As filed with the Securities and Exchange Commission on December 8, 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
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RMK Strategic Income Fund, Inc.
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(Exact name of registrant as specified in charter)
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
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(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
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(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: September 30, 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):
SEMI-ANNUAL REPORT
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September 30, 2005
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RMK
Advantage Income Fund, Inc.
High Income Fund, Inc.
Strategic Income Fund, Inc.
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TABLE OF CONTENTS
Letter to Stockholders.......................................... 1
RMK Advantage Income Fund, Inc.................................. 3
Portfolio of Investments..................................... 9
RMK High Income Fund, Inc....................................... 19
Portfolio of Investments..................................... 25
RMK Strategic Income Fund, Inc.................................. 35
Portfolio of Investments..................................... 41
Statements of Assets and Liabilities............................ 51
Statements of Operations........................................ 52
Statements of Changes in Net Assets............................. 53
Statements of Cash Flows........................................ 55
Financial Highlights............................................ 56
Notes to Financial Statements................................... 58
Board of Directors and Officers................................. 66
Dividend Reinvestment Plan...................................... 72
Supplemental Information........................................ 74
Regions Morgan Keegan Fund Complex.............................. 79
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.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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2
LETTER TO STOCKHOLDERS
Dear Fellow Stockholders:
We are pleased to present the enclosed combined semi-annual report for RMK
Advantage Income Fund, Inc., RMK High Income Fund, Inc. and RMK Strategic Income
Fund, Inc. (each, a "Fund" and collectively, the "Funds"). In this report, you
will find information on each Fund's investment objective and strategy and learn
how your investment performed during the semi-annual period ended September 30,
2005. The portfolio manager will also provide an overview of the market
conditions and discuss some of the factors that affected investment performance
during the reporting period. In addition, this report includes each Fund's
unaudited financial statements and each Fund's portfolio of investments as of
September 30, 2005.
As always, we appreciate your continued support of the Regions Morgan Keegan
closed-end funds. We remain committed to helping you pursue your financial goals
through investments in our fund family. You have our commitment to bring you the
highest level of disciplined decision making and personal service to meet your
financial needs. If you have any questions about the Funds, please call us at
800-564-2188.
Sincerely,
/s/ Carter E. Anthony
Carter E. Anthony, CFA
President and Chief Investment Officer
Morgan Asset Management, Inc.
3
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
RMK ADVANTAGE INCOME FUND, INC.
OBJECTIVE & STRATEGY
----------------------------------------
RMK Advantage Income Fund, Inc. seeks a high level of current income. The Fund
seeks capital growth as a secondary investment objective when consistent with
its primary investment objective. The Fund invests a majority of its total
assets in below investment grade debt securities (commonly referred to as "junk
bonds") that offer attractive yield and capital appreciation potential. The Fund
may also invest up to 15% of its total assets in foreign debt and equity
securities and up to 25% of its total assets in domestic equity securities,
including common and preferred stocks. The Fund invests in a wide range of below
investment grade debt securities, including corporate bonds, mortgage- and
asset-backed securities and municipal and foreign government obligations, as
well as securities of companies in bankruptcy reorganization proceedings or
otherwise in the process of debt restructuring.
INVESTMENT RISKS: Bond funds tend to experience smaller fluctuations in value
than stock funds. However, investors in any bond fund should anticipate
fluctuations in price. Bond prices and the value of bond funds decline as
interest rates rise. Longer-term funds generally are more vulnerable to this
interest rate risk than shorter-term funds. Below investment grade bonds involve
greater credit risk, which is the risk that the issuer will not make interest or
principal payments when due. An economic downturn or period of rising interest
rates could adversely affect the ability of issuers, especially issuers of below
investment grade debt, to service primary obligations and an unanticipated
default could cause the Fund to experience a reduction in value of its shares.
5
RMK ADVANTAGE INCOME FUND, INC.
MANAGEMENT DISCUSSION & ANALYSIS
During the first half of RMK Advantage Income Fund, Inc.'s (the "Fund") fiscal
year 2006, which ended September 30, 2005, the Fund had a total return of
14.83%, based on market price and reinvested dividends. For the six months ended
September 30, 2005, the Fund had a total return of 4.97%, based on net asset
value and reinvested dividends. For the six months ended September 30, 2005, the
LEHMAN BROTHERS BA U.S. HIGH YIELD INDEX(1) had a total return of 4.28%. The
Fund's strong performance was primarily attributable to the Fund's relative
yield advantage as evidenced by the monthly dividend distribution and the
relative net asset value stability produced by the Fund's allocation to a wide
variety of asset types.
The Fund paid monthly dividends of $0.13, $0.13, $0.14, $0.14, $0.14, and $0.15
per share for April, May, June, July, August, and September, respectively. This
amounted to a total income distribution of $0.83 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 has allowed 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 2005 were commercial-mortgage backed securities,
aircraft equipment leases, below investment grade corporate bonds and
dividend-paying common stocks.
Two categories of particularly strong performance during the summer months were
in the asset backed sector, including those deals supported by franchise loans
and aircraft leases. The franchise loan deals have benefited directly from an
improved business environment and from a substantial increase in real estate
values. Although the domestic airlines continue to experience operating
problems, the global demand for aircraft has been strong and continues to
strengthen. Our holdings of pooled lease deals are mostly floating rate, thereby
benefiting from higher short-term rates and have generally experienced higher
net cash flows due to increasing lease rates on aircraft.
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 first half of fiscal year 2006, the leverage was beneficial to shareholders.
Although increasing short-term interest rates will increase the cost of borrowed
money, the Fund has invested some 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.
As we enter the final months of 2005, financial markets will continue to focus
on the threat of higher inflation and on how much more the Federal Reserve will
increase short-term rates. We have invested with the expectation that we will
continue to see economic strength and further rate increases from the Federal
Reserve. Generally, high interest rates suppress the values of financial assets
thereby creating a different environment for good returns. Our focus will be on
those sectors that benefit from the global expansion and are not dependent on
lower interest rates to produce good results.
/s/ James C. Kelsoe
James C. Kelsoe, Jr., CFA
Senior Portfolio Manager
Morgan Asset Management, Inc.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVES. THE FUND
IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THE FUND.
6
INDEX DESCRIPTION
----------------------------------------
1 THE LEHMAN BROTHERS BA U. S. HIGH YIELD INDEX COVERS THE UNIVERSE OF FIXED
RATE, NON-INVESTMENT GRADE DEBT. PAY-IN-KIND (PIK) BONDS, EUROBONDS, AND
DEBT ISSUES FROM COUNTRIES DESIGNATED AS EMERGING MARKETS (E.G., ARGENTINA,
BRAZIL, VENEZUELA, ETC.) ARE EXCLUDED, BUT CANADIAN AND GLOBAL BONDS (SEC
REGISTERED) OF ISSUERS IN NON-EMG COUNTRIES ARE INCLUDED. ORIGINAL ISSUE
ZEROES, STEP-UP COUPON STRUCTURES, AND 144-AS ARE ALSO INCLUDED. THE INDEX
IS UNMANAGED, AND UNLIKE THE FUND, IS NOT AFFECTED BY CASHFLOWS OR TRADING
AND OTHER EXPENSES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
7
RMK ADVANTAGE INCOME FUND, INC.
PORTFOLIO STATISTICS+
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AS OF SEPTEMBER 30, 2005
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Average Credit Quality................................. BB-
Current Yield.......................................... 10.59%
Yield to Maturity...................................... 12.01%
Duration............................................... 3.93 Years
Average Effective Maturity............................. 5.23 Years
Percentage of Leveraged Assets......................... 27%
Total Number of Holdings............................... 248
+ THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
CREDIT QUALITY+
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AS OF SEPTEMBER 30, 2005
% OF TOTAL INVESTMENTS % OF TOTAL INVESTMENTS
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AAA....................... 1.7% B 11.8%
AA 0.7% CCC....................... 22.9%
A 1.9% CC 1.5%
BBB....................... 21.7% D 1.6%
BB 25.6% Not Rated................. 10.6%
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Total..................... 100.0%
+ THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
ASSET ALLOCATION+
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AS OF SEPTEMBER 30, 2005
% OF TOTAL INVESTMENTS
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Corporate Bonds.......................................... 23.9%
Equipment Leases......................................... 20.9%
Collateralized Mortgage Obligations...................... 11.6%
Home Equity Loans........................................ 9.6%
Common Stock............................................. 8.1%
Manufactured Housing Loans............................... 5.5%
Collateralized Debt Obligations.......................... 5.3%
Short Term Investments................................... 4.9%
Commercial Loans......................................... 3.4%
Franchise Loans.......................................... 2.0%
Credit Cards............................................. 1.5%
Certificate-Backed Obligations........................... 1.3%
Preferred Stock.......................................... 1.2%
Other.................................................... 0.8%
-----------------
Total.................................................... 100.0%
+ THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
8
RMK ADVANTAGE INCOME FUND, INC.
NAV & MARKET PRICE HISTORY*
------------------------
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 September 30, 2005.
[Graph Representation]
DATE NAV PRICE
---- --- -----
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
DATE NAV PRICE
---- --- -----
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
DATE NAV PRICE
---- --- -----
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
04/01/2005 $14.37 $15.54
04/02/2005 $14.37 $15.54
04/03/2005 $14.37 $15.54
04/04/2005 $14.39 $15.60
04/05/2005 $14.38 $15.59
04/06/2005 $14.42 $15.83
04/07/2005 $14.31 $15.65
04/08/2005 $14.31 $15.25
04/09/2005 $14.31 $15.25
04/10/2005 $14.31 $15.25
04/11/2005 $14.30 $15.14
04/12/2005 $14.31 $15.10
04/13/2005 $14.29 $15.14
04/14/2005 $14.27 $15.14
04/15/2005 $14.22 $15.25
04/16/2005 $14.22 $15.25
04/17/2005 $14.22 $15.25
04/18/2005 $14.22 $15.30
04/19/2005 $14.26 $15.20
04/20/2005 $14.25 $15.20
04/21/2005 $14.26 $15.25
04/22/2005 $14.25 $15.27
04/23/2005 $14.25 $15.27
04/24/2005 $14.25 $15.27
04/25/2005 $14.28 $15.24
04/26/2005 $14.29 $15.35
04/27/2005 $14.25 $15.49
04/28/2005 $14.22 $15.40
04/29/2005 $14.21 $15.43
04/30/2005 $14.21 $15.43
05/01/2005 $14.21 $15.43
05/02/2005 $14.21 $15.35
05/03/2005 $14.23 $15.42
05/04/2005 $14.26 $15.48
05/05/2005 $14.24 $15.38
05/06/2005 $14.06 $15.36
05/07/2005 $14.06 $15.36
05/08/2005 $14.06 $15.36
05/09/2005 $14.07 $15.38
05/10/2005 $14.06 $15.20
05/11/2005 $14.05 $15.05
05/12/2005 $14.01 $15.07
05/13/2005 $14.01 $15.03
05/14/2005 $14.01 $15.03
DATE NAV PRICE
---- --- -----
05/15/2005 $14.01 $15.03
05/16/2005 $13.99 $15.32
05/17/2005 $13.99 $15.40
05/18/2005 $14.04 $15.65
05/19/2005 $14.07 $15.65
05/20/2005 $14.07 $15.79
05/21/2005 $14.07 $15.79
05/22/2005 $14.07 $15.79
05/23/2005 $14.09 $15.78
05/24/2005 $14.09 $15.80
05/25/2005 $14.13 $15.90
05/26/2005 $14.18 $15.96
05/27/2005 $14.23 $15.92
05/28/2005 $14.23 $15.92
05/29/2005 $14.23 $15.92
05/30/2005 $14.23 $15.92
05/31/2005 $14.24 $15.89
06/01/2005 $14.28 $16.00
06/02/2005 $14.32 $15.90
06/03/2005 $14.29 $15.95
06/04/2005 $14.29 $15.95
06/05/2005 $14.29 $15.95
06/06/2005 $14.29 $15.99
06/07/2005 $14.30 $16.02
06/08/2005 $14.13 $16.04
06/09/2005 $14.15 $15.85
06/10/2005 $14.16 $15.98
06/11/2005 $14.16 $15.98
06/12/2005 $14.16 $15.98
06/13/2005 $14.15 $16.06
06/14/2005 $14.17 $16.04
06/15/2005 $14.18 $16.00
06/16/2005 $14.20 $15.98
06/17/2005 $14.20 $16.07
06/18/2005 $14.20 $16.07
06/19/2005 $14.20 $16.07
06/20/2005 $14.20 $16.05
06/21/2005 $14.19 $16.05
06/22/2005 $14.21 $15.98
06/23/2005 $14.19 $16.00
06/24/2005 $14.18 $16.03
06/25/2005 $14.18 $16.03
06/26/2005 $14.18 $16.03
06/27/2005 $14.17 $16.09
06/28/2005 $14.21 $16.02
06/29/2005 $14.22 $15.99
06/30/2005 $14.20 $16.00
07/01/2005 $14.21 $16.06
07/02/2005 $14.21 $16.06
07/03/2005 $14.21 $16.06
07/04/2005 $14.21 $16.06
07/05/2005 $14.23 $16.10
07/06/2005 $14.22 $16.29
07/07/2005 $14.08 $16.23
07/08/2005 $14.11 $16.25
07/09/2005 $14.11 $16.25
07/10/2005 $14.11 $16.25
07/11/2005 $14.13 $16.20
07/12/2005 $14.15 $16.23
07/13/2005 $14.15 $16.20
07/14/2005 $14.16 $16.15
07/15/2005 $14.18 $16.17
07/16/2005 $14.18 $16.17
DATE NAV PRICE
---- --- -----
07/17/2005 $14.18 $16.17
07/18/2005 $14.19 $16.29
07/19/2005 $14.24 $16.31
07/20/2005 $14.26 $16.44
07/21/2005 $14.28 $16.41
07/22/2005 $14.32 $16.30
07/23/2005 $14.32 $16.30
07/24/2005 $14.32 $16.30
07/25/2005 $14.32 $16.10
07/26/2005 $14.34 $16.30
07/27/2005 $14.35 $16.40
07/28/2005 $14.37 $16.42
07/29/2005 $14.37 $16.40
07/30/2005 $14.37 $16.40
07/31/2005 $14.37 $16.40
08/01/2005 $14.39 $16.40
08/02/2005 $14.42 $16.56
08/03/2005 $14.42 $16.46
08/04/2005 $14.41 $16.39
08/05/2005 $14.40 $16.27
08/06/2005 $14.40 $16.27
08/07/2005 $14.40 $16.27
08/08/2005 $14.26 $16.15
08/09/2005 $14.31 $16.22
08/10/2005 $14.31 $16.23
08/11/2005 $14.32 $16.21
08/12/2005 $14.34 $16.43
08/13/2005 $14.34 $16.43
08/14/2005 $14.34 $16.43
08/15/2005 $14.32 $16.51
08/16/2005 $14.34 $16.40
08/17/2005 $14.35 $16.45
08/18/2005 $14.36 $16.41
08/19/2005 $14.37 $16.58
08/20/2005 $14.37 $16.58
08/21/2005 $14.37 $16.58
08/22/2005 $14.38 $16.50
08/23/2005 $14.39 $16.63
08/24/2005 $14.40 $16.82
08/25/2005 $14.43 $16.75
08/26/2005 $14.42 $16.81
08/27/2005 $14.42 $16.81
08/28/2005 $14.42 $16.81
08/29/2005 $14.44 $16.80
08/30/2005 $14.46 $16.80
08/31/2005 $14.49 $16.85
09/01/2005 $14.49 $16.88
09/02/2005 $14.49 $16.87
09/03/2005 $14.49 $16.87
09/04/2005 $14.49 $16.87
09/05/2005 $14.49 $16.87
09/06/2005 $14.49 $17.08
09/07/2005 $14.49 $16.97
09/08/2005 $14.33 $16.88
09/09/2005 $14.35 $17.00
09/10/2005 $14.35 $17.00
09/11/2005 $14.35 $17.00
09/12/2005 $14.35 $16.93
09/13/2005 $14.36 $17.00
09/14/2005 $14.35 $16.86
09/15/2005 $14.34 $16.79
09/16/2005 $14.34 $16.78
09/17/2005 $14.34 $16.78
DATE NAV PRICE
---- --- -----
09/18/2005 $14.34 $16.78
09/19/2005 $14.33 $16.98
09/20/2005 $14.30 $17.00
09/21/2005 $14.28 $16.95
09/22/2005 $14.28 $17.00
09/23/2005 $14.26 $17.00
09/24/2005 $14.26 $17.00
09/25/2005 $14.26 $17.00
09/26/2005 $14.27 $17.04
09/27/2005 $14.27 $17.00
09/28/2005 $14.28 $17.02
09/29/2005 $14.29 $16.98
09/30/2005 $14.29 $16.96
* NET ASSET VALUE IS CALCULATED AFTER THE CLOSE OF THE EXCHANGES EACH DAY BY
TAKING THE CLOSING MARKET VALUE OF ALL PORTFOLIO 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.
PERFORMANCE INFORMATION
----------------------------------------------
AGGREGATE TOTAL RETURNS
COMMENCEMENT
SIX OF INVESTMENT
AS OF SEPTEMBER 30, 2005 MONTHS OPERATIONS(1)
- ------------------------------------------------------------------------------------------------------
MARKET VALUE 14.83% 23.21%
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE 4.97% 8.67%
- ------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS BA
HIGH YIELD INDEX(2) 4.28% 4.15%
- ------------------------------------------------------------------------------------------------------
9
RMK ADVANTAGE INCOME FUND, INC.
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 800-564-2188.
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 ON THE SALE OF FUND SHARES.
