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: 811-21484
EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER: Calamos Strategic Total
Return Fund
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES: 1111 East Warrenville Road, Naperville,
Illinois 60563
NAME AND ADDRESS OF AGENT FOR SERVICE: James S. Hamman, Jr., Secretary,
Calamos Advisors, LLC
1111 East Warrenville Road
Naperville, Illinois
60563-1493
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 245-7200
DATE OF FISCAL YEAR END: October 31, 2004
DATE OF REPORTING PERIOD: March 26, 2004 through October 31, 2004
Item 1. Reports to Stockholders
CALAMOS STRATEGIC
TOTAL RETURN FUND
ANNUAL REPORT OCTOBER 31, 2004
[CALAMOS INVESTMENTS LOGO]
Strategies for Serious Money(R)
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
PRESIDENT PHOTO
- --------------------------------------------------------------------------------
Dear Shareholder:
We are proud to bring you the first annual report for the CALAMOS
Strategic Total Return Fund (CSQ) covering the fiscal year ended October 31,
2004. Please note that CSQ's inception date was March 26, 2004, meaning this
report does not cover an entire 12 month period.
For those of you who are new to CSQ or to Calamos Investments, we welcome
you as an investor. For those of you who are already familiar with our
dedication to risk management and long-term performance, I thank you for your
confidence in our investment process. In CSQ, as in all of our funds, we strive
to maintain an appropriate balance between risk and reward that seeks to provide
you with outstanding long-term performance.
The investment objective of CSQ is to seek total return, pursued by
investing in a combination of equity, convertible, and high-yield securities.
Based on its NAV performance and dividends, we believe that the Fund's objective
has been achieved, delivering a total return that is in line with the overall
equity market (as represented by the S&P 500), with a strategy that is designed
to offer a total return that is more balanced between capital appreciation and
income than that of a pure-equity fund. Despite positive NAV performance, the
Fund's market price has traded at a discount to NAV. We look forward to
expanding our communication efforts in 2005 to help investors understand the
Fund's objective. At fiscal year end, the Fund's managed assets were
approximately 48% common stock equity securities, with the remainder in
convertible securities and high-yield bonds. To help offset some of the effects
of rising short-term interest rates on the Fund's yield, the Fund has continued
to maintain interest-rate swap positions in connection with approximately half
of its leveraged assets.
As part of its focus on total return, the Fund has paid a consistent
dividend throughout its fiscal year. Remember that you can use these
distributions to your advantage by reinvesting them through the Fund's dividend
reinvestment plan and accumulate additional shares of the fund. Through this
plan, when the Fund's market price is at a discount to NAV, your distributions
are used to purchase shares at this lower price, and even when the Fund is at
premium to its NAV, your dividends automatically purchase shares at NAV or 95%
of the market price, whichever is greater.
As CALAMOS Investments continues to expand its investment offerings and
asset management capabilities, we remain committed to helping you achieve your
long-term financial goals. Thank you for choosing the CALAMOS Strategic Total
Return Fund.
Sincerely,
/s/ John P. Calamos
John P. Calamos, Sr.
Chairman,
Chief Executive Officer and
Chief Investment Officer
Strategies for Serious Money (R) 1
STRATEGIC TOTAL RETURN FUND
PERFORMANCE
NAV/MARKET PRICE
INCEPTION THROUGH OCTOBER 31, 2004
LINE GRAPH
COMMENTARY
Despite positive NAV performance since inception, as of fiscal year-end,
Calamos Strategic Total Return Fund was trading at a discount to its NAV.
We continue to manage the portfolio consistent with the principal
investment strategies established in connection with the Fund's initial
public offering and with the terms of the original offering. In 2005, we
will strive to expand our communications efforts regarding the Fund's
characteristics and long-term goals.
