As filed with the Securities and Exchange Commission on June 6, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21487
RMK Strategic Income Fund, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (901) 524-4100
Allen B. Morgan, Jr.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
----------------------------------------------
(Name and address of agent for service)
with copies to
Arthur J. Brown, Esq.
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Ave., N.W.
Washington, D.C. 20036-1800
Date of fiscal year end: March 31, 2005
Date of reporting period: March 31, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
The following is a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1):
Annual Report
March 31, 2005
[LOGO] RMK Advantage Income Fund, Inc.
RMK High Income Fund, Inc.
RMK Strategic Income Fund, Inc.
TABLE OF CONTENTS
Letter to Stockholders 1
RMK Advantage Income Fund, Inc. Portfolio Commentary 2
RMK Advantage Income Fund, Inc. Portfolio of Investments 6
RMK High Income Fund, Inc. Portfolio Commentary 16
RMK High Income Fund, Inc. Portfolio of Investments 20
RMK Strategic Income Fund, Inc. Portfolio Commentary 32
RMK Strategic Income Fund, Inc. Portfolio of Investments 36
Statements of Assets and Liabilities 47
Statements of Operations 48
Statements of Changes in Net Assets 50
Statements of Cash Flows 52
Notes to Financial Statements 53
Financial Highlights 61
Report of Independent Registered Public Accounting Firm 63
Board of Directors and Officers 64
Dividend Reinvestment Plan 69
Privacy Policy 71
Supplemental Information 72
Regions Morgan Keegan Fund Complex 76
THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR INVESTMENT OBJECTIVES.
THE FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET
VALUES OF SECURITIES OWNED BY THE FUNDS WILL DECLINE AND, THEREFORE, THE VALUE
OF THE FUNDS' SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU
CAN LOSE MONEY INVESTING IN THE FUNDS.
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
1
LETTER TO STOCKHOLDERS
Dear Fellow Stockholders:
We are pleased to present the enclosed combined annual stockholder reports for
RMK Advantage Income Fund, Inc., RMK High Income Fund, Inc., and RMK Strategic
Income Fund, Inc. You will find information on each Fund's strategy and
investments, as well as performance for the fiscal years and period ended March
31, 2005.
Since all three Funds' fiscal years end on March 31, this annual report covers a
full year of investment operations for RMK High Income Fund, Inc. and RMK
Strategic Income Fund, Inc. and about five months of investment operations for
RMK Advantage Income Fund, Inc. In early November 2004, the Regions Morgan
Keegan Fund Complex successfully launched its third closed-end fund, RMK
Advantage Income Fund, Inc., which trades on the New York Stock Exchange under
the ticker symbol RMA. It is also managed by James C. Kelsoe, Jr., CFA and his
team of experienced investment professionals. Our mission remains to offer the
investment products to help our investors achieve their financial goals.
As always, we appreciate your continued support of the Regions Morgan Keegan
closed-end funds and the other Regions Morgan Keegan funds. We remain committed
to helping you preserve and accumulate wealth through investments in our family
of funds. You have our commitment to bring you the highest level of disciplined
decision-making and personal service to meet your financial needs.
Sincerely,
/s/ Carter E. Anthony
- ---------------------
Carter E. Anthony, CFA
President
Morgan Asset Management, Inc.
MAY 23, 2005
2
RMK Advantage Income Fund, Inc.
Portfolio Commentary
March 31, 2005
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
RMK Advantage Income Fund, Inc. (the "Fund") began trading on November 8, 2004
under the ticker symbol RMA after an initial public offering at $15 per share.
The Fund had a total return of 7.30% for the period ended March 31, 2005, based
on market price and reinvested dividends. The Fund had a total return of 3.53%
for the period ended March 31, 2005, based on net asset value and reinvested
dividends. From November 8, 2004 until March 31, 2005, the LEHMAN BROTHERS BA
U.S. HIGH YIELD INDEX had a total return of -0.56%. The Fund's strong
performance was primarily attributable to the Fund's relative yield advantage as
evidenced by the monthly dividend distributions and the relative net asset value
stability produced by the Fund's allocation in a wide variety of asset types.
The Fund paid monthly dividends out of the net investment income of the Fund of
$0.12, $0.12, and $0.13 per share for January, February and March, respectively.
Additionally, the Fund paid a one-time special dividend distribution of $0.11
per share in December 2004 producing a total income distribution of $0.48 per
share since the Fund commenced investment operations.
Our high income strategy emphasizes very broad diversification utilizing asset
categories beyond the well recognized below investment grade corporate and
convertible bonds. This diversification allows us to find better risk/reward
opportunities than would be possible if we were restricted to a single asset
sector.
Key drivers of performance in 2004 included commercial mortgage-backed
securities, distressed credit card receivables, below investment grade corporate
bonds and dividend-paying common stocks.
Within the asset-backed securities, credit card receivables from issuers like
Nextcard, First Consumers, and Metris provided a boost to the Fund's returns in
late 2004. Elevated delinquencies and charge-offs caused these assets to suffer
significant credit downgrades and to trade down as low as 30%-40% discounts of
the original issue. A recovering economy mitigated delinquencies and the robust
structure of those trusts caused these assets to recover virtually all of their
value.
The Fund employs leverage within the parameters allowed by its prospectus.
Leverage increases (decreases) returns if the rate of return on the assets that
were bought with the borrowed money was higher (lower) than the interest charged
on the borrowed money. The Fund employs leverage on the whole portfolio rather
than specific positions; therefore, because the Fund had a positive return for
the period ended March 31, 2005, the leverage was beneficial to stockholders.
Although increasing short-term interest rates will increase the cost of borrowed
money, the Fund has invested an equivalent amount of assets in adjustable rate
securities that will similarly benefit from increasing short-term rates. This
allocation to floating rate assets should provide the Fund a level of protection
from rising rates and allow the Fund to continue to benefit from the use of
leverage.
For 2005, we expect continued economic recovery and continued increases in
short-term interest rates by the Federal Reserve. To position the Fund to take
advantage of these conditions, we have increased our allocation of floating rate
bonds. These bonds, which may be corporate or asset-backed, have coupon rates
that will increase as short-term interest rates increase. This feature should
allow the Fund to benefit from rising rates as well as maintain its net asset
value. We also expect business conditions to continue to improve, which should
produce a continual uptrend in corporate as well as household earnings. The Fund
stands to benefit from this trend by increasing our investments in corporate
debt and securitized home equity loans.
/s/ James C. Kelsoe
- -------------------------
James C. Kelsoe, Jr., CFA
Portfolio Manager
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR INVESTMENT OBJECTIVES. THE
FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET
VALUES OF SECURITIES OWNED BY THE FUNDS WILL DECLINE AND, THEREFORE, THE VALUE
OF THE FUNDS' SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU
CAN LOSE MONEY INVESTING IN THE FUNDS.
3
PORTFOLIO STATISTICS AS OF 3/31/05
Portfolio Credit Rating BB-
Portfolio Current Yield 9.97%
Portfolio Yield to Maturity 10.19%
Portfolio Duration 3.11 Years
Percentage of Leveraged Assets 11.00%
Number of Holdings 154
Ticker Symbol RMA
CUSIP 74963L 103
ASSET ALLOCATION* AS OF 3/31/05
[Pie Chart Representation]
Certificate-Backed Obligations 2.1%
Mortgage-Backed Securities 1.8%
Corporate Bonds 23.5%
Home Equity Loans 16.9%
Collateralized Equipment Leases 14.2%
Manufactured Housing Loans 7.2%
Common Stock 6.8%
Commercial Loans 6.7%
Franchise Loans 6.5%
Collateralized Obligations 6.2%
Cash Equivalents 5.7%
Other 2.4%
* Percentages are based on total investments, which may differ from total net
assets used in computing the percentages in the Portfolio of Investments.
Current holdings may not reflect the holdings as of the date of this report.
CREDIT QUALITY DISTRIBUTION* AS OF 3/31/05
AAA 3.6%
AA 2.0%
A 4.7%
BBB 4.4%
BB 9.1%
B 5.3%
CCC 8.8%
CC 1.3%
D 2.7%
NR 8.1%
* Each rating category above includes all bonds within the broad rating category
(i.e., BBB includes all bonds rated BBB+, BBB, and BBB-). Current holdings may
not reflect the holdings as of the date of this report.
4
NAV & MARKET PRICE HISTORY(1)
The graph below illustrates the net asset value and market price history of RMK
Advantage Income Fund, Inc. (NYSE: RMA) from November 8, 2004 (commencement of
investment operations) to March 31, 2005.
[GRAPH REPRESENTATION]
Date NAV Market Price History
- ---- --- --------------------
11/08/2004 $14.33 $15.00
11/09/2004 $14.20 $15.25
11/10/2004 $14.20 $15.29
11/11/2004 $14.34 $15.29
11/12/2004 $14.35 $15.35
11/13/2004 $14.35 $15.35
11/14/2004 $14.35 $15.35
11/15/2004 $14.35 $15.70
11/16/2004 $14.34 $15.68
11/17/2004 $14.35 $15.49
11/18/2004 $14.33 $15.45
11/19/2004 $14.32 $15.65
11/20/2004 $14.32 $15.65
11/21/2004 $14.32 $15.65
11/22/2004 $14.33 $15.70
11/23/2004 $14.33 $15.70
11/24/2004 $14.33 $15.70
11/25/2004 $14.33 $15.70
11/26/2004 $14.34 $15.90
11/27/2004 $14.34 $15.90
11/28/2004 $14.34 $15.90
11/29/2004 $14.33 $15.79
11/30/2004 $14.34 $15.90
12/01/2004 $14.36 $15.94
12/02/2004 $14.36 $15.87
12/03/2004 $14.38 $15.90
12/04/2004 $14.38 $15.90
12/05/2004 $14.38 $15.90
12/06/2004 $14.25 $15.82
12/07/2004 $14.24 $15.80
12/08/2004 $14.25 $15.70
12/09/2004 $14.26 $15.75
12/10/2004 $14.25 $15.85
12/11/2004 $14.25 $15.85
12/12/2004 $14.25 $15.85
12/13/2004 $14.27 $15.79
12/14/2004 $14.28 $15.75
12/15/2004 $14.30 $15.74
12/16/2004 $14.36 $15.81
12/17/2004 $14.34 $15.90
12/18/2004 $14.34 $15.90
12/19/2004 $14.34 $15.90
12/20/2004 $14.35 $15.72
12/21/2004 $14.38 $15.82
12/22/2004 $14.38 $15.90
12/23/2004 $14.40 $16.00
12/24/2004 $14.40 $16.00
12/25/2004 $14.40 $16.00
12/26/2004 $14.40 $16.00
12/27/2004 $14.39 $15.88
12/28/2004 $14.40 $16.00
12/29/2004 $14.41 $16.05
12/30/2004 $14.42 $16.06
12/31/2004 $14.43 $16.04
01/01/2005 $14.43 $16.04
01/02/2005 $14.43 $16.04
01/03/2005 $14.42 $16.00
01/04/2005 $14.41 $16.17
01/05/2005 $14.42 $16.14
01/06/2005 $14.43 $16.10
01/07/2005 $14.31 $16.10
01/08/2005 $14.31 $16.10
5
01/09/2005 $14.31 $16.10
01/10/2005 $14.31 $16.08
01/11/2005 $14.31 $15.81
01/12/2005 $14.31 $16.03
01/13/2005 $14.31 $16.10
01/14/2005 $14.33 $16.07
01/15/2005 $14.33 $16.07
01/16/2005 $14.33 $16.07
01/17/2005 $14.33 $16.07
01/18/2005 $14.35 $16.10
01/19/2005 $14.35 $16.02
01/20/2005 $14.32 $15.94
01/21/2005 $14.33 $15.95
01/22/2005 $14.33 $15.95
01/23/2005 $14.33 $15.95
01/24/2005 $14.32 $15.81
01/25/2005 $14.33 $15.95
01/26/2005 $14.36 $16.08
01/27/2005 $14.36 $16.10
01/28/2005 $14.38 $16.15
01/29/2005 $14.38 $16.15
01/30/2005 $14.38 $16.15
01/31/2005 $14.38 $16.21
02/01/2005 $14.40 $16.22
02/02/2005 $14.41 $16.18
02/03/2005 $14.41 $16.15
02/04/2005 $14.44 $16.23
02/05/2005 $14.44 $16.23
02/06/2005 $14.44 $16.23
02/07/2005 $14.45 $16.26
02/08/2005 $14.33 $16.07
02/09/2005 $14.33 $16.20
02/10/2005 $14.33 $16.05
02/11/2005 $14.35 $16.20
02/12/2005 $14.35 $16.20
02/13/2005 $14.35 $16.20
02/14/2005 $14.35 $16.05
02/15/2005 $14.36 $16.26
02/16/2005 $14.38 $16.20
02/17/2005 $14.38 $16.15
02/18/2005 $14.39 $16.14
02/19/2005 $14.39 $16.14
02/20/2005 $14.39 $16.14
02/21/2005 $14.39 $16.14
02/22/2005 $14.38 $16.05
02/23/2005 $14.39 $15.92
02/24/2005 $14.41 $16.03
02/25/2005 $14.42 $16.06
02/26/2005 $14.42 $16.06
02/27/2005 $14.42 $16.06
02/28/2005 14.42 16.06
03/01/2005 $14.42 $15.97
03/02/2005 $14.43 $16.13
03/03/2005 $14.46 $16.12
03/04/2005 $14.49 $16.05
03/05/2005 $14.49 $16.05
03/06/2005 $14.49 $16.05
03/07/2005 $14.51 $16.09
03/08/2005 $14.38 $16.02
03/09/2005 $14.36 $15.88
03/10/2005 $14.36 $15.76
03/11/2005 $14.39 $15.36
03/12/2005 $14.39 $15.36
6
03/13/2005 $14.39 $15.36
03/14/2005 $14.40 $15.51
03/15/2005 $14.39 $15.39
03/16/2005 $14.34 $15.14
03/17/2005 $14.35 $15.25
03/18/2005 $14.35 $15.40
03/19/2005 $14.35 $15.40
03/20/2005 $14.35 $15.40
03/21/2005 $14.32 $15.28
03/22/2005 $14.29 $15.24
03/23/2005 $14.31 $14.75
03/24/2005 $14.34 $14.92
03/25/2005 $14.34 $14.92
03/26/2005 $14.34 $14.92
03/27/2005 $14.34 $14.92
03/28/2005 14.36 15.15
03/29/2005 $14.32 $15.25
03/30/2005 $14.39 $15.47
03/31/2005 $14.37 $15.59
(1) Net asset value is calculated after the close of the exchanges each day by
taking the closing market value of all securities owned plus all other
assets such as cash, subtracting all liabilities, then dividing the result
(total net assets) by the total number of shares outstanding. The market
price is the last reported price at which a security was sold on an
exchange.
FUND PERFORMANCE
TOTAL RETURNS AS OF MARKET NET ASSET
MARCH 31, 2005 VALUE VALUE
Commencement of Investment Operations (11/8/04) 7.30% 3.53%
Total returns assume an investment at the common share market price or net
asset value at the beginning of the period, reinvestment of all dividends
and distributions for the period in accordance with the Fund's dividend
reinvestment plan, and sale of all shares at the closing market price
(excluding any commissions) or net asset value at the end of the period.
Returns shown do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE WHICH IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. FUND PERFORMANCE CHANGES OVER TIME AND CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER THAN WHAT IS STATED. FOR THE MOST RECENT PERFORMANCE, CALL
1-800-564-2188.
7
RMK Advantage Income Fund, Inc.
Portfolio of Investments
March 31, 2005
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
ASSET BACKED SECURITIES - INVESTMENT GRADE - 15.6% OF NET ASSETS
COLLATERALIZED BOND OBLIGATION - 2.5%
2,000,000 2004-1A COM1, 2.00% 1/10/40 BBB $ 1,990,062 $ 1,990,000
4,200,000 Restructured Asset Backed 2003-3A A3, 2.56% 1/29/22 (a) AA- 3,356,057 3,344,250
5,000,000 Witherspoon 2004-1A COM1, 11.50% 9/15/39 BBB+ 5,000,000 5,000,000
------------------ ------------------
$ 10,346,119 $ 10,334,250
------------------ ------------------
COMMERCIAL LOANS - 0.4%
2,000,000 FFCA Secured Lending 1998-1 D1, 7.81% 1/18/17(a) BBB- 1,581,650 1,580,000
EQUIPMENT LEASES - 6.8%
8,586,169 AERCO 2A A3, 2.863% 7/15/25 BBB 6,408,440 6,343,033
11,750,000 Aircraft Finance Trust 1999-1A A1, 2.883% 5/15/24 BBB 8,208,671 8,136,875
3,000,000 Aviation Capital 2000-1A A1, 3.07% 11/15/25 (a) BBB 2,251,788 2,272,080
15,000,000 Lease Investment Flight Trust 1 A1, 2.49% 7/15/31 BBB 10,356,145 10,575,000
------------------ ------------------
$ 27,225,044 $ 27,326,988
------------------ ------------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) - 4.9%
7,613,000 Ace Securities 2004-HE3 M11, 5.46% 11/25/34 BBB- 6,240,150 6,927,830
3,000,000 Ace Securities 2004-HE4 M11, 5.694% 12/25/34 BBB- 2,405,756 2,807,820
2,000,000 First Franklin 2004-FF5, 8.594% 8/25/34 (a) BBB 2,000,000 2,000,000
8,375,214 Long Beach Mortgage 2001-1 M2, 2.91% 4/21/31 A 8,132,764 8,097,827
------------------ ------------------
$ 18,778,670 $ 19,833,477
------------------ ------------------
MANUFACTURED HOUSING LOANS - 1.0%
4,500,000 Green Tree Financial 1996-9 M1, 7.63% 1/15/28 BBB 4,045,739 4,097,295
------------------ ------------------
TOTAL ASSET BACKED SECURITIES - INVESTMENT GRADE $ 61,977,222 $ 63,172,010
------------------ ------------------
ASSET BACKED SECURITIES - NON-INVESTMENT GRADE - 55.2% OF
NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS - 2.4%
5,000,000 NCAPS Funding 2003-2A SIN, 10.00% 1/15/34 (a) Non-rated 4,851,929 4,850,000
8
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
3,000,000 Preferred Term Securities XVII, 6/23/35 (a) (e) Non-rated $ 3,000,000 $ 3,000,000
2,000,000 US Capital Funding III, 14.00% 12/1/35 (a) Non-rated 2,000,000 2,000,000
------------------ ------------------
$ 9,851,929 $ 9,850,000
------------------ ------------------
COLLATERALIZED DEBT OBLIGATION - 4.6%
4,000,000 Hewett's Island 2004-1A COM, 12/15/16 (e) BB 4,000,000 4,000,000
2,000,000 Hewett's Island II,
12/15/16 (a) (e) Non-rated 1,980,079 1,980,000
3,900,000 MKP 4A CS, 2.00% 7/12/40 Non-rated 3,900,000 3,900,000
6,000,000 Prestl XVI Combination Notes, 10.00% 3/23/35 (a) Non-rated 6,000,000 6,119,160
2,500,000 Stanfield 2A D1, 8.76% 4/15/15 (a) CCC- 2,475,007 2,475,000
------------------ ------------------
$ 18,355,086 $ 18,474,160
------------------ ------------------
COMMERCIAL LOANS - 7.7%
1,171,422 Banc of America 2000-1 M, 6.00% 11/15/31 (a) B- 766,216 757,207
32,805,935 Enterprise Mortgage 2000-1 A2, 7.505% 1/15/27 (a) B- 18,630,691 18,371,324
10,000,000 GS Mortgage 1998-C1 H, 6.00% 10/15/30 (a) CCC 4,821,091 4,742,100
3,750,000 Lehman Brothers 2002-LLFA L, 3.50% 6/14/17 (a) BB+ 3,713,531 3,712,500
4,000,000 Merrill Lynch 204-WMC3 B4, 5.00% 1/25/35 (a) BB+ 3,324,641 3,342,760
------------------ ------------------
$ 31,256,170 $ 30,925,891
------------------ ------------------
CREDIT CARDS - 1.8%
10,000,000 Nextcard 2000-1 A C, 2.7443% 12/15/06 (a) CCC- 7,592,767 7,100,000
EQUIPMENT LEASES - 9.5%
Airplanes Pass Through Trust 2001-1A A9, 3.14% 3/15/19 BB+ 3,767,107 3,736,250
7,000,000
8,832,885 Aviation Capital 2000-1A C1, 4.76% 11/15/25 (a) B 2,260,238 2,252,385
3,591,305 DVI Receivables 2002-1 A3A, 3.121% 6/11/10 CCC 2,542,428 2,540,848
9,000,000 Embarcadero Aircraft 2000-A A1, 3.07% 8/15/25 (a) BB 5,045,916 5,220,000
5,537,610 Pegasus Aviation 1999-1A A1, 6.30% 3/25/29 (a) CCC+ 2,768,805 2,767,587
9,000,000 Pegasus Aviation 1999-1A A2, 6.30% 3/25/29 (a) CCC+ 4,672,660 4,477,500
15,664,982 Pegasus Aviation 2000-1 A1, 3.275% 3/25/15 (a) B- $ 8,388,683 $ 8,282,859
18,000,000 Pegasus Aviation 2001-1A A2, 2.667% 5/10/31 (a) BB+ 9,297,734 9,225,000
------------------ ------------------
$ 38,743,571 $ 38,502,429
------------------ ------------------
FRANCHISE LOANS - 7.4%
5,000,000 ACLB Business Trust 1999-1 A3, 7.385% 8/15/20 (a) B+ 4,389,886 4,475,450
2,723,041 Captec Franchise 1999-1 A2, 7.278% 4/25/11 (a) BB 2,607,099 2,704,633
5,000,000 Captec Franchise 2000-1 A2, 8.155% 6/15/13 (a) BB- 4,432,205 4,331,200
1,617,000 Falcon Franchise 2001-1 F, 6.50% 1/5/23 B 1,204,639 1,066,137
12,927,024 FMAC Loan Trust 1996-B A1, 7.629% 11/15/18 (a) D 9,593,456 9,303,980
1,425,163 FMAC Loan Trust 1998-A A2, 6.50% 9/15/20 (a) C 934,177 932,655
10,289,956 FMAC Loan Trust 1998-BA A2, 6.74% 11/15/20 (a) C 7,414,985 7,080,550
------------------ ------------------
$ 30,576,447 $ 29,894,605
------------------ ------------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) - 14.5%
9,950,000 Ace Securities 2004-HE3 B, 5.459% 11/25/34 (a) BB+ 7,535,031 8,557,000
2,000,000 Ace Securities 2004-HE4 B, 5.694% 12/25/34 (a) Non-rated 1,426,391 1,722,820
4,463,000 Ace Securities 2005-HE2 B1, 6.06% 4/25/35 (a) Non-rated 3,709,858 3,709,646
2,000,000 Equifirst Mortgage 2004-3 B1, 5.708% 12/25/34 (a) BB+ 1,651,725 1,800,000
9
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
7,038,000 Equifirst Mortgage 2004-3 B2, 5.708% 12/25/34 (a) BB 5,502,491 6,123,060
1,000,000 Equifirst Mortgage 2005-1 B3, 6.08% 4/25/35 (a) BB- 827,626 827,500
1,757,000 Equifirst Mortgage 2005-1 B4, 6.08% 4/25/35 (a) Non-rated 1,453,041 1,452,828
6,778,000 First Franklin 2004-FF11 B1, 5.431% 1/25/35 (a) Non-rated 5,500,496 6,134,090
6,778,000 First Franklin 2004-FF11 B2, 5.431% 1/25/35 (a) Non-rated 5,302,262 5,947,695
2,000,000 GSAMP Trust 2004-AR1 B5, 5.00% 6/25/34 (a) Non-rated 1,552,348 1,550,000
4,097,781 Long Beach Mortgage 2001-4 M3, 4.683% 3/25/32 CCC+ 3,658,258 3,483,114