1 THE FUND COMMENCED INVESTMENT OPERATIONS ON NOVEMBER 8, 2004.
2 THE LEHMAN BROTHERS BA U. S. HIGH YIELD INDEX COVERS THE UNIVERSE OF FIXED
RATE, NON-INVESTMENT GRADE DEBT. PAY-IN-KIND (PIK) BONDS, EUROBONDS, AND DEBT
ISSUES FROM COUNTRIES DESIGNATED AS EMERGING MARKETS (E.G., ARGENTINA,
BRAZIL, VENEZUELA, ETC.) ARE EXCLUDED, BUT CANADIAN AND GLOBAL BONDS (SEC
REGISTERED) OF ISSUERS IN NON-EMG COUNTRIES ARE INCLUDED. ORIGINAL ISSUE
ZEROES, STEP-UP COUPON STRUCTURES, AND 144-AS ARE ALSO INCLUDED. THE INDEX IS
UNMANAGED, AND UNLIKE THE FUND, IS NOT AFFECTED BY CASHFLOWS OR TRADING AND
OTHER EXPENSES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-INVESTMENT GRADE-13.4% OF NET ASSETS
COLLATERALIZED DEBT OBLIGATIONS-2.6%
$ 1,965,237 E-Trade 2004-1A COM1, 2.00% 1/10/40............. $1,984,889
4,200,000 Restructured Asset Backed 2003-3A A3, 4.50% 1/29/22 (a) 3,515,568
5,000,000 Witherspoon 2004-1A COM1, 11.50% 9/15/39........ 5,000,000
------------
10,500,457
------------
CREDIT CARDS-0.7%
3,500,000 North Street 2000-1A B, 4.26% 10/30/11 (a)...... 2,940,000
------------
EQUIPMENT LEASES-4.5%
20,034,395 Aerco Limited 2A A3, 4.228% 7/15/25 (a)......... 15,626,828
19,000,000 Airplanes Repackaging 2004-1A B, Zero Coupon Bond 6/16/31 (a) 1,187,500
2,000,000 Aviation Capital 2000-1A A1, 4.248% 11/15/25 (a) 1,621,460
------------
18,435,788
------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE)-3.8%
7,613,000 Ace Securities 2004-HE3 M11, 7.14125% 11/25/34.. 6,927,830
3,000,000 Ace Securities 2004-HE4 M11, 7.14125% 12/25/34.. 2,807,790
2,119,000 Asset Backed Securities 2005-HE1 M10, 6.641% 3/25/35 1,968,678
2,681,000 Bear Stearns 2004-HE9 M7B, 7.641% 11/25/34...... 2,386,090
2,000,000 Soundview 2005-A B1, 6.28% 4/25/35 (a).......... 1,706,240
------------
15,796,628
------------
MANUFACTURED HOUSING LOANS-1.8%
4,500,000 Green Tree Financial 1996-2 M1, 7.60% 4/15/27... 3,525,647
4,500,000 Green Tree Financial 1996-9 M1, 7.63% 8/15/27... 3,882,991
------------
7,408,638
------------
TOTAL ASSET BACKED SECURITIES-INVESTMENT GRADE (COST $54,224,250) 55,081,511
----------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE-54.2% OF NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS-1.7%
2,000,000 Preferred Term Securities II, 5/22/33 (a)(f).... 2,060,060
2,900,000 Preferred Term Securities XVI, 11.00% 3/23/35 (a) 2,995,062
2,000,000 Preferred Term Securities XVII, 12.00% 9/23/35 (a) 1,960,000
------------
7,015,122
------------
COLLATERALIZED DEBT OBLIGATIONS-4.7%
2,000,000 EQNOX 1A D, 10.39% 11/15/12 (a)................. 980,000
2,000,000 Halyard CBO 1A B, 4.77% 3/24/10 (a)............. 1,540,000
3,967,049 Hewett's Island 2004-1A COM, 12.00% Bond 12/15/16 3,967,049
3,900,000 MKP 4A CS, 2.00% 7/12/40 (a).................... 3,900,000
5,000,000 MCPA2 1998-PA B1, 4.952% 6/23/10 (a)............ 4,131,250
2,500,000 Stanfield 2A D1, 9.699% 4/15/15 (a)............. 2,456,250
1,000,000 VALEO 3A B1, 6.371% 12/15/13 (a)................ 757,500
10
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE (CONTINUED)
COLLATERALIZED DEBT OBLIGATIONS (CONTINUED)
$ 2,000,000 Wibraham CBD Limited 1A, 4.46% 7/13/12 (a)........ $1,525,000
------------
19,257,049
------------
COMMERCIAL LOANS-4.6%
1,782,647 Enterprise Mortgage 1998-1 A2, 6.38% 1/15/25 (a).. 1,774,936
5,000,000 Enterprise Mortgage 1998-1 A3, 6.63% 1/15/25 (a).. 3,375,000
17,955,616 Enterprise Mortgage 2000-1 A2, 7.449% 1/15/27 (a). 10,144,923
3,750,000 Lehman Brothers 2002-LLFA L, 5.15% 6/14/17 (a).... 3,703,054
------------
18,997,913
------------
CREDIT CARDS-1.4%
8,277,276 Nextcard 2000-1 A C, 5.418% 12/15/06 (a).......... 5,628,548
------------
EQUIPMENT LEASES-24.1%
21,250,000 Aircraft Finance Trust 1999-1A A1, 4.248% 5/15/24. 13,334,375
30,000,000 Airplanes Pass Through Trust 2001-1A A9, 4.318% 3/15/19 16,200,000
538,810 DVI Receivables 2000-2 A4, 7.115% 11/12/08........ 510,523
1,876,949 DVI Receivables 2001-2 A3, 3.519% 11/8/31......... 1,557,868
2,713,851 DVI Receivables 2001-2 A4, 4.613% 11/11/09........ 2,279,635
10,880,060 DVI Receivables 2002-1 A3A, 4.09% 6/11/10......... 7,860,843
13,000,000 Lease Investment Flight Trust 1 A1, 4.158% 7/15/31 8,775,000
4,922,320 Pegasus Aviation Lease 1999-1A A1, 6.30% 3/25/29 (a) 2,387,325
15,000,000 Pegasus Aviation Lease 1999-1A A2, 6.30% 3/25/29 (a) 7,312,500
18,000,000 Pegasus Aviation Lease 2001-1A A2, 4.308% 5/10/31 (a) 9,225,000
1,000,000 Pegasus Aviation 2000-1 A2, 8.37% 3/25/30 (a)..... 635,000
22,700,000 Pegasus Aviation 2001-1A A1, 4.208% 5/10/31 (a)... 11,577,000
17,587,596 Pegasus Aviation 2001-1A A3, 4.408% 3/10/14 (a)... 13,740,309
4,171,029 Triton 1A A2, 4.468% 6/15/25 (a).................. 3,976,784
------------
99,372,162
------------
FRANCHISE LOANS-2.8%
2,426,036 Captec Franchise 1999-1 A2, 7.278% 4/25/11 (a).... 2,283,069
1,617,000 Falcon Franchise Loan 2001-1 F, 6.50% 1/5/23...... 1,000,131
9,865,454 FMAC Loan Trust 1996-B A1, 7.629% 11/15/18 (a).... 7,411,758
991,907 FMAC Loan Trust 1998-A A2, 6.50% 9/15/20 (a)...... 664,042
------------
11,359,000
------------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE)-9.2%
2,000,000 Ace Securities 2004-HE4 B, 7.14125% 12/25/34 (a).. 1,680,000
4,463,000 Ace Securities 2005-HE2 B1, 6.891% 4/25/35 (a).... 3,709,646
4,000,000 Ace Securities 2005-HE5 B2, 6.559% 8/25/35 (a).... 2,917,200
4,400,000 Argent Securities 2004-W8 M11, 6.141% 5/25/34 (a). 3,828,000
2,000,000 Equifirst Mortgage 2004-3 B1, 5.708% 12/25/34 (a). 1,820,000
7,038,000 Equifirst Mortgage 2004-3 B2, 5.708% 12/25/34 (a). 6,193,440
11
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE (CONTINUED)
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE) (CONTINUED)
$ 1,000,000 Equifirst Mortgage 2005-1 B3, 6.891% 4/25/35 (a) $ 835,000
1,757,000 Equifirst Mortgage 2005-1 B4, 7.08% 4/25/35 (a) 1,458,310
3,253,000 GSAMP Trust 2005-S2 B3, 6.50% 11/25/34......... 2,899,952
3,000,000 Greenwich 2005-1A N2, 4.15% 1/20/45 (a)........ 2,250,000
2,000,000 Merrill Lynch Mortgage 2005-SL1 B5, 7.141% 1/25/35 (a) 1,784,400
Terwin Mortgage 2005-3SL B6, 11.50% 3/25/35 interest-only strips 6,750,000
2,300,000 Terwin Mortgage 2005-7SL, 6.50% 7/25/35 (a).... 1,978,690
------------
38,104,638
------------
MANUFACTURED HOUSING LOANS-5.7%
4,961,155 Bombardier Capital 1998-B M2, 7.31% 10/15/28... 198,446
13,693,419 Bombardier Capital 2000-A A2, 7.575% 6/15/30... 9,480,351
500,000 Bombardier Capital 2001-A M2, 8.265% 12/15/30.. 110,000
19,000,000 Green Tree Financial 1998-3 M1, 6.86% 3/1/30... 6,577,610
3,000,000 Green Tree Financial 1996-7 B1, 7.70% 10/15/27. 839,730
5,000,000 Green Tree Financial 1997-3 M1, 7.53% 3/15/28.. 3,075,000
4,000,000 Green Tree Financial 1999-4 M1, 7.60% 5/1/31... 576,412
3,714,132 Oakwood Mortgage 2001-C A4, 7.405% 12/15/30.... 2,503,013
1,300,000 Oakwood Mortgage 2002-C M1, 6.89% 11/15/32..... 384,986
------------
23,745,548
------------
TOTAL ASSET BACKED SECURITIES-NON-INVESTMENT GRADE (COST $232,020,418) 223,479,980
------------
CORPORATE BONDS-INVESTMENT GRADE-0.2% OF NET ASSETS
RETAIL-0.2%
1,100,000 Albertson's, 7.75% 6/15/26..................... 960,619
------------
TOTAL CORPORATE BONDS-INVESTMENT GRADE
(COST $960,683) 960,619
------------
CORPORATE BONDS-NON-INVESTMENT GRADE-32.4% OF NET ASSETS
APPLIANCES-0.6%
2,534,000 Windmere-Durable, 10.00% 7/31/08............... 2,381,960
------------
AUTOMOTIVES-0.9%
563,000 Ford Motor, 9.215% 9/15/21..................... 508,107
725,000 Ford Motor, 9.98% 2/15/47...................... 654,312
950,000 General Motors, 8.25% 7/15/23.................. 738,625
2,450,000 General Motors, 8.375% 7/15/33................. 1,911,000
------------
3,812,044
------------
12
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
AUTOMOTIVE PARTS & EQUIPMENT-0.8%
$ 500,000 Delphi Automotive, 6.55% 6/15/06................. $ 357,510
2,800,000 Dura Operating, 9.00% 5/1/09..................... 1,946,000
1,200,000 Metaldyne Corp., 10.00% 11/1/13 (a).............. 1,044,000
------------
3,347,510
------------
BASIC MATERIALS-1.9%
2,210,000 Edgen Acquisition, 9.875% 2/1/11................. 2,221,050
2,200,000 Millar Western, 7.75% 11/15/13................... 1,855,370
3,650,000 OM Group, 9.25% 12/15/11......................... 3,713,875
------------
7,790,295
------------
BUILDING & CONSTRUCTION-1.1%
4,790,000 MMI Products, 11.25% 4/15/07..................... 4,574,450
-----------
COMMUNICATIONS-1.3%
2,000,000 Charter, 10.00% 5/15/11.......................... 1,450,000
3,375,000 Charter Communication, Zero Coupon Bond 5/15/11.. 2,413,125
1,550,000 Penton Media, 10.375% 6/15/11.................... 1,441,500
------------
5,304,625
------------
CONSULTING SERVICES-1.2%
2,000,000 MSX International, 11.00% 10/15/07............... 1,990,000
4,000,000 MSX International, 11.375% 1/15/08............... 2,800,000
------------
4,790,000
------------
ELECTRONICS-0.9%
3,750,000 Motors and Gears, 10.75% 11/15/06................ 3,562,500
------------
ENERGY-0.3%
1,000,000 United Refining, 10.50% 8/15/12.................. 1,060,000
------------
FINANCE-2.6%
2,850,000 Advanta Capital Trust I, 8.99% 12/17/26.......... 2,878,500
1,050,000 Citisteel USA, 10.00% 9/1/10 (a)................. 1,039,500
950,000 Labranche, 11.00% 5/15/12........................ 1,049,750
2,550,000 Rafaella Apparel, 11.25% 6/15/11 (a)............. 2,486,250
1,250,000 Reg Diversified Funding, Zero Coupon Bond 1/25/36 (a) 1,250,000
3,000,000 Triton Aviation 1A A, 4.341% 6/15/25 (a)......... 2,017,500
------------
10,721,500
------------
FOOD-0.5%
600,000 Di Giorgio Corp., 10.00% 6/15/07................. 594,000
2,300,000 Merisant, 9.50% 7/15/13 (a)...................... 1,564,000
------------
2,158,000
------------
13
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
GARDEN PRODUCTS-0.3%
$ 1,760,000 Ames True Temper, 10.00% 7/15/12................. $1,394,800
------------
HUMAN RESOURCES-0.4%
1,650,000 Comforce Operating, 12.00% 12/1/07............... 1,645,875
------------
INDUSTRIAL-5.6%
4,000,000 Consolidated Container, 10.125% 7/15/09.......... 2,660,000
4,370,000 Constar International, 11.00% 12/1/12............ 2,753,100
3,228,000 Continental Global Group, 9.00% 10/1/08.......... 3,185,681
750,000 Elgin National, 11.00% 11/1/07................... 703,718
2,800,000 GSI Group, 12.00% 5/15/13 (a).................... 2,873,500
2,200,000 Intermet, Zero Coupon Bond 6/15/09 in default.... 737,000
1,370,000 Trimas Corp., 9.875% 6/15/2012................... 1,124,222
2,600,000 US Can, 12.375% 10/1/10.......................... 2,476,500
3,250,000 VITRO S.A., 11.75% 11/1/13 (a)................... 3,022,500
4,050,000 Wolverine Tube, 7.375% 8/1/08 (a)................ 3,483,000
------------
23,019,221
------------
MEDICAL PRODUCTS-0.3%
1,350,000 Hanger Orthopedic Group, 10.375% 2/15/09......... 1,373,625
------------
PHARMACEUTICALS-0.3%
1,600,000 Curative Health, 10.75% 5/1/11................... 1,024,000
------------
RETAIL-2.4%
2,925,000 General Nutrition Center, 8.50% 12/1/10.......... 2,493,563
2,000,000 New World Restaurant, 13.00% 7/1/08.............. 2,069,460
2,550,000 Star Gas Partner, 10.25% 2/15/13................. 2,078,250
3,800,000 Uno Restaurant, 10.00% 2/15/11 (a)............... 3,515,000
------------
10,156,273
------------
SPECIAL PURPOSE ENTITY-4.6%
9,861,946 Dow Jones CDX HY T4, 10.50% 12/29/09 (a)......... 9,683,198
2,000,000 Dryden CDO 2001, Zero Coupon Bond 11/9/13 (a).... 1,960,000
5,000,000 INCAPS Funding II, 10.00% 1/15/34 (a)............ 4,850,000
5,000,000 ML CLO 97 PILG-1, 7.614% 3/23/09 (a)............. 2,500,000
------------
18,993,198
------------
TECHNOLOGY-0.1%
350,000 Danka Business, 10.00% 4/1/08.................... 325,500
------------
TELECOMMUNICATIONS-3.7%
925,000 Alestra SA, 8.00% 6/30/10........................ 841,750
3,400,000 BARAK I.T.C., Zero Coupon Bond 11/15/07 in default (e) 2,618,000
600,000 Exchelon Operating, 8.375% 3/15/10............... 558,000
3,500,000 Level 3 Financing, 10.75% 10/15/11............... 2,926,875
650,000 Millicom International, 10.00% 12/1/13........... 671,125
14
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
$ 4,175,000 Primus Telecommunications, 8.00% 1/15/14........ $2,651,125
1,500,000 Rural Cellular, 9.75% 1/15/10................... 1,515,000
350,000 Securus Technologies, 11.00% 9/1/11............. 311,500
2,750,000 Time Warner, 10.125% 2/1/11..................... 2,832,500
200,000 Time Warner Telecommunications, 9.25% 2/15/14... 202,500
------------
15,128,375
------------
TOBACCO-0.9%
4,715,000 North Atlantic Trading, 9.25% 3/1/12............ 3,536,250
------------
TRANSPORTATION-0.3%
1,705,000 Evergreen International Aviation, 12.00% 5/15/10 1,346,950
------------
TRAVEL-0.6%
3,000,000 Worldspan Financial, 10.04% 2/15/11 (a)......... 2,640,000
------------
UTILITIES-0.8%
1,750,000 Calpine, 8.75% 7/15/13 (a)...................... 1,238,125
3,000,000 Calpine, 9.875% 12/1/11 (a)..................... 2,190,000
------------
3,428,125
------------
TOTAL CORPORATE BONDS-NON-INVESTMENT GRADE
($142,097,214) 133,515,076
------------
MORTGAGE BACKED SECURITIES-INVESTMENT GRADE-4.6% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATIONS-4.6%
2,000,000 Aames Mortgage 2005-2 B3, 6.83% 7/25/35......... 1,652,600
1,000,000 First Franklin Mortgage 2004-FF5 M8, 6.83% 8/25/34 975,000
2,000,000 First Franklin Mortgage 2004-FF5, 8.594% 8/25/34 (a) 2,000,000
Harborview Mortgage 2004-8 X, 0.65% 11/19/34 interest-only strips 4,297,183
2,751,109 Long Beach Mortgage 2001-1 M2, 4.09% 4/21/31.... 2,586,043
2,573,712 Long Beach Mortgage 2001-4 M2, 4.74% 3/25/32.... 2,493,368
4,000,000 Merrill Lynch 2005-M1, 5.67% 5/25/36............ 3,218,720
2,000,000 Soundview 2005-OPT1 M10, 6.891% 6/25/35......... 1,909,060
------------
TOTAL MORTGAGE BACKED SECURITIES-INVESTMENT GRADE ($20,122,846) 19,131,974
------------
MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE-11.2% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATIONS-11.2%
3,073,000 Fremont Home Equity 2005-C B3, 5.63% 7/25/35 (a) 2,143,418
8,000,000 Greenwich 2005-4 N-2, Zero Coupon Bond, 7/27/45 (a) 4,120,000
3,000,000 Greenwich 2005-3 N2, 2.00% 6/27/35 (a).......... 1,858,590
2,000,000 Greenwich 2005-2A N2, 3.10% 2/26/35 (a)......... 1,383,740
2,000,000 GSAMP Trust 2004-AR1 B5, 5.00% 6/25/34 (a)...... 1,620,000
3,252,397 Long Beach Mortgage 2001-3 M3, 5.335% 9/25/31... 1,528,626
4,803,908 Long Beach Mortgage 2001-4 M3, 6.391% 3/25/32... 2,305,876
2,000,000 Long Beach Mortgage 2005-WL1, 6.05% 6/25/35..... 1,747,180
15
PRINCIPAL
AMOUNT/ MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
3,000,000 Park Place Securities 2005-WHQ1 M10, 6.141% 3/25/35 (a) $2,675,130
3,800,000 Park Place Securities 2005-WCW1 M11, 5.95% 9/25/35 2,979,922
3,000,000 Park Place Securities 2005-WCW3, 5.981% 8/25/35 (a) 2,430,000
2,000,000 Park Place Securities 2005-WHQ4, 6.088% 9/25/35 (a) 1,370,300
2,026,229 Park Place Securities 2005-WCW1 B, 5.00% 9/25/35 (a) 1,869,197
2,000,000 People's Choice Home Loan 2004-2 B, 5.00% 10/25/34 (a) 1,652,500
2,000,000 Popular 2005-4 B2, 6.05% 9/25/35 (a).............. 1,862,500
5,250,000 Residential 2005-RS4 B2, 6.641% 4/25/35 (a)....... 4,372,252
3,938,000 Residential 2005-RS4 B3, 6.641% 4/25/35 (a)....... 3,103,617
2,310,000 Sasco Net Interest Margin Trust 2004-6XS B, 5.00% 3/28/34 (a) 2,159,850
2,000,000 Soundview 2005-1 B3, 6.891% 4/25/35 (a)........... 1,640,000
1,000,000 Soundview 2005-2 B2, 6.71% 7/25/35 (a)............ 815,000
2,591,000 Soundview 2005-2 B3, 6.46% 7/25/35 (a)............ 2,014,502
1,000,000 Soundview 2005-2 B4, 6.46% 7/25/35 (a)............ 735,000
------------
TOTAL MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE (COST $47,911,847) 46,387,200
------------
MUNICIPAL SECURITIES-0.2% OF NET ASSETS
1,250,000 Pima County Arizona IDA Health Care, Zero Coupon Bond 11/15/32 656,937
------------
TOTAL MUNICIPAL SECURITIES
(COST $782,102) 656,937
------------
COMMON STOCKS-11.1% OF NET ASSETS
6,200 3M Company........................................ 454,832
10,200 Alliance Capital Management Holding L.P........... 488,070
34,400 American Capital Strategies, Ltd.................. 1,261,104
39,710 Andrx Corporation (d)............................. 612,725
67,300 Anthracite Capital, Inc........................... 779,334
16,400 Arthur J. Gallegher & Co.......................... 472,484
37,200 ATI Technologies Inc. (d)......................... 518,568
19,000 Bank of America Corporation....................... 799,900
17,900 Bois d'Arc Energy LLC (d)......................... 308,059
8,600 Burlington Northern Santa Fe Corporation.......... 514,280
7,900 Caterpillar, Inc.................................. 464,125
13,300 CEMEX, S.A. de C.V................................ 695,590
11,000 Cimarex Energy Co. (d)............................ 498,630
49,900 Cisco Systems, Inc. (d)........................... 894,208
33,500 Consolidated Communications Illinois Holdings, Inc. (d) 455,600
5,300 Cooper Cameron Corporation (d).................... 391,829
14,000 Cree, Inc. (d).................................... 350,280
15,800 Cytec Industries Inc.............................. 685,404
3,700 Deere & Company................................... 226,440
16
MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
22,200 Direct General Corporation.......................... $ 438,006
24,400 Dollar General Corporation.......................... 447,496
2,200 Education Realty Trust, Inc......................... 36,740
11,300 El DuPont de Nemours and Company.................... 442,621
4,400 EnCana Corporation (d).............................. 256,564
11,200 ENSCO International Incorporated.................... 521,808
23,100 Enterprise Partners Products L.P.................... 581,658
7,900 Exxon Mobil Corporation............................. 501,966
11,300 Family Dollar Stores, Inc........................... 224,531
16,900 First Data Corporation.............................. 676,000
28,200 Flextronics International Ltd. (d).................. 362,370
38,300 Fred's Inc.......................................... 479,133
10,100 Frontline Ltd....................................... 445,612
13,600 General Electric Company............................ 457,912
15,800 General Maritime Corporation........................ 581,598
14,300 GlobalSantaFe Corporation........................... 652,366
26,300 Ingram Micro Inc. (d)............................... 487,602
57,200 InPhonic, Inc. (d).................................. 786,500
18,300 Intel Corporation................................... 451,095
49,000 Iowa Telecommunications Services, Inc............... 824,180
9,800 J.C. Penny Company, Inc............................. 464,716
12,100 Kinder Morgan Energy Partners, L.P.................. 639,485
9,200 KKR Financial Corp. (d)............................. 204,608
42,000 Korn/Ferry International (d)........................ 688,380
9,900 L-3 Communications Holdings, Inc.................... 782,793
27,300 Limited Brands, Inc................................. 557,739
24,700 Lincoln Electric Holdings, Inc...................... 973,180
20,200 Lloyds TSB Group plc................................ 671,246
16,800 Macquarie Infrastructure Company Trust.............. 473,760
15,900 Magellan Midstream Partners, L.P.................... 544,893
14,900 Manpower Inc........................................ 661,411
10,300 Marathon Oil Corporation............................ 709,979
22,200 Masco Corporation................................... 681,096
96,800 MCG Capital Corporation............................. 1,633,016
31,500 Microsoft Corporation............................... 810,495
24,100 Nam Tai Electronics, Inc............................ 612,863
19,800 New Century Financial Corporation................... 718,146
31,700 New Skies Satellites Holdings Ltd................... 667,285
26,000 Polycom, Inc. (d)................................... 420,420
41,400 Regal Entertainment Group........................... 829,656
22,390 Ship Finance International Limited.................. 447,800
85,800 Taiwan Semiconductor Manufacturing Company Ltd...... 705,276
113,270 Technology Investment Capital Corporation (d)....... 1,788,533
17
MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
28,150 Teva Pharmaceutical Industries Limited............ $ 940,773
31,700 The Home Depot, Inc............................... 1,209,038
26,200 Thornburg Mortgage, Inc........................... 656,572
17,100 Tidewater Inc..................................... 832,257
6,500 Trex Company, Inc. (d)............................ 156,000
74,650 Trustreet Properties Inc.......................... 1,168,273
15,100 Tsakos Energy Navigation Limited.................. 543,902
13,600 Universal Compression Holdings, Inc. (d).......... 540,872
6,300 Valero Energy Corporation......................... 712,278
4,000 Valero L.P........................................ 227,920
20,800 Wal-Mart Stores, Inc.............................. 911,456
16,900 Washington Mutual, Inc............................ 662,818
------------
TOTAL COMMON STOCKS
(COST $44,242,165) 45,776,155
------------
PREFERRED STOCKS-1.7% OF NET ASSETS
3,000 Credit Genesis CLO 2005........................... 3,000,000
2,000,000 Hewett's Island II (a)............................ 1,980,000
2,000 SOLOSO CDO 2005................................... 1,985,412
------------
TOTAL PREFERRED STOCKS
(COST $6,965,412) 6,965,412
------------
MUTUAL FUNDS-0.6% OF NET ASSETS
29,200 iShares Russell 3000 Value Index Fund............. 2,622,452
------------
TOTAL MUTUAL FUNDS
(COST $2,504,539) 2,622,452
------------
CORPORATE LOANS-0.3% OF NET ASSETS
1,200,000 ICO North America, 7.50% 8/15/09.................. 1,200,000
------------
REPURCHASE AGREEMENTS-4.9% OF NET ASSETS
Repurchase agreement with Morgan Stanley & Co, 3.27%, dated
September 30, 2005 to be repurchased at $20,001,817 on October 1,
2005, collaterized by a U.S. Treasury Obligation with maturity of
October 15, 2022. 20,000,000
------------
18
MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
EURODOLLAR TIME DEPOSITS-1.8% OF NET ASSETS
State Street Bank & Trust Company Eurodollar time deposits dated September
30, 2005 3.00% maturing at $7,410,618 on October 1, 2005 $ 7,410,000
-------------
TOTAL INVESTMENTS-136.6% OF NET ASSETS
(COST $580,441,476) 563,187,316
-------------
OTHER ASSETS AND LIABILITIES, NET-(36.6%) OF NET ASSETS (150,943,181)
-------------
NET ASSETS $412,244,135
==============
(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.
