UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number 811-8382
SCUDDER STRATEGIC 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: (617) 295-2663
--------------
Salvatore Schiavone
Two International Place
Boston, Massachusetts 02110
---------------------------------------
(Name and Address of Agent for Service)
Date of fiscal year end: 11/30
Date of reporting period: 5/31/2004
ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
Scudder Strategic
Income Trust
|
| |
| Semiannual Report to Shareholders |
| May 31, 2004 |
|
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. All of these factors may result in greater share price volatility. 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.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
Performance Summary May 31, 2004 |
|
Performance is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when 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 scudder.com for the product's most recent month-end performance.
Average Annual Total Returns as of 5/31/04 |
Scudder Strategic Income Trust | 6-Month++ | 1-Year | 3-Year | 5-Year | 10-Year |
Based on Net Asset Value(a)
| .70% | 7.52% | 10.91% | 9.75% | 9.94% |
Based on Market Price
| -14.58% | 2.92% | 2.58% | 3.32% | 8.89% |
CS First Boston High Yield Index(b)
| 3.24%
| 13.25%
| 9.96%
| 6.05%
| 7.59%
|
CS First Boston High Yield Index (50%), Lehman Brothers Treasury Index (25%), Citigroup Non-USD World Government Bond Currency Hedged Index (15%), J.P. Morgan Emerging Markets Bond Index Plus (10%)(b)
| 1.81%
| 6.03%
| 8.35%
| 6.93%
| 8.24%
|
++ Total returns shown for periods less than one year are not annualized.Net Asset Value and Market Price |
| As of 5/31/04 | As of 11/30/03 |
Net Asset Value
| $ 12.29 | $ 12.73 |
Market Price
| $ 11.67 | $ 14.25 |
Distribution Information |
Six Months:
Income Dividends as of 5/31/04
| $ .54 |
May Income Dividend
| $ .09 |
Current Annualized Distribution Rate (based on net asset value) as of 5/31/04+
| 8.79% |
Current Annualized Distribution Rate (based on market price) as of 5/31/04+
| 9.25% |
a Total investment returns reflect changes in net asset value per share during each period and assume that dividends and capital gains distributions, if any, were reinvested. These percentages are not an indication of the performance of a shareholder's investment in the Fund based on market price.b CS First Boston High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market. Lehman Brothers Treasury Index is an unmanaged index reflecting the performance of all public obligations and does not focus on one particular segment of the Treasury market. Citigroup Non-USD World Government Bond Currency Hedged Index is an unmanaged foreign securities index representing major government bond markets other than the US. J.P. Morgan Emerging Markets Bond Index Plus is an unmanaged index tracking total returns for traded external currency-denominated debt instruments in the emerging markets: Brady bonds, loans, Eurobonds and US dollar-denominated local market instruments. The blended index is also disclosed since it is more representative of the securities in which the Fund invests. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.+ Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value/market price on May 31, 2004. Distribution rate simply measures the level of dividends and is not a complete measure of performance. Distribution rates are historical and will fluctuate.Portfolio Management Review |
|
In the following interview, Portfolio Manager Jan C. Faller discusses market conditions and investment strategy during Scudder Strategic Income Trust's most recent semiannual period ended May 31, 2004.
Q: How did the fund perform over the six-month period ended May 31?
A: For the six-month period, the fund returned 0.70% based on net asset value. The fund's total return based on its market price was -14.58%. This compares with the 1.87% average return (for the six-month period ended May 31, 2004) of the fund's peers in the Lipper Flexible Income Funds category for closed-end funds.1
1 The Lipper Flexible Income Funds category includes closed-end funds that emphasize income generation by investing at least 85% of assets in debt issues and preferred and convertible securities. Common stocks and warrants cannot exceed 15%. It is not possible to invest directly in the Lipper category. Rankings are historical and do not guarantee future results.Q: Will you discuss the market environment for the sectors in which the fund was invested during the period?
A: In general, the first two months of the reporting period were more positive than the last four months. In late 2003 and early 2004, yield spreads of both emerging-markets bonds and high-yield bonds were still tightening, whereas in the last four months there was reduced market activity and not as much opportunity to add value strategically.
In terms of specific sectors, in late 2003, emerging markets had seemed to many observers to be fully valued. But we perceived that technical factors such as supply and demand remained favorable, and the US Federal Reserve (the Fed) was still making it clear in its policy statements that in order to stave off a possible deflationary spiral, it would remain accommodative by keeping short-term interest rates low and maintaining an ample money supply. In addition, investors' risk appetites were still strong, and fundamental economic factors were improving in a number of emerging-market countries. A global backdrop of political stability and rising commodity prices rounded out a positive environment for emerging markets. Yield spreads responded by continuing to tighten significantly through the end of 2003 and into early 2004. We held an overweight position in emerging-markets bonds compared with other multisector income funds during this period, which benefited the fund's total return and peer ranking.
At the end of January, however, with government economic reports growing more and more positive, the Fed signaled that its accommodative stance on interest rates would end fairly soon in order to ward off a resurgence in inflation. In response, emerging-markets bond prices fell sharply, and yields rose. Following this quick reversal and widening of yield spreads, emerging-markets bond prices stabilized somewhat. The fact that emerging-markets bonds traded in a narrow range led us to believe that the late-January sell-off was an overreaction to the Fed statement. Demand for emerging-markets bonds was holding firm, and fundamentals were still favorable. From February through early April, we were rewarded for this stance as the fund collected high income and spreads tightened modestly.
Then, in late April, the combination of (1) investors' concern over anticipated Fed actions to tighten credit, (2) measurably increased US economic activity and (3) hedge funds' reversal of the "carry trade" (borrowing at low short-term rates to invest in higher-coupon issues) led to another sell-off in emerging-markets bonds. While this did cause prices of the emerging-markets debt in the portfolio to fall in value, we continued to maintain our exposure, as we feel that the wider spreads do not reflect a significant increase in potential for default, but rather a decrease in the risk appetite among market participants. This has led us to continue to hold our position in order to maintain the yield advantage associated with the emerging-markets debt holdings in the fund.
Q: Will you comment on how country-specific events have affected emerging-markets performance?
A: During the period, we followed events in Brazil especially closely, as economic fundamentals there have grown more difficult. Investors are watching the high-level balancing act that President Lula and his finance minister have been forced to perform: In a difficult economic environment, they must carefully manage the level of short-term interest rates to spur growth yet curb inflation. If Brazil doesn't perform its balancing act just right, inflation there is poised to surge. Alternatively, inordinately high short-term interest rates could severely set back economic recovery. Brazilian bonds are beginning to be hurt by these concerns, as investors had "priced in" a perfect scenario for Brazil's economy. Often, as Brazil goes, so go emerging markets overall. Thus, after the US Federal Reserve's policy shift, worry over Brazil has been the second most important driver in the widening of emerging-markets yield spreads. We are hopeful that Brazil's leaders will continue to exhibit prudent judgment in managing the country's economy.
Q: How has the environment for high-yield bonds affected fund performance?
A: In the face of concern over near-term Fed actions, high-yield bonds sold off somewhat during the period, though less than emerging-markets bonds. The question for high-yield investors during the period was how strong the US economic recovery would be and when significant job growth would draw down excess capacity in the economy. While the Fed's accommodative interest rate policy was still firmly in place, the carry trade remained attractive for large high-yield investors. In fact, high-yield bonds barely reacted to the Fed's announcement of a policy shift in January. But as the government's monthly job-creation statistics continued to disappoint investors, equity markets faltered on concern over rising interest rates. Economic growth continued to gather momentum and large leveraged high-yield investors began to sell their positions. The sizeable volume of these trades put downward pressure on high-yield prices. High yield managed to stage a brief rally in April, however.
During the period, the fund's high-yield bond allocation remained close to 50% of portfolio assets. Even when leveraged investors were selling, we believed that the market was overreacting to short-term events. We also thought that the strengthening economy's tendency to boost the balance sheets and credit profiles of high-yield companies would improve the level of fair value spreads in the sector. High-yield bonds outperformed emerging-markets bonds dramatically during the latter part of the period, and we continue to hold an overweight position in high yield relative to the fund's peers.
Q: What detracted from performance during the period?
A: Maintaining our current level of exposure to emerging markets during this period of de-leveraging and reduced investor risk appetite had a negative impact on the fund's total return during the second half of the reporting period. Similarly, the widening of high-yield spreads over the past two months additionally detracted from the fund's performance.
Q: How do you assess the market environment for the fund's sectors at present?
A: We view the recent sell-offs in the emerging-markets and high-yield sectors as logical corrections. We continue to have the fund's exposure distributed across these higher-income-generating sectors because we believe that the probability of either market's experiencing a period as difficult as 2000-2001 is quite low. The default rate for US high-yield companies has continued to decline, and if the economy continues to grow, that trend should persist. While there may be some price volatility in the high-yield sector as the pace of the recovery and the Fed's reaction to it are digested by the market, we don't view the sector as being at risk for major bankruptcies and defaults.
We feel similarly concerning emerging markets. Though market participants are currently reassessing "fair value" among various issues, we generally don't view capital in the emerging markets as being at risk. Balanced against worries over upcoming Fed actions and Brazil's status are several mitigating factors: While high crude oil prices are placing economic pressure on oil importers, oil-exporting countries such as Russia and Venezuela are strongly benefiting. And despite uncertainty over Brazil, the credit profiles of emerging countries are as healthy as they have been in some time, thanks in part to the weakened US dollar. The relative credit ratings of these countries reflect that. Therefore, while we foresee a certain amount of volatility in emerging markets and high yield as economic recovery gains ground and market participants determine fair value, we don't plan to take a defensive stance. The consequent loss of income for the fund would not justify such a stance.