9,312,000 Merrill Lynch 2004-WMC1 B4, 5.181% 10/25/34 (a) BB+ $ 7,928,270 $ 7,915,200
2,000,000 Merrill Lynch 2005-SL1 B5, 6.27% 1/25/35 (a) BB 1,784,853 1,784,420
Terwin Mortgage 2005-3SL B6, 5.50% 3/25/35
interest-only strips Non-rated 7,553,646 7,547,550
------------------ ------------------
$ 55,386,296 $ 58,554,923
------------------ ------------------
MANUFACTURED HOUSING LOANS - 7.3%
14,191,856 Bombardier Capital 2000-A A2, 7.575% 6/15/30 CC 11,548,921 10,971,298
3,000,000 Green Tree Financial 1996-7 B1, 7.70% 10/15/27 10/15/27 CCC- 963,156 893,190
17,000,000 Green Tree Financial 1998-3 M1, 6.86% 3/1/30 B- 7,464,186 7,320,710
13,025,000 Green Tree Financial 1998-8 M1, 6.98% 9/1/30 B- 5,946,692 5,642,560
7,000,000 Green Tree Financial 1999-4 M1, 7.60% 5/1/31C CCC- 1,462,777 1,351,280
3,891,919 Oakwood Mortgage 2001-C A4, 7.405% 12/15/30 CCC- 2,965,719 2,923,376
1,300,000 Oakwood Mortgage 2002-C M1, 6.89% 11/15/32 CCC+ 377,731 378,781
------------------ ------------------
$ 30,729,182 $ 29,481,195
------------------ ------------------
TOTAL ASSET BACKED SECURITIES - NON-INVESTMENT GRADE $ 222,491,448 $ 222,783,203
------------------ ------------------
CORPORATE BONDS - NON-INVESTMENT GRADE - 27.0% OF NET ASSETS
BUSINESS SERVICES - 1.9%
2,000,000 Comforce Operating, 12.00% 12/1/07 Non-rated 2,000,000 2,000,000
Danka Business,
600,000 10.00% Bond 4/1/08 Non-rated 580,476 505,500
MSX International,
2,000,000 11.00% Bond 10/15/07 B- 2,007,251 2,000,000
MSX International,
4,000,000 11.375% Bond 1/15/08 CCC+ 3,325,716 3,160,000
------------------ ------------------
$ 7,913,443 $ 7,665,500
------------------ ------------------
CONSTRUCTION - 0.7%
1,600,000 Integrated Electrical Services, 9.375% Bond 2/1/09 CCC 1,473,248 1,528,000
1,350,000 Integrated Electrical Services, 9.375% Bond 2/1/09 CCC 1,251,603 1,296,000
------------------ ------------------
$ 2,724,851 $ 2,824,000
------------------ ------------------
ELECTRONICS - 1.8%
3,652,000 Knowles Electronics,
13.125% Bond 10/15/09 CCC $ 3,828,362 $ 3,761,560
3,750,000 Motors and Gears,
10.75% Bond 11/15/06 CCC 3,659,839 3,440,625
------------------ ------------------
$ 7,488,201 $ 7,202,185
------------------ ------------------
ENERGY - 1.7%
Abraxas Petroleum,
2,400,000 9.72% Bond 12/1/09 (a) Non-rated 2,390,122 2,352,000
1,750,000 Calpine, 8.75% Bond 7/15/13 (a) B 1,440,696 1,321,250
3,000,000 Calpine, 9.875% Bond 12/1/11 (a) B 2,561,011 2,370,000
1,000,000 United Refining, 10.50% 8/15/12 (a) B- 1,031,951 1,005,000
------------------ ------------------
$ 7,423,780 $ 7,048,250
------------------ ------------------
FINANCE - 1.8%
3,850,000 Advanta Capital Trust, 8.99% 12/17/26 CCC 3,786,128 3,744,125
3,250,000 Labranche, 11.00% Bond 5/15/12 B 3,485,391 3,445,000
------------------ ------------------
$ 7,271,519 $ 7,189,125
------------------ ------------------
FOOD - 1.1%
Ameriqual Group, B+ 1,100,000 1,100,000
11
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
1,100,000 9.00% Bond 4/1/12 (a)
Land O Lakes,
5,000,000 7.45% Bond 3/15/28 (a) CCC 3,330,357 3,475,000
------------------ ------------------
$ 4,430,357 $ 4,575,000
------------------ ------------------
HEALTH CARE - 0.8%
3,250,000 Hanger Orthopedic Group, 10.375% Bond 2/15/06 CCC+ 3,230,434 3,225,625
MANUFACTURING - 4.8%
2,000,000 Consolidated Container, 10.125% Bond 7/15/09 CCC 1,948,464 1,860,000
2,800,000 Dura Operating, 9.00% Bond 5/1/09 2,639,485 2,212,000
1,000,000 Elgin National,
11.00% Bond 11/1/07 CCC- 950,944 947,960
4,000,000 Foamex L.P., 10.75% Bond 4/1/09 B- 3,804,022 3,520,000
3,997,000 GSI Group, 10.25% Bond 11/1/07 Non-rated 3,970,264 3,997,000
2,200,000 Intermet, Zero Coupon Bond 6/15/09 in default (c) Non-rated 1,420,808 1,232,000
2,600,000 US Can, 12.375% Bond 10/1/10 CCC+ 2,381,889 2,444,000
3,250,000 VITRO S.A.,
11.75% Bond 11/1/13 (a) CCC+ 3,185,212 3,087,500
------------------ ------------------
$ 20,301,088 $ 19,300,460
------------------ ------------------
PHARMACEUTICALS - 0.4%
2,000,000 Curative Health,
10.75% Bond 5/1/11 B- $ 1,809,611 $ 1,645,000
PRINTING - 0.2%
1,100,000 American Color Graphics,
10.00% Bond 6/15/10 CCC 802,870 715,000
RETAIL - 1.3% CCC+ 2,693,487 2,486,250
2,925,000 General Nutrition Center,
8.50% Bond 12/1/10 CCC+ 1,270,613 1,275,000
1,250,000 New World Restaurant,
13.00% Bond 7/1/08 CCC- 1,632,076 1,618,750
1,750,000 Star Gas Partner, ------------------ ------------------
$ 5,596,176 $ 5,380,000
------------------ ------------------
SPECIAL PURPOSE ENTITY - 4.0%
7,000,000 Dow Jones CDX HY T1, 7.75% Bond 12/29/09 (a) B- 7,188,887 6,833,750
10,000,000 Dow Jones CDX HY T4, 10.50% Bond 12/29/09 (a) Non-rated 10,000,000 9,512,500
------------------ ------------------
$ 17,188,887 $ 16,346,250
------------------ ------------------
TELECOMMUNICATIONS - 4.7%
962,000 American Cellular,
10.00% Bond 8/1/11 B- 823,117 885,040
3,400,000 BARAK I.T.C., Zero Coupon Bond 11/15/07 in
default (c)(d) Non-rated 2,044,521 1,836,000
900,000 Call-Net Enterprises,
10.625% Bond 12/31/08 (d) B- 881,226 945,000
3,375,000 Charter Communication, Zero Coupon Bond 5/15/11 CCC- 2,500,175 2,328,750
2,000,000 Charter, 10.00% Bond 5/15/11 CCC- 1,595,081 1,535,000
3,500,000 Level 3 Financing,
10.75% Bond 10/15/11 (a) CC 3,130,235 3,071,250
2,750,000 Primus Telecommunications, 8.00% Bond 1/15/14 CCC 2,319,759 1,980,000
1,240,000 Primus Telecommunications,
12.75% Bond 10/15/09 CCC 1,196,411 1,140,800
1,650,000 Rural Cellular,
9.75% Bond 1/15/10 CCC 1,499,949 1,509,750
3,000,000 Time Warner,
10.125% Bond 2/1/11 CCC+ 2,919,079 2,895,000
700,000 Transtel S.A.,
12.50% Bond 12/31/08 (a) Non-rated 656,754 658,000
------------------ ------------------
$ 19,566,307 $ 18,784,590
------------------ ------------------
12
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
TOBACCO - 0.9%
4,715,000 North Atlantic Trading,
9.25% Bond 3/1/12 CCC $ 4,533,054 $ 3,536,250
TRANSPORTATION - 0.4%
Greyhound Lines,
1,630,000 11.50% Bond 4/15/07 CCC- 1,630,549 1,638,150
TRAVEL - 0.5%
2,000,000 Worldspan Financial,
9.024% Bond 2/15/11 (a) CCC+ 1,990,124 1,940,000
TOTAL CORPORATE BONDS - NON-INVESTMENT
GRADE $ 113,901,251 $ 109,015,385
------------------ ------------------
MORTGAGE BACKED SECURITIES - 1.9% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATION - 1.9%
Harborview Mortgage 2004-8 X, 1.446% 11/19/34
interest-only strips AAA 5,662,626 5,637,941
2,310,000 Sasco Net Interest 2004-6XS B, 5.00% 3/28/34(a) BB+ 2,110,401 2,107,875
------------------ ------------------
TOTAL MORTGAGE BACKED SECURITIES $ 7,773,027 $ 7,745,816
------------------ ------------------
MUNICIPAL SECURITIES - 0.2% OF NET ASSETS
1,250,000 Pima County Arizona IDA Health Care, 8.50% 11/15/32 Non-rated 781,291 774,825
COMMON STOCKS - 7.9% OF NET ASSETS
48,400 American Capital Strategies, Ltd. 1,552,413 1,520,244
61,710 Andrx Corporation (c) 1,246,878 1,398,966
54,600 Anthracite Capital, Inc. 605,776 608,244
6,100 Bank of America Corporation 276,281 269,010
7,000 Best Buy Co., Inc. 371,416 378,070
17,300 Cimarex Energy Co. (c) 663,081 674,700
51,800 Cisco Systems, Inc. (c) 929,234 926,702
4,600 Cooper Cameron Corporation (c) 256,469 263,166
14,000 Cree, Inc. (c) 300,495 304,500
15,300 Exxon Mobil Corporation 818,697 911,880
7,400 First Data Corporation 296,338 290,894
13,800 Frontline Ltd. 668,511 676,200
34,900 Intersil Corporation 526,478 604,468
44,000 iShares Russell 3000 Value Index Fund 3,668,540 3,766,840
14,600 Kerr-McGee Corporation 909,871 1,143,618
10,100 Kinder Morgan Energy Partners, L.P. 448,617 454,500
47,800 Limited Brands, Inc. 1,133,666 1,161,540
13
Principal
Amount/ Market
Shares Description Cost Value (b)
20,200 Lincoln Electric Holdings, Inc. $ 615,321 $ 607,616
7,300 Magyar Tavkozlesi Rt. 150,115 171,915
126,300 MCG Capital Corporation 2,134,208 1,943,125
31,500 Microsoft Corporation 803,911 761,355
46,400 New Century Financial Corporation 2,363,240 2,172,448
8,600 Newfield Exploration Company (c) 601,526 638,636
12,400 Oceaneering International, Inc. (c) 444,650 465,000
79,000 OmniVision Technologies, Inc. 1,357,716 1,196,850
10,500 Petroleo Brasileiro S.A. 383,440 463,890
20,400 Polycom, Inc. (c) 330,369 345,780
6,300 Range Resources Corporation 134,086 147,168
34,400 Regal Entertainment Group 697,476 723,432
22,190 Ship Finance International Limited 445,445 450,457
76,770 Technology Investment Capital Corporation (c) 1,116,814 1,147,711
10,150 Teva Pharmaceutical Industries Limited 300,440 314,549
25,700 The Home Depot, Inc. 1,063,962 982,768
12,500 Tidewater, Inc. 404,860 485,750
18,200 TOP Tankers Inc. 328,144 337,610
43,150 Trustreet Properties Inc. 702,792 664,079
19,200 Tsakos Energy Navigation Limited 771,846 845,376
10,900 Unit Corporation (c) 434,247 492,353
63,900 UTStarcom, Inc. (c) 1,077,415 699,705
6,100 Wal-Mart Stores, Inc. 314,141 305,671
------------------ ------------------
TOTAL COMMON STOCKS $ 31,648,925 $ 31,716,786
------------------ ------------------
CORPORATE LOANS - 0.4% OF NET ASSETS
Xspedius, 9.22% 3/1/10 1,500,000 1,500,000
REPURCHASE AGREEMENTS - 3.7% OF NET ASSETS
Repurchase agreement with G.X. Clarke & Co, 2.50%,
dated March 31,2005 to be repurchased at $15,001,042 15,000,000 15,000,000
on April 1, 2005, collaterized by two U.S. Treasury
Obligations; one with maturity of May 15, 2005,
collateral market value of $10,697,323.90, and
another with maturity of December 15, 2008, collateral
market value of $4,934,297.73.
14
Principal
Amount/ Market
Shares Description Cost Value (b)
EURODOLLAR TIME DEPOSITS - 2.9% OF NET ASSETS
State Street Bank & Trust Company Eurodollar time deposits dated
March 31, 2005 1.75% maturing at $11,616,042 on April 1, 2005. $ 11,615,000 $ 11,615,000
------------------ ------------------
TOTAL INVESTMENTS - 114.8% of Net Assets $ 466,688,164 $ 463,323,025
------------------ ------------------
OTHER ASSETS AND LIABILITIES, NET - (14.8%) OF NET ASSETS (59,659,883)
==================
NET ASSETS $ 403,663,142
==================
(a) Securities sold within the terms of a private placement memorandum, exempt from registration under Rule 144A under
the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to
qualified institutional buyers. Pursuant to guidelines adopted by the Board of Directors, these issues have been
determined to be liquid by Morgan Asset Management, Inc., the Fund's investment adviser.
(b) See Note 2 of accompanying Notes to Financial Statements regarding valuation of securities.
(c) These securities are non-income producing.
(d) These securities are classified as Yankee Bonds, which are U.S. dollar denominated bonds issued in the United
States by a foreign entity.
(e) Trust preferred security with no stated interest rate.
NRSRO--Nationally Recognized Statistical Rating Organization.
15
[THIS PAGE INTENTIONALLY LEFT BLANK]
RMK HIGH INCOME FUND, INC.
Portfolio Commentary
March 31, 2005
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the six months and the year ended March 31, 2005, RMK High Income Fund, Inc.
(the "Fund") had a total return of 6.45% and 16.49%, respectively, based on
market price and reinvested dividends. For the six months and the year ended
March 31, 2005, the Fund had a total return of 6.71% and 15.46%, respectively,
based on net asset value and reinvested dividends. For the six months and the
year ended March 31, 2005, the Lehman Brothers Ba U.S. High Yield Index had a
total return of 1.17% and 4.28%, respectively. The Fund's strong performance was
primarily attributable to the Fund's relative yield advantage as evidenced by
the monthly dividend distributions and the relative net asset value stability
produced by the Fund's allocation in a wide variety of asset types.
During the fiscal year ended March 31, 2005, the Fund paid a total income
distribution of $2.68 per share, which is composed of total regular monthly
dividends for the year of $1.73 per share and total special dividend
distributions in December 2004 of $0.95 per share. For the last seven months of
the Fund's fiscal year, the Fund paid monthly dividends of $0.15 per share.
Our high income strategy emphasizes very broad diversification utilizing asset
categories beyond the well recognized below investment grade corporate and
convertible bonds. This diversification allows us to find better risk/reward
opportunities than would be possible if we were restricted to a single asset
sector.
Key drivers of performance in 2004 included commercial mortgage-backed
securities, distressed credit card receivables, below investment grade corporate
bonds and dividend-paying common stocks.
Valuations of commercial real estate, including office, retail, and industrial
properties became significantly depressed in the months after the terrorist
attacks on September 11, 2001. The Fund accumulated these assets in 2003 and
realized significant profits from these assets as the economy strengthened and
market demand for these assets bid up prices significantly during 2004.
Within the asset-backed securities, credit card receivables from issuers like
Nextcard, First Consumers, and Metris provided a boost to the Fund's returns in
late 2004. Elevated delinquencies and charge-offs caused these assets to suffer
significant credit downgrades and to trade down as low as 30%-40% discounts of
the original issue. Again a recovering economy mitigated delinquencies and the
robust structure of those trusts caused these assets to recover virtually all of
their value.
The Fund employs leverage within the parameters allowed by its prospectus.
Leverage increases (decreases) returns if the rate of return on the assets that
were bought with the borrowed money was higher (lower) than the interest charged
on the borrowed money. The Fund employs leverage on the whole portfolio rather
than specific positions; therefore, because the Fund had a positive return for
the period ended March 31, 2005, the leverage was beneficial to stockholders.
Although increasing short-term interest rates will increase the cost of borrowed
money, the Fund has invested an equivalent amount of assets in adjustable rate
securities that will similarly benefit from increasing short-term rates. This
allocation to floating rate assets should provide the Fund a level of protection
from rising rates and allow the Fund to continue to benefit from the use of
leverage.
For 2005, we expect continued economic recovery and continued increases in
short-term interest rates by the Federal Reserve. To position the Fund to take
advantage of these conditions, we have increased our allocation of floating rate
bonds. These bonds, which may be corporate or asset-backed, have coupon rates
that will increase as short-term interest rates increase. This feature should
allow the Fund to benefit from rising rates as well as maintain its net asset
value. We also expect business conditions to continue to improve, which should
produce a continual uptrend in corporate as well as household earnings. The Fund
stands to benefit from this trend by increasing our investments in corporate
debt and securitized home equity loans.
/s/ James C. Kelsoe
- -------------------
James C. Kelsoe, Jr., CFA
Portfolio Manager
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR INVESTMENT OBJECTIVES. THE
FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET
VALUES OF SECURITIES OWNED BY THE FUNDS WILL DECLINE AND, THEREFORE, THE VALUE
OF THE FUNDS' SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU
CAN LOSE MONEY INVESTING IN THE FUNDS.
17
PORTFOLIO STATISTICS AS OF 3/31/05
Portfolio Credit Rating BB
Portfolio Current Yield 10.71%
Portfolio Yield to Maturity 10.81%
Portfolio Duration 3.56 Years
Percentage of Leveraged Assets 27.00%
Number of Holdings 213
Ticker Symbol RMH
CUSIP 74963B 10 5
ASSET ALLOCATION* AS OF 3/31/05 [PIE CHART REPRESENTATION]
Government Agency Securities 1.5%
Cash 1.1%
Corporate Bonds 20.9%
Home Equity Loans 13.6%
Commercial Loans 12.1%
Franchise Loans 11.6%
Equipment Leases 8.7%
Manufactured Housing 7.6%
Common Stock 7.4%
Collateralized Debt Obligations 6.6%
Certificate-Backed Obligations 5.2%
Collateralized Mortgage Obligations 2.0%
Other 1.7%
* Percentages are based on total investments, which may differ
from total net assets used in computing the percentages in
the Portfolio of Investments. Current holdings may not
reflect the holdings as of the date of this report.
CREDIT QUALITY DISTRIBUTION* AS OF 3/31/05
AAA 8.5%
AA 2.8%
A 5.5%
BBB 16.7%
BB 17.7%
B 17.3%
CCC 17.0%
CC 2.1%
C 0.2%
D 3.2%
NR 9.0%
* Each rating category above includes all bonds within the
broad rating category (i.e., BBB includes all bonds rated
BBB+, BBB, and BBB-). Current holdings may not reflect the
holdings as of the date of this report.
18
NAV & MARKET PRICE HISTORY(1)
The graph below illustrates the net asset value and market price history of RMK
High Income Fund, Inc. (NYSE: RMH) from June 24, 2003 (commencement of
investment operations) to March 31, 2005.
[GRAPH REPRESENTATION]
NAV Market Price History
--- --------------------
06/24/2003 $14.30 $15.00
06/25/2003 $14.30 $15.10
06/26/03 $14.30 $15.10
06/27/03 $14.30 $15.22
06/28/03 $14.30 $15.22
06/29/03 $14.30 $15.22
06/30/03 $14.30 $15.18
07/01/03 $14.30 $15.10
07/02/03 $14.30 $15.05
07/03/03 $14.30 $15.01
07/04/03 $14.30 $15.01
07/05/03 $14.30 $15.01
07/06/03 $14.30 $15.01
07/07/03 $14.30 $15.01
07/08/03 $14.30 $15.10
07/09/03 $14.29 $15.03
07/10/03 $14.30 $15.00
07/11/03 $14.29 $15.05
07/12/03 $14.29 $15.05
07/13/03 $14.29 $15.05
07/14/03 $14.27 $15.01
07/15/03 $14.25 $15.03
07/16/03 $14.26 $15.11
07/17/03 $14.26 $15.10
07/18/03 $14.27 $15.10
07/19/03 $14.27 $15.10
07/20/03 $14.27 $15.10
07/21/03 $14.22 $15.08
07/22/03 $14.24 $15.30
07/23/03 $14.25 $15.35
07/24/03 $14.25 $15.17
07/25/03 $14.27 $15.16
07/26/03 $14.27 $15.16
07/27/03 $14.27 $15.16
07/28/03 $14.23 $15.01
07/29/03 $14.22 $14.99
07/30/03 $14.24 $14.90
07/31/03 $14.23 $14.90
08/01/03 $14.21 $14.95
08/02/03 $14.21 $14.95
08/03/03 $14.21 $14.95
08/04/03 $14.21 $14.95
08/05/03 $14.19 $14.85
08/06/03 $14.22 $14.84
08/07/03 $14.22 $14.83
08/08/03 $14.22 $14.90
08/09/03 $14.22 $14.90
08/10/03 $14.22 $14.90
08/11/03 $14.21 $14.85
08/12/03 $14.20 $14.98
08/13/03 $14.16 $14.98
08/14/03 $14.15 $14.95
08/15/03 $14.15 $14.95
08/16/03 $14.15 $14.95
08/17/03 $14.15 $14.95
08/18/03 $14.17 $14.95
08/19/03 $14.20 $14.91
08/20/03 $14.19 $14.82
08/21/03 $14.19 $14.82
08/22/03 $14.22 $14.86
08/23/03 $14.22 $14.86
08/24/03 $14.22 $14.86
08/25/03 $14.21 $14.80
08/26/03 $14.24 $14.92
08/27/03 $14.23 $15.00
08/28/03 $14.27 $15.00
08/29/03 $14.27 $14.91
08/30/03 $14.27 $14.91
08/31/03 $14.27 $14.91
09/02/03 $14.25 $15.05
09/03/03 $14.27 $15.04
09/04/03 $14.31 $15.00
09/05/03 $14.37 $15.10
09/06/03 $14.37 $15.10
09/07/03 $14.37 $15.10
09/08/03 $14.34 $15.10
09/09/03 $14.34 $15.08
09/10/03 $14.38 $15.14
09/11/03 $14.37 $15.25
09/12/03 $14.40 $15.29
09/13/03 $14.40 $15.29
09/14/03 $14.40 $15.29
09/15/03 $14.39 $15.29
09/16/03 $14.39 $15.20
09/17/03 $14.41 $15.15
09/18/03 $14.43 $15.15
09/19/03 $14.45 $15.30
09/20/03 $14.45 $15.30
09/21/03 $14.45 $15.30
09/22/03 $14.43 $15.15
09/23/03 $14.43 $15.13
09/24/03 $14.45 $15.10
09/25/03 $14.47 $15.05
09/26/03 $14.46 $15.02
09/27/03 $14.46 $15.02
09/28/03 $14.46 $15.02
09/29/03 $14.47 $15.05
09/30/03 $14.49 $15.15
10/01/03 $14.52 $15.15
10/02/03 $14.52 $15.30
10/03/03 $14.46 $15.35
10/04/03 $14.46 $15.35
10/05/03 $14.46 $15.35
10/06/03 $14.47 $15.25
10/07/03 $14.45 $15.25
10/08/03 $14.47 $15.31
10/09/03 $14.46 $15.34
10/10/03 $14.49 $15.35
10/11/03 $14.49 $15.35
10/12/03 $14.49 $15.35
10/13/03 $14.49 $15.35
10/14/03 $14.48 $15.35
10/15/03 $14.46 $15.30
10/16/03 $14.45 $15.35
10/17/03 $14.46 $15.12
10/18/03 $14.46 $15.12
10/19/03 $14.46 $15.12
10/20/03 $14.46 $15.15
10/21/03 $14.48 $15.25
10/22/03 $14.49 $15.30
10/23/03 $14.47 $15.30
10/24/03 $14.51 $15.35
10/25/03 $14.51 $15.35
10/24/03 $14.51 $15.35
10/27/03 $14.47 $15.21
10/28/03 $14.47 $15.41
10/29/03 $14.48 $15.59
10/30/03 $14.50 $15.47
10/31/03 $14.53 $15.53
11/01/03 $14.53 $15.53
11/02/03 $14.53 $15.53
11/03/03 $14.52 $15.59
11/04/03 $14.53 $15.61
11/05/03 $14.53 $15.56
11/06/03 $14.53 $15.35
11/07/03 $14.52 $15.45
11/08/03 $14.52 $15.45
11/09/03 $14.52 $15.45
11/10/03 $14.53 $15.50
11/11/03 $14.53 $15.55
11/12/03 $14.58 $15.50
