UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-5689 |
DWS Multi-Market Income Trust
(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: | 11/30 |
Date of reporting period: | 11/30/07 |
ITEM 1. REPORT TO STOCKHOLDERS
NOVEMBER 30, 2007
Annual Report
to Shareholders
DWS Multi-Market Income Trust
Ticker Symbol: KMM
Contents
Investments in funds involve risk. Yields and market value will fluctuate. Investing in emerging markets presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. Additionally, the fund invests in lower-quality and non-rated securities, which present greater risk of loss of principal and interest than higher-quality securities. 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 investment, can decline and the investor can lose principal value. Leverage results in additional risks and can magnify the effect of any losses. All of these factors may result in greater share price volatility. Closed-end funds, unlike open-end funds, are not continuously offered. There is an initial public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value.
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 November 30, 2007
Performance 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 sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.cef.dws-scudder.com for the Fund's most recent month-end performance.
Fund specific data and performance are provided for informational purposes only and are not intended for trading purposes.
Returns and rankings based on net asset value during all periods shown reflect fee reductions. Without these fee reductions, returns and rankings would have been lower.
Average Annual Total Returns as of 11/30/07 |
DWS Multi-Market Income Trust | 1-Year | 3-Year | 5-Year | 10-Year |
Based on Net Asset Value(a) | 3.12% | 8.54% | 14.19% | 8.66% |
Based on Market Price(a) | -14.74% | 5.68% | 11.86% | 7.47% |
Credit Suisse High Yield Index(b)
| 3.81% | 6.02% | 11.22% | 6.19% |
Lipper Closed-End General Bond Funds Category(c)
| 3.38% | 5.17% | 9.04% | 6.20% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
(a) Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market price reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to NAV at which the Fund's shares traded during the period.(b) The Credit Suisse High Yield Index is an unmanaged, unleveraged, trader-priced portfolio constructed to mirror the global high-yield debt market. Index returns, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.(c) Lipper's Closed-End General Bond Funds Category represents funds that have no quality or maturity restrictions, can use leverage and tend to invest in lower-grade debt issues. Lipper figures represent the average of the total returns based on net asset value reported by all of the closed-end funds designated by Lipper Inc. as falling into the Closed-End General Bond Funds Category. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper category.Net Asset Value and Market Price |
| As of 11/30/07 | As of 11/30/06 |
Net Asset Value
| $ 9.61 | $ 10.09 |
Market Price
| $ 8.45 | $ 10.73 |
Prices and net asset value fluctuate and are not guaranteed.
Distribution Information |
Twelve Months as of 11/30/07:
Income Dividends | $ .78 |
November Income Dividend
| $ .065 |
Current Annualized Distribution Rate (based on Net Asset Value) as of 11/30/07+
| 8.12% |
Current Annualized Distribution Rate (based on Market Price) as of 11/30/07+
| 9.23% |
+ Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value/market price on November 30, 2007. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Distribution rates are historical, not guaranteed, and will fluctuate.Lipper Rankings — Closed-End General Bond Funds Category as of 11/30/07 |
Period | Rank | | Number of Funds Tracked | Percentile Ranking (%) |
1-Year
| 7 | of | 11 | 59 |
3-Year
| 1 | of | 10 | 10 |
5-Year
| 1 | of | 10 | 10 |
10-Year
| 2 | of | 8 | 23 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on net asset value total return with distributions reinvested.
Portfolio Management Review
DWS Multi-Market Income Trust: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for DWS Multi-Market Income Trust. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to institutional and retail clients.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Gary Sullivan, CFA
Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
Joined Deutsche Asset Management in 1996 and the fund in 2006. Served as the head of the High Yield group in Europe and as an Emerging Markets portfolio manager.
Prior to that, four years at Citicorp as a research analyst and structurer of collateralized mortgage obligations. Prior to Citicorp, served as an officer in the US Army from 1988 to 1991.
BS, United States Military Academy (West Point); MBA, New York University, Stern School of Business.
In the following interview, Portfolio Manager Gary Sullivan discusses market conditions and DWS Multi-Market Income Trust's investment strategy during the annual period ended November 30, 2007.
The views expressed in the following discussion reflect those of the portfolio manager only through the end of the period of the report as stated on the cover. The manager's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results.
Q: How did the bond market perform during the 12-month reporting period?
A: The past year can be divided into two distinct periods — the first covering the interval from the beginning of December through the end of June; the second consisting of July through November. The first phase was characterized by continued strength in the global economy, rate increases from central banks worldwide, and a strong appetite for risk among investors. This backdrop supported substantial outperformance for high-yield bonds and emerging-markets debt relative to the sovereign bonds of the developed nations.
This environment changed rapidly during the summer, setting the stage for an entirely different set of results within the bond market. The catalyst for this shift was US housing market weakness and the rapid rise in defaults in the subprime segment of the US mortgage market. Investors repriced the risk in securities tied to subprime mortgages, causing the value of these investments to collapse. This development, in turn, caused risk aversion to soar and prompted investors to hoard cash. The resulting credit crunch sparked a "flight to quality" in which investors sold higher-risk securities — such as high-yield and emerging-markets debt — and moved their money into government bonds, reversing the performance trends that characterized the first seven months of the reporting period.
These events prompted aggressive action from global central banks, which injected additional liquidity into the financial system in order to restore confidence. Most prominent among the central bank moves was the US Federal Reserve Board's (the Fed's) decision to cut its discount rate — the interest rate the Fed charges member banks for loans when they borrow directly from the Fed — by a full percentage point, along with its reduction of the benchmark federal funds rate (the overnight rate charged by banks when they borrow money from each other) by three-quarters of a point over two separate meetings in September and October. Investors quickly regained confidence as a result, leading to a rally in high-yield and emerging-market debt and reversing the flight to quality that occurred in the summer. While the higher-risk segments of the bond market recovered a great deal of lost ground in this rebound, a revival of the subprime issues and recession fears led both asset classes to weaken during November.
Q: How did the fund perform over the annual period?
A: The fund provided a total return of 3.12% based on net asset value (NAV). In comparison, the funds in its Lipper peer group, Closed-End General Bond Funds, produced an average return of 3.38%.1 The fund's benchmark, the Credit Suisse High Yield Index, returned 3.81%.2 Although the fund underperformed its peers over the one-year period ended November 30, 2007, its relative performance remained strong over the three-, five- and ten-year periods. The November 30, 2007 NAV was $9.61, compared with $10.09 twelve months ago. (Performance is calculated based on the reinvestment of dividends. Past performance is no guarantee of future results. Please see pages 4 and 5 for more complete performance information.)
1 The Lipper Closed End General Bond Funds category consists of funds that have no quality or maturity restrictions, can use leverage and tend to invest in lower-grade debt issues. Lipper figures represent the average of the total returns based on net asset value reported by all of the closed-end funds designated by Lipper Inc. as falling into the Closed-End General Bond Funds Category. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper category. The fund ranked 7, 1, 1 and 2 for the 1-, 3- , 5- and 10-year periods as of November 30, 2007. There were 11, 10, 10 and 8 funds, respectively, in Lipper's Closed End General Bond Funds category.2 The Credit Suisse High Yield Index is an unmanaged, unleveraged, trader-priced portfolio constructed to mirror the global high-yield debt market. Index returns, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.The fund's return based on the market price of shares quoted on the New York Stock Exchange was -14.74% for the annual period. (Performance is calculated based on the reinvestment of dividends. Past performance is no guarantee of future results.) The fund's shares closed the period at $8.45 compared with $10.73 twelve months ago. The market price discount of the shares, as a percentage of NAV, was approximately 12% on November 30, 2007.
During the period, the fund completed a rights offering. Shareholders were issued one non-transferable right for each share owned. The rights entitled the shareholders to purchase one new common share for every three rights held at the subscription price of $10.31. The purpose of the offer was to increase the assets of the fund available for investment, thereby allowing the fund to more fully take advantage of available investment opportunities consistent with the fund's investment objective. Net proceeds were approximately $37 million after deduction of expenses.
The fund maintained a leveraged position throughout the period. At the close of the period, the portfolio was approximately 7.90% leveraged, meaning that the fund borrowed against approximately $20 million of fund assets. In employing leverage, the fund uses a secured loan to raise money in the commercial paper market at short-term interest rates, then invests the proceeds in longer-term securities. We will continue to closely evaluate the fund's use of leverage.
Q: Please discuss the fund's performance and positioning in high yield.
A: The fund was overweight in high-yield bonds through the first half of the period, and this was a positive for returns given the outperformance of the asset class.3 During the spring, we opted to reduce the fund's weighting in high yield to neutral given that yield spreads had moved to historically low levels.4 Given the subsequent downturn in the sector, this move proved well timed. As of the close of the reporting period, 54% of the portfolio was invested in high-yield bonds.
3 "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.4 The yield spread is the difference in yield between emerging-markets bonds and Treasuries, the latter of which is seen to be free of credit risk. Narrow spreads are a sign of positive performance, wider spreads indicate negative performance.Individual security selection was the primary driver of returns in this portion of the fund. A notable contribution to performance came from an underweight in housing and real estate development issues, an area of the market that underperformed. Specific contributors in this sector included our decisions to underweight Realogy Corp. and hold no exposure in Technical Olympic USA. Also aiding performance was the fund's overweight position in the integrated natural gas company Williams Companies, which received upgrades from the major ratings agencies, as well as lack of exposure to Delphi Corp., which lagged the benchmark. Telenet, a cable operator based in the Netherlands, added to returns due to the company's decision to make a tender offer — at a premium — for its outstanding debt.
Other top contributors included Resorts International Ltd.; Dex Media, whose bonds were called at a premium; the cable company IESY; the aluminum rolled products producer Novelis Inc., whose bonds we sold at a gain after the company was purchased by the Indian metals concern Hindalco; and Kansas City Southern Railroad, which is experiencing business and revenue growth with its strategic cross-border and intra-Mexico routes.
A key detractor included an overweight in homebuilder K. Hovanian Enterprises, Inc., whose bonds lost ground amid concerns about the US housing market. In addition, the fund was hurt by its lack of exposure to Calpine, which outperformed, as well as its overweight position in the bonds of the gaming company Tropicana Entertainment LLC.
Q: How is the fund positioned in the emerging markets?
A: The fund remains overweight in emerging-markets bonds, where we believe fundamentals remain strong. This overweight added value over the majority of the period, but it detracted from returns during the July-August downturn. While further bouts of volatility related to credit concerns in developed markets cannot be ruled out, we continue to believe that a moderate slowdown in the US economy should have a limited impact on the emerging markets. The reason for this is that the global economy continues to decouple from the United States due largely to the continued vibrant growth in China. As of the end of the annual period, the fund held no positions in some of the more volatile countries in the asset class — such as Lebanon, Iraq and Pakistan — in favor of more stable credits. We continue to have a positive outlook on Brazil and hold a large overweight position in that country. Overall, 40% of the portfolio was invested in emerging-markets bonds as of November 30, 2007.
Q: What is your broad view of emerging-market and high-yield debt as we move into 2008?
A: Looking first at high yield, we believe the recent sell-off in the asset class, despite its dramatic nature, was largely technical in nature. Fundamentals remain positive, with low default rates, strong cash flows for high-yield issuers and solid global growth. As of November 30, 2007, Moody's 12-month rolling default rate was well below its historical average and lower than its 1.82% level of one year ago — and we do not expect a meaningful increase in defaults until late 2008 or possibly 2009.5 Another positive for the asset class is the Fed's most recent interest rate cuts. The recent market volatility also should force long-overdue improvements in deal structures, such as the addition of better covenant protection.6 Finally, we see high-yield bonds as being more fairly valued, and possibly undervalued, following the increase in yield spreads.
5 Source: Moody's Investors Service, Inc.6 A covenant is a promise in a formal debt agreement that certain activities will or will not be carried out by the borrower (in this case, the bond issuer). The purpose of a covenant is to give the lender (the bond investor) more security. Stronger covenant protection implies a higher level of security in the contract.Despite these positive factors, we remain cautious in our approach given the size of the upcoming new issue calendar — which can negatively affect prices by increasing supply — and the increased volatility in equities. As a result, we anticipate a more risk-conscious environment in which the avoidance of downside in specific issues should prove critical to outperformance. We believe a bottom-up, research-driven strategy will prove essential to navigating this uncertain backdrop.
Turning to the emerging markets, we believe the robust outlook for global growth should keep commodity prices buoyant, supporting the trade balances of the commodity-exporting countries. Yield spreads have come down significantly in recent years, but we believe this has been justified by fundamentals. With this as a backdrop, we believe the asset class will be able to overcome short-term volatility to outperform on a longer-term basis.
Overall, we will continue to monitor the global economy as well as the relative value provided by emerging-market and high-yield issuers.
Portfolio Summary
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 11/30/07 | 11/30/06 |
| | |
Corporate Bonds | 52% | 51% |
Government & Agency Obligations | 39% | 41% |
Cash Equivalents | 4% | 8% |
Senior Loans | 3% | — |
Sovereign Loans | 2% | — |
| 100% | 100% |
Bond Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 11/30/07 | 11/30/06 |
| | |
Emerging Market Sovereign Bonds | 40% | 44% |
Consumer Discretionary | 13% | 14% |
Financials | 10% | 7% |
Industrials | 7% | 5% |
Energy | 6% | 8% |
Materials | 6% | 7% |
Telecommunication Services | 6% | 4% |
Utilities | 5% | 6% |
Health Care | 3% | 1% |
Information Technology | 2% | 2% |
Consumer Staples | 2% | 2% |
| 100% | 100% |
Quality (Excludes Cash Equivalents and Securities Lending Collateral) | 11/30/07 | 11/30/06 |
| | |
US Government and Agency | 1% | 1% |
A | 1% | 3% |
BBB | 2% | 9% |
BB | 37% | 28% |
B | 40% | 39% |
Below B | 14% | 11% |
Not Rated | 5% | 9% |
| 100% | 100% |
Asset allocation, bond diversification and quality are subject to change.