Going forward, we will carefully monitor the statements and actions of the US Federal Reserve as well as those of other major central banks. We believe that Scudder Strategic Income Trust remains an attractive vehicle for investors seeking high current return.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Portfolio Summary May 31, 2004 |
|
Portfolio Composition | 5/31/04 | 11/30/03 |
|
Emerging Market Bonds
| 52%
| 42%
|
High-Yield Corporate Bonds
| 41%
| 55%
|
Cash and Equivalents
| 6%
| 2%
|
Loan Participation
| 1%
| -
|
Convertible Bonds
| -
| 1%
|
| 100%
| 100%
|
Quality (Excludes Cash Equivalents) | 5/31/04 | 11/30/03 |
|
A
| 4%
| 3%
|
BBB
| 15%
| 14%
|
BB
| 25%
| 24%
|
B
| 45%
| 48%
|
Below B
| 8%
| 8%
|
Not rated
| 3%
| 3%
|
| 100%
| 100%
|
Interest Rate Sensitivity | 5/31/04 | 11/30/03 |
|
Average Maturity
| 11.5 years | 11.0 years |
Duration
| 6.8 years | 6.4 years |
Portfolio composition, quality and interest rate sensitivity are subject to change.For more complete details about the Fund's investment portfolio, see page 12. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end is available upon request on the 16th of the following month. Please see the Account Management Resources section for contact information.
Investment Portfolio as of May 31, 2004 (Unaudited) | |
|
| Principal Amount ($)(c) | Value ($) |
|
|
Corporate Bonds 52.6% |
Consumer Discretionary 13.5%
|
Advantica Restaurant Co., 12.75%, 9/30/2007
| 53,000
| 55,650
|
AMC Entertainment, Inc., 144A, 8.0%, 3/1/2014
| 85,000
| 81,600
|
American Lawyer Media, Inc., Series B, 9.75%, 12/15/2007
| 85,000
| 82,131
|
Atlantic Broadband Finance LLC, 144A, 9.375%, 1/15/2014
| 75,000
| 70,125
|
Avalon Cable LLC, 11.875%, 12/1/2008
| 22,057
| 23,326
|
Bally Total Fitness Holdings Corp., 10.5%, 7/15/2011
| 85,000
| 76,075
|
Boca Resorts, Inc., 9.875%, 4/15/2009
| 90,000
| 94,612
|
Buffets, Inc., 11.25%, 7/15/2010
| 25,000
| 27,125
|
Cablevision Systems Corp.:
|
|
|
144A, 5.67%, 4/1/2009** (d) | 25,000
| 25,563
|
144A, 8.0%, 4/15/2012 | 35,000
| 34,650
|
Carrols Corp., 9.5%, 12/1/2008
| 55,000
| 56,100
|
Charter Communications Holdings LLC:
|
|
|
Step-up Coupon, 0% to 5/15/2006, 11.75% to 5/15/2011 | 110,000
| 72,600
|
Step-up Coupon, 0% to 1/15/2007, 12.125% to 1/15/2012 | 40,000
| 24,000
|
9.625%, 11/15/2009 | 165,000
| 137,775
|
144A, 10.25%, 9/15/2010 | 205,000
| 207,562
|
Choctaw Resort Development Enterprises, 9.25%, 4/1/2009
| 95,000
| 102,125
|
Circus & Eldorado, 10.125%, 3/1/2012
| 95,000
| 94,525
|
CKE Restaurants, Inc., 9.125%, 5/1/2009
| 65,000
| 67,275
|
CSC Holdings, Inc.:
|
|
|
7.875%, 12/15/2007 | 85,000
| 88,400
|
Senior Note, 7.25%, 7/15/2008 | 20,000
| 20,350
|
Dex Media East LLC, 12.125%, 11/15/2012
| 400,000
| 464,000
|
DIMON, Inc.:
|
|
|
7.75%, 6/1/2013 | 25,000
| 23,125
|
Series B, 9.625%, 10/15/2011 | 220,000
| 225,500
|
EchoStar DBS Corp.:
|
|
|
6.375%, 10/1/2011 | 15,000
| 14,663
|
144A, 6.375%, 10/1/2011 | 45,000
| 43,987
|
EPL Intermediate, Inc., 144A, Step-up Coupon, 0% to 3/15/2009, 12.50% to 3/15/2010
| 70,000
| 38,500
|
Finlay Fine Jewelry Corp.:
|
|
|
8.375%, 5/1/2008 | 55,000
| 56,444
|
144A, 8.375%, 6/1/2012 | 30,000
| 30,525
|
General Motors Corp., 8.25%, 7/15/2023
| 95,000
| 98,143
|
Herbst Gaming, Inc.:
|
|
|
144A, 8.125%, 6/1/2012 | 90,000
| 89,044
|
Series B, 10.75%, 9/1/2008 | 160,000
| 184,000
|
Interep National Radio Sales, Inc., Series B, 10.0%, 7/1/2008
| 80,000
| 72,000
|
International Game Technology, 8.375%, 5/15/2009
| 85,000
| 98,244
|
Jacobs Entertainment Co., 11.875%, 2/1/2009
| 105,000
| 114,450
|
Kellwood Co., 7.625%, 10/15/2017
| 55,000
| 58,251
|
Krystal, Inc., 10.25%, 10/1/2007
| 75,000
| 76,125
|
Levi Strauss & Co., 12.25%, 12/15/2012
| 65,000
| 59,313
|
Lin Television Corp., 6.5%, 5/15/2013
| 20,000
| 19,450
|
Mail-Well I Corp., 144A, 7.875%, 12/1/2013
| 45,000
| 41,400
|
Mediacom LLC, 9.5%, 1/15/2013 (d)
| 65,000
| 62,725
|
Nebraska Book Co., Inc., 144A, 8.625%, 3/15/2012
| 15,000
| 14,850
|
PEI Holding, Inc., 11.0%, 3/15/2010
| 45,000
| 51,750
|
Petro Stopping Centers, 144A, 9.0%, 2/15/2012
| 175,000
| 172,375
|
Premier Entertainment Biloxi LLC/Finance, 144A, 10.75%, 2/1/2012
| 25,000
| 26,000
|
PRIMEDIA, Inc.:
|
|
|
144A, 6.615%**, 5/15/2010 | 130,000
| 132,112
|
8.875%, 5/15/2011 | 70,000
| 69,825
|
Reader's Digest Association, Inc., 6.5%, 3/1/2011
| 45,000
| 44,325
|
Remington Arms Co., Inc., 10.5%, 2/1/2011
| 70,000
| 67,550
|
Renaissance Media Group, 10.0%, 4/15/2008
| 120,000
| 123,600
|
Rent-Way Inc., 11.875%, 6/15/2010
| 35,000
| 38,325
|
Restaurant Co., 11.25%, 5/15/2008
| 83,966
| 83,126
|
Rite Aid Corp., 6.875%, 8/15/2013
| 55,000
| 48,950
|
Samsonite Corp., 10.75%, 6/15/2008
| 180,000
| 187,200
|
Schuler Homes, Inc., 10.5%, 7/15/2011
| 120,000
| 136,800
|
Scientific Games Corp., 12.5%, 8/15/2010
| 35,000
| 40,250
|
Simmons Co., 144A, 7.875%, 1/15/2014
| 25,000
| 24,875
|
Sinclair Broadcast Group, Inc.:
|
|
|
8.0%, 3/15/2012 | 175,000
| 178,937
|
8.75%, 12/15/2011 | 95,000
| 101,413
|
Sonic Automotive, Inc., 8.625%, 8/15/2013
| 60,000
| 61,500
|
Toys "R" Us, Inc.:
|
|
|
7.375%, 10/15/2018 | 125,000
| 115,000
|
7.875%, 4/15/2013 (d) | 45,000
| 45,169
|
Trump Holdings & Funding, 11.625%, 3/15/2010 (d)
| 95,000
| 96,425
|
United Auto Group, Inc., 9.625%, 3/15/2012
| 50,000
| 53,500
|
United Rentals North America, Inc., 144A, 6.5%, 2/15/2012
| 95,000
| 89,300
|
Venetian Casino Resort LLC, 11.0%, 6/15/2010
| 55,000
| 63,181
|
VICORP Restaurants, Inc., 144A, 10.5%, 4/15/2011
| 65,000
| 64,350
|
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009
| 60,000
| 63,150
|
Williams Scotsman, Inc., 9.875%, 6/1/2007 (d)
| 80,000
| 78,000
|
Worldspan LP/WS Finance Corp., 9.625%, 6/15/2011 (d)
| 65,000
| 66,625
|
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14% to 12/31/2009
| 76,321
| 70,597
|
Young Broadcasting, Inc., 144A, 8.75%, 1/15/2014
| 79,000
| 77,025
|
| 5,797,543 |
Consumer Staples 1.1%
|
Agrilink Foods, Inc., 11.875%, 11/1/2008
| 37,000
| 39,220
|
Gold Kist, Inc., 144A, 10.25%, 3/15/2014
| 55,000
| 57,475
|
North Atlantic Trading Co., 144A, 9.25%, 3/1/2012
| 85,000
| 82,875
|
Rite Aid Corp.:
|
|
|
144A, 6.125%, 12/15/2008 | 95,000
| 87,400
|
"C1", Series 97, 11.25%, 7/1/2008 | 95,000
| 103,792
|
Standard Commercial Corp., 144A, 8.0%, 4/15/2012
| 25,000
| 25,500
|
Swift & Co.:
|
|
|
10.125%, 10/1/2009 | 55,000
| 58,850
|
12.5%, 1/1/2010 | 10,000
| 10,500
|
United Agri Products, 144A, 8.25%, 12/15/2011
| 20,000
| 22,471
|
| 488,083 |
Energy 5.3%
|
Avista Corp., 9.75%, 6/1/2008