11/13/03 $14.64 $15.50
11/14/03 $14.67 $15.52
11/15/03 $14.67 $15.52
11/16/03 $14.67 $15.52
11/17/03 $14.68 $15.60
11/18/03 $14.69 $15.81
11/19/03 $14.67 $15.81
11/20/03 $14.72 $15.80
11/21/03 $14.74 $15.80
11/22/03 $14.74 $15.80
11/23/03 $14.74 $15.80
11/24/03 $14.73 $15.71
11/25/03 $14.76 $15.70
11/26/03 $14.75 $16.00
11/28/03 $14.73 $16.05
11/29/03 $14.73 $16.05
11/30/03 $14.73 $16.05
12/01/03 $14.73 $16.20
12/02/03 $14.74 $16.16
12/03/03 $14.75 $16.24
12/04/03 $14.78 $16.05
12/05/03 $14.85 $16.21
12/06/03 $14.85 $16.21
12/07/03 $14.85 $16.21
12/08/03 $14.85 $16.33
12/09/03 $14.82 $16.38
12/10/03 $14.82 $16.15
12/11/03 $14.89 $16.15
12/12/03 $14.92 $16.09
12/13/03 $14.92 $16.09
12/14/03 $14.92 $16.09
12/15/03 $14.91 $16.14
12/16/03 $14.92 $16.20
12/17/03 $14.96 $16.20
12/18/03 $14.97 $16.38
12/19/03 $14.97 $16.75
19
12/20/03 $14.97 $16.75
12/21/03 $14.97 $16.75
12/22/03 $14.97 $16.25
12/23/03 $14.78 $16.15
12/24/03 $14.81 $16.25
12/26/03 $14.83 $16.14
12/27/03 $14.83 $16.14
12/28/03 $14.83 $16.14
12/29/03 $14.82 $16.14
12/30/03 $14.82 $16.03
12/31/03 $14.82 $16.00
01/02/04 $14.79 $16.07
01/03/04 $14.79 $16.07
01/04/04 $14.79 $16.07
01/05/04 $14.81 $16.10
01/06/04 $14.86 $16.24
01/07/04 $14.89 $16.45
01/08/04 $14.90 $16.45
01/09/04 $14.96 $16.45
01/10/04 $14.96 $16.45
01/11/04 $14.96 $16.45
01/12/04 $14.97 $16.76
01/13/04 $14.98 $16.75
01/14/04 $14.99 $16.87
01/15/04 $14.99 $16.66
01/16/04 $14.94 $16.90
01/17/04 $14.94 $16.90
01/18/04 $14.94 $16.90
01/20/04 $14.94 $16.73
01/21/04 $14.95 $16.63
01/22/04 $14.98 $16.50
01/23/04 $14.95 $16.50
01/24/04 $14.95 $16.50
01/25/04 $14.95 $16.50
01/26/04 $14.94 $16.55
01/27/04 $14.96 $16.50
01/28/04 $14.94 $16.54
01/29/04 $14.96 $16.31
01/30/04 $14.97 $16.40
01/31/04 $14.97 $16.40
02/01/04 $14.97 $16.40
02/02/04 $14.97 $16.45
02/03/04 $14.98 $16.44
02/04/04 $14.95 $16.45
02/05/04 $14.94 $16.30
02/06/04 $14.99 $16.26
02/07/04 $14.99 $16.26
02/08/04 $14.99 $16.26
02/09/04 $15.00 $16.24
02/10/04 $15.01 $16.39
02/11/04 $15.07 $16.30
02/12/04 $15.06 $16.23
02/13/04 $15.06 $16.48
02/14/04 $15.06 $16.48
02/15/04 $15.06 $16.48
02/16/04 $15.06 $16.48
02/17/04 $15.10 $16.51
02/18/04 $15.09 $16.36
02/19/04 $15.09 $16.25
02/20/04 $15.10 $16.35
02/21/04 $15.10 $16.35
02/22/04 $15.10 $16.35
02/23/04 $15.10 $16.31
02/24/04 $15.10 $16.02
02/25/04 $15.11 $16.05
02/26/04 $15.11 $16.10
02/27/04 $15.13 $16.19
02/28/04 $15.13 $16.19
02/29/04 $15.13 $16.19
03/01/04 $15.14 $16.20
03/02/04 $15.10 $16.14
03/03/04 $15.08 $16.05
03/04/04 $15.10 $16.02
03/05/04 $15.19 $16.15
03/06/04 $15.19 $16.15
03/07/04 $15.19 $16.15
03/08/04 $15.22 $16.15
03/09/04 $15.26 $16.21
03/10/04 $15.23 $16.47
03/11/04 $15.21 $16.30
03/12/04 $15.25 $16.32
03/13/04 $15.25 $16.32
03/14/04 $15.25 $16.32
03/15/04 $15.22 $16.32
03/16/04 $15.24 $16.33
03/17/04 $15.27 $16.35
03/18/04 $15.24 $16.49
03/19/04 $15.22 $16.52
03/20/04 $15.22 $16.52
20
03/21/04 $15.22 $16.52
03/22/04 $15.22 $16.50
03/23/04 $15.23 $16.35
03/24/04 $15.24 $16.50
03/25/04 $15.24 $16.55
03/26/04 $15.23 $16.40
03/27/04 $15.23 $16.40
03/28/04 $15.23 $16.40
03/29/04 $15.20 $16.51
03/30/04 $15.21 $16.59
03/31/04 $15.27 $16.67
04/01/04 $15.27 $16.72
04/02/04 $15.18 $16.56
04/03/04 $15.18 $16.56
04/04/04 $15.18 $16.56
04/05/04 $15.14 $16.50
04/06/04 $15.17 $16.40
04/07/04 $15.18 $16.40
04/08/04 $15.16 $16.45
04/09/04 $15.16 $16.45
04/10/04 $15.16 $16.45
04/11/04 $15.16 $16.45
04/12/04 $15.15 $16.52
04/13/04 $15.08 $16.26
04/14/04 $15.08 $15.75
04/15/04 $15.07 $15.64
04/16/04 $15.11 $15.99
04/17/04 $15.11 $15.99
04/18/04 $15.11 $15.99
04/19/04 $15.10 $16.00
04/20/04 $15.07 $15.89
04/21/04 $15.09 $15.45
04/22/04 $15.15 $15.65
04/23/04 $15.13 $15.60
04/24/04 $15.13 $15.60
04/25/04 $15.13 $15.60
04/26/04 $15.11 $15.21
04/27/04 $15.14 $15.41
04/28/04 $15.10 $15.45
04/29/04 $15.05 $15.55
04/30/04 $15.08 $15.70
05/01/04 $15.08 $15.70
05/02/04 $15.08 $15.70
05/03/04 $15.08 $15.90
05/04/04 $15.07 $15.85
05/05/04 $15.08 $15.85
05/06/04 $15.06 $15.50
05/07/04 $14.96 $15.23
05/08/04 $14.96 $15.23
05/09/04 $14.96 $15.23
05/10/04 $14.94 $14.95
05/11/04 $14.95 $15.02
05/12/04 $14.94 $15.07
05/13/04 $14.95 $15.40
05/14/04 $14.98 $15.50
05/15/04 $14.98 $15.50
05/16/04 $14.98 $15.50
05/17/04 $15.02 $15.41
05/18/04 $15.04 $15.60
05/19/04 $15.04 $15.70
05/20/04 $15.05 $15.72
05/21/04 $15.05 $15.76
05/22/04 $15.05 $15.76
05/23/04 $15.05 $15.76
05/24/04 $15.09 $15.58
05/25/04 $15.12 $15.60
05/26/04 $15.17 $15.64
05/27/04 $15.20 $15.80
05/28/04 $15.22 $15.84
05/29/04 $15.22 $15.84
05/30/04 $15.22 $15.84
05/31/04 $15.22 $15.84
06/01/04 $15.21 $15.84
06/02/04 $15.21 $15.96
06/03/04 $15.21 $15.95
06/04/04 $15.23 $16.08
06/05/04 $15.23 $16.08
06/06/04 $15.23 $16.08
06/07/04 $15.12 $15.86
06/08/04 $15.13 $15.81
06/09/04 $15.11 $15.89
06/10/04 $15.12 $15.95
06/11/04 $15.12 $15.95
06/12/04 $15.12 $15.95
06/13/04 $15.12 $15.95
06/14/04 $15.09 $16.05
06/15/04 $15.15 $16.16
06/16/04 $15.16 $16.08
06/17/04 $15.17 $16.15
21
06/18/04 $15.18 $16.18
06/19/04 $15.18 $16.18
06/20/04 $15.18 $16.18
06/21/04 $15.18 $16.10
06/22/04 $15.18 $16.24
06/23/04 $15.23 $16.23
06/24/04 $15.24 $16.28
06/25/04 $15.29 $16.21
06/26/04 $15.29 $16.21
06/27/04 $15.29 $16.21
06/28/04 $15.24 $16.09
06/29/04 $15.26 $16.17
06/30/04 $15.30 $16.20
07/01/04 $15.29 $16.27
07/02/04 $15.33 $16.21
07/03/04 $15.33 $16.21
07/04/04 $15.33 $16.21
07/05/04 $15.33 $16.21
07/06/04 $15.34 $16.35
07/07/04 $15.31 $16.40
07/08/04 $15.29 $16.45
07/09/04 $15.31 $16.50
07/10/04 $15.31 $16.50
07/11/04 $15.31 $16.50
07/12/04 $15.31 $16.42
07/13/04 $15.18 $16.55
07/14/04 $15.21 $16.59
07/15/04 $15.20 $16.50
07/16/04 $15.26 $16.40
07/17/04 $15.26 $16.40
07/18/04 $15.26 $16.40
07/19/04 $15.27 $16.58
07/20/04 $15.27 $16.34
07/21/04 $15.23 $16.45
07/22/04 $15.24 $16.40
07/23/04 $15.24 $16.49
07/24/04 $15.24 $16.49
07/25/04 $15.24 $16.49
07/26/04 $15.22 $16.45
07/27/04 $15.23 $16.47
07/28/04 $15.21 $16.41
07/29/04 $15.23 $16.66
07/30/04 $15.27 $16.75
07/31/04 $15.27 $16.75
08/01/04 $15.27 $16.75
08/02/04 $15.28 $16.83
08/03/04 $15.29 $16.75
08/04/04 $15.30 $16.72
08/05/04 $15.29 $16.68
08/06/04 $15.18 $16.68
08/07/04 $15.18 $16.68
08/08/04 $15.18 $16.68
08/09/04 $15.20 $16.72
08/10/04 $15.23 $16.75
08/11/04 $15.22 $16.80
08/12/04 $15.23 $16.66
08/13/04 $15.27 $16.56
08/14/04 $15.27 $16.56
08/15/04 $15.27 $16.56
08/16/04 $15.28 $16.60
08/17/04 $15.33 $16.55
08/18/04 $15.37 $16.57
08/19/04 $15.37 $16.63
08/20/04 $15.39 $16.55
08/21/04 $15.39 $16.55
08/22/04 $15.39 $16.55
08/23/04 $15.37 $16.63
08/24/04 $15.35 $16.98
08/25/04 $15.39 $16.94
08/26/04 $15.42 $16.85
08/27/04 $15.46 $17.00
08/28/04 $15.46 $17.00
08/29/04 $15.46 $17.00
08/30/04 $15.50 $17.00
08/31/04 $15.54 $17.00
09/01/04 $15.57 $17.13
09/02/04 $15.57 $17.08
09/03/04 $15.54 $17.20
09/04/04 $15.54 $17.20
09/05/04 $15.54 $17.20
09/06/04 $15.54 $17.20
09/07/04 $15.56 $17.20
09/08/04 $15.43 $16.99
09/09/04 $15.46 $16.99
09/10/04 $15.50 $16.97
09/11/04 $15.50 $16.97
09/12/04 $15.50 $16.97
09/13/04 $15.65 $17.05
09/14/04 $15.66 $17.26
22
09/15/04 $15.66 $17.42
09/16/04 $15.70 $17.43
09/17/04 $15.72 $17.45
09/18/04 $15.72 $17.45
09/19/04 $15.72 $17.45
09/20/04 $15.73 $17.26
09/21/04 $15.70 $17.60
09/22/04 $15.71 $17.43
09/23/04 $15.74 $17.41
09/24/04 $15.75 $17.25
09/25/04 $15.75 $17.25
09/26/04 $15.75 $17.25
09/27/04 $15.76 $17.32
09/28/04 $15.76 $17.11
09/29/04 $15.74 $17.12
09/30/04 $15.72 $17.30
10/01/04 $15.75 $17.28
10/02/04 $15.75 $17.28
10/03/04 $15.75 $17.28
10/04/04 $15.78 $17.35
10/05/04 $15.72 $17.39
10/06/04 $15.74 $17.48
10/07/04 $15.58 $17.43
10/08/04 $15.62 $17.54
10/09/04 $15.62 $17.54
10/10/04 $15.62 $17.54
10/11/04 $15.62 $17.51
10/12/04 $15.63 $17.50
10/13/04 $15.63 $17.45
10/14/04 $15.60 $17.44
10/15/04 $15.60 $17.43
10/16/04 $15.60 $17.43
10/17/04 $15.60 $17.43
10/18/04 $15.61 $17.52
10/19/04 $15.61 $17.48
10/20/04 $15.65 $17.55
10/21/04 $15.66 $17.52
10/22/04 $15.66 $17.35
10/23/04 $15.66 $17.35
10/24/04 $15.66 $17.35
10/25/04 $15.64 $17.49
10/26/04 $15.67 $17.49
10/27/04 $15.70 $17.52
10/28/04 $15.71 $17.56
10/29/04 $15.74 $17.60
10/30/04 $15.74 $17.60
10/31/04 $15.74 $17.60
11/01/04 $15.73 $17.59
11/02/04 $15.75 $17.66
11/03/04 $15.79 $17.92
11/04/04 $15.81 $17.83
11/05/04 $15.80 $17.66
11/06/04 $15.80 $17.66
11/07/04 $15.80 $17.66
11/08/04 $15.67 $17.49
11/09/04 $15.68 $17.35
11/10/04 $15.67 $17.33
11/11/04 $15.70 $17.34
11/12/04 $15.70 $17.36
11/13/04 $15.70 $17.36
11/14/04 $15.70 $17.36
11/15/04 $15.75 $17.40
11/16/04 $15.75 $17.49
11/17/04 $15.78 $17.47
11/18/04 $15.77 $17.40
11/19/04 $15.75 $17.99
11/20/04 $15.75 $17.99
11/21/04 $15.75 $17.99
11/22/04 $15.77 $18.17
11/23/04 $15.77 $18.20
11/24/04 $15.77 $18.20
11/25/04 $15.77 $18.20
11/26/04 $15.85 $18.24
11/27/04 $15.85 $18.24
11/28/04 $15.85 $18.24
11/29/04 $15.83 $18.26
11/30/04 $15.84 $18.21
12/01/04 $15.89 $18.43
12/02/04 $15.86 $18.40
12/03/04 $15.91 $18.60
12/04/04 $15.91 $18.60
12/05/04 $15.91 $18.60
12/06/04 $15.37 $18.20
12/07/04 $15.36 $18.18
12/08/04 $15.23 $17.70
12/09/04 $15.24 $17.49
12/10/04 $15.26 $17.61
12/11/04 $15.26 $17.61
12/12/04 $15.26 $17.61
23
12/13/04 $15.28 $17.52
12/14/04 $15.28 $17.55
12/15/04 $15.32 $17.53
12/16/04 $15.39 $18.10
12/17/04 $15.39 $18.26
12/18/04 $15.39 $18.26
12/19/04 $15.39 $18.26
12/20/04 $15.40 $18.32
12/21/04 $15.43 $18.22
12/22/04 $15.09 $17.85
12/23/04 $15.11 $17.86
12/24/04 $15.11 $17.86
12/25/04 $15.11 $17.86
12/26/04 $15.11 $17.86
12/27/04 $15.09 $17.80
12/28/04 $15.11 $17.80
12/29/04 $15.06 $17.97
12/30/04 $15.07 $18.02
12/31/04 $15.07 $18.11
01/01/05 $15.07 $18.11
01/02/05 $15.07 $18.11
01/03/05 $15.08 $18.02
01/04/05 $15.05 $17.97
01/05/05 $15.05 $17.66
01/06/05 $15.07 $17.74
01/07/05 $14.95 $17.57
01/08/05 $14.95 $17.57
01/09/05 $14.95 $17.57
01/10/05 $14.96 $17.33
01/11/05 $14.96 $17.23
01/12/05 $14.97 $17.13
01/13/05 $15.00 $17.13
01/14/05 $15.02 $17.26
01/15/05 $15.02 $17.26
01/16/05 $15.02 $17.26
01/17/05 $15.02 $17.26
01/18/05 $15.10 $17.50
01/19/05 $15.11 $17.60
01/20/05 $15.13 $17.63
01/21/05 $15.13 $17.59
01/22/05 $15.13 $17.59
01/23/05 $15.13 $17.59
01/24/05 $15.11 $17.65
01/25/05 $15.12 $17.55
01/26/05 $15.14 $17.68
01/27/05 $15.14 $17.49
01/28/05 $15.18 $17.53
01/29/05 $15.18 $17.53
01/30/05 $15.18 $17.53
01/31/05 $15.18 $17.65
02/01/05 $15.19 $17.71
02/02/05 $15.20 $17.86
02/03/05 $15.20 $17.99
02/04/05 $15.26 $17.92
02/05/05 $15.26 $17.92
02/06/05 $15.26 $17.92
02/07/05 $15.27 $17.95
02/08/05 $15.13 $17.60
02/09/05 $15.12 $17.75
02/10/05 $15.11 $17.48
02/11/05 $15.12 $17.60
02/12/05 $15.12 $17.60
02/13/05 $15.12 $17.60
02/14/05 $15.12 $17.61
02/15/05 $15.14 $17.67
02/16/05 $15.15 $17.61
02/17/05 $15.14 $17.52
02/18/05 $15.14 $17.41
02/19/05 $15.14 $17.41
02/20/05 $15.14 $17.41
02/21/05 $15.14 $17.41
02/22/05 $15.14 $17.37
02/23/05 $15.15 $17.18
02/24/05 $15.17 $17.33
02/25/05 $15.21 $17.34
02/26/05 $15.21 $17.34
02/27/05 $15.21 $17.34
02/28/05 15.20 17.27
03/01/05 15.20 17.24
03/02/05 15.21 17.21
03/03/05 15.23 17.16
03/04/05 15.28 17.17
03/05/05 15.28 17.17
03/06/05 15.28 17.17
03/07/05 15.30 17.21
03/08/05 15.31 17.28
03/09/05 15.13 17.07
03/10/05 15.13 16.80
03/11/05 15.13 16.65
24
03/12/05 15.13 16.65
03/13/05 15.13 16.65
03/14/05 15.15 16.30
03/15/05 15.13 16.21
03/16/05 15.10 15.95
03/17/05 15.10 16.10
03/18/05 15.10 16.11
03/19/05 15.10 16.11
03/20/05 15.10 16.11
03/21/05 15.08 15.91
03/22/05 15.05 15.91
03/23/05 15.05 15.85
03/24/05 15.07 15.76
03/25/05 15.07 15.76
03/26/05 15.07 15.76
03/27/05 15.07 15.76
03/28/05 15.08 16.20
03/29/05 $15.04 $16.24
03/30/05 $15.02 $16.44
03/31/05 $15.03 $16.50
(1) Net asset value is calculated after the close of the exchanges each day by
taking the closing market value of all securities owned plus all other
assets such as cash, subtracting all liabilities, then dividing the result
(total net assets) by the total number of shares outstanding. The market
price is the last reported price at which a security was sold on an
exchange.
FUND PERFORMANCE
TOTAL RETURNS AS OF MARKET NET ASSET
MARCH 31, 2005 VALUE VALUE
Six Months 6.45% 6.71%
One Year 16.49% 15.46%
Commencement of Investment Operations (6/24/03)(1) 20.83% 17.63%
(1) Average Annual Total Returns.
Total returns assume an investment at the common share market price or
net asset value at the beginning of the period, reinvestment of all
dividends and distributions for the period in accordance with the
Fund's dividend reinvestment plan, and sale of all shares at the
closing market price (excluding any commissions) or net asset value at
the end of the period. Returns shown do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE WHICH IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. FUND PERFORMANCE CHANGES OVER TIME AND CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER THAN WHAT IS STATED. FOR THE MOST RECENT PERFORMANCE, CALL
1-800-564-2188.
25
RMK HIGH INCOME FUND, INC.
Portfolio of Investments
March 31, 2005
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
ASSET BACKED SECURITIES - INVESTMENT GRADE - 27.5% OF NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS - 1.2%
5,000,000 Commodore 1A C, 5.131% 2/28/37 (a) BBB $ 3,618,545 $ 3,612,500
Collateralized Debt Obligation - 6.1%
7,654,069 Diversified Asset Securitization 1A A1, 7.875% 9/15/35 AAA 7,897,916 8,017,637
3,440,000 E-Trade 2003-1A PSC, 11.50% 8/7/33 (a) BBB- 3,440,000 3,715,200
2,000,000 E-Trade 2004-1A COM1, 2.0% 1/10/40 BBB 1,990,062 1,990,000
5,000,000 Silver Leaf IA D1FX, 11.54% 5/15/13 (a) BBB 4,999,809 5,350,000
------------------ ------------------
$ 18,327,787 $ 19,072,837
------------------ ------------------
COMMERCIAL LOANS - 1.2%
1,000,000 FFCA Secured Lending 1998-1 D1, 7.81% 1/18/17 (a) BBB- 790,825 790,000
3,000,000 GMAC Commercial Mortgage 1998-C1 F, 7.096% 5/15/30 BBB- 2,969,340 3,048,630
------------------ ------------------
$ 3,760,165 $ 3,838,630
------------------ ------------------
EQUIPMENT LEASES - 5.6%
7,632,150 Aerco Limited 2A A3, 2.863% 7/15/25 BBB 5,696,392 5,638,251
8,000,000 Aircraft Finance Trust 1999-1A
A1, 2.88% 5/15/24 BBB 5,584,730 5,540,000
3,000,000 Aviation Capital Group Trust BBB 2,257,900 2,272,080
ACAP 2000-1A A1, 2.883% 11/15/25 (a)
6,000,000 Lease Investment Flight Trust 1 A1, 2.87% 7/15/31 BBB 4,191,199 4,230,000
------------------ ------------------
$ 17,730,221 $ 17,680,331
------------------ ------------------
FRANCHISE LOANS - 7.9%
8,421,149 Atherton Franchisee 1999-A A2, 7.23% 4/15/12 (a) A+ 8,277,862 8,551,282
Atherton Franchisee 1999-A AX, 1.254% 12/22/07
interest-only strips (a) A+ 869,711 751,333
CNL Funding 1998-1, 1.935% 7/10/08 interest-only
strips (a) AAA 2,822,426 2,621,691
2,444,388 FMAC Loan Trust 1997-C A, 6.75% 12/15/19 (a) BBB 2,272,690 2,443,269
4,729,525 FMAC Loan Trust 1998-CA A2, 6.66% 1/15/12 (a) A 3,552,891 4,321,605
26
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
FMAC Loan Trust 1998-CA AX, 1.796% 7/28/07
interest-only strips (a) AA $ 3,415,610 $ 4,072,044
United Capital Markets, Inc. 2003-A NOTE, 1.90%
11/8/27 interest only strips (a) AAA 1,689,946 1,896,385
------------------ ------------------
$ 22,901,136 $ 24,657,609
------------------ ------------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) - 3.9%
2,000,000 Ameriquest Mortgage 2003-8 MV6, 4.87% 10/25/33 BBB- 1,689,142 1,907,746
1,099,059 Amresco Residential Securities 1999-1 B, 5.09% 11/25/29 BBB 1,042,292 1,039,985
4,000,000 Long Beach Mortgage 2004-4 M10, 4.615% 10/25/34 (a) BBB+ 3,685,961 4,040,000
Merrill Lynch Mortgage Investors 2005-SL1 B5, 6.27% 1/25/35 (a) BBB- 1,784,853 1,784,420
1,417,882 Sail Net 2004-5A B, 6.75% 6/25/34 (a) BBB 1,383,705 1,382,846
2,167,000 Structured Asset 2003-BC1 B2, 9.00% 5/25/32 BBB- 2,116,012 2,234,706
------------------ ------------------
$ 11,701,965 $ 12,389,703
------------------ ------------------
MANUFACTURED HOUSING LOANS - 1.0%
3,500,000 Green Tree Financial 1996-9 M1, 7.63% 1/15/28 BBB+ 3,085,366 3,186,785
SMALL BUSINESS LOANS - 0.6%
2,000,000 ACLC Business Trust 1998-2 A3, 6.686% 4/15/20 (a) AA 1,847,158 1,978,056
------------------ ------------------
TOTAL ASSET BACKED SECURITIES - INVESTMENT GRADE $ 82,972,343 $ 86,416,451
------------------ ------------------
ASSET BACKED SECURITIES - NON-INVESTMENT GRADE - 62.8% OF NET ASSETS
AUTO LOANS - 0.8%
2,865,000 Union Acceptance Corp 2001-A C, 10.00% 4/8/09 (a) Non-rated 2,543,793 2,578,500
CERTIFICATE-BACKED OBLIGATIONS - 5.9%
3,000,000 INCAPS Funding II 2003-2A SIN, 10.00% 1/15/34 (a) Non-rated 2,913,931 2,910,000
2,000,000 MM Community Funding II, 10.00% 11/5/33 Non-rated 1,902,231 1,923,000
1,500,000 MM Community Funding, 13.00% 6/24/34 Non-rated 1,500,000 1,564,950
1,000,000 Preferred Term Securities III, 3.50% 12/15/31 Non-rated 938,903 937,500
27
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
2,500,000 Preferred Term Securities IV, 10.00% 1/15/34 Non-rated $ 2,368,239 $ 2,425,000
2,000,000 Preferred Term Securities IV, 6.98% 6/24/34 (a) BB 2,029,967 2,030,000
735,981 Preferred Term Securities X, 12.00% 7/3/33 (a) Non-rated 725,835 732,301
1,000,000 Preferred Term Securities XV, 9/26/34 (f) Non-rated 1,000,000 1,055,900
1,316,750 TPREF Funding III, 11.00% 1/15/33 (a) Non-rated 1,286,218 1,290,415
1,700,000 US Capital Funding I, 10.00% 5/1/34 Non-rated 1,700,000 1,700,000
1,000,000 US Capital Funding II B-1, 6.90% 8/1/34 (a) Non-rated 1,000,000 1,000,000
1,000,000 US Capital Funding III, 12/1/35 (a) (f) Non-rated 1,000,000 1,000,000
------------------ ------------------
$ 18,365,324 $ 18,569,066
------------------ ------------------
COLLATERALIZED DEBT OBLIGATION - 2.8%
3,000,000 Hewett's Island 2004-1A COM, 12/15/16 (a) (f) BB 3,000,000 3,000,000
1,000,000 Hewett's Island II, 12/15/16 (a) (f) Non-rated 990,040 990,000
2,000,000 Inner Harbor 2001-1A B2, 11.19% 6/15/13 (a) BB 2,008,789 2,030,000
1,000,000 MCPA2 1998-PA B2, 7.32% 6/23/10 (a) B+ 863,947 840,000
1,950,000 MKP 4A CS, 2.00% 7/12/40 Non-rated 1,950,000 1,950,000
------------------ ------------------
$ 8,812,776 $ 8,810,000
------------------ ------------------
COMMERCIAL LOANS - 15.2%
1,317,738 CS First Boston Mortgage 1995-WF1 G, 8.488% 12/21/27 (a) Non-rated 1,317,738 1,308,830
4,000,000 CS First Boston Mortgage 1998-C2 H, 6.75% 11/11/30 (a) B 2,663,249 2,670,040
3,889,999 Enterprise Mortgage 1998-1 A2, 6.38% 1/15/25 (a) B 3,585,511 3,737,340
12,000,000 Enterprise Mortgage 1998-1 A3, 6.63% 1/15/25 (a) B 6,735,403 6,900,000
Enterprise Mortgage 1998-1, 1.454% 4/10/08
interest-only strips (a) B 1,853,292 1,950,082
4,487,826 Enterprise Mortgage 1999-1 A2, 6.90% 10/15/25 (a) CCC 1,550,950 1,346,348
11,264,991 Enterprise Mortgage 2000-1 A1, 7.569% 1/15/27 (a) B 6,972,956 6,308,395
28
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
14,787,912 Enterprise Mortgage 2000-1 A2, 7.505% 1/15/27 (a) B $ 8,221,219 $ 8,281,231
5,000,000 GMAC Commercial Mortgage 1997-C2 F, 6.75% 4/15/29 B 3,377,560 3,913,750
3,000,000 GMAC Commercial Mortgage 2000-C1 H, 7.00% 3/15/33 (a) BB 2,700,483 2,866,050
5,846,000 GS Mortgage 1998-C1 H, 6.00% 10/18/30 (a) CCC 2,818,410 2,772,232
2,000,000 Merrill Lynch Mortgage 1998-C1 F, 6.25% 11/15/26 CCC 1,186,591 1,161,760
5,000,000 Salomon Brothers Mortgage 2000-C2 H, 6.308% 7/18/33 (a) BB+ 4,139,854 4,440,550
------------------ ------------------
$ 47,123,216 $ 47,656,608
------------------ ------------------
EQUIPMENT LEASES - 6.1%
5,000,000 Airplanes 2001-1A A9, 3.14% 3/15/19 BB+ 2,689,013 2,668,750
1,539,131 DVI Receivables 2002-1 A3A, 3.121% 6/11/10 Non-rated 1,089,567 1,088,935
4,000,000 Embarcadero Aircraft 2000-A A1, 3.07% 8/15/25 (a) BB 2,275,064 2,320,000
2,000,000 Ocean Star 2004-A E, 8.606% 11/12/18 (a) BB- 2,002,417 2,015,000
5,000,000 Pegasus Aviation 1999-1A A2, 6.30% 3/25/29 (a) B 2,595,923 2,487,500
9,639,989 Pegasus Aviation 2000-1 A1, 3.275% 3/25/15 (a) B 5,181,915 5,097,144
3,000,000 Pegasus Aviation Lease 2000-1 A2, 8.37% 3/25/30 (a) B 1,842,846 1,992,693
3,517,584 Pegasus Aviation Lease 2001-1A B1, 4.09% 5/10/31 (a) CCC 851,211 844,220
1,758,792 Pegasus Aviation Lease 2001-1A B2, 7.27% 5/10/31 (a) CCC 883,252 587,567
------------------ ------------------
$ 19,411,208 $ 19,101,809
------------------ ------------------
FRANCHISE LOANS - 7.9%
1,500,000 Falcon Franchise Loan 1999-1 E, 6.50% 1/5/14 BB 1,206,261 1,209,930