The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.
Interest Rate Sensitivity | 11/30/07 | 11/30/06 |
| | |
Average Maturity | 9.3 years | 10.6 years |
Duration | 5.3 years | 6.5 years |
Interest rate sensitivity is subject to change. Duration shown does not account for the leverage position of the Fund.
For more complete details about the Fund's investment portfolio, see page 15. A quarterly Fact Sheet is available upon request. Please see the Additional Information 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 November 30, 2007
| Principal Amount ($)(a) | Value ($) |
| |
Corporate Bonds 56.6% |
Consumer Discretionary 13.1% |
AAC Group Holding Corp., 14.75%, 10/1/2012 (PIK) | 196,115 | 184,348 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 420,000 | 373,800 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 625,000 | 592,187 |
American Achievement Corp., 8.25%, 4/1/2012 | 110,000 | 107,250 |
American Media Operations, Inc., Series B, 10.25%, 5/1/2009 (b) | 165,000 | 146,850 |
Asbury Automotive Group, Inc.: | | |
7.625%, 3/15/2017 | 255,000 | 230,775 |
8.0%, 3/15/2014 | 165,000 | 158,400 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 (b) | 180,000 | 156,600 |
Burlington Coat Factory Warehouse Corp., 11.125%, 4/15/2014 | 250,000 | 221,250 |
Cablevision Systems Corp., Series B,
9.644%**, 4/1/2009 | 115,000 | 116,725 |
Caesars Entertainment, Inc., 8.875%, 9/15/2008 | 240,000 | 244,800 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 (b) | 205,000 | 199,362 |
Carrols Corp., 9.0%, 1/15/2013 | 120,000 | 110,700 |
Charter Communications Holdings LLC: | | |
Series B, 10.25%, 9/15/2010 | 420,000 | 413,700 |
10.25%, 9/15/2010 | 1,180,000 | 1,165,250 |
11.0%, 10/1/2015 (b) | 1,246,000 | 1,084,020 |
Cirsa Capital Luxembourg, 144A, 7.875%, 7/15/2012 EUR | 150,000 | 199,693 |
Cooper-Standard Automotive, Inc.,
8.375%, 12/15/2014 (b) | 165,000 | 136,950 |
CSC Holdings, Inc.: | | |
7.25%, 7/15/2008 | 190,000 | 190,475 |
7.875%, 12/15/2007 | 555,000 | 555,000 |
Series B, 8.125%, 7/15/2009 | 985,000 | 994,850 |
Series B, 8.125%, 8/15/2009 | 440,000 | 444,400 |
Denny's Corp. Holdings, Inc., 10.0%, 10/1/2012 | 80,000 | 79,200 |
Dollar General Corp., 144A, 10.625%, 7/15/2015 (b) | 245,000 | 222,950 |
Dollarama Group LP, 144A, 11.16%**, 8/15/2012 | 166,000 | 164,340 |
EchoStar DBS Corp.: | | |
6.625%, 10/1/2014 | 355,000 | 359,437 |
7.125%, 2/1/2016 | 275,000 | 286,344 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 350,000 | 309,750 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 70,000 | 64,663 |
French Lick Resorts & Casinos LLC, 144A, 10.75%, 4/15/2014 | 750,000 | 540,000 |
General Motors Corp.: | | |
7.2%, 1/15/2011 | 795,000 | 739,350 |
7.4%, 9/1/2025 | 225,000 | 167,063 |
8.375%, 7/15/2033 | 550,000 | 456,500 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 1,815,000 | 1,932,975 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 220,000 | 215,600 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 (b) | 125,000 | 123,125 |
Hanesbrands, Inc., Series B, 8.784%**, 12/15/2014 | 370,000 | 364,450 |
Hertz Corp.: | | |
8.875%, 1/1/2014 | 595,000 | 595,000 |
10.5%, 1/1/2016 (b) | 135,000 | 139,725 |
Idearc, Inc., 8.0%, 11/15/2016 | 1,235,000 | 1,154,725 |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 160,000 | 156,000 |
ION Media Networks, Inc., 144A,
11.493%**, 1/15/2013 | 195,000 | 193,538 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 370,000 | 316,350 |
Jacobs Entertainment, Inc., 9.75%, 6/15/2014 | 395,000 | 387,100 |
Jarden Corp., 7.5%, 5/1/2017 | 210,000 | 189,000 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 | 170,000 | 177,650 |
Lamar Media Corp., 144A, 6.625%, 8/15/2015 | 160,000 | 152,000 |
Liberty Media LLC: | | |
5.7%, 5/15/2013 (b) | 35,000 | 32,900 |
8.25%, 2/1/2030 | 320,000 | 305,656 |
8.5%, 7/15/2029 (b) | 420,000 | 411,492 |
Majestic Star Casino LLC, 9.5%, 10/15/2010 | 40,000 | 38,500 |
Mediacom Broadband LLC, 8.5%, 10/15/2015 | 25,000 | 22,250 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 110,000 | 113,300 |
Metaldyne Corp.: | | |
10.0%, 11/1/2013 | 165,000 | 139,425 |
11.0%, 6/15/2012 (b) | 75,000 | 50,625 |
MGM MIRAGE: | | |
6.0%, 10/1/2009 | 185,000 | 183,150 |
6.75%, 9/1/2012 | 105,000 | 101,719 |
8.375%, 2/1/2011 (b) | 225,000 | 230,062 |
Michaels Stores, Inc., 10.0%, 11/1/2014 | 170,000 | 167,450 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 345,000 | 345,000 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 680,000 | 612,000 |
OSI Restaurant Partners, Inc., 144A,
10.0%, 6/15/2015 | 290,000 | 231,275 |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 620,000 | 589,000 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 (b) | 260,000 | 265,200 |
Quebecor Media, Inc., 144A, 7.75%, 3/15/2016 | 160,000 | 149,200 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015 | 205,000 | 162,975 |
Quiksilver, Inc., 6.875%, 4/15/2015 | 320,000 | 284,000 |
Reader's Digest Association, Inc., 144A,
9.0%, 2/15/2017 | 160,000 | 131,200 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 225,000 | 196,875 |
Seminole Hard Rock Entertainment, Inc., 144A, 8.194%**, 3/15/2014 | 290,000 | 278,400 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 210,000 | 205,800 |
Simmons Co.: | | |
Step-up Coupon, 0% to 12/15/2009,
10.0% to 12/15/2014 | 820,000 | 647,800 |
7.875%, 1/15/2014 | 165,000 | 154,275 |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 (b) | 111,000 | 113,220 |
Sirius Satellite Radio, Inc., 9.625%, 8/1/2013 | 375,000 | 362,812 |
Six Flags, Inc., 9.75%, 4/15/2013 | 120,000 | 87,600 |
Sonic Automotive, Inc., Series B, 8.625%, 8/15/2013 | 250,000 | 247,187 |
Station Casinos, Inc., 6.5%, 2/1/2014 | 500,000 | 405,000 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 | 565,000 | 432,225 |
Travelport LLC: | | |
9.875%, 9/1/2014 | 105,000 | 106,050 |
10.205%**, 9/1/2014 | 185,000 | 181,300 |
11.875%, 9/1/2016 (b) | 105,000 | 111,300 |
Trump Entertainment Resorts, Inc.,
8.5%, 6/1/2015 (b) | 460,000 | 364,550 |
United Components, Inc., 9.375%, 6/15/2013 | 45,000 | 44,325 |
Unity Media GmbH, 144A, 10.375%, 2/15/2015 | 165,000 | 166,650 |
Univision Communications, Inc., 144A, 9.75%, 3/15/2015 (PIK) | 945,000 | 878,850 |
UPC Holding BV: | | |
144A, 7.75%, 1/15/2014 EUR | 235,000 | 323,166 |
144A, 8.0%, 11/1/2016 EUR | 120,000 | 165,021 |
Vitro SAB de CV: | | |
8.625%, 2/1/2012 | 165,000 | 153,450 |
9.125%, 2/1/2017 | 325,000 | 303,062 |
Series A, 11.75%, 11/1/2013 (b) | 80,000 | 82,800 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 1,300,000 | 1,300,000 |
XM Satellite Radio, Inc., 9.75%, 5/1/2014 | 490,000 | 490,000 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 1,005,000 | 733,650 |
| 30,615,967 |
Consumer Staples 1.9% |
Alliance One International, Inc., 8.5%, 5/15/2012 | 125,000 | 121,250 |
Del Laboratories, Inc., 8.0%, 2/1/2012 | 205,000 | 203,463 |
Delhaize America, Inc.: | | |
8.05%, 4/15/2027 | 65,000 | 71,015 |
9.0%, 4/15/2031 | 550,000 | 653,442 |
General Nutrition Centers, Inc.,
10.009%**, 3/15/2014 (PIK) | 240,000 | 228,000 |
Harry & David Holdings, Inc.,
10.621%**, 3/1/2012 (b) | 195,000 | 185,250 |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 975,000 | 916,500 |
Pierre Foods, Inc., 9.875%, 7/15/2012 | 140,000 | 102,200 |
Pilgrim's Pride Corp., 7.625%, 5/1/2015 | 105,000 | 102,900 |
Rite Aid Corp., 7.5%, 3/1/2017 | 355,000 | 319,500 |
Smithfield Foods, Inc., 7.75%, 7/1/2017 (b) | 290,000 | 281,300 |
Tereos Europe SA, 144A, 6.375%, 4/15/2014 EUR | 80,000 | 101,821 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 1,015,000 | 1,015,000 |
| 4,301,641 |
Energy 5.2% |
Belden & Blake Corp., 8.75%, 7/15/2012 | 910,000 | 919,100 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 290,000 | 256,650 |
Chesapeake Energy Corp.: | | |
6.25%, 1/15/2018 | 160,000 | 150,800 |
6.875%, 1/15/2016 | 850,000 | 835,125 |
7.75%, 1/15/2015 (b) | 90,000 | 91,800 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 180,000 | 176,400 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 550,000 | 462,000 |
Dynegy Holdings, Inc.: | | |
6.875%, 4/1/2011 (b) | 75,000 | 72,000 |
8.375%, 5/1/2016 | 455,000 | 437,369 |
Energy Partners Ltd., 9.75%, 4/15/2014 | 200,000 | 191,000 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 150,000 | 148,875 |
GAZ Capital (Gazprom), 144A, 6.51%, 3/7/2022 | 1,285,000 | 1,233,343 |
Mariner Energy, Inc.: | | |
7.5%, 4/15/2013 | 170,000 | 161,500 |
8.0%, 5/15/2017 | 140,000 | 132,300 |
OPTI Canada, Inc.: | | |
144A, 7.875%, 12/15/2014 | 315,000 | 307,125 |
144A, 8.25%, 12/15/2014 | 250,000 | 246,250 |
Petrobras International Finance Co., 5.875%, 3/1/2018 | 470,000 | 480,575 |
Petronas Capital Ltd., Series REG S, 7.875%, 5/22/2022 | 620,000 | 785,809 |
Plains Exploration & Production Co., 7.0%, 3/15/2017 | 105,000 | 99,750 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 160,000 | 154,400 |
Sabine Pass LNG LP: | | |
7.25%, 11/30/2013 | 100,000 | 96,250 |
7.5%, 11/30/2016 | 685,000 | 647,325 |
Stone Energy Corp., 6.75%, 12/15/2014 | 605,000 | 559,625 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 180,000 | 199,777 |
Tesoro Corp., 6.5%, 6/1/2017 | 325,000 | 320,938 |
VeraSun Energy Corp., 144A, 9.375%, 6/1/2017 (b) | 170,000 | 139,400 |
Whiting Petroleum Corp.: | | |
7.0%, 2/1/2014 | 250,000 | 242,500 |
7.25%, 5/1/2012 | 355,000 | 347,900 |
7.25%, 5/1/2013 | 85,000 | 82,875 |
Williams Companies, Inc.: | | |
8.125%, 3/15/2012 | 755,000 | 822,950 |
8.75%, 3/15/2032 | 1,020,000 | 1,231,650 |
Williams Partners LP, 7.25%, 2/1/2017 | 175,000 | 179,375 |
| 12,212,736 |
Financials 8.2% |
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 640,000 | 512,000 |
Ashton Woods USA LLC, 9.5%, 10/1/2015 | 625,000 | 437,500 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 125,000 | 112,500 |
CEVA Group PLC, 144A, 8.5%, 12/1/2014 EUR | 170,000 | 211,396 |
Conproca SA de CV, Series REG S, 12.0%, 6/16/2010 | 1,030,000 | 1,135,575 |
E*TRADE Financial Corp.: | | |
7.375%, 9/15/2013 | 395,000 | 293,288 |
7.875%, 12/1/2015 | 615,000 | 445,875 |
8.0%, 6/15/2011 | 1,300,000 | 994,500 |
Ford Motor Credit Co., LLC: | | |
7.25%, 10/25/2011 | 1,635,000 | 1,475,998 |
7.375%, 10/28/2009 | 2,760,000 | 2,613,165 |
7.875%, 6/15/2010 | 805,000 | 747,197 |
7.993%**, 1/13/2012 | 165,000 | 143,772 |
GMAC LLC: | | |
6.875%, 9/15/2011 | 3,000,000 | 2,621,106 |
