste North America, Inc., Series B, 9.25%, 9/1/2012 | 11,646,000 | 12,286,530 |
American Color Graphics, 10.0%, 6/15/2010 | 5,685,000 | 4,604,850 |
American Railcar Industries, Inc., 144A, 7.5%, 3/1/2014 | 2,785,000 | 2,861,588 |
ARAMARK Corp.: |
|
|
144A, 8.5%, 2/1/2015 | 3,385,000 | 3,520,400 |
144A, 8.86%**, 2/1/2015 | 1,690,000 | 1,736,475 |
Baldor Electric Co., 8.625%, 2/15/2017 | 2,815,000 | 2,976,863 |
Belden CDT, Inc., 144A, 7.0%, 3/15/2017 | 2,820,000 | 2,876,462 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 9,568,000 | 9,185,280 |
9.25%, 5/1/2021 | 5,165,000 | 5,604,025 |
Building Materials Corporation of America, 7.75%, 8/1/2014 (b) | 1,120,000 | 1,100,400 |
Cenveo Corp., 7.875%, 12/1/2013 | 7,166,000 | 7,022,680 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 (b) | 10,415,000 | 10,597,262 |
Congoleum Corp., 8.625%, 8/1/2008* | 6,765,000 | 6,223,800 |
DRS Technologies, Inc.: |
|
|
6.625%, 2/1/2016 (b) | 1,420,000 | 1,434,200 |
7.625%, 2/1/2018 (b) | 8,020,000 | 8,340,800 |
Education Management LLC, 8.75%, 6/1/2014 | 2,980,000 | 3,136,450 |
Esco Corp.: |
|
|
144A, 8.625%, 12/15/2013 | 5,665,000 | 6,004,900 |
144A, 9.23%**, 12/15/2013 | 1,800,000 | 1,872,000 |
Esterline Technologies Corp., 144A, 6.625%, 3/1/2017 | 2,820,000 | 2,834,100 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 1,140,000 | 1,131,450 |
Hawker Beechcraft Acquisition Co.: |
|
|
144A, 8.5%, 4/1/2015 | 4,225,000 | 4,388,719 |
144A, 8.875%, 4/1/2015 (PIK) (b) | 5,440,000 | 5,623,600 |
144A, 9.75%, 4/1/2017 (b) | 3,020,000 | 3,155,900 |
Iron Mountain, Inc., 8.75%, 7/15/2018 (b) | 2,265,000 | 2,434,875 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 | 10,100,000 | 8,660,750 |
8.875%, 4/1/2012 (b) | 11,060,000 | 10,645,250 |
Kansas City Southern: |
|
|
7.5%, 6/15/2009 | 2,235,000 | 2,285,288 |
9.5%, 10/1/2008 | 19,534,000 | 20,461,865 |
Millennium America, Inc., 9.25%, 6/15/2008 | 4,625,000 | 4,798,437 |
Mobile Services Group, Inc., 144A, 9.75%, 8/1/2014 | 5,215,000 | 5,514,862 |
Panolam Industries International, Inc., 144A, 10.75%, 10/1/2013 | 1,710,000 | 1,838,250 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 1,095,000 | 1,225,031 |
RBS Global & Rexnord Corp., 9.5%, 8/1/2014 | 1,705,000 | 1,773,200 |
Riverdeep Bank, 11.55%, 12/15/2007 | 6,260,000 | 6,267,825 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 2,870,000 | 2,941,750 |
Steel Dynamics, Inc., 144A, 6.75%, 4/1/2015 | 2,295,000 | 2,303,606 |
Titan International, Inc., 144A, 8.0%, 1/15/2012 | 8,500,000 | 8,744,375 |
TransDigm, Inc., 144A, 7.75%, 7/15/2014 | 1,690,000 | 1,744,925 |
United Rentals North America, Inc., 7.0%, 2/15/2014 (b) | 5,655,000 | 5,640,862 |
Wesco Aircraft: |
|
|
7.6%, 9/29/2013 | 743,125 | 749,048 |
11.1%, 3/31/2014 | 500,000 | 509,845 |
Xerox Capital Trust I, 8.0%, 2/1/2027 (b) | 2,025,000 | 2,065,500 |
| 208,534,503 | |
Information Technology 4.0% | ||
Alion Science & Technology Corp., 144A, 10.25%, 2/1/2015 | 2,275,000 | 2,343,250 |
Freescale Semiconductor, Inc., 144A, 8.875%, 12/15/2014 | 2,835,000 | 2,838,544 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 12,640,000 | 12,276,600 |
Series B, 6.375%, 10/15/2015 | 4,430,000 | 4,391,237 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 (b) | 18,640,000 | 16,822,600 |
Sanmina-SCI Corp., 8.125%, 3/1/2016 (b) | 8,335,000 | 7,834,900 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 (b) | 10,385,000 | 11,332,631 |
UGS Corp., 10.0%, 6/1/2012 | 9,745,000 | 10,658,594 |
Unisys Corp., 7.875%, 4/1/2008 (b) | 17,365,000 | 17,451,825 |
| 85,950,181 | |
Materials 11.7% | ||
ARCO Chemical Co., 9.8%, 2/1/2020 | 28,116,000 | 32,825,430 |
Associated Materials, Inc., Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014(b) | 5,730,000 | 4,025,325 |
Chemtura Corp., 6.875%, 6/1/2016 | 5,535,000 | 5,355,112 |
CPG International I, Inc.: |
|
|
10.5%, 7/1/2013 | 9,240,000 | 9,702,000 |
12.117%**, 7/1/2012 | 3,640,000 | 3,767,400 |
Crystal US Holdings: |
|
|
Series A, Step-up Coupon, 0% to 10/1/2009, 10.0% to 10/1/2014 | 11,110,000 | 10,293,859 |
Series B, Step-up Coupon, 0% to 10/1/2009, 10.5% to 10/1/2014(b) | 3,110,000 | 2,888,413 |
Equistar Chemical Funding, 10.625%, 5/1/2011 | 6,925,000 | 7,305,875 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 9,820,000 | 10,507,400 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/2017 | 4,485,000 | 4,849,406 |
GEO Specialty Chemicals, Inc., 144A, 13.349%**, 12/31/2009 (e) | 17,095,000 | 14,103,375 |
Georgia-Pacific Corp., 144A, 7.125%, 1/15/2017 | 1,975,000 | 1,979,938 |
Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015 | 2,815,000 | 2,843,150 |
Hexcel Corp., 6.75%, 2/1/2015 | 11,685,000 | 11,542,840 |
Huntsman LLC, 11.625%, 10/15/2010 | 15,191,000 | 16,463,246 |
International Coal Group, Inc., 10.25%, 7/15/2014 | 3,970,000 | 3,989,850 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 7,730,000 | 6,502,862 |
Lyondell Chemical Co., 10.5%, 6/1/2013 (b) | 1,935,000 | 2,118,825 |
MacDermid, Inc., 144A, 9.5%, 4/15/2017 | 2,900,000 | 2,972,500 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 6,715,000 | 6,782,150 |
6.875%, 12/15/2013 (b) | 6,440,000 | 6,109,950 |
Metals USA Holding Corp., 144A, 11.365%, 1/15/2012 (PIK) | 3,415,000 | 3,346,700 |
Momentive Performance Materials, Inc., 144A, 9.75%, 12/1/2014 | 4,530,000 | 4,665,900 |
Mueller Holdings, Inc., Step-up Coupon, 0% to 4/15/2009, 14.75% to 4/15/2014 | 14,789,000 | 13,457,990 |
Neenah Foundry Co., 144A, 9.5%, 1/1/2017 | 2,825,000 | 2,825,000 |
NewMarket Corp., 144A, 7.125%, 12/15/2016 | 6,805,000 | 6,770,975 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 16,020,000 | 17,021,250 |
Oxford Automotive, Inc., 144A, 12.0%, 10/15/2010* | 11,136,460 | 167,047 |
Pliant Corp., 11.625%, 6/15/2009 (PIK) | 7 | 8 |