2,000,000 Falcon Franchise Loan 2000-1 E, 6.50% 4/5/16 (a) BB 1,488,452 1,425,300
1,000,000 Falcon Franchise Loan 2001-1 F, 6.50% 1/5/23 B 678,833 659,330
3,548,000 Falcon Franchise Loan 2003-1 D, 7.836% 1/5/25 (a) BB- 3,274,777 3,074,732
4,502,999 FMAC Loan Trust 1996-B A1, 7.629% 11/15/18 (a) DDD 3,203,854 3,240,948
29
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
5,078,824 FMAC Loan Trust 1996-B A2, 2.10% 11/15/18 (a) DDD $ 3,247,841 $ 3,225,053
4,239,330 FMAC Loan Trust 1997-B A, 6.85% 9/15/19 (a) B 3,387,577 4,027,363
3,337,513 FMAC Loan Trust 1998-A A3, 6.69% 9/15/20 (a) BB 2,468,488 2,486,447
7,606,569 FMAC Loan Trust 1998-BA A2, 6.74% 11/15/20 (a) B 5,557,046 5,234,103
------------------ ------------------
$ 24,513,129 $ 24,583,206
------------------ ------------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) - 14.5%
2,500,000 Ace Securities 2004-FM1 B1A, 4.59% 9/25/33 BB 1,997,851 2,300,000
6,000,000 Ace Securities 2004-OP1 B, 4.60% 4/25/34 BB 4,927,910 5,520,000
1,026,662 Conseco Finance 2001-A IB2, 10.30% 3/15/32 BB+ 946,481 950,939
2,186,554 Delta Funding Home Equity 1997-2 B3, 7.80% 6/25/27 BB 1,584,112 1,800,234
1,344,359 Delta Funding Home Equity 1999-3 B, 7.60% 1/15/30 CCC 1,138,883 1,164,067
3,000,000 Delta Funding Home Equity 2000-1 B, 8.09% 5/15/30 B 2,654,608 2,803,800
2,000,000 Equifirst Mortgage 2004-2 B1, 4.74% 7/25/34 (a) BB+ 1,642,270 1,780,000
1,000,000 Equifirst Mortgage 2005-1 B3, 6.08% 4/25/35 (a) Non-rated 827,626 827,500
1,000,000 Equifirst Mortgage 2005-1 B4, 6.08% 4/25/35 (a) Non-rated 827,001 826,880
2,500,000 First Franklin Mortgage 2004-FFH2 B2, 5.10% 9/15/34 (a) BB+ 2,073,474 2,325,000
3,000,000 First Franklin Mortgage 2004-FFH3 B1, 4.50% 6/25/34 (a) BB 2,429,741 2,670,000
2,568,000 GSAMP Trust 2004-AR1 B5, 5.00% 6/25/34 (a) Non-rated 1,993,215 1,990,200
1,720,534 IMC Home Equity 1997-3 B, 7.87% 8/20/28 D 892,660 963,499
3,475,462 IMC Home Equity 1997-5 B, 7.59% 11/20/28 D 2,117,085 2,406,254
1,639,113 Long Beach Mortgage 2001-4 M3, 4.93% 3/25/32 B+ 1,452,155 1,393,246
4,190,000 Long Beach Mortgage 2004-2 B, 4.50% 6/25/34 (a) BB+ 3,375,663 3,771,000
3,000,000 Meritage Mortgage 2004-2 B1, 4.829% 1/25/35 (a) Non-rated 2,428,120 2,580,000
2,000,000 Meritage Mortgage 2004-2 B2, 4.829% 1/25/35 (a) Non-rated 1,569,483 1,670,000
30
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
968,400 Morgan Stanley 1999-WF1 M, 5.91% 11/15/31 (a) BB- 483,015 $ 467,514
2,972,000 Morgan Stanley 2004-NC5 B4, 6.28% 5/25/34 (a) BB+ 2,635,767 2,633,935
1,830,000 Terwin Mortgage 2004-16SL B3, 6.34% 9/25/34 (a) BB 1,505,462 1,573,800
Terwin Mortgage 2005-3SL B6, 5.50% 3/25/35
interest-only strips BB 3,021,458 3,019,020
------------------ ------------------
$ 42,524,040 $ 45,436,888
------------------ ------------------
MANUFACTURED HOUSING LOANS - 9.3%
5,000,000 Conseco Finance 2000-6 M1, 7.72% 9/1/32 CCC- 2,733,523 2,550,000
4,000,000 Conseco Finance 2001-1 M1, 7.535% 7/1/32 C 1,779,687 925,000
3,576,357 Green Tree Financial 1996-4 M1, 7.75% 6/15/27 (d) B+ 2,896,815 2,854,935
2,000,000 Green Tree Financial 1997-3 M1, 7.53% 3/15/28 B- 1,314,105 1,360,000
3,000,000 Green Tree Financial 1997-8 M1, 7.02% 10/15/27 B+ 1,987,038 2,069,172
6,000,000 Green Tree Financial 1999-4 M1, 7.60% 5/1/31 CCC- 1,652,256 1,158,240
18,000,000 Green Tree Financial 1999-5 M1, 8.05% 3/1/30 CCC- 5,177,244 4,020,480
1,626,822 Green Tree Financial 1994-1 B2, Zero Coupon Bond 4/15/19 C 990,235 1,057,434
8,000,000 Greenpoint Manufactured Housing 1999-5 M2,
9.23% 12/15/29 BB- 5,828,372 4,959,528
21,505,000 Madison Avenue Manufactured Housing 2002-A B2,
4.35% 3/25/32 BB- 7,814,521 7,096,650
2,000,000 Merit Securities 12-1 1M2, 8.35% 7/28/33 B 1,550,026 1,203,220
------------------ ------------------
$ 33,723,822 $ 29,254,659
------------------ ------------------
RECREATIONAL EQUIPMENT - 0.3%
1,038,899 Green Tree Recreational Equipment 1996-B CTFS, 7.70%
7/15/18 CCC- 907,994 898,647
------------------ ------------------
TOTAL ASSET BACKED SECURITIES - NON-INVESTMENT GRADE $ 197,925,302 $ 196,889,383
------------------ ------------------
31
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
CORPORATE BONDS - NON-INVESTMENT GRADE - 28.3% OF NET ASSETS
BUSINESS SERVICES - 2.0%
2,000,000 Comforce Operation, 12.00% Bond 12/1/07 Non-rated $ 2,000,000 $ 2,000,000
500,000 Danka Business, 10.00% Bond 4/1/08 Non-rated 485,491 421,250
2,300,000 MSX International, 11.375% Bond 1/15/08 CCC+ 1,918,102 1,817,000
2,000,000 MSX International, 11.00% Bond 10/15/07 B- 2,029,791 2,000,000
------------------ ------------------
$ 6,433,384 $ 6,238,250
------------------ ------------------
CONSTRUCTION - 0.8%
600,000 Integrated Electrical Services, 9.375% Bond 2/1/09 CCC 551,551 573,000
2,000,000 Integrated Electrical Services, 9.375% Bond 2/1/09 CCC 1,863,139 1,920,000
------------------ ------------------
$ 2,414,690 $ 2,493,000
------------------ ------------------
ELECTRONICS - 2.3%
3,500,000 Knowles Electronics, 13.125% Bond 10/15/09 CCC 3,481,327 3,605,000
4,000,000 Motors and Gears, 10.75% Bond 11/15/06 CCC 3,929,822 3,670,000
------------------ ------------------
$ 7,411,149 $ 7,275,000
------------------ ------------------
ENERGY - 2.4%
1,700,000 Abraxas Petroleum, Zero Coupon Bond 12/1/09 (a) N 1,700,000 1,666,000
2,250,000 Calpine, 8.75% Bond 7/15/13 (a) B 1,866,928 1,698,750
925,000 Calpine, 9.875% Bond 12/1/11 (a) B 789,330 730,750
993,374 Tiverton/Rumford Power, 9.00% Bond 7/15/18 (a) B 776,264 774,832
2,500,000 United Refining, 10.50% Bond 8/15/12 (a) B- 2,468,588 2,559,375
------------------ ------------------
$ 7,601,110 $ 7,429,707
------------------ ------------------
FINANCE - 1.9%
1,602,000 Advanta Capital Trust, 8.99% Bond 12/17/26 CCC 1,577,085 1,557,945
1,000,000 Labranche, 9.50% Bond 5/15/09 B 1,002,253 1,005,000
3,375,000 Labranche, 11.00% Bond 5/15/12 B 3,619,457 3,577,500
------------------ ------------------
$ 6,198,795 $ 6,140,445
------------------ ------------------
32
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
FOOD - 1.7%
700,000 Ameriqual Group, 9.00% Bond 4/1/12 (a) B+ $ 700,000 $ 700,000
6,600,000 Land O Lakes, 7.45% Bond 3/15/28 (a) CCC 4,130,203 4,587,000
------------------ ------------------
$ 4,830,203 $ 5,287,000
------------------ ------------------
HEALTH CARE - 1.1%
2,950,000 Curative Health, 10.75% Bond 5/1/11 B- 2,662,498 2,426,375
1,000,000 Hanger Orthopedic Group, 10.375% Bond 2/15/09 CCC+ 985,432 992,500
------------------ ------------------
$ 3,647,930 $ 3,418,875
------------------ ------------------
MANUFACTURING - 6.5%
3,000,000 Consolidated Container, 10.125% Bond 7/15/09 CCC 2,836,805 2,790,000
2,650,000 Dura Operating, 9.00% Bond 5/1/09 CCC+ 2,551,646 2,093,500
1,000,000 Elgin National Industry, 11.0% Bond 11/1/07 CCC- 950,944 947,960
250,000 Foamex, 9.875% Bond 6/15/07 CCC+ 215,589 135,000
2,000,000 Foamex, 10.75% Bond 4/1/09 B- 1,918,953 1,760,000
2,550,000 GSI Group Inc, 10.25% Bond 11/1/07 CCC+ 2,554,347 2,550,000
1,800,000 Intermet, Zero Coupon Bond 6/15/09 in default (d) Non-rated 1,153,137 1,008,000
3,000,000 MMI Products, 11.25% Bond 4/15/07 CCC 3,001,184 2,985,000
3,200,000 US Can, 12.375% Bond 10/1/10 CCC+ 2,930,380 3,008,000
3,500,000 VITRO SA, 11.75% Bond 11/1/13 (a) (e) B- 3,470,571 3,325,000
------------------ ------------------
$ 21,583,556 $ 20,602,460
------------------ ------------------
PRINTING - 0.2%
1,100,000 American Color Graph, 10.00% Bond 6/15/10 CCC 801,346 715,000
RETAIL - 1.7%
4,200,000 General Nutrition Center, 8.50% Bond 12/1/10 CCC+ 3,916,859 3,570,000
1,000,000 New World Restaurant, 13.00% Bond 7/1/08 CCC+ 1,005,266 1,020,000
750,000 Star Gas Partner, 10.25% Bond 2/15/13 CCC- 699,576 693,750
------------------ ------------------
$ 5,621,701 $ 5,283,750
------------------ ------------------
33
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
TELECOMMUNICATIONS - 5.7%
350,000 American Cellular, 10.00% Bond 8/1/11 B- $ 305,100 $ 322,000
2,400,000 BARAK I.T.C., Zero Coupon Bond 11/15/07 in default (d)(e) Non-rated 1,905,961 1,296,000
600,000 Call-Net Enterprises,
10.625% Bond 12/31/08 (e) B- 587,533 630,000
3,375,000 Charter Communication, Zero Coupon Bond 5/15/11 CCC- 2,500,156 2,328,750
1,000,000 Charter, 10.00% Bond 5/15/11 CCC- 861,979 767,500
500,000 Eschelon Operating, 8.375% Bond 3/15/10 CCC+ 431,002 427,500
4,600,000 Level 3 Financing, 10.75% Bond 10/15/11 (a) CC 3,998,360 4,036,500
2,025,000 Primus Telecommunications, 12.75% Bond 10/15/09 CCC 1,954,013 1,863,000
2,000,000 Primus Telecommunications, 8.00% Bond 1/15/14 CCC 1,692,218 1,440,000
2,350,000 Rural Cellular,
9.75% Bond 1/15/10 CCC 2,109,409 2,150,250
2,305,000 Time Warner,
10.125% Bond 2/1/11 CCC+ 2,159,640 2,224,325
400,000 Transtel SA,
12.50% Bond 12/31/08 (a) Non-rated 375,288 376,000
------------------ ------------------
$ 18,880,659 $ 17,861,825
------------------ ------------------
TOBACCO - 0.7%
2,800,000 North Atlantic Trading, 9.25% Bond 3/1/12 B 2,610,804 2,100,000
TRANSPORTATION - 1.0%
3,000,000 Greyhound Lines, 11.50% Bond 4/15/07 CCC- 2,968,763 3,015,000
TRAVEL - 0.3%
1,000,000 Worldspan Financial,
9.024% Bond 2/15/11 (a) CCC+ 997,620 970,000
------------------ ------------------
TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE $ 92,001,710 $ 88,830,312
------------------ ------------------
MORTGAGE BACKED SECURITIES - 2.7% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATION - 2.7%
Harborview Mortgage 2003-2 1X, 1.58% 10/19/33
interest-only strips AAA 1,841,646 1,761,371
Harborview Mortgage 2004-8 x, 0.65% Bond 11/19/34
interest-only strips AAA 2,863,632 2,818,971
34
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
Mellon Residential 2002-TBC2 X, 1.101% 8/15/32
interest-only strips AAA $ 1,803,488 $ 2,115,916
1,714,343 Structured Asset 2003-S A, 7.50% 12/28/33 (a) BBB 1,697,925 1,697,199
------------------ ------------------
TOTAL MORTGAGE BACKED SECURITIES $ 8,206,691 $ 8,393,457
------------------ ------------------
GOVERNMENT AGENCY SECURITIES - 2.1% OF NET ASSETS
GNMA 2003-59 XA, 0.304% 6/16/34 interest-only strips (c) Non-rated 3,824,369 3,647,112
GNMA 2003-64 XA, 0.517% 8/16/43 interest-only strips (c) Non-rated 5,467,593 2,860,186
------------------ ------------------
TOTAL GOVERNMENT AGENCY SECURITIES $ 9,291,962 $ 6,507,298
------------------ ------------------
MUNICIPAL SECURITIES - 0.2% OF NET ASSETS
1,000,000 Pima County AZ IDA Health Care, 8.50% 11/15/32 Non-rated 625,032 619,860
COMMON STOCKS - 10.0% OF NET ASSETS
50,800 American Capital Strategies, Ltd. 1,390,327 1,595,628
58,300 Andrx Corporation (d) 1,125,863 1,321,661
57,700 Anthracite Capital, Inc. 628,946 642,778
5,800 Bank of America Corporation 231,303 255,780
7,100 Best Buy Co., Inc. 376,294 383,471
1,600 BP Prudhoe Bay Royalty Trust 62,940 111,680
17,900 Cimarex Energy Co. (d) 686,375 698,100
53,600 Cisco Systems, Inc. (d) 958,986 958,904
4,700 Coooper Cameron Corporation (d) 261,949 268,887
15,100 Cree, Inc. (d) 324,105 328,425
7,200 Devon Energy Corporation 259,380 343,800
16,300 Exxon Mobil Corporation 875,942 971,480
7,800 First Data Corporation 312,355 306,618
13,800 Frontline Ltd. 667,171 676,200
9,700 Harley-Davidson, Inc. 447,604 560,272
33,200 Intersil Corporation 500,504 575,024
14,700 Kerr-McGee Corporation 851,794 1,151,451
10,550 Kinder Morgan Energy Partners, L.P. 471,603 474,750
12,700 L-3 Communications Holdings, Inc. 583,195 901,954
44,800 Limited Brands, Inc. 779,012 1,088,640
21,400 Lincoln Electric Holdings, Inc. 651,534 643,712
4,800 Magellan Midstream Partners, L.P. 260,110 293,040
6,800 Magyar Tavkozlesi Rt. 135,769 160,140
122,150 MCG Capital Corporation 2,040,549 1,879,278
31,000 Microsoft Corporation 799,552 749,270
48,800 New Century Financial Corporation 2,473,358 2,284,816
9,100 Newfield Exploration Company (d) 636,819 675,766
12,300 Oceaneering International, Inc. (d) 449,276 461,250
79,300 OmniVision Technologies, Inc. 1,188,825 1,201,395
9,800 Petroleo Brasileiro S.A. 352,436 432,964
20,700 Polycom, Inc. (d) 335,258 350,865
35
Principal
Amount/ Market
Shares Description Cost Value (b)
6,300 Range Resources Corporation $ 134,548 $ 147,168
34,200 Regal Entertainment Group 662,116 719,226
20,890 Ship Finance International Limited 451,484 424,067
11,000 Storage Technology Corporation 263,611 338,800
79,133 Technology Investment Capital Corporation 1,177,008 1,183,038
10,050 Teva Pharmaceutical Industries Limited 297,480 311,449
27,200 The Home Depot, Inc. 986,795 1,040,128
11,400 Tidewater, Inc. 347,746 443,004
19,100 TOP Tankers Inc. 344,379 354,305
45,200 Trustreet Properties Inc. 735,570 695,628
18,100 Tsakos Energy Navigation Limited 651,369 796,943
10,900 Unit Corporation (d) 436,280 492,353
62,650 UTStarcom, Inc. (d) 1,185,665 686,018
700 Valero L.P. 38,700 42,175
7,100 Wal-Mart Stores, Inc. 367,255 355,781
10,600 XL Capital Ltd. 818,100 767,122
------------------ ------------------
Total Common Stocks $ 30,017,240 $ 31,545,204
------------------ ------------------
EURODOLLAR TIME DEPOSITS - 1.5% OF NET ASSETS
State Street Bank & Trust Company Eurodollar time deposits dated
March 31, 2005, 0.85%, maturing at $ 4,540,107 on April 1, 2005. 4,540,000 4,540,000
CORPORATE LOANS - 0.4% OF NET ASSETS
Xspedius, 9.22% 3/1/10 $ 1,250,000 $ 1,250,000
------------------ ------------------
TOTAL INVESTMENTS - 135.5% OF NET ASSETS $ 426,830,280 $ 424,991,965
------------------ ------------------
OTHER ASSETS AND LIABILITIES, NET - (35.5%) OF NET ASSETS (111,261,019)
===================
NET ASSETS $ 313,730,946
===================
(a) These securities are sold within the terms of a private placement memorandum, exempt from registration under Rule 144A under
the Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified
institutional buyers. Pursuant to guidelines adopted by the Board of Directors, these issues have been determined to be
liquid by Morgan Asset Management, Inc., the Fund's investment adviser.
(b) See Note 2 of accompanying Notes to Financial Statements regarding valuation of securities.
(c) The issuer is a publicly-traded company that operates under a congressional charter; its securities are neither issued nor
guaranteed by the U. S. government.
(d) These securities are non-income producing.
(e) These securities are classified as Yankee Bonds, which are U.S. dollar denominated bonds issued in the United States by a
foreign entity.
(f) Trust preferred security with no stated interest rate. NRSRO--Nationally Recognized Statistical Rating Organization.
36
[THIS PAGE INTENTIONALLY LEFT BLANK]
RMK STRATEGIC INCOME FUND, INC.
Portfolio Commentary
March 31, 2005
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the six months and the fiscal year ended March 31, 2005, RMK Strategic
Income Fund, Inc. (the "Fund") had a total return of 6.37% and 9.68%,
respectively, based on market price and reinvested dividends. For the six months
and the year ended March 31, 2005, the Fund had a total return of 6.00% and
10.87%, respectively, based on net asset value and reinvested dividends. For the
six months and the year ended March 31, 2005, the Lehman Brothers Ba U.S. High
Yield Index had a total return of 1.17% and 4.28%, respectively. The Fund's
strong performance was primarily attributable to the Fund's relative yield
advantage as evidenced by the monthly dividend distributions and the relative
net asset value stability produced by the Fund's allocation in a wide variety of
asset types.
During the fiscal year ended March 31, 2005, the Fund paid total income
distributions of $1.68 per share, which is composed of total regular monthly
dividends for the year of $1.38 per share and total special dividend
distributions in December 2004 of $0.30 per share. For the last four months of
the Fund's fiscal year, the Fund paid monthly dividends of $0.15 per share.
Our high income strategy emphasizes very broad diversification utilizing asset
categories beyond the well recognized below investment grade corporate and
convertible bonds. This diversification allows us to find better risk/reward
opportunities than would be possible if we were restricted to a single asset
sector.
Key drivers of performance in 2004 included commercial mortgage-backed
securities, distressed credit card receivables, below investment grade corporate
bonds and dividend-paying common stocks.
Within the asset-backed securities, credit card receivables from issuers like
Nextcard, First Consumers, and Metris provided a boost to the Fund's returns in
late 2004. Elevated delinquencies and charge-offs caused these assets to suffer
significant credit downgrades and to trade down as low as 30%-40% discounts of
the original issue. Again a recovering economy mitigated delinquencies and the
robust structure of those trusts caused these assets to recover virtually all of
their value.
The Fund employs leverage within the parameters allowed by its prospectus.
Leverage increases (decreases) returns if the rate of return on the assets that
were bought with the borrowed money was higher (lower) than the interest charged
on the borrowed money. The Fund employs leverage on the whole portfolio rather
than specific positions; therefore, because the Fund had a positive return for
the period ended March 31, 2005, the leverage was beneficial to stockholders.
Although increasing short-term interest rates will increase the cost of borrowed
money, the Fund has invested an equivalent amount of assets in adjustable rate
securities that will similarly benefit from increasing short-term rates. This
allocation to floating rate assets should provide the Fund a level of protection
from rising rates and allow the Fund to continue to benefit from the use of
leverage.
37
For 2005, we expect continued economic recovery and continued increases in
short-term interest rates by the Federal Reserve. To position the Fund to take
advantage of these conditions, we have increased our allocation of floating rate
bonds. These bonds, which may be corporate or asset-backed, have coupon rates
that will increase as short-term interest rates increase. This feature should
allow the Fund to benefit from rising rates as well as maintain its net asset
value. We also expect business conditions to continue to improve, which should
produce a continual uptrend in corporate as well as household earnings. The Fund
stands to benefit from this trend by increasing our investments in corporate
debt and securitized home equity loans.
/s/ James C. Kelsoe
James C. Kelsoe, Jr., CFA
Portfolio Manager
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR INVESTMENT OBJECTIVES. THE
FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET
VALUES OF SECURITIES OWNED BY THE FUNDS WILL DECLINE AND, THEREFORE, THE VALUE
OF THE FUNDS' SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU
CAN LOSE MONEY INVESTING IN THE FUNDS.
38
PORTFOLIO STATISTICS AS OF 3/31/05
Portfolio Credit Rating BB
Portfolio Current Yield 11.42%
Portfolio Yield to Maturity 11.03%
Portfolio Duration 3.71 Years
Percentage of Leveraged Assets 26.00%
Number of Holdings 204
ASSET ALLOCATION* AS OF 3/31/05 [PIE CHART REPRESENTATION]
Certificate-Backed Obligations 2.5%
Government Agency Securities 1.5%
Cash 1.4%
Other 1.0%
Corporate Bonds 19.3%
Home Equity Loans 18.3%
Commercial Loans 14.3%
Common Stock 9.7%
Manufactured Housing Loans 9.6%
Equipment Leases 7.6%
Collateralized Debt Obligations 6.8%
Franchise Loans 5.5%
Collateralized Mortgage Obligations 2.5%
* Percentages are based on total investments, which may differ from total net
assets used in computing the percentages in the Portfolio of Investments.
Current holdings may not reflect the holdings as of the date of this
report.
CREDIT QUALITY DISTRIBUTION* AS OF 3/31/05
AAA 3.6%
AA 3.2%
A 5.5%
BBB 23.3%
BB 15.0%
B 21.1%
CCC 17.2%
CC 1.5%
C 0.2%
D 1.7%
NR 7.7%
* Each rating category above includes all bonds within the broad rating
category (i.e., BBB includes all bonds rated BBB+, BBB, and BBB-). Current
holdings may not reflect the holdings as of the date of this report.
39
NAV & MARKET PRICE HISTORY(1)
The graph below illustrates the net asset value and market price history of RMK
Strategic Income Fund, Inc. (NYSE: RSF) from March 18, 2004 (commencement of
investment operations) to March 31, 2005.