8.0%, 11/1/2031 | 480,000 | 407,262 |
Hawker Beechcraft Acquisition Co., LLC: | | |
144A, 8.5%, 4/1/2015 | 405,000 | 407,025 |
144A, 8.875%, 4/1/2015 (PIK) | 335,000 | 330,812 |
144A, 9.75%, 4/1/2017 | 310,000 | 313,100 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 245,000 | 263,375 |
Hub International Holdings, Inc., 144A,
9.0%, 12/15/2014 | 165,000 | 148,500 |
Inmarsat Finance II PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012 | 200,000 | 192,500 |
iPayment, Inc., 9.75%, 5/15/2014 | 225,000 | 214,875 |
KAR Holdings, Inc.: | | |
144A, 8.75%, 5/1/2014 (b) | 195,000 | 180,375 |
144A, 10.0%, 5/1/2015 | 165,000 | 149,738 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 200,000 | 189,500 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 200,000 | 154,000 |
Nuveen Investments, Inc., 144A, 10.5%, 11/15/2015 | 405,000 | 399,937 |
Petroplus Finance Ltd.: | | |
144A, 6.75%, 5/1/2014 | 190,000 | 176,700 |
144A, 7.0%, 5/1/2017 | 175,000 | 161,000 |
Pinnacle Foods Finance LLC, 144A, 9.25%, 4/1/2015 | 185,000 | 167,425 |
Realogy Corp., 144A, 12.375%, 4/15/2015 (b) | 160,000 | 104,800 |
Residential Capital LLC: | | |
6.125%, 11/21/2008 | 400,000 | 312,000 |
6.224%**, 6/9/2008 | 85,000 | 71,400 |
7.782%**, 11/21/2008 | 620,000 | 486,700 |
Triad Acquisition Corp., Series B, 11.125%, 5/1/2013 (b) | 140,000 | 115,500 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014 (b) | 1,070,000 | 743,650 |
U.S.I. Holdings Corp.: | | |
144A, 8.744%**, 11/15/2014 | 105,000 | 93,975 |
144A, 9.75%, 5/15/2015 | 140,000 | 116,900 |
UCI Holdco, Inc., 144A, 12.694%**, 12/15/2013 (PIK) | 234,848 | 228,977 |
Universal City Development Partners, 11.75%, 4/1/2010 | 840,000 | 869,400 |
Yankee Acquisition Corp.: | | |
Series B, 8.5%, 2/15/2015 | 165,000 | 152,625 |
Series B, 9.75%, 2/15/2017 (b) | 125,000 | 115,313 |
| 19,011,236 |
Health Care 2.6% |
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 325,000 | 295,750 |
Bausch & Lomb, Inc., 144A, 9.875%, 11/1/2015 | 290,000 | 293,625 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 200,000 | 194,000 |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 1,550,000 | 1,565,500 |
HCA, Inc.: | | |
9.125%, 11/15/2014 | 325,000 | 332,313 |
9.25%, 11/15/2016 | 725,000 | 750,375 |
9.625%, 11/15/2016 (PIK) | 340,000 | 353,600 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 275,000 | 283,250 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 170,000 | 164,900 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 205,000 | 199,875 |
Sun Healthcare Group, Inc., 9.125%, 4/15/2015 | 175,000 | 175,438 |
Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK) | 245,000 | 224,175 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 360,000 | 349,200 |
Universal Hospital Services, Inc., 144A, 8.5%, 6/1/2015 (PIK) | 145,000 | 145,000 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 275,000 | 202,125 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 635,000 | 601,662 |
| 6,130,788 |
Industrials 6.6% |
Actuant Corp., 144A, 6.875%, 6/15/2017 | 170,000 | 165,750 |
Aleris International, Inc., 9.0%, 12/15/2014 (PIK) | 290,000 | 249,400 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 290,000 | 275,500 |
American Color Graphics, Inc., 10.0%, 6/15/2010 | 370,000 | 214,600 |
American Color Graphics, Inc., Promissory Note due 3/15/2008 (g) | 22,200 | 12,876 |
American Railcar Industries, Inc., 7.5%, 3/1/2014 | 230,000 | 218,500 |
ARAMARK Corp.: | | |
8.411%**, 2/1/2015 | 290,000 | 281,300 |
8.5%, 2/1/2015 (b) | 370,000 | 371,387 |
Baldor Electric Co., 8.625%, 2/15/2017 | 205,000 | 210,125 |
Belden, Inc., 7.0%, 3/15/2017 | 185,000 | 181,763 |
Bombardier, Inc.: | | |
144A, 6.3%, 5/1/2014 | 195,000 | 191,100 |
144A, 6.75%, 5/1/2012 | 100,000 | 100,750 |
144A, 8.0%, 11/15/2014 | 120,000 | 124,200 |
Bristow Group, Inc., 144A, 7.5%, 9/15/2017 | 250,000 | 250,938 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 555,000 | 510,600 |
Building Materials Corp. of America, 7.75%, 8/1/2014 | 290,000 | 226,200 |
Cenveo Corp., 7.875%, 12/1/2013 | 520,000 | 462,800 |
Congoleum Corp., 8.625%, 8/1/2008* | 395,000 | 337,725 |
DRS Technologies, Inc.: | | |
6.625%, 2/1/2016 | 95,000 | 93,575 |
6.875%, 11/1/2013 | 580,000 | 572,750 |
7.625%, 2/1/2018 | 705,000 | 717,337 |
Education Management LLC, 8.75%, 6/1/2014 | 200,000 | 200,000 |
Esco Corp.: | | |
144A, 8.625%, 12/15/2013 | 530,000 | 532,650 |
144A, 9.569%**, 12/15/2013 | 275,000 | 272,250 |
General Cable Corp.: | | |
7.125%, 4/1/2017 (b) | 190,000 | 187,150 |
7.606%**, 4/1/2015 | 290,000 | 279,850 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 160,000 | 149,000 |
Harland Clarke Holdings Corp., 9.5%, 5/15/2015 | 200,000 | 172,000 |
Iron Mountain, Inc., 8.75%, 7/15/2018 (b) | 160,000 | 167,200 |
K. Hovnanian Enterprises, Inc.: | | |
6.25%, 1/15/2016 | 720,000 | 500,400 |
8.875%, 4/1/2012 | 790,000 | 458,200 |
Kansas City Southern de Mexico SA de CV: | | |
144A, 7.375%, 6/1/2014 | 560,000 | 551,600 |
7.625%, 12/1/2013 | 460,000 | 461,150 |
9.375%, 5/1/2012 | 435,000 | 458,925 |
Kansas City Southern Railway Co.: | | |
7.5%, 6/15/2009 | 135,000 | 135,675 |
9.5%, 10/1/2008 | 1,165,000 | 1,191,212 |
Mobile Services Group, Inc., 144A, 9.75%, 8/1/2014 | 320,000 | 291,200 |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 | 275,000 | 282,562 |
Panolam Industries International, Inc., 10.75%, 10/1/2013 | 105,000 | 96,600 |
R.H. Donnelley Corp., 144A, 8.875%, 10/15/2017 | 760,000 | 716,300 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 45,000 | 48,600 |
RBS Global & Rexnord Corp., 9.5%, 8/1/2014 | 185,000 | 183,150 |
Saint Acquisition Corp., 144A, 12.5%, 5/15/2017 (b) | 145,000 | 76,850 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 195,000 | 198,169 |
Tenneco, Inc., 144A, 8.125%, 11/15/2015 | 125,000 | 124,688 |
Titan International, Inc., 8.0%, 1/15/2012 | 685,000 | 685,000 |
TransDigm, Inc., 7.75%, 7/15/2014 | 125,000 | 126,250 |
U.S. Concrete, Inc., 8.375%, 4/1/2014 (b) | 235,000 | 210,325 |
United Rentals North America, Inc.: | | |
6.5%, 2/15/2012 | 125,000 | 119,063 |
7.0%, 2/15/2014 | 580,000 | 516,200 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 120,000 | 119,886 |
| 15,281,281 |
Information Technology 1.8% |
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 165,000 | 148,706 |
First Data Corp., 144A, 9.875%, 9/24/2015 | 250,000 | 232,500 |
Freescale Semiconductor, Inc., 8.875%, 12/15/2014 | 200,000 | 182,750 |
L-3 Communications Corp.: | | |
5.875%, 1/15/2015 | 690,000 | 662,400 |
Series B, 6.375%, 10/15/2015 | 315,000 | 311,850 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 885,000 | 712,425 |
MasTec, Inc., 7.625%, 2/1/2017 | 250,000 | 242,500 |
Sanmina-SCI Corp.: | | |
8.125%, 3/1/2016 | 125,000 | 110,625 |
144A, 8.444%**, 6/15/2010 | 105,000 | 105,000 |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 390,000 | 384,150 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 535,000 | 551,050 |
Unisys Corp., 7.875%, 4/1/2008 | 425,000 | 423,938 |
Vangent, Inc., 9.625%, 2/15/2015 | 160,000 | 138,400 |
| 4,206,294 |
Materials 6.3% |
Appleton Papers, Inc., Series B, 8.125%, 6/15/2011 (b) | 105,000 | 102,900 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 1,685,000 | 1,668,150 |
Associated Materials, Inc., Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 410,000 | 266,500 |
Cascades, Inc., 7.25%, 2/15/2013 | 614,000 | 577,160 |
Chemtura Corp., 6.875%, 6/1/2016 | 355,000 | 326,600 |
Clondalkin Acquisition BV, 144A, 7.694%**, 12/15/2013 | 290,000 | 274,050 |
CPG International I, Inc.: | | |
10.5%, 7/1/2013 | 505,000 | 484,800 |
12.13%**, 7/1/2012 | 120,000 | 117,000 |
Equistar Chemical LP, 10.625%, 5/1/2011 | 231,000 | 241,395 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 685,000 | 674,725 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/2017 | 325,000 | 351,000 |
GEO Specialty Chemicals, Inc., 144A, 13.728%**, 12/31/2009 (c) | 1,004,000 | 753,000 |
Georgia-Pacific Corp., 144A, 7.125%, 1/15/2017 | 145,000 | 138,838 |
Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015 | 205,000 | 186,550 |
Hexcel Corp., 6.75%, 2/1/2015 | 855,000 | 837,900 |
Huntsman LLC, 11.625%, 10/15/2010 | 855,000 | 906,300 |
Innophos, Inc., 8.875%, 8/15/2014 | 90,000 | 89,550 |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 (b) | 300,000 | 297,000 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 565,000 | 480,250 |
Lyondell Chemical Co.: | | |
6.875%, 6/15/2017 (b) | 1,015,000 | 1,152,025 |
10.5%, 6/1/2013 | 115,000 | 123,050 |
Massey Energy Co.: | | |
6.625%, 11/15/2010 | 70,000 | 68,075 |
6.875%, 12/15/2013 | 290,000 | 274,050 |
Metals USA Holdings Corp., 144A, 11.231%**, 7/1/2012 (PIK) | 290,000 | 246,500 |
Millar Western Forest Products Ltd.,
7.75%, 11/15/2013 | 110,000 | 81,675 |
Momentive Performance Materials, Inc., 144A, 9.75%, 12/1/2014 | 255,000 | 236,512 |
Mueller Water Products, Inc., 7.375%, 6/1/2017 | 125,000 | 110,938 |
Neenah Foundry Co., 9.5%, 1/1/2017 | 60,000 | 52,200 |
NewMarket Corp., 7.125%, 12/15/2016 | 495,000 | 490,050 |
OI European Group BV, 144A, 6.875%, 3/31/2017 EUR | 210,000 | 288,018 |
Radnor Holdings Corp., 11.0%, 3/15/2010* | 90,000 | 675 |
Rhodia SA, 144A, 7.482%**, 10/15/2013 EUR | 200,000 | 283,081 |
Smurfit-Stone Container Enterprises, Inc.: | | |
8.0%, 3/15/2017 | 360,000 | 345,600 |
8.375%, 7/1/2012 | 200,000 | 195,500 |
Steel Dynamics, Inc.: | | |
144A, 6.75%, 4/1/2015 | 280,000 | 267,400 |
144A, 7.375%, 11/1/2012 | 80,000 | 79,400 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 445,000 | 439,437 |
The Mosaic Co., 144A, 7.375%, 12/1/2014 | 370,000 | 390,350 |
TriMas Corp., 9.875%, 6/15/2012 | 432,000 | 425,520 |
Witco Corp., 6.875%, 2/1/2026 | 170,000 | 136,850 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 305,000 | 289,750 |
| 14,750,324 |
Telecommunication Services 5.3% |
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 42,000 | 43,995 |
BCM Ireland Preferred Equity Ltd., 144A, 11.58%**, 2/15/2017 (PIK) EUR | 190,221 | 258,966 |
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 777,000 | 664,335 |
Centennial Communications Corp.: | | |
10.0%, 1/1/2013 (b) | 650,000 | 676,000 |
10.125%, 6/15/2013 | 650,000 | 679,250 |
Cincinnati Bell, Inc.: | | |
7.25%, 7/15/2013 | 435,000 | 435,000 |
8.375%, 1/15/2014 | 240,000 | 232,200 |
Cricket Communications, Inc., 144A,
9.375%, 11/1/2014 | 480,000 | 446,400 |