| 205,000
| 243,048
|
Chesapeake Energy Corp.:
|
|
|
144A, 7.5%, 6/15/2014 | 25,000
| 25,813
|
9.0%, 8/15/2012 | 15,000
| 16,800
|
Citgo Petroleum Corp., 11.375%, 2/1/2011
| 255,000
| 293,250
|
Continental Resources, Inc., 10.25%, 8/1/2008
| 150,000
| 153,750
|
Edison Mission Energy, 7.73%, 6/15/2009
| 200,000
| 189,500
|
El Paso Production Holdings Corp., 7.75%, 6/1/2013
| 290,000
| 274,050
|
FirstEnergy Corp., Series B, 6.45%, 11/15/2011
| 60,000
| 62,385
|
MAPCO, Inc., 7.25%, 3/1/2009
| 50,000
| 52,312
|
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007
| 110,000
| 111,100
|
ON Semiconductor Corp., 12.0%, 5/15/2008 (d)
| 70,000
| 80,500
|
Pemex Project Funding Master Trust, 7.375%, 12/15/2014
| 200,000
| 205,750
|
Pioneer Natural Resources Co., 9.625%, 4/1/2010
| 35,000
| 42,837
|
Southern Natural Gas, 8.875%, 3/15/2010
| 85,000
| 92,225
|
Stone Energy Corp., 8.25%, 12/15/2011
| 95,000
| 99,275
|
Westport Resources Corp., 8.25%, 11/1/2011
| 40,000
| 44,400
|
Williams Cos., Inc.:
|
|
|
144A, 6.75%, 4/15/2009 | 60,000
| 58,800
|
8.75%, 3/15/2032 | 95,000
| 94,050
|
Wiser Oil Co., 9.5%, 5/15/2007
| 100,000
| 101,250
|
| 2,241,095 |
Financials 4.3%
|
Ahold Finance USA, Inc., 6.25%, 5/1/2009
| 170,000
| 164,475
|
Alamosa Delaware, Inc.:
|
|
|
Step-up Coupon, 0% to 7/31/2005, 12.0% to 7/31/2009 | 53,000
| 51,410
|
144A, 8.5%, 1/31/2012 | 55,000
| 53,900
|
AmeriCredit Corp., 9.25%, 5/1/2009
| 150,000
| 156,750
|
Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028
| 40,000
| 24,634
|
BF Saul REIT, 7.5%, 3/1/2014
| 135,000
| 132,637
|
Consolidated Communications Holdings, 144A, 9.75%, 4/1/2012
| 65,000
| 65,000
|
DA-Lite Screen Co., Inc., 144A, 9.5%, 5/15/2011
| 25,000
| 25,906
|
Dollar Financial Group, Inc.:
|
|
|
9.75%, 11/15/2011 | 70,000
| 71,400
|
144A, 9.75%, 11/15/2011 | 15,000
| 15,300
|
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024
| 100,000
| 110,443
|
FINOVA Group, Inc., 7.5%, 11/15/2009
| 174,796
| 97,012
|
Global Exchange Services, Inc., LIBOR plus 9.0%, 12.0%, 7/15/2008**
| 35,000
| 30,100
|
iStar Financial, Inc., 6.0%, 12/15/2010
| 65,000
| 63,257
|
Poster Financial Group, 144A, 8.75%, 12/1/2011
| 80,000
| 81,400
|
PXRE Capital Trust I, 8.85%, 2/1/2027
| 30,000
| 30,000
|
Qwest Capital Funding, Inc.:
|
|
|
6.5%, 11/15/2018 | 85,000
| 62,262
|
6.875%, 7/15/2028 | 80,000
| 57,600
|
7.75%, 2/15/2031 | 30,000
| 22,500
|
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012
| 120,000
| 140,400
|
Thornburg Mortgage, Inc., 8.0%, 5/15/2013
| 60,000
| 58,950
|
UAP Holdings Corp., 144A, Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012
| 60,000
| 47,940
|
UGS Corp., 144A, 10.0%, 6/1/2012
| 20,000
| 21,000
|
Universal City Development, 11.75%, 4/1/2010
| 125,000
| 143,125
|
WMC Finance Co., 144A, 11.75%, 12/15/2008
| 105,000
| 131,250
|
| 1,858,651 |
Health Care 1.5%
|
aaiPharma, Inc., 11.0%, 4/1/2010 (d)
| 85,000
| 71,825
|
AmeriPath, Inc., 10.5%, 4/1/2013 (d)
| 80,000
| 80,400
|
AmerisourceBergen Corp., 7.25%, 11/15/2012
| 40,000
| 40,900
|
Curative Health Services, Inc., 144A, 10.75%, 5/1/2011
| 35,000
| 34,125
|
Interactive Health LLC, 144A, 7.25%, 4/1/2011
| 60,000
| 51,600
|
Team Health, Inc., 144A, 9.0%, 4/1/2012
| 30,000
| 28,350
|
Tenet Healthcare Corp., 6.375%, 12/1/2011
| 415,000
| 353,787
|
| 660,987 |
Industrials 8.6%
|
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007
| 55,000
| 57,475
|
Aearo Co. I, 144A, 8.25%, 4/15/2012
| 25,000
| 25,250
|
Allied Waste North America, Inc.:
|
|
|
144A, 5.75%, 2/15/2011 | 75,000
| 69,750
|
Series B, 8.875%, 4/1/2008 | 110,000
| 119,075
|
AMI Semiconductor, Inc., 10.75%, 2/1/2013
| 37,000
| 43,013
|
Amsted Industries, Inc., 144A, 10.25%, 10/15/2011
| 70,000
| 75,600
|
Argo-Tech Corp., 8.625%, 10/1/2007
| 90,000
| 92,587
|
Avondale Mills, Inc., 10.25%, 7/1/2013
| 110,000
| 63,800
|
Browning-Ferris Industries:
|
|
|
7.4%, 9/15/2035 | 15,000
| 12,525
|
9.25%, 5/1/2021 | 65,000
| 69,550
|
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010
| 140,000
| 142,100
|
Collins & Aikman Products, 10.75%, 12/31/2011
| 145,000
| 144,275
|
Congoleum Corp., 8.625%, 8/1/2008*
| 70,000
| 56,000
|
Continental Airlines, Inc., 8.0%, 12/15/2005 (d)
| 85,000
| 74,800
|
Corrections Corp. of America, 9.875%, 5/1/2009
| 100,000
| 110,500
|
Dana Corp.:
|
|
|
7.0%, 3/1/2029 | 140,000
| 128,800
|
9.0%, 8/15/2011 | 50,000
| 56,875
|
Delta Air Lines, Inc.:
|
|
|
7.7%, 12/15/2005 (d) | 45,000
| 28,125
|
7.9%, 12/15/2009 (d) | 35,000
| 16,975
|
Eagle-Pitcher Industries, Inc., 9.75%, 9/1/2013
| 80,000
| 85,400
|
Erico International Corp., 144A, 8.875%, 3/1/2012
| 45,000
| 44,775
|
Evergreen International Aviation, Inc., 12.0%, 5/15/2010 (d)
| 35,000
| 25,900
|
Geo Sub Corp., 144A, 11.0%, 5/15/2012
| 40,000
| 40,500
|
Golden State Petroleum Transportation, 8.04%, 2/1/2019
| 50,000
| 48,995
|
Hercules, Inc.:
|
|
|
144A, 6.75%, 10/15/2029 | 15,000
| 14,100
|
11.125%, 11/15/2007 | 160,000
| 186,400
|
Hornbeck Offshore Services, Inc., 10.625%, 8/1/2008
| 100,000
| 109,000
|
Interface, Inc., 144A, "A", 9.5%, 2/1/2014
| 65,000
| 64,513
|
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011
| 105,000
| 116,550
|
ISP Holdings, Inc., Series B, 10.625%, 12/15/2009
| 25,000
| 27,250
|
Kansas City Southern:
|
|
|
7.5%, 6/15/2009 | 95,000
| 95,950
|
9.5%, 10/1/2008 | 95,000
| 103,550
|
Laidlaw International, Inc., 10.75%, 6/15/2011
| 85,000
| 91,056
|
Meritage Corp., 144A, 7.0%, 5/1/2014
| 55,000
| 52,525
|
Millennium America, Inc.:
|
|
|
7.625%, 11/15/2026 | 150,000
| 126,750
|
9.25%, 6/15/2008 (d) | 80,000
| 84,800
|
144A, 9.25%, 6/15/2008 | 100,000
| 106,000
|
Mobile Mini, Inc., 9.5%, 7/1/2013
| 35,000
| 37,450
|
Motors and Gears, Inc., 10.75%, 11/15/2006
| 100,000
| 84,000
|
Republic Engineered Products LLC, 10.0%, 8/16/2009*
| 96,000
| 70,080
|
Samsonite Corp., 144A, 8.875%, 6/1/2011
| 95,000
| 95,950
|
Sea Containers Ltd., 10.5%, 5/15/2012
| 75,000
| 73,125
|
Seabulk International, Inc., 9.5%, 8/15/2013
| 65,000
| 66,706
|
Ship Finance International Ltd., 144A, 8.5%, 12/15/2013
| 135,000
| 126,900
|
Tech Olympic USA, Inc.:
|
|
|
144A, 7.5%, 3/15/2011 | 50,000
| 46,168
|
10.375%, 7/1/2012 | 75,000
| 78,000
|
Tenneco Automotive, Inc., 11.625%, 10/15/2009 (d)
| 65,000
| 70,200
|
The Brickman Group, Ltd., Series B, 11.75%, 12/15/2009
| 50,000
| 57,000
|
Thermadyne Holdings Corp., 144A, 9.25%, 2/1/2014
| 40,000
| 39,200
|
Westlake Chemical Corp., 8.75%, 7/15/2011
| 35,000
| 37,800
|
| 3,693,668 |
Information Technology 0.6%
|
Activant Solutions, Inc., 10.5%, 6/15/2011