19
RMK HIGH INCOME FUND, INC.
OBJECTIVE & STRATEGY
-------------------------
RMK High Income Fund, Inc. seeks a high level of current income. The Fund seeks
capital growth as a secondary investment objective when consistent with its
primary investment objective. The Fund invests a majority of its total assets in
below investment grade debt securities (commonly referred to as "junk bonds")
that offer attractive yield and capital appreciation potential. The Fund may
also invest up to 15% of its total assets in foreign debt and equity securities
and up to 25% of its total assets in domestic equity securities, including
common and preferred stocks. The Fund invests in a wide range of below
investment grade debt securities, including corporate bonds, mortgage- and
asset-backed securities and municipal and foreign government obligations, as
well as securities of companies in bankruptcy reorganization proceedings or
otherwise in the process of debt restructuring.
INVESTMENT RISKS: Bond funds tend to experience smaller fluctuations in value
than stock funds. However, investors in any bond fund should anticipate
fluctuations in price. Bond prices and the value of bond funds decline as
interest rates rise. Longer-term funds generally are more vulnerable to this
interest rate risk than shorter-term funds. Below investment grade bonds involve
greater credit risk, which is the risk that the issuer will not make interest or
principal payments when due. An economic downturn or period of rising interest
rates could adversely affect the ability of issuers, especially issuers of below
investment grade debt, to service primary obligations and an unanticipated
default could cause the Fund to experience a reduction in value of its shares.
20
RMK HIGH INCOME FUND, INC.
MANAGEMENT DISCUSSION & ANALYSIS
During the first half of RMK High Income Fund, Inc.'s (the "Fund") fiscal year
2006, which ended September 30, 2005, the Fund had a total return of 14.87%,
based on market price and reinvested dividends. For the six months ended
September 30, 2005, the Fund had a total return of 3.75%, based on net asset
value and reinvested dividends. For the six months ended September 30, 2005, the
LEHMAN BROTHERS BA U.S. HIGH YIELD INDEX(1) had a total return of 4.28%. While
the Fund reported positive returns based on market price and net asset value,
its net asset value return slightly underperformed the LEHMAN BROTHERS BA U.S.
HIGH YIELD INDEX. The Fund's net asset value return trailed the LEHMAN BROTHERS
BA U.S. HIGH YIELD INDEX slightly due to the stronger rebound in the price of
corporate credits during the summer months. The Fund's performance was primarily
attributable to the Fund's relative yield advantage as evidenced by the monthly
dividend distribution and the relative net asset value stability produced by the
Fund's allocation to a wide variety of asset types.
Dividend distributions for the period were $0.15 cents per share per month; the
Fund paid a total income distribution of $0.90 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 has allowed 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 2005 were franchise loans, commercial-mortgage
backed securities, aircraft equipment leases, below investment grade corporate
bonds and dividend-paying common stocks.
Two categories of particularly strong performance during the summer months were
in the asset backed sector, including those deals supported by franchise loans
and aircraft leases. The franchise loan deals have benefited directly from an
improved business environment and from a substantial increase in real estate
values. Although the domestic airlines continue to experience operating
problems, the global demand for aircraft has been strong and continues to
strengthen. Our holdings of pooled lease deals are mostly floating rate, thereby
benefiting from higher short-term rates and have generally experienced higher
net cash flows due to increasing lease rates on aircraft.
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 first half of fiscal year 2006, the leverage was beneficial to shareholders.
Although increasing short-term interest rates will increase the cost of borrowed
money, the Fund has invested some 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.
As we enter the final months of 2005, financial markets will continue to focus
on the threat of higher inflation and on how much more the Federal Reserve will
increase short-term rates. We have invested with the expectation that we will
continue to see economic strength and further rate increases from the Federal
Reserve. Generally, high interest rates suppress the values of financial assets
thereby creating a different environment for good returns. Our focus will be on
those sectors that benefit from the global expansion and are not dependent on
lower interest rates to produce good results.
/s/ James Kelsoe
James C. Kelsoe, Jr., CFA
Senior Portfolio Manager
Morgan Asset Management, Inc.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVES. THE FUND
IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THE FUND.
21
INDEX DESCRIPTION
----------------------------------------
1 THE LEHMAN BROTHERS BA U. S. HIGH YIELD INDEX COVERS THE UNIVERSE OF FIXED
RATE, NON-INVESTMENT GRADE DEBT. PAY-IN-KIND (PIK) BONDS, EUROBONDS, AND DEBT
ISSUES FROM COUNTRIES DESIGNATED AS EMERGING MARKETS (E.G., ARGENTINA,
BRAZIL, VENEZUELA, ETC.) ARE EXCLUDED, BUT CANADIAN AND GLOBAL BONDS (SEC
REGISTERED) OF ISSUERS IN NON-EMG COUNTRIES ARE INCLUDED. ORIGINAL ISSUE
ZEROES, STEP-UP COUPON STRUCTURES, AND 144-AS ARE ALSO INCLUDED. THE INDEX IS
UNMANAGED, AND UNLIKE THE FUND, IS NOT AFFECTED BY CASHFLOWS OR TRADING AND
OTHER EXPENSES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
22
RMK HIGH INCOME FUND, INC.
PORTFOLIO STATISTICS+
----------------------------------------
AS OF SEPTEMBER 30, 2005
- ---------------------------------------------------------------------------------------------------
Average Credit Quality................................. BB
Current Yield.......................................... 10.03%
Yield to Maturity...................................... 12.31%
Duration............................................... 3.99 Years
Average Effective Maturity............................. 5.32 Years
Percentage of Leveraged Assets......................... 27%
Total Number of Holdings............................... 257
+ THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
CREDIT QUALITY+
----------------------------------------
AS OF SEPTEMBER 30, 2005
% OF TOTAL INVESTMENTS % OF TOTAL INVESTMENTS
- ------------------------------------------------------------------------------------------------------
AAA....................... 5.4% B 8.4%
AA........................ 2.0% CCC....................... 22.3%
A......................... 2.2% CC ....................... 1.9%
BBB....................... 19.9% D . ...................... 2.9%
BB........................ 26.8% Not Rated ................ 8.2%
-------------
Total..................... 100.0%
+ THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
ASSET ALLOCATION+
----------------------------------------
AS OF SEPTEMBER 30, 2005
% OF TOTAL INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Corporate Bonds.......................................... 23.9%
Equipment Leases......................................... 19.1%
Collateralized Mortgage Obligations...................... 13.4%
Home Equity Loans........................................ 8.9%
Common Stock............................................. 8.7%
Manufactured Housing Loans............................... 5.8%
Collateralized Debt Obligations.......................... 5.8%
Franchise Loans.......................................... 4.7%
Commercial Loans......................................... 3.6%
Certificate-Backed Obligations........................... 1.9%
Small Business Loans..................................... 1.4%
Government Agency Securities............................. 0.9%
Preferred Stock.......................................... 0.7%
Short Term Investments................................... 0.6%
Other.................................................... 0.6%
----------------
Total.................................................... 100.0%
+ THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
23
RMK HIGH INCOME FUND, INC.
NAV & MARKET PRICE HISTORY*
----------------------
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 September 30, 2005.
[Graph Representation]
DATE NAV PRICE
- ---- --- -----
06/24/03 $14.30 $15.00
06/25/03 $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
NAV PRICE
--- -----
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
NAV PRICE
--- -----
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
NAV PRICE
--- -----
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
NAV PRICE
--- -----
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
NAV PRICE
--- -----
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
NAV PRICE
--- -----
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
NAV PRICE
--- -----
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 $15.04 $16.50
04/01/05 $15.05 $16.71
04/02/05 $15.05 $16.71
04/03/05 $15.05 $16.71
04/04/05 $15.05 $16.87
04/05/05 $15.04 $16.85
04/06/05 $15.06 $17.00
04/07/05 $15.08 $17.00
04/08/05 $14.93 $16.67
04/09/05 $14.93 $16.67
04/10/05 $14.93 $16.67
04/11/05 $14.93 $16.42
04/12/05 $14.94 $16.10
04/13/05 $14.92 $15.94
04/14/05 $14.90 $15.73
04/15/05 $14.87 $15.99
04/16/05 $14.87 $15.99
04/17/05 $14.87 $15.99
04/18/05 $14.89 $16.03
04/19/05 $14.92 $16.19
04/20/05 $14.90 $16.30
04/21/05 $14.92 $16.19
04/22/05 $14.92 $16.09
04/23/05 $14.92 $16.09
04/24/05 $14.92 $16.09
04/25/05 $14.91 $16.25
04/26/05 $14.89 $16.32
04/27/05 $14.86 $16.44
04/28/05 $14.83 $16.32
04/29/05 $14.83 $16.50
04/30/05 $14.83 $16.50
05/01/05 $14.83 $16.50
05/02/05 $14.83 $16.35
05/03/05 $14.84 $16.19
05/04/05 $14.87 $16.50
05/05/05 $14.87 $16.86
05/06/05 $14.81 $16.70
05/07/05 $14.81 $16.70
05/08/05 $14.81 $16.70
05/09/05 $14.68 $16.57
05/10/05 $14.67 $16.38
05/11/05 $14.65 $16.37
05/12/05 $14.61 $16.34
05/13/05 $14.67 $16.19
05/14/05 $14.67 $16.19
05/15/05 $14.67 $16.19
05/16/05 $14.66 $16.29
05/17/05 $14.67 $16.23
05/18/05 $14.72 $16.25
05/19/05 $14.73 $16.44
05/20/05 $14.74 $16.44
05/21/05 $14.74 $16.44
05/22/05 $14.74 $16.44
05/23/05 $14.71 $16.60
05/24/05 $14.68 $16.64
05/25/05 $14.72 $16.62
05/26/05 $14.77 $16.72
05/27/05 $14.77 $16.90
05/28/05 $14.77 $16.90
05/29/05 $14.77 $16.90
05/30/05 $14.77 $16.90
05/31/05 $14.80 $17.00
06/01/05 $14.84 $16.98
06/02/05 $14.87 $16.99
06/03/05 $14.85 $16.98
06/04/05 $14.85 $16.98
06/05/05 $14.85 $16.98
06/06/05 $14.85 $17.08
06/07/05 $14.84 $17.33
06/08/05 $14.82 $17.62
NAV PRICE
--- -----
06/09/05 $14.69 $17.35
06/10/05 $14.70 $17.15
06/11/05 $14.70 $17.15
06/12/05 $14.70 $17.15
06/13/05 $14.68 $17.20
06/14/05 $14.70 $17.20
06/15/05 $14.72 $17.24
06/16/05 $14.75 $17.09
06/17/05 $14.76 $17.40
06/18/05 $14.76 $17.40
06/19/05 $14.76 $17.40
06/20/05 $14.77 $17.49
06/21/05 $14.74 $17.45
06/22/05 $14.77 $17.35
06/23/05 $14.75 $17.45
06/24/05 $14.75 $17.50
06/25/05 $14.75 $17.50
06/26/05 $14.75 $17.50
06/27/05 $14.75 $17.70
06/28/05 $14.77 $17.63
06/29/05 $14.77 $17.50
06/30/05 $14.73 $17.50
07/01/05 $14.75 $17.53
07/02/05 $14.75 $17.53
07/03/05 $14.75 $17.53
07/04/05 $14.75 $17.53
07/05/05 $14.76 $17.55
07/06/05 $14.76 $17.65
07/07/05 $14.77 $17.71
07/08/05 $14.65 $17.56
07/09/05 $14.65 $17.56
07/10/05 $14.65 $17.56
07/11/05 $14.67 $17.55
07/12/05 $14.70 $17.63
07/13/05 $14.70 $17.52
07/14/05 $14.70 $17.53
07/15/05 $14.72 $17.49
07/16/05 $14.72 $17.49
07/17/05 $14.72 $17.49
07/18/05 $14.74 $17.52
07/19/05 $14.78 $17.69
07/20/05 $14.81 $17.65
07/21/05 $14.82 $17.59
07/22/05 $14.85 $17.70
07/23/05 $14.85 $17.70
07/24/05 $14.85 $17.70
07/25/05 $14.85 $17.70
07/26/05 $14.87 $17.74
07/27/05 $14.89 $17.67
07/28/05 $14.93 $17.85
07/29/05 $14.93 $17.94
07/30/05 $14.93 $17.94
07/31/05 $14.93 $17.94
08/01/05 $14.95 $17.90
08/02/05 $14.98 $18.15
08/03/05 $14.97 $17.99
08/04/05 $14.97 $17.85
08/05/05 $14.96 $17.78
08/06/05 $14.96 $17.78
08/07/05 $14.96 $17.78
08/08/05 $14.95 $17.50
08/09/05 $14.82 $17.33
08/10/05 $14.83 $17.49
08/11/05 $14.85 $17.53
08/12/05 $14.87 $17.65
08/13/05 $14.87 $17.65
08/14/05 $14.87 $17.65
08/15/05 $14.84 $17.64
08/16/05 $14.87 $17.63
08/17/05 $14.87 $17.61
08/18/05 $14.90 $17.57
08/19/05 $14.89 $17.70
08/20/05 $14.89 $17.70
08/21/05 $14.89 $17.70
08/22/05 $14.90 $17.61
08/23/05 $14.91 $17.79
08/24/05 $14.93 $17.79
08/25/05 $14.94 $17.75
08/26/05 $14.93 $18.05
08/27/05 $14.93 $18.05
08/28/05 $14.93 $18.05
08/29/05 $14.95 $17.91
08/30/05 $14.95 $17.85
08/31/05 $14.98 $17.84
09/01/05 $14.99 $18.02
09/02/05 $14.96 $18.08
09/03/05 $14.96 $18.08
09/04/05 $14.96 $18.08
09/05/05 $14.96 $18.08
NAV PRICE
--- -----
09/06/05 $14.97 $18.03
09/07/05 $14.96 $18.00
09/08/05 $14.94 $18.03
09/09/05 $14.82 $18.05
09/10/05 $14.82 $18.05
09/11/05 $14.82 $18.05
09/12/05 $14.82 $17.95
09/13/05 $14.83 $17.85
09/14/05 $14.83 $17.95
09/15/05 $14.82 $17.84
09/16/05 $14.84 $17.82
09/17/05 $14.84 $17.82
09/18/05 $14.84 $17.82
09/19/05 $14.82 $17.90
09/20/05 $14.78 $17.88
09/21/05 $14.76 $17.90
09/22/05 $14.76 $17.91
09/23/05 $14.76 $17.90
09/24/05 $14.76 $17.90
09/25/05 $14.76 $17.90
09/26/05 $14.76 $18.01
09/27/05 $14.76 $18.01
09/28/05 $14.76 $17.93
09/29/05 $14.76 $17.95
09/30/05 $14.76 $17.94
* NET ASSET VALUE IS CALCULATED AFTER THE CLOSE OF THE EXCHANGES EACH DAY BY
TAKING THE CLOSING MARKET VALUE OF ALL PORTFOLIO 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.
PERFORMANCE INFORMATION
----------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
COMMENCEMENT
SIX 1 OF INVESTMENT
AS OF SEPTEMBER 30, 2005 MONTHS* YEAR OPERATIONS(1)
- ------------------------------------------------------------------------------------------------------
MARKET VALUE 14.87% 22.28% 23.18%
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE 3.75% 10.72% 15.35%
- ------------------------------------------------------------------------------------------------------
LEHMAN BROTHERS BA
HIGH YIELD INDEX(2) 4.28% 5.50% 8.21%
- ------------------------------------------------------------------------------------------------------
* AGGREGATE.
24
RMK HIGH INCOME FUND, INC.
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 800-564-2188.
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 ON THE SALE OF FUND SHARES.