Dobson Cellular Systems, 9.875%, 11/1/2012 | 650,000 | 710,125 |
Embratel, Series B, 11.0%, 12/15/2008 | 78,000 | 81,705 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 100,000 | 99,500 |
Insight Midwest LP, 9.75%, 10/1/2009 | 96,000 | 96,000 |
Intelsat Bermuda Ltd.: | | |
8.886%**, 1/15/2015 | 35,000 | 35,044 |
9.25%, 6/15/2016 | 125,000 | 127,344 |
11.25%, 6/15/2016 | 385,000 | 398,475 |
Intelsat Corp., 9.0%, 6/15/2016 | 120,000 | 121,800 |
Intelsat Ltd., 5.25%, 11/1/2008 | 1,300,000 | 1,287,000 |
Intelsat Subsidiary Holding Co., Ltd., 8.25%, 1/15/2013 | 420,000 | 424,200 |
iPCS, Inc., 7.036%**, 5/1/2013 | 105,000 | 97,650 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 575,000 | 544,812 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 1,365,000 | 1,457,137 |
Nortel Networks Ltd.: | | |
144A, 9.493%**, 7/15/2011 | 330,000 | 320,925 |
144A, 10.125%, 7/15/2013 | 80,000 | 82,200 |
Orascom Telecom Finance, 144A, 7.875%, 2/8/2014 | 135,000 | 124,200 |
Qwest Corp., 7.25%, 9/15/2025 | 75,000 | 72,000 |
Rural Cellular Corp., 9.875%, 2/1/2010 | 305,000 | 316,438 |
Stratos Global Corp., 9.875%, 2/15/2013 | 140,000 | 146,300 |
SunCom Wireless Holdings, Inc., 8.5%, 6/1/2013 | 750,000 | 781,875 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 385,000 | 411,290 |
Virgin Media Finance PLC: | | |
8.75%, 4/15/2014 EUR | 340,000 | 486,212 |
8.75%, 4/15/2014 | 485,000 | 482,575 |
West Corp., 9.5%, 10/15/2014 | 245,000 | 241,325 |
| 12,382,278 |
Utilities 5.6% |
AES Corp.: | | |
144A, 8.0%, 10/15/2017 | 400,000 | 398,000 |
144A, 8.75%, 5/15/2013 | 1,304,000 | 1,356,160 |
Allegheny Energy Supply Co., LLC, 144A,
8.25%, 4/15/2012 | 1,345,000 | 1,442,512 |
CMS Energy Corp., 8.5%, 4/15/2011 | 1,165,000 | 1,254,160 |
Edison Mission Energy, 7.0%, 5/15/2017 | 370,000 | 354,275 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 (b) | 605,000 | 592,900 |
Intergas Finance BV, Series REG S, 6.875%, 11/4/2011 | 1,815,000 | 1,706,100 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 315,000 | 314,213 |
Mirant North America LLC, 7.375%, 12/31/2013 | 135,000 | 135,338 |
NRG Energy, Inc.: | | |
7.25%, 2/1/2014 | 670,000 | 654,925 |
7.375%, 2/1/2016 | 1,415,000 | 1,386,700 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 1,245,000 | 1,314,592 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 283,000 | 295,735 |
Reliant Energy, Inc., 7.875%, 6/15/2017 (b) | 415,000 | 402,031 |
Sierra Pacific Resources: | | |
6.75%, 8/15/2017 | 485,000 | 470,938 |
8.625%, 3/15/2014 | 88,000 | 93,720 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015 | 885,000 | 851,812 |
| 13,024,111 |
Total Corporate Bonds (Cost $140,560,261) | 131,916,656 |
|
Government & Agency Obligations 41.8% |
Sovereign Bonds 41.4% |
Dominican Republic: | | |
144A, 8.625%, 4/20/2027 | 460,000 | 532,450 |
Series REG S, 9.5%, 9/27/2011 | 1,146,152 | 1,214,922 |
Federative Republic of Brazil: | | |
6.0%, 1/17/2017 | 8,535,000 | 8,718,502 |
7.125%, 1/20/2037 (b) | 2,095,000 | 2,390,395 |
7.875%, 3/7/2015 | 1,980,000 | 2,259,180 |
8.75%, 2/4/2025 | 1,685,000 | 2,156,800 |
8.875%, 10/14/2019 | 2,415,000 | 3,018,750 |
11.0%, 8/17/2040 (b) | 4,565,000 | 6,130,795 |
12.5%, 1/5/2016 BRL | 2,070,000 | 1,172,934 |
Government of Malaysia, Series 1/04,
4.305%, 2/27/2009 MYR | 8,855,000 | 2,654,023 |
Government of Ukraine: | | |
144A, 6.75%, 11/14/2017 | 1,390,000 | 1,360,532 |
Series REG S, 7.65%, 6/11/2013 | 1,685,000 | 1,773,631 |
Republic of Argentina: | | |
5.389%**, 8/3/2012 (PIK) | 3,981,250 | 3,506,219 |
5.83%, 12/31/2033 (PIK) ARS | 727 | 234 |
Republic of Colombia: | | |
8.25%, 12/22/2014 | 690,000 | 786,600 |
10.0%, 1/23/2012 (b) | 2,375,000 | 2,766,875 |
10.75%, 1/15/2013 | 780,000 | 957,450 |
Republic of El Salvador, 144A, 7.65%, 6/15/2035 | 3,780,000 | 4,365,900 |
Republic of Ghana, 144A, 8.5%, 10/4/2017 (b) | 175,000 | 183,313 |
Republic of Indonesia, 144A, 6.875%, 3/9/2017 (b) | 2,615,000 | 2,713,062 |
Republic of Panama: | | |
7.125%, 1/29/2026 | 2,005,000 | 2,195,475 |
9.375%, 1/16/2023 | 2,610,000 | 3,419,100 |
Republic of Peru, 7.35%, 7/21/2025 (b) | 7,395,000 | 8,430,300 |
Republic of Philippines: | | |
7.75%, 1/14/2031 (b) | 610,000 | 689,300 |
8.0%, 1/15/2016 (b) | 3,860,000 | 4,323,200 |
8.375%, 2/15/2011 | 780,000 | 841,464 |
9.375%, 1/18/2017 | 1,535,000 | 1,865,025 |
Republic of Serbia, 144A, Step-up Coupon, 3.75% to 11/1/2009, 6.75% to 11/1/2024 | 660,000 | 620,400 |
Republic of Turkey: | | |
7.0%, 9/26/2016 | 3,170,000 | 3,328,500 |
7.25%, 3/15/2015 | 665,000 | 709,888 |
11.75%, 6/15/2010 | 4,495,000 | 5,169,250 |
Republic of Uruguay: | | |
7.625%, 3/21/2036 | 615,000 | 674,963 |
8.0%, 11/18/2022 | 1,395,000 | 1,569,375 |
9.25%, 5/17/2017 | 1,825,000 | 2,185,438 |
Republic of Venezuela, 10.75%, 9/19/2013 | 6,035,000 | 6,388,047 |
Socialist Republic of Vietnam, 144A, 6.875%, 1/15/2016 (b) | 3,770,000 | 3,967,925 |
United Mexican States: | | |
5.625%, 1/15/2017 | 685,000 | 694,590 |
Series A, 6.75%, 9/27/2034 | 662,000 | 740,778 |
| 96,475,585 |
US Treasury Obligations 0.4% |
US Treasury Note, 12.0%, 8/15/2013 (b) (f) | 1,000,000 | 1,057,891 |
Total Government & Agency Obligations (Cost $94,676,152) | 97,533,476 |
|
Shares
| Value ($) |
| |
Common Stocks 0.0% |
GEO Specialty Chemicals, Inc.* | 7,125 | 6,056 |
GEO Specialty Chemicals, Inc. 144A* | 649 | 552 |
Total Common Stocks (Cost $87,834) | 6,608 |
|
Warrants 0.0% |
Industrials |
DeCrane Aircraft Holdings, Inc., 144A, Expiration Date 9/30/2008* | 350 | 0 |
Materials |
Dayton Superior Corp., 144A, Expiration Date 6/15/2009* | 25 | 0 |
Total Warrants (Cost $0) | 0 |
|
Convertible Preferred Stocks 0.0% |
Consumer Discretionary |
ION Media Networks, Inc.: | | |
144A, 12.0% | 15,000 | 908 |
Series AI, 144A, 12.0% | 75,000 | 4,537 |
Total Convertible Preferred Stocks (Cost $12,580) | 5,445 |
| Principal Amount ($)(a) | Value ($) |
| |
Loan Participations and Assignments 5.3% |
Senior Loans** 3.3% |
Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 6.208%, 4/2/2014 | 129,350 | 123,368 |
Aleris International, Inc., Term Loan B, LIBOR plus 2.375%, 6.833%, 12/14/2013 | 160,000 | 148,500 |
Algoma Steel, Inc., Term Loan, LIBOR plus 2.5%, 6.958%, 6/30/2013 | 100,000 | 93,500 |
Bausch & Lomb, Inc., Term Loan B, LIBOR plus 3.25%, 7.708%, 4/11/2015 | 320,000 | 318,709 |
Buffets, Inc.: | | |
Letter of Credit, 7.7%, 5/1/2013 | 61,658 | 53,078 |
Term Loan B, 7.74%, 1/13/2011 | 758,342 | 652,807 |
Dollar General Corp., Term Loan B1, LIBOR plus 2.75%, 7.208%, 7/6/2014 | 205,000 | 189,673 |
Energy Future Holdings Co.: | | |
Term Loan B1, LIBOR plus 3.5%, 7.958%, 10/10/2014 | 1,865,000 | 1,828,875 |
Term Loan B3, LIBOR plus 3.5%, 7.958%, 10/10/2014 | 1,205,000 | 1,192,353 |
First Data Corp., Term Loan B1, LIBOR plus 2.75%, 7.208%, 9/17/2014 | 640,000 | 607,910 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 6.708%, 9/16/2013 | 125,000 | 115,625 |
Golden Nugget, 7.94%, 6/16/2014 | 230,000 | 213,900 |
HCA, Inc., Term Loan A1, 7.19%, 11/18/2012 | 663,005 | 629,705 |
Local TV On Satellite LLC, Term Loan B, LIBOR plus 2.25%, 6.708%, 5/7/2013 | 124,688 | 117,206 |
Longview Power LLC: | | |
Demand Draw, 7.063%, 4/1/2014 | 30,360 | 29,676 |
Letter of Credit, 7.5%, 4/1/2014 | 15,333 | 15,027 |
Term Loan B, 8.0%, 4/1/2014 | 46,000 | 44,649 |
Sabre, Inc., Term Loan B, LIBOR plus 2.25%, 6.708%, 9/30/2014 | 199,221 | 183,532 |
Symbion, Inc.: | | |
Term Loan A, 8.21%, 8/23/2013 | 100,000 | 97,250 |
Term Loan B, 8.21%, 8/23/2014 | 100,000 | 97,125 |
Telesat Canada, Inc.: | | |
Term Loan B, 8.09%, 10/31/2014 | 557,362 | 546,736 |
Tribune Co., Term Loan B, 8.244%, 5/24/2014 | 408,969 | 356,621 |
| 7,655,825 |
Sovereign Loans 2.0% |
Credit Suisse (City of Kiev, Ukraine), 144A, 8.25%, 11/26/2012 | 3,485,000 | 3,486,045 |
CSFB International (Exim Ukraine), 6.8%, 10/4/2012 | 1,215,000 | 1,171,139 |
| 4,657,184 |
Total Loan Participations and Assignments (Cost $10,536,198) | 12,313,009 |
|
Units
| Value ($) |
| |
Other Investments 0.3% |
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 400,000 | 340,000 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 6/15/2008, 13.0% to 12/15/2012 | 615,000 | 350,550 |
Total Other Investments (Cost $986,918) | 690,550 |
|
Shares
| Value ($) |
| |
Securities Lending Collateral 12.3% |
Daily Assets Fund Institutional, 5.09% (d) (e) (Cost $28,636,633) | 28,636,633 | 28,636,633 |
|
Cash Equivalents 4.1% |
Cash Management QP Trust, 4.88% (d) (Cost $9,469,989) | 9,469,989 | 9,469,989 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $284,966,565)+ | 120.4 | 280,572,366 |
Other Assets and Liabilities, Net | (11.8) | (27,530,035) |
Notes Payable | (8.6) | (20,000,000) |
Net Assets | 100.0 | 233,042,331 |
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest or has filed for bankruptcy. The following table represents bonds that are in default:Security | Coupon | Maturity Date | Principal Amount ($) | Acquisition Cost ($) | Value ($) |
Congoleum Corp.
| 8.625% | 8/1/2008 | 395,000 | USD
| 393,349 | 337,725 |
Grupo Iusacell SA de CV
| 10.0% | 7/15/2004 | 100,000 | USD
| 67,894 | 99,500 |
Radnor Holdings Corp.
| 11.0% | 3/15/2010 | 90,000 | USD
| 82,331 | 675 |
| | | |
| 543,574 | 437,900 |
** Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of November 30, 2007.+ The cost for federal income tax purposes was $287,127,048. At November 30, 2007, net unrealized depreciation for all securities based on tax cost was $6,554,682. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $5,080,530 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $11,635,212.(a) Principal amount stated in US dollars unless otherwise noted.(b) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at November 30, 2007 amounted to $27,570,807 which is 11.8% of net assets.(c) Security has a deferred interest payment of $31,626 from April 1, 2006.(d) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(e) Represents collateral held in connection with securities lending. Income earned by the fund is net of borrower rebates.(f) All or a portion of this security is held as collateral for open credit default swaps.(g) Security issued in lieu of interest payment due 12/15/07, which has been deferred until 3/15/08. This security is deemed to be non-income producing.LIBOR: Represents the London InterBank Offered Rate.
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.