We seek to provide:
- Total return, achieved through a combination of capital appreciation
and current income
- A dynamic allocation among common stock and other income-producing
securities, with at least 50% of managed assets in equities or
securities convertible into equities
- A competitive and consistent distribution rate
<Table>
<Caption>
Average Annual Total Return(+)
-------------------------------
1 SINCE
YEAR INCEPTION
-------------------------------
Common Shares -- Inception 3/26/04
On Market Price N/A -8.59%
On NAV N/A 2.10%
-----------------------------------------------------------------------------------------------
</Table>
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. You can purchase or sell
common shares daily. Like any other stock, market price will fluctuate with
the market. Upon sale, your shares may have a market price that is above or
below net asset value and may be worth more or less than your original
investment. Due to ongoing market volatility, performance is subject to
substantial short-term fluctuations.
+ Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of income and capital gains
distributions.
2 Strategies for Serious Money (R)
STRATEGIC TOTAL RETURN FUND
PORTFOLIO
FUND SECTOR ALLOCATION
[LINE GRAPH]
<Table>
Financials 19.0
Consumer Discretionary 17.0
Health Care 12.3
Industrials 11.3
Energy 9.0
Information Technology 8.2
Telecommunication Services 7.8
Consumer Staples 6.9
Materials 6.8
Utilities 1.7
</Table>
Sector allocations are based on total investments (excluding security lending
collateral and short-term investments) and may vary over time.
FUND ASSET ALLOCATION
[PIE CHART]
<Table>
<Caption>
COMMON STOCK CORPORATE BONDS CONVERTIBLE BONDS SHORT-TERM INVESTMENTS
- ------------ --------------- ----------------- ----------------------
47.5 31.70 19.60 1.20
</Table>
Strategies for Serious Money (R) 3
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
CORPORATE BONDS (47.3%)
CONSUMER DISCRETIONARY (12.7%)
$ 4,055,000 Asbury Automotive Group,
Inc.(c)
8.000%, 03/15/14 $ 3,973,900
6,489,000 Aztar Corp.(c)
7.875%, 06/15/14 7,073,010
Beazer Homes USA, Inc.
9,210,000 8.375%, 04/15/12 10,200,075
1,740,000 8.625%, 05/15/11(c) 1,914,000
11,233,000 Blockbuster, Inc.(a)(c)
9.000%, 09/01/12 11,569,990
4,056,000 Boyd Gaming Corp.(c)
7.750%, 12/15/12 4,492,020
4,056,000 Cadmus Communications Corp.
8.375%, 06/15/14 4,400,760
Charter Communications, Inc.
10,544,000 10.000%, 04/01/09 8,856,960
8,963,000 9.625%, 11/15/09(c) 7,304,845
8,111,000 11.125%, 01/15/11(c) 6,813,240
6,895,000 GBP EMI Group, PLC
9.750%, 05/20/08 13,658,647
7,300,000 Hovnanian Enterprises,
Inc.(c)
7.750%, 05/15/13 7,920,500
4,056,000 IMAX Corp.(a)(c)
9.625%, 12/01/10 4,137,120
7,706,000 Intrawest Corp.
7.500%, 10/15/13 8,283,950
6,172,000 Jarden Corp.
9.750%, 05/01/12 6,727,480
4,056,000 Kellwood Company
7.625%, 10/15/17 4,495,841
Mandalay Resort Group
17,476,000 10.250%, 08/01/07 20,010,020
5,272,000 7.625%, 07/15/13(c) 5,706,940
10,545,000 Meritage Corp.(c)
7.000%, 05/01/14 10,874,531
4,867,000 NCL Holding, ASA(a)
10.625%, 07/15/14 5,086,015
4,056,000 Oxford Industries, Inc.
8.875%, 06/01/11 4,400,760
Pinnacle Entertainment,
Inc.(c)
7,300,000 8.250%, 03/15/12 7,573,750
4,173,000 8.750%, 10/01/13 4,454,678
8,123,000 Reader's Digest Association,
Inc.(c)
6.500%, 03/01/11 8,468,228
13,789,000 RH Donnelley Financial
Corp.(c)
10.875%, 12/15/12 16,925,998
10,545,000 Royal Caribbean Cruises, Ltd.