Radnor Holdings Corp., 11.0%, 3/15/2010* | 1,510,000 | 5,663 |
Rockwood Specialties Group, Inc., 10.625%, 5/15/2011 | 2,479,000 | 2,615,345 |
Smurfit-Stone Container Enterprises, 144A, 8.0%, 3/15/2017 | 2,865,000 | 2,800,538 |
Terra Capital, Inc., 144A, 7.0%, 2/1/2017 | 8,255,000 | 8,213,725 |
The Mosaic Co., 144A, 7.375%, 12/1/2014 | 5,100,000 | 5,316,750 |
TriMas Corp., 9.875%, 6/15/2012 | 7,788,000 | 7,778,265 |
United States Steel Corp., 9.75%, 5/15/2010 | 5,580,000 | 5,859,000 |
Witco Corp., 6.875%, 2/1/2026 | 2,360,000 | 2,011,900 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 5,105,000 | 5,105,000 |
| 254,889,962 | |
Telecommunication Services 4.6% | ||
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 705,000 | 746,419 |
Centennial Cellular Operating Co., 10.125%, 6/15/2013 | 2,310,000 | 2,494,800 |
Centennial Communications Corp., 10.0%, 1/1/2013 (b) | 6,735,000 | 7,265,381 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 (b) | 11,410,000 | 11,837,875 |
8.375%, 1/15/2014 (b) | 7,285,000 | 7,448,912 |
Citizens Communications Co., 144A, 6.625%, 3/15/2015 | 4,040,000 | 4,029,900 |
Dobson Cellular Systems, 9.875%, 11/1/2012 | 4,435,000 | 4,834,150 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 4,240,000 | 4,367,200 |
Insight Midwest LP, 9.75%, 10/1/2009 | 1,834,000 | 1,863,803 |
Intelsat Corp., 144A, 9.0%, 6/15/2016 | 2,075,000 | 2,285,094 |
MasTec, Inc., 144A, 7.625%, 2/1/2017 | 3,960,000 | 4,009,500 |
MetroPCS Wireless, Inc., 144A, 9.25%, 11/1/2014 | 4,265,000 | 4,510,237 |
Nextel Communications, Inc., Series D, 7.375%, 8/1/2015 | 16,325,000 | 16,884,931 |
Qwest Corp., 7.25%, 9/15/2025 (b) | 8,515,000 | 8,781,094 |
Rural Cellular Corp., 9.875%, 2/1/2010 (b) | 5,265,000 | 5,554,575 |
SunCom Wireless Holdings, Inc., 8.5%, 6/1/2013 (b) | 6,160,000 | 6,344,800 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 (b) | 6,746,000 | 7,366,531 |
Windstream Corp., 8.625%, 8/1/2016 | 265,000 | 289,844 |
| 100,915,046 | |
Utilities 7.7% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 28,105,000 | 29,931,825 |
Allegheny Energy Supply Co. LLC, 144A, 8.25%, 4/15/2012 | 22,835,000 | 25,004,325 |
CMS Energy Corp., 8.5%, 4/15/2011 | 19,845,000 | 21,581,438 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 2,225,000 | 2,280,625 |
Mirant North America LLC, 7.375%, 12/31/2013 | 2,205,000 | 2,260,125 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 16,449,000 | 17,929,410 |
NRG Energy, Inc.: |
|
|
7.25%, 2/1/2014 | 9,465,000 | 9,701,625 |
7.375%, 2/1/2016 | 19,610,000 | 20,149,275 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 23,478,000 | 25,620,367 |
Regency Energy Partners LP, 144A, 8.375%, 12/15/2013 | 5,955,000 | 6,074,100 |
Sierra Pacific Resources: |
|
|
6.75%, 8/15/2017 (b) | 6,645,000 | 6,783,223 |
8.625%, 3/15/2014 (b) | 1,263,000 | 1,366,225 |
| 168,682,563 | |
Total Corporate Bonds (Cost $1,818,087,387) | 1,836,316,556 | |
| ||
Foreign Bonds — US$ Denominated 12.0% | ||
Consumer Discretionary 2.0% | ||
Dollarama Group LP, 144A, 11.12%**, 8/15/2012 | 2,835,000 | 2,863,350 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 3,375,000 | 3,396,094 |
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 10,251,000 | 10,853,246 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 (b) | 1,495,000 | 1,666,925 |
Quebecor World, 144A, 9.75%, 1/15/2015 | 2,830,000 | 2,971,500 |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014(b) | 15,427,000 | 14,462,813 |
Unity Media GmbH, 144A, 10.375%, 2/15/2015 | 2,210,000 | 2,342,600 |
Vitro, SA de CV: |
|
|
144A, 8.625%, 2/1/2012 | 1,135,000 | 1,163,375 |
144A, 9.125%, 2/1/2017 (b) | 3,415,000 | 3,500,375 |
Series A, 11.75%, 11/1/2013 | 1,360,000 | 1,514,700 |
| 44,734,978 | |
Consumer Staples 0.2% | ||
Cerveceria Nacional Dominicana, 144A, 8.0%, 3/27/2014 | 4,000,000 | 4,070,000 |
Energy 0.4% | ||
OPTI Canada, Inc., 144A, 8.25%, 12/15/2014 | 3,390,000 | 3,525,600 |
Secunda International Ltd., 13.36%**, 9/1/2012 | 5,060,000 | 5,249,750 |
| 8,775,350 | |
Financials 1.3% | ||
Conproca SA de CV, Series REG S, 12.0%, 6/16/2010 | 15,749,000 | 17,953,860 |
Doral Financial Corp., 6.19%**, 7/20/2007 | 4,560,000 | 4,309,305 |
Eaton Vance Corp., CDO II, Series C-X, 13.68%, 7/15/2012* | 2,070,488 | 0 |
Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012 | 3,371,000 | 3,185,595 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 3,505,000 | 3,084,400 |
| 28,533,160 | |
Health Care 0.1% | ||
Biovail Corp., 7.875%, 4/1/2010 | 2,034,000 | 2,074,049 |
Industrials 1.6% | ||
Bombardier, Inc.: |
|
|
144A, 6.3%, 5/1/2014 | 2,725,000 | 2,588,750 |
144A, 8.0%, 11/15/2014 | 1,585,000 | 1,640,475 |
Compagnie Generale de Geophysique-Veritas: |
|
|
7.5%, 5/15/2015 | 1,125,000 | 1,158,750 |
7.75%, 5/15/2017 | 2,815,000 | 2,934,638 |
Kansas City Southern de Mexico: |
|
|
144A, 7.625%, 12/1/2013 | 7,670,000 | 7,756,287 |
9.375%, 5/1/2012 | 7,390,000 | 7,944,250 |
12.5%, 6/15/2012 | 5,844,000 | 6,264,768 |
Navios Maritime Holdings, 144A, 9.5%, 12/15/2014 (b) | 4,505,000 | 4,690,831 |
Supercanal Holding SA, Series REG S, 11.5%, 5/15/2005* | 441,000 | 68,355 |
| 35,047,104 | |
Information Technology 0.2% | ||
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 5,365,000 | 5,391,825 |
Materials 1.8% | ||
Cascades, Inc., 7.25%, 2/15/2013 | 8,363,000 | 8,363,000 |
ISPAT Inland ULC, 9.75%, 4/1/2014 | 11,338,000 | 12,512,866 |
Novelis, Inc., 7.25%, 2/15/2015 | 10,931,000 | 11,559,532 |
Rhodia SA, 8.875%, 10/15/2013 | 3,544,000 | 3,694,620 |
Tembec Industries, Inc., 8.625%, 6/30/2009 | 3,890,000 | 2,747,313 |
| 38,877,331 | |
Sovereign Bonds 0.5% | ||
Federative Republic of Brazil, 8.875%, 10/14/2019 (b) | 3,646,000 | 4,604,898 |
Republic of Argentina, 5.475%**, 8/3/2012 (PIK) | 5,482,500 | 5,207,004 |