PIK: Denotes that all or a portion of the income is paid in-kind.
At November 30, 2007, the Fund had unfunded loan commitments of $154,027, which could be extended at the option of the borrower, pursuant to the following loan agreements:
Borrower | Unfunded Loan Commitment ($) | Value ($) | Unrealized Depreciation ($) |
Bausch & Lomb, Inc., Term Delay Draw, 4/11/2015
| 84,787 | 84,699 | (88) |
Longview Power LLC, Term Delay Draw, 4/1/2014
| 22,083 | 22,783 | 700 |
Telesat Canada, Inc., Term Delay Draw, 10/31/2014
| 47,157 | 46,730 | (427) |
Total | 154,027 | 154,212 | 185 |
As of November 30, 2007, open credit default swap contracts sold were as follows:
Effective/
Expiration Date | Notional Amount ($) | Cash Flows Received by the Fund | Underlying Debt Obligation | Unrealized Appreciation/
(Depreciation) ($) |
11/21/2007
12/20/2008 | 220,0001 | Fixed — 4.02% | Tenet Healthcare Corp., 7.375, 2/1/2013 | 619 |
10/3/2007
12/20/2008 | 200,0002 | Fixed — 3.20% | General Motors Corp., 7.125%, 7/15/2013 | (598) |
10/23/2007
12/20/2008 | 440,0003 | Fixed — 3.00% | General Motors Corp., 7.125%, 7/15/2013 | (2,961) |
10/4/2007
12/20/2008 | 200,0004 | Fixed — 3.10% | Ford Motor Co., 6.5%, 8/1/2018 | (1,026) |
10/5/2007
12/20/2008 | 125,0002 | Fixed — 3.15% | Ford Motor Co., 6.5%, 8/1/2018 | (578) |
10/23/2007
12/20/2008 | 435,0003 | Fixed — 3.40% | Ford Motor Co., 6.5%, 8/1/2018 | (1,286) |
10/13/2007
12/20/2009 | 230,0005 | Fixed — 3.85% | Ford Motor Co., 6.5%, 8/1/2018 | (5,685) |
11/5/2007
12/20/2012 | 6,000,0002 | Fixed — 0.77% | Government of Russia, 7.5%, 3/31/2010 | (39,371) |
Total net unrealized depreciation | (50,886) |
Counterparties:
1 Merrill Lynch, Pierce, Fenner & Smith, Inc.
2 JPMorgan Chase
3 Morgan Stanley Co., Inc.
4 Goldman Sachs & Co.
5 Merrill Lynch Government Securities, Inc.
|
As of November 30, 2007, the Fund had entered into the following open forward foreign currency exchange contracts:
Contracts to Deliver | | In Exchange For | | Settlement Date | Unrealized Appreciation (US$) |
EUR
| 1,434,000 |
| USD
| 2,131,956 |
| 1/3/2008 | 32,506 |
Contracts to Deliver | | In Exchange For | | Settlement Date | Unrealized Depreciation (US$) |
USD
| 227,468 |
| EUR
| 153,000 |
| 1/3/2008 | (3,468) |
Currency Abbreviations |
EUR Euro
USD United States Dollar
|
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of November 30, 2007 |
Assets |
Investments:
Investments in securities, at value (cost $246,859,943) — including $27,570,807 of securities loaned | $ 242,465,744 |
Investment in Daily Assets Fund Institutional (cost $28,636,633) | 28,636,633 |
Investment in Cash Management QP Trust (cost $9,469,989) | 9,469,989 |
Total investments, at value (cost $284,966,565)
| 280,572,366 |
Cash
| 171,614 |
Foreign currency, at value ($1,474)
| 1,464 |
Receivable for investments sold
| 713,977 |
Interest receivable
| 5,497,968 |
Unrealized appreciation on credit default swap contracts
| 619 |
Unrealized appreciation on forward foreign currency exchange contracts
| 32,506 |
Unrealized appreciation on unfunded loan commitments
| 185 |
Foreign taxes recoverable
| 3,998 |
Other assets
| 26,874 |
Total assets
| 287,021,571 |
Liabilities |
Notes payable
| 20,000,000 |
Payable for investments purchased
| 4,921,602 |
Payable upon return of securities loaned
| 28,636,633 |
Accrued management fee
| 169,017 |
Interest on notes payable
| 63,361 |
Unrealized depreciation on credit default swap contracts
| 51,505 |
Unrealized depreciation on forward foreign currency exchange contracts
| 3,468 |
Other accrued expenses and payables
| 133,654 |
Total liabilities
| 53,979,240 |
Net assets, at value | $ 233,042,331 |
Net Assets Consist of: |
Undistributed net investment income
| 3,553,425 |
Net unrealized appreciation (depreciation) on:
Investments | (4,394,199) |
Credit default swap contracts | (50,886) |
Unfunded loan commitments | 185 |
Foreign currency | 34,108 |
Accumulated net realized gain (loss)
| (19,112,620) |
Paid-in capital
| 253,012,318 |
Net assets, at value | $ 233,042,331 |
Net Asset Value |
Net Asset Value per share ($233,042,331 ÷ 24,256,668 outstanding shares of beneficial interest, $.01 par value, unlimited shares authorized)
| $ 9.61 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended November 30, 2007 |
Investment Income |
Income:
Interest (net of foreign taxes withheld of $10,361)
| $ 20,114,264 |
Interest — Cash Management QP Trust
| 24,897 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 90,520 |
Dividends
| 298 |
Total income
| 20,229,979 |
Expenses:
Management fee
| 1,911,776 |
Interest expense
| 2,533,303 |
Professional fees
| 129,632 |
Stock exchange listing fees
| 52,886 |
Services to shareholders
| 49,596 |
Reports to shareholders
| 39,434 |
Custodian fee
| 33,621 |
Trustees' fees and expenses
| 24,306 |
Other
| 62,376 |
Total expenses before expense reductions
| 4,836,930 |
Expense reductions
| (14,610) |
Total expenses after expense reductions
| 4,822,320 |
Net investment income (loss) | 15,407,659 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| 1,304,915 |
Foreign currency
| (988,048) |
| 316,867 |
Change in net unrealized appreciation (depreciation) on:
Investments
| (10,771,983) |
Credit default swap contracts
| (50,886) |
Unfunded loan commitments
| 185 |
Foreign currency
| 316,675 |
| (10,506,009) |
Net gain (loss) | (10,189,142) |
Net increase (decrease) in net assets resulting from operations | $ 5,218,517 |
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows for the year ended November 30, 2007 |
Cash Flows from Operating Activities: |
Investment income received**
| $ 20,824,904 |
Payment of operating expenses
| (2,288,149) |
Payment of interest expense
| (3,408,547) |
Proceeds from sales and maturities of investments
| 136,841,579 |
Net loss from foreign currency
| (988,048) |
Purchases of investments
| (148,171,850) |
Net purchases, sales and maturities of short-term investments
| 9,716,129 |
Cash provided (used) by operating activities | $ 12,526,018 |
Cash Flows from Financing Activities: |
Net increase (decrease) in notes payable
| $ (32,750,000) |
Proceeds from rights offering
| 37,370,166 |
Reimbursement by Advisor
| 175,116 |
Distributions paid (net of reinvestment of distributions)
| (17,234,551) |
Cash provided (used) by financing activities | (12,439,269) |
Increase (decrease) in cash
| 86,749 |
Cash at beginning of period*
| 86,329 |
Cash at end of period* | $ 173,078 |
Reconciliation of Net Increase (Decrease) in Net Assets Resulting from Operations to Cash Provided (Used) by Operating Activities: |
Net increase (decrease) in net assets resulting from operations
| $ 5,218,517 |
Net (increase) decrease in cost of investments
| (5,228,937) |
Net (increase) decrease in unrealized appreciation (depreciation) on investments
| 10,771,983 |
(Increase) decrease in interest receivable
| (300,952) |
(Increase) decrease in other assets
| 6,297 |
(Increase) decrease in receivable for investments sold
| 194,331 |
Increase (decrease) in payable for investments purchased
| 3,018,397 |
(Increase) decrease in depreciation on credit default swap contracts
| 50,886 |
Increase (decrease) in unrealized appreciation on unfunded commitments
| (185) |
(Increase) decrease in appreciation (depreciation) on forward foreign currency exchange contracts
| (324,884) |
Increase (decrease) in other accrued expenses and payables
| (9,427) |
Increase (decrease) in interest on notes payable
| (870,008) |
Cash provided (used) by operating activities | $ 12,526,018 |
Non-Cash Financing Activities: |
Reinvestment of distributions
| $ 487,280 |
* Includes foreign currency** Non-cash activity from discount accretion and premium amortization in the net amount of $899,875 has been excluded from the Statement of Cash Flows.The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets | Years Ended November 30, |
2007 | 2006 |
Operations:
Net investment income
| $ 15,407,659 | $ 14,695,705 |
Net realized gain (loss)
| 316,867 | 1,492,015 |
Change in net unrealized appreciation (depreciation)
| (10,506,009) | 6,784,362 |
Net increase (decrease) in net assets resulting from operations
| 5,218,517 | 22,972,082 |
Distributions to shareholders from:
Net investment income
| (17,721,831) | (16,007,441) |
Fund share and paid-in capital transactions:
Net proceeds of shares issued in connection with the Fund's rights offering, net of offering costs of $240,034
| 37,370,166 | — |
Reinvestment of distributions
| 487,280 | 686,954 |
Reimbursement by Advisor
| 175,116 | — |
Net increase (decrease) in net assets from Fund share and paid-in capital transactions
| 38,032,562 | 686,954 |
Increase (decrease) in net assets | 25,529,248 | 7,651,595 |
Net assets at beginning of period
| 207,513,083 | 199,861,488 |
Net assets at end of period (including undistributed net investment income of $3,553,425 and $4,643,425, respectively)
| $ 233,042,331 | $ 207,513,083 |
Other Information |
Shares outstanding at beginning of period
| 20,561,383 | 20,492,638 |
Shares issued from rights offering
| 3,647,934 | — |
Shares issued to shareholders in reinvestment of distributions
| 47,351 | 68,745 |
Shares outstanding at end of period
| 24,256,668 | 20,561,383 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Years Ended November 30, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.09 | $ 9.75 | $ 9.53 | $ 8.77 | $ 7.52 |
Income (loss) from investment operations: Net investment incomea | .68 | .72 | .78 | .78 | .73 |
Net realized and unrealized gain (loss) | (.38) | .40 | .22 | .73 | 1.28 |
Total from investment operations | .30 | 1.12 | 1.00 | 1.51 | 2.01 |
Less distributions from: Net investment income | (.78) | (.78) | (.78) | (.75) | (.76) |
Total distributions | (.78) | (.78) | (.78) | (.75) | (.76) |
Rights offering costsb
| (.01) | — | — | — | — |
Advisor reimbursement
| .01 | — | — | — | — |
Net asset value, end of period | $ 9.61 | $ 10.09 | $ 9.75 | $ 9.53 | $ 8.77 |
Market value, end of period | $ 8.45 | $ 10.73 | $ 10.15 | $ 9.08 | $ 8.57 |
Total Return |
Based on net asset value (%)c
| 3.12b,d,f | 11.87d | 10.85 | 18.48 | 28.12 |
Based on market value (%)c
| (14.74) | 14.28 | 21.12 | 15.52 | 28.44 |
Years Ended November 30, (continued) | 2007 | 2006 | 2005 | 2004 | 2003 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 233 | 208 | 200 | 195 | 179 |
Ratio of expenses before fee reductions (including interest expense) (%)
| 2.15 | 2.55 | 2.14 | 1.60 | 1.52 |
Ratio of expenses after fee reductions (including interest expense) (%)
| 2.14 | 2.54 | 2.14 | 1.60 | 1.52 |
Ratio of expenses after fee reductions (excluding interest expense) (%)
| 1.02 | 1.03 | 1.11 | 1.05 | 1.03 |
Ratio of net investment income (%)
| 6.85 | 7.28 | 8.12 | 8.59 | 8.93 |
Portfolio turnover rate (%)
| 53 | 79 | 143 | 187 | 224 |
Total debt outstanding end of period ($ thousands)
| 20,000 | 52,750 | 60,000 | 60,000 | 50,500 |
Asset coverage per $1,000 of debte
| 12,652 | 4,934 | 4,331 | 4,244 | 4,548 |
a Based on average shares outstanding during the period.
b During the period ending November 30, 2007, the Fund issued 3,647,934 shares in connection with a rights offering of the Fund's shares (see Note H). Without the effect of the rights offering costs, total return based on net asset value would have been 0.10% higher.
c Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to NAV at which the Fund's shares trade during the period.
d Total return would have been lower had certain fees not been reduced.
e Asset coverage equals the total net assets plus borrowings of the Fund divided by the borrowings outstanding at period end.
f Includes a non-recurring reimbursement from the Advisor for a fee previously charged to the Fund (see Note I). Excluding this non-recurring reimbursement, total return would have been 0.09% lower.
|
Notes to Financial Statements
A. Significant Accounting Policies
DWS Multi-Market Income Trust (the ``Fund'') is registered under the Investment Company Act of 1940, as amended (the ``1940 Act''), as a closed-end, diversified management investment company organized as a Massachusetts business trust.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Trustees of the Fund. If the pricing services are unable to provide valuations, 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. 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.
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 November 30, 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 an Exemptive Order 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 borrowers 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 Fund 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, if any, is recorded as an asset on the statement of assets and liabilities. An upfront payment received by the Fund, if any, 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 semiannually 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 gain/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.
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.
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.