7.250%, 03/15/18 11,520,412
6,895,000 Spanish Broadcasting System,
Inc.
9.625%, 11/01/09 7,265,606
4,056,000 Speedway Motorsports, Inc.
6.750%, 06/01/13 4,279,080
12,167,000 Standard Pacific Corp.
9.250%, 04/15/12 14,174,555
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 13,384,000 Steinway Musical Instruments,
Inc.
8.750%, 04/15/11 $ 14,622,020
6,895,000 Stoneridge, Inc.
11.500%, 05/01/12 7,929,250
4,056,000 Vail Resorts, Inc.
6.750%, 02/15/14 4,187,820
Warner Music Group
15,006,000 7.375%, 04/15/14(a)(c) 15,493,695
2,028,000 GBP 8.125%, 04/15/14(a) 3,808,803
---------------
278,604,499
---------------
CONSUMER STAPLES (3.0%)
6,895,000 Central Garden & Pet Company
9.125%, 02/01/13 7,687,925
11,963,000 Chiquita Brands
International, Inc.(a)(c)
7.500%, 11/01/14 12,321,890
9,328,000 Del Monte Foods Company
8.625%, 12/15/12 10,563,960
13,789,000 Jean Coutu Group, Inc.(a)(c)
8.500%, 08/01/14 14,133,725
4,867,000 Rayovac Corp.
8.500%, 10/01/13 5,365,868
WH Intermediate Holdings,
Ltd.
8,111,000 11.750%, 07/15/10 9,368,205
6,489,000 9.500%, 04/01/11 7,137,900
---------------
66,579,473
---------------
ENERGY (5.7%)
Chesapeake Energy Corp.
5,678,000 6.875%, 01/15/16 6,103,850
3,245,000 7.500%, 06/15/14(c) 3,626,287
3,245,000 Comstock Resources, Inc.
6.875%, 03/01/12 3,374,800
12,005,000 Giant Industries, Inc.(c)
8.000%, 05/15/14 12,575,238
4,056,000 Houston Exploration Company
7.000%, 06/15/13 4,329,780
4,056,000 KCS Energy, Inc.
7.125%, 04/01/12 4,258,800
811,000 Lone Star Technologies, Inc.
9.000%, 06/01/11 871,825
Overseas Shipholding Group,
Inc.
6,489,000 7.500%, 02/15/24 6,618,780
1,622,000 8.750%, 12/01/13 1,875,437
8,111,000 Paramount Resources, Ltd.
7.875%, 11/01/10 8,962,655
Petroleo Brasileiro, SA
13,384,000 9.125%, 07/02/13(c) 14,655,480
4,460,000 8.375%, 12/10/18 4,504,600
Premcor Refining Group, Inc.
6,489,000 7.750%, 02/01/12(c) 7,219,013
5,678,000 7.500%, 06/15/15 6,245,800
9,186,000 Swift Energy Company(c)
9.375%, 05/01/12 10,426,110
4,056,000 Tesoro Petroleum Corp.(c)
9.625%, 04/01/12 4,755,660
</Table>
4 See accompanying Notes to Schedule of Investments.
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 6,124,000 Whiting Petroleum Corp.
7.250%, 05/01/12 $ 6,460,820
16,223,000 Williams Companies, Inc.(c)
8.125%, 03/15/12 19,143,140
---------------
126,008,075
---------------
FINANCIALS (3.2%)
16,223,000 Dow Jones CDX North America
High Yield Series 3(a)(c)
8.000%, 12/29/09 16,628,575
16,222,000 Dow Jones CDX North America
High Yield Series 4(c)
10.500%, 12/29/09 16,080,057
12,167,000 Leucadia National Corp.
7.000%, 08/15/13 12,471,175
12,978,000 LNR Property Corp.