1 THE FUND COMMENCED INVESTMENT OPERATIONS ON JUNE 24, 2003.
2 THE LEHMAN BROTHERS BA U. S. HIGH YIELD INDEX COVERS THE UNIVERSE OF FIXED
RATE, NON-INVESTMENT GRADE DEBT. PAY-IN-KIND (PIK) BONDS, EUROBONDS, AND DEBT
ISSUES FROM COUNTRIES DESIGNATED AS EMERGING MARKETS (E.G., ARGENTINA,
BRAZIL, VENEZUELA, ETC.) ARE EXCLUDED, BUT CANADIAN AND GLOBAL BONDS (SEC
REGISTERED) OF ISSUERS IN NON-EMG COUNTRIES ARE INCLUDED. ORIGINAL ISSUE
ZEROES, STEP-UP COUPON STRUCTURES, AND 144-AS ARE ALSO INCLUDED. THE INDEX IS
UNMANAGED, AND UNLIKE THE FUND, IS NOT AFFECTED BY CASHFLOWS OR TRADING AND
OTHER EXPENSES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-INVESTMENT GRADE-18.1% OF NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS-1.7%
$ 5,000,000 Silver Leaf IA D1FX, 11.54% 5/15/13 (a)......... $5,225,000
-----------
COLLATERALIZED DEBT OBLIGATIONS-5.1%
5,000,000 Commodore 1A C, 6.07% 2/28/37 (a)............... 3,337,500
6,553,340 Diversified Asset Securitization 1A A1, 7.875% 9/15/35 6,913,774
3,440,000 E-Trade 2003-1A PSC, 11.50% 2/10/37 (a)......... 3,784,000
1,965,237 E-Trade 2004-1A COM1, 2.00% 1/10/40............. 1,984,889
-----------
16,020,163
-----------
EQUIPMENT LEASES-4.1%
15,264,301 Aerco Limited 2A A3, 4.031% 7/15/25 (a)......... 11,906,155
16,000,000 Airplanes Repackaging 2004-1A B, Zero Coupon Bond 6/16/31 (a) 1,000,000
-----------
12,906,155
-----------
FRANCHISE LOANS-2.7%
5,847,551 Atherton Franchisee 1999-A A2, 7.23% 4/15/12 (a) 6,079,593
Atherton Franchisee 1999-A AX, 1.254% 3/15/19 interest-only strips (a) 539,503
CNL Funding 1998-1, 1.935% 9/18/12 interest-only strips (a) 1,921,639
-----------
8,540,735
-----------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE)-1.8%
2,000,000 Ameriquest Mortgage 2003-8 MV6, 7.58% 10/25/33.. 2,051,444
960,927 Amresco Residential Securities 1999-1 B, 7.641% 11/25/29 963,293
1,000,000 Asset Backed Securities 2005-HE1 M10, 6.641% 3/25/35 929,060
2,000,000 Soundview 2005-A B1, 6.28% 4/25/35 (a).......... 1,706,240
-----------
5,650,037
-----------
MANUFACTURED HOUSING LOANS-1.7%
3,000,000 Green Tree Financial 1996-2 M1, 7.60% 4/15/27... 2,350,431
3,500,000 Green Tree Financial 1996-9 M1, 7.63% 8/15/27... 3,020,105
-----------
5,370,536
-----------
SMALL BUSINESS LOANS-1.0%
1,645,853 ACLC Business Trust 1998-2 A3, 6.686% 4/15/20 (a) 1,622,827
United Capital Markets 2003-A NOTE, 2.30% 11/8/27 interest only strips (a) 1,513,509
-----------
3,136,336
-----------
TOTAL ASSET BACKED SECURITIES-INVESTMENT GRADE
(COST $56,675,061) 56,848,962
-----------
25
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE-50.6% OF NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS-0.8%
$ 1,000,000 Preferred Term Securities II, 5/22/33 (a)(f).... $1,030,030
1,700,000 US Capital Funding I, 10.00% 5/1/34 (a)......... 1,632,000
-----------
2,662,030
-----------
COLLATERALIZED DEBT OBLIGATIONS-2.6%
1,000,000 Halyard CBO 1A B, 4.77% 3/24/10 (a)............. 770,000
2,975,286 Hewett's Island 2004-1A COM, 12.00% 12/15/16.... 2,975,286
1,950,000 MKP 4A CS, 2.00% 7/12/40 (a).................... 1,950,000
1,000,000 Stanfield 2A D1, 9.699% 4/15/15 (a)............. 982,500
1,000,000 VALEO 3A B1, 6.371% 12/15/13 (a)................ 757,500
1,000,000 Wibraham CBD Limited 1A, 4.46% 7/13/12 (a)...... 762,500
-----------
8,197,786
-----------
COMMERCIAL LOANS-4.8%
762,032 CS First Boston Mortgage 1995-WF1 G, 9.00% 12/21/27 734,027
3,565,295 Enterprise Mortgage 1998-1 A2, 6.38% 1/15/25 (a) 3,549,872
4,000,000 Enterprise Mortgage 1998-1 A3, 6.63% 1/15/25 (a) 2,700,000
12,078,107 Enterprise Mortgage 2000-1 A2, 7.449% 1/15/27 (a) 6,824,130
2,000,000 Merrill Lynch Mortgage 1998-C1 F, 6.25% 11/15/26 1,189,580
-----------
14,997,609
-----------
EQUIPMENT LEASES-21.5%
18,000,000 Aircraft Finance Trust 1999-1A A1, 4.248% 5/15/24 11,295,000
20,000,000 Airplanes Pass Through Trust 2001-1A A9, 4.318% 3/15/19 10,800,000
449,009 DVI Receivables 2000-2 A4, 7.115% 11/12/08...... 425,436
1,668,399 DVI Receivables 2001-2 A3, 3.519% 11/8/31....... 1,384,772
1,489,957 DVI Receivables 2001-2 A4, 4.613% 11/11/09...... 1,251,564
9,206,204 DVI Receivables 2002-1 A3A, 4.09% 6/11/10....... 6,651,483
9,000,000 Lease Investment Flight Trust 1 A1, 4.158% 7/15/31 6,075,000
1,000,000 Pegasus Aviation 2000-1 A2, 8.37% 3/25/30 (a)... 635,000
20,000,000 Pegasus Aviation 2001-1A A1, 4.208% 5/10/31 (a). 10,200,000
14,205,366 Pegasus Aviation 2001-1A A3, 4.408% 3/10/14 (a). 11,097,942
1,845,870 Pegasus Aviation Lease 1999-1A A1, 6.30% 3/25/29 (a) 895,247
12,000,000 Pegasus Aviation Lease 1999-1A A2, 6.30% 3/25/29 (a) 5,850,000
3,517,584 Pegasus Aviation Lease 2001-1A B1, 4.59% 5/10/31 (a) 633,165
1,758,792 Pegasus Aviation Lease 2001-1A B2, 7.27% 5/10/31 (a) 386,934
-----------
67,581,543
-----------
FRANCHISE LOANS-3.6%
1,000,000 Falcon Franchise Loan 2001-1 F, 6.50% 1/5/23.... 618,510
3,548,000 Falcon Franchise Loan 2003-1 D, 7.836% 1/5/25 (a) 3,125,540
4,295,665 FMAC Loan Trust 1996-B A1, 7.629% 11/15/18 (a).. 3,227,264
3,772,672 FMAC Loan Trust 1996-B A2, 4.09% 11/15/18 (a)... 2,584,281
26
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE (CONTINUED)
FRANCHISE LOANS (CONTINUED)
$ 2,283,227 FMAC Loan Trust 1998-A A3, 6.69% 9/15/20 (a)... $1,735,252
-----------
11,290,847
-----------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE)-10.2%
2,500,000 Ace Securities 2004-FM1 B1A, 7.141% 9/25/33.... 2,300,000
2,000,000 Ace Securities 2004-HE4 B, 7.141% 12/25/34 (a). 1,680,000
6,000,000 Ace Securities 2004-OP1 B, 7.141% 4/25/34...... 5,400,000
2,000,000 Ace Securities 2005-HE5 B2, 6.559% 8/25/35 (a). 1,458,600
1,003,876 Conseco Finance 2001-A IB2, 10.30% 3/15/32..... 975,040
1,950,656 Delta Funding Home Equity 1997-2 B3, 7.80% 6/25/27 840,967
1,215,772 Delta Funding Home Equity 1999-3 B, 7.60% 1/15/30 1,056,251
3,000,000 Delta Funding Home Equity 2000-1 B, 8.09% 5/15/30 2,819,550
2,000,000 Equifirst Mortgage 2004-2 B1, 7.041% 7/25/34 (a) 1,800,000
1,000,000 Equifirst Mortgage 2005-1 B3, 6.891% 4/25/35 (a) 835,000
1,000,000 Equifirst Mortgage 2005-1 B4, 7.08% 4/25/35 (a) 830,000
2,000,000 Greenwich 2005-1A N2, 4.15% 1/20/45 (a)........ 1,500,000
1,471,830 IMC Home Equity 1997-3 B, 7.87% 8/20/28........ 824,225
2,899,012 IMC Home Equity 1997-5 B, 7.59% 11/20/28....... 1,910,032
2,000,000 Merrill Lynch Mortgage 2005-SL1 B5, 7.141% 6/25/35 (a) 1,784,400
1,830,000 Terwin Mortgage 2004-16SL B3, 7.96% 10/25/34 (a) 1,555,500
Terwin Mortgage 2005-3SL B6, 11.50% 3/25/35 interest-only strips 2,700,000
2,000,000 Terwin Mortgage 2005-7SL, 6.50% 7/25/35 (a).... 1,720,600
-----------
31,990,165
-----------
MANUFACTURED HOUSING LOANS-6.1%
5,000,000 Conseco Finance 2000-6 M1, 7.72% 9/1/32........ 1,600,000
4,000,000 Conseco Finance 2001-1 M1, 7.535% 7/1/32....... 868,948
3,576,357 Green Tree Financial 1996-4 M1, 7.75% 6/15/27.. 2,899,818
2,000,000 Green Tree Financial 1997-3 M1, 7.53% 3/15/28.. 1,230,000
3,000,000 Green Tree Financial 1997-8 M1, 7.02% 10/15/27. 2,079,186
3,000,000 Green Tree Financial 1999-4 M1, 7.60% 5/1/31... 432,309
12,000,000 Green Tree Financial 1999-5 M1, 8.05% 3/1/30... 1,620,000
21,505,000 Madison Avenue Manufactured Housing 2002-A B2,
6.891% 3/25/32.............................. 7,150,412
2,000,000 Merit Securities 12-1 1M2, 8.35% 7/28/33....... 1,201,610
-----------
19,082,283
-----------
RECREATIONAL EQUIPMENT-0.2%
819,706 Green Tree Recreational Equipment 1996-B CTFS, 7.70% 7/15/18 754,130
-----------
SMALL BUSINESS LOANS-0.8%
FMAC Loan Trust 1998-CA AX, 1.796% 9/15/18 interest-only strips (a) 2,692,743
-----------
TOTAL ASSET BACKED SECURITIES-NON-INVESTMENT GRADE
(COST $166,827,205) 159,249,136
-----------
27
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ---------------------------------------------------------------------------------------------------
CORPORATE BONDS-INVESTMENT GRADE-0.3% OF NET ASSETS
RETAIL-0.3%
$ 900,000 Albertson's, 7.75% 6/15/26........................ $ 785,961
----------
TOTAL CORPORATE BONDS-INVESTMENT GRADE
(COST $786,014) 785,961
----------
CORPORATE BONDS-NON-INVESTMENT GRADE-31.7% OF NET ASSETS
APPLIANCES-0.6%
2,050,000 Windmere-Durable, 10.00% 7/31/08................. 1,927,000
----------
AUTOMOTIVES-0.9%
375,000 Ford Motor, 9.215% 9/15/21........................ 338,437
625,000 Ford Motor, 9.98% 2/15/47......................... 564,062
1,075,000 General Motors, 8.25% 7/15/23..................... 835,812
1,550,000 General Motors, 8.375% 7/15/33.................... 1,209,000
----------
2,947,311
----------
AUTOMOTIVE PARTS & EQUIPMENT-0.9%
400,000 Delphi Automotive, 6.55% 6/15/06.................. 286,008
2,650,000 Dura Operating, 9.00% 5/1/09...................... 1,841,750
800,000 Metaldyne Corp., 10.00% 11/1/13 (a)............... 696,000
----------
2,823,758
----------
BASIC MATERIALS-2.3%
2,050,000 Edgen Acquisition, 9.875% 2/1/11.................. 2,060,250
1,800,000 Millar Western, 7.75% 11/15/13.................... 1,518,030
3,650,000 OM Group, 9.25% 12/15/11.......................... 3,713,875
----------
7,292,155
----------
BUILDING & CONSTRUCTION-1.3%
4,200,000 MMI Products, 11.25% 4/15/07...................... 4,011,000
----------
COMMUNICATIONS-1.4%
1,000,000 Charter, 10.00% 5/15/11........................... 725,000
3,375,000 Charter Communication, Zero Coupon Bond 5/15/11... 2,413,125
1,200,000 Penton Media, 10.375% 6/15/11..................... 1,116,000
----------
4,254,125
----------
CONSULTING SERVICES-1.1%
2,300,000 MSX International, 11.375% 1/15/08................ 1,610,000
2,000,000 MSX International, 11.00% 10/15/07................ 1,990,000
----------
3,600,000
----------
ELECTRONICS-1.2%
4,000,000 Motors and Gears, 10.75% 11/15/06................. 3,800,000
----------
ENERGY-0.4%
1,200,000 United Refining, 10.50% 8/15/12................... 1,272,000
----------
28
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
FINANCE-2.1%
$1,752,000 Advanta Capital Trust I, 8.99% 12/17/26.......... $1,769,520
850,000 Citisteel USA, 10.00% 9/1/10 (a)................. 841,500
813,000 Labranche, 11.00% 5/15/12........................ 898,365
1,850,000 Rafaella Apparel, 11.25% 6/15/11 (a)............. 1,803,750
2,000,000 Triton Aviation 1A A, 4.341% 6/15/25 (a)......... 1,345,000
-----------
6,658,135
-----------
FOOD-0.5%
1,800,000 Merisant, 9.50% 7/15/13 (a)...................... 1,224,000
400,000 Di Giorgio Corp., 10.00% 6/15/07................. 396,000
-----------
1,620,000
-----------
GARDEN PRODUCTS-0.3%
1,190,000 Ames True Temper, 10.00% 7/15/12................. 943,075
-----------
HUMAN RESOURCES-0.4%
1,350,000 Comforce Operating, 12.00% 12/1/07............... 1,346,625
-----------
INDUSTRIAL-6.3%
3,000,000 Consolidated Container, 10.125% 7/15/09.......... 1,995,000
3,550,000 Constar International, 11.00% 12/1/12............ 2,236,500
2,500,000 Continental Global Group, 9.00% 10/1/08.......... 2,467,225
750,000 Elgin National, 11.00% 11/1/07................... 703,717
2,300,000 GSI Group, 12.00% 5/15/13 (a).................... 2,360,375
1,800,000 Intermet, Zero Coupon Bond 6/15/09 in default.... 603,000
900,000 Trimas Corp., 9.875% 6/15/2012................... 738,540
3,200,000 US Can, 12.375% 10/1/10.......................... 3,048,000
3,500,000 VITRO S.A., 11.75% 11/1/13 (a)................... 3,255,000
2,925,000 Wolverine Tube, 7.375% 8/1/08 (a)................ 2,515,500
-----------
19,922,857
-----------
MEDICAL PRODUCTS-0.3%
800,000 Hanger Orthopedic Group, 10.375% 2/15/09......... 814,000
-----------
PHARMACEUTICALS-0.3%
1,550,000 Curative Health, 10.75% 5/1/11................... 992,000
-----------
RETAIL-2.7%
2,600,000 General Nutrition Center, 8.50% 12/1/10.......... 2,216,500
1,500,000 New World Restaurant, 13.00% 7/1/08.............. 1,552,095
2,150,000 Star Gas Partner, 10.25% 2/15/13................. 1,752,250
3,100,000 Uno Restaurant, 10.00% 2/15/11 (a)............... 2,867,500
-----------
8,388,345
-----------
SPECIAL PURPOSE ENTITY-2.4%
2,500,000 INCAPS Funding II, 10.00% 1/15/34 (a)............ 2,425,000
2,000,000 ML CLO 97 PILG-1, 7.614% 3/23/09 (a)............. 1,000,000
29
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
SPECIAL PURPOSE ENTITY (CONTINUED)
$3,000,000 MM Community Funding IX, 10.00% 5/1/33 (a)....... $2,730,000
1,316,750 TPREF Funding III, 11.00% 1/15/33 (a)............ 1,264,080
----------
7,419,080
----------
TECHNOLOGY-0.1%
350,000 Danka Business, 10.00% 4/1/08.................... 325,500
----------
TELECOMMUNICATIONS-3.9%
775,000 Alestra SA, 8.00% 6/30/10........................ 705,250
2,400,000 BARAK I.T.C., Zero Coupon Bond 11/15/07 in default (e) 1,848,000
375,000 Eschelon Operating, 8.375% 3/15/10............... 348,750
4,600,000 Level 3 Financing, 10.75% 10/15/11............... 3,846,750
225,000 Millicom International Cellular, 10.00% 12/1/13.. 232,312
2,925,000 Primus Telecommunications, 8.00% 1/15/14......... 1,857,375
1,200,000 Rural Cellular, 9.75% 1/15/10.................... 1,212,000
250,000 Securus Technologies, 11.00% 9/1/11.............. 222,500
1,805,000 Time Warner, 10.125% 2/1/11...................... 1,859,150
200,000 Time Warner Telecommunications, 9.25% 2/15/14.... 202,500
----------
12,334,587
----------
TOBACCO-0.7%
2,800,000 North Atlantic Trading, 9.25% 3/1/12............. 2,100,000
----------
TRANSPORTATION-0.3%
1,350,000 Evergreen International Aviation, 12.00% 5/15/10. 1,066,500
----------
TRAVEL-0.3%
1,000,000 Worldspan Financial, 10.01% 2/15/11 (a).......... 880,000
----------
UTILITIES-1.0%
2,250,000 Calpine, 8.75% 7/15/13 (a)....................... 1,591,875
1,925,000 Calpine, 9.875% 12/1/11 (a)...................... 1,405,250
----------
2,997,125
----------
TOTAL CORPORATE BONDS-NON-INVESTMENT GRADE
(COST $106,666,569) 99,735,178
----------
MORTGAGE BACKED SECURITIES-INVESTMENT GRADE-4.8% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATIONS-4.8%
Harborview Mortgage 2003-2 1X, 1.58% 10/19/33 interest-only strips 923,485
Harborview Mortgage 2004-8 x, 0.65% 11/19/34 interest-only strips 2,148,592
4,000,000 Long Beach Mortgage 2004-4 M10, 6.641% 10/25/34.. 4,100,000
Mellon Residential 2002-TBC2 X, 1.101% 8/15/32 interest-only strips 1,496,560
2,000,000 Merrill Lynch 2005-M1, 5.67% 5/25/36............. 1,609,360
1,168,483 Sail Net Interest Margin Notes 2004-5A B, 6.75% 6/27/34 (a) 1,171,404
2,167,000 Structured Asset 2003-BC1 B2, 9.00% 5/25/32...... 2,222,146
30
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES-INVESTMENT GRADE (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
$1,414,396 Structured Asset 2003-S A, 7.50% 12/28/33 (a).... $1,416,164
----------
TOTAL MORTGAGE BACKED SECURITIES-INVESTMENT GRADE
(COST $15,914,322) 15,087,711
----------
MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE- 13.1% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATIONS-13.1%
2,500,000 First Franklin Mortgage 2004-FFH2 B2, 7.141% 10/25/34 (a) 2,325,000
3,000,000 First Franklin Mortgage 2004-FFH3 B1, 7.141% 6/25/34 (a) 2,670,000
3,000,000 Fremont Home Equity 2005-C B3, 5.63% 7/25/35 (a). 2,092,500
2,000,000 Greenwich 2005-2A N2, 3.10% 2/26/35 (a).......... 1,383,740
3,000,000 Greenwich 2005-3 N2, 2.00% 6/27/35 (a)........... 1,858,590
6,000,000 Greenwich 2005-4 N-2, Zero Coupon Bond, 7/28/45 (a) 3,090,000
2,568,000 GSAMP Trust 2004-AR1 B5, 5.00% 6/25/34 (a)....... 2,080,080
3,325,783 Long Beach Mortgage 2001-4 M3, 6.391% 3/25/32.... 1,596,376
4,190,000 Long Beach Mortgage 2004-2 B, 7.141% 6/25/34 (a). 3,854,800
3,000,000 Long Beach Mortgage 2005-WL1, 6.05% 6/25/35...... 2,620,770
3,000,000 Meritage Mortgage 2004-2 B1, 6.891% 1/25/35 (a).. 2,610,000
2,000,000 Meritage Mortgage 2004-2 B2, 6.891% 1/25/35 (a).. 1,690,000
1,013,115 Park Place Securities 2005-WCW1 B, 5.00% 9/25/35 (a) 934,598
3,000,000 Park Place Securities 2005-WCW1 M11, 5.96% 9/25/35 2,352,570
2,000,000 Park Place Securities 2005-WCW3, 5.981% 8/25/35 (a) 1,620,000
2,000,000 Park Place Securities 2005-WHQ1 M10, 6.141% 3/25/35 (a) 1,783,420
2,000,000 Park Place Securities 2005-WHQ4, 6.088% 9/25/35 (a) 1,370,300
2,000,000 People's Choice Home Loan 2004-2 B, 5.00% 10/25/34 1,652,500
1,500,000 Popular 2005-4 B2, 6.05% 9/25/35 (a)............. 1,396,875
1,000,000 Soundview 2005-1 B3, 6.891% 4/25/35 (a).......... 820,000
1,000,000 Soundview 2005-2 B2, 6.71% 7/25/35 (a)........... 815,000
1,000,000 Soundview 2005-2 B4, 6.46% 7/25/35 (a)........... 735,000
----------
TOTAL MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE
(COST $40,709,428) 41,352,119
----------
GOVERNMENT AGENCY SECURITIES-1.2% OF NET ASSETS
GNMA 2003-59 XA, 0.304% 6/16/34 interest-only strips (c) 2,343,792
GNMA 2003-64 XA, 0.517% 8/16/43 interest-only strips (c) 1,484,114
----------
TOTAL GOVERNMENT AGENCY SECURITIES
(COST $5,574,538) 3,827,906
----------
MUNICIPAL SECURITIES-0.2% OF NET ASSETS
1,000,000 Pima County Arizona IDA Health Care, Zero Coupon Bond 11/15/32 525,550
----------
TOTAL MORTGAGE BACKED SECURITIES
(COST $625,681) 525,550
----------
31
DESCRIPTION MARKET
SHARES VALUE (b)
- ----------------------------------------------------------------------------------------------------
COMMON STOCKS-11.7% OF NET ASSETS
4,800 3M Company.......................................... $352,128
7,800 Alliance Capital Management Holding L.P............. 373,230
26,300 American Capital Strategies, Ltd.................... 964,158
30,400 Andrx Corporation (d)............................... 469,072
57,700 Anthracite Capital, Inc............................. 668,166
12,600 Arthur J. Gallegher & Co............................ 363,006
28,500 ATI Technologies Inc. (d)........................... 397,290
15,300 Bank of America Corporation......................... 644,130
13,800 Bois d'Arc Energy LLC (d)........................... 237,498
6,500 Burlington Northern Santa Fe Corporation............ 388,700
6,100 Caterpillar, Inc.................................... 358,375
10,200 CEMEX, S.A. de C.V.................................. 533,460
8,500 Cimarex Energy Co. (d).............................. 385,305
38,500 Cisco Systems, Inc. (d)............................. 689,920
25,800 Consolidated Communications Illinois Holdings, Inc. (d) 350,880
4,700 Cooper Cameron Corporation (d)...................... 347,471
15,100 Cree, Inc. (d)...................................... 377,802
11,900 Cytec Industries Inc................................ 516,222
2,800 Deere & Company..................................... 171,360
17,900 Direct General Corporation.......................... 353,167
18,700 Dollar General Corporation.......................... 342,958
1,600 Education Realty Trust.............................. 26,720
8,600 El DuPont de Nemours and Company.................... 336,862
3,400 EnCana Corporation (d).............................. 198,254
8,600 ENSCO International Incorporated.................... 400,674
17,700 Enterprise Partners Products L.P.................... 445,686
6,100 Exxon Mobil Corporation............................. 387,594
8,700 Family Dollar Stores, Inc........................... 172,869
16,900 First Data Corporation.............................. 676,000
27,400 Flextronics International Ltd. (d).................. 352,090
29,500 Fred's Inc.......................................... 369,045
7,800 Frontline Ltd....................................... 344,136
10,400 General Electric Company............................ 350,168
12,100 General Maritime Corporation........................ 445,401
11,000 GlobalSantaFe Corporation........................... 501,820
21,200 Ingram Micro Inc. (d)............................... 393,048
44,000 InPhonic, Inc. (d).................................. 605,000
14,100 Intel Corporation................................... 347,565
37,700 Iowa Telecommunications Services, Inc............... 634,114
7,600 J.C. Penny Company, Inc............................. 360,392
10,550 Kinder Morgan Energy Partners, L.P.................. 557,568
7,000 KKR Financial Corp. (d)............................. 155,680
32,400 Korn/Ferry International (d)........................ 531,036
8,500 L-3 Communications Holdings, Inc.................... 672,095
32
MARKET
SHARES DESCRIPTION VALUE (b)
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
26,800 Limited Brands, Inc............................... $ 547,524
21,400 Lincoln Electric Holdings, Inc.................... 843,160
15,500 Lloyds TSB Group plc.............................. 515,065
12,700 Macquarie Infrastructure Company Trust............ 358,140
12,200 Magellan Midstream Partners, L.P.................. 418,094
12,000 Manpower Inc...................................... 532,680
10,200 Marathon Oil Corporation.......................... 703,086
17,100 Masco Corporation................................. 524,628
74,250 MCG Capital Corporation........................... 1,252,597
31,000 Microsoft Corporation............................. 797,630
18,500 Nam Tai Electronics, Inc.......................... 470,455
15,200 New Century Financial Corporation................. 551,304
24,400 New Skies Satellites Holdings Ltd................. 513,620
19,800 Polycom, Inc. (d)................................. 320,166
34,200 Regal Entertainment Group......................... 685,368
17,190 Ship Finance International Limited................ 343,800
65,700 Taiwan Semiconductor Manufacturing Company Ltd.... 540,054
89,833 Technology Investment Capital Corporation......... 1,418,463
22,650 Teva Pharmaceutical Industries Limited............ 756,963
27,200 The Home Depot, Inc............................... 1,037,408
20,100 Thornburg Mortgage, Inc........................... 503,706
13,100 Tidewater Inc..................................... 637,577
5,000 Trex Company, Inc. (d)............................ 120,000
62,600 Trustreet Properties Inc.......................... 979,690
13,200 Tsakos Energy Navigation Limited.................. 475,464
9,500 Universal Compression Holdings, Inc. (d).......... 377,815
4,900 Valero Energy Corporation......................... 553,994
3,100 Valero L.P........................................ 176,638
16,000 Wal-Mart Stores, Inc.............................. 701,120
12,900 Washington Mutual, Inc............................ 505,938
-----------
TOTAL COMMON STOCKS
(COST $34,725,329) 36,710,262
-----------
PREFERRED STOCKS-0.9% OF NET ASSETS
1,000 Credit Genesis CLO 2005........................... 1,000,000
1,000,000 Hewett's Island II (a)............................ 990,000
1,000 SOLOSO CDO 2005................................... 992,706
-----------
TOTAL PREFERRED STOCKS
(COST $2,982,706) 2,982,706
-----------
33
MARKET
SHARES DESCRIPTION VALUE (b)
- ---------------------------------------------------------------------------------------------------
MUTUAL FUNDS-0.1% OF NET ASSETS
3,500 iShares Russell 3000 Value Index Fund............. $ 314,335
------------
TOTAL MUTUAL FUNDS
(COST $307,829) 314,335
------------
CORPORATE LOANS-0.3% OF NET ASSETS
1,000,000 ICO North America, 7.50% 8/15/09.................. 1,000,000
------------
EURODOLLAR TIME DEPOSITS-0.8% OF NET ASSETS
State Street Bank & Trust Company Eurodollar time deposits
dated September, 2005, 1.95%, maturing at $ 2,395,130 on
October 1, 2005. 2,395,000
------------
TOTAL INVESTMENTS-133.8% OF NET ASSETS
(COST $435,189,683) 420,814,826
------------
OTHER ASSETS AND LIABILITIES, NET-(33.8%) OF NET ASSETS (106,306,937)
------------
NET ASSETS $314,507,889
============
(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.