| 9,811,902 | |
Telecommunication Services 3.9% | ||
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 11,095,000 | 11,205,950 |
Digicel Group Ltd.: |
|
|
144A, 8.875%, 1/15/2015 (b) | 100,000 | 97,000 |
144A, 9.125%, 1/15/2015 (PIK) (b) | 1,160,000 | 1,110,700 |
Embratel, Series B, 11.0%, 12/15/2008 | 1,296,000 | 1,415,880 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 1,605,000 | 1,572,900 |
Intelsat Bermuda Ltd.: |
|
|
144A, 8.872%**, 1/15/2015 | 560,000 | 571,200 |
144A, 9.25%, 6/15/2016 | 1,695,000 | 1,877,213 |
144A, 11.25%, 6/15/2016 | 5,440,000 | 6,174,400 |
Intelsat Ltd., 5.25%, 11/1/2008 | 5,565,000 | 5,474,569 |
Intelsat Subsidiary Holding Co., Ltd., 8.25%, 1/15/2013 | 5,665,000 | 5,905,762 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 4,605,000 | 5,042,475 |
Mobifon Holdings BV, 12.5%, 7/31/2010 | 12,715,000 | 13,763,987 |
Nortel Networks Ltd.: |
|
|
144A, 9.61%**, 7/15/2011 | 5,405,000 | 5,783,350 |
144A, 10.125%, 7/15/2013 (b) | 5,180,000 | 5,685,050 |
144A, 10.75%, 7/15/2016 | 4,215,000 | 4,678,650 |
Orascom Telecom Finance, 144A, 7.875%, 2/8/2014 (b) | 2,115,000 | 2,083,275 |
Stratos Global Corp., 9.875%, 2/15/2013 | 2,205,000 | 2,353,838 |
Virgin Media Finance PLC, 8.75%, 4/15/2014 | 9,726,000 | 10,115,040 |
| 84,911,239 | |
Total Foreign Bonds — US$ Denominated (Cost $260,416,865) | 262,226,938 | |
| ||
Foreign Bonds — Non US$ Denominated 1.6% | ||
Consumer Discretionary 0.1% | ||
Cirsa Capital Luxembourg, 144A, 7.875%, 7/15/2012 EUR | 2,215,000 | 2,840,552 |
Financials 0.5% | ||
CEVA Group PLC: |
|
|
144A, 8.5%, 12/1/2014 EUR | 2,845,000 | 3,919,259 |
144A, 10.0%, 12/1/2016 EUR | 1,680,000 | 2,378,881 |
Codere Finance Luxembourg SA, 144A, 8.25%, | 2,550,000 | 3,623,577 |
| 9,921,717 | |
Materials 0.5% | ||
Ineos Group Holdings PLC, 144A, 7.875%, 2/15/2016 EUR | 2,260,000 | 2,822,785 |
OI European Group BV, 144A, 6.875%, 3/31/2017 EUR | 3,410,000 | 4,640,660 |
Rhodia SA, 144A, 6.507%**, 10/15/2013 EUR | 3,265,000 | 4,442,239 |
| 11,905,684 | |
Sovereign Bonds 0.3% | ||
Republic of Argentina, 7.82%, 12/31/2033 (PIK) EUR | 4,321,993 | 5,946,741 |
Telecommunication Services 0.2% | ||
BCM Ireland, (Preferred), 144A, 10.814%**, | 2,835,000 | 3,739,796 |
Hellas Telecom V, 144A, 7.257%**, 10/15/2012 EUR | 100,000 | 136,423 |
| 3,876,219 | |
Total Foreign Bonds — Non US$ Denominated (Cost $32,978,092) | 34,490,913 | |
| ||
Loan Participation 0.1% | ||
Alliance Mortgage Cycle Loan, Term A, LIBOR plus 7.25%, 12.59%**, 6/4/2010 (Cost $3,540,219) | 3,531,250 | 2,825,000 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Dayton Superior Corp., 144A, Expiration 6/1/2009* | 560 | 0 |
DeCrane Aircraft Holdings, Inc., 144A, Expiration 9/30/2008* | 16,090 | 0 |
Total Warrants (Cost $6) | 0 |
|
| Value ($) |
|
| |
Other Investments 0.6% | ||
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 6,700,000 | 5,829,000 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 6/15/2008, 13.0% to 12/15/2012 | 10,520,000 | 6,838,000 |
Total Other Investments (Cost $14,605,069) | 12,667,000 |
|
| Value ($) |
|
| |
Common Stocks 0.1% | ||
GEO Specialty Chemicals, Inc.* | 136,705 | 116,199 |
GEO Specialty Chemicals, Inc. 144A* | 12,448 | 10,581 |
IMPSAT Fiber Networks, Inc.* | 75,842 | 700,022 |
Total Common Stocks (Cost $6,004,539) | 826,802 | |
| ||
Convertible Preferred Stock 0.1% | ||
Consumer Discretionary | ||
ION Media Networks, Inc. 144A, 9.75%, (PIK) | 334 | 1,452,665 |
ION Media Networks, Inc. Series AI, 144A, 9.75%, (PIK) | 67 | 289,641 |
Total Convertible Preferred Stocks (Cost $2,737,425) | 1,742,306 | |
| ||
Securities Lending Collateral 9.7% | ||
Daily Assets Fund Institutional, 5.35% (c) (d) (Cost $210,975,972) | 210,975,972 | 210,975,972 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $2,349,345,574)+ | 108.4 | 2,362,071,487 |
Other Assets and Liabilities, Net (b) | (8.4) | (182,120,414) |
Net Assets | 100.0 | 2,179,951,073 |
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 6,765,000 | USD | 6,665,724 | 6,223,800 |
Eaton Vance Corp., CDO II | 13.68% | 7/15/2012 | 2,070,488 | USD | 1,697,739 | 0 |
Grupo Iusacell SA de CV | 10.0% | 7/15/2004 | 1,605,000 | USD | 973,163 | 1,572,900 |
Oxford Automotive, Inc. | 12.0% | 10/15/2010 | 11,136,460 | USD | 1,155,448 | 167,047 |
Radnor Holdings Corp. | 11.0% | 3/15/2010 | 1,510,000 | USD | 1,381,320 | 5,663 |
Supercanal Holding SA | 11.5% | 5/15/2005 | 441,000 | USD | 44,100 | 68,355 |
|
|
|
| | $ 11,917,494 | $ 8,037,765 |
+ The cost for federal income tax purposes was $2,370,624,898. At March 31, 2007, net unrealized depreciation for all securities based on tax cost was $8,553,411. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $46,709,078 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $55,262,489.
(a) Principal amount stated in US dollars unless otherwise noted.
(b) All or a portion of these securities were on loan amounting to $206,269,382. In addition, included in other assets and liabilities are pending sales, amounting to $500,009 that are also on loan (see Notes to Financial Statements). The value of all securities loaned at March 31, 2007 amounted to $206,769,391, which is 9.5% of net assets.
(c) Daily Assets Fund Institutional, an affiliated fund, is also managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(d) Represents collateral held in connection with securities lending.
(e) Security has a deferred interest payment of $532,406 from March 31, 2006.
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 ObligationLIBOR: London InterBank Offer Rate
PIK: Denotes that all or a portion of interest or dividend is paid in-kind.
The Fund had the following open forward foreign currency exchange contracts at March 31, 2007:
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Net Unrealized Depreciation | ||
EUR | 19,719,000 | | USD | 25,934,823 | | 4/11/2007 | | $ (418,436) |
EUR | 1,479,328 | | USD | 1,923,363 | | 5/11/2007 | | (56,090) |
EUR | 2,559,000 | | USD | 3,345,816 | | 5/11/2007 | | (78,320) |
EUR | 1,993,000 | | USD | 2,603,117 | | 5/11/2007 | | (63,667) |
Total unrealized depreciation | $ (616,513) |
Currency Abbreviations |
EUR Euro USD United States Dollar |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2007 (Unaudited) | |
Assets | |
Investments: Investments in securities, at value (cost $2,138,369,602) — including $206,269,382 of securities loaned | $ 2,151,095,515 |
Investment in Daily Assets Fund Institutional (cost $210,975,972)* | 210,975,972 |
Total investments in securities, at value (cost $2,349,345,574) | 2,362,071,487 |
Cash | 604,879 |
Foreign currency, at value (cost $4,166,166) | 4,174,755 |
Receivable for investments sold | 11,798,135 |
Interest receivable | 47,845,645 |
Receivable for Fund shares sold | 1,920,804 |
Foreign taxes recoverable | 99,122 |
Other assets | 114,826 |
Total assets | 2,428,629,653 |
Liabilities | |
Payable for investments purchased | 23,628,104 |
Note Payable | 7,800,000 |
Payable for Fund shares redeemed | 2,798,156 |
Payable upon return of securities loaned | 210,975,972 |
Accrued management fee | 1,030,407 |
Unrealized depreciation on forward currency exchange contracts | 616,513 |
Net payable on closed forward currency exchange contracts | 67,290 |
Other accrued expenses and payables | 1,762,138 |
Total liabilities | 248,678,580 |
Net assets, at value | $ 2,179,951,073 |
Net Assets | |
Net assets consist of: Accumulated distributions in excess of net investment income | (2,448,793) |
Net unrealized appreciation (depreciation) on: Investments | 12,725,913 |
Foreign currency related transactions | (663,106) |
Accumulated net realized gain (loss) | (1,549,596,541) |
Paid-in capital | 3,719,933,600 |
Net assets, at value | $ 2,179,951,073 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2007 (Unaudited) (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price(a) per share ($1,834,578,666 ÷ 335,497,862 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.47 |
Maximum offering price per share (100 ÷ 95.50 of $5.47) | $ 5.73 |
Class B Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($145,831,453 ÷ 26,688,851 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 ($177,855,906 ÷ 32,491,249 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 ($21,685,048 ÷ 3,961,621 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 5.47 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended March 31, 2007 (Unaudited) | |
Investment Income | |
Income: Interest (net of foreign taxes withheld of $25,315) | $ 92,716,063 |
Interest — Cash Management QP Trust | 453,729 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 269,783 |
Dividends | 9,135 |
Total Income | 93,448,710 |
Expenses: Management fee | 5,895,494 |
Services to shareholders | 1,545,734 |
Distribution service fees | 3,742,942 |
Custodian and accounting fees | 51,675 |
Auditing | 37,310 |
Legal | 21,088 |
Trustees' fees and expenses | 24,124 |
Reports to shareholders | 172,786 |
Registration fees | 52,624 |
Interest expense | 123,996 |
Other | 64,956 |
Total expenses before expense reductions | 11,732,729 |
Expense reductions | (61,257) |
Total expenses after expense reductions | 11,671,472 |
Net investment income (loss) | 81,777,238 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 5,122,991 |
Foreign currency related transactions | (566,891) |
| 4,556,100 |
Net unrealized appreciation (depreciation) during the period on: Investments | 48,842,960 |
Foreign currency related transactions | (708,515) |
| 48,134,445 |
Net gain (loss) on investment transactions | 52,690,545 |
Net increase (decrease) in net assets resulting from operations | $ 134,467,783 |
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, 2007 (Unaudited) | Year Ended September 30, 2006 |
Operations: Net investment income | $ 81,777,238 | $ 170,939,081 |
Net realized gain (loss) on investment transactions | 4,556,100 | (34,599,331) |
Net unrealized appreciation (depreciation) during the period on investment transactions | 48,134,445 | 25,519,760 |
Net increase (decrease) in net assets resulting from operations | 134,467,783 | 161,859,510 |
Distributions to shareholders from: Net investment income: Class A | (81,384,561) | (155,635,114) |
Class B | (6,326,593) | (13,936,428) |
Class C | (6,885,762) | (11,927,499) |
Institutional Class | (933,082) | (1,193,758) |
Fund share transactions: Proceeds from shares sold | 145,190,379 | 308,770,386 |
Reinvestment of distributions | 58,398,117 | 109,039,311 |
Cost of shares redeemed | (214,067,407) | (550,066,155) |
Redemption fees | 51,529 | 107,494 |
Net increase (decrease) in net assets from Fund share transactions | (10,427,382) | (132,148,964) |
Increase (decrease) in net assets | 28,510,403 | (152,982,253) |
Net assets at beginning of period | 2,151,440,670 | 2,304,422,923 |
Net assets at end of period (including accumulated distributions in excess of net investment income and undistributed net investment income of $2,448,793 and $11,303,967, respectively) | $ 2,179,951,073 | $ 2,151,440,670 |
The accompanying notes are an integral part of the financial statements.
Class A Years Ended September 30, | 2007a | 2006 | 2005 | 2004 | 2003 | 2002 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.37 | $ 5.42 | $ 5.43 | $ 5.23 | $ 4.62 | $ 5.18 |
Income (loss) from investment operations: Net investment incomeb | .20 | .42 | .44 | .44 | .44 | .53 |
Net realized and unrealized gain (loss) on investment transactions | .14 | (.02) | .00*** | .22 | .61 | (.53) |