7.625%, 07/15/13 14,535,360
8,517,000 Senior Housing Properties
Trust
8.625%, 01/15/12 9,645,503
---------------
69,360,670
---------------
HEALTH CARE (3.6%)
4,056,000 Alpharma, Inc.(a)
8.625%, 05/01/11 4,238,520
4,055,000 Ameripath, Inc.
10.500%, 04/01/13 3,994,175
2,961,000 Bausch & Lomb, Inc.
7.125%, 08/01/28 3,180,911
11,356,000 Beverly Enterprises, Inc.(a)
7.875%, 06/15/14 12,221,895
4,867,000 Leiner Health Products Group,
Inc.(a)
11.000%, 06/01/12 5,298,946
8,922,000 MedCath Corp.(a)
9.875%, 07/15/12 9,613,455
7,300,000 Psychiatric Solutions, Inc.
10.625%, 06/15/13 8,413,250
4,056,000 Quintiles Transnational Corp.
10.000%, 10/01/13 4,441,320
15,412,000 Service Corp.
International(c)
6.750%, 04/01/16 15,951,420
10,950,000 Vanguard Health Systems,
Inc.(a)(c)
9.000%, 10/01/14 11,497,500
---------------
78,851,392
---------------
INDUSTRIALS (5.3%)
13,789,000 EUR AGCO Corp.
6.875%, 04/15/14 17,715,692
5,394,000 American Airlines, Inc.(a)
7.250%, 02/05/09 4,989,450
2,433,000 Armor Holdings, Inc.
8.250%, 08/15/13 2,688,465
13,384,000 CNH Global, NV(a)(c)
9.250%, 08/01/11 15,324,680
10,950,000 Cummins, Inc.(c)
9.500%, 12/01/10 12,619,875
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 7,706,000 General Cable Corp.
9.500%, 11/15/10 $ 8,746,310
13,788,000 Hutchison Whampoa, Ltd.(a)(c)
6.250%, 01/24/14 14,345,821
8,111,000 Jacuzzi Brands, Inc.
9.625%, 07/01/10 9,165,430
Manitowoc Company, Inc.
4,258,000 EUR 10.375%, 05/15/11 6,066,353
4,056,000 10.500%, 08/01/12(c) 4,710,030
4,056,000 Monitronics International,
Inc.(a)
11.750%, 09/01/10 4,446,390
4,867,000 Navistar International
Corp.(c)
7.500%, 06/15/11 5,280,695
2,433,000 Orbital Sciences Corp.
9.000%, 07/15/11 2,749,290
4,056,000 Sequa Corp.
8.875%, 04/01/08 4,451,460
4,056,000 United Rentals, Inc.(c)
7.000%, 02/15/14 3,761,940
---------------
117,061,881
---------------
INFORMATION TECHNOLOGY (3.4%)
12,978,000 Advanced Micro Devices,
Inc.(a)
7.750%, 11/01/12 13,075,335
15,412,000 Avnet, Inc.
9.750%, 02/15/08 17,723,800
6,895,000 Celestica, Inc.(c)
7.875%, 07/01/11 7,412,125
4,056,000 Freescale Semiconductor,
Inc.(a)(c)
7.125%, 07/15/14 4,319,640
2,027,000 GBP Iron Mountain, Inc.(a)
7.250%, 04/15/14 3,574,795
5,678,000 Sanmina-Sci Corp.
10.375%, 01/15/10 6,685,845
4,056,000 Stratus Technologies, Inc.
10.375%, 12/01/08 3,467,880
Xerox Corp.(c)
9,733,000 8.000%, 02/01/27 9,781,665
8,111,000 7.625%, 06/15/13 8,962,655
---------------
75,003,740
---------------
MATERIALS (6.5%)
9,734,000 Arch Western Finance, LLC(c)
6.750%, 07/01/13 10,391,045
2,433,000 Century Aluminum
Company(a)(c)
7.500%, 08/15/14 2,591,145
12,759,000 Freeport-McMoRan Copper &
Gold, Inc.(c)
10.125%, 02/01/10 14,385,772
7,706,000 Georgia-Pacific Corp.