| 65,000
| 68,250
|
DigitalNet, Inc., 9.0%, 7/15/2010
| 42,000
| 44,100
|
Itron, Inc., 144A, 7.75%, 5/15/2012
| 20,000
| 20,000
|
Lucent Technologies, Inc., 6.45%, 3/15/2029 (d)
| 75,000
| 56,625
|
Mediacom Broadband LLC, 11.0%, 7/15/2013 (d)
| 35,000
| 37,013
|
Telex Communications Holdings, Inc., 11.5%, 10/15/2008
| 20,000
| 21,200
|
| 247,188 |
Materials 6.9%
|
American Rock Salt Co. LLC, 144A, 9.5%, 3/15/2014
| 35,000
| 35,875
|
AMH Holdings, Inc., 144A, Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014
| 175,000
| 114,188
|
Aqua Chemical, Inc., 11.25%, 7/1/2008
| 105,000
| 78,750
|
ARCO Chemical Co., 9.8%, 2/1/2020
| 345,000
| 332,062
|
Caraustar Industries, Inc., 9.875%, 4/1/2011 (d)
| 70,000
| 69,650
|
Dayton Superior Corp.:
|
|
|
10.75%, 9/15/2008 | 65,000
| 63,700
|
13.0%, 6/15/2009 | 70,000
| 50,400
|
Equistar Chemicals LP, 8.75%, 2/15/2009
| 220,000
| 227,700
|
Euramax International PLC, 8.5%, 8/15/2011
| 30,000
| 30,900
|
Fibermark, Inc., 10.75%, 4/15/2011*
| 130,000
| 68,900
|
GEO Specialty Chemicals, Inc., 10.125%, 8/1/2008*
| 120,000
| 38,400
|
Georgia-Pacific Corp.:
|
|
|
7.375%, 12/1/2025 | 145,000
| 131,950
|
7.7%, 6/15/2015 | 75,000
| 77,250
|
144A, 8.0%, 1/15/2024 | 90,000
| 87,750
|
9.375%, 2/1/2013 | 135,000
| 152,212
|
Hexcel Corp., 9.75%, 1/15/2009
| 65,000
| 67,925
|
Huntsman Advanced Materials LLC, 144A, 11.0%, 7/15/2010
| 80,000
| 89,000
|
Huntsman International LLC, 11.625%, 10/15/2010
| 75,000
| 80,812
|
IMC Global, Inc., 10.875%, 8/1/2013
| 80,000
| 95,600
|
International Steel Group, Inc., 144A, 6.5%, 4/15/2014
| 160,000
| 149,200
|
ISPAT Inland ULC, 144A, 9.75%, 4/1/2014
| 105,000
| 107,363
|
MMI Products, Inc., Series B, 11.25%, 4/15/2007
| 15,000
| 14,250
|
Mueller Group Inc., 144A, 5.919%**, 11/1/2011
| 35,000
| 35,875
|
Neenah Corp.:
|
|
|
144A, 11.0%, 9/30/2010 | 96,000
| 99,840
|
144A, 13.0%, 9/30/2013 | 74,731
| 73,983
|
Owens-Brockway Glass Container, 8.25%, 5/15/2013
| 170,000
| 169,150
|
Pliant Corp.:
|
|
|
144A, Step-up Coupon, 0% to 12/15/2006, 11.125% to 6/15/2009 | 20,000
| 16,400
|
11.125%, 9/1/2009 | 75,000
| 79,500
|
13.0%, 6/1/2010 (d) | 15,000
| 13,500
|
Port Townsend Paper Corp., 144A, 11.0%, 4/15/2011
| 25,000
| 24,625
|
TriMas Corp., 9.875%, 6/15/2012
| 150,000
| 161,250
|
United States Steel LLC, 9.75%, 5/15/2010
| 101,000
| 111,353
|
| 2,949,313 |
Telecommunication Services 7.0%
|
American Cellular Corp., Series B, 10.0%, 8/1/2011
| 265,000
| 233,200
|
American Tower Corp.:
|
|
|
144A, 7.5%, 5/1/2012 (d) | 40,000
| 38,500
|
9.375%, 2/1/2009 (d) | 135,000
| 144,450
|
American Tower Escrow Corp., Zero Coupon, 8/1/2008
| 80,000
| 58,000
|
Cincinnati Bell, Inc.:
|
|
|
7.2%, 11/29/2023 | 70,000
| 65,800
|
8.375%, 1/15/2014 (d) | 230,000
| 205,850
|
Crown Castle International Corp.:
|
|
|
7.5%, 12/1/2013 | 40,000
| 38,600
|
9.375%, 8/1/2011 | 80,000
| 86,600
|
Dobson Communications Corp., 8.875%, 10/1/2013
| 315,000
| 244,125
|
GCI, Inc., 144A, 7.25%, 2/15/2014
| 50,000
| 47,000
|
Insight Midwest LP:
|
|
|
9.75%, 10/1/2009 | 45,000
| 47,363
|
10.5%, 11/1/2010 | 10,000
| 10,850
|
LCI International, Inc., 7.25%, 6/15/2007
| 125,000
| 113,437
|
Level 3 Financing, Inc., 144A, 10.75%, 10/15/2011 (d)
| 40,000
| 35,200
|
MCI, Inc.:
|
|
|
6.688%, 5/1/2009 | 115,000
| 107,813
|
7.735%, 5/1/2014 | 215,000
| 195,381
|
Nextel Communications, Inc., 5.95%, 3/15/2014
| 110,000
| 102,025
|
Nextel Partners, Inc., 8.125%, 7/1/2011
| 100,000
| 102,500
|
Northern Telecom Capital, 7.875%, 6/15/2026
| 185,000
| 160,025
|
Qwest Corp.:
|
|
|
5.625%, 11/15/2008 | 45,000
| 43,200
|
7.25%, 9/15/2025 | 300,000
| 253,500
|
Qwest Services Corp.:
|
|
|
144A, 13.5%, 12/15/2010 | 225,000
| 259,312
|
144A, 14.0%, 12/15/2014 | 85,000
| 100,725
|
Rural Cellular Corp., 9.875%, 2/1/2010
| 70,000
| 70,175
|
SBA Communications Corp., 144A, Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011
| 100,000
| 73,000
|
Ubiquitel Operating Co., 144A, 9.875%, 3/1/2011
| 115,000
| 115,000
|
Western Wireless Corp., 9.25%, 7/15/2013
| 20,000
| 20,600
|
| 2,972,231 |
Utilities 3.8%
|
Calpine Corp., 144A, 8.5%, 7/15/2010 (d)
| 375,000
| 313,125
|
CMS Energy Corp.:
|
|
|
7.5%, 1/15/2009 | 170,000
| 168,725
|
144A, 7.75%, 8/1/2010 (d) | 65,000
| 65,000
|
8.5%, 4/15/2011 | 20,000
| 20,350
|
DPL, Inc.:
|
|
|
6.875%, 9/1/2011 (d) | 200,000
| 200,000
|
8.125%, 9/1/2031 | 25,000
| 23,750
|
Illinova Corp., 11.5%, 12/15/2010
| 170,000
| 200,600
|
NRG Energy, Inc., 144A, 8.0%, 12/15/2013
| 370,000
| 369,075
|
PG&E Corp., 144A, 6.875%, 7/15/2008
| 95,000
| 99,750
|
Sensus Metering Systems, 144A, 8.625%, 12/15/2013
| 45,000
| 42,525
|
TNP Enterprises, Inc., Series B, 10.25%, 4/1/2010, (PIK)
| 100,000
| 108,000
|
| 1,610,900 |
Total Corporate Bonds (Cost $22,683,925)
| 22,519,659 |
|
Foreign Bonds - US$ Denominated 63.5% |
Alestra SA de RL de CV, 8.0%, 6/30/2010
| 85,000
| 68,000
|
Antenna TV SA, 9.0%, 8/1/2007
| 41,000
| 40,898
|
Avecia Group PLC, 11.0%, 7/1/2009
| 170,000
| 124,100
|
Axtel SA, 144A, 11.0%, 12/15/2013
| 100,000
| 94,750
|
Banque Centrale de Tunisie:
|
|
|
7.375%, 4/25/2012 | 290,000
| 311,387
|
8.25%, 9/19/2027 | 30,000
| 32,550
|
Biovail Corp., 7.875%, 4/1/2010 (d)
| 145,000
| 140,650
|
Cascades, Inc., 7.25%, 2/15/2013
| 95,000
| 93,337
|
Citigroup (JSC Severstal), 144A, 9.25%, 4/19/2014
| 90,000
| 78,300
|
Conproca SA de CV, 12.0%, 6/16/2010
| 100,000
| 123,000
|
Corp Durango SA, 144A, 13.75%, 7/15/2009*
| 65,000
| 34,125
|
CP Ships Ltd., 10.375%, 7/15/2012
| 90,000
| 102,375
|
Crown Euro Holdings SA, 10.875%, 3/1/2013
| 115,000
| 128,800
|
Eircom Funding, 8.25%, 8/15/2013
| 70,000
| 71,400
|
Empresa Brasileira, 144A, 11.0%, 12/15/2008
| 75,000
| 77,438
|
Fage Dairy Industry SA, 9.0%, 2/1/2007
| 210,000
| 213,150
|
Federative Republic of Brazil:
|
|
|
Floating Rate Note Debt Conversion Bond, LIBOR plus ..875%, Series L, 2.125%**, 4/15/2012 | 310,589
| 253,907
|
C Bond, 8.0%, 4/15/2014 | 665,653
| 592,830
|
8.875%, 4/15/2024 (d) | 80,000
| 62,800
|
11.5%, 3/12/2008 | 550,000
| 572,000
|
14.5%, 10/15/2009 | 200,000
| 226,500
|
Gaz Capital SA, 144A, 8.625%, 4/28/2034 (d)
| 50,000
| 48,625
|
Gazprom OAO, 144A, 9.625%, 3/1/2013
| 120,000
| 122,850
|
Government of Jamaica, 10.625%, 6/20/2017
| 300,000
| 279,000
|
Government of Ukraine, 7.65%, 6/11/2013
| 840,000
| 793,800
|
Inmarsat Finance PLC, 144A, 7.625%, 6/30/2012
| 105,000
| 103,687
|
Innova S. de R.L., 9.375%, 9/19/2013 (d)
| 110,000
| 114,400
|
Jefra Cosmetics International, Inc., 10.75%, 5/15/2011
| 90,000
| 99,450
|