Loan Participations and Assignments. Loan Participations and Assignments are portions of loans originated by banks and sold in pieces to investors. These US dollar-denominated fixed and floating rate loans ("Loans") in which the Fund invests, are arranged between the borrower and one or more financial institutions ("Lenders"). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy-outs and refinancings, and Sovereign Loans, which are debt instruments between a foreign sovereign entity and one or more financial institutions. The Fund invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, or any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. All Loan Participations and Assignments involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
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 November 30, 2007, the Fund had a net tax basis capital loss carryforward of approximately $16,753,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until November 30, 2010 ($15,940,000) and November 30, 2015 ($813,000), the expiration dates, whichever occurs first.
In addition, from November 1, 2007 through November 30, 2007, the Fund incurred approximately $199,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ending November 30, 2008.
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 is evaluating 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, if any, is declared and distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to forward currency contracts, certain securities sold at a loss and premium amortization on debt securities. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
At November 30, 2007, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income*
| $ 3,554,284 |
Capital loss carryforwards
| $ (16,753,000) |
Net unrealized appreciation (depreciation) on investments
| $ (6,554,682) |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended November 30, |
| 2007 | 2006 |
Distributions from ordinary income*
| $ 17,721,831 | $ 16,007,441 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the foreign currency position and cash held at the Fund's custodian bank at November 30, 2007. Non-cash activity from discount accretion and premium amortization has been excluded from the Statement of Cash Flows.
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 net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.
B. Purchases and Sales of Securities
During the year ended November 30, 2007, purchases and sales of investment securities (excluding short-term investments) aggregated $151,190,247 and $136,631,866, respectively.
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The Fund pays a monthly investment management fee of 1/12 of the annual rate of 0.85% of the Fund's average weekly 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 the Fund. Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DWS-SISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended November 30, 2007, the amount charged to the Fund by DWS-SISC aggregated $44,282, of which $9,830 is unpaid.
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 year ended November 30, 2007, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $15,802, of which $9,958 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 the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Investing in High Yield Securities
Investing in high yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and pay 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. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in the United States of America. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions of income and capital, and future adverse political, social and economical developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls or delayed settlements and may have prices more volatile than those of comparable securities of issuers in the United States of America.
F. Fee Reductions
For the year ended November 30, 2007, the Advisor agreed to reimburse the Fund $3,628, 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 year ended November 30, 2007, the Fund's custodian fee was reduced by $2,839 and $8,143, respectively, for custody and transfer agent credits earned.
G. Borrowings
The notes payable represents a secured loan of $20,000,000 from Barton Capital LLC at November 30, 2007. The note bears interest at the commercial paper rate plus dealer fees (4.75% at November 30, 2007), which is payable at maturity. A commitment fee is charged to the Fund and is included with "interest expense" on the Statement of Operations. An arrangement fee incurred by the Fund in connection with its loan was deferred and is being amortized on a straight-line basis over a three year period. The loan amounts and rates are reset periodically under a revolving credit facility obtained by the Fund in an amount not to exceed $75,000,000 at any one time and which is renewable annually until June 24, 2010.
The weighted average outstanding daily balance of all loans (based on the number of days the loans were outstanding) during the year ended November 30, 2007 was $44,004,110, with a weighted average interest rate of 5.33%.
H. Rights Offering
On May 14, 2007, the Fund issued 3,647,934 common shares in connection with a rights offering of the Fund's shares. Shareholders of record on April 9, 2007 were issued one non-transferable right for each share owned on that date. The rights entitled the shareholders to purchase one new common share for every three rights held. These shares were issued at a subscription price of $10.31. Net proceeds to the Fund were $37,370,166 after deducting the rights offering costs of $240,034. The net asset value per share of the Fund's common shares was reduced by approximately $0.01 per share as a result of the share issuance.
I. Payments Made by Affiliates
During the year ended November 30, 2007, the Advisor fully reimbursed the Fund $175,116, for a fee previously charged to the Fund. This reimbursement was treated as a capital contribution and is reported as "Reimbursement by Advisor" on the Statement of Changes in Net Assets.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of DWS Multi-Market Income Trust:
We have audited the accompanying statement of assets and liabilities of DWS Multi-Market Income Trust (the "Fund"), including the investment portfolio, as of November 30, 2007, and the related statements of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of DWS Multi-Market Income Trust at November 30, 2007, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
January 28, 2008 | |  |
Tax Information (Unaudited)
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 294-4366.
Other Information
Certifications
The fund's chief executive officer has certified to the New York Stock Exchange that, as of May 31, 2007, he was not aware of any violation by the fund of applicable NYSE corporate governance listing standards. The fund's reports to the Securities and Exchange Commission on Forms N-CSR and N-Q contain certifications by the fund's chief executive officer and chief financial officer that relate to the fund's disclosure in such reports and that are required by rule 30a-2 under the 1940 Act.
Dividend Reinvestment Plan
A. Participation
We invite you to review the description of the Dividend Reinvestment Plan (the ``Plan'') which is available to you as a shareholder of DWS Multi-Market Income Trust (the ``Fund''). If you wish to participate and your shares are held in your own name, simply contact DWS Scudder Investments Service Company, whose address and phone number are provided in Paragraph E, for the appropriate form. If your shares are held in the name of a brokerage firm, bank, or other nominee, you must instruct that nominee to re-register your shares in your name so that you may participate in the Plan, unless your nominee has made the Plan available on shares held by them. Shareholders who so elect will be deemed to have appointed Computershare Inc.* ("Computershare") as their agent and as agent for the Fund under the Plan.
B. Dividend Investment Account
The Fund's transfer agent and dividend disbursing agent or its delegate (the ``Transfer Agent'') will establish a Dividend Investment Account (the ``Account'') for each shareholder participating in the Plan. The Transfer Agent will credit to the Account of each participant funds it receives from the following sources: (a) cash dividends and capital gains distributions paid on shares of beneficial interest (the ``Shares'') of the Fund registered in the participant's name on the books of the Fund; and (b) cash dividends and capital gains distributions paid on Shares registered in the name of the Transfer Agent but credited to the participant's Account. Sources described in clauses (a) and (b) of the preceding sentence are hereinafter called ``Distributions.''
C. Investment of Distribution Funds Held in Each Account
If on the record date for a Distribution (the ``Record Date''), Shares are trading at a discount from net asset value per Share (according to the evaluation most recently made on Shares of the Fund), funds credited to a participant's Account will be used to purchase Shares (the ``Purchase''). Computershare will attempt, commencing five days prior to the Payment Date and ending at the close of business on the Payment Date (``Payment Date'' as used herein shall mean the last business day of the month in which such Record Date occurs), to acquire Shares in the open market. If and to the extent that Computershare is unable to acquire sufficient Shares to satisfy the Distribution by the close of business on the Payment Date, the Fund will issue to Computershare, Shares valued at net asset value per Share (according to the evaluation most recently made on Shares of the Fund) in the aggregate amount of the remaining value of the Distribution. If, on the Record Date, Shares are trading at a premium over net asset value per Share, the Fund will issue on the Payment Date, Shares valued at net asset value per Share on the Record Date to the Transfer Agent in the aggregate amount of the funds credited to the participants' accounts.
D. Voluntary Cash Contributions
A participant may from time to time make voluntary cash contributions to his Account by sending to Transfer Agent a check or money order, payable to Transfer Agent, in a minimum amount of $100 with appropriate accompanying instructions. (No more than $500 may be contributed per month.) The Transfer Agent will inform Computershare of the total funds available for the purchase of Shares and Computershare will use the funds to purchase additional Shares for the participant's Account the earlier of: (a) when it next purchases Shares as a result of a Distribution or (b) on or shortly after the first day of each month and in no event more than 30 days after such date except when temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of federal securities laws. Cash contributions received more than fifteen calendar days or less than five calendar days prior to a Payment Date will be returned uninvested. Interest will not be paid on any uninvested cash contributions. Participants making voluntary cash investments will be charged a $.75 service fee for each such investment and will be responsible for their pro rata share of brokerage commissions.
E. Additional Information
Address all notices, correspondence, questions, or other communication regarding the Plan, or if you would like a copy of the Plan, to:
DWS Scudder Investments Service Company
P.O. Box 219066
Kansas City, Missouri 64121-9066
1-800-294-4366
F. Adjustment of Purchase Price
The Fund will increase the price at which Shares may be issued under the Plan to 95% of the fair market value of the shares on the Record Date if the net asset value per Share of the Shares on the Record Date is less than 95% of the fair market value of the Shares on the Record Date.
G. Determination of Purchase Price
The cost of Shares and fractional Shares acquired for each participant's Account in connection with a Purchase shall be determined by the average cost per Share, including brokerage commissions as described in Paragraph H hereof, of the Shares acquired by Computershare in connection with that Purchase. Shareholders will receive a confirmation showing the average cost and number of Shares acquired as soon as practicable after the Transfer Agent has received or Computershare has purchased Shares. The Transfer Agent may mingle the cash in a participant's account with similar funds of other participants of the Fund for whom Computershare acts as agent under the Plan.
H. Brokerage Charges
There will be no brokerage charges with respect to Shares issued directly by the Fund as a result of Distributions. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to Computershare's open market purchases in connection with the reinvestment of Distributions. Brokerage charges for purchasing small amounts of Shares for individual Accounts through the Plan can be expected to be less than the usual brokerage charges for such transactions, as Computershare will be purchasing Shares for all participants in blocks and prorating the lower commission thus attainable.
I. Service Charges
There is no service charge by the Transfer Agent or Computershare to shareholders who participate in the Plan other than service charges specified in Paragraphs D and M hereof. However, the Fund reserves the right to amend the Plan in the future to include a service charge.
J. Transfer of Shares Held by Agent
The Transfer Agent will maintain the participant's Account, hold the additional Shares acquired through the Plan in safekeeping and furnish the participant with written confirmation of all transactions in the Account. Shares in the Account are transferable upon proper written instructions to the Transfer Agent. Upon request to the Transfer Agent, a certificate for any or all full Shares in a participant's Account will be sent to the participant.
K. Shares Not Held in Shareholder's Name
Beneficial owners of Shares which are held in the name of a broker or nominee will not be automatically included in the Plan and will receive all distributions in cash. Such shareholders should contact the broker or nominee in whose name their Shares are held to determine whether and how they may participate in the Plan.
L. Amendments
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate the Plan, including provisions with respect to any Distribution paid, subsequent to notice thereof sent to participants in the Plan at least ninety days before the record date for such Distribution, except when such amendment is necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, in which case such amendment shall be effective as soon as practicable. The amendment shall be deemed to be accepted by each participant unless, prior to the effective date thereof, the Transfer Agent receives notice of the termination of such participant's account under the Plan in accordance with the terms hereof. The Plan may be terminated by the Fund.
M. Withdrawal from Plan
Shareholders may withdraw from the Plan at any time by giving the Transfer Agent a written notice. If the proceeds are $100,000 or less and the proceeds are to be payable to the shareholder of record and mailed to the address of record, a signature guarantee normally will not be required for notices by individual account owners (including joint account owners), otherwise a signature guarantee will be required. In addition, if the certificate is to be sent to anyone other than the registered owner(s) at the address of record, a signature guarantee will be required on the notice. A notice of withdrawal will be effective for the next Distribution following receipt of the notice by the Transfer Agent provided the notice is received by the Transfer Agent at least ten days prior to the Record Date for the Distribution. When a participant withdraws from the Plan, or when the Plan is terminated in accordance with Paragraph L hereof, the participant will receive a certificate for full Shares in the Account, plus a check for any fractional Shares based on market price; or if a Participant so desires, the Transfer Agent will notify Computershare to sell his Shares in the Plan and send the proceeds to the participant, less brokerage commissions and a $2.50 service fee.
N. Tax Implications
Shareholders will receive tax information annually for personal records and to assist in preparation of their Federal income tax returns. If Shares are purchased at a discount, the amount of the discount is considered taxable income and is added to the cost basis of the purchased shares.
* Effective October 15, 2007, the stock transfer business of UMB Bank, N.A. had been acquired by Computershare Limited. Consequently, Computershare Limited's affiliate, Computershare Inc. became Plan Agent under the Plan Agency Agreement between the Fund and UMB Bank, N.A.Investment Management Agreement Approval
The Board of Trustees, including the Independent Trustees, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor") in September 2007. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Agreement. Over the course of several months, the Contract Review Committee, in coordination with the Fixed-Income Oversight Committee and the Operations Committee of the Board, reviewed comprehensive materials received from the Advisor, independent third parties and independent counsel. These materials included an analysis of the Fund's performance, fees and expenses, and profitability compiled by an independent fee consultant. The Board also received extensive information throughout the year regarding performance and operating results of the Fund. Based on their evaluation of the information provided, the Committees presented their findings and recommendations to the Independent Trustees as a group. The Independent Trustees then reviewed the Committees' findings and recommendations and presented their recommendations to the full Board. Throughout their consideration of the Agreement, the Independent Trustees were advised by their independent legal counsel and by an independent fee consultant.
In connection with the contract review process, the various Committees and the Board considered the factors discussed below, among others. The Board also considered that the Advisor and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders invested in the Fund, or approved the investment management agreement for the Fund, knowing that the Advisor managed the Fund and knowing the investment management fee schedule. The Board considered Deutsche Bank's commitment that it will devote to the Advisor and its affiliates all attention and resources that are necessary to provide the Fund with top-quality investment management and shareholder, administrative and product distribution services.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services provided under the Agreement, including portfolio management services and administrative services. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of the Advisor to attract and retain high-quality personnel, and the organizational depth and stability of the Advisor. The Board reviewed the Fund's performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market indices and a peer universe compiled by Lipper Inc. ("Lipper"). The Board considered whether investment results were consistent with the Fund's investment objective and policies. The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer group compiled by Lipper), and receives more frequent reporting and information from the Advisor regarding such funds, along with the Advisor's remedial plans to address underperformance. The Board believes this process is an effective manner of addressing poorly performing funds at this time.