7.375%, 12/01/25 8,303,215
12,167,000 Global iTechnology, Inc.
10.250%, 02/15/12 13,931,215
3,650,000 Graham Packaging Holdings
Company(a)(c)
9.875%, 10/15/14 3,887,250
</Table>
See accompanying Notes to Schedule of Investments. 5
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 6,895,000 IMCO Recycling, Inc.
10.375%, 10/15/10 $ 7,722,400
8,111,000 IPSCO, Inc.
8.750%, 06/01/13 9,408,760
13,384,000 Ispat Inland ULC(c)
9.750%, 04/01/14 16,328,480
8,111,000 Phelps Dodge Corp.
9.500%, 06/01/31 12,085,301
4,056,000 Polyone Corp.(c)
10.625%, 05/15/10 4,522,440
6,895,000 Steel Dynamics, Inc.(c)
9.500%, 03/15/09 7,662,069
9,734,000 Texas Industries, Inc.
10.250%, 06/15/11 11,242,770
6,489,000 U.S. Concrete, Inc.
8.375%, 04/01/14 6,967,564
Union Carbide Corp.(c)
7,787,000 7.875%, 04/01/23 7,981,675
5,394,000 7.500%, 06/01/25 5,420,970
---------------
142,832,071
---------------
TELECOMMUNICATION SERVICES (2.3%)
Alamosa Holdings, Inc.
10,544,000 8.500%, 01/31/12(c) 11,229,360
4,056,000 11.000%, 07/31/10 4,765,800
17,845,000 AT&T Corp.(c)
8.750%, 11/15/31 20,744,812
3,650,000 IPCS Escrow Company(a)(c)
11.500%, 05/01/12 3,996,750
8,111,000 Nextel Communications, Inc.
7.375%, 08/01/15 9,043,765
---------------
49,780,487
---------------
UTILITIES (1.6%)
Calpine Corp.(c)
20,765,000 8.500%, 05/01/08 12,874,300
15,817,000 8.500%, 02/15/11 9,134,317
3,946,000 7.750%, 04/15/09 2,249,220
9,734,000 Edison International
9.875%, 04/15/11 11,559,125
---------------
35,816,962
---------------
TOTAL CORPORATE BONDS
(Cost $1,004,286,036) 1,039,899,250
===============
CONVERTIBLE BONDS (3.7%)
CONSUMER DISCRETIONARY (0.4%)
7,000,000 General Motors Corp.
6.250%, 07/15/33 7,526,400
---------------
ENERGY (0.8%)
15,000,000 Repsol Ypf, SA
4.500%, 01/26/11 16,290,798
---------------
FINANCIALS (0.4%)
8,700,000 Host Marriott Corp.(a)(c)
3.250%, 04/15/24 9,200,250
---------------
INDUSTRIALS (0.7%)
13,000,00 Kaydon Corp.
4.000%, 05/23/23 15,421,250
---------------
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
INFORMATION TECHNOLOGY (0.7%)
$ 16,500,000 Advanced Micro Devices,
Inc.(c)(e)
4.750%, 02/01/22 $ 16,995,000
---------------
MATERIALS (0.7%)
10,700,000 Freeport-McMoRan Copper &
Gold, Inc.
7.000%, 02/11/11 15,555,125
---------------
TOTAL CONVERTIBLE BONDS
(Cost $84,510,247) 80,988,823
===============
SYNTHETIC CONVERTIBLE SECURITIES (12.9%)
CORPORATE BONDS (11.0%)
CONSUMER DISCRETIONARY (2.9%)
945,000 Asbury Automotive Group,
Inc.(c)
8.000%, 03/15/14 926,100
1,511,000 Aztar Corp.(c)
7.875%, 06/15/14 1,646,990
Beazer Homes USA, Inc.