LeGrand SA, 8.5%, 2/15/2025
| 85,000
| 87,550
|
Luscar Coal Ltd., 9.75%, 10/15/2011
| 80,000
| 89,600
|
MAAX Corp., 144A, 9.75%, 6/15/2012
| 30,000
| 30,750
|
Millicom International Cellular SA, 144A, 10.0%, 12/1/2013
| 80,000
| 82,400
|
Mizuho Financial Group, 8.375%, 12/29/2049
| 40,000
| 40,928
|
Mobifon Holdings BV, 12.5%, 7/31/2010
| 105,000
| 115,500
|
Mobile Telesystems Financial, 144A, 8.375%, 10/14/2010
| 75,000
| 70,313
|
New ASAT (Finance) Ltd., 144A, 9.25%, 2/1/2011
| 95,000
| 95,475
|
Nigeria, Promissory Note, Series RC, 5.092%, 1/5/2010
| 900,000
| 319,500
|
Nortel Networks Corp., 6.875%, 9/1/2023 (d)
| 35,000
| 28,525
|
Nortel Networks Ltd., 6.125%, 2/15/2006
| 280,000
| 273,350
|
Petroleos Mexicanos SA, 9.5%, 9/15/2027
| 150,000
| 169,500
|
Petroleum Geo-Services ASA:
|
|
|
8.0%, 11/5/2006 | 25,000
| 25,375
|
10.0%, 11/5/2010 | 226,005
| 231,655
|
Petroliam Nasional Berhad:
|
|
|
7.625%, 10/15/2026 | 560,000
| 586,008
|
7.75%, 8/15/2015 | 1,110,000
| 1,269,884
|
Republic of Argentina:
|
|
|
9.75%, 9/19/2027* | 1,110,000
| 310,800
|
Series BGL4, 11.0%, 10/9/2006* | 250,000
| 80,000
|
11.375%, 3/15/2010* | 990,000
| 306,900
|
12.25%, 6/19/2018* | 530,625
| 141,942
|
Republic of Bulgaria, 8.25%, 1/15/2015
| 1,800,000
| 2,016,000
|
Republic of Colombia:
|
|
|
8.125%, 5/21/2024 | 490,000
| 380,975
|
10.0%, 1/23/2012 | 210,000
| 212,625
|
Republic of Philippines:
|
|
|
8.375%, 3/12/2009 | 200,000
| 206,500
|
9.375%, 1/18/2017 | 130,000
| 131,625
|
9.5%, 10/21/2024 | 400,000
| 429,500
|
9.875%, 1/15/2019 | 500,000
| 488,750
|
Republic of South Africa, 8.5%, 6/23/2017
| 1,140,000
| 1,282,500
|
Republic of Turkey:
|
|
|
9.5%, 1/15/2014 | 250,000
| 248,750
|
10.5%, 1/13/2008 | 360,000
| 381,600
|
11.0%, 1/14/2013 | 315,000
| 337,050
|
11.75%, 6/15/2010 | 200,000
| 220,625
|
11.875%, 1/15/2030 | 230,000
| 265,650
|
12.375%, 6/15/2009 | 1,110,000
| 1,245,975
|
Republic of Uruguay:
|
|
|
7.5%, 3/15/2015 | 780,000
| 581,100
|
7.875%, 1/15/2033 | 110,000
| 70,950
|
Republic of Venezuela:
|
|
|
2.15%**, 4/20/2011 | 350,000
| 265,125
|
5.375%, 8/7/2010 | 50,000
| 38,750
|
Series A, Collateralized Par Bond, 6.75%, 3/31/2020 | 750,000
| 652,500
|
10.75%, 9/19/2013 | 850,000
| 826,625
|
Rhodia SA:
|
|
|
144A, 7.625%, 6/1/2010 (d) | 110,000
| 93,500
|
144A, 10.25%, 6/1/2010 (d) | 45,000
| 42,975
|
Rogers Wireless Communications, Inc., 144A, 6.375%, 3/1/2014
| 30,000
| 28,125
|
Russian Federation:
|
|
|
Step-up Coupon, 5.0% to 3/31/2007, 7.5% to 3/31/2030 | 1,520,000
| 1,385,100
|
11.0%, 7/24/2018 | 100,000
| 125,550
|
12.75%, 6/24/2028 | 340,000
| 495,040
|
Russian Ministry of Finance:
|
|
|
3.0%, 5/14/2008 | 500,000
| 436,250
|
3.0%, 5/14/2011 | 1,060,000
| 805,600
|
Shaw Communications, Inc.:
|
|
|
Series B, 7.25%, 4/6/2011 | 90,000
| 93,846
|
8.25%, 4/11/2010 (d) | 50,000
| 54,694
|
Sistema Capital SA, 144A, 8.875%, 1/28/2011
| 65,000
| 63,213
|
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.50%, 6/15/2014
| 275,000
| 168,437
|
Tembec Industries, Inc., 8.5%, 2/1/2011
| 290,000
| 290,000
|
TFM SA de CV:
|
|
|
10.25%, 6/15/2007 | 115,000
| 115,863
|
11.75%, 6/15/2009 | 185,000
| 180,837
|
12.5%, 6/15/2012 | 140,000
| 148,400
|
United Mexican States:
|
|
|
5.875%, 1/15/2014 (d) | 25,000
| 24,000
|
6.625%, 3/3/2015 (d) | 15,000
| 14,977
|
7.5%, 4/8/2033 | 600,000
| 582,000
|
8.0%, 9/24/2022 | 480,000
| 499,200
|
8.125%, 12/30/2019 | 1,150,000
| 1,233,375
|
9.875%, 2/1/2010 | 250,000
| 303,125
|
Vicap SA, 11.375%, 5/15/2007
| 75,000
| 74,813
|
Vitro SA de CV, 144A, 11.75%, 11/1/2013
| 90,000
| 82,575
|
Vivendi Universal SA, 9.25%, 4/15/2010
| 190,000
| 222,775
|
Total Foreign Bonds - US$ Denominated (Cost $28,271,858)
| 27,207,509 |
|
Foreign Bonds - Non US$ Denominated 5.4% |
Cablecom Luxembourg SCA, 9.375%, 4/15/2014 EUR
| 45,000
| 54,947
|
Huntsman International LLC, 10.125%, 7/1/2009 EUR
| 95,000
| 114,260
|
Ispat Europe Group SA, 11.875%, 2/1/2011 EUR
| 155,000
| 196,360
|
Pemex Project Funding Master Trust, 6.625%, 4/4/2010 EUR
| 160,000
| 205,430
|
Republic of Argentina:
|
|
|
7.5%, 2/6/2049* EUR | 102,258
| 31,840
|
7.5%, 5/23/2049* EUR | 397,869
| 106,880
|
8.0%, 2/26/2008* EUR | 200,000
| 64,105
|
8.5%, 2/23/2005* EUR | 51,129
| 16,232
|
9.0%, 5/24/2049* EUR | 50,000
| 15,874
|
9.25%, 7/20/2004* EUR | 110,000
| 35,594
|
9.5%, 9/19/2049* EUR | 138,049
| 46,355
|
12.0%, 9/19/2016* EUR | 327,227
| 105,884
|
Republic of Romania, 8.5%, 5/8/2012 EUR
| 937,000
| 1,332,905
|
Total Foreign Bonds - Non US$ Denominated (Cost $2,062,481)
| 2,326,666 |
|
Shares
| Value ($) |
|
|
Convertible Bond 0.2% |
DIMON, Inc., 6.25%, 3/31/2007
| 95,000
| 87,400
|
HIH Capital Ltd., 144A, 7.5%, 9/25/2006
| 20,000
| 17,400
|
Total Convertible Bond (Cost $105,672)
| 104,800 |
|
Warrants 0.0% |
Empire Gas Corp.*
| 359
| 0
|
UIH Australia Pacific, Inc., 144A*
| 280
| 0
|
Total Warrants (Cost $0)
| 0 |
|
Preferred Stock 0.5% |
Paxson Communications Corp., 13.25% (PIK)
| 17
| 150,832
|
TNP Enterprises, Inc., 14.5% "D" (PIK)
| 575
| 66,428
|
Total Preferred Stock (Cost $208,272)
| 217,260 |
| Principal Amount ($)(c) | Value ($) |
|
|
Convertible Preferred Stocks 0.3% |
Hercules Trust II, 6.5% (Cost $115,319)
| 180
| 138,600 |
|
Loan Participation 1.0% |
Republic of Algeria, Floating Rate Debt Conversion Bond, LIBOR plus .8125%, 2.0%**, 3/4/2010 (Cost $405,683)
| 420,000
| 411,600 |
Asset Backed 0.1% |
Automobile Receivables
|
MMCA Automobile Trust, "B", Series 2002-2, 4.67%, 3/15/2010 (Cost $24,875)
| 26,408
| 24,163 |
|
| Shares | Value ($) |
|
|
Securities Lending Collateral 5.3% |
Daily Assets Fund Institutional, 1.13% (e) (f) (Cost $2,282,288)
| 2,282,288
| 2,282,288 |
|
Cash Equivalents 8.1% |
Scudder Cash Management QP Trust, 1.12% (b) (Cost $3,489,146)
| 3,489,146
| 3,489,146 |
| % of Net Assets | Value ($) |
|
|
Total Investment Portfolio (Cost $59,649,519) (a)
| 137.0 | 58,721,691 |
Notes Payable
| (33.9) | (14,500,000) |
Other Assets and Liabilities, Net
| (3.1) | (1,398,334) |
Net Assets
| 100.0 | 42,823,357 |
* 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.** These securities are shown at their current rate as of May 31, 2004.(a) The cost for federal income tax purposes was $59,757,358. At May 31, 2004, net unrealized depreciation for all securities based on tax cost was $1,035,667. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $1,213,575 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,249,242.(b) Scudder Cash Management QP Trust is also managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(c) Principal amount stated in US dollars unless otherwise noted.(d) All or a portion of these securities were on loan (see Notes to Financials Statements). The value of all securities loaned at May 31, 2004 amounted to $2,237,347, which is 5.2% of total net assets.(e) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.(f) Represents collateral held in connection with securities lending.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 interest or dividend is paid in kind.