[GRAPH REPRESENTATION]
RSF NAV Market Price History
- --- --- --------------------
03/18/2004 $14.30 $15.00
03/19/2004 $14.29 $15.75
03/20/2004 $14.29 $15.75
03/21/2004 $14.29 $15.75
03/22/2004 $14.29 $15.51
03/23/2004 $14.28 $15.51
03/24/2004 $14.28 $15.56
03/25/2004 $14.28 $15.55
03/26/2004 $14.28 $15.44
03/27/2004 $14.28 $15.44
03/28/2004 $14.28 $15.44
03/29/2004 $14.26 $15.70
03/30/2004 $14.27 $15.85
03/31/2004 $14.29 $16.00
04/01/2004 $14.29 $16.00
04/02/2004 $14.24 $15.55
04/03/2004 $14.24 $15.55
04/04/2004 $14.24 $15.55
04/05/2004 $14.24 $15.65
04/06/2004 $14.24 $15.45
04/07/2004 $14.24 $15.40
04/08/2004 $14.23 $15.40
04/09/2004 $14.23 $15.40
04/10/2004 $14.23 $15.40
04/11/2004 $14.23 $15.40
04/12/2004 $14.24 $15.34
04/13/2004 $14.18 $15.00
04/14/2004 $14.18 $15.00
04/15/2004 $14.16 $15.02
04/16/2004 $14.18 $15.05
04/17/2004 $14.18 $15.05
04/18/2004 $14.18 $15.05
04/19/2004 $14.19 $15.11
04/20/2004 $14.17 $15.09
04/21/2004 $14.18 $15.00
04/22/2004 $14.22 $14.96
04/23/2004 $14.19 $14.81
04/24/2004 $14.19 $14.81
04/25/2004 $14.19 $14.81
04/26/2004 $14.17 $14.80
04/27/2004 $14.17 $14.62
04/28/2004 $14.14 $14.47
04/29/2004 $14.12 $14.31
04/30/2004 $14.13 $14.65
05/01/2004 $14.13 $14.65
05/02/2004 $14.13 $14.65
05/03/2004 $14.14 $14.70
05/04/2004 $14.13 $14.68
05/05/2004 $14.14 $14.78
05/06/2004 $14.28 $14.70
05/07/2004 $14.19 $14.30
05/08/2004 $14.19 $14.30
05/09/2004 $14.19 $14.30
05/10/2004 $14.16 $14.25
05/11/2004 $14.20 $14.35
05/12/2004 $14.17 $14.49
05/13/2004 $14.18 $14.74
05/14/2004 $14.19 $14.73
05/15/2004 $14.19 $14.73
05/16/2004 $14.19 $14.73
05/17/2004 $14.20 $14.75
05/18/2004 $14.22 $14.77
05/19/2004 $14.21 $14.75
05/20/2004 $14.22 $14.92
05/21/2004 $14.21 $14.83
05/22/2004 $14.21 $14.83
05/23/2004 $14.21 $14.83
05/24/2004 $14.24 $14.80
05/25/2004 $14.26 $14.95
05/26/2004 $14.29 $14.94
05/27/2004 $14.29 $14.85
05/28/2004 $14.31 $14.80
05/29/2004 $14.31 $14.80
05/30/2004 $14.31 $14.80
05/31/2004 $14.31 $14.80
06/01/2004 $14.31 $14.95
06/02/2004 $14.30 $14.95
06/03/2004 $14.28 $14.95
40
06/04/2004 $14.30 $14.95
06/05/2004 $14.30 $14.95
06/06/2004 $14.30 $14.95
06/07/2004 $14.20 $14.95
06/08/2004 $14.20 $14.80
06/09/2004 $14.18 $14.85
06/10/2004 $14.19 $14.80
06/11/2004 $14.19 $14.80
06/12/2004 $14.19 $14.80
06/13/2004 $14.19 $14.80
06/14/2004 $14.16 $14.85
06/15/2004 $14.21 $15.00
06/16/2004 $14.20 $14.95
06/17/2004 $14.21 $14.99
06/18/2004 $14.23 $14.94
06/19/2004 $14.23 $14.94
06/20/2004 $14.23 $14.94
06/21/2004 $14.22 $14.95
06/22/2004 $14.22 $14.98
06/23/2004 $14.25 $14.90
06/24/2004 $14.25 $14.88
06/25/2004 $14.29 $14.80
06/26/2004 $14.29 $14.80
06/27/2004 $14.29 $14.80
06/28/2004 $14.27 $14.69
06/29/2004 $14.28 $14.94
06/30/2004 $14.31 $14.90
07/01/2004 $14.29 $14.99
07/02/2004 $14.28 $14.95
07/03/2004 $14.28 $14.95
07/04/2004 $14.28 $14.95
07/05/2004 $14.28 $14.95
07/06/2004 $14.26 $14.95
07/07/2004 $14.24 $14.99
07/08/2004 $14.21 $14.91
07/09/2004 $14.22 $15.03
07/10/2004 $14.22 $15.03
07/11/2004 $14.22 $15.03
07/12/2004 $14.23 $14.94
07/13/2004 $14.11 $15.05
07/14/2004 $14.13 $15.15
07/15/2004 $14.10 $15.23
07/16/2004 $14.14 $15.24
07/17/2004 $14.14 $15.24
07/18/2004 $14.14 $15.24
07/19/2004 $14.16 $15.26
07/20/2004 $14.16 $15.35
07/21/2004 $14.14 $15.34
07/22/2004 $14.16 $15.26
07/23/2004 $14.16 $15.39
07/24/2004 $14.16 $15.39
07/25/2004 $14.16 $15.39
07/26/2004 $14.16 $15.32
07/27/2004 $14.17 $15.20
07/28/2004 $14.16 $15.20
07/29/2004 $14.18 $15.23
07/30/2004 $14.20 $15.25
07/31/2004 $14.20 $15.25
08/01/2004 $14.20 $15.25
08/02/2004 $14.21 $15.34
08/03/2004 $14.21 $15.40
08/04/2004 $14.22 $15.45
08/05/2004 $14.18 $15.53
08/06/2004 $14.05 $15.42
08/07/2004 $14.05 $15.42
08/08/2004 $14.05 $15.42
08/09/2004 $14.05 $15.50
08/10/2004 $14.07 $15.42
08/11/2004 $14.05 $15.50
08/12/2004 $14.05 $15.55
08/13/2004 $14.08 $15.53
08/14/2004 $14.08 $15.53
08/15/2004 $14.08 $15.53
08/16/2004 $14.10 $15.65
08/17/2004 $14.13 $15.57
08/18/2004 $14.18 $15.55
08/19/2004 $14.18 $15.50
08/20/2004 $14.19 $15.65
08/21/2004 $14.19 $15.65
41
08/22/2004 $14.19 $15.65
08/23/2004 $14.18 $15.55
08/24/2004 $14.18 $15.83
08/25/2004 $14.23 $15.99
08/26/2004 $14.27 $15.77
08/27/2004 $14.31 $15.77
08/28/2004 $14.31 $15.77
08/29/2004 $14.31 $15.77
08/30/2004 $14.35 $15.76
08/31/2004 $14.38 $16.00
09/01/2004 $14.40 $16.20
09/02/2004 $14.42 $16.05
09/03/2004 $14.39 $16.00
09/04/2004 $14.39 $16.00
09/05/2004 $14.39 $16.00
09/06/2004 $14.39 $16.00
09/07/2004 $14.41 $16.25
09/08/2004 $14.28 $16.05
09/09/2004 $14.32 $15.92
09/10/2004 $14.36 $16.10
09/11/2004 $14.36 $16.10
09/12/2004 $14.36 $16.10
09/13/2004 $14.48 $16.12
09/14/2004 $14.48 $16.15
09/15/2004 $14.46 $16.02
09/16/2004 $14.50 $16.00
09/17/2004 $14.52 $16.10
09/18/2004 $14.52 $16.10
09/19/2004 $14.52 $16.10
09/20/2004 $14.52 $16.00
09/21/2004 $14.51 $16.10
09/22/2004 $14.51 $16.00
09/23/2004 $14.58 $15.92
09/24/2004 $14.59 $16.00
09/25/2004 $14.59 $16.00
09/26/2004 $14.59 $16.00
09/27/2004 $14.60 $16.05
09/28/2004 $14.62 $15.85
09/29/2004 $14.57 $15.99
09/30/2004 $14.47 $15.95
10/01/2004 $14.51 $15.95
10/02/2004 $14.51 $15.95
10/03/2004 $14.51 $15.95
10/04/2004 $14.53 $15.95
10/05/2004 $14.49 $16.00
10/06/2004 $14.49 $15.92
10/07/2004 $14.99 $15.96
10/08/2004 $14.35 $16.10
10/09/2004 $14.35 $16.10
10/10/2004 $14.35 $16.10
10/11/2004 $14.35 $16.05
10/12/2004 $14.35 $16.00
10/13/2004 $14.36 $16.10
10/14/2004 $14.35 $16.15
10/15/2004 $14.35 $16.15
10/16/2004 $14.35 $16.15
10/17/2004 $14.35 $16.15
10/18/2004 $14.36 $16.12
10/19/2004 $14.36 $16.10
10/20/2004 $14.40 $15.90
10/21/2004 $14.41 $15.89
10/22/2004 $14.41 $15.71
10/23/2004 $14.41 $15.71
10/24/2004 $14.41 $15.71
10/25/2004 $14.41 $15.76
10/26/2004 $14.44 $15.85
10/27/2004 $14.46 $15.80
10/28/2004 $14.47 $15.75
10/29/2004 $14.51 $15.82
10/30/2004 $14.51 $15.82
10/31/2004 $14.51 $15.82
11/01/2004 $14.50 $16.10
11/02/2004 $14.47 $16.09
11/03/2004 $14.52 $15.99
11/04/2004 $14.54 $16.07
11/05/2004 $14.55 $15.86
11/06/2004 $14.55 $15.86
11/07/2004 $14.55 $15.86
11/08/2004 $14.41 $15.95
42
11/09/2004 $14.42 $15.85
11/10/2004 $14.39 $16.00
11/11/2004 $14.43 $15.95
11/12/2004 $14.43 $15.87
11/13/2004 $14.43 $15.87
11/14/2004 $14.43 $15.87
11/15/2004 $14.49 $16.03
11/16/2004 $14.48 $15.99
11/17/2004 $14.51 $16.05
11/18/2004 $14.49 $16.05
11/19/2004 $14.47 $16.60
11/20/2004 $14.47 $16.60
11/21/2004 $14.47 $16.60
11/22/2004 $14.49 $16.60
11/23/2004 $14.47 $16.91
11/24/2004 $14.48 $16.97
11/25/2004 $14.48 $16.97
11/26/2004 $14.49 $17.20
11/27/2004 $14.49 $17.20
11/28/2004 $14.49 $17.20
11/29/2004 $14.48 $17.05
11/30/2004 $14.47 $17.04
12/01/2004 $14.50 $16.95
12/02/2004 $14.48 $16.99
12/03/2004 $14.53 $16.97
12/04/2004 $14.53 $16.97
12/05/2004 $14.53 $16.97
12/06/2004 $14.29 $16.60
12/07/2004 $14.27 $16.72
12/08/2004 $14.14 $16.51
12/09/2004 $14.14 $16.70
12/10/2004 $14.17 $16.98
12/11/2004 $14.17 $16.98
12/12/2004 $14.17 $16.98
12/13/2004 $14.19 $16.94
12/14/2004 $14.20 $16.90
12/15/2004 $14.23 $16.95
12/16/2004 $14.32 $17.00
12/17/2004 $14.31 $17.08
12/18/2004 $14.31 $17.08
12/19/2004 $14.31 $17.08
12/20/2004 $14.32 $17.09
12/21/2004 $14.37 $17.05
12/22/2004 $14.37 $16.95
12/23/2004 $14.40 $17.09
12/24/2004 $14.40 $17.09
12/25/2004 $14.40 $17.09
12/26/2004 $14.40 $17.09
12/27/2004 $14.38 $17.05
12/28/2004 $14.39 $17.02
12/29/2004 $14.30 $17.05
12/30/2004 $14.30 $17.09
12/31/2004 $14.29 $17.40
01/01/2005 $14.29 $17.40
01/02/2005 $14.29 $17.40
01/03/2005 $14.27 $17.28
01/04/2005 $14.25 $17.20
01/05/2005 $14.25 $17.15
01/06/2005 $14.27 $17.20
01/07/2005 $14.11 $17.03
01/08/2005 $14.11 $17.03
01/09/2005 $14.11 $17.03
01/10/2005 $14.11 $16.94
01/11/2005 $14.11 $16.95
01/12/2005 $14.12 $16.87
01/13/2005 $14.13 $16.75
01/14/2005 $14.16 $16.68
01/15/2005 $14.16 $16.68
01/16/2005 $14.16 $16.68
01/17/2005 $14.16 $16.68
01/18/2005 $14.24 $16.76
01/19/2005 $14.24 $16.70
01/20/2005 $14.24 $16.75
01/21/2005 $14.23 $16.74
01/22/2005 $14.23 $16.74
01/23/2005 $14.23 $16.74
01/24/2005 $14.21 $16.62
01/25/2005 $14.22 $16.59
01/26/2005 $14.25 $16.45
43
01/27/2005 $14.24 $16.50
01/28/2005 $14.29 $16.48
01/29/2005 $14.29 $16.48
01/30/2005 $14.29 $16.48
01/31/2005 $14.31 $16.70
02/01/2005 $14.33 $16.79
02/02/2005 $14.33 $16.84
02/03/2005 $14.34 $16.83
02/04/2005 $14.40 $16.82
02/05/2005 $14.40 $16.82
02/06/2005 $14.40 $16.82
02/07/2005 $14.41 $16.95
02/08/2005 $14.27 $16.84
02/09/2005 $14.27 $16.74
02/10/2005 $14.26 $16.81
02/11/2005 $14.28 $16.80
02/12/2005 $14.28 $16.80
02/13/2005 $14.28 $16.80
02/14/2005 $14.28 $16.75
02/15/2005 $14.29 $16.72
02/16/2005 $14.31 $16.84
02/17/2005 $14.30 $16.70
02/18/2005 $14.31 $16.76
02/19/2005 $14.31 $16.76
02/20/2005 $14.31 $16.76
02/21/2005 $14.31 $16.76
02/22/2005 $14.30 $16.58
02/23/2005 $14.32 $16.39
02/24/2005 $14.34 $16.63
02/25/2005 $14.35 $16.55
02/26/2005 $14.35 $16.55
02/27/2005 $14.35 $16.55
02/28/2005 $14.34 $16.48
03/01/2005 $14.33 $16.50
03/02/2005 $14.34 $16.55
03/03/2005 $14.35 $16.55
03/04/2005 $14.40 $16.59
03/05/2005 $14.40 $16.59
03/06/2005 $14.40 $16.59
03/07/2005 $14.43 $16.69
03/08/2005 14.44 16.60
03/09/2005 14.41 16.55
03/10/2005 14.25 16.27
03/11/2005 14.26 16.11
03/12/2005 14.26 16.11
03/13/2005 14.26 16.11
03/14/2005 14.29 15.81
03/15/2005 14.27 15.71
03/16/2005 14.23 15.60
03/17/2005 14.24 15.50
03/18/2005 14.23 15.72
03/19/2005 14.23 15.72
03/20/2005 14.23 15.72
03/21/2005 14.20 15.20
03/22/2005 14.16 15.06
03/23/2005 14.19 15.00
03/24/2005 14.21 14.99
03/25/2005 14.21 14.99
03/26/2005 14.21 14.99
03/27/2005 14.21 14.99
03/28/2005 14.23 15.32
03/29/2005 $14.17 $15.49
03/30/2005 $14.20 $15.73
03/31/2005 $14.23 $15.74
(1) Net asset value is calculated after the close of the exchanges each day by
taking the closing market value of all securities owned plus all other
assets such as cash, subtracting all liabilities, then dividing the result
(total net assets) by the total number of shares outstanding. The market
price is the last reported price at which a security was sold on an
exchange.
FUND PERFORMANCE
TOTAL RETURNS AS OF MARKET NET ASSET
MARCH 31, 2005 VALUE VALUE
Six Months 6.37% 6.00%
One Year 9.68% 10.87%
Commencement of Investment Operations (3/18/04)(1) 16.32% 10.30%
(1) Average annual total returns.
Total returns assume an investment at the common share market price or net
asset value at the beginning of the period, reinvestment of all dividends
and distributions for the period in accordance with the Fund's dividend
reinvestment plan, and sale of all shares at the closing market price
(excluding any commissions) or net asset value at the end of the period.
Returns shown do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE WHICH IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. FUND PERFORMANCE CHANGES OVER TIME AND CURRENT PERFORMANCE MAY BE LOWER OR
HIGHER THAN WHAT IS STATED. FOR THE MOST RECENT PERFORMANCE, CALL
1-800-564-2188.
44
RMK STRATEGIC INCOME FUND, INC.
Portfolio of Investments
March 31, 2005
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
ASSET BACKED SECURITIES - INVESTMENT GRADE - 26.2% OF
NET ASSETS
COLLATERIZED DEBT OBLIGATION - 5.0%
11,398,932 Diversified Asset Securitization 1A A1, 7.873% 9/15/35 AA $ 11,762,181 $ 11,940,381
4,000,000 E-Trade 2004-1A COM1, 2.00% 1/10/40 BBB 3,980,105 3,980,000
2,400,000 Restructured Asset Backed 2003-3A A3, 2.56% 1/29/22 (a) AA- 1,917,747 1,911,000
------------------ ------------------
$ 17,660,033 $ 17,831,381
------------------ ------------------
COMMERCIAL LOANS - 4.3%
11,483,386 Atherton Franchisee 1999-A A2, 7.23% 4/15/12 (a) A+ 11,633,639 11,660,839
1,000,000 FFCA Secured Lending 1998-1 D1, 7.81% 1/15/17 (a) BBB- 790,825 790,000
3,000,000 GMAC Commercial Mortgage 1998-C1 F, 7.096% 5/15/30 BBB- 2,949,149 3,048,630
------------------ ------------------
$ 15,373,613 $ 15,499,469
------------------ ------------------
EQUIPMENT LEASES - 4.9%
8,586,169 AERCO 2A A3, 2.86% 7/15/25 BBB 6,408,440 6,343,033
6,000,000 Aircraft Finance Trust 1999-1A A1, 2.883% 5/15/24 BBB 4,193,875 4,155,000
3,000,000 Aviation Capital Group 2000-1A A1, 3.07% 11/15/25 (a) BBB 2,251,788 2,272,080
7,000,000 Lease Investment Flight Trust 1 A1, 2.87% 7/15/31 BBB 4,900,605 4,935,000
------------------ ------------------
$ 17,754,708 $ 17,705,113
------------------ ------------------
FRANCHISE LOANS - 1.5%
FMAC Loan Trust 1997-C AX, 2.355% 12/15/19
interest-only strips (a) BBB 2,778,749 2,719,888
3,000,000 Franchise Loan Trust 1998-I A3, 6.74% 7/15/20 (a) BBB 2,716,093 2,776,320
------------------ ------------------
$ 5,494,842 $ 5,496,208
------------------ ------------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) - 9.2%
1,336,869 Aames Mortgage Trust 2001-3 B, 7.13% 11/25/31 BBB 1,229,177 1,296,763
3,450,000 Ace Securities 2004-HE2 B1, 5.311% 10/25/34 BBB 2,761,803 3,346,500
2,000,000 Ace Securities 2004-HE4 M11, 5.694% 12/25/34 BBB- 1,603,838 1,871,880
45
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
1,487,000 Ace Securities 2004-HS1 M6, 4.59% 2/25/34 BBB- $ 1,446,598 $ 1,486,976
2,057,073 Amresco Residential Securities 1999-1 B, 5.09% 11/25/29 BBB 1,950,824 1,946,505
2,700,000 First Franklin Mortgage 2004-FF2 N3, 8.835% 4/25/34 (a) BBB 2,700,000 2,713,500
2,750,000 First Franklin Mortgage 2004-FF5 M9, 4.47% 8/25/34 BBB- 2,446,713 2,557,500
5,000,000 Long Beach Mortgage 2004-4 M10, 4.615% 10/25/34 BBB+ 4,607,452 5,050,000
1,700,000 NovaStar Home Equity 2004-3 B4, 5.238% 12/25/34 BBB 1,562,857 1,627,750
10,500,000 Option One Mortgage 2004-2 M7, 4.65% 5/25/34 BBB 8,910,197 9,975,000
1,417,882 Sail Net 2004-5A B, 6.75% 6/27/34 (a) BBB 1,383,703 1,382,846
------------------ ------------------
$ 30,603,162 $ 33,255,220
------------------ ------------------
MANUFACTURED HOUSING LOANS - 1.3%
4,995,000 Green Tree Financial 1996-9 M1, 7.63% 1/15/28 BBB 4,403,379 4,547,997
------------------ ------------------
TOTAL ASSET BACKED SECURITIES - INVESTMENT GRADE $ 91,289,737 $ 94,335,388
------------------ ------------------
ASSET BACKED SECURITIES - NON-INVESTMENT GRADE - 61.1% OF NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS - 3.3%
1,000,000 MM Community Funding II, 3.50% 12/15/31 (a) Non-rated 938,903 937,500
2,000,000 MM community Funding IX, 10.00% 5/1/33 (a) Non-rated 1,941,063 1,940,000
2,000,000 Preferred Term Securities IV, 6.98% 6/24/34 (a) BB 2,029,762 2,030,000
1,000,000 Preferred Term Securities XV, 9/26/34 (a) (f) Non-rated 1,000,000 1,055,900
4,000,000 Preferred Term Securities XVI, 3/23/35 (a) (f) Non-rated 4,000,000 4,079,440
1,000,000 US Capital Funding II, 6.90% 8/1/34 Non-rated 1,000,000 1,000,000
1,000,000 US Capital Funding III, 14.00% 12/1/35 Non-rated 1,000,000 1,000,000
------------------ ------------------
$ 11,909,728 $ 12,042,840
------------------ ------------------
COLLATERIZED DEBT OBLIGATION - 4.1%
2,000,000 Crest 2000-1A D, 10.00% 8/31/36 BB 1,400,295 1,405,000
3,000,000 Hewett's Island 2004-1A COM, 12/15/16 (f) BB 3,000,000 3,000,000
46
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
1,000,000 Hewett's Island II,
12/15/16 (a) (f) Non-rated $ 990,040 $ 990,000
9,000,000 MCPA2 1998-PA B2, 7.32% 6/23/10 B+ 7,803,180 7,560,000
1,950,000 MKP 4A CS, 2.00% 7/12/40 Non-rated 1,950,000 1,950,000
------------------ ------------------
$ 15,143,515 $ 14,905,000
------------------ ------------------
COMMERCIAL LOANS - 14.9%
6,000,000 CS First Boston 1998-C2 H, 6.75% 11/11/30 (a) B 4,075,779 4,005,060
1,763,536 CS First Boston Mortgage 1995-WF1 G, 8.488% 12/21/27 Non-rated 1,763,536 1,751,614
2,601,437 Enterprise Mortgage 1998-1 A2, 6.38% 1/15/25 (a) B 2,462,297 2,499,346
12,170,000 Enterprise Mortgage 1998-1 A3, 6.63% 1/15/25 (a) B 6,952,973 6,997,750
8,975,651 Enterprise Mortgage 1999-1 A2, 6.90% 10/15/25 (a) CCC 3,075,793 2,692,695
19,699,781 Enterprise Mortgage 2000-1 A1, 7.575% 1/15/27 (a) B- 11,912,253 11,031,877
17,664,734 Enterprise Mortgage 2000-1 A2, 7.505% 1/15/27 (a) B- 9,904,053 9,892,251
5,000,000 FFCA Secured Lending 1999-2 B1, 8.27% 5/18/26 (a) CCC 3,071,239 2,582,950
4,000,000 GMAC Commercial Mortgage 1997-C2 F, 6.75% 4/15/29 B 2,775,676 3,131,000
3,000,000 GMAC Commercial Mortgage 2000-C1 H, 7.00% 3/15/33 (a) B+ 2,700,483 2,866,050
6,000,000 GS Mortgage 1998-C1 H, 6.00% 10/18/30 (a) CCC 2,892,654 2,845,260
3,000,000 Merrill Lynch Mortgage 1998-C1 F, 6.25% 11/15/26 CCC 1,779,887 1,742,640
1,970,000 Salomon Brothers Mortgage 2000-C2 J, 6.308% 7/18/33 BB 1,715,984 1,550,489
------------------ ------------------
$ 55,082,607 $ 53,588,982
------------------ ------------------
EQUIPMENT LEASES - 5.3%
4,000,000 Airplanes Pass Through Trust 2001-1A A9, 3.14% 3/15/19 BB+ 2,150,237 2,135,000
1,539,131 DVI Receivables 2002-1 A3A, 3.121% 6/11/10 CCC+ 1,089,567 1,088,935
4,000,000 Embarcadero Aircraft 2000-A A1, 3.07% 8/15/25 (a) BB 2,275,331 2,320,000
2,000,000 Ocean Star 2004-A E, 8.606% 11/12/18 (a) BB- 2,002,417 2,015,000
6,000,000 Pegasus Aviation Lease 1999-1A A2, 6.30% 3/25/29 (a) CCC+ 3,115,107 2,985,000
47
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
9,639,989 Pegasus Aviation Lease 2000-1 A1, 3.275% 3/25/15(a) B- $ 5,165,474 $ 5,097,144
5,000,000 Pegasus Aviation Lease 2000-1 A2, 8.37% 3/25/30(a) B- 3,230,376 3,321,155
------------------ ------------------
$ 19,028,509 $18,962,234
------------------ ------------------
FRANCHISE LOANS - 5.9%
1,000,000 Falcon Franchise Loan 1999-1 E, 6.50% 1/5/14 BB 828,921 806,620
1,000,000 Falcon Franchise Loan 2001-1 F, 6.50% 1/5/23 CCC+ 678,833 659,330
2,585,405 FMAC Loan Trust 1996-B A1, 7.629% 11/15/18 (a) D 1,906,001 1,860,796
6,825,046 FMAC Loan Trust 1996-B A2, 2.60% 11/15/18 (a) D 4,436,622 4,333,904
1,401,041 FMAC Loan Trust 1997-B A, 6.85% 9/15/19 (a) B 1,217,838 1,330,989
7,135,064 FMAC Loan Trust 1998-A A3, 6.69% 9/15/20 (a) C 5,428,374 5,315,623
4,364,860 FMAC Loan Trust 1998-BA A2, 6.74% 11/15/20 (a) 3,258,648 3,003,473
FMAC Loan Trust 1998-BA AX, 1.34% 11/15/20 C 610,237 574,426
interest-only strips (a)
6,000,000 FMAC Loan Trust 1998-CA A3, 6.99% 6/15/12 (a) CCC+ 3,582,589 3,366,960
------------------ ------------------
$ 21,948,063 $21,252,121
------------------ ------------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) - 15.4%
8,892,000 Ace Securities 2004-HE1 B, 4.60% 2/25/34 BB 7,590,644 8,091,720
10,855,000 Ace Securities 2004-OP1 B, 4.60% 4/25/34 BB 8,915,409 9,986,600
4,114,000 Ace Securities 2004-RM1 B2, 1.436% 7/25/34 (a) Non-rated 3,329,187 3,743,740
2,057,000 Ace Securities 2004-RM1 B3, 1.436% 7/25/34 (a) Non-rated 1,545,452 1,789,590
1,177,332 Delta Funding Home Equity 2000-4 B, 7.15% 2/15/31 D 463,339 435,613
2,100,000 Equifirst Mortgage 2004-2 B1, 4.74% 7/25/34 (a) BB+ 1,724,383 1,869,000
2,732,000 Equifirst Mortgage 2004-2 B2, 4.74% 7/25/34 (a) BB 2,163,288 2,267,560
1,000,000 Equifirst Mortgage 2005-1 B3, 6.08% 4/25/35 (a) BB- 827,626 827,500
1,000,000 Equifirst Mortgage 2005-1 B4, 6.08% 4/25/35 (a) Non-rated 827,001 826,880
48
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
First Franklin Mortgage 2004-FF5 B, 4.47% Non-rated $ 2,212,318 $ 2,475,000
2,750,000 8/25/34 (a)
First Franklin Mortgage 2004-FFH2 B2, 4.25% BB 2,429,741 2,670,000
3,000,000 6/25/34 (a)
First Franklin Mortgage 2004-FFH3 B1, 5.10% BB+ 2,073,450 2,325,000
2,500,000 10/25/34 (a)
2,000,000 GSAMP Trust 2004-AR1 B5, 5.00% 6/25/34 (a) Non-rated 1,552,348 1,550,000
2,458,669 Long Beach Mortgage 2001-4 M3, 4.93% 3/25/32 CCC+ 2,178,233 2,089,869
3,000,000 Long Beach Mortgage 2004-2 B, 5.50% 6/25/34 (a) BB+ 2,416,943 2,700,000
3,000,000 Meritage Mortgage 2004-2 B1, 4.829% 1/25/35 (a) Non-rated 2,428,120 2,580,000
2,000,000 Meritage Mortgage 2004-2 B2, 4.829% 1/25/35 (a) Non-rated 1,569,483 1,670,000
Merrill Lynch Mortgage 2005-SL1 B5, 6.27%
2,000,000 1/25/35 (a) BB 1,784,852 1,784,420
1,830,000 Terwin Mortgage 2004-16SL B3, 6.34% 10/25/34 BB 1,505,447 1,573,800
Terwin Mortgage 2005-3SL B6, 11.50% 3/25/35 Non-rated 4,028,611 4,025,360
interest-only strips ------------------ ------------------
$ 51,565,875 $ 55,281,652
------------------ ------------------
MANUFACTURED HOUSING LOANS - 11.6
2,300,000 BankAmerica Manufactured Housing 1997-1 B1, Zero CC 632,746 599,771
Coupon Bond 6/10/21 (d)
5,524,350 Bombardier Capital Mortgage 1999-B M1, 8.12% CC 564,981 276,218
12/15/29
4,693,541 Conseco Finance 2000-5 M2, 9.03% 2/1/32 CCC- 555,181 398,951
2,000,000 Conseco Finance 2001-1 M1, 7.535% 7/1/32 CCC- 720,482 462,500