On the basis of this evaluation and the ongoing review of investment results by the Fixed-Income Oversight Committee, the Board concluded that the nature, quality and extent of services provided by the Advisor historically have been and continue to be satisfactory, and that the Fund's performance over time was satisfactory.
Fees and Expenses. The Board considered the Fund's management fee rate, operating expenses and total expense ratio, and compared management fees to a peer group and total expenses to a broader peer universe based on information and data supplied by Lipper and supplemented by the independent fee consultant. The information provided to the Board showed that the Fund's management fee rate was at the 80th percentile of the peer group, and that the total expense ratio was at the 77th percentile of the peer universe. The Board considered that the Fund's management fee is charged only with respect to net assets, while other funds in the peer group pay management fees based upon managed assets. Based upon questions from the Independent Trustees, the Advisor produced additional comparative information on the Fund's expense ratio excluding interest expenses on the Fund's borrowings. Based upon that data, the Board observed that the Fund's expense ratio excluding interest expenses was at the 22nd percentile of the peer universe. The Board also considered the Fund's management fee rate as compared to fees charged by the Advisor and certain of its affiliates for comparable funds and considered differences in fund and fee structures among the DWS Funds.
The Board noted that, although the Fund's management fee rate was above the median of the peer group, such rate was applied to net assets while many funds in the peer group apply the contractual rate to managed assets (including any leverage). On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by the Advisor.
Profitability. The Board reviewed detailed information regarding revenues received by the Advisor under the Agreement. The Board considered the estimated costs and pre-tax profits realized by the Advisor from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of the DWS Scudder organization with respect to all fund services in totality and by fund. The Board reviewed DIMA's methodology in allocating its costs to the management of the Fund. Although the Board noted the inherently subjective nature of any allocation methodology, the Board received an attestation report from an accounting firm affirming that the allocation methods were consistently applied and were based upon practices commonly used in the investment management industry. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board considered whether the management fee rate under the Agreement is reasonable in relation to the asset size of the Fund. The Board concluded that the management fee rate reflects an appropriate level of sharing of any economies of scale.
Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by the Advisor for administrative services provided to the Fund. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA related to DWS Funds advertising and cross-selling opportunities among DeAM products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Trustees) determined that the terms of the Agreement continue to be fair and reasonable and that the continuation of the Agreement is in the best interests of the Fund. No single factor was determinative in the Board's analysis.
Trustees and Officers
The following table presents certain information regarding the Board Members and Officers of the fund as of November 30, 2007. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted; (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois 60606. Each Board Member's term of office extends until the next shareholders' meeting called for the purpose of electing such Board Members and until the election and qualification of a successor, or until such Board Member sooner dies, retires, resigns or is removed as provided in the governing documents of the fund.
Independent Board Members | |
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
Paul K. Freeman (1950)
Chairperson since 2007, and Board Member, 2002-present
| Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998)
| 58 |
John W. Ballantine (1946)
Board Member, 1999-present
| Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC (private equity). Former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank
| 58 |
Donald L. Dunaway (1937)
Board Member, 1980-present
| Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994)
| 58 |
James R. Edgar (1946)
Board Member, 1999-present
| Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty care products)
| 58 |
Robert B. Hoffman (1936)
Board Member, 1981-present
| Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2001); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). Directorships: RCP Advisors, LLC (a private equity investment advisory firm)
| 58 |
William McClayton (1944)
Board Member, 2004-present
| Chief Administrative Officer, Diamond Management & Technology Consultants, Inc. (global management consulting firm) (2001-present); formerly, Senior Partner, Arthur Andersen LLP (accounting) (1966-2001). Directorship: Board of Managers, YMCA of Metropolitan Chicago. Formerly, Trustee, Ravinia Festival.
| 58 |
Shirley D. Peterson (1941)
Board Member, 1995-present
| Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), US Department of Justice. Directorships: Federal Mogul Corp. (supplier of automotive components and subsystems); AK Steel (steel production); Goodyear Tire & Rubber Co. (April 2004-present); Champion Enterprises, Inc. (manufactured home building); Wolverine World Wide, Inc. (designer, manufacturer and marketer of footwear) (April 2005-present); Trustee, Bryn Mawr College. Former Directorship: Bethlehem Steel Corp.
| 58 |
Robert H. Wadsworth
(1940)
Board Member, 2004-present
| President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present). Formerly, Trustee of New York Board DWS Funds.
| 61 |
Interested Board Member |
Name, Year of Birth, Position with the Fund and Length of Time Served | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Axel Schwarzer6 (1958)
Board Member since 2007
| Managing Director3, Deutsche Asset Management; Head of Deutsche Asset Management Americas; CEO of DWS Scudder; formerly, board member of DWS Investments, Germany (1999-2005); formerly, Head of Sales and Product Management for the Retail and Private Banking Division of Deutsche Bank in Germany (1997-1999); formerly, various strategic and operational positions for Deutsche Bank Germany Retail and Private Banking Division in the field of investment funds, tax driven instruments and asset management for corporates (1989-1996)
| 82 |
Officers2 |
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Michael G. Clark4 (1965)
President, 2006-present
| Managing Director3, Deutsche Asset Management (2006-present); President of DWS family of funds; Director, ICI Mutual Insurance Company (since October 2007); formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000)
|
Philip J. Collora (1945)
Vice President and Assistant Secretary, 1986-present
| Director3, Deutsche Asset Management
|
Paul H. Schubert4 (1963)
Chief Financial Officer, 2004-present
Treasurer, 2005-present
| Managing Director3, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998)
|
John Millette5 (1962)
Secretary, 2001-present
| Director3, Deutsche Asset Management
|
Patricia DeFilippis4 (1963)
Assistant Secretary, 2005-present
| Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003)
|
Elisa D. Metzger4,(1962)
Assistant Secretary 2005-present
| Director3, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005)
|
Caroline Pearson5 (1962)
Assistant Secretary, 1998-present
| Managing Director3, Deutsche Asset Management
|
Paul Antosca5 (1957)
Assistant Treasurer, 2007-present
| Director3, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)
|
Kathleen Sullivan D'Eramo5 (1957)
Assistant Treasurer, 2003-present
| Director3, Deutsche Asset Management
|
Jason Vazquez4 (1972)
Anti-Money Laundering Compliance Officer, 2007-present
| Vice President, Deutsche Asset Management (since 2006); formerly, AML Operations Manager for Bear Stearns (2004-2006), Supervising Compliance Principal and Operations Manager for AXA Financial (1999-2004)
|
Robert Kloby4 (1962)
Chief Compliance Officer, 2006-present
| Managing Director3, Deutsche Asset Management (2004-present); formerly, Chief Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988)
|
1 Length of time served represents the date that each Board Member was first elected to the common board of Board Members which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each officer was first elected to serve as an officer of any fund overseen by the aforementioned common board of Board Members.2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.3 Executive title, not a board directorship.4 Address: 345 Park Avenue, New York, New York 10154.5 Address: Two International Place, Boston, Massachusetts 02110.6 The mailing address of Axel Schwarzer is c/o Deutsche Investment Management Americas Inc., 345 Park Avenue, New York, New York 10154. Mr. Schwarzer is an interested Board Member by virtue of his positions with Deutsche Asset Management.Additional Information
|
Automated Information Line | DWS Scudder Closed-End Fund Info Line (800) 349-4281 |
Web Sites | www.dws-scudder.com or visit our Direct Link:
www.cef.dws-scudder.com Obtain quarterly fact sheets, financial reports, press releases and webcasts when available.
www.cef.dws-scudder/alerts. Register online to receive email alerts on your DWS funds.
|
Written Correspondence | Deutsche Investment Management Americas Inc. 222 South Riverside Plaza
Chicago, IL 60606
|
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.
|
Legal Counsel | Vedder Price P.C. 222 North LaSalle Street
Chicago, IL 60601
|
Dividend Reinvestment Plan Agent | Computershare Inc.* P.O. Box 43078
Providence, RI 02940-3078
|
Shareholder Service Agent and Transfer Agent | DWS Scudder Investments Service Company P.O. Box 219066
Kansas City, MO 64121-9066
(800) 294-4366 |
Custodian | State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110
|
Independent Registered Public Accounting Firm | Ernst & Young LLP 200 Clarendon Street
Boston, MA 02116
|
NYSE Symbol | KMM
|
CUSIP Number | 23338L 108
|
* Effective October 15, 2007, Computershare Inc. replaced UMB Bank, N.A.Notes
Notes
Notes
ITEM 2. | CODE OF ETHICS |
| |
| As of the end of the period, November 30, 2007, DWS Multi-Market Income Trust has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer. There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2. A copy of the code of ethics is filed as an exhibit to this Form N-CSR. |
| |
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
| |
| The Fund’s Board of Directors/Trustees has determined that the Fund has at least one “audit committee financial expert” serving on its audit committee: Mr. William McClayton, Mr. Donald Dunaway and Mr. Robert Hoffman. Each of these audit committee members is “independent,” meaning that he is not an “interested person” of the Fund (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) and he does not accept any consulting, advisory, or other compensatory fee from the Fund (except in the capacity as a Board or committee member). An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an “audit committee financial expert.” Further, the designation of a person as an “audit committee financial expert” does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the “audit committee financial expert” designation. Similarly, the designation of a person as an “audit committee financial expert” does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors. |
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ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
| |
DWS MULTI-MARKET INCOME TRUST
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young, LLP (“E&Y”), the Fund’s Independent Registered Public Accountant, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund’s Independent Registered Public Accountant Billed to the Fund
Fiscal Year
Ended
November 30 | Audit Fees Billed to Fund | Audit-Related
Fees Billed to Fund | Tax Fees Billed to Fund | All
Other Fees Billed to Fund |
2007 | $49,344 | $0 | $6,729 | $0 |
2006 | $46,574 | $0 | $6,351 | $0 |
The above "Tax Fees" were billed for professional services rendered for tax return preparation.
Services that the Fund’s Independent Registered Public Accountant Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
Fiscal Year
Ended
November 30 | Audit-Related
Fees Billed to Adviser and Affiliated Fund Service Providers | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All
Other Fees Billed to Adviser and Affiliated Fund Service Providers |
2007 | $250,000 | $486,614 | $0 |
2006 | $80,000 | $316,254 | $0 |
The “Audit-Related Fees” were billed for services in connection with agreed upon procedures related to fund mergers and the above “Tax Fees” were billed in connection with tax compliance services and agreed upon procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y’s independence.
Fiscal Year
Ended
November 30 | Total
Non-Audit Fees Billed to Fund (A) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) | Total of (A), (B)
and (C) |
2007 | $6,729 | $486,614 | $1,215,526 | $1,708,869 |
2006 | $6,351 | $316,254 | $948,620 | $1,271,225 |
All other engagement fees were billed for services in connection with internal control reviews, agreed upon procedures and tax compliance for DeIM and other related entities that provide support for the operations of the fund.
***
In connection with the audit of the 2006 and 2007 financial statements, the Fund entered into an engagement letter with E&Y. The terms of the engagement letter required by E&Y, and agreed to by the Audit Committee, include provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury and an exclusion of punitive damages.
***
E&Y recently advised the Fund’s Audit Committee that certain arrangements between the Ernst & Young member firm in Germany (“E&Y Germany”) and Deutsche Bank AG (“DB”) had been determined to be inconsistent with the SEC auditor independence rules. DB is within the “Investment Company Complex” (as defined by SEC rules) and therefore covered by the SEC auditor independence rules applicable to the Fund. In 2006 and 2007, DB provided standard overdraft protection on a depository account and a guarantee of certain lease deposits to E&Y Germany. E&Y advised the Audit Committee that while neither of these arrangements was ever utilized by E&Y Germany, they could constitute lending type arrangements in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)(1)(ii)(A) provides that an accountant is not independent when an accounting firm has a loan to or from an audit client.) E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audits of the Fund. In reaching this conclusion, E&Y noted a number of factors, including that neither of the arrangements was ever utilized and, accordingly, E&Y Germany never had amounts outstanding to DB, these arrangements were immaterial to E&Y Germany and DB and the E&Y professionals responsible for the Fund’s audits were not aware of these arrangements. E&Y informed the Audit Committee that E&Y Germany has cancelled the overdraft arrangements and has terminated the guarantee on the lease deposits.