Currency Abbreviations
|
EUR
| Euro
|
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of May 31, 2004 (Unaudited) |
Assets
|
Investments:
Investments in unaffiliated securities, at value (cost $53,878,085)
| $ 52,950,257 |
Investment in Scudder Cash Management QP Trust (cost $3,489,146)
| 3,489,146 |
Investment in Daily Assets Fund Institutional (cost $2,282,288)
| 2,282,288 |
Total investments in securities, at value (cost $59,649,519)
| 58,721,691 |
Foreign currency, at value (cost $12,503)
| 12,848 |
Receivable for investments sold
| 454,383 |
Interest receivable
| 1,261,993 |
Unrealized appreciation on forward foreign currency exchange contracts
| 53,798 |
Other assets
| 3,333 |
Total assets
| 60,508,046 |
Liabilities
|
Due to custodian bank
| 534 |
Payable for investments purchased
| 541,440 |
Notes payable
| 14,500,000 |
Interest payable
| 105,053 |
Collateral on securities loaned
| 2,282,288 |
Unrealized depreciation on forward foreign currency exchange contracts
| 80,953 |
Accrued management fee
| 31,398 |
Other accrued expenses and payables
| 143,023 |
Total liabilities
| 17,684,689 |
Net assets, at value
| $ 42,823,357 |
Net Assets
|
Net assets consist of:
Accumulated distributions in excess of net investment income
| (382,696) |
Net unrealized appreciation (depreciation) on:
Investments
| (927,828) |
Foreign currency related transactions
| (26,532) |
Accumulated net realized gain (loss)
| (2,957,305) |
Paid-in capital
| 47,117,718 |
Net assets, at value
| $ 42,823,357 |
Net Asset Value
|
Net asset value per share ($42,823,357 / 3,484,880 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 12.29 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended May 31, 2004 (Unaudited) |
Investment Income
|
Interest
| $ 2,234,691 |
Interest - Scudder Cash Management QP Trust
| 25,079 |
Securities lending income
| 1,565 |
Dividends
| 21,550 |
Total Income
| 2,282,885 |
Expenses:
Management fee
| 192,617 |
Services to shareholders
| 17,495 |
Custodian fees
| 40,290 |
Auditing
| 22,337 |
Legal
| 4,178 |
Stock exchange listing fees
| 9,008 |
Trustees' fees and expenses
| 6,317 |
Reports to shareholders
| 41,826 |
Interest expense
| 200,547 |
Other
| 14,487 |
Total expenses, before expense reductions
| 549,102 |
Expense reductions
| (342) |
Total expenses, after expense reductions
| 548,760 |
Net investment income
| 1,734,125 |
Realized and Unrealized Gain (Loss) on Investment Transactions
|
Net realized gain (loss) from:
Investments
| 774,713 |
Foreign currency related transactions
| (18,465) |
| 756,248 |
Net unrealized appreciation (depreciation) during the period on:
Investments
| (2,205,407) |
Foreign currency related transactions
| 50,574 |
| (2,154,833) |
Net gain (loss) on investment transactions
| (1,398,585) |
Net increase (decrease) in net assets resulting from operations
| $ 335,540 |
The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows for the six months ended May 31, 2004 (Unaudited) |
Cash Flows from Operating Activities:
|
Investment income received
| $ 2,257,044 |
Payment of operating expenses
| (369,793) |
Payment of interest expense
| (106,975) |
Proceeds from sales and maturities of investments
| 57,753,833 |
Purchases of investments
| (59,381,036) |
Net purchases, sales and maturities of short term investments
| (2,605,383) |
Cash used by operating activities
| $ (2,452,310) |
Cash Flows from Financing Activities:
|
Net increase (decrease) in notes payable
| $ 4,250,000 |
Distributions paid (net of reinvestment of distributions)
| (2,160,534) |
Cash provided by financing activities
| 2,089,466 |
Increase (decrease) in cash
| (362,844) |
Cash at beginning of period*
| 375,158 |
Cash at end of period*
| $ 12,314 |
Reconciliation of Net Increase (Decrease) in Net Assets Resulting from Operations to Cash Used by Operating Activities:
|
Net increase (decrease) in net assets resulting from operations
| $ 335,540 |
Net (increase) decrease in cost of investments
| (5,419,094) |
Net increase (decrease) in unrealized appreciation (depreciation) on investments
| 2,205,407 |
(Increase) decrease in dividends and interest receivable
| 34,699 |
(Increase) decrease in receivable for investments sold
| 328,868 |
Increase (decrease) in payable for investments purchased
| 46,069 |
Increase (decrease) in unrealized appreciation (depreciation) on forward foreign currency exchange contracts
| (55,791) |
Increase (decrease) in interest payable on notes
| 93,572 |
Increase (decrease) in other accrued expenses and payables
| (21,580) |
Cash used by operating activities
| $ (2,452,310) |
Non-Cash Financing Activities:
|
Reinvestment of distributions
| $ 26,700 |
* Includes foreign currencyThe accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets
| Six Months Ended May 31, 2004 (Unaudited) | Year Ended November 30, 2003 |
Operations:
Net investment income
| $ 1,734,125 | $ 3,598,316 |
Net realized gain (loss) on investment transactions
| 756,248 | 5,191,948 |
Net unrealized appreciation (depreciation) on investment transactions during the period
| (2,154,833) | 647,419 |
Net increase (decrease) in net assets resulting from operations
| 335,540 | 9,437,683 |
Distributions to shareholders from:
Net investment income
| (1,881,430) | (3,759,898) |
Fund share transactions:
Reinvestment of distributions
| 26,700 | 30,031 |
Net increase (decrease) in net assets from Fund share transactions
| 26,700 | 30,031 |
Increase (decrease) in net assets
| (1,519,190) | 5,707,816 |
Net assets at beginning of period
| 44,342,547 | 38,634,731 |
Net assets at end of period (including accumulated distributions in excess of net investment income of $382,696 and $235,391, respectively)
| $ 42,823,357 | $ 44,342,547 |
Other Information
|
Shares outstanding at beginning of period
| 3,482,857 | 3,480,351 |
Shares issued to shareholders in reinvestment of distributions
| 2,023 | 2,506 |
Net increase in Fund shares
| 2,023 | 2,506 |
Shares outstanding at end of period
| 3,484,880 | 3,482,857 |
The accompanying notes are an integral part of the financial statements.