Total from investment operations | .34 | .40 | .44 | .66 | 1.05 | — |
Less distributions from: Net investment income | (.24) | (.45) | (.45) | (.46) | (.44) | (.55) |
Return of capital | — | — | — | — | — | (.01) |
Total distributions | (.24) | (.45) | (.45) | (.46) | (.44) | (.56) |
Redemption fees | .00*** | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 5.47 | $ 5.37 | $ 5.42 | $ 5.43 | $ 5.23 | $ 4.62 |
Total Return (%)c | 6.49d** | 7.77 | 8.12d | 13.24 | 23.92 | (.60) |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 1,835 | 1,809 | 1,926 | 1,950 | 1,868 | 1,603 |
Ratio of expenses before expense reductions (including interest expenses) (%) | .96* | .96 | .96 | .94 | .97 | .96 |
Ratio of expenses after expense reductions (including interest expenses) (%) | .96* | .96 | .96 | .94 | .97 | .96 |
Ratio of expenses after expense reductions (excluding interest expense) (%) | .95* | .96 | .96 | .94 | .97 | .96 |
Ratio of net investment income (%) | 7.64* | 7.84 | 8.00 | 8.13 | 8.92 | 10.39 |
Portfolio turnover rate (%) | 62** | 100 | 113 | 162 | 149 | 154 |
a For the six months ended March 31, 2007 (Unaudited). b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. |
Class B Years Ended September 30, | 2007a | 2006 | 2005 | 2004 | 2003 | 2002 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.37 | $ 5.42 | $ 5.43 | $ 5.23 | $ 4.62 | $ 5.17 |
Income (loss) from investment operations: Net investment incomeb | .18 | .38 | .39 | .39 | .40 | .48 |
Net realized and unrealized gain (loss) on investment transactions | .13 | (.02) | .01 | .22 | .61 | (.52) |
Total from investment operations | .31 | .36 | .40 | .61 | 1.01 | (.04) |
Less distributions from: Net investment income | (.22) | (.41) | (.41) | (.41) | (.40) | (.50) |
Return of capital | — | — | — | — | — | (.01) |
Total distributions | (.22) | (.41) | (.41) | (.41) | (.40) | (.51) |
Redemption fees | .00*** | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 5.46 | $ 5.37 | $ 5.42 | $ 5.43 | $ 5.23 | $ 4.62 |
Total Return (%)c | 5.87d** | 6.87 | 7.45d | 12.09 | 22.88 | (1.23) |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 146 | 165 | 212 | 332 | 462 | 514 |
Ratio of expenses before expense reductions (including interest expenses) (%) | 1.80* | 1.76 | 1.81 | 1.75 | 1.82 | 1.79 |
Ratio of expenses after expense reductions (including interest expense) (%) | 1.79* | 1.76 | 1.80 | 1.75 | 1.82 | 1.79 |
Ratio of expenses after expense reductions (excluding interest expense) (%) | 1.78* | 1.76 | 1.80 | 1.75 | 1.82 | 1.79 |
Ratio of net investment income (%) | 6.81* | 7.04 | 7.15 | 7.32 | 8.07 | 9.56 |
Portfolio turnover rate (%) | 62** | 100 | 113 | 162 | 149 | 154 |
a For the six months ended March 31, 2007 (Unaudited). b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. |
Class C Years Ended September 30, | 2007a | 2006 | 2005 | 2004 | 2003 | 2002 |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.38 | $ 5.43 | $ 5.44 | $ 5.24 | $ 4.63 | $ 5.19 |
Income (loss) from investment operations: Net investment incomeb | .18 | .38 | .39 | .40 | .40 | .48 |
Net realized and unrealized gain (loss) on investment transactions | .13 | (.02) | .01 | .22 | .61 | (.53) |
Total from investment operations | .31 | .36 | .40 | .62 | 1.01 | (.05) |
Less distributions from: Net investment income | (.22) | (.41) | (.41) | (.42) | (.40) | (.50) |
Return of capital | — | — | — | — | — | (.01) |
Total distributions | (.22) | (.41) | (.41) | (.42) | (.40) | (.51) |
Redemption fees | .00*** | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 5.47 | $ 5.38 | $ 5.43 | $ 5.44 | $ 5.24 | $ 4.63 |
Total Return (%)c | 5.89d** | 6.94 | 7.49d | 12.12 | 23.11 | (1.61) |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 178 | 159 | 153 | 156 | 165 | 127 |
Ratio of expenses before expense reductions (including interest expense) (%) | 1.72* | 1.71 | 1.75 | 1.71 | 1.82 | 1.79 |
Ratio of expenses after expense reductions (including interest expenses) (%) | 1.72* | 1.71 | 1.74 | 1.71 | 1.82 | 1.79 |
Ratio of expenses after expense reductions (excluding interest expense) (%) | 1.71* | 1.71 | 1.74 | 1.71 | 1.82 | 1.79 |
Ratio of net investment income (loss) (%) | 6.88* | 7.09 | 7.21 | 7.36 | 8.07 | 9.56 |
Portfolio turnover rate (%) | 62** | 100 | 113 | 162 | 149 | 154 |
a For the six months ended March 31, 2007 (Unaudited). b Based on average shares outstanding during the period. c Total return does not reflect the effect of sales charges. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Amount is less than $.005. |
Institutional Class Years Ended September 30, | 2007a | 2006 | 2005 | 2004 | 2003 | 2002b |
Selected Per Share Data | ||||||
Net asset value, beginning of period | $ 5.38 | $ 5.42 | $ 5.43 | $ 5.23 | $ 4.63 | $ 4.65 |
Income (loss) from investment operations: Net investment incomec | .21 | .44 | .46 | .45 | .44 | .08 |
Net realized and unrealized gain (loss) on investment transactions | .13 | (.01) | .00*** | .22 | .62 | (.02) |
Total from investment operations | .34 | .43 | .46 | .67 | 1.06 | .06 |
Less distributions from: Net investment income | (.25) | (.47) | (.47) | (.47) | (.46) | (.08) |
Redemption fees | .00*** | .00*** | .00*** | — | — | — |
Net asset value, end of period | $ 5.47 | $ 5.38 | $ 5.42 | $ 5.43 | $ 5.23 | $ 4.63 |
Total Return (%) | 6.44d** | 8.33d | 8.49d | 13.32 | 24.33 | 1.14** |
Ratios to Average Net Assets and Supplemental Data | ||||||
Net assets, end of period ($ millions) | 22 | 18 | 13 | 10 | 1 | .001 |
Ratio of expenses before expense reductions (including interest expense) (%) | .68* | .69 | .66 | .65 | .83 | .82* |
Ratio of expenses after expense reductions (including interest expenses) (%) | .67* | .68 | .59 | .65 | .83 | .82* |