2,145,000 8.375%, 04/15/12 2,375,587
405,000 8.625%, 05/15/11(c) 445,500
2,617,000 Blockbuster, Inc.(a)(c)
9.000%, 09/01/12 2,695,510
944,000 Boyd Gaming Corp.(c)
7.750%, 12/15/12 1,045,480
944,000 Cadmus Communications Corp.
8.375%, 06/15/14 1,024,240
Charter Communications, Inc.
2,456,000 10.000%, 04/01/09 2,063,040
2,087,000 9.625%, 11/15/09 (c) 1,700,905
1,889,000 11.125%, 01/15/11 (c) 1,586,760
1,605,000 GBP EMI Group, PLC
9.750%, 05/20/08 3,179,424
1,700,000 Hovnanian Enterprises,
Inc.(c)
7.750%, 05/15/13 1,844,500
944,000 IMAX Corp.(a)(c)
9.625%, 12/01/10 962,880
1,794,000 Intrawest Corp.
7.500%, 10/15/13 1,928,550
1,437,000 Jarden Corp.
9.750%, 05/01/12 1,566,330
944,000 Kellwood Company
7.625%, 10/15/17 1,046,369
Mandalay Resort Group
4,069,000 10.250%, 08/01/07 4,659,005
1,228,000 7.625%, 07/15/13(c) 1,329,310
2,455,000 Meritage Corp.(c)
7.000%, 05/01/14 2,531,719
1,133,000 NCL Holding, ASA(a)
10.625%, 07/15/14 1,183,985
944,000 Oxford Industries, Inc.
8.875%, 06/01/11 1,024,240
Pinnacle Entertainment,
Inc.(c)
1,700,000 8.250%, 03/15/12 1,763,750
972,000 8.750%, 10/01/13 1,037,610
</Table>
6 See accompanying Notes to Schedule of Investments.
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 1,892,000 Reader's Digest Association,
Inc.(c)
6.500%, 03/01/11 $ 1,972,410
3,211,000 RH Donnelley Financial
Corp.(c)
10.875%, 12/15/12 3,941,502
2,455,000 Royal Caribbean Cruises, Ltd.
7.250%, 03/15/18 2,682,088
1,605,000 Spanish Broadcasting System,
Inc.
9.625%, 11/01/09 1,691,269
944,000 Speedway Motorsports, Inc.
6.750%, 06/01/13 995,920
2,833,000 Standard Pacific Corp.
9.250%, 04/15/12 3,300,445
3,116,000 Steinway Musical Instruments,
Inc.
8.750%, 04/15/11 3,404,230
1,605,000 Stoneridge, Inc.
11.500%, 05/01/12 1,845,750
944,000 Vail Resorts, Inc.
6.750%, 02/15/14 974,680
Warner Music Group
3,494,000 7.375%, 04/15/14(a) (c) 3,607,555
472,000 GBP 8.125%, 04/15/14(a) 886,467
---------------
64,870,100
---------------
CONSUMER STAPLES (0.7%)
1,605,000 Central Garden & Pet Company
9.125%, 02/01/13 1,789,575
2,787,000 Chiquita Brands
International, Inc.(a)(c)
7.500%, 11/01/14 2,870,610
2,172,000 Del Monte Foods Company
8.625%, 12/15/12 2,459,790
3,211,000 Jean Coutu Group, Inc.(a)(c)
8.500%, 08/01/14 3,291,275
1,133,000 Rayovac Corp.
8.500%, 10/01/13 1,249,133
WH Intermediate Holdings,
Ltd.
1,889,000 11.750%, 07/15/10 2,181,795
1,511,000 9.500%, 04/01/11 1,662,100
---------------
15,504,278
---------------
ENERGY (1.4%)
Chesapeake Energy Corp.
1,322,000 6.875%, 01/15/16 1,421,150
755,000 7.500%, 06/15/14 (c) 843,712
755,000 Comstock Resources, Inc.