34
RMK STRATEGIC INCOME FUND, INC.
OBJECTIVE & STRATEGY
----------------------------------------
RMK Strategic Income Fund, Inc. seeks a high level of current income. The Fund
seeks capital growth as a secondary investment objective when consistent with
its primary investment objective. The Fund invests 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
Adviser will continually analyze the markets for income-producing securities and
will periodically reallocate the Fund's investments among various fixed-income
and equity asset classes and between investment grade and below investment grade
securities (commonly referred to as "junk bonds") to pursue its investment
objectives. As a result, a majority of the Fund's total assets may be invested
in investment grade securities at some times and in below investment grade
securities at other times. The Fund invests in a wide range of debt securities,
including corporate bonds, mortgage- and asset-backed securities, and municipal
and foreign government obligations, as well as securities of companies in
bankruptcy reorganization proceedings or otherwise in the process of debt
restructuring. The Fund also invests in other securities providing the potential
for high income or a combination of high income and capital growth.
INVESTMENT RISKS: Bond funds tend to experience smaller fluctuations in value
than stock funds. However, investors in any bond fund should anticipate
fluctuations in price. Bond prices and the value of bond funds decline as
interest rates rise. Longer-term funds generally are more vulnerable to this
interest rate risk than shorter-term funds. Below investment grade bonds involve
greater credit risk, which is the risk that the issuer will not make interest or
principal payments when due. An economic downturn or period of rising interest
rates could adversely affect the ability of issuers, especially issuers of below
investment grade debt, to service primary obligations and an unanticipated
default could cause the Fund to experience a reduction in value of its shares.
35
RMK STRATEGIC INCOME FUND, INC.
MANAGEMENT DISCUSSION & ANALYSIS
During the first half of RMK High Income Fund, Inc.'s (the "Fund") fiscal year
2006, which ended September 30, 2005, the Fund had a total return of 14.46%,
based on market price and reinvested dividends. For the six months ended
September 30, 2005, the Fund had a total return of 5.46%, based on net asset
value and reinvested dividends. For the six months ended September 30, 2005, the
LEHMAN BROTHERS BA U.S. HIGH YIELD INDEX(1) had a total return of 4.28%. The
Fund's strong performance was primarily attributable to the Fund's relative
yield advantage as evidenced by the monthly dividend distribution and the
relative net asset value stability produced by the Fund's allocation to a wide
variety of asset types.
Dividend distributions for the period were $0.15 cents per share per month; the
Fund paid a total income distribution of $0.90 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 has allowed 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 2005 were franchise loans, commercial-mortgage
backed securities, aircraft equipment leases, below investment grade corporate
bonds and dividend-paying common stocks.
Two categories of particularly strong performance during the summer months were
in the asset backed sector, including those deals supported by franchise loans
and aircraft leases. The franchise loan deals have benefited directly from an
improved business environment and from a substantial increase in real estate
values. Although the domestic airlines continue to experience operating
problems, the global demand for aircraft has been strong and continues to
strengthen. Our holdings of pooled lease deals are mostly floating rate, thereby
benefiting from higher short-term rates and have generally experienced higher
net cash flows due to increasing lease rates on aircraft.
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 first half of fiscal year 2006, the leverage was beneficial to shareholders.
Although increasing short-term interest rates will increase the cost of borrowed
money, the Fund has invested some 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.
As we enter the final months of 2005, financial markets will continue to focus
on the threat of higher inflation and on how much more the Federal Reserve will
increase short-term rates. We have invested with the expectation that we will
continue to see economic strength and further rate increases from the Federal
Reserve. Generally, high interest rates suppress the values of financial assets
thereby creating a different environment for good returns. Our focus will be on
those sectors that benefit from the global expansion and are not dependent on
lower interest rates to produce good results.
/s/ James C. Kelsoe
- -----------------------------
James C. Kelsoe, Jr., CFA
Senior Portfolio Manager
Morgan Asset Management, Inc.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVES. THE FUND
IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF
SECURITIES OWNED BY THE FUND WILL DECLINE AND, THEREFORE, THE VALUE OF THE
FUND'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE
MONEY INVESTING IN THE FUND.
36
INDEX DESCRIPTION
----------------------------------------
1 THE LEHMAN BROTHERS BA U. S. HIGH YIELD INDEX COVERS THE UNIVERSE OF FIXED
RATE, NON-INVESTMENT GRADE DEBT. PAY-IN-KIND (PIK) BONDS, EUROBONDS, AND
DEBT ISSUES FROM COUNTRIES DESIGNATED AS EMERGING MARKETS (E.G., ARGENTINA,
BRAZIL, VENEZUELA, ETC.) ARE EXCLUDED, BUT CANADIAN AND GLOBAL BONDS (SEC
REGISTERED) OF ISSUERS IN NON-EMG COUNTRIES ARE INCLUDED. ORIGINAL ISSUE
ZEROES, STEP-UP COUPON STRUCTURES, AND 144-AS ARE ALSO INCLUDED. THE INDEX
IS UNMANAGED, AND UNLIKE THE FUND, IS NOT AFFECTED BY CASHFLOWS OR TRADING
AND OTHER EXPENSES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
37
RMK STRATEGIC INCOME FUND, INC.
PORTFOLIO STATISTICS(+)
AS OF SEPTEMBER 30, 2005 ------------------------------
- -------------------------------------------------------------------------------------------------
Average Credit Quality................................. BB
Current Yield.......................................... 10.59%
Yield to Maturity...................................... 11.95%
Duration............................................... 4.04 Years
Average Effective Maturity............................. 5.39 Years
Percentage of Leveraged Assets......................... 28%
Total Number of Holdings............................... 262
(+) THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
CREDIT QUALITY(+)
------------------------------
AS OF SEPTEMBER 30, 2005
% OF TOTAL INVESTMENTS % OF TOTAL INVESTMENTS
- -------------------------------------------------------------------------------------------------
AAA....................... 2.5% CCC....................... 21.3%
AA........................ 2.9% CC 1.5%
A 3.3% C 0.2%
BBB....................... 23.9% D 1.5%
BB........................ 24.3% Not Rated................. 9.5%
-------------
B 9.1% Total..................... 100.0%
(+) THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
ASSET ALLOCATION+
------------------------------
AS OF SEPTEMBER 30, 2005
% OF TOTAL INVESTMENTS
- -------------------------------------------------------------------------------------------------
Corporate Bonds.......................................... 21.0%
Equipment Leases......................................... 16.1%
Collateralized Mortgage Obligations...................... 14.6%
Common Stock............................................. 12.5%
Home Equity Loans........................................ 11.2%
Manufactured Housing Loans............................... 7.0%
Collateralized Debt Obligations.......................... 5.2%
Franchise Loans.......................................... 4.2%
Commercial Loans......................................... 3.0%
Certificate-Backed Obligations........................... 1.2%
Short Term Investments................................... 1.1%
Government Agency Securities............................. 0.9%
Credit Cards............................................. 0.8%
Preferred Stock.......................................... 0.6%
Other.................................................... 0.6%
----------------
Total.................................................... 100.0%
(+) THE FUND'S COMPOSITION IS SUBJECT TO CHANGE.
38
RMK STRATEGIC INCOME FUND, INC.
NAV & MARKET PRICE HISTORY*
------------
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 September 30, 2005.
[Graph Representation]
DATE NAV PRICE
- ---- --- -----
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
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
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
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
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
04/01/2005 $14.24 $15.78
04/02/2005 $14.24 $15.78
04/03/2005 $14.24 $15.78
04/04/2005 $14.24 $15.64
04/05/2005 $14.24 $15.74
04/06/2005 $14.27 $15.75
04/07/2005 $14.28 $15.75
04/08/2005 $14.28 $15.76
04/09/2005 $14.28 $15.76
04/10/2005 $14.28 $15.76
04/11/2005 $14.14 $15.61
04/12/2005 $14.15 $15.35
04/13/2005 $14.12 $15.20
04/14/2005 $14.10 $15.26
04/15/2005 $14.05 $15.40
04/16/2005 $14.05 $15.40
04/17/2005 $14.05 $15.40
04/18/2005 $14.06 $15.45
04/19/2005 $14.10 $15.50
04/20/2005 $14.11 $15.61
04/21/2005 $14.10 $15.60
04/22/2005 $14.10 $15.66
04/23/2005 $14.10 $15.66
04/24/2005 $14.10 $15.66
04/25/2005 $14.11 $15.69
04/26/2005 $14.10 $15.70
04/27/2005 $14.06 $15.70
04/28/2005 $14.04 $15.60
04/29/2005 $14.02 $15.60
04/30/2005 $14.02 $15.60
05/01/2005 $14.02 $15.60
05/02/2005 $14.02 $15.50
05/03/2005 $14.04 $15.73
05/04/2005 $14.07 $15.85
05/05/2005 $14.07 $15.85
05/06/2005 $14.03 $15.84
05/07/2005 $14.03 $15.84
05/08/2005 $14.03 $15.84
05/09/2005 $14.04 $15.80
05/10/2005 $13.88 $15.50
05/11/2005 $13.86 $15.51
05/12/2005 $13.82 $15.55
05/13/2005 $13.85 $15.54
05/14/2005 $13.85 $15.54
05/15/2005 $13.85 $15.54
05/16/2005 $13.85 $15.73
05/17/2005 $13.86 $15.80
05/18/2005 $13.91 $15.99
05/19/2005 $13.93 $15.95
05/20/2005 $13.94 $15.83
05/21/2005 $13.94 $15.83
05/22/2005 $13.94 $15.83
05/23/2005 $13.95 $15.96
05/24/2005 $13.93 $16.00
05/25/2005 $13.98 $16.30
05/26/2005 $14.03 $16.27
05/27/2005 $14.03 $16.35
05/28/2005 $14.03 $16.35
05/29/2005 $14.03 $16.35
05/30/2005 $14.03 $16.35
05/31/2005 $14.06 $16.42
06/01/2005 $14.10 $16.44
06/02/2005 $14.13 $16.41
06/03/2005 $14.14 $16.40
06/04/2005 $14.14 $16.40
06/05/2005 $14.14 $16.40
06/06/2005 $14.14 $16.45
06/07/2005 $14.13 $16.48
06/08/2005 $14.10 $16.60
06/09/2005 $14.13 $16.49
06/10/2005 $13.98 $16.22
06/11/2005 $13.98 $16.22
06/12/2005 $13.98 $16.22
06/13/2005 $13.98 $16.36
06/14/2005 $14.00 $16.36
06/15/2005 $14.01 $16.45
06/16/2005 $14.03 $16.32
06/17/2005 $14.03 $16.38
06/18/2005 $14.03 $16.38
06/19/2005 $14.03 $16.38
06/20/2005 $14.03 $16.30
06/21/2005 $14.02 $16.24
06/22/2005 $14.05 $16.28
06/23/2005 $14.03 $16.14
06/24/2005 $14.03 $16.14
06/25/2005 $14.03 $16.14
06/26/2005 $14.03 $16.14
06/27/2005 $14.03 $16.30
06/28/2005 $14.06 $16.19
06/29/2005 $14.06 $16.17
06/30/2005 $14.04 $16.15
07/01/2005 $14.08 $16.27
07/02/2005 $14.08 $16.27
07/03/2005 $14.08 $16.27
07/04/2005 $14.08 $16.27
07/05/2005 $14.09 $16.45
07/06/2005 $14.08 $16.37
07/07/2005 $14.09 $16.40
07/08/2005 $14.12 $16.44
07/09/2005 $14.12 $16.44
07/10/2005 $14.12 $16.44
07/11/2005 $14.00 $16.20
07/12/2005 $14.02 $16.20
07/13/2005 $14.02 $16.22
07/14/2005 $14.02 $16.20
07/15/2005 $14.03 $16.29
07/16/2005 $14.03 $16.29
07/17/2005 $14.03 $16.29
07/18/2005 $14.03 $16.28
07/19/2005 $14.08 $16.28
07/20/2005 $14.11 $16.29
07/21/2005 $14.09 $16.27
07/22/2005 $14.13 $16.33
07/23/2005 $14.13 $16.33
07/24/2005 $14.13 $16.33
07/25/2005 $14.13 $16.25
07/26/2005 $14.15 $16.29
07/27/2005 $14.17 $16.29
07/28/2005 $14.24 $16.30
07/29/2005 $14.23 $16.37
07/30/2005 $14.23 $16.37
07/31/2005 $14.23 $16.37
08/01/2005 $14.25 $16.31
08/02/2005 $14.28 $16.35
08/03/2005 $14.29 $16.38
08/04/2005 $14.27 $16.40
08/05/2005 $14.25 $16.30
08/06/2005 $14.25 $16.30
08/07/2005 $14.25 $16.30
08/08/2005 $14.24 $16.26
08/09/2005 $14.26 $16.20
08/10/2005 $14.12 $16.25
08/11/2005 $14.14 $16.24
08/12/2005 $14.15 $16.25
08/13/2005 $14.15 $16.25
08/14/2005 $14.15 $16.25
08/15/2005 $14.15 $16.25
08/16/2005 $14.16 $16.30
08/17/2005 $14.18 $16.19
08/18/2005 $14.20 $16.22
08/19/2005 $14.24 $16.37
08/20/2005 $14.24 $16.37
08/21/2005 $14.24 $16.37
08/22/2005 $14.25 $16.31
08/23/2005 $14.28 $16.38
08/24/2005 $14.30 $16.43
08/25/2005 $14.31 $16.41
08/26/2005 $14.31 $16.63
08/27/2005 $14.31 $16.63
08/28/2005 $14.31 $16.63
08/29/2005 $14.32 $16.56
08/30/2005 $14.34 $16.52
08/31/2005 $14.39 $16.57
09/01/2005 $14.40 $16.66
09/02/2005 $14.40 $16.70
09/03/2005 $14.40 $16.70
09/04/2005 $14.40 $16.70
09/05/2005 $14.40 $16.70
09/06/2005 $14.41 $16.88
09/07/2005 $14.40 $16.99
09/08/2005 $14.39 $17.03
09/09/2005 $14.40 $17.23
09/10/2005 $14.40 $17.23
09/11/2005 $14.40 $17.23
09/12/2005 $14.25 $16.98
09/13/2005 $14.26 $16.85
09/14/2005 $14.25 $16.90
09/15/2005 $14.23 $16.81
09/16/2005 $14.24 $16.80
09/17/2005 $14.24 $16.80
09/18/2005 $14.24 $16.80
09/19/2005 $14.23 $16.98
09/20/2005 $14.19 $17.08
09/21/2005 $14.16 $17.00
09/22/2005 $14.17 $17.06
09/23/2005 $14.16 $17.20
09/24/2005 $14.16 $17.20
09/25/2005 $14.16 $17.20
09/26/2005 $14.18 $17.20
09/27/2005 $14.17 $17.00
09/28/2005 $14.17 $17.10
09/29/2005 $14.17 $16.97
09/30/2005 $14.16 $17.00
* NET ASSET VALUE IS CALCULATED AFTER THE CLOSE OF THE EXCHANGES EACH DAY BY
TAKING THE CLOSING MARKET VALUE OF ALL PORTFOLIO 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.
PERFORMANCE INFORMATION
------------
AVERAGE ANNUAL TOTAL RETURNS
COMMENCEMENT
SIX 1 OF INVESTMENT
AS OF SEPTEMBER 30, 2005 MONTHS* YEAR OPERATIONS(1)
- --------------------------------------------------------------------------------
MARKET VALUE 14.46% 21.76% 20.89%
- --------------------------------------------------------------------------------
NET ASSET VALUE 5.46% 11.79% 10.59%
- --------------------------------------------------------------------------------
LEHMAN BROTHERS BA
HIGH YIELD INDEX(2) 4.28% 5.50% 5.52%
- --------------------------------------------------------------------------------
* AGGREGATE.
39
RMK STRATEGIC INCOME FUND, INC.
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 800-564-2188.
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 ON THE SALE OF FUND SHARES.
(1) THE FUND COMMENCED INVESTMENT OPERATIONS ON MARCH 18, 2004.