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ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
| |
| The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The registrant's audit committee consists of William McClayton (Chairman), Robert B. Hoffman, and Donald L. Dunaway. |
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ITEM 6. | SCHEDULE OF INVESTMENTS |
| |
| Not Applicable |
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ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
| |
| Proxy Voting Guidelines. The Fund has delegated proxy voting responsibilities to its investment advisor, subject to the Board’s general oversight. The Fund has delegated proxy voting to the advisor with the direction that proxies should be voted consistent with the Fund’s best economic interests. The advisor has adopted its own Proxy Voting Policies and Procedures (“Policies”), a Proxy Voting Desktop Manual (“Manual”), and Proxy Voting Guidelines (“Guidelines”) for this purpose. The Policies address, among other things, conflicts of interest that may arise between the interests of the Fund, and the interests of the advisor and its affiliates. The Manual sets forth the procedures that the advisor has implemented to vote proxies, including monitoring for corporate events, communicating with the fund’s custodian regarding proxies, considering the merits f each proposal, and executing and recording the proxy vote. The Guidelines set forth the advisor’s general position on various proposals, such as: • Shareholder Rights — The advisor generally votes against proposals that restrict shareholder rights. • Corporate Governance — The advisor generally votes for confidential and cumulative voting and against supermajority voting requirements for charter and bylaw amendments. The advisor generally votes for proposals to restrict a chief executive officer from serving on more than three outside board of directors. The advisor generally votes against proposals that require a company to appoint a chairman who is an independent director. • Anti-Takeover Matters — The advisor generally votes for proposals that require shareholder ratification of poison pills or that request boards to redeem poison pills, and votes “against” the adoption of poison pills if they are submitted for shareholder ratification. The advisor generally votes for fair price proposals. • Routine Matters — The advisor generally votes for the ratification of auditors, procedural matters related to the annual meeting, and changes in company name, and against bundled proposals and adjournment. The general provisions described above do not apply to investment companies. The advisor generally votes proxies solicited by investment companies in accordance with the recommendations of an independent third-party, except for proxies solicited by or with respect to investment companies for which the advisor or an affiliate serves as investment advisor or principal underwriter (“affiliated investment companies”). The advisor votes affiliated investment company proxies in the same proportion as the vote of the investment company’s other shareholders (sometimes called “mirror” or “echo” voting). Master fund proxies solicited from feeder funds are voted in accordance with applicable requirements of the Investment Company Act of 1940. Although the Guidelines set forth the advisor’s general voting positions on various proposals, the advisor may, consistent with the Fund’s best interests, determine under some circumstances to vote contrary to those positions. The Guidelines on a particular issue may or may not reflect the view of individual members of the board, or of a majority of the board. In addition, the Guidelines may reflect a voting position that differs from the actual practices of the public companies within the Deutsche Bank organization or of the investment companies for which the advisor or an affiliate serves as investment advisor or sponsor. The advisor may consider the views of a portfolio company’s management in deciding how to vote a proxy or in establishing general voting positions for the Guidelines, but management’s views are not determinative. As mentioned above, the Policies describe the way in which the advisor resolves conflicts of interest. To resolve conflicts, the advisor, under normal circumstances, votes proxies in accordance with its Guidelines. If the advisor departs from the Guidelines with respect to a particular proxy or if the Guidelines do not specifically address a certain proxy proposal, a committee established by the advisor will vote the proxy. Before voting any such proxy, however, the committee will exclude from the voting discussions and determinations any member who is involved in or aware of a material conflict of interest. If, after excluding any and all such members, there are fewer than three voting members remaining, the advisor will engage an independent third party to vote the proxy or follow the proxy voting recommendations of an independent third party. Under certain circumstances, the advisor may not be able to vote proxies or the advisor may find that the expected economic costs from voting outweigh the benefits associated with voting. For example, the advisor may not vote proxies on certain foreign securities due to local restrictions or customs. The advisor generally does not vote proxies on securities subject to share blocking restrictions. |
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ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
| |
Portfolio Manager Team Disclosure
The Fund is managed by a team of investment professionals who collaborate to develop and implement the fund’s investment strategy. The portfolio manager on the team has authority over all aspects of the fund’s investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio construction techniques, portfolio risk assessment, and the management of daily cash flows in accordance with portfolio holdings.
The following individual handles the day-to-day management of the fund.
Gary Sullivan, CFA, Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.
• | Joined Deutsche Asset Management in 1996 and the fund in 2006. Served as the head of the High Yield group in Europe and as an Emerging Markets portfolio manager. |
• | Prior to that, four years at Citicorp as a research analyst and structurer of collateralized mortgage obligations. Prior to Citicorp, served as an officer in the US Army from 1988 to 1991. |
• | BS, United States Military Academy (West Point); MBA, New York University, Stern School of Business. |
Compensation of Portfolio Managers
Portfolio managers are eligible for total compensation comprised of base salary and discretionary incentive compensation.
Base Salary – Base salary generally represents a smaller percentage of portfolio managers’ total compensation than discretionary incentive compensation. Base salary is linked to job function, responsibilities and financial services industry peer comparison through the use of extensive market data surveys.
Discretionary Incentive Compensation – Generally,discretionary incentive compensation comprises a greater proportion of total compensation as a portfolio manager’s seniority and compensation levels increase. Discretionary incentive compensation is determined based on an analysis of a number of factors, including among other things, the performance of Deutsche Bank, the performance of the Asset Management division, and the employee’s individual contribution. In evaluating individual contribution, management will consider a combination of quantitative and qualitative factors. A portion of the portfolio manager’s discretionary incentive compensation may be delivered in long-term equity programs (usually in the form or Deutsche Bank equity) (the “Equity Plan”). Top performing portfolio managers may earn discretionary incentive compensation that is a multiple of their base salary.
| • | The quantitative analysis of a portfolio manager’s individual performance is based on, among other factors, performance of all of the accounts managed by the portfolio manager (which includes the fund and any other accounts managed by the portfolio manager) over a one-, three-, and five-year period relative to the appropriate Morningstar and Lipper peer group universes and/or benchmark index(es) with respect to each account. Additionally, the portfolio manager’s retail/institutional asset mix is weighted, as appropriate for evaluation purposes. Generally the benchmark index used is a benchmark index set forth in the fund's prospectus to which the fund's performance is compared. Additional or different appropriate peer group or benchmark indices may also be used. Primary weight is given to pre-tax portfolio performance over three-year and five-year time periods (adjusted as appropriate if the portfolio manager has served for less than five years) with lesser consideration given to portfolio performance over a one-year period. The increase or decrease in a fund’s assets due to the purchase or sale of fund shares is not considered a material factor. |
| • | The qualitative analysis of a portfolio manager’s individual performance is based on, among other things, the results of an annual management and internal peer review process, and management's assessment of overall portfolio manager contributions to investor relations, the investment process and overall performance (distinct from fund and other account performance). Other factors, including contributions made to the investment team, as well as adherence to Compliance Policies and Procedures, Risk Management procedures, the firm’s Code of Ethics and “living the values” of the Advisor are also factors. |
The quantitative analysis of a portfolio manager’s performance is given more weight in determining discretionary incentive compensation that the qualitative portion.
Certain portfolio managers may also participate in the Equity Plan. The amount of equity awarded under the long-term equity programs is generally based on the individual’s total compensation package and may comprise from 0% to 30% of the total compensation award. As discretionary incentive compensation increases, the percentage of compensation awarded in Deutsche Bank equity also increases. Portfolio managers may receive a portion of their equity compensation in the form of shares in the proprietary mutual funds that they manage or support.
Fund Ownership of Portfolio Managers
The following table shows the dollar range of shares owned beneficially and of record by each member of the Fund’s portfolio management team in the Fund as well as in all DWS Funds as a group (i.e. those funds advised by Deutsche Asset Management or its affiliates), including investments by their immediate family members sharing the same household and amounts invested through retirement and deferred compensation plans. This information is provided as of the Fund’s most recent fiscal year end.
Name of Portfolio Manager | Dollar Range of Fund Shares Owned | Dollar Range of All DWS Fund Shares Owned |
Gary Sullivan | - | $50,001 - $100,000 |
Conflicts of Interest
In addition to managing the assets of the Fund, the Fund’s portfolio managers may have responsibility for managing other client accounts of the Advisor or its affiliates. The tables below show, for each portfolio manager, the number and asset size of (1) SEC registered investment companies (or series thereof) other than the Fund, (2) pooled investment vehicles that are not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed by each portfolio manager. Total assets attributed to each portfolio manager in the tables below include total assets of each account managed by them, although the manager may only manage a portion of such account’s assets. The tables also show the number of performance based fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the performance of the account. This information is provided as of the Fund’s most recent fiscal year end.
Other SEC Registered Investment Companies Managed:
Name of Portfolio Manager | Number of Registered Investment Companies | Total Assets of Registered Investment Companies | Number of Investment Company Accounts with Performance Based Fee | Total Assets of Performance- Based Fee Accounts |
Gary Sullivan | 10 | $6,997,359,452 | None | - |
Other Pooled Investment Vehicles Managed:
Name of Portfolio Manager | Number of Pooled Investment Vehicles | Total Assets of Pooled Investment Vehicles | Number of Pooled Investment Vehicle Accounts with Performance-Based Fee | Total Assets of Performance- Based Fee Accounts |
Gary Sullivan | None | - | None | - |
Other Accounts Managed:
Name of Portfolio Manager | Number of Other Accounts | Total Assets of Other Accounts | Number of Other Accounts with Performance- Based Fee | Total Assets of Performance- Based Fee Accounts |
Gary Sullivan | None | - | None | - |
In addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include holdings that are similar to, or the same as, those of the Funds. The Advisor has in place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions on the ability of portfolio managers and other “access persons” to invest in securities that may be recommended or traded in the Funds and other client accounts.
Real, potential or apparent conflicts of interest may arise when a portfolio manager has day-to-day portfolio management responsibilities with respect to more than one fund or account, including the following:
• | Certain investments may be appropriate for the Fund and also for other clients advised by the Advisor, including other client accounts managed by the Fund’s portfolio management team. Investment decisions for the Fund and other clients are made with a view to achieving their respective investment objectives and after consideration of such factors as their current holdings, availability of cash for investment and the size of their investments generally. A particular security may be bought or sold for only one client or in different amounts and at different times for more than one but less than all clients. Likewise, because clients of the Advisor may have differing investment strategies, a particular security may be bought for one or more clients when one or more other clients are selling the security. The investment results achieved for the Fund may differ from the results achieved for other clients of the Advisor. In addition, purchases or sales of the same security may be made for two or more clients on the same day. In such event, such transactions will be allocated among the clients in a manner believed by the Advisor to be most equitable to each client, generally utilizing a pro rata allocation methodology. In some cases, the allocation procedure could potentially have an adverse effect or positive effect on the price or amount of the securities purchased or sold by the Fund. Purchase and sale orders for the Fund may be combined with those of other clients of the Advisor in the interest of achieving the most favorable net results to the Fund and the other clients. |
• | To the extent that a portfolio manager has responsibilities for managing multiple client accounts, a portfolio manager will need to divide time and attention among relevant accounts. The Advisor attempts to minimize these conflicts by aligning its portfolio management teams by investment strategy and by employing similar investment models across multiple client accounts. |
• | In some cases, an apparent conflict may arise where the Advisor has an incentive, such as a performance-based fee, in managing one account and not with respect to other accounts it manages. The Advisor will not determine allocations based on whether it receives a performance-based fee from the client. Additionally, the Advisor has in place supervisory oversight processes to periodically monitor performance deviations for accounts with like strategies. |
• | The Advisor and its affiliates and the investment team of the Funds may manage other mutual funds and separate accounts on a long-short basis. The simultaneous management of long and short portfolios creates potential conflicts of interest including the risk that short sale activity could adversely affect the market value of the long positions(and vice versa), the risk arising from sequential orders in long and short positions, and the risks associated with receiving opposing orders at the same time. The Advisor has adopted procedures that it believes are reasonably designed to mitigate these potential conflicts of interest. Included in these procedures are specific guidelines developed to ensure fair and equitable treatment for all clients whose accounts are managed by each Fund’s portfolio management team. The Advisor and the portfolio management team have established monitoring |
procedures, a protocol for supervisory reviews, as well as compliance oversight to ensure that potential conflicts of interest relating to this type of activity are properly addressed.
The Advisor is owned by Deutsche Bank AG, a multi-national financial services company. Therefore, the Advisor is affiliated with a variety of entities that provide and/or engage in commercial banking, insurance, brokerage, investment banking, financial advisory, broker-dealer activities (including sales and trading), hedge funds, real estate and private equity investing, in addition to the provision of investment management services to institutional and individual investors. Since Deutsche Bank AG, its affiliates, directors, officers and employees (the “Firm”) are engaged in businesses and have interests other than managing asset management accounts, such other activities involve real, potential or apparent conflicts of interest. These interests and activities include potential advisory, transactional and financial activities and other interests in securities and companies that may be directly or indirectly purchased or sold by the Firm for its clients’ advisory accounts. These are considerations of which advisory clients should be aware and which may cause conflicts that could be to the disadvantage of the Advisor’s advisory clients. The Advisor has instituted business and compliance policies, procedures and disclosures that are designed to identify, monitor and mitigate conflicts of interest and, as appropriate, to report them to the Fund’s Board.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
| |
Period | (a)
Total Number of Shares Purchased | (b)
Average Price Paid per Share | (c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
| | | | |
December 1 through December 31 | n/a | n/a | n/a | n/a |
January 1 through January 31 | n/a | n/a | n/a | n/a |
February 1 through February 28 | n/a | n/a | n/a | n/a |
March 1 through March 31 | n/a | n/a | n/a | n/a |
April 1 through April 30 | n/a | n/a | n/a | n/a |
May 1 through May 31 | n/a | n/a | n/a | n/a |
June 1 through June 30 | n/a | n/a | n/a | n/a |
July 1 through July 31 | n/a | n/a | n/a | n/a |
August 1 through August 31 | n/a | n/a | n/a | n/a |
September 1 through September 30 | n/a | n/a | n/a | n/a |
October 1 through October 31 | n/a | n/a | n/a | n/a |
November 1 through November 30 | n/a | n/a | n/a | n/a |
| | | | |
Total | n/a | n/a | n/a | n/a |
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) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
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| (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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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-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | DWS Multi-Market Income Trust |
President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Registrant: | DWS Multi-Market Income Trust |
President
Chief Financial Officer and Treasurer