3,576,357 Green Tree Financial 1996-4 M1, 7.75% 6/15/27 B+ 2,897,139 2,854,935
1,479,336 Green Tree Financial 1996-5 B1, 8.10% 7/15/27 CCC- 355,708 340,247
8,000,000 Green Tree Financial 1997-8 M1, 7.02% 10/15/27 B+ 5,389,409 5,517,792
7,000,000 Green Tree Financial 1999-4 M1, 7.60% 5/1/31 CCC 1,927,632 1,351,280
18,000,000 Green Tree Financial 1999-5 M1, 8.05% 3/1/30 CCC 5,137,388 4,020,480
14,545,000 Greenpoint Manufactured Housing 1999-5 M2, 9.23% CC 10,590,407 9,017,042
12/15/29
49
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
7,500,000 Greenpoint Manufactured Housing 2000-1 M2, CC $ 838,157 $ 656,250
8.78% 3/20/30
10,000,000 Greenpoint Manufactured Housing 2000-3 IM1, B- 4,682,138 2,919,970
9.01% 6/20/31
10,000,000 Madison Avenue Manufactured Housing 2002-A B ,785,222 3,300,000
B2, 4.34% 3/25/32
5,389,000 Merit Securities 12-1 1M2, 7.35% 7/28/33 CC 4,040,926 3,242,076
5,886,000 Merit Securities 13 M2, 7.88% 12/28/33 CC 3,184,837 2,376,649
1,500,000 Oakwood Mortgage 2002-A M1, 7.76% 3/15/32 CCC 511,694 472,350
10,000,000 Oakwood Mortgage 2002-B M1, 7.62% 6/15/32 B 3,751,543 3,599,300
UCFC Manufactured Housing 1997-2 B1, Zero
5,000,000 Coupon Bond 2/15/18 CC 844,012 400,000
------------------ ------------------
$ 50,409,602 $ 41,805,811
------------------ ------------------
RECREATIONAL EQUIPMENT - 0.6%
2,525,502 Green Tree Recreational Equipment 1996-B
CTFS, 7.70% 7/15/18 CCC- 2,207,280 2,184,560
------------------ ------------------
$ 227,295,179 $ 220,023,200
------------------ ------------------
TOTAL ASSET BACKED SECURITIES - NON-INVESTMENT GRADE
CORPORATE BONDS - NON-INVESTMENT GRADE - 25.9% OF NET ASSETS
BUSINESS SERVICES - 1.1%
500,000 Danka Business Systems, 10.00% Bond 4/1/08 Non-rated 485,491 421,250
2,000,000 MSX International, 11.375% Bond 1/15/08 CCC+ 1,662,858 1,580,000
B- 2,029,791 2,000,000
2,000,000 MSX International, 11.00% Bond 10/15/07 ------------------ ------------------
$ 4,178,140 $ 4,001,250
------------------ ------------------
CONSTRUCTION - 0.9%
1,300,000 Integrated Electrical Services, 9.375% Bond CCC 1,188,922 1,241,500
2/1/09
2,000,000 Integrated Electrical Services, 9.375% Bond CCC 1,856,037 1,920,000
2/1/09 ------------------ ------------------
$ 3,044,959 $ 3,161,500
------------------ ------------------
50
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
ELECTRONICS - 2.2%
4,000,000 Knowles Electronics, 13.125% Bond 10/15/09 CCC $ 4,192,200 $ 4,120,000
4,000,000 Motors and Gears, 10.75% Bond 11/15/06 CCC 3,929,822 3,670,000
------------------ ------------------
$ 8,122,022 $ 7,790,000
------------------ ------------------
ENERGY - 1.7%
2,500,000 Abraxas Petroleum, Zero Coupon Bond 12/1/09 Non-rated 2,500,000 2,450,000
750,000 Calpine, 8.75% Bond 7/15/13 (a) B 617,441 566,250
925,000 Calpine, 9.875% Bond 12/1/11 (a) B 789,330 730,750
2,500,000 United Refining, 10.50% Bond 8/15/12 (a) B- 2,468,534 2,559,375
------------------ ------------------
$ 6,375,305 $ 6,306,375
------------------ ------------------
FINANCE - 1.5%
1,000,000 Advanta Capital Trust I, 8.99% 12/17/26 CCC 986,321 972,500
3,000,000 Labranche, 9.50% Bond 5/15/09 B 3,020,769 3,015,000
1,250,000 Labranche, 11.00% Bond 5/15/10 B 1,340,127 1,325,000
------------------ ------------------
$ 5,347,217 $ 5,312,500
------------------ ------------------
FOOD - 1.4%
700,000 Ameriqual Group, 9.00% Bond 4/1/12 (a) B+ 700,000 700,000
6,000,000 Land O Lakes, 7.45% Bond 3/15/28 (a) CCC 3,706,460 4,170,000
----------------- ------------------
$ 4,406,460 $ 4,870,000
----------------- ------------------
HEALTH CARE - 0.9%
2,700,000 Curative Health, 10.75% Bond 5/1/11 B- 2,433,232 2,220,750
1,000,000 Hanger Orthopedic Group, 10.375% Bond 2/15/09 CCC+ 985,432 992,500
----------------- ------------------
$ 3,418,664 $ 3,213,250
----------------- ------------------
MANUFACTURING - 6.5%
4,000,000 Consolidated Container, 10.125% Bond 7/15/09 CCC 3,790,914 3,720,000
2,650,000 Dura Operating, 9.00% Bond 5/1/09 CCC+ 2,558,440 2,093,500
1,000,000 Elgin National, 11.00% Bond 11/1/07 CCC- 950,944 947,960
4,000,000 Foamex, 10.75% Bond 4/1/09 B- 3,889,157 3,520,000
2,000,000 GSI Group, 10.25% Bond 11/1/07 CCC+ 2,005,259 2,000,000
Intermet, Zero Coupon Bond
1,800,000 6/15/09 in default (d) Non-rated 1,155,844 1,008,000
3,000,000 MMI Products, 11.25% Bond 4/15/07 CCC 3,001,184 2,985,000
51
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
3,450,000 US Can, 12.375% Bond 10/1/10 CCC+ $ 3,266,944 $ 3,243,000
4,000,000 VITRO S.A., 11.75% Bond 1/1/13 (a) (e) B- 3,848,183 3,800,000
----------------- ------------------
$ 24,466,869 $ 23,317,460
----------------- ------------------
PRINTING - 0.2%
1,100,000 American Color Graphics, 10.00% Bond 6/15/10 CCC 801,346 715,000
RETAIL - 1.5%
3,975,000 General Nutrition, 8.50% 12/1/10 CCC+ 3,642,306 3,378,750
1,000,000 New World Restaurant, 13.00% Bond 7/1/08 CCC+ 1,005,266 1,020,000
1,250,000 Star Gas Partner, 10.25% Bond 2/15/13 CCC- 1,165,826 1,156,250
----------------- ------------------
$ 5,813,398 $ 5,555,000
----------------- ------------------
TOBACCO - 0.7%
3,300,000 North Atlantic Trading, 9.25% Bond 3/1/12 CCC 3,179,008 2,475,000
TELECOMMUNICATIONS - 6.0%
250,000 American Cellular, 10.00% Bond 8/1/11 B- 217,929 230,000
4,050,000 BARAK I.T.C., Zero Coupon Bond 11/15/07 in default (d)(e) Non-rated 3,221,935 2,187,000
600,000 Call-Net Enterprises, 10.625% Bond 12/31/08 (e) B 587,533 630,000
3,374,000 Charter Communication, Zero Coupon Bond 5/15/11 CCC- 2,672,192 2,328,060
2,000,000 Charter, 10.00% Bond 5/15/11 CCC- 1,681,935 1,535,000
3,400,000 Level 3 Financing, 10.75% Bond 10/15/11 (a) CC 2,963,528 2,983,500
1,020,000 Primus Telecommunications, 12.75% Bond 1/26/05 CCC 976,892 938,400
2,500,000 Primus Telecommunications, 8.00% Bond 1/15/14 CCC 2,123,032 1,800,000
3,350,000 Rural Cellular, 9.75% Bond 1/15/10 CCC 3,090,299 3,065,250
5,750,000 Time Warner, 10.125% Bond 2/1/11 CCC+ 5,565,830 5,548,750
400,000 Transtel SA, 12.50% Bond 12/31/08 (a) Non-rated 375,288 376,000
----------------- ------------------
$ 23,476,393 $ 21,621,960
----------------- ------------------
TRANSPORTATION - 1.0%
3,750,000 Greyhound Lines, 11.50% Bond 4/15/07 CCC- 3,679,576 3,768,750
52
Principal NRSRO
Amount/ Rating Market
Shares Description (Unaudited) Cost Value (b)
TRAVEL - 0.3%
1,000,000 Worldspan Financial, 9.024% Bond 2/15/11 (a) CCC+ $ 997,620 $ 970,000
----------------- ------------------
TOTAL CORPORATE BONDS - NON-INVESTMENT GRADE $ 97,306,977 $ 93,078,045
----------------- ------------------
MORTGAGE BACKED SECURITIES - INVESTMENT GRADE - 3.3% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATION - 3.3%
Harborview Mortgage 2004-1 X, 1.90% 4/19/34
interest-only strips AAA 2,736,980 1,841,475
Harborview Mortgage 2004-8 X, 0.50% 11/19/34
interest-only strips AAA 2,864,456 2,818,971
Mellon Residential 2004-TBC1 X, 0.716% 2/26/34
interest-only strips (a) AAA 1,384,555 1,222,989
2,960,648 Structured Asset Securities 1999-SP1, 9.00% 5/25/29 BBB 3,003,256 2,962,919
3,651,000 Structured Asset Securities 2004-8 B2, 5.00% 9/25/34 BBB- 3,105,982 3,075,164
----------------- ------------------
TOTAL MORTGAGE BACKED SECURITIES - INVESTMENT GRADE $ 13,095,229 $ 11,921,518
----------------- ------------------
GOVERNMENT AGENCY SECURITIES - 2.1% OF NET ASSETS
Fannie Mae 1998-M7 N, 1.057% 5/25/36 interest-only
strips (c) Non-rated 3,707,404 2,553,225
GNMA 2003-64 XA, 1.20% 8/16/43 interest-only strips(c)
Non-rated 9,699,772 4,873,072
----------------- ------------------
TOTAL GOVERNMENT AGENCY SECURITIES $ 13,407,176 $ 7,426,297
----------------- ------------------
MUNICIPAL SECURITIES - 0.2% OF NET ASSETS
1,000,000 Pima County Arizona IDA Health Care, 8.50% 11/15/32 Non-rated 625,032 619,860
COMMON STOCKS - 13.1% OF NET ASSETS
75,562 American Capital Strategies, Ltd. 2,284,869 2,373,402
87,000 Andrx Corporation (d) 1,729,944 1,972,290
85,800 Anthracite Capital, Inc. 974,214 955,812
8,800 Bank of America Corporation 350,245 388,080
10,800 Best Buy Co., Inc. 572,234 583,308
2,400 BP Prudhoe Bay Royalty Trust 94,360 167,520
27,000 Cimarex Energy Co. (d) 1,035,565 1,053,000
79,900 Cisco Systems, Inc. (d) 1,429,540 1,429,411
53
Principal
Amount/ Market
Shares Description Cost Value (b)
6,900 Cooper Cameron Corporation (d) 384,521 394,749
21,800 Cree, Inc. (d) 467,913 474,150
10,800 Devon Energy Corporation 389,070 515,700
24,200 Exxon Mobil Corporation 1,299,447 1,442,320
11,500 First Data Corporation $ 460,523 $ 452,065
20,500 Frontline Ltd. 990,701 1,004,500
49,700 Intersil Corporation 749,060 860,804
21,850 Kerr-McGee Corporation 1,277,026 1,711,511
15,550 Kinder Morgan Energy Partners, L.P. 695,486 699,750
18,200 L-3 Communications Holdings, Inc. 1,087,079 1,292,564
76,500 Limited Brands, Inc. 1,530,338 1,858,950
31,800 Lincoln Electric Holdings, Inc. 968,165 956,544
7,200 Magellan Midstream Partners, L.P. 390,140 439,560
10,100 Magyar Tavkozlesi Rt. 201,495 237,855
182,250 MCG Capital Corporation 3,272,176 2,803,916
48,500 Microsoft Corporation 1,187,059 1,172,245
72,550 New Century Financial Corporation 3,679,242 3,396,791
13,500 Newfield Exploration Company (d) 944,715 1,002,510
18,400 Oceaneering International, Inc. (d) 672,111 690,000
117,500 OmniVision Technologies, Inc. 1,762,500 1,780,125
14,700 Petroleo Brasileiro S.A. 528,735 649,446
30,000 Polycom, Inc. (d) 485,989 508,500
9,400 Range Resources Corporation 200,458 219,584
50,400 Regal Entertainment Group 975,636 1,059,912
31,310 Ship Finance International Limited 676,515 635,593
16,400 Storage Technology Corporation 393,086 505,120
117,647 Technology Investment Capital Corporation 1,699,169 1,758,823
15,000 Teva Pharmaceutical Industries Limited 444,000 464,850
40,400 The Home Depot, Inc. 1,476,803 1,544,896
18,300 Tidewater, Inc. 559,125 711,138
28,300 TOP Tankers Inc. 510,257 524,965
67,150 Trustreet Properties Inc. 1,092,870 1,033,438
27,100 Tsakos Energy Navigation Limited 975,117 1,193,213
16,300 Unit Corporation (d) 652,706 736,271
93,500 UTStarcom, Inc. (d) 1,755,990 1,023,825
900 Valero L.P. 49,762 54,225
10,300 Wal-Mart Stores, Inc. 532,840 516,133
24,800 XL Capital Ltd. 1,858,760 1,794,776
----------------- ------------------
TOTAL COMMON STOCKS $ 45,747,556 $ 47,044,140
----------------- ------------------
CORPORATE LOANS - 0.3% OF NET ASSETS
Xspedius, 9.22% 3/1/10 1,250,000 1,250,000
54
Principal
Amount/ Market
Shares Description Cost Value (b)
EURODOLLAR TIME DEPOSITS - 1.9% OF NET ASSETS
State Street Bank & Trust Company Eurodollar time deposits dated
March, 31 2005, 1.75% maturing at $6,820,332 on April 1, 2005. $ 6,820,000 $ 6,820,000
----------------- ------------------
TOTAL INVESTMENTS - 134.1% OF NET ASSETS $ 496,836,886 $ 482,518,448
----------------- ------------------
OTHER ASSETS AND LIABILITIES, NET - (34.1%) OF NET ASSETS (122,736,952)
------------------
------------------
NET ASSETS $ 359,781,496
------------------
------------------
(a) Securities sold within the terms of a private placement memorandum, exempt from registration under Rule 144A under the
Securities Act of 1933, as amended, and may be resold in transactions exempt from registration, normally to qualified
institutional buyers. Pursuant to guidelines adopted by the Board of Directors, these issues have been determined to be liquid
by Morgan Asset Management, Inc., the Fund's investment adviser.
(b) See Note 2 of accompanying Notes to Financial Statements regarding valuation of securities.
(c) The issuer is a publicly-traded company that operates under a congressional charter; its securities are neither issued nor
guaranteed by the U. S. government.
(d) These securities are non-income producing.
(e) These securities are classified as Yankee Bonds, which are U.S. dollar denominated bonds issued in the United States by a
foreign entity.
(f) Trust preferred security with no stated interest rate.
NRSRO--Nationally Recognized Statistical Rating Organization.
55
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2005
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
ASSETS INCOME FUND INCOME FUND INCOME FUND
Investments, in securities as detailed in the
accompanying schedules at market (cost
$466,688,164, $426,830,280, and $496,836,886,
respectively) $ 463,323,025 $ 424,991,965 $ 482,518,448
Cash on deposit with custodian 11,651 10,890 -
Dividends and interest receivable 5,551,084 6,886,246 7,000,063
Receivable for securities sold 2,608,186 2,656,225 3,617,490
Other assets - 13,524 -
Debt issue costs 96,986 79,872 87,461
--------------------- ------------------ --------------------
TOTAL ASSETS 471,590,932 434,638,722 493,223,462
LIABILITIES
Demand loan payable to bank (Note 6) 50,000,000 115,000,000 125,000,000
Interest payable 32,035 350,037 506,263
Accrued expenses 43,948 55,105 61,599
Due to affiliates 282,838 292,227 329,430
Payable for securities purchased 17,568,969 5,210,407 7,544,674
--------------------- ------------------ --------------------
TOTAL LIABILITIES 67,927,790 120,907,776 133,441,966
--------------------- ------------------ --------------------
NET ASSETS $ 403,663,142 $ 313,730,946 $ 359,781,496
===================== ================== ====================
NET ASSETS CONSIST OF:
Net unrealized depreciation of investments (3,365,139) (1,838,315) (14,318,438)
Common stock, $.0001 par value (1,000,000,000 shares
authorized for each fund) 2,809 2,087 2,529
Paid-in capital 402,226,134 301,523,119 362,969,114
Undistributed net investment income 104,784 291,458 1,597,435
Accumulated net realized gain on investments 4,694,554 13,752,597 9,530,856
--------------------- ------------------ --------------------
NET ASSETS $ 403,663,142 $ 313,730,946 $ 359,781,496
===================== ================== ====================
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Common shares outstanding 28,086,820 20,871,995 25,288,664
Net asset value per share $14.37 $15.03 $14.23
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
56
STATEMENTS OF OPERATIONS
March 31, 2005
For the year ended March 31, 2005
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INVESTMENT INCOME: INCOME FUND(a) INCOME FUND INCOME FUND
Interest $ 16,854,401 $ 48,956,157 $ 47,902,469
Dividends 337,345 1,048,562 1,584,156
--------------------- ------------------ --------------------
TOTAL INVESTMENT INCOME 17,191,746 50,004,719 49,486,625
EXPENSES:
Management fees 979,749 2,650,664 2,758,232
Accounting and administrative fees 226,096 611,692 636,515
Interest expense 32,035 2,701,516 2,110,286
Debt issue expense 3,014 230,772 144,241
Legal fees 13,948 97,553 83,218
Audit fees 41,000 56,600 33,804
Transfer agent fees 19,796 37,019 42,047
Custodian fees 5,771 18,230 15,126
Registration fees 41,693 54,805 39,066
Directors fees 20,250 44,875 42,875
Other 21,041 46,793 37,531
--------------------- ------------------ --------------------
TOTAL EXPENSES 1,404,393 6,550,519 5,942,941
NET INVESTMENT INCOME 15,787,353 43,454,200 43,543,684
Realized and Unrealized Gains (Losses) on Investments:
Change in unrealized depreciation (3,365,139) (11,718,935) (13,962,527)
Net realized gain on securities 2,351,807 14,869,629 8,604,501
--------------------- ------------------ --------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 14,774,021 $ 46,604,894 $ 38,185,658
===================== ================== ====================
(a) Reflects operations for the period from November 8, 2004 (commencement of investment operations) to March 31, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
57
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STATEMENTS OF CHANGES IN NET ASSETS
RMK ADVANTAGE
INCOME FUND
Period Ended
March 31, 2005(a)
-------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 15,787,353
Unrealized appreciation (depreciation), net (3,365,139)
Net realized gain from investment transactions 2,351,807
--------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 14,774,021
--------------------
Distributions to shareholders from net investment income (13,339,822)
Distributions to shareholders in excess of net investment income -
Distributions to shareholders from net realized gain on investments -
--------------------
TOTAL DISTRIBUTION TO SHAREHOLDERS (13,339,822)
--------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (27,600,000 shares) 394,930,648
Proceeds from shares sold (18,933,400 shares) -
Proceeds from shares sold (3,150,000 and 21,000,000 shares) -
Proceeds from sales of shares as a result of reinvested dividends (479,839 shares) 7,198,292
Proceeds from sales of shares as a result of reinvested dividends (1,308,189 and 623,425
shares) -
Proceeds from sales of shares as a result of reinvested dividends (1,131,683 shares) -
--------------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 402,128,940
--------------------
TOTAL INCREASE IN NET ASSETS 403,563,139
NET ASSETS
Beginning of Period 100,003
--------------------
End of Period $ 403,663,142
====================
58
STATEMENTS OF CHANGES IN NET ASSETS
RMK HIGH
INCOME FUND
Year Ended Period Ended
March 31, 2005 March 31, 2004(b)
-------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 43,454,200 $ 21,389,038
Unrealized appreciation (depreciation), net (11,718,935) 9,880,620
Net realized gain from investment transactions 14,869,629 11,000,226
--------------- ----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 46,604,894 42,269,884
--------------- ----------------
Distributions to shareholders from net investment income (41,663,366) (19,406,371)
Distributions to shareholders in excess of net investment income - -
Distributions to shareholders from net realized gain on investments (12,333,973) (3,265,328)
--------------- ----------------
TOTAL DISTRIBUTION TO SHAREHOLDERS (53,997,339) (22,671,699)
--------------- ----------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (27,600,000 shares) - -
Proceeds from shares sold (18,933,400 shares) - 270,609,979
Proceeds from shares sold (3,150,000 and 21,000,000 shares) - -
Proceeds from sales of shares as a result of reinvested dividends (479,839 shares) - -
Proceeds from sales of shares as a result of reinvested dividends (1,308,189 and 623,425
shares) 21,351,697 9,463,527
Proceeds from sales of shares as a result of reinvested dividends (1,131,683 shares) - -
--------------- ----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 21,351,697 280,073,506
--------------- ----------------
TOTAL INCREASE IN NET ASSETS 13,959,252 299,671,691
NET ASSETS
Beginning of Period 299,771,694 100,003
--------------- ----------------
End of Period $ 313,730,946 $ 299,771,694
=============== ================
RMK STRATEGIC
INCOME FUND
Year Ended Period Ended
March 31, 2005 March 31, 2004(c)
-------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 43,543,684 $ 414,724
Unrealized appreciation (depreciation), net (13,962,527) (355,911)
Net realized gain from investment transactions 8,604,501 3,256
--------------- ---------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 38,185,658 62,069
--------------- ---------------
Distributions to shareholders from net investment income (41,437,874) -
Distributions to shareholders in excess of net investment income - -
Distributions to shareholders from net realized gain on investments - -
--------------- ---------------
TOTAL DISTRIBUTION TO SHAREHOLDERS (41,437,874) -
--------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (27,600,000 shares) - -
Proceeds from shares sold (18,933,400 shares) - -
Proceeds from shares sold (3,150,000 and 21,000,000 shares) 45,123,750 300,385,664
Proceeds from sales of shares as a result of reinvested dividends (479,839 shares) - -
Proceeds from sales of shares as a result of reinvested dividends (1,308,189 and 623,425
shares) - -
Proceeds from sales of shares as a result of reinvested dividends (1,131,683 shares) 17,362,226 -
--------------- ---------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS 62,485,976 300,385,664
--------------- ---------------
TOTAL INCREASE IN NET ASSETS 59,233,760 300,447,733
NET ASSETS
Beginning of Period 300,547,736 100,003
--------------- ---------------
End of Period $ 359,781,496 $ 300,547,736
=============== ===============
(a) For the period from November 8, 2004 (commencement of investment operations) to March 31, 2005.