(2) THE LEHMAN BROTHERS BA U. S. HIGH YIELD INDEX COVERS THE UNIVERSE OF FIXED
RATE, NON-INVESTMENT GRADE DEBT. PAY-IN-KIND (PIK) BONDS, EUROBONDS, AND
DEBT ISSUES FROM COUNTRIES DESIGNATED AS EMERGING MARKETS (E.G., ARGENTINA,
BRAZIL, VENEZUELA, ETC.) ARE EXCLUDED, BUT CANADIAN AND GLOBAL BONDS (SEC
REGISTERED) OF ISSUERS IN NON-EMG COUNTRIES ARE INCLUDED. ORIGINAL ISSUE
ZEROES, STEP-UP COUPON STRUCTURES, AND 144-AS ARE ALSO INCLUDED. THE INDEX
IS UNMANAGED, AND UNLIKE THE FUND, IS NOT AFFECTED BY CASHFLOWS OR TRADING
AND OTHER EXPENSES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-INVESTMENT GRADE-19.2% OF NET ASSETS
COLLATERIZED DEBT OBLIGATIONS-4.6%
10,298,106 Diversified Asset Securitization 1A A1, 7.873% 9/15/35 $10,864,502
3,930,474 E-Trade 2004-1A COM1, 2.00% 1/10/40.............. 3,969,779
2,400,000 Restructured Asset Backed 2003-3A A3,
4.50% 1/29/22 (a)............................. 2,008,896
----------
16,843,177
----------
CREDIT CARDS-1.2%
5,000,000 North Street 2000-1A B, 4.26% 10/30/11 (a)....... 4,200,000
----------
EQUIPMENT LEASES-3.8%
15,264,301 Aerco Limited 2A A3, 4.228% 7/15/25.............. 11,906,155
18,000,000 Airplanes Repackaging 2004-1A B, Zero Coupon Bond 6/16/31 (a) 1,125,000
1,000,000 Aviation Capital 2000-1A A1, 4.051% 11/15/25 (a). 810,730
----------
13,841,885
----------
FRANCHISE LOANS-2.8%
7,973,933 Atherton Franchisee 1999-A A2, 7.23% 4/15/12 (a). 8,290,355
FMAC Loan Trust 1997-C AX, 2.355% 12/15/19
interest-only strips (a)...................... 2,153,957
----------
10,444,312
----------
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE)-5.0%
1,336,869 Aames Mortgage Trust 2001-3 B, 7.13% 11/25/31.... 1,296,763
4,114,000 Ace Securities 2004-RM1 B2, 7.33% 7/25/34 (a).... 3,743,740
3,450,000 Ace Securities 2004-HE2 B1, 7.33% 10/25/34....... 3,312,000
2,000,000 Ace Securities 2004-HE4 M11, 7.33% 12/25/34...... 1,871,860
1,487,000 Ace Securities 2004-HS1 M6, 7.33% 2/25/34........ 1,486,958
1,798,535 Amresco Residential Securities 1999-1 B, 7.641% 11/25/29 1,802,963
2,325,700 Asset Backed Securities 2002-HE3 M4, 6.22% 10/15/32 2,296,628
1,000,000 Asset Backed Securities 2005-HE1 M10, 6.641% 3/25/35 929,060
1,700,000 NovaStar Home Equity 2004-3 B4, 5.238% 12/25/34.. 1,649,000
----------
18,388,972
----------
MANUFACTURED HOUSING LOANS-1.8%
3,000,000 Green Tree Financial 1996-2 M1, 7.60% 4/15/27.... 2,350,431
4,995,000 Green Tree Financial 1996-9 M1, 7.63% 8/15/27.... 4,310,121
----------
6,660,552
----------
TOTAL ASSET BACKED SECURITIES-INVESTMENT GRADE
(COST $68,901,406) 70,378,898
----------
40
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- -----------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE-47.9% OF NET ASSETS
CERTIFICATE-BACKED OBLIGATIONS-1.7%
1,000,000 Preferred Term Securities II, 5/22/33 (a)(f)..... $1,030,030
5,000,000 Preferred Term Securities XIX, 6.07% 12/22/35 (a) 4,983,300
----------
6,013,330
----------
COLLATERIZED DEBT OBLIGATIONS-2.4%
1,000,000 Halyard CBO 1A B, 4.77% 3/24/10 (a).............. 770,000
2,975,286 Hewett's Island 2004-1A COM, 9.00% 12/15/16...... 2,975,286
1,950,000 MKP 4A CS, 2.00% 7/12/40 (a)..................... 1,950,000
1,000,000 Stanfield 2A D1, 9.699% 4/15/15 (a).............. 982,500
1,000,000 VALEO 3A B1, 6.371% 12/15/13..................... 757,500
2,000,000 Wibraham CBD Limited 1A, 4.46% 7/13/12 (a)....... 1,525,000
----------
8,960,286
----------
COMMERCIAL LOANS-4.1%
1,016,042 CS First Boston Mortgage 1995-WF1 G, 9.00% 12/21/27 978,703
1,723,226 Enterprise Mortgage 1998-1 A2, 6.38% 1/15/25 (a). 1,715,771
4,170,000 Enterprise Mortgage 1998-1 A3, 6.63% 1/15/25 (a). 2,814,750
13,685,198 Enterprise Mortgage 2000-1 A2, 7.445% 1/15/27 (a) 7,732,137
3,000,000 Merrill Lynch Mortgage 1998-C1 F, 6.25% 11/15/26. 1,784,370
----------
15,025,731
----------
EQUIPMENT LEASES-18.3%
17,000,000 Aircraft Finance Trust 1999-1A A1, 4.248% 5/15/24 10,667,500
22,000,000 Airplanes Pass Through Trust 2001-1A A9, 4.318% 3/15/19 11,880,000
449,009 DVI Receivables 2000-2 A4, 7.115% 11/12/08....... 425,436
1,668,400 DVI Receivables 2001-2 A3, 3.519% 11/8/31........ 1,384,772
1,489,957 DVI Receivables 2001-2 A4, 4.613% 11/11/09....... 1,251,564
9,101,588 DVI Receivables 2002-1 A3A, 4.09% 6/11/10........ 6,575,897
9,000,000 Lease Investment Flight Trust 1 A1, 4.158% 7/15/31 6,075,000
1,845,870 Pegasus Aviation Lease 1999-1A A1, 6.30% 3/25/29 (a) 895,247
12,000,000 Pegasus Aviation Lease 1999-1A A2, 6.30% 3/25/29 (a) 5,850,000
1,000,000 Pegasus Aviation 2000-1 A2, 8.37% 3/25/30 (a).... 635,000
20,000,000 Pegasus Aviation 2001-1A A1, 4.208% 5/10/31 (a).. 10,200,000
14,205,366 Pegasus Aviation 2001-1A A3, 4.408% 3/10/14 (a).. 11,097,942
----------
66,938,358
----------
FRANCHISE LOANS-2.9%
1,000,000 Falcon Franchise Loan 2001-1 F, 6.50% 1/5/23..... 618,510
3,489,903 FMAC Loan Trust 1996-B A1, 7.629% 11/15/18 (a)... 2,621,909
5,069,808 FMAC Loan Trust 1996-B A2, 4.09% 11/15/18 (a).... 3,472,818
4,881,074 FMAC Loan Trust 1998-A A3, 6.69% 9/15/20 (a)..... 3,709,616
FMAC Loan Trust 1998-BA AX, 1.34% 11/15/20
interest-only strips (a)...................... 365,293
----------
10,788,146
----------
41
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- -----------------------------------------------------------------------------------------------
ASSET BACKED SECURITIES-NON-INVESTMENT GRADE (CONTINUED)
HOME EQUITY LOANS (NON-HIGH LOAN-TO-VALUE)-10.3%
8,892,000 Ace Securities 2004-HE1 B, 7.33% 2/25/34........ $ 8,180,640
10,855,000 Ace Securities 2004-OP1 B, 7.33% 4/25/34........ 9,769,500
2,057,000 Ace Securities 2004-RM1 B3, 7.33% 7/25/34 (a)... 1,789,590
2,000,000 Ace Securities 2004-HE4 B, 7.33% 12/25/34 (a)... 1,680,000
2,000,000 Ace Securities 2005-HE5 B2, 7.33% 8/25/35 (a)... 1,458,600
979,793 Delta Funding Home Equity 2000-4 B, 7.15% 2/15/31 323,332
2,100,000 Equifirst Mortgage 2004-2 B1, 7.041% 7/25/34 (a) 1,890,000
2,732,000 Equifirst Mortgage 2004-2 B2, 7.041% 7/25/34 (a) 2,308,540
1,000,000 Equifirst Mortgage 2005-1 B3, 6.891% 4/25/35 (a) 835,000
1,000,000 Equifirst Mortgage 2005-1 B4, 7.08% 4/25/35 (a). 830,000
2,000,000 Merrill Lynch Mortgage 2005-SL1 B5, 7.141% 6/25/35 (a) 1,784,400
1,830,000 Terwin Mortgage 2004-16SL B3, 7.96% 10/25/34 (a) 1,555,500
Terwin Mortgage 2005-3SL B6, 5.50% 3/25/35 interest-only strips 3,600,000
2,000,000 Terwin Mortgage 2005-7SL, 6.50% 7/25/35 (a)..... 1,720,600
-----------
37,725,702
-----------
MANUFACTURED HOUSING LOANS-7.7%
2,832,777 Bombardier Capital 1999-B M1, 8.12% 12/15/29.... 28,328
4,693,541 Conseco Finance 2000-5 M2, 9.03% 2/1/32......... --
2,000,000 Conseco Finance 2001-1 M1, 7.535% 7/1/32........ 434,474
3,576,357 Green Tree Financial 1996-4 M1, 7.75% 6/15/27... 2,899,818
1,479,336 Green Tree Financial 1996-5 B1, 8.10% 7/15/26... 236,694
2,500,000 Green Tree Financial 1997-3 M1, 7.53% 3/15/28... 1,537,500
8,000,000 Green Tree Financial 1997-8 M1, 7.02% 10/15/27.. 5,544,496
4,000,000 Green Tree Financial 1999-4 M1, 7.60% 5/1/31.... 576,412
12,000,000 Green Tree Financial 1999-5 M1, 8.05% 3/1/30.... 1,620,000
4,037,597 Greenpoint Manufactured Housing 2000-1 M2, 8.78% 3/20/30 323,008
10,000,000 Greenpoint Manufactured Housing 2000-3 IM1, 9.01% 6/20/31 2,767,230
10,000,000 Madison Avenue Manufactured Housing 2002-A B2,
6.891% 3/25/32............................... 3,325,000
5,389,000 Merit Securities 12-1 1M2, 7.35% 7/28/33........ 3,237,738
5,886,000 Merit Securities 13 M2, 8.653% 12/28/33......... 2,255,692
1,500,000 Oakwood Mortgage 2002-A M1, 7.76% 3/15/32....... 313,122
10,000,000 Oakwood Mortgage 2002-B M1, 7.62% 6/15/32....... 2,766,200
5,000,000 UCFC Manufactured Housing 1997-2 B1,
Zero Coupon Bond 2/15/18..................... 300,000
-----------
28,165,712
-----------
RECREATIONAL EQUIPMENT-0.5%
1,992,658 Green Tree Recreational Equipment 1996-B CTFS, 7.70% 7/15/18 1,833,246
------------
TOTAL ASSET BACKED SECURITIES-NON-INVESTMENT GRADE
(COST $185,585,044) 175,450,511
------------
42
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- -----------------------------------------------------------------------------------------------
CORPORATE BONDS-INVESTMENT GRADE-0.2% OF NET ASSETS
RETAIL-0.2%
1,000,000 Albertson's, 7.75% 6/15/26........................ $ 873,290
----------
TOTAL CORPORATE BONDS-INVESTMENT GRADE
(COST $873,348) 873,290
----------
CORPORATE BONDS-NON-INVESTMENT GRADE-28.5% OF NET ASSETS
APPLIANCES-0.6%
2,275,000 Windmere-Durable, 10.00% 7/31/08.................. 2,138,500
----------
AUTOMOTIVES-0.9%
375,000 Ford Motor, 9.215% 9/15/21........................ 338,437
625,000 Ford Motor, 9.98% 2/15/47......................... 564,062
2,000,000 General Motors, 8.375% 7/15/33.................... 1,560,000
1,050,000 General Motors, 8.25% 7/15/23..................... 816,375
----------
3,278,874
----------
AUTOMOTIVE PARTS & EQUIPMENT-0.8%
500,000 Delphi Automotive, 6.55% 6/15/06.................. 357,510
2,650,000 Dura Operating, 9.00% 5/1/09...................... 1,841,750
1,000,000 Metaldyne Corp., 10.00% 11/1/13 (a)............... 870,000
----------
3,069,260
----------
BASIC MATERIALS-2.0%
2,050,000 Edgen Acquisition, 9.875% 2/1/11.................. 2,060,250
2,000,000 Millar Western, 7.75% 11/15/13.................... 1,686,700
3,650,000 OM Group, 9.25% 12/15/11.......................... 3,713,875
----------
7,460,825
----------
BUILDING & CONSTRUCTION-1.2%
4,600,000 MMI Products, 11.25% 4/15/07...................... 4,393,000
----------
COMMUNICATIONS-1.4%
2,000,000 Charter, 10.00% 5/15/11........................... 1,450,000
3,374,000 Charter Communication, Zero Coupon Bond 5/15/11... 2,412,410
1,350,000 Penton Media, 10.375% 6/15/11..................... 1,255,500
----------
5,117,910
----------
CONSULTING SERVICES-1.1%
2,000,000 MSX International, 11.375% 1/15/08................ 1,400,000
2,750,000 MSX International, 11.00% 10/15/07................ 2,736,250
----------
4,136,250
----------
ELECTRONICS-1.0%
4,000,000 Motors and Gears, 10.75% 11/15/06................. 3,800,000
----------
ENERGY-0.3%
1,200,000 United Refining, 10.50% 8/15/12 (a)............... 1,272,000
----------
43
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
FINANCE-2.2%
1,600,000 Advanta Capital Trust I, 8.99% 12/17/26........... $1,616,000
950,000 Citisteel USA, 10.00% 9/1/10 (a).................. 940,500
850,000 Labranche, 11.00% 5/15/12......................... 939,250
2,200,000 Rafaella Apparel, 11.25% 6/15/11 (a).............. 2,145,000
1,000,000 Reg Diversified Funding, Zero Coupon Bond 1/25/36 (a) 1,000,000
2,000,000 Triton Aviation 1A A, 4.341% 6/15/25 (a).......... 1,345,000
----------
7,985,750
----------
FOOD-0.5%
500,000 Di Giorgio Corp., 10.00% 6/15/07.................. 495,000
1,850,000 Merisant, 9.50% 7/15/13 (a)....................... 1,258,000
----------
1,753,000
----------
GARDEN PRODUCTS-0.3%
1,350,000 Ames True Temper, 10.00% 7/15/12.................. 1,069,875
---------
HUMAN RESOURCES-0.4%
1,500,000 Comforce Operating, 12.00% 12/1/07................ 1,496,250
---------
INDUSTRIAL-6.1%
4,000,000 Consolidated Container, 10.125% 7/15/09........... 2,660,000
3,903,000 Constar International, 11.00% 12/1/12............. 2,458,890
2,750,000 Continental Global Group, 9.00% 10/1/08........... 2,713,948
750,000 Elgin National, 11.00% 11/1/07.................... 703,717
2,500,000 GSI Group, 12.00% 5/15/13 (a)..................... 2,565,625
1,800,000 Intermet, Zero Coupon Bond 6/15/09 in default..... 603,000
1,150,000 Trimas Corp., 9.875% 6/15/2012.................... 943,690
3,450,000 US Can, 12.375% 10/1/10........................... 3,286,125
4,000,000 VITRO S.A., 11.75% 11/1/13 (a).................... 3,720,000
3,125,000 Wolverine Tube, 7.375% 8/1/08 (a)................. 2,687,500
---------
22,342,495
----------
MEDICAL PRODUCTS-0.2%
800,000 Hanger Orthopedic Group, 10.375% 2/15/09.......... 814,000
----------
PHARMACEUTICALS-0.3%
1,500,000 Curative Health, 10.75% 5/1/11.................... 960,000
----------
RETAIL-2.5%
2,775,000 General Nutrition Center, 8.50% 12/1/10........... 2,365,687
1,600,000 New World Restaurant, 13.00% 7/1/08............... 1,655,568
2,400,000 Star Gas Partner, 10.25% 2/15/13.................. 1,956,000
3,350,000 Uno Restaurant, 10.00% 2/15/11 (a)................ 3,098,750
----------
9,076,005
----------
44
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
CORPORATE BONDS-NON-INVESTMENT GRADE (CONTINUED)
SPECIAL PURPOSE ENTITY-0.8%
2,000,000 ML CLO 97 PILG-1, 7.614% 3/23/09 (a)............. $ 1,000,000
2,000,000 MM Community Funding IX, 10.00% 5/1/33 (a)....... 1,820,000
----------
2,820,000
----------
TECHNOLOGY-0.1%
350,000 Danka Business, 10.00% 4/1/08.................... 325,500
----------
TELECOMMUNICATIONS-4.0%
825,000 Alestra SA, 8.00% 6/30/10........................ 750,750
3,480,000 BARAK I.T.C., Zero Coupon Bond 11/15/07 in default (e) 2,679,600
490,000 Eschelon Operating, 8.375% 3/15/10............... 455,700
3,400,000 Level 3 Financing, 10.75% 10/15/11............... 2,843,250
100,000 Millicom International Cellular, 10.00% 12/1/13.. 103,250
3,975,000 Primus Telecommunications, 8.00% 1/15/14......... 2,524,125
2,200,000 Rural Cellular, 9.75% 1/15/10.................... 2,222,000
300,000 Securus Technologies, 11.00% 9/1/11.............. 267,000
2,500,000 Time Warner, 10.125% 2/1/11...................... 2,575,000
200,000 Time Warner Telecommunications, 9.25% 2/15/14.... 202,500
----------
14,623,175
----------
TOBACCO-0.7%
3,300,000 North Atlantic Trading, 9.25% 3/1/12............. 2,475,000
----------
TRANSPORTATION-0.3%
1,475,000 Evergreen International Aviation, 12.00% 5/15/10. 1,165,250
----------
TRAVEL-0.5%
2,000,000 Worldspan Financial, 10.04% 2/15/11 (a).......... 1,760,000
----------
UTILITIES-0.3%
750,000 Calpine, 8.75% 7/15/13 (a)....................... 530,625
925,000 Calpine, 9.875% 12/1/11 (a)...................... 675,250
----------
1,205,875
----------
TOTAL CORPORATE BONDS-NON-INVESTMENT GRADE
(COST $111,924,148) 104,538,794
-----------
MORTGAGE BACKED SECURITIES-INVESTMENT GRADE-8.9% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATION-8.9%
2,700,000 First Franklin Mortgage 2004-FF2 N3, 8.835% 4/25/34 (a) 2,713,500
2,750,000 First Franklin Mortgage 2004-FF5 M9, 4.47% 8/25/34 2,557,500
Harborview Mortgage 2004-1 X, 1.90% 4/19/34 interest-only strips 981,406
Harborview Mortgage 2004-8 X, 0.65% 11/19/34 interest-only strips 2,401,822
4,999,934 Harborview Mortgage 2005-9 B10, 5.30% 6/20/35.... 4,112,446
5,000,000 Long Beach Mortgage 2004-4 M10, 6.641% 10/25/34.. 5,125,000
Mellon Residential 2004-TBC1 X, 0.716% 2/26/34
interest-only strips (a)...................... 1,082,299
3,125,000 Meritage Mortgage 2005-2 M11, 6.17% 11/25/35..... 2,584,469
45
PRINCIPAL MARKET
AMOUNT DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES-INVESTMENT GRADE (CONTINUED)
COLLATERALIZED MORTGAGE OBLIGATION (CONTINUED)
2,000,000 Merrill Lynch 2005-M1, 5.67% 5/25/36.............. $ 1,609,360
1,168,483 Sail Net Interst Margin Notes 2004-5A B, 6.75% 6/27/34 (a) 1,171,404
2,500,000 Soundview 2005-OPT1 M10, 6.891% 6/25/35........... 2,386,325
2,507,455 Structured Asset 1999-SP1, 9.00% 5/25/29.......... 2,500,491
3,651,000 Structured Asset 2004-8 B2, 5.00% 9/25/34......... 3,249,390
-----------
TOTAL MORTGAGE BACKED SECURITIES-INVESTMENT GRADE
(COST $33,816,208) 32,475,412
-----------
MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE-11.1% OF NET ASSETS
COLLATERALIZED MORTGAGE OBLIGATIONS-11.1%
3,000,000 First Franklin Mortgage 2004-FFH2 B2, 7.141% 6/25/34 (a) 2,670,000
2,750,000 First Franklin Mortgage 2004-FF5 B, 6.641% 8/25/34 (a) 2,447,500
2,500,000 First Franklin Mortgage 2004-FFH3 B1, 7.141% 10/25/34 (a) 2,325,000
3,000,000 Fremont Home Equity 2005-C B3, 5.63% 7/25/35 (a).. 2,092,500
6,000,000 Greenwich 2005-4 N-2, Zero Coupon Bond, 7/27/45 (a) 3,090,000
3,000,000 Greenwich 2005-3 N2, 2.00% 6/27/35 (a)............ 1,858,590
1,000,000 Greenwich 2005-2A N2, 3.10% 2/26/35 (a)........... 691,870
2,000,000 GSAMP Trust 2004-AR1 B5, 5.00% 6/25/34 (a)........ 1,620,000
2,217,189 Long Beach Mortgage 2001-4 M3, 6.391% 3/25/32..... 1,064,250
3,000,000 Long Beach Mortgage 2004-2 B, 7.141% 6/25/34 (a).. 2,760,000
3,485,000 Long Beach Mortgage 2005-WL1, 6.05% 6/25/35....... 3,044,461
3,000,000 Meritage Mortgage 2004-2 B1, 6.891% 1/25/35 (a)... 2,610,000
2,000,000 Meritage Mortgage 2004-2 B2, 6.891% 1/25/35 (a)... 1,690,000
3,000,000 Park Place Securities 2005-WHQ1 M10, 6.141% 3/25/35 (a) 2,675,130
2,000,000 Park Place Securities 2005-WCW3, 5.981% 8/25/35 (a) 1,620,000
2,000,000 Park Place Securities 2005-WHQ4, 6.088% 9/25/35 (a) 1,370,300
1,013,115 Park Place Securities 2005-WCW1 B, 5.00% 9/25/35 (a) 934,598
2,000,000 People's Choice Home Loan 2004-2 B, 5.00% 10/25/34 1,652,500
1,530,000 Popular 2005-4 B2, 6.05% 9/25/35.................. 1,424,812
2,000,000 Soundview 2005-1 B3, 6.891% 4/25/35 (a)........... 1,640,000
1,000,000 Soundview 2005-2 B2, 6.71% 7/25/35 (a)............ 815,000
1,000,000 Soundview 2005-2 B4, 6.46% 7/25/35 (a)............ 735,000
-----------
TOTAL MORTGAGE BACKED SECURITIES-NON-INVESTMENT GRADE
(COST $40,398,181) 40,831,511
-----------
GOVERNMENT AGENCY SECURITIES-1.2% OF NET ASSETS
Fannie Mae 1998-M7 N, 1.057% 5/25/36 interest-only strips (c) 1,691,251
GNMA 2003-64 XA, 0.517% 8/16/43 interest-only strips (c) 2,748,359
-----------
TOTAL GOVERNMENT AGENCY SECURITIES
(COST $9,509,595) 4,439,610
-----------
46
PRINCIPAL
AMOUNT/ MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
MUNICIPAL SECURITIES-0.2% OF NET ASSETS
1,000,000 Pima County Arizona IDA Health Care, Zero Coupon Bond 11/15/32 $ 525,550
-----------
TOTAL MUNICIPAL AGENCY SECURITIES
(COST $625,681) 525,550
-----------
COMMON STOCKS-17.0% OF NET ASSETS
8,400 3M Company........................................ 616,224
13,800 Alliance Capital Management Holding L.P........... 660,330
46,462 American Capital Strategies, Ltd.................. 1,703,297
53,700 Andrx Corporation (d)............................. 828,591
90,400 Anthracite Capital, Inc........................... 1,046,832
21,500 Arthur J. Gallagher & Co.......................... 619,415
50,200 ATI Technologies Inc. (d)......................... 699,788
26,100 Bank of America Corporation....................... 1,098,810
24,400 Bois d'Arc Energy LLC (d)......................... 419,924
11,600 Burlington Northern Santa Fe Corporation.......... 693,680
10,700 Caterpillar, Inc.................................. 628,625
18,000 CEMEX, S.A. de C.V................................ 941,400
14,900 Cimarex Energy Co. (d)............................ 675,417
68,200 Cisco Systems, Inc. (d)........................... 1,222,144
45,800 Consolidated Communications Illinois
Holdings, Inc. (d) 622,880
7,200 Cooper Cameron Corporation (d).................... 532,296
21,800 Cree, Inc. (d).................................... 545,436
21,400 Cytec Industries Inc.............................. 928,332
5,000 Deere & Company................................... 306,000
30,500 Direct General Corporation........................ 601,765
33,000 Dollar General Corporation........................ 605,220
2,900 Education Realty Trust, Inc....................... 48,430