Ratio of expenses after expense reductions (excluding interest expense) (%) | .66* | .68 | .59 | .65 | .83 | .82* |
Ratio of net investment income (loss) (%) | 7.93* | 8.12 | 8.36 | 8.42 | 9.06 | 14.14* |
Portfolio turnover rate (%) | 62** | 100 | 113 | 162 | 149 | 154 |
a For the six months ended March 31, 2007 (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. |
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
DWS High Income Fund (the "Fund"), is a diversified series of the DWS High Income Series (the "Trust") which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment management 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 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.
In September 2006, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. As of March 31, 2007, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.
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 issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of 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 borrower rebates and 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.
Credit Default Swap Contracts. A credit default swap is a contract between a buyer and a seller of protection against a pre-defined credit event. The Fund may buy or sell credit default swap contracts to seek to increase the Fund's income, to add leverage to the portfolio, or to hedge the risk of default on portfolio securities. As a seller in the credit default swap contract, the Fund would be required to pay the par (or other agreed-upon) value of the referenced debt obligation to the counterparty in the event of a default by a third party, such as a US or foreign corporate issuer, on the debt obligation, which would likely result in a loss to the Fund. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would keep the stream of payments and would have no payment obligations. The Fund may also buy credit default swap contracts in order to hedge against the risk of default of debt securities, in which case the Fund would function as the counterparty referenced above. This would involve the risk that the contract may expire worthless. It would also involve credit risk — that the seller may fail to satisfy its payment obligations to the Fund in the event of a default. When the Fund sells a credit default swap contract it will "cover" its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the underlying debt obligations for all outstanding credit default swap contracts sold by the Fund.
Credit default swap contracts are marked to market daily based upon quotations from the counterparty and the change in value, if any, is recorded daily as unrealized gain or loss. An upfront payment made by the Fund, is recorded as an asset on the statement of assets and liabilities. An upfront payment received by the Fund, is recorded as a liability on the statement of assets and liabilities. Under the terms of the credit default swap contracts, the Fund receives or makes payments quarterly based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss on the statement of operations. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses.
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/appreciation and loss/depreciation on investments.
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. The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
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, 2006, the Fund had a capital loss carryforward of approximately $1,495,055,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until September 30, 2007 ($39,696,000), September 30, 2008 ($126,549,000), September 30, 2009 ($173,248,000), September 30, 2010 ($283,200,000), September 30, 2011 ($620,426,000), September 30, 2012 ($194,012,000), September 30, 2013 ($13,591,000), and September 30, 2014 ($44,333,000) the respective expiration dates, whichever occurs first. In addition, from November 1, 2005 through September 30, 2006, the Fund incurred approximately $37,871,000 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, 2007.
In July 2006, FASB issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109" (the "Interpretation"). The Interpretation establishes for the Fund a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether the Fund is taxable in certain jurisdictions), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006. On December 22, 2006, the SEC indicated that they would not object if a Fund implements FIN 48 in the first required financial statement reporting period for its fiscal year beginning after December 15, 2006. Management has begun to evaluate the application of the Interpretation to the Fund and is not in a position at this time to estimate the significance of its impact, if any, on the Fund's financial statements.
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 gain 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 and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Redemption Fees. For the period from October 1, 2006 to March 11, 2007, the redemption or exchange of shares held for less than 60 days were assessed a fee of 2% of the total amount redeemed or exchanged. Effective March 12, 2007, the Fund imposes a redemption fee of 2% of the total redemption amount on all Fund shares redeemed or exchanged within 30 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 been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment 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 in default of principal.
B. Purchases and Sales of Securities
During the six months ended March 31, 2007, purchases and sales of investment securities (excluding short-term investments) aggregated $682,978,218 and $664,072,552, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement.