(b) For the period from June 24, 2003 (commencement of investment operations) to March 31, 2004.
(c) For the period from March 18, 2004 (commencement of investment operations) to March 31, 2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
59
STATEMENTS OF CASH FLOWS
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Period Ended Year Ended Year Ended
March 31, 2005(a) March 31, 2005 March 31, 2005
------------------ --------------- -----------------
INCREASE (DECREASE) IN CASH -
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 14,774,021 $ 46,604,894 $ 38,185,658
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS
TO NET CASH USED IN OPERATING ACTIVITIES
Purchase of investment securities (516,640,770) (334,419,364) (513,186,550)
Proceeds from disposition of investment securities 68,050,884 260,200,967 256,760,994
Purchase of short-term investment securities, net (26,565,243) 1,321,636 74,425,779
Proceeds from principal payments 15,348,135 28,884,569 27,540,054
Change in unrealized appreciation on securities 3,365,139 11,718,935 13,962,527
Amortization/accretion of premiums/discount on securities (2,186,833) (2,985,204) (6,161,781)
Net realized gain on investments (2,351,807) (14,869,629) (8,604,501)
Net realized gain on principal payments (2,342,530) (2,501,041) (920,284)
Amortization of debt issue costs 3,014 230,772 144,241
Increase (decrease) in dividends and interest receivable (5,551,084) (1,257,640) (3,498,771)
Increase (decrease) in receivables for securities sold (2,608,186) 286,704 (3,578,867)
Increase (decrease) in payables for securities purchased 17,568,969 (683,257) (21,699,640)
Increase in interest payable 32,035 164,360 506,263
Increase in accrued expenses 43,948 7,474 28,524
Increase in due to affiliates 282,838 49,669 270,194
------------------ --------------- -----------------
Net cash used in operating activities (438,777,470) (7,246,155) (145,826,160)
------------------ --------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loan payable 50,000,000 40,000,000 125,000,000
Cash paid for debt issue costs (100,000) (108,375) (231,702)
Proceeds from shares sold 394,930,648 - 45,123,750
Cash distributions paid (6,141,530) (32,645,642) (24,075,648)
------------------ --------------- -----------------
Net cash provided by financing activities 438,689,118 7,245,983 145,816,400
------------------ --------------- -----------------
NET DECREASE IN CASH (88,352) (172) (9,760)
CASH
Beginning balance 100,003 11,062 9,760
------------------ --------------- -----------------
Ending balance $ 11,651 $ 10,890 $ -
================== =============== =================
Supplemental disclosure of cash flow information: Noncash financing activities not included herein consist of reinvestment of
dividends and distributions of $7,198,292, $21,351,697, and $17,362,226 respectively.
Total cash paid for interest was $0, $2,537,156, and $1,604,023 respectively.
(a) For the period from November 8, 2004 (commencement of investment operations) to March 31, 2005.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
60
NOTE 1: ORGANIZATION
RMK Advantage Income Fund, Inc., RMK High Income Fund, Inc. and RMK Strategic
Income Fund, Inc. (individually referred to as the "Fund," or collectively as
the "Funds") are registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as diversified, closed-end management investment companies.
The Funds' primary investment objectives and principal investment strategies are
as follows:
o RMK ADVANTAGE INCOME FUND seeks a high level of income by investing in
below investment grade bonds (commonly referred to as "junk bonds").
The ability of the issuers of the securities held by the Fund to meet
their obligations might be affected by economic developments in a
specific industry, state, or region. The Fund seeks capital growth as
a secondary objective when consistent with the Fund's primary
objective. Under normal circumstances, the Fund invests a majority of
its total assets in below investment-grade bonds that Morgan Asset
Management, Inc. (the "Adviser") believes offer attractive yield and
capital appreciation potential. The Fund commenced investment
operations on November 8, 2004.
o RMK HIGH INCOME FUND seeks a high level of income by investing in
below investment grade bonds (commonly referred to as "junk bonds").
The ability of the issuers of the securities held by the Fund to meet
their obligations might be affected by economic developments in a
specific industry, state, or region. The Fund seeks capital growth as
a secondary objective when consistent with the Fund's primary
objective. Under normal circumstances, the Fund invests a majority of
its total assets in below investment-grade bonds that the Adviser
believes offer attractive yield and capital appreciation potential.
The Fund commenced investment operations on June 24, 2003.
o RMK STRATEGIC INCOME FUND seeks a high level of income by investing in
a diversified portfolio of securities that offers attractive yield and
capital appreciation potential and consists primarily of debt
securities and secondarily of equity securities. The ability of the
issuers of the securities held by the Fund to meet their obligations
might be affected by economic developments in their specific industry,
state, or region. The Fund seeks capital growth as a secondary
objective when consistent with the Fund's primary objective. The
Adviser continually analyzes the markets for income-producing
securities and periodically reallocates the Fund's investments among
various fixed-income and equity asset classes and between investment
grade and below-investment grade securities to pursue its investment
objectives. The Fund commenced investment operations on March 18,
2004.
61
Capitalization for each Fund was provided by the Adviser as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Organization date Sept. 7, 2004 Apr. 16, 2003 Jan. 16, 2004
Initial Capitalization date Oct. 29, 2004 Jun. 11, 2003 Mar. 11, 2004
Amount of initial Capitalization $100,003 $100,003 $100,003
Shares issued at Capitalization 6,981 6,981 6,981
Shares authorized 1,000,000,000 1,000,000,000 1,000,000,000
Public offering date Nov. 8, 2004 Jun. 24, 2003 Mar. 18, 2004
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with accounting principles generally accepted in the
United States of America.
INVESTMENT VALUATIONS--Investments in securities that trade on national
securities exchanges are stated at the last reported sales price on the day of
valuation. Securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are stated at the last
quoted bid price. The Funds normally obtain market values for their securities
from an independent pricing service or from the use of an internal matrix system
that derives value based on comparable securities. Debt securities with
remaining maturities of 60 days or less are valued at amortized cost, or
original cost plus accrued interest, both of which approximate market. When a
Fund believes that a market quote does not reflect a security's true value, the
Fund may substitute for the market value a fair value estimate made according to
methods approved by the Board of Directors. The values assigned to fair value
investments are based on available information and do not necessarily represent
amounts that might ultimately be realized, since such amounts depend on future
developments inherent in long-term investments. Further, because of the inherent
uncertainty of valuation, such estimated values may differ significantly from
the values that would have been used had a ready market for the investments
existed, and the differences could be material.
OPTION WRITING--When a Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current fair value of the option written. Premiums received from writing
options that expire unexercised are treated by the Fund on the expiration date
as realized gains from investments. If a call option is exercised, the premium
is added to the proceeds from the sale of the underlying security in determining
whether the Fund has realized a gain or loss. If a put option is exercised, the
premium reduces the cost basis of the securities purchased by the Fund. The Fund
as writer of an option bears the market risk of an unfavorable change in the
price of the security underlying the written option.
62
Transactions in options written during the period ended March 31, 2005 were as
follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Number of Premiums Number of Premiums Number of Premiums
Contracts Received Contracts Received Contracts Received
--------- -------- --------- -------- --------- --------
Options outstanding at
March 31, 2004 - $ - - $ - - $ -
Options written - - 828 59,156 1,117 84,638
Options expired - - (357) (5,774) (420) (6,380)
Options exercised - - (471) (53,382) (697) (78,258)
Options outstanding at March 31, 2005 - $ - - $ - - $ -
REPURCHASE AGREEMENTS--The Funds may engage in repurchase agreement
transactions. Under the terms of a typical repurchase agreement, a Fund takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and a Fund to resell, the obligation at an agreed-upon
price and time, thereby determining the yield during a Fund's holding period.
The value of the collateral is at all times at least equal to the total amount
of the repurchase obligation, including interest. In the event of counterparty
default, a Fund has the right to use the collateral to satisfy the terms of the
repurchase agreement. However, there could be potential loss to the Fund in the
event the Fund is delayed or prevented from exercising its right to dispose of
the collateral securities, including the risk of possible decline in the value
of the collateral securities during the period while the Fund seeks to assert
its rights. The Adviser reviews the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
INVESTMENT INCOME, GAINS AND LOSSES, EXPENSES AND DISTRIBUTIONS--Interest income
and expenses are accrued daily. Dividend income and distributions to
shareholders are recognized on the ex-dividend date. Investment transactions are
accounted for on a trade date basis. Realized gains and losses on investment
transactions are recorded on an identified cost basis. Debt issue costs are
amortized using the straight-line method over the life of the debt and are shown
net of accumulated amortization.
63
PREMIUM AND DISCOUNT AMORTIZATION/PAYDOWN GAINS AND LOSSES--All premiums and
discounts on debt securities are amortized for financial reporting purposes.
Gains and losses realized on principal payments of mortgage- and asset-backed
securities (paydown gains and losses) are classified as part of interest income.
USE OF ESTIMATES--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
increase (decrease) in net assets from operations during the period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS--All highly liquid investments with maturities of
three months or less when purchased are considered to be cash equivalents.
NOTE 3: INVESTMENT SECURITIES
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Cost of Investments $ 516,640,770 $ 334,419,364 $ 513,186,550
Proceeds from Sales 83,399,019 289,085,536 284,301,048
NOTE 4: PAYMENTS TO RELATED PARTIES
INVESTMENT ADVISER--Morgan Asset Management, Inc., which is a subsidiary of MK
Holding, Inc., which is a wholly owned subsidiary of Regions Financial
Corporation, serves as the Funds' investment adviser, and receives for its
services, an annual management fee of 0.65% based on a percentage of each Fund's
average daily total assets minus the sum of accrued liabilities other than debt
entered into for purposes of leverage. The Adviser may voluntarily choose to
waive any portion of its fee. The Adviser can modify or terminate this voluntary
waiver at any time at its sole discretion.
ACCOUNTING AND ADMINISTRATIVE SERVICES--Morgan Keegan & Company, Inc. ("Morgan
Keegan"), a wholly owned subsidiary of Regions Financial Corporation, provides
accounting and administrative services to the Funds, and receives for its
services, an annual fee of 0.15% based on a percentage of each Fund's average
daily total assets minus the sum of accrued liabilities other than debt entered
into for purposes of leverage. Morgan Keegan may voluntarily choose to waive any
portion of its fee. Morgan Keegan can modify or terminate this voluntary waiver
at any time at its sole discretion.
64
OTHER AFFILIATED PARTIES AND TRANSACTIONS--For the period ended March 31, 2005,
Morgan Keegan earned no underwriting discounts, direct commissions, or dealer
incentives on the sales and purchases of investment securities held by the
Funds.
DIRECTORS AND OFFICERS--Directors and officers of the Funds who are "interested
persons" as defined in the 1940 Act receive no salary or fees from the Funds.
Independent Directors receive an annual retainer of $4,000 and a fee of $1,000
per quarterly meeting with reimbursement for related expenses for each meeting
of the Board attended from each Fund. Each chairperson of the Independent
Directors Committee and Audit Committee receives annual compensation of $500
from each Fund. An additional $1,500 is paid to the Independent Directors for
attending special meetings in person, and an additional $500 is paid for
attending special meetings by telephone. No Director is entitled to receive
pension or retirement benefits from the Funds.
The table below sets forth the compensation paid to the Directors by the Funds
during the period covered by this report.
AGGREGATE COMPENSATION FROM THE
FUNDS DURING THE FISCAL YEAR ENDED
MARCH 31, 2005
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
NAME INCOME FUND INCOME FUND INCOME FUND
INDEPENDENT DIRECTORS
William Jefferies Mann $ 5,750(2) $ 9,125 $ 9,125
James Stillman R. McFadden $ 5,500(2) $ 8,375 $ 8,375
W. Randall Pittman $ 5,500(2) $ 8,125 $ 8,125
Mary S. Stone $ 5,500(2) $ 8,125 $ 8,125
Archie W. Willis III $ 5,500(2) $ 8,125 $ 8,125
James D. Witherington, Jr.(1) None $ 2,000 $ 2,000
DIRECTORS WHO ARE "INTERESTED
PERSONS"
J. Kenneth Alderman None None None None None
Allen B. Morgan, Jr. None None None
(1) Effective July 1, 2004, James D. Witherington, Jr. resigned from the Board
of Directors.
(2) The Adviser paid the Directors' fees in the amount of $1,500 per Director
for the initial board meeting of RMK Advantage Income Fund, Inc. which was
held on November 3, 2004 prior to the Fund commencing investment operations
on November 8, 2004.
NOTE 5: FEDERAL TAX INFORMATION
It is the Funds' policy to comply with the Subchapter M provision of the
Internal Revenue Code and to distribute to stockholders each year substantially
all of their taxable income and capital gains. Accordingly, no provision for
federal income taxes is necessary.
65
Because federal income tax regulations differ from accounting principles
generally accepted in the United States of America, income and capital gain
distributions determined in accordance with tax regulations differ from net
investment income and realized gains recognized for financial reporting
purposes. Accordingly, the character of income and capital gain distributions
and composition of net assets for tax purposes differ from those reflected in
the accompanying financial statements. These differences are primarily due to
differing treatments for gains/losses on principal payments of mortgage- and
asset-backed securities, REIT adjustments, and distribution reclasses.
For the period ended March 31, 2005, permanent differences identified and
reclassified among the components of net assets were as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Undistributed Net Investment Income $ (2,342,747) $ (2,515,493) $ (923,099)
Accumulated Net Realized Gain (Loss)
on Investments 2,342,747 2,515,493 923,099
The tax character of distributions as reported on the Statements of Changes in
Net Assets for the period ended March 31, 2005 was as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Ordinary income(1) $ 13,339,822 $ 50,976,881 $ 41,437,874
Long-term capital gains -- 3,020,458 --
-------------- -------------- ---------------
$ 13,339,822 $ 53,997,339 $ 41,437,874
============== ============== ===============
(1) For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
For the period ended March 31, 2005, the tax basis components of net assets were
as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Gross Unrealized appreciation $ 7,036,697 $ 13,993,888 $ 12,578,206
Gross Unrealized (Depreciation) (10,396,612) (16,192,052) (27,071,382)
-------------- -------------- ---------------
Net Unrealized Appreciation/(Depreciation) (3,359,915) (2,198,164) (14,493,176)
Undistributed ordinary income 4,793,897 6,913,182 11,073,907
Undistributed long-term capital gains 217 7,551,866 229,122
Other -- (61,144) --
-------------- -------------- ---------------
Distributable earnings 1,434,199 12,205,740 (3,190,147)
Paid-in capital 402,228,943 301,525,206 362,971,643
-------------- -------------- ---------------
Net Assets $ 403,663,142 $ 313,730,946 $ 359,781,496
============== ============== ===============
66
Pursuant to federal income tax regulations applicable to regulated investment
companies, the Funds have elected to treat net capital losses realized between
November 1 and March 31 of each year as occurring on the first day of the
following tax year. For the period ended March 31, 2005, there were no realized
losses of the Funds reflected in the accompanying financial statements which
will not be recognized for federal income tax purposes until next year.
At March 31, 2005, the Funds' cost of investments for federal tax purposes was
as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
Cost of Investments $ 466,682,940 $ 427,190,128 $ 497,011,625
NOTE 6: BANK LOANS
The Funds are permitted to borrow up to one-third of the value of their net
assets, before such borrowings, for investment purposes. Such borrowing is
referred to as leveraging and the Funds have collateralized bank lines of credit
for this purpose. As of March 31, 2005, the Funds' borrowing arrangements were
as follows:
o RMK ADVANTAGE INCOME FUND has a collateralized $160,000,000 bank line
of credit, which matures in March of 2006. All of the Fund's
investment securities, except for common stocks, are pledged as
collateral under the borrowing arrangement and the collateral may be
sold. As of March 31, 2005, the outstanding balance on the line of
credit was $50,000,000. Borrowings under this agreement bear interest
at a variable rate determined by the bank's conduit program, which has
historically been slightly below LIBOR. Fees of 0.13% per annum are
paid on the total line of credit, regardless of usage, and of 0.23%
per annum on the outstanding amount of borrowings. The average balance
during the period ended March 31, 2005 was $3,846,154 or $0.37 per
share, based on average shares outstanding of 10,432,524. The average
interest rate during the period ended March 31, 2005 was 2.753%. The
maximum amount of borrowings outstanding at any month-end during the
period was $50,000,000.
o RMK HIGH INCOME FUND has a collateralized $125,000,000 bank line of
credit, which matures in December of 2005. All of the Fund's
investment securities are pledged as collateral under the borrowing
arrangement and the collateral may be sold. As of March 31, 2005, the
outstanding balance on the line of credit was $115,000,000. Borrowings
under this agreement bear interest at a fixed rate on the date of
borrowing at LIBOR plus 0.75% per annum. Fees of 0.10% per annum are
paid on the total line of credit, regardless of usage. The average
balance during the period ended March 31, 2005 was $99,230,769 or
$4.93 per share, based on average shares outstanding of 20,117,261.
The average interest rate during the period ended March 31, 2005 was
2.696%. The maximum amount of borrowings outstanding at any month-end
during the period was $115,000,000.
67
o RMK STRATEGIC INCOME FUND has a collateralized $125,000,000 bank line
of credit, which matures in June of 2005. All of the Fund's investment
securities are pledged as collateral under the borrowing arrangement
and the collateral may be sold. As of March 31, 2005, the outstanding
balance on the line of credit was $125,000,000. Borrowings under this
agreement bear interest at a fixed rate on the date of borrowing at
LIBOR plus 0.60% per annum. Fees of 0.10% per annum are paid on the
total line of credit, regardless of usage. The average balance during
the period ended March 31, 2005 was $73,076,923 or $3.00 per share,
based on average shares outstanding of 24,365,234. The average
interest rate during the period ended March 31, 2005 was 2.746%. The
maximum amount of borrowings outstanding at any month-end during the
period was $125,000,000.
68
NET NET
ASSET GAINS ON TOTAL DIVIDENDS DISTRIBUTIONS
VALUE NET SECURITIES FROM FROM NET FROM
BEGINNING INVESTMENT REALIZED AND INVESTMENT INVESTMENT CAPITAL RETURN OF
OF PERIOD INCOME UNREALIZED OPERATIONS INCOME GAINS CAPITAL
RMK ADVANTAGE INCOME FUND
Period ended March 31, 2005(a) $ 14.33(d) $ 0.57 $ (0.03) $ 0.54 $ (0.48) - -
RMK HIGH INCOME FUND
Year ended March 31, 2005 15.32 2.15 0.24 2.39 (2.07) (0.61) -
Period ended March 31, 2004(b) 14.33(d) 1.11 1.09 2.20 (1.01) (0.17) -
RMK STRATEGIC INCOME FUND
Year ended March 31, 2005 14.31 1.76 (0.16) 1.60 (1.68) - -
Period ended March 31, 2004(c) 14.33(d) 0.02 (0.02) - - - -
- --------------
(a) For the period from November 8, 2004 (commencement of investment operations) to March 31, 2005.
(b) For the period from June 24, 2003 (commencement of investment operations) to March 31, 2004.
(c) For the period from March 18, 2004 (commencement of investment operations) to March 31, 2004.
(d) Net of sales load of $0.675 on initial shares issued.
(e) Total investment return is calculated assuming a purchase of common shares on the opening of the first day and a sale on
the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Total investment return is
not annualized for periods of less than one year. Brokerage commissions are not reflected.
(f) Ratio annualized for the periods less than one year.
69
OFFERING NET TOTAL COMMON RATIO OF RATIO OF
COSTS ASSET RETURN, SHARE TOTAL NET ASSETS EXPENSES NET INCOME
CHARGED VALUE NET PRICE, RETURN, END OF TO AVERAGE TO AVERAGE PORTFOLIO
TOTAL TO PAID-IN END ASSET END OF MARKET PERIOD NET NET TURNOVER
DISTRIBUTIONS CAPITAL OF PERIOD VALUE(e) PERIOD VALUE (e) (000'S) ASSETS(f) ASSETS(f) RATE
$ (0.48) $ (0.02) $ 14.37 3.53% $ 15.59 7.30% $ 403,663 0.94% 10.52% 57%
(2.68) - 15.03 15.46% 16.50 16.49% 313,731 2.12% 14.08% 73%
(1.18) (0.03) 15.32 15.50% 16.67 20.06% 299,772 1.11% 10.15% 76%
(1.68) - 14.23 10.87% 15.74 9.68% 359,781 1.70% 12.47% 69%
- (0.02) 14.31 (0.14)% 16.00 6.67% 300,547 0.87% 3.87% 0%
70
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of RMK Advantage Income Fund, Inc.,
RMK High Income Fund, Inc., and RMK Strategic Income Fund, Inc.:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations, cash
flows, and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of RMK Advantage Income Fund,
Inc., RMK High Income Fund, Inc., and RMK Strategic Income Fund, Inc. (hereafter
referred to as the "Funds") at March 31, 2005, and the results of each of their
operations and the changes in each of their net assets and the financial
highlights for the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements 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 are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Memphis, Tennessee
May 23, 2005
71
BOARD OF DIRECTORS AND OFFICERS
The following tables set forth information concerning the Directors and Officers
of the Funds. All persons named as Directors and Officers also serve in similar
capacities for the other registered investment companies in the Regions Morgan
Keegan Fund complex overseeing a total of twenty-three portfolios. The Regions
Morgan Keegan Fund complex includes Morgan Keegan Select Fund, Inc., Regions
Morgan Keegan Select Funds, RMK Advantage Income Fund, Inc., RMK High Income
Fund, Inc. and RMK Strategic Income Fund, Inc.
An asterisk (*) indicates Directors and/or Officers who are interested persons
of the Funds as defined by the Investment Company Act of 1940. The Statement of
Additional Information for the Funds includes additional information about the
Fund's Directors and is available upon request, without charge, by calling
Morgan Keegan at 800-564-2188.
Information about the Funds' Directors
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
Allen B. Morgan, Jr.*, Mr. Morgan has served as a Director and
Age 62, Director, Vice-Chairman of Regions Financial Corporation
Since 2003 / 2004(1) since 2001 and 2003, respectively. He has also
served as a Director of Morgan Asset
Management, Inc. since 1993. He has been
Chairman of Morgan Keegan & Company, Inc. since
1969 and Executive Managing Director of Morgan
Keegan & Company, Inc. since 1969.
J. Kenneth Alderman*, Mr. Alderman has been President of Regions
Age 52, Director, Morgan Keegan Trust Company and Chief Executive
Since 2003 / 2004(1) Officer of Morgan Asset Management, Inc. since
2002. He has been Executive Vice President of
Regions Financial Corporation since 2000. He
served Regions as Senior Vice President and
Capital Management Group Director and
investment adviser to the Regions Financial
Corporation proprietary fund family from 1995
to 2000. He is a Certified Public Accountant
and a Chartered Financial Analyst.
72
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
William Jefferies Mann, Mr. Mann has been Chairman and President of
Age 72, Director, Mann Investments, Inc. (real estate
Since 2003 / 2004(1) investments/private investing) since 1985.
James Stillman R. McFadden, Mr. McFadden has been Chief Manager of McFadden
Age 47, Director, Communications, LLC (commercial printing) since
Since 2003 / 2004(1) 2002 and President and Director of 1703, Inc.
(restaurant management) since 1998. He also has
served as a Director for several private
companies since 1997.
W. Randall Pittman, Mr. Pittman has been Chief Financial Officer of
Age 51, Director, Emageon Inc. (healthcare information systems)
Since 2003 / 2004(1) since 2002. From 1999 to 2002, he was Chief
Financial Officer of BioCryst Pharmaceuticals,
Inc. (biotechnology). From 1998 to 1999, he was
Chief Financial Officer of ScandiPharm, Inc.
(pharmaceuticals). From 1995 to 1998, he served
as Senior Vice President - Finance of
CaremarkRx (pharmacy benefit management). From
1983 to 1995, he held various positions with
AmSouth Bancorporation (bank holding company),
including Executive Vice President and
Controller. He is a Certified Public
Accountant, and was with the accounting firm of
Ernst & Young, LLP from 1976 to 1983.
Mary S. Stone, Ms. Stone has held the Hugh Culverhouse Endowed
Age 54, Director, Chair of Accountancy at the University of
Since 2003 / 2004(1) Alabama, Culverhouse School of Accountancy
since 1981. She is also a member of Financial
Accounting Standards Advisory Council, AICPA,
Accounting Standards Executive Committee and
AACSB International Accounting Accreditation
Committee.
73
BOARD OF DIRECTORS AND OFFICERS
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
Archie W. Willis III, Mr. Willis has been President of Community
Age 47, Director, Capital (financial advisory and real estate
Since 2003 / 2004(1) development consulting) since 1999 and Vice
President of Community Realty Company (real
estate brokerage) since 1999. He was a First
Vice President of Morgan Keegan & Company, Inc.
from 1991 to 1999. He also has served as a
Director of Memphis Telecom, LLC since 2001.