15,200 El DuPont de Nemours and Company.................. 595,384
6,000 EnCana Corporation (d)............................ 349,860
14,700 ENSCO International Incorporated.................. 684,873
31,200 Enterprise Partners Products L.P.................. 785,616
10,700 Exxon Mobil Corporation........................... 679,878
15,300 Family Dollar Stores, Inc......................... 304,011
25,100 First Data Corporation............................ 1,004,000
41,400 Flextronics International Ltd. (d)................ 531,990
52,300 Fred's Inc........................................ 654,273
13,600 Frontline Ltd..................................... 600,032
18,300 General Electric Company.......................... 616,161
21,300 General Maritime Corporation...................... 784,053
19,600 GlobalSantaFe Corporation......................... 894,152
35,300 Ingram Micro Inc. (d)............................. 654,462
78,100 InPhonic, Inc. (d)................................ 1,073,875
25,000 Intel Corporation................................. 616,250
47
MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
66,900 Iowa Telecommunications Services, Inc.............. $ 1,125,258
13,400 J.C. Penny Company, Inc............................ 635,428
16,150 Kinder Morgan Energy Partners, L.P................. 853,528
12,500 KKR Financial Corp. (d)............................ 278,000
57,400 Korn/Ferry International (d)....................... 940,786
14,000 L-3 Communications Holdings, Inc................... 1,106,980
39,800 Limited Brands, Inc................................ 813,114
34,000 Lincoln Electric Holdings, Inc..................... 1,339,600
27,300 Lloyds TSB Group plc............................... 907,179
22,600 Macquarie Infrastructure Company Trust............. 637,320
21,500 Magellan Midstream Partners, L.P................... 736,805
19,900 Manpower Inc....................................... 883,361
15,400 Marathon Oil Corporation........................... 1,061,522
30,300 Masco Corporation.................................. 929,604
126,650 MCG Capital Corporation............................ 2,136,585
48,500 Microsoft Corporation.............................. 1,247,905
32,500 Nam Tai Electronics, Inc........................... 826,475
26,850 New Century Financial Corporation.................. 973,850
42,800 New Skies Satellites Holdings Ltd.................. 900,940
37,000 Polycom, Inc. (d).................................. 598,290
55,700 Regal Entertainment Group.......................... 1,116,228
30,310 Ship Finance International Limited................. 606,200
116,200 Taiwan Semiconductor Manufacturing Company Ltd..... 955,164
152,647 Technology Investment Capital Corporation.......... 2,410,296
38,600 Teva Pharmaceutical Industries Limited............. 1,290,012
43,100 The Home Depot, Inc................................ 1,643,834
35,400 Thornburg Mortgage, Inc............................ 887,124
23,000 Tidewater Inc...................................... 1,119,410
8,500 Trex Company, Inc. (d)............................. 204,000
94,750 Trustreet Properties Inc........................... 1,482,837
21,000 Tsakos Energy Navigation Limited................... 756,420
18,300 Universal Compression Holdings, Inc. (d)........... 727,791
8,600 Valero Energy Corporation.......................... 972,316
5,400 Valero L.P......................................... 307,692
28,400 Wal-Mart Stores, Inc............................... 1,244,488
22,900 Washington Mutual, Inc............................. 898,138
-----------
TOTAL COMMON STOCKS
(COST $59,531,804) 62,428,186
-----------
48
MARKET
SHARES DESCRIPTION VALUE (b)
- ------------------------------------------------------------------------------------------------------
PREFERRED STOCKS-0.8% OF NET ASSETS
1,000 Credit Genesis CLO 2005......................... $ 1,000,000
1,000,000 Hewett's Island II (a).......................... 990,000
1,000 SOLOSO CDO 2005................................. 992,706
------------
TOTAL PREFERRED STOCKS
(COST $2,982,706) 2,982,706
------------
CORPORATE LOANS-0.3% OF NET ASSETS
1,100,000 ICO North America, 7.50% 8/15/09................ 1,100,000
------------
EURODOLLAR TIME DEPOSITS-1.5% OF NET ASSETS
State Street Bank & Trust Company Eurodollar time deposits dated
September 30, 2005, 3.00% maturing at $5,385,449 on October 1, 2005. 5,385,000
------------
TOTAL INVESTMENTS-136.8% OF NET ASSETS
(COST $520,633,121) 501,409,468
------------
OTHER ASSETS AND LIABILITIES, NET-(36.8%) OF NET ASSETS (134,934,447)
------------
NET ASSETS $366,475,021
============
(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.
49
REGIONS MORGAN KEEGAN FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2005 (UNAUDITED)
RMK RMK
ADVANTAGE RMK HIGH STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------
ASSETS
Investments, in securities as detailed in the
accompanying schedules at market (cost
$580,441,476, $435,189,683, and $520,633,121
respectively).............................. $ 563,187,316 $ 420,814,826 $ 501,409,468
Cash on deposit with custodian............... 7,427 15,314 42,603
Dividends and interest receivable 6,541,022 5,858,471 5,751,651
Receivable for securities sold............... 8,014,062 11,014,345 11,126,706
Other assets................................. -- 13,524 --
Debt issue costs............................. 122,329 23,484 52,254
-------------- -------------- --------------
Total Assets............................... 577,872,156 437,739,964 518,382,682
LIABILITIES
Demand loan payable to bank (Note 6) 150,000,000 115,000,000 140,000,000
Interest payable............................. 456,575 393,389 1,200,036
Accrued expenses............................. 43,985 65,894 56,243
Due to affiliates............................ 370,164 283,347 334,459
Payable for securities purchased............. 14,757,297 7,483,099 10,316,923
Deferred Interest Income..................... -- 6,346 --
-------------- -------------- --------------
Total Liabilities.......................... 165,628,021 123,232,075 151,907,661
-------------- -------------- --------------
Net Assets................................. 412,244,135 314,507,889 366,475,021
============== ============== ==============
NET ASSETS CONSIST OF
Net unrealized appreciation (depreciation) of
investments................................ (17,254,160) (14,374,857) (19,223,653)
Common stock, $.0001 par value (1,000,000,000 shares
authorized for each fund).................. 2,884 2,131 2,589
Paid-in capital.............................. 413,793,376 308,709,850 372,229,477
Undistributed net investment income (loss) 3,786,705 2,334,680 4,432,185
Accumulated net realized gain (loss) on investments 11,915,330 17,836,085 9,034,423
-------------- -------------- --------------
Net Assets................................. $ 412,244,135 $ 314,507,889 $ 366,475,021
============== ============== ==============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Common shares outstanding.................. 28,844,066 21,313,167 25,889,184
Net asset value per share.................. $ 14.29 $ 14.76 $ 14.16
- --------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
50
REGIONS MORGAN KEEGAN FUNDS
STATEMENTS OF OPERATIONS
------------------------------
FOR THE SIX-MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED)
RMK RMK
ADVANTAGE RMK HIGH STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest................................. $ 32,917,818 $ 26,490,986 $ 30,340,192
Dividends................................ 850,944 725,315 1,143,582
------------- ------------- -------------
Total Investment Income........ 33,768,762 27,216,301 31,483,774
EXPENSES
Management fees 1,715,674 1,394,128 1,600,468
Accounting and Administrative fees 395,925 321,722 369,339
Interest expense...................... 2,030,408 2,238,460 2,601,237
Debt issue expense.................... 318,118 139,141 166,596
Legal fees............................ 70,263 49,097 19,451
Audit fees............................ 8,419 16,420 15,341
Transfer agent fees................... 18,530 17,529 22,987
Custodian fees........................ 14,601 15,641 15,723
Registration fees..................... 4,000 4,174 10,131
Directors fees........................ 26,583 24,084 26,583
Other................................. 41,090 45,480 49,608
------------- ------------- -------------
Total Expenses............ 4,643,611 4,265,876 4,897,464
------------- ------------- -------------
Net Investment Income (Loss) 29,125,151 22,950,425 26,586,310
------------- ------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Change in unrealized appreciation (depreciation) (13,889,021) (12,536,542) (4,905,215)
Net realized gain (loss) on securities 5,360,788 2,131,059 (1,259,175)
------------- ------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations.............. $ 20,596,918 $ 12,544,942 $ $20,421,920
============= ============= =============
- --------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
51
REGIONS MORGAN KEEGAN FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
(UNAUDITED)
RMK ADVANTAGE INCOME FUND
-----------------------------
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, MARCH 31,
2005 2005(a)
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss).................. $ 29,125,151 $ 15,787,353
Unrealized appreciation (depreciation), net... (13,889,021) (3,365,139)
Net realized gain (loss) from investment transactions 5,360,788 2,351,807
-------------- -------------
Increase (Decrease) in Net Assets Resulting From Operations 20,596,918 14,774,021
-------------- -------------
Distributions to shareholders from net investment income (23,583,242) (13,339,822)
-------------- -------------
Total Distribution to Shareholders....... (23,583,242) (13,339,822)
-------------- -------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (27,600,000 shares) -- 394,930,648
Proceeds from sales of shares as a result of reinvested dividends
(757,246 and 479,839 shares)............. 11,567,317 7,198,292
-------------- -------------
Increase (Decrease) in Net Assets From Share Transactions 11,567,317 402,128,940
-------------- -------------
Total Increase (decrease) in Net Assets.. 8,580,993 403,563,139
============== =============
NET ASSETS
Beginning of period........................ 403,663,142 100,003
-------------- -------------
End of period.............................. $412,244,135 $403,663,142
============== =============
- -----------------------------------------------------------------------------------------------------
(a) For the period from November 8, 2004 (commencement of operations) to March 31, 2005.
See accompanying Notes to Financial Statements.
52
REGIONS MORGAN KEEGAN FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
(UNAUDITED)
RMK HIGH INCOME FUND RMK STRATEGIC INCOME FUND
------------------------- ---------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
2005 2005 2005 2005
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income (loss) $ 22,950,425 $ 43,454,200 $ 26,586,310 $ 43,543,684
Unrealized appreciation (depreciation), net (12,536,542) (11,718,935) (4,905,215) (13,962,527)
Net realized gain (loss) from investment
transactions........... 2,131,059 14,869,629 (1,259,175) 8,604,501
--------------- -------------- -------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations 12,544,942 46,604,894 20,421,920 38,185,658
--------------- -------------- -------------- ---------------
Distributions to shareholders from net
investment income...... (18,954,774) (41,663,366) (22,988,818) (41,437,874)
--------------- -------------- -------------- ---------------
Distributions to shareholders from net
realized gain on investments -- (12,333,973) -- --
--------------- -------------- -------------- ---------------
Total Distribution to Shareholders (18,954,774) (53,997,339) (22,988,818) (41,437,874)
--------------- -------------- -------------- ---------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold (3,150,000
shares).............. -- -- -- 45,123,750
Proceeds from sales of shares as a result
of reinvested dividends (441,172 and
1,308,189 shares).... 7,186,775 21,351,697 -- --
Proceeds from sales of shares as a result
of reinvested dividends (600,520 and
1,131,683 shares).... -- -- 9,260,423 17,362,226
--------------- -------------- -------------- ---------------
Increase (Decrease) in Net Assets From
Share Transactions 7,186,775 21,351,697 9,260,423 62,485,976
--------------- -------------- -------------- ---------------
Total Increase (decrease) in Net Assets 776,943 13,959,252 6,693,525 59,233,760
=============== ============== ============== ===============
NET ASSETS
Beginning of period.... 313,730,946 299,771,694 359,781,496 300,547,736
--------------- -------------- -------------- ---------------
End of period.......... $ 314,507,889 $ 313,730,946 $ 366,475,021 $ 359,781,496
=============== ============== ============== ===============
- ---------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
53
REGIONS MORGAN KEEGAN FUNDS
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED)
-----------------------------------------------------
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
- -------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH --
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCREASE IN NET ASSETS FROM OPERATIONS.............. $ 20,596,918 $ 12,544,942 $ 20,421,920
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET CASH USED IN OPERATING
ACTIVITIES
Purchase of investment securities..................... (368,892,804) (224,487,232) (274,831,992)
Proceeds from disposition of investment securities.... 250,385,500 204,117,731 237,342,130
Purchase of short-term investment securities, net..... (1,008,255) 2,000,650 1,287,253
Proceeds from principal payments...................... 17,937,302 16,299,219 15,329,937
Change in unrealized appreciation on securities....... 13,889,021 12,536,542 4,905,215
Amortization/accretion of premiums/discount on
securities......................................... (4,954,279) (2,206,283) (3,419,996)
Net realized gain on investments...................... (5,360,788) (2,131,059) 1,259,175
Net realized gain on principal payments............... (1,859,988) (1,952,429) (762,742)
Amortization of debt issue costs...................... 318,118 139,141 166,596
Increase (decrease) in dividends and interest
receivable......................................... (989,938) 1,027,775 1,248,412
Increase (decrease) in receivables for securities
purchased.......................................... (5,405,876) (8,358,120) (7,509,216)
Increase (decrease) in payables for securities
purchased.......................................... (2,811,672) 2,272,692 2,772,249
Increase (decrease) in interest payable............... 424,540 43,352 693,773
Increase (decrease) in accrued expenses............... 37 10,789 (5,356)
Increase (decrease) in due to affiliates.............. 87,326 (8,880) 5,029
Increase (decrease) in deferred interest income....... -- 6,346 --
--------------- --------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES (87,644,838) 11,855,176 (1,097,613)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in loan payable...... 100,000,000 -- 15,000,000
Cash paid for debt issue costs (343,461) (82,753) (131,389)
Cash distributions paid....... (12,015,925) (11,767,999) (13,728,395)
--------------- --------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 87,640,614 (11,850,752) 1,140,216
--------------- --------------- ---------------
NET DECREASE IN CASH............... (4,224) 4,424 42,603
=============== =============== ===============
CASH
Beginning balance............... 11,651 10,890 --
--------------- --------------- ---------------
Ending balance.................. $ 7,427 $ 15,314 $ 42,603
=============== =============== ===============
- -------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Noncash financing activities not included herein consist of reinvestment
of dividends and distributions of $11,567,317, $7,186,775, and $9,260,423 respectively.
Total cash paid for interest was $1,605,868, $2,195,108, and $1,891,977 respectively.
See accompanying Notes to Financial Statements.
54
REGIONS MORGAN KEEGAN FUNDS
FINANCIAL HIGHLIGHTS
------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED: (UNAUDITED)
NET ASSET NET GAINS TOTAL DIVIDENDS
VALUE NET ON SECURITIES FROM FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT REALIZED AND INVESTMENT INVESTMENT FROM CAPITAL TOTAL
OF PERIOD INCOME UNREALIZED OPERATIONS INCOME GAINS DISTRIBUTION
- ------------------------------------------------------------------------------------------------------------------------------------
RMK ADVANTAGE INCOME FUND
Period ended September 30, 2005 $14.37 $ 1.02 $ (0.27) $ 0.75 $ (0.83) $ -- $ (0.83)
Period ended March 31, 2005 (a) 14.33(d) 0.57 (0.03) 0.54 (0.48) -- (0.48)
RMK HIGH INCOME FUND
Period ended September 30, 2005 15.03 1.09 (0.46) 0.63 (0.90) -- (0.90)
Year ended March 31, 2005 15.32 2.15 0.24 2.39 (2.07) (0.61) (2.68)
Period ended March 31, 2004 (b) 14.33(d) 1.11 1.09 2.20 (1.01) (0.17) (1.18)
RMK STRATEGIC INCOME FUND
Period ended September 30, 2005 14.23 1.04 (0.21) 0.83 (0.90) -- (0.90)
Year ended March 31, 2005 14.31 1.76 (0.16) 1.60 (1.68) -- (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 operations) to March 31, 2005.
(b) For the period from June 24, 2003 (commencement of operations) to March 31, 2004.
(c) For the period from March 18, 2004 (commencement of 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
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.
55
REGIONS MORGAN KEEGAN FUNDS
- --------------------------------------------------------------------------------------------------------------------------------
OFFERING
COSTS NET ASSET TOTAL COMMON TOTAL NET ASETS RATIO OF RATIO OF NET
CHARGED TO VALUE RETURN SHARE PRICE, RETURN END OF EXPENSES TO INCOME TO PORTFOLIO
PAID-IN END OF NET ASSET END OF MARKET PERIOD AVERAGE NET AVERAGE NET TURNOVER
CAPITAL PERIOD VALUE(e) PERIOD VALUE(e) (000'S) ASSETS(f) ASSETS(f) RATE
- --------------------------------------------------------------------------------------------------------------------------------
$ -- $ 14.29 4.97% $ 16.96 14.83% $ 412,244 2.28% 14.30% 54%
(0.02) 14.37 3.53% 15.59 7.30% 403,663 0.94% 10.52% 57%
-- 14.76 3.75% 17.94 14.87% 314,508 2.72% 14.64% 53%
-- 15.03 15.46% 16.50 16.49% 313,731 2.12% 14.08% 73%
(0.03) 15.32 15.50% 16.67 20.06% 299,772 1.11% 10.15% 76%
-- 14.16 5.46% 17.00 14.46% 366,475 2.70% 14.67% 52%
-- 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%
- --------------------------------------------------------------------------------------------------------------------------------
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") were organized as separate Maryland corporations on September 7,
2004, April 16, 2003 and January 16, 2004, respectively. The Funds are
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as diversified, closed-end management investment companies, each with its
own investment objective.