Under the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, accrued daily and payable monthly, at the following rates:
First $250 million of the Fund's average daily net assets | .580% |
Next $750 million of such net assets | .550% |
Next $1.5 billion of such net assets | .530% |
Next $2.5 billion of such net assets | .510% |
Next $2.5 billion of such net assets | .480% |
Next $2.5 billion of such net assets | .460% |
Next $2.5 billion of such net assets | .440% |
Over $12.5 billion of such net assets | .420% |
Accordingly, for the six months ended March 31, 2007, 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.
Service Provider Fees. DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the Advisor, is the transfer agent, 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 DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has delegated certain transfer agent and dividend paying agent functions to DST. DWS-SISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended March 31, 2007, the amounts charged to the Fund by DWS-SISC were as follows:
Service Provider Fees | Total Aggregated | Unpaid at March 31, 2007 |
Class A | $ 934,097 | $ 518,698 |
Class B | 130,356 | 93,790 |
Class C | 77,475 | 44,599 |
Institutional Class | 5,806 | 2,421 |
| $ 1,147,734 | $ 659,508 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS Scudder Distributors, Inc. ("DWS-SDI"), an affiliate 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, DWS-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, 2007, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at March 31, 2007 |
Class B | $ 587,481 | $ 95,899 |
Class C | 630,912 | 113,045 |
| $ 1,218,393 | $ 208,944 |
In addition, DWS-SDI provides information and administrative services for a fee ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DWS-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, 2007, the Service Fee was as follows:
Service Fee | Total Aggregated | Unpaid at March 31, 2007 | Annualized Effective Rate |
Class A | $ 2,124,838 | $ 349,099 | .23% |
Class B | 193,311 | 28,777 | .25% |
Class C | 206,400 | 23,698 | .25% |
| $ 2,524,549 | $ 401,574 |
|
Underwriting Agreement and Contingent Deferred Sales Charge. DWS-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, 2007, aggregated $194,246.
In addition, DWS-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, 2007, the CDSC for Class B and C shares aggregated $162,121 and $1,852, respectively. A deferred sales charge of up to .85% is assessed on certain redemptions of Class A shares. For the six months ended March 31, 2007, DWS-SDI received an aggregate CDSC of $1,987 for Class A shares.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended March 31, 2007, the amount charged to the Fund by DIMA included in Statement of Operations under "reports to shareholders" aggregated $13,300, all of which is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the 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 its Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Investing in High Yield Securities
Investing in high yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high yield securities may be less liquid due to the extent that there is no established retail secondary market and because of a decline in the value of such securities.
E. Fee Reductions
For the six months ended March 31, 2007, the Advisor agreed to reimburse the Fund $14,172, which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.
In addition, the Fund has entered into an arrangement with its custodian and transfer agent 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, 2007, the Fund's custodian fees were reduced by $2,896 and $44,189, respectively, for custody and transfer agent credits earned.
F. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $750 million revolving credit facility administered by JPMorgan Chase Bank N.A. 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.
At March 31, 2007, the Fund had a $7,800,000 outstanding loan. Interest expense incurred on the borrowing was $31,500 for the six months ended March 31, 2007. The average dollar amount of the borrowings was $6,118,750, the weighted average interest rate on these borrowings was 5.87% and the Fund had a loan outstanding for thirty two days throughout the period.
G. Borrowings
Effective October 11, 2006, the Fund entered into a credit facility with State Street Bank and Trust Company and Societe Generale. Under the terms of this agreement, any loan obtained by the Fund will bear interest at the Fed Funds Rate plus 0.65%, which is payable at maturity. A commitment fee is charged to the Fund and is included with "interest expense" on the Statement of Operations. The loan amounts and rates are reset periodically under a revolving credit agreement obtained by the Fund in an amount not to exceed $111,000,000 at any one time and which is available until October 10, 2007. No loans were initiated under this credit facility during the period ending March 31, 2007.
H. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Six Months Ended | Year Ended | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 19,073,547 | $ 104,040,952 | 42,203,013 | $ 227,068,496 |
Class B | 1,969,814 | 10,737,391 | 4,453,257 | 23,935,214 |
Class C | 4,956,114 | 27,078,405 | 7,325,036 | 39,469,098 |
Institutional Class | 612,049 | 3,333,631 | 3,396,177 | 18,297,578 |
|
| $ 145,190,379 |
| $ 308,770,386 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 9,230,791 | $ 50,228,398 | 17,531,171 | $ 93,967,292 |
Class B | 609,172 | 3,311,814 | 1,357,728 | 7,274,071 |
Class C | 721,692 | 3,932,728 | 1,259,053 | 6,756,470 |
Institutional Class | 169,734 | 925,177 | 194,289 | 1,041,478 |
|
| $ 58,398,117 |
| $ 109,039,311 |
Shares redeemed | ||||
Class A | (29,589,390) | $ (161,363,552) | (78,203,409) | $ (420,904,387) |
Class B | (6,616,016) | (36,101,587) | (14,315,949) | (77,048,416) |
Class C | (2,809,694) | (15,338,574) | (7,090,383) | (38,149,986) |
Institutional Class | (231,571) | (1,263,694) | (2,598,291) | (13,963,366) |
|
| $ (214,067,407) |
| $ (550,066,155) |
Redemption fees | $ 51,529 |
| $ 107,494 | |
Net increase (decrease) | ||||
Class A | (1,285,052) | $ (7,053,762) | (18,469,225) | $ (99,769,260) |
Class B | (4,037,030) | (22,042,911) | (8,504,964) | (45,832,929) |
Class C | 2,868,112 | 15,674,015 | 1,493,706 | 8,077,535 |
Institutional Class | 550,212 | 2,995,276 | 992,175 | 5,375,690 |
|
| $ (10,427,382) |
| $ (132,148,964) |
I. Regulatory Matters and Litigation
Regulatory Settlements. On December 21, 2006, Deutsche Asset Management ("DeAM") settled proceedings with the Securities and Exchange Commission ("SEC") and the New York Attorney General on behalf of Deutsche Asset Management, Inc. ("DAMI") and Deutsche Investment Management Americas Inc. ("DIMA"), the investment advisors to many of the DWS Scudder funds, regarding allegations of improper trading of fund shares at DeAM and at the legacy Scudder and Kemper organizations prior to their acquisition by DeAM in April 2002. These regulators alleged that although the prospectuses for certain funds in the regulators' view indicated that the funds did not permit market timing, DAMI and DIMA breached their fiduciary duty to those funds in that their efforts to limit trading activity in the funds were not effective at certain times. The regulators also alleged that DAMI and DIMA breached their fiduciary duty to certain funds by entering into certain market timing arrangements with investors. These trading arrangements originated in businesses that existed prior to the currently constituted DeAM organization, which came together as a result of various mergers of the legacy Scudder, Kemper and Deutsche fund groups, and all of the arrangements were terminated prior to the start of the regulatory investigations that began in the summer of 2003. No current DeAM employee approved these trading arrangements. Under the terms of the settlements, DAMI and DIMA neither admitted nor denied any wrongdoing.