(1) RMK HIGH INCOME FUND, RMK STRATEGIC INCOME FUND AND RMK ADVANTAGE INCOME
FUND COMMENCED INVESTMENT OPERATIONS ON JUNE 24, 2003, MARCH 18, 2004 AND
NOVEMBER 8, 2004, RESPECTIVELY.
The address of each Director is c/o the Fund, Fifty North Front Street, 21st
Floor, Memphis, TN 38103.
74
Information about the Funds' Officers
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
Carter E. Anthony*, From 2002 to present, Mr. Anthony has served as
Age 60, President, President and Chief Investment Officer of
Since 2003 / 2004(1) Morgan Asset Management, Inc. From 2000 to
2002, he served as Executive Vice President and
Director of Capital Management Group, Regions
Financial Corporation. From 1989 to 2000, Mr.
Anthony was Vice President-Trust Investments,
National Bank of Commerce.
Thomas R. Gamble*, Mr. Gamble has been an executive at Regions
Age 62, Vice-President, Financial Corporation since 1981. He was a
Since 2003 / 2004(1) Corporate IRA Manager from 2000 to 2001 and a
Senior Vice President and Manager of Employee
Benefits at the Birmingham Trust Department of
Regions Bank from 1981 to 2000.
Joseph C. Weller*, Mr. Weller has been Executive Vice President
Age 66, Treasurer, and Chief Financial Officer of Morgan Keegan &
Since 2003 / 2004(1) Company, Inc. since 1969, Treasurer and
Secretary of Morgan Keegan & Company, Inc.
since 1969 and Executive Managing Director of
Morgan Keegan & Company, Inc. since 1969. He
also has served as a Director of Morgan Asset
Management, Inc. since 1993.
Charles D. Maxwell*, Mr. Maxwell has been a Managing Director of
Age 51, Secretary and Morgan Keegan & Company, Inc. since 1998 and
Assistant Treasurer, Assistant Treasurer and Assistant Secretary of
Since 2003 / 2004(1) Morgan Keegan & Company, Inc. since 1994. He
has been Secretary and Treasurer of Morgan
Asset Management, Inc. since 1993. He was
Senior Vice President of Morgan Keegan &
Company, Inc. from 1995 to 1997. Mr. Maxwell
was also with the accounting firm of Ernst &
Young, LLP from 1976 to 1986 and served as a
Senior Manager from 1984 to 1986.
75
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
J. Thompson Weller*, Mr. Weller has been a Managing Director and
Age 40, Assistant Secretary, Controller of Morgan Keegan & Company, Inc.
Since 2003 / 2004(1) since October 2001. He was Senior Vice
President and Controller of Morgan Keegan &
Company, Inc. from October 1998 to October
2001, Controller and First Vice President from
February 1997 to October 1998, Controller and
Vice President from 1995 to February 1997 and
Assistant Controller from 1992 to 1995.
David M. George*, Mr. George has been the Chief Compliance
Age 52, Chief Officer of Morgan Asset Management, Inc. and a
Compliance Officer, Senior Vice President of Morgan Keegan &
Since 2004 Company, Inc. since August 2004. He was an
Assistant Director of Compliance and Senior
Vice President of Morgan Keegan & Company, Inc.
from April 2002 to August 2004. He was a Branch
Manager and First Vice President of Morgan
Keegan & Company, Inc. from April 2001 to April
2002. He was a Branch Administrative Officer of
the Private Client Group and First Vice
President of Morgan Keegan & Company, Inc. from
July 1999 to April 2001. He was a Compliance
Administrator and Vice President of Morgan
Keegan & Company, Inc. from August 1995 to July
1999.
(1) RMK HIGH INCOME FUND, RMK STRATEGIC INCOME FUND AND RMK ADVANTAGE INCOME
FUND COMMENCED INVESTMENT OPERATIONS ON JUNE 24, 2003, MARCH 18, 2004 AND
NOVEMBER 8, 2004, RESPECTIVELY.
OFFICERS OF THE FUNDS ARE ELECTED AND APPOINTED BY THE BOARD OF DIRECTORS AND
HOLD OFFICE UNTIL THEY RESIGN, ARE REMOVED, OR ARE OTHERWISE DISQUALIFIED TO
SERVE.
JOSEPH C. WELLER IS THE FATHER OF J. THOMPSON WELLER. THE ADDRESS OF MESSRS.
MAXWELL, WELLER, WELLER, AND GEORGE IS FIFTY NORTH FRONT STREET, MEMPHIS,
TENNESSEE 38103. THE ADDRESS OF MESSRS. ANTHONY AND GAMBLE IS 417 NORTH 20TH
STREET, 15TH FLOOR, BIRMINGHAM, ALABAMA 35203.
76
DIVIDEND REINVESTMENT PLAN
The Funds offer a dividend reinvestment plan (the "Plan") pursuant to which
shareholders, unless they elect otherwise, automatically have dividends and
capital gains distributions reinvested in common shares of the fund by EquiServe
Trust Company, N.A. and EquiServe, Inc. (together, the "Plan Agent").
Shareholders who elect not to participate in the Plan receive all distributions
in cash paid by wire or check mailed directly to the recordholder by the Plan
Agent.
HOW THE PLAN WORKS
After the funds declare a dividend or determine to make a capital gain
distribution, the Plan Agent will acquire shares for the participants' accounts,
depending upon the circumstances described below, either (i) through receipt of
newly-issued shares of the fund or (ii) by open-market purchases as follows:
o If, on the payment date, the NAV is equal to or less than the market
price per share plus estimated brokerage commissions, the Plan Agent
will invest the distribution amount in newly-issued shares on behalf
of the participants. The number of newly-issued shares to be credited
to each participant's account will be determined by dividing the
dollar amount of the distribution by the NAV on the date the shares
are issued. However, if the NAV is less than 95% of the market price
on the payment date, the dollar amount of the distribution will be
divided by 95% of the market price on the payment date. Because common
shares may be issued at less than their market price, Plan
participants may get a benefit that non-participants do not.
o If, on the payment date, the NAV is greater than the market value per
share plus estimated brokerage commissions, the Plan Agent will invest
the distribution amount in shares acquired on behalf of the
participants in open-market purchases, which may be made on the NYSE,
in the over-the-counter market or in negotiated transactions and may
be on such terms as to price, delivery and otherwise as the Plan Agent
shall determine. It is possible that the market price for the shares
may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share the Plan Agent pays
may exceed the market price thereof on the payment date. If the market
price per share increases so that it equals or exceeds the NAV per
share (minus estimated brokerage commissions), the Plan Agent will
cease its purchases. Otherwise, the Plan Agent will use all
distributions received in cash to purchase shares in the open market
on or shortly after the payment date, but in no event more than thirty
(30) days after the payment date, except where temporary curtailment
or suspension of purchase is necessary to comply with applicable
provisions of the federal securities laws. If the Plan Agent is unable
to invest the full amount through open-market purchases during the
purchase period, the Plan Agent will request that, with respect to the
uninvested portion of such amount, the fund issue new shares at the
close of business on the earlier of the last day of the purchase
period or the first day during the purchase period on which the NAV
per share (minus estimated brokerage commissions) equals or is less
than the market price per share.
77
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
other distributions will be paid by the fund. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open-market purchases in connection with the reinvestment of dividends
and other distributions. If a participant elects to have the Plan Agent sell
part or all of his or her shares and remit the proceeds, the participant will be
subject to a $15.00 service fee and a $0.12 per share sold processing fee (which
includes applicable brokerage commissions the Plan Agent is required to pay).
The participant will not be charged any other fees for this service. However,
the fund reserves the right to amend the Plan to include a service fee payable
by the participant.
TAX IMPLICATIONS
The automatic reinvestment of dividends or distributions does not relieve
participants of any taxes which may be payable on such dividends or
distributions. Participants will receive tax information annually for their
personal records and to help them prepare their federal income tax return. For
further information as to the tax consequences of participation in the Plan,
participants should consult with their own tax advisors.
RIGHT TO WITHDRAW
Participants may withdraw from the Plan by calling the Plan Agent at
800-426-5523, writing to the Plan Agent at P.O. Box 43010, Providence, Rhode
Island 02940-3010 or completing and returning the transaction form attached to
each Plan statement. The withdrawal will be effective immediately if the
participant's notice is received by the Plan Agent not less than ten days prior
to any dividend or distribution record date. Otherwise, the withdrawal will be
effective the first trading day after the payment date for the dividend or
distribution with respect to any subsequent dividend or distribution.
78
PRIVACY POLICY
The Regions family of companies(1) is committed to safeguarding the personal
financial information you entrust to us. The information we collect is limited
to what we believe is necessary or useful to conduct our business; to administer
your records, accounts and funds; to comply with laws and regulations; to help
us design or improve products and services; and to understand your financial
needs so that we can provide you with quality products and superior service. We
collect this information from you on applications or other forms and from the
transactions you conduct with us, our affiliates, or others. We do not disclose
any nonpublic personal information about you or any of our former customers to
anyone, except as permitted by applicable law. For instance, we may share
information with Regions companies providing financial and related services,
such as our securities broker-dealers, our insurance companies and agencies, our
banks and our mortgage companies as well as Regions companies providing
non-financial services, such as our operations and servicing companies. In
addition, to conduct company business and to offer products or services that may
complement your relationship with us, we may also share information we collect
about you with companies that perform services for us or on our behalf, such as
vendors we hire to prepare account statements or to provide support for one or
more of our products and services. These companies act on our behalf, and are
contractually obligated to keep the information we provide to them confidential
and to use the information only for the purposes authorized. To protect your
nonpublic personal information internally, we permit access to it only by
authorized employees and maintain physical, electronic, and procedural
safeguards to guard your information. If you have any questions about our
privacy policy, please call us at 800-366-7426.
(1) The Regions family of companies includes Regions Bank, Regions Mortgage,
EquiFirst Corp., Morgan Keegan & Company, Inc., Morgan Asset Management, Inc.,
Regions Morgan Keegan Select Funds, Morgan Keegan Select Fund, Inc., RMK
Advantage Income Fund, Inc., RMK High Income Fund, Inc., RMK Strategic Income
Fund, Inc., Regions Morgan Keegan Trust, Rebsamen Insurance, and other Regions
affiliates.
79
SUPPLEMENTAL INFORMATION
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT
At an organizational meeting for RMK Advantage Income Fund, Inc. in November
2004, the Board, and separately the Independent Directors, approved the
investment advisory agreement ("Agreement") between the Fund and Morgan Asset
Management, Inc. (the "Adviser"). In voting to approve the Agreement, the Board
considered the overall fairness of the Agreement and a variety of specific
factors, such as: (1) the nature, scope and quality of the services to be
provided to the Fund under the Agreement; (2) the investment personnel of the
Adviser and its performance in connection with advising similar accounts; (3)
the level of the fee and the overall projected expenses of the Fund and how
those compared to other similar funds; and (4) the likely costs of the Adviser
and its affiliates in performing the services required under the Agreement and
related agreements. The Board did not identify any single factor or information
as all-important or controlling.
In examining the nature, scope and quality of the services to be provided by the
Adviser to the Fund, the Board noted the extensive responsibilities that the
Adviser would have as investment adviser to the Fund, including the
responsibility (1) to make investment decisions on behalf of the Fund; (2) to
place all orders for the purchase and sale of investments for the Fund's
portfolio with brokers or dealers selected by the Adviser; and (3) to perform
certain related administrative functions in connection therewith. The Board
examined the background of the Adviser's portfolio manager with responsibility
for the Fund and concluded that the Fund would benefit from the quality and
experience of that portfolio manager, the Adviser's investment and research
tools and the team's expanded resources.
With respect to fund performance, the Board considered, in the absence of the
Fund having any history of its own, the Adviser's historic performance in
connection with similar accounts and funds managed by the Adviser relative to
peer groups and appropriate indices/benchmarks.
The Board also considered the terms and fee structure of the Agreement. The
Board reviewed information about the advisory fee rate and overall projected
expense ratio of the Fund and comparable fee rates and expense ratios of a peer
group of other closed-end funds. The Board also compared the Fund's advisory fee
to the advisory fees charged by the Adviser to its other accounts. In that
connection, the Board considered the differences in the level of services
provided and the differences in responsibility of the Adviser for the Fund and
the other accounts.
80
The Board also considered that, because the Fund is a closed-end investment
company, the maximum number of shares of which were capped, it was unlikely to
grow in the near term to a size where material economies of scale by the Adviser
would be realized.
With regard to profitability, the Board considered all compensation flowing to
the Adviser and its affiliates, directly or indirectly. The Board also
considered whether the levels of compensation and expected profitability under
the Agreement and other service agreements were reasonable and justified in
light of the quality of all services proposed to be rendered to the Fund by the
Adviser and its affiliates. In this connection, the Board evaluated the
Adviser's projected costs in serving as investment adviser to the Fund,
including the costs associated with the personnel, systems and equipment
necessary to perform its functions. The Board especially noted the risk of the
Fund not achieving significant asset levels in its public offering. It also
noted the costs undertaken by the Adviser at that stage of the Fund's offering
that might never be recovered.
Based on these considerations and the overall high quality of the personnel,
operations, financial condition, investment management capabilities,
methodologies and performance of the Adviser, the Board approved the Agreement
as in the best interests of the Fund.
PROXY VOTING RESULTS FROM ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of RMK High Income Fund, Inc. (NYSE: RMH) was
held on Friday, July 16, 2004. The matters considered at the meeting together
with the actual vote tabulations relating to such matters are as follows:
Proposal 1: To elect three Class I Directors to serve until the next annual
meeting of stockholders in 2007, or until their successors are elected and
qualified.
NOMINEES: FOR WITHHELD
- ------------------------------------------- ------------------- --------------
J. Kenneth Alderman 18,935,688.1673 113,051.0000
William Jefferies Mann 18,923,126.1673 125,613.0000
James Stillman R. McFadden 18,929,801.1673 118,938.0000
81
PROXY VOTING POLICIES AND PROCEDURES AND RECORD OF VOTING ACTIVITY
The Funds vote proxies related to their portfolios' securities according to a
set of policies and procedures approved by the Funds' board. A description of
the policies and procedures may be obtained, without charge, by calling
800-564-2188 or by visiting the SEC's website at www.sec.gov. You may also view
the proxy voting activity for each Fund during the most recent twelve month
period ended June 30 by visiting the Funds' website at www.rmkfunds.com.
QUARTERLY REPORTS ON PORTFOLIO HOLDINGS
The Funds file a Form N-Q with the SEC no more than sixty days after the close
of the Fund's first and third quarters of their fiscal year. Form N-Q includes a
schedule of each Fund's portfolio holdings as of the end of those fiscal
quarters. The Funds' Form N-Q filings may be found on the SEC's website at
www.sec.gov. The Funds' N-Q filings may also be reviewed and copies at the SEC's
Public Reference Room in Washington, D.C. Call 800-SEC-0330 for information on
the operation of the Public Reference Room.
FEDERAL TAX INFORMATION (UNAUDITED)
Of the ordinary income distributions paid during the calendar year ended
December 31, 2004, 0.9%, 0% and 0% was attributable to Federal tax obligations
for RMK Advantage Income Fund, RMK High Income Fund and RMK Strategic Income
Fund, respectively. In calculating the percentages, Fund expenses were allocated
on a pro rata basis.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax.
Please consult your tax adviser to determine if any portion of the dividends you
received is exempt from state income tax.
82
INVESTMENT ADVISER ADMINISTRATOR
Morgan Asset Management, Inc. Morgan Keegan & Company, Inc.
417 North 20th Street, 15th Floor Morgan Keegan Tower
Birmingham, AL 35203 50 North Front Street
Memphis, TN 38103
CUSTODIAN LEGAL COUNSEL
State Street Bank & Trust Company Kirkpatrick & Lockhart Nicholson Graham
108 Myrtle Street LLP
Quincy, MA 02171 1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
TRANSFER AGENT
EquiServe INDEPENDENT REGISTERED PUBLIC ACCOUNTING
P. O. Box 43010 FIRM
Providence, RI 02940-3011 PricewaterhouseCoopers LLP
Morgan Keegan Tower
50 North Front Street, Suite 1000
Memphis, TN 38103
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares. Statements and other information
contained in this report are as dated and are subject to change.
83
REGIONS MORGAN KEEGAN FUND COMPLEX
The Regions Morgan Keegan Fund complex offers mutual funds with a broad variety
of investment objectives to meet the financial needs of all types of investors.
With more than $5.9 billion in assets, the Fund complex includes six equity
funds, two balanced funds, six bond funds, two tax-exempt bond funds, four money
market funds and three closed end funds. You may see an overview of each Fund by
visiting the Funds' website at www.rmkfunds.com. You may also download each
Fund's most recent marketing flyer, prospectus, and annual and semi-annual
reports to shareholders.
REGIONS MORGAN KEEGAN SELECT FAMILY OF FUNDS
o Equity Funds
Regions Morgan Keegan Select Mid Cap Growth Fund Regions Morgan Keegan
Select Growth Fund Regions Morgan Keegan Select LEADER Growth Equity Fund
Regions Morgan Keegan Select LEADER Growth & Income Fund Regions Morgan
Keegan Select Mid Cap Value Fund Regions Morgan Keegan Select Value Fund
o Balanced Funds
Regions Morgan Keegan Select Balanced Fund
Regions Morgan Keegan Select LEADER Balance Fund
o Bond Funds
Regions Morgan Keegan Select High Income Fund* Regions Morgan Keegan
Select Intermediate Bond Fund* Regions Morgan Keegan Select Fixed Income
Fund Regions Morgan Keegan Select LEADER Intermediate Bond Fund Regions
Morgan Keegan Select Limited Maturity Government Fund Regions Morgan
Keegan Select LEADER Short Term Bond Fund*
o Tax-Exempt Bond Funds
Regions Morgan Keegan Select Intermediate Tax Exempt Bond Fund
Regions Morgan Keegan Select LEADER Tax-Exempt Bond Fund
o Money Market Funds
Regions Morgan Keegan Select Treasury Money Market Fund
Regions Morgan Keegan Select Government Money Market Fund
Regions Morgan Keegan Select LEADER Money Market Fund
Regions Morgan Keegan Select LEADER Tax-Exempt Money Market Fund
REGIONS MORGAN KEEGAN CLOSED-END FUNDS
o RMK Advantage Income Fund, Inc. (NYSE: RMA)*
o RMK High Income Fund, Inc. (NYSE: RMH)*
o RMK Strategic Income Fund, Inc. (NYSE: RSF)*
* Bond funds managed by James C. Kelsoe, Jr., CFA
84
ITEM 2. CODE OF ETHICS.
RMK Strategic Income Fund, Inc. (the "Fund") has adopted a code of ethics that
applies to the Fund's principal executive officer and principal financial
officer. The Fund has not made any substantive amendments to its code of ethics
during the covered period. The Fund also has not granted any waivers from any
provisions of the code of ethics during the covered period. A copy of the Fund's
code of ethics is filed as an exhibit to this Form N-CSR. The Fund undertakes to
provide to any person without charge, upon request, a copy of its code of ethics
by mail when he or she calls the Fund at 1-800-366-7426.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Fund's Board of Directors has determined that James Stillman R. McFadden, W.
Randall Pittman and Mary S. Stone are audit committee financial experts, as
defined in Item 3 of Form N-CSR, serving on its audit committee. Messrs.
McFadden and Pittman and Ms. Stone are independent for purposes of Item 3 of
Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit and Non-Audit Fees
- ------------------------
The SEC's auditor independence rules require the Audit Committee of the Fund to
pre-approve (a) all audit and permissible non-audit services provided by the
Fund's independent registered public accountants directly to the Fund and (b)
those permissible non-audit services provided by the Fund's independent
registered public accountants to the Fund's investment adviser and any entity
controlling, controlled by or under common control with the Fund's investment
adviser that provides ongoing services to the Fund (the "Affiliated Service
Providers"), if the services relate directly to the operations and financial
reporting of the Fund.
The first table below sets forth for the Fund, for its fiscal year ended March
31, 2005 and the fiscal period ended March 31, 2004, the fees billed by its
independent registered public accountants for all audit and non-audit services
provided directly to the Fund. The Fund's independent registered public
accountants did not provide any non-audit services to the Fund's Affiliated
Service Providers. The Fund commenced operations on March 18, 2004.
Fees for audit and non-audit services provided directly to the Fund:
Audit Fees Audit-Related Fees($) Tax Fees All Other Fees
---------- --------------------- -------- --------------
2005 2005 2005 2005
---- ---- ---- ----
$33,000 None $2,000 None
Audit Fees Audit-Related Fees($) Tax Fees All Other Fees
---------- --------------------- -------- --------------
2004 2004 2004 2004
---- ---- ---- ----
$42,600 None None None
Fees for non-audit services provided to the Fund's Affiliated Service Providers
for which pre-approval by the Audit Committee was required:
Audit Fees Audit-Related Fees($) Tax Fees All Other Fees
---------- --------------------- -------- --------------
2005 2005 2005 2005
---- ---- ---- ----
None None None None
Audit Fees Audit-Related Fees($) Tax Fees All Other Fees
---------- --------------------- -------- --------------
2004 2004 2004 2004
---- ---- ---- ----
None None None None
Aggregate non-audit fees for services provided to the Fund and its Affiliated
Service Providers, regardless of whether pre-approval was required.
Aggregate Non-Audit Fees($)
---------------------------
2005
----
None
Aggregate Non-Audit Fees($)
---------------------------
2004
----
None
Pre-Approval of Audit and Non-Audit Services
- --------------------------------------------
Audit, audit-related and tax compliance services provided to the Fund on an
annual basis require pre-approval by the Fund's Audit Committee. The Audit
Committee pre-approves these services on a case-by-case basis. As noted above,
the Audit Committee also must approve other non-audit services provided to the
Fund and those non-audit services provided to the Fund's Affiliated Service
Providers that relate directly to the operations and financial reporting of the
Fund. Any individual project that does not exceed $15,000 may be pre-approved by
the chair of the Audit Committee. Any proposed services exceeding that cost
level requires specific pre-approval by the Audit Committee.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Fund has a separately-designated standing audit committee in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934 consisting of William
Jefferies Mann, James Stillman R. McFadden, W. Randall Pittman, Mary S. Stone
and Archie W. Willis III.
ITEM 6. SCHEDULE OF INVESTMENTS.
This schedule is included as part of the Report to Shareholders filed under Item
1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Fund's Board of Directors has delegated to the Fund's investment adviser,
Morgan Asset Management, Inc. (the "Adviser), the responsibility to vote proxies
related to the securities held in the fund's portfolios. Under this authority,
the Adviser is required to vote proxies related to portfolio securities in the
best interests of each fund and its stockholders. The Board permits the Adviser
to contract with a third party to obtain proxy voting and related services,
including research of current issues.
The Adviser has implemented written Proxy Voting Policies and Procedures ("Proxy
Voting Policy") that are designed to reasonably ensure that the Adviser votes
proxies prudently and in the best interest of its clients for whom the Adviser
has voting authority, including the fund. The Proxy Voting Policy also describes
how the Adviser addresses any conflicts that may arise between its interests and
those of its clients with respect to proxy voting.
The Adviser's Proxy Committee is responsible for developing, authorizing,
implementing and updating the Proxy Voting Policy, overseeing the proxy voting
process and engaging and overseeing any independent third-party vendors as
voting delegate to review, monitor and/or vote proxies. In order to apply the
Proxy Voting Policy noted above in a timely and consistent manner, the Adviser
utilizes Institutional Shareholder Services Inc. ("ISS") to vote proxies in
accordance with the Adviser's voting guidelines.
The Adviser's guidelines adopt the voting recommendations of ISS. The Adviser
retains final authority and fiduciary responsibility for proxy voting. The
Adviser believes that this process is reasonably designed to addressmaterial
conflicts of interest that may arise between the Adviser and a client as to how
proxies are voted.
In the event that an investment professional at the Adviser believes that it is
in the best interests of a client or clients to vote proxies in a manner
inconsistent with the Adviser's proxy voting guidelines or in a manner
inconsistent with ISS recommendations, the Proxy Committee will review
information submitted by the investment professional to determine that there is
no material conflict of interest between the Adviser and the client with respect
to the voting of the proxy in that manner.
If the Proxy Committee determines that the voting of a proxy as recommended by
the investment professional presents a material conflict of interest between the
Adviser and the client or clients with respect to the voting of the proxy, the
Proxy Committee shall: (i) take no further action, in which case ISS shall vote
such proxy in accordance with the proxy voting guidelines or as ISS recommends;
(ii) disclose such conflict to the client or clients and obtain written
direction from the client as to how to vote the proxy; (iii) suggest that the
client or clients engage another party to determine how to vote the proxy; or
(iv) engage another independent third party to determine how to vote the proxy.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Form N-CSR disclosure requirement not yet effective with respect to the Fund.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There were no reportable purchases for the period covered by this report
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which stockholders may
recommend nominees to the Fund's Board of Directors since the Fund last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule
14A or this Item 10.
ITEM 11. CONTROLS AND PROCEDURES.
(a)Based on an evaluation of the disclosure controls and procedures (as
defined in rule 30a-2(c) under the Act), the President and Treasurer of
the Fund have concluded that such disclosure controls and procedures are
effectively designed to ensure that information required to be disclosed
by the Fund is accumulated and communicated to the Fund's management to
allow timely decisions regarding required disclosure.
(b)There has been no change in the Fund's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by this report that has
that has materially affected, or is reasonably likely to materially
affect, the Fund's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto.
(b)The certifications required by Rule 30a-2 under the Investment Company
Act of 1940, as amended, and Sections 302 and 906 of the Sarbanes-Oxley
Act of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Fund has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Fund) RMK Strategic Income Fund, Inc.
-----------------------------------------------
By (Signature and Title) /s/ Carter E. Anthony
---------------------
Carter E. Anthony, President
Date: May 27, 2005
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Fund and in the capacities and on the dates
indicated.
By (Signature and Title) /s/ Carter E. Anthony
---------------------
Carter E. Anthony, President and Principal Executive
Officer
Date: May 27, 2005
--------------
By (Signature and Title) /s/ Joseph C. Weller
--------------------
Joseph C. Weller, Treasurer and Principal Financial
Officer
Date: May 27, 2005
--------------