Years Ended November 30, | 2004a | 2003 | 2002b | 2001 | 2000 | 1999 |
Selected Per Share Data
|
Net asset value, beginning of period
| $ 12.73 | $ 11.10 | $ 11.75 | $ 11.97 | $ 12.88 | $ 13.68 |
Income (loss) from investment operations:
|
Net investment incomec
| .50 | 1.04 | 1.07 | 1.23 | 1.59 | 1.69 |
Net realized and unrealized gain (loss) on investment transactions
| (.40) | 1.67 | (.58) | (.01) | (.80) | (.69) |
Total from investment operations | .10 | 2.71 | .49 | 1.22 | .79 | 1.00 |
Less distributions from:
Net investment income
| (.54) | (1.08) | (1.14) | (1.24) | (1.70) | (1.80) |
Tax return of capital
| - | - | - | (.20) | - | - |
Total distributions | (.54) | (1.08) | (1.14) | (1.44) | (1.70) | (1.80) |
Net asset value, end of period
| $ 12.29 | $ 12.73 | $ 11.10 | $ 11.75 | $ 11.97 | $ 12.88 |
Market value, end of period
| $ 11.67 | $ 14.25 | $ 10.85 | $ 12.09 | $ 12.44 | $ 14.19 |
Total Return
|
Based on net asset value (%)d
| .70** | 25.52 | 4.49 | 9.89 | 5.55 | 6.03 |
Based on market value (%)d
| (14.58)** | 43.74 | (.74) | 8.73 | (.35) | (5.67) |
Ratios to Average Net Assets and Supplemental Data
|
Net assets, end of period ($ millions)
| 43 | 44 | 39 | 41 | 42 | 45 |
Ratio of expenses before expense reductions (%)
| 2.42* | 2.03 | 1.74 | 2.80 | 3.22 | 3.21 |
Ratio of expenses after expense reductions (%)
| 2.42* | 2.03 | 1.74 | 2.79 | 3.21 | 3.21 |
Ratio of expenses excluding interest expense (%)
| 1.54* | 1.58 | 1.32 | 1.40 | 1.28 | 1.40 |
Ratio of net investment income (%)
| 7.66* | 8.61 | 9.40 | 10.23 | 12.52 | 12.94 |
Portfolio turnover rate (%)
| 224* | 244 | 184 | 19 | 8 | 19 |
Total debt outstanding end of period ($ thousands)
| 14,500 | 10,250 | 8,208 | 9,407 | 13,377 | 13,284 |
Asset coverage per $1,000 of debte
| 3,953 | 5,326 | 5,707 | 5,341 | 4,104 | 4,359 |
a For the six months ended May 31, 2004 (Unaudited).
b As required, effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. In addition, paydowns on mortgage-backed securities which were included in realized gain (loss) on investment transactions are now included as interest income. The effect of these changes for the year ended November 31, 2002 was to decrease net investment income per share by $.02, increase net realized and unrealized gain (loss) per share by $.02, and decrease the ratio of net investment income to average net assets from 9.58% to 9.40%. Per share data and ratios for periods prior to December 1, 2001 have not been restated to reflect this change in presentation.
c Based on average shares outstanding during the period.
d Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure includes reinvestment of dividends. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares trade during the period.
e Asset coverage equals the total net assets plus borrowings of the Fund divided by the borrowings at period end.
* Annualized
** Not annualized
|
Notes to Financial Statements (Unaudited) |
|
A. Significant Accounting Policies
Scudder Strategic 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 Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gains and losses on investment securities.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and to facilitate transactions in foreign currency denominated securities.
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 contract to sell are included in net realized and unrealized gain (loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
At November 30, 2003 the Fund had a net tax basis capital loss carryforward of approximately $3,631,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until November 30, 2006 ($630,000), November 30, 2008 ($173,000), November 30, 2009 ($443,000) and November 30, 2010 ($2,385,000), the respective expiration dates, whichever occurs first.
Distribution of Income and Gains. Net investment income of the Fund is declared and distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to 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.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Statement of Cash Flows. Information of 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 cash position in the Fund's custodian bank at May 31, 2004. Significant non-cash activity from market discount accretion has been excluded from the Statement of Cash Flows.
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. 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.
B. Purchases and Sales of Securities
During the six months ended May 31, 2004, purchases and sales of investment securities (excluding short-term investments and US Treasury securities) aggregated $59,040,866 and $56,909,651, respectively. Purchases and sales of US Treasury Securities aggregated $356,220 and $533,779, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to 1/12 of the annual rate of 0.85% of average weekly net assets. Deutsche Asset Management Investment Services Limited ("DeAMIS"), an affiliate of the Advisor, serves as sub-advisor to the Fund with respect to the investment and reinvestment of assets in the Fund.
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the transfer, dividend-paying and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between SISC and DST Systems, Inc. ("DST"), SISC has delegated certain transfer agent and dividend paying agent functions to DST. SISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended May 31, 2004, the amount charged to the Fund by SISC aggregated $15,555, of which $10,923 is unpaid at May 31, 2004.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Scudder Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Scudder Cash Management QP Trust (the ``QP Trust'') and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Investing in High Yield Securities
Investing in high yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds". Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value such obligations. Moreover, high yield securities may be less liquid due to 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 on income and capital, and future adverse political, social and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls and delayed settlements and their prices more volatile than those of comparable securities in the United States of America.
F. Expense Off-Set Arrangements
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the six months ended May 31, 2004, the Fund's custodian fees were reduced by $342.
G. Securities Lending
The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund in the form of cash and/or government securities equal to 102 percent of the value of domestic securities and 105 percent of the value of foreign denominated securities on loan. The Fund may invest the cash collateral in an affiliated money market fund. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of fees paid to 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.
H. Forward Foreign Currency Commitments
As of May 31, 2004, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver | | In Exchange For | | Settlement Date | | Net Unrealized Appreciation |
EUR
| 10,333 | | USD
| 12,762 | | 6/10/2004 | | $ 141 |
USD
| 95,923 |
| EUR
| 79,650 |
| 7/29/2004 |
| 1,238 |
USD
| 796,842 |
| PLN
| 3,250,000 |
| 8/6/2004 |
| 52,419 |
Total unrealized appreciation | $ 53,798 |
Contracts to Deliver | | In Exchange For | | Settlement Date | | Net Unrealized (Depreciation) |
EUR
| 241,283 | | USD
| 291,880 | | 6/10/2004 | | $ (2,802) |
EUR
| 21,000 |
| USD
| 25,410 |
| 6/10/2004 |
| (238) |
EUR
| 16,389 |
| USD
| 19,920 |
| 6/10/2004 |
| (96) |
EUR
| 9,421 |
| USD
| 11,196 |
| 6/10/2004 |
| (310) |
EUR
| 1,170,000 |
| USD
| 1,389,258 |
| 7/29/2004 |
| (37,959) |
PLN
| 2,080,000 |
| USD
| 518,186 |
| 8/6/2004 |
| (25,341) |
PLN
| 1,160,000 |
| USD
| 288,914 |
| 8/6/2004 |
| (14,207) |
Total unrealized depreciation | $ (80,953) |
Currency Abbreviations | | |
EUR
| Euro
|
| USD
| US Dollar
|
PLN
| Polish Zloty
|
|
|
|
I. Borrowings
The notes payable represents a secured loan of $14,500,000 from State Street Bank and Trust Company at May 31, 2004. The note bears interest at the 90-day LIBOR rate plus 0.75% plus dealer fees (1.8125% at May 31, 2004) which is payable at maturity. A commitment fee is charged to the Fund and is included with interest expense on the Statement of Operations. The loan amounts and rates are reset periodically under a credit facility obtained by the Fund in an amount not to exceed $13,000,000 at any one time and which was available until January 10, 2004. Effective January 9, 2004, the size of the revolving credit agreement was increased not to exceed $20,000,000 and which is available until January 8, 2005.
The weighted average outstanding daily balance of all loans (based on the number of days the loans were outstanding) during the six months ended May 31, 2004 was $13,692,623 with a weighted average interest rate of 1.7777%.
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 Scudder Strategic Income Trust (the ``Fund''). If you wish to participate and your shares are held in your own name, simply contact 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 UMB Bank, N.A. ("United Missouri Bank" or "UMB") 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''). UMB 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 UMB is unable to acquire sufficient Shares to satisfy the Distribution by the close of business on the Payment Date, the Fund will issue to UMB 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.) Transfer Agent will inform UMB of the total funds available for the purchase of Shares and UMB 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:
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 G hereof, of the Shares acquired by UMB 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 UMB 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 UMB 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 UMB'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 UMB 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 UMB 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 UMB 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.