The terms of the SEC settlement, which identified improper trading in the legacy Deutsche and Kemper mutual funds only, provide for payment of disgorgement in the amount of $17.2 million. The terms of the settlement with the New York Attorney General provide for payment of disgorgement in the amount of $102.3 million, which is inclusive of the amount payable under the SEC settlement, plus a civil penalty in the amount of $20 million. The total amount payable by DeAM, approximately $122.3 million, would be distributed to funds in accordance with a distribution plan to be developed by a distribution consultant. The funds' investment advisors do not believe these amounts will have a material adverse financial impact on them or materially affect their ability to perform under their investment management agreements with the DWS funds. The above-described amounts are not material to Deutsche Bank, and have already been reserved.
Among the terms of the settled orders, DeAM is subject to certain undertakings regarding the conduct of its business in the future, including: formation of a Code of Ethics Oversight Committee to oversee all matters relating to issues arising under the advisors' Code of Ethics; establishment of an Internal Compliance Controls Committee having overall compliance oversight responsibility of the advisors; engagement of an Independent Compliance Consultant to conduct a comprehensive review of the advisors' supervisory compliance and other policies and procedures designed to prevent and detect breaches of fiduciary duty, breaches of the Code of Ethics and federal securities law violations by the advisors and their employees; and commencing in 2008, the advisors shall undergo a compliance review by an independent third party.
In addition, DeAM is subject to certain further undertakings relating to the governance of the mutual funds, including that: at least 75% of the members of the Boards of Trustees/Directors overseeing the DWS Funds continue to be independent of DeAM; the Chairmen of the DWS Funds' Boards of Trustees/Directors continue to be independent of DeAM; DeAM maintain existing management fee reductions for certain funds for a period of five years and not increase management fees for certain funds during this period; the funds retain a senior officer (or independent consultants) responsible for assisting in the review of fee arrangements and monitoring compliance by the funds and the investment advisors with securities laws, fiduciary duties, codes of ethics and other compliance policies, the expense of which shall be borne by DeAM; and periodic account statements, fund prospectuses and the mutual funds' web site contain additional disclosure and/or tools that assist investors in understanding the fees and costs associated with an investment in the funds and the impact of fees and expenses on fund returns.
DeAM has also settled proceedings with the Illinois Secretary of State regarding market timing matters. The terms of the Illinois settlement provide for investor education contributions totaling approximately $4 million and a payment in the amount of $2 million to the Securities Audit and Enforcement Fund.
On September 28, 2006, the SEC and the National Association of Securities Dealers ("NASD") announced final agreements in which Deutsche Investment Management Americas Inc. ("DIMA"), Deutsche Asset Management, Inc. ("DAMI") and Scudder Distributors, Inc. ("SDI") (now known as DWS Scudder Distributors, Inc.) settled administrative proceedings regarding disclosure of brokerage allocation practices in connection with sales of the Scudder Funds' (now known as the DWS Scudder Funds) shares during 2001-2003. The agreements with the SEC and NASD are reflected in orders which state, among other things, that DIMA and DAMI failed to disclose potential conflicts of interest to the fund Boards and to shareholders relating to SDI's use of certain funds' brokerage commissions to reduce revenue sharing costs to broker-dealer firms with whom it had arrangements to market and distribute Scudder Fund shares. These directed brokerage practices were discontinued in October 2003.
Under the terms of the settlements, in which DIMA, DAMI and SDI neither admitted nor denied any of the regulators' findings, DIMA, DAMI and SDI agreed to pay disgorgement, prejudgment interest and civil penalties in the total amount of $19.3 million. The portion of the settlements distributed to the funds was approximately $17.8 million and was paid to the funds as prescribed by the settlement orders based upon the amount of brokerage commissions from each fund used to satisfy revenue sharing agreements with broker-dealers who sold fund shares. Based on the prescribed settlement order, the Fund was not entitled to a portion of the settlement.
As part of the settlements, DIMA, DAMI and SDI also agreed to implement certain measures and undertakings relating to revenue sharing payments including making additional disclosures in the fund Prospectuses or Statements of Additional Information, adopting or modifying relevant policies and procedures and providing regular reporting to the fund Boards.
Private Litigation Matters. The matters alleged in the regulatory settlements described above also serve as the general basis of a number of private class action lawsuits involving the DWS funds. These lawsuits name as defendants various persons, including certain DWS funds, the funds' investment advisors and their affiliates, and certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each DWS fund's investment advisor has agreed to indemnify the applicable DWS funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making similar allegations.
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 DWS fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the DWS funds.
For shareholders of Classes A, B, C and Institutional Class | |
Automated Information Line | (800) 621-1048 Personalized account information, information on other DWS funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | www.dws-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 DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a DWS Scudder service representative. |
Written Correspondence | DWS Scudder PO Box 219151Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: DWS Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 |
| Class A | Class B | Class C | Institutional Class |
Nasdaq Symbol | KHYAX | KHYBX | KHYCX | KHYIX |
CUSIP Number | 23337M 107 | 23337M 206 | 23337M 305 | 23337M 404 |
Fund Number | 8 | 208 | 308 | 513 |
This privacy statement is issued by DWS Scudder Distributors, Inc., Deutsche Investment Management Americas Inc., DeAM Investor Services, Inc., DWS Trust Company and the DWS 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 DWS 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:
DWS Scudder
Attention: Correspondence — Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
September 2006
ITEM 2. | CODE OF ETHICS |
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| Not applicable. |
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ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
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| Not applicable. |
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ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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| Not applicable. |
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
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| Not Applicable |
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ITEM 6. | SCHEDULE OF INVESTMENTS |
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| Not Applicable |
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ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
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ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
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| Not Applicable. |
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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| 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. |
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ITEM 11. | CONTROLS AND PROCEDURES |
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| (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
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| (b) There have been no changes in the registrant's internal control over financial reporting that occurred during the 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. |
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ITEM 12. | EXHIBITS |
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| (a)(1) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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| (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSRS Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | DWS High Income Fund, a series of DWS High Income Series |
By: | /s/Michael G. Clark |
| Michael G. Clark |
President
Date: | May 29, 2007 |
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.
By: | /s/Michael G. Clark |
| Michael G. Clark |
President
Date: | May 29, 2007 |
By: | /s/Paul Schubert |
| Paul Schubert |
Chief Financial Officer and Treasurer
Date: | May 29, 2007 |