Each Fund is authorized to issue 1,000,000,000 shares of capital stock with a
par value of $0.0001. The Funds' Boards are authorized to classify and
reclassify any unissued shares of capital stock from time to time by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or terms and conditions of redemption
of such shares by the Funds. The common shares have no preemptive, conversion,
exchange or redemption rights. All common shares have equal voting, dividend,
distribution and liquidation rights. The common shares, when issued, will be
fully paid and non-assessable. Common stockholders are entitled to one vote per
share and all voting rights for the election of directors are non-cumulative.
The Funds have no present intentions of offering additional shares, except as
described in the Dividend Reinvestment Plan.
2 SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. These policies are in
conformity with the accounting principles generally accepted in the United
States of America.
INVESTMENT VALUATIONS--Investments in securities listed or traded on a
securities exchange are valued at the last quoted sales price on the exchange
where the security is primarily traded as of close of business on the New York
Stock Exchange, usually 4:00 p.m. Eastern Time, on the valuation date. Equity
securities traded on the NASDAQ National Market System are valued at the NASDAQ
Official Closing Price, usually 4:00 p.m., Eastern Time, on the valuation date.
Securities for which no sales were reported for that day are valued at the last
available bid quotation on the exchange or system where the security is
principally traded. Long-term debt securities, including U.S. government
securities, listed corporate bonds, other fixed income and asset-backed
securities, and unlisted securities and private placement securities, are
generally valued at the mean of the latest bid and asked price as furnished by
an independent pricing service. Short-term debt securities having a maturity of
sixty days or less from the valuation date may be valued at amortized cost,
which approximates market value. Investments in open-end registered investment
companies are valued at net asset value as reported by those investment
companies. Investments for which market quotations are not readily available, or
available quotations which appear to not accurately reflect the current value of
an investment, are valued at fair value as determined in good faith by the
Valuation Committee using procedures established by and under the direction of
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
56
of valuation, those 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.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Securities transactions are
recorded on the trade date for financial reporting purposes. Realized gains and
losses from securities transactions are recorded using the identified cost
basis. Dividend income is recorded on the ex-dividend date, net of applicable
taxes withheld by foreign countries. Interest income, including amortization of
premiums and accretion of discounts, is accrued on a daily basis. Gains or
losses realized on sales of securities are determined by comparing the
identified cost of the security lot sold with the net sales proceeds.
EXPENSES--Expenses directly attributable to a Fund are charged directly to that
Fund.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--Each Fund pays dividends to its
stockholders from the Fund's net investment income. Income dividends for the
Funds are declared and paid monthly. Each Fund also distributes all of its net
realized capital gains, if any, on an annual basis. All common shares have equal
dividend rights. Dividends and distributions to shareholders are recorded on the
ex-dividend date.
The amounts of dividends from net investment income and distributions from net
realized gains are determined in accordance with federal income tax regulations
which may differ from Accounting Principles Generally Accepted in the United
States of America. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in nature
(i.e. reclass of market discounts, net operating gain/loss, paydowns, and
distributions), such amounts are reclassified within the composition of net
assets based on their federal tax-basis treatment; temporary differences do not
require reclassification. To the extent distributions from net investment income
and net realized gains exceed net investment income and net realized gains for
tax purposes, they are reported as distributions of capital.
REPURCHASE AGREEMENTS--The Funds may purchase instruments from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase them at an agreed upon time and price ("repurchase
agreement"). The Funds may invest in repurchase agreements with institutions
that are deemed by Morgan Asset Management, Inc., the Adviser, to be of good
standing and creditworthy pursuant to the guidelines established by the
Directors. A third party custodian bank takes possession of the underlying
securities ("collateral") of a repurchase agreement, the value of which is at
all times at least equal to the principal amount of the repurchase transaction,
including accrued interest. In the event of counterparty default on the
obligation to repurchase, each Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. However, there could
be potential losses to the Funds in the event of default or bankruptcy by the
counterparty to the agreement and the Funds are delayed or prevented from
exercising their rights to dispose of the collateral, including the risk of
possible decline in the value of the collateral during the period while the
Funds seek to assert their rights.
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.
57
REGIONS MORGAN KEEGAN FUNDS
Transactions in options written during the period ended September 30, 2005 were
as follows:
RMK ADVANTAGE RMK HIGH INCOME RMK STRATEGIC
INCOME FUND FUND INCOME FUND
----------------------- ----------------------- -------------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED
--------- -------- --------- -------- --------- --------
Options outstanding at
March 31, 2005 -- $ -- -- $ -- -- $ --
Options written....... 14,302 144,245 2,667 141,650 3,410 209,753
Options expired....... (13,082) (52,275) (1,409) (52,203) (1,631) (45,487)
Options exercised (1,220) (91,970) (1,258) (89,447) (1,779) (164,266)
-------- --------- ------- --------- ------- ----------
Options outstanding at
September 30, 2005 -- $ -- -- $ -- -- $ --
-------- --------- ------- --------- ------- ----------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in
when-issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date. Losses
may occur on these transactions due to changes in market conditions or the
failure of counterparties to perform under the contract.
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
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
CASH AND CASH EQUIVALENTS--All highly liquid investments with maturities of
three months or less when purchased are considered to be cash equivalents.
3 AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER--The Funds have entered into Investment Advisory Agreements
with Morgan Asset Management, Inc. (the "Adviser"), a wholly owned subsidiary of
MK Holding, Inc., which is a wholly owned subsidiary of Regions Financial
Corporation ("Regions"). Under the terms of the agreements, the Funds are
charged 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.
58
REGIONS MORGAN KEEGAN FUNDS
ACCOUNTING AND ADMINISTRATIVE SERVICES--The Funds have entered into Accounting
and Administrative Services Agreements with Morgan Keegan & Company, Inc.
("Morgan Keegan"), a wholly owned subsidiary of Regions. Under the terms of the
agreements, Morgan Keegan provides portfolio accounting services and certain
administrative personnel and services to the Funds for 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 also provides an employee to serve as the Funds' Chief Compliance
Officer for which Morgan Keegan receives no additional compensation from the
Funds.
DIRECTORS AND OFFICERS--Certain of the Officers and Directors of the Funds are
also Officers and Directors of the Adviser, Morgan Keegan, and Regions. Such
Officers and Directors of the Company 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.
OTHER TRANSACTIONS--For the period ended September 30, 2005, Morgan Keegan
earned no underwriting discounts, direct commissions, or dealer incentives on
the sales and purchases of investment securities.
4 INVESTMENT TRANSACTIONS
During the period ended September 30, 2005, cost of purchases and proceeds from
sales and maturities of investment securities, including long-term U.S.
government securities, but excluding short-term securities, for each Fund were
as follows:
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------
Cost of Investments....... $ 368,892,804 $ 224,487,232 $ 274,831,992
Proceeds from Sales....... 268,322,802 220,416,950 252,672,067
59
REGIONS MORGAN KEEGAN FUNDS
5 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 September 30, 2005, the Funds' borrowing arrangements
were as follows:
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 September 30,
2005, the outstanding balance on the line of credit was $150,000,000.
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 September 30, 2005
was $114,285,714 or $4.01 per share, based on average shares outstanding of
28,466,576. The average interest rate during the period ended September 30,
2005 was 3.186%. The maximum amount of borrowings outstanding at any
month-end during the period was $150,000,000.
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 September 30, 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 September
30, 2005 was $115,000,000 or $5.45 per share, based on average shares
outstanding of 21,096,904. The average interest rate during the period
ended September 30, 2005 was 3.975%. The maximum amount of borrowings
outstanding at any month-end during the period was $115,000,000.
RMK STRATEGIC INCOME FUND has a collateralized $125,000,000 bank line of
credit, which matures in July of 2006. All of the Fund's investment
securities are pledged as collateral under the borrowing arrangement and
the collateral may be sold. As of September 30, 2005, the outstanding
balance on the line of credit was $140,000,000. 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
September 30, 2005 was $129,285,714 or $5.05 per share, based on average
shares outstanding of 25,592,570. The average interest rate during the
period ended September 30, 2005 was 3.866%. The maximum amount of
borrowings outstanding at any month-end during the period was $140,000,000.
6 FEDERAL TAX INFORMATION
Each Fund is treated as a separate entity for federal tax purposes. No provision
for federal income or excise taxes is required since the Funds intend to qualify
each year as regulated investment companies under Subchapter M of the Internal
Revenue Code (the "Code") and distribute substantially all their taxable net
investment income and capital gains to their shareholders.
Because federal income tax regulations differ from accounting principles
generally accepted in the United States of America, income and capital gains
distributions determined in accordance with tax regulations may differ from net
investment income and realized gains recognized for financial reporting
purposes. 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.
Permanent book and tax basis differences, if any, relating to shareholder
distributions will result in reclassifications to paid-in-capital. These
reclassifications have no effect on net assets or net asset values per share.
Any taxable gain remaining at fiscal year end is distributed in the following
year.
For the period ended September 30, 2005, permanent differences identified and
reclassified among the components of net assets were as follows:
60
RMK ADVANTAGE RMK HIGH RMK STRATEGIC
INCOME FUND INCOME FUND INCOME FUND
- ------------------------------------------------------------------------------------------------------
Undistributed Net Investment Income..... (1,859,988) (1,952,429) (762,742)
Accumulated Net Realized Gain (Loss)
on Investments........................ 1,859,988 1,952,429 762,742
POST-OCTOBER LOSSES DEFERRED--Pursuant to federal income tax regulations
applicable to 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 September 30, 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.
7 CONCENTRATION OF CREDIT RISK
The Funds invest primarily in debt instruments. The ability of the issuers of
the securities held by the Funds to meet their obligations might be affected by
economic developments in a specific industry, state, or region.
61
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 Vice-Chairman of Regions
Age 63, Director, Financial Corporation since 2001 and 2003, respectively. He has also
Since 2003 / 2004(1) served as a Director of Morgan Asset Management, Inc. since 1993. He
also 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 Morgan Keegan Trust
Age 53, Director, Company and Chief Executive Officer of Morgan Asset Management, Inc.
Since 2003 / 2004(1) 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.
62
BOARD OF DIRECTORS AND OFFICERS
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------
JACK R. BLAIR Mr. Blair serves as non-executive Chairman of dj Orthopedics, Inc. in
Age 63, Director, Vista, CA. He also serves as a director of NuVasive, Inc. in San
Since 2005 Diego, CA, Buckman Laboratories, Inc. and Active Implants
Corporation, both located in Memphis, TN. Mr. Blair served as
non-executive Chairman of SCB Computer Technology, Inc. from
September 2000 until March 2004 when the company was acquired by
CIBER, Inc.
ALBERT C. JOHNSON Mr. Johnson has been an independent financial consultant since 1998.
Age 60, Director, He also has served as Director of Books-A-Million, Inc. since 2005.
Since 2005 He was Senior Vice President and Chief Financial Officer of Dunn
Investment Company (construction) from 1994 to 1998. He was also with
Arthur Andersen LLP from 1965 to 1994, retiring as the Managing
Partner of the firm's Birmingham Office.
WILLIAM JEFFERIES MANN Mr. Mann has been Chairman and President of Mann Investments, Inc.
Age 72, Director, (real estate investments/private investing) since 1985.
Since 2003 / 2004(1)
JAMES STILLMAN R. MCFADDEN Mr. McFadden has been Chief Manager of McFadden Communications, LLC
Age 48, Director, (commercial printing) since 2002 and President and Director of 1703,
Since 2003 / 2004(1) Inc. (restaurant management) since 1998. He also has served as a
Director for several private companies since 1997.
63
BOARD OF DIRECTORS AND OFFICERS
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------
W. RANDALL PITTMAN Mr. Pittman has been Chief Financial Officer of Emageon Inc.
Age 52, Director, (healthcare information systems) since 2002. From 1999 to 2002, he
Since 2003 / 2004(1) 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 Chair of Accountancy
Age 55, Director, at the University of Alabama, Culverhouse School of Accountancy since
Since 2003 / 2004(1) 1981. She is also a member of Financial Accounting Standards Advisory
Council, AICPA, Accounting Standards Executive Committee and AACSB
International Accounting Accreditation Committee.
ARCHIE W. WILLIS III Mr. Willis has been President of Community Capital (financial
Age 48, Director, advisory and real estate development consulting) since 1999 and Vice
Since 2003 / 2004(1) 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.
64
BOARD OF DIRECTORS AND OFFICERS
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 President and Chief
Age 61, President, Investment Officer of Morgan Asset Management, Inc. From 2000 to
Since 2003 / 2004(1) 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 Financial Corporation
Age 63, Vice-President, since 1981. He was a Corporate IRA Manager from 2000 to 2001 and a
Since 2003 / 2004(1) 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 and Chief Financial
Age 66, Treasurer, Officer of Morgan Keegan & Company, Inc. since 1969, Treasurer and
Since 2003 / 2004(1) 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 Morgan Keegan & Company,
Age 51, Secretary and Assistant Inc. since 1998 and Assistant Treasurer and Assistant Secretary of
Treasurer, Morgan Keegan & Company, Inc. since 1994. He has been Secretary and
Since 2003 / 2004(1) 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.
65
BOARD OF DIRECTORS AND OFFICERS
NAME, AGE, POSITION,
LENGTH OF SERVICE PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------
J. THOMPSON WELLER, SR.* Age 40, Mr. Weller has been a Managing Director and Controller of Morgan
Assistant Secretary, Keegan & Company, Inc. since October 2001. He was Senior Vice
Since 2003 / 2004(1) 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 Officer of Morgan Asset
Age 53, Chief Compliance Management, Inc. and a Senior Vice President of Morgan Keegan &
Officer, Company, Inc. since August 2004. He was an Assistant Director of
Since 2004 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.
66
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67
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.
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.
68
SUPPLEMENTAL INFORMATION
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
------------------------------
At a Board meeting for RMK Advantage Income Fund Inc., RMK High Income Fund,
Inc. and RMK Strategic Income Fund, Inc., (each, a "Fund" and collectively, the
"Funds") in August 2005, the Board of Directors of each Fund ("Board") approved
the renewal of the investment advisory agreement ("Agreement") between each Fund
and Morgan Asset Management, Inc. (the "Adviser"). In this connection, each
Board considered factors it deemed relevant with respect to each Fund,
including: (1) the services provided to the Fund by the Adviser, including the
Adviser's investment process, personnel and operations; (2) the performance of
the Fund as compared to an appropriate benchmark and/or peer group; and (3) the
Fund's investment advisory fee, including other benefits to the Adviser and its
affiliates and the Adviser's costs. In this connection, in addition to
information reported to the Board over the course of the year, the Adviser
provided the Board with information addressing key factors that the Board
customarily considers in evaluating the approval of investment advisory
agreements. The Independent Directors were assisted by independent legal counsel
during their deliberations.
The Board noted the extensive responsibilities that the Adviser has as
investment adviser to the Funds, including that the Adviser is responsible for
making investment decisions on behalf of the Funds and placing all orders for
the purchase and sale of investments for the Funds with brokers or dealers. The
Board also reviewed information regarding the Adviser's investment process and
the qualifications and experience of the portfolio management team for the
Funds.
The Board reviewed the performance of each Fund relative to its benchmark and
peer group. In this connection, the Board noted that the performance of the
Funds had exceeded the performance of the Funds' primary benchmarks and selected
peer groups over their limited histories.
The Board examined the fees paid by each Fund in light of fees paid by other
funds managed by the Adviser and fees charged to comparable funds by other
investment advisers. As part of its evaluation of the Adviser's compensation,
the Board also considered other benefits that may be realized by the Adviser
from its relationship with each Fund. In this regard, the Board considered the
Adviser's procedures for the selection of brokers and dealers and for obtaining
research from those brokers and dealers.
69
SUPPLEMENTAL INFORMATION
Further, the Board reviewed the profitability of the Adviser, including the
costs incurred by the Adviser associated with its research and investment
processes, personnel, systems and equipment necessary to perform its functions.
Based on these considerations, among others, the Board concluded, with respect
to each Fund, that: (1) the Fund was likely to continue to benefit from the
nature, quality and extent of the Adviser's services and its investment process;
and (2) the Adviser continues to have the resources to provide the services and
to carry out its responsibilities under the Agreement. The Board also concluded
that the Adviser's compensation is fair and reasonable with respect to each Fund
and that the performance of each Fund has been favorable under the Adviser's
management in relation to the performance of their peer groups and benchmarks.
Based on the foregoing, the Board, including all of the Independent Directors,
approved renewal of the Agreements with respect to the Funds.
BOARD ACTIONS ON INVESTMENT
POLICIES
------------------------------
At a Board meeting in November 2005, the Board approved the following
definitions of investment grade and below investment grade securities with
respect to each Fund:
o Investment grade securities are those securities rated Baa3 or higher by
Moody's, BBB- or higher S&P, BBB- or higher by Fitch Ratings, comparably
rated by another NRSRO or not rated by any NRSRO but determined by the
Adviser to be of comparable quality.
o Below investment grade securities are those securities rated Ba1 or lower
by Moody's, BB+ or lower by S&P, BB+ or lower by Fitch Ratings, comparably
rated by another NRSRO or not rated by any NRSRO but determined by the
Adviser to be of comparable quality.
70
SUPPLEMENTAL INFORMATION
ANNUAL MEETINGS OF STOCKHOLDERS
At the annual meetings of stockholders of RMK Advantage Income Fund, Inc., RMK
High Income Fund, Inc. and RMK Strategic Income Fund, Inc. held on Friday, July
15, 2005, stockholders of each Fund elected W. Randall Pittman, Mary S. Stone
and Allen B. Morgan, Jr. to continue to serve as Class II Directors of the Funds
until the annual meeting of stockholders in 2008, or until their successors are
elected and qualified.
The results of the tabulation of the votes cast at the annual meetings of
stockholders are as follows:
RMK ADVANTAGE INCOME FUND
NOMINEES: FOR WITHHELD
- --------------------------------------------------------------------------------
W. Randall Pittman....................... 27,516,429 231,523
Mary S. Stone............................ 27,521,907 226,045
Allen B. Morgan, Jr...................... 27,677,189 70,763
RMK HIGH INCOME FUND
NOMINEES: FOR WITHHELD
- --------------------------------------------------------------------------------
W. Randall Pittman....................... 20,346,066 56,991
Mary S. Stone............................ 20,340,559 62,498
Allen B. Morgan, Jr...................... 20,336,938 66,119
RMK STRATEGIC INCOME FUND
NOMINEES: FOR WITHHELD
- --------------------------------------------------------------------------------
W. Randall Pittman....................... 23,170,385 65,139
Mary S. Stone............................ 23,175,481 60,043
Allen B. Morgan, Jr...................... 23,183,560 51,964
71
SUPPLEMENTAL INFORMATION
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.
72
SUPPLEMENTAL INFORMATION
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 LLP
108 Myrtle Street 1800 Massachusetts Avenue, N.W.
Quincy, MA 02171 Washington, D.C. 20036
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TRANSFER AGENT PricewaterhouseCoopers LLP
Computershare Investor Services Morgan Keegan Tower
P. O. Box 43010 50 North Front Street, Suite 1000
Providence, RI 02940-3011 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.
73
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 five equity
funds, one balanced fund, five bond funds, one tax-exempt bond fund, two 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 & Income Fund
Regions Morgan Keegan Select Mid Cap Value Fund
Regions Morgan Keegan Select Value Fund
o BALANCED FUND
- --------------------------------------------------------------------------------
Regions Morgan Keegan Select Balanced 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 Limited Maturity Government Fund
Regions Morgan Keegan Select Short Term Bond Fund*
o TAX-EXEMPT BOND FUND
- --------------------------------------------------------------------------------
Regions Morgan Keegan Select Intermediate Tax Exempt Bond Fund
o MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
Regions Morgan Keegan Select Treasury Money Market Fund
Regions Morgan Keegan Select LEADER 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
74
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75
ITEM 2. CODE OF ETHICS.
Form N-CSR disclosure requirement not applicable to filing for period covered by
this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Form N-CSR disclosure requirement not applicable to filing for period covered by
this report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement not applicable to filing for period covered by
this report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Form N-CSR disclosure requirement not applicable to filing for period covered by
this report.
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.
Form N-CSR disclosure requirement not applicable to filing for period covered by
this report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END INVESTMENT COMPANIES.
Form N-CSR disclosure requirements not applicable to filing for period covered
by this report.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
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 shareholders may
recommend nominees to the registrant's Board of Directors.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of
1940, as amended ("the Act")), the President and Treasurer of the
registrant have concluded that such disclosure controls and
procedures provide reasonable assurances that information required
to be disclosed by the registrant is accumulated and communicated
to the registrant's officers to allow timely decisions regarding
required disclosure.
(b) There has been no change in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act)
that occurred during the registrant's second fiscal quarter of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
(a) Form N-CSR disclosure requirement not applicable to filing for
period covered by this report.
(b) The certifications required by Rule 30a-2(a) 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 registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) RMK Strategic Income Fund, Inc.
----------------------------------------------------
By (Signature and Title) /s/ Carter E. Anthony
-----------------------------------------
Carter E. Anthony, President
Date December 7, 2005
-----------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Carter E. Anthony
-----------------------------------------
Carter E. Anthony, President
Date December 7, 2005
-----------------------------------------------------------
By (Signature and Title) /s/ Joseph C. Weller
----------------------------------------
Joseph C. Weller, Treasurer
Date December 7, 2005
-----------------------------------------------------------