Shareholder Meeting Results |
|
The Annual Meeting of Shareholders of Scudder Strategic Income Trust (the "fund") was held on June 29, 2004 at the office of Deutsche Investment Management Americas Inc., Two International Place, Boston, Massachusetts. At the meeting, the following matters were voted upon by the shareholders:
1. To elect nine Trustees to the Board of Trustees of the fund.
| Number of Votes: |
| For | Withheld |
John W. Ballantine
| 2,035,656 | 136,987 |
Lewis A. Burnham
| 2,036,488 | 136,155 |
Donald L. Dunaway
| 2,046,056 | 126,587 |
James R. Edgar
| 2,047,656 | 124,987 |
Paul K. Freeman
| 2,050,386 | 122,257 |
Robert B. Hoffman
| 2,040,085 | 132,558 |
Shirley D. Peterson
| 2,049,209 | 123,434 |
William N. Shiebler
| 2,043,783 | 128,860 |
John G. Weithers
| 2,042,057 | 130,586 |
2. To ratify the selection of Ernst & Young LLP as the fund's independent auditors for the current fiscal year.
Affirmative | Against | Abstain |
2,115,899 | 46,273 | 52,349 |
3. To approve the modification or elimination of certain investment policies and the elimination of the shareholder approval requirement as to certain other matters.
| Affirmative | Against | Abstain |
Investment Objectives
| 1,531,070 | 178,112 | 92,839 |
Investment Policies
| 1,527,898 | 173,688 | 100,435 |
Diversification
| 1,545,836 | 156,000 | 100,184 |
Borrowing
| 1,538,117 | 161,758 | 102,146 |
Senior Securities
| 1,542,895 | 164,136 | 94,988 |
Concentration
| 1,541,970 | 156,468 | 103,583 |
Underwriting of Securities
| 1,553,331 | 148,638 | 100,052 |
Investment in Real Estate
| 1,564,990 | 138,826 | 98,204 |
Purchase of Commodities
| 1,534,969 | 167,386 | 97,666 |
Lending
| 1,536,450 | 167,979 | 97,591 |
Margin Purchases and Short Sales
| 1,517,644 | 180,877 | 103,500 |
Investment in Other Investment Companies
| 1,526,529 | 169,868 | 105,623 |
The following were the number of broker non-votes for proposal 3: Investment Objectives (370,622), Investment Policies (370,622), Diversification (370,623), Borrowing (370,622), Senior Securities (370,624), Concentration (370,622), Underwriting of Securities (370,622), Investment in Real Estate (370,623), Purchase of Commodities (370,622), Lending (370,623), Margin Purchases and Short Sales (370,622) and Investment in Other Investment Companies (370,623).
Policies and Objective
At the 2004 Annual Shareholder Meeting, the fund's shareholders approved the elimination of the shareholder approval requirement for amending (a) the "investment objective" and (b) the "investment policies" which are not otherwise specifically identified as fundamental.
Based on the approval of all of the 2004 Annual Shareholder Meeting proposals, the following are the fund's fundamental investment policies, effective June 29, 2004.
As a matter of fundamental policy, the fund may not:
1. borrow money, except as permitted under the Investment Company Act of 1940 (the "1940 Act"), as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;
2. issue senior securities, except as permitted under the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;
3. concentrate its investments in a particular industry, as that term is used in the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time;
4. engage in the business of underwriting securities issued by others, except to the extent that the fund may be deemed to be an underwriter in connection with the disposition of portfolio securities;
5. purchase or sell real estate, which term does not include securities of companies which deal in real estate or mortgages or investments secured by real estate or interests therein, except that the fund reserves freedom of action to hold and to sell real estate acquired as a result of the fund's ownership of securities;
6. purchase physical commodities or contracts relating to physical commodities; or
7. make loans except as permitted under the 1940 Act, as amended, and as interpreted or modified by regulatory authority having jurisdiction, from time to time.
All other investment policies of the fund that are not stated above are classified as nonfundamental, and therefore do not require shareholder approval to be changed. Similarly, the fund's investment objective is classified as nonfundamental.
The fund remains a "diversified" fund under the 1940 Act, but is not subject to additional requirements that are more restrictive than the 1940 Act. Under the 1940 Act, a "diversified" fund may not, with respect to 75% of the value of its total assets, invest more than 5% of the value of its total assets in securities issued by any one issuer or purchase more than 10% of the outstanding voting securities of any one issuer, except in each case in US government securities or securities issued by other investment companies.
As discussed above, the shareholders also have approved the elimination of certain policies as fundamental, and it is anticipated that Deutsche Investment Management Americas Inc. will recommend to the Board that the following policies be eliminated as being unnecessary:
Margin Purchases and Short Sales The fund is currently prohibited from making short sales of securities or purchasing any securities on margin (except for such short term credits as are necessary for the clearance of transactions), or writing or purchasing put or call options, except to the extent that the purchase of a stand-by commitment may be considered the purchase of a put, and except for transactions involving options within the limits described in the prospectus.
If the Board approves the elimination of this restriction, the fund's potential use of margin transactions beyond transactions in futures and options and for the clearance of purchases and sales of securities, including the use of margin in ordinary securities transactions, would be generally limited by the current position taken by the staff of the Securities and Exchange Commission that margin transactions with respect to securities are prohibited under Section 18 of the 1940 Act because they create senior securities. "Margin transactions" involve the purchase of securities with money borrowed from a broker, with cash or eligible securities being used as collateral against the loan. The fund's ability to engage in margin transactions is also limited by its borrowing policies, which permit the fund to borrow money only as permitted by applicable law.
Investment in Other Investment Companies The fund is currently prohibited from purchasing securities of other investment companies, if more than 3% of the outstanding voting stock of such investment company would be held by the fund; if more than 5% of total assets of the fund would be invested in any such investment company; or if the fund would own, in the aggregate, securities of other investment companies representing more than 10% of its assets.
If the Board approves the elimination of this restriction, the fund would remain subject to any restrictions imposed by applicable law.
Changes in Officers and Directors
Richard Hale resigned as a Trustee, Chairman and Chief Executive Officer of the fund effective with his retirement on June 18, 2004 as a Managing Director of Deutsche Investment Management Americas Inc., the fund's investment manager.
In anticipation of the resulting vacancies, the Board of Trustees elected William N. Shiebler as Trustee and Chairman of the Board. Mr. Shiebler currently serves as CEO in the Americas of the fund's investment manager. In addition, the Board has elected Julian F. Sluyters, a Managing Director of the fund's investment manager, as Chief Executive Officer of the fund. These elections became effective June 18, 2004. As noted (in the section of this report entitled "Shareholder Meeting Results"), Mr. Shiebler was thereafter elected as a Trustee at the fund's 2004 annual meeting on June 29, 2004.
On May 12, 2004, the Board of Trustees appointed Kevin Gay as Assistant Treasurer of the fund, replacing Lucinda Stebbins, who resigned as Assistant Treasurer in connection with her retirement as a Director of the fund's investment manager on June 1, 2004.
Automated Information Lines | Scudder Closed-End Fund Info Line (800) 349-4281
|
Web Sites | www.scudder.com or visit our Direct Link:
CEF.Scudder.com (Do not use www.) Obtain monthly fact sheets, financial reports, press releases and webcasts when available.
|
Written Correspondence | Deutsche Investment Management Americas Inc. 222 South Riverside
Chicago, IL 60606
|
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found on our Web site - scudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov. To obtain a written copy without charge, call us toll free at (800) 621-1048.
|
Legal Counsel | Vedder, Price, Kaufman & Kammholz 222 North LaSalle Street
Chicago, IL 60601
|
Dividend Reinvestment Plan Agent | UMB Bank P.O. Box 410064
Kansas City, MO 64141-0064
|
Shareholder Service Agent | Scudder Investments Service Company P.O. Box 219066
Kansas City, MO 64121-9066
(800) 294-4366
|
Custodian and Transfer Agent | State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110
|
Independent Auditors | Ernst & Young LLP 200 Clarendon Street
Boston, MA 02116
|
NYSE Symbol | KST
|
CUSIP Number | 81123W-101
|
This privacy statement is issued by Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Scudder Distributors, Inc., Scudder Investor Services, Inc., Scudder Trust Company and the Scudder Funds.
We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the Scudder Companies listed above.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
Questions on this policy may be sent to:
Scudder Investments
Attention: Correspondence - Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
August 2003
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The primary function of the Nominating and Governance Committee is to identify
and recommend individuals for membership on the Board and oversee the
administration of the Board Governance Procedures and Guidelines. Shareholders
may recommend candidates for Board positions by forwarding their correspondence
by U.S. mail or courier service to the Fund's Secretary for the attention of the
Chairman of the Nominating and Governance Committee, Two International Place,
Boston, MA 02110. Suggestions for candidates must include a resume of the
candidate.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The Chief Executive and Financial Officers concluded that the Registrant's
Disclosure Controls and Procedures are effective based on the evaluation of the
Disclosure Controls and Procedures as of a date within 90 days of the filing
date of this report.
During the filing period of the report, fund management identified a significant
deficiency relating to the overall fund expense payment and accrual process.
This matter relates primarily to a bill payment processing issue. There was no
material impact to shareholders, fund net asset value, fund performance or the
accuracy of any fund's financial statements. Fund management discussed this
matter with the Registrant's Audit Committee and auditors, instituted additional
procedures to enhance its internal controls and will continue to develop
additional controls and redesign work flow to strengthen the overall control
environment associated with the processing and recording of fund expenses.
(b) There have been no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last half-year (the
registrant's second fiscal half-year in the case of the annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Certification pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as
Exhibit 99.CERT.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as
Exhibit 99.906CERT.
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: Scudder Strategic Income Trust
By: /s/Julian Sluyters
---------------------------------
Julian Sluyters
Chief Executive Officer
Date: July 29, 2004
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Registrant: Scudder Strategic Income Trust
By: /s/Julian Sluyters
---------------------------------
Julian Sluyters
Chief Executive Officer
Date: July 29, 2004
---------------------------------
By: /s/Charles A. Rizzo
---------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: July 29, 2004
---------------------------------