6.875%, 03/01/12 785,200
2,795,000 Giant Industries, Inc.(c)
8.000%, 05/15/14 2,927,763
944,000 Houston Exploration Company
7.000%, 06/15/13 1,007,720
944,000 KCS Energy, Inc.
7.125%, 04/01/12 991,200
189,000 Lone Star Technologies, Inc.
9.000%, 06/01/11 203,175
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
Overseas Shipholding Group,
Inc.
$ 1,511,000 7.500%, 02/15/24 $ 1,541,220
378,000 8.750%, 12/01/13 437,062
1,889,000 Paramount Resources, Ltd.
7.875%, 11/01/10 2,087,345
Petroleo Brasileiro, SA
3,116,000 9.125%, 07/02/13(c) 3,412,020
1,040,000 8.375%, 12/10/18 1,050,400
Premcor Refining Group, Inc.
1,511,000 7.750%, 02/01/12(c) 1,680,988
1,322,000 7.500%, 06/15/15 1,454,200
2,139,000 Swift Energy Company(c)
9.375%, 05/01/12 2,427,765
944,000 Tesoro Petroleum Corp.(c)
9.625%, 04/01/12 1,106,840
1,426,000 Whiting Petroleum Corp.
7.250%, 05/01/12 1,504,430
3,777,000 Williams Companies, Inc.(c)
8.125%, 03/15/12 4,456,860
---------------
29,339,050
---------------
FINANCIALS (0.7%)
3,777,000 Dow Jones CDX North America
High Yield Series 3(a)(c)
8.000%, 12/29/09 3,871,425
3,778,000 Dow Jones CDX North America
High Yield Series 4(c)
10.500%, 12/29/09 3,744,943
2,833,000 Leucadia National Corp.
7.000%, 08/15/13 2,903,825
3,022,000 LNR Property Corp.
7.625%, 07/15/13 3,384,640
1,983,000 Senior Housing Properties
Trust
8.625%, 01/15/12 2,245,747
---------------
16,150,580
---------------
HEALTH CARE (0.8%)
944,000 Alpharma, Inc.(a)
8.625%, 05/01/11 986,480
945,000 Ameripath, Inc.
10.500%, 04/01/13 930,825
689,000 Bausch & Lomb, Inc.
7.125%, 08/01/28 740,171
2,644,000 Beverly Enterprises, Inc.(a)
7.875%, 06/15/14 2,845,605
1,133,000 Leiner Health Products Group,
Inc.(a)
11.000%, 06/01/12 1,233,554
2,078,000 MedCath Corp.(a)
9.875%, 07/15/12 2,239,045
1,700,000 Psychiatric Solutions, Inc.
10.625%, 06/15/13 1,959,250
944,000 Quintiles Transnational Corp.
10.000%, 10/01/13 1,033,680
</Table>
See accompanying Notes to Schedule of Investments. 7
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 3,588,000 Service Corp.
International(c)
6.750%, 04/01/16 $ 3,713,580
2,550,000 Vanguard Health Systems,
Inc.(a) (c) 9.000%, 10/01/14 2,677,500
---------------
18,359,690
---------------
INDUSTRIALS (1.2%)
3,211,000 EUR AGCO Corp.
6.875%, 04/15/14 4,125,396
1,256,000 American Airlines, Inc.(a)
7.250%, 02/05/09 1,161,800
567,000 Armor Holdings, Inc.
8.250%, 08/15/13 626,535
3,116,000 CNH Global, NV(a)(c)
9.250%, 08/01/11 3,567,820
2,550,000 Cummins, Inc.(c)
9.500%, 12/01/10 2,938,875
1,794,000 General Cable Corp.
9.500%, 11/15/10 2,036,190
3,212,000 Hutchison Whampoa, Ltd.(a)(c)
6.250%, 01/24/14 3,341,948
1,889,000 Jacuzzi Brands, Inc.
9.625%, 07/01/10 2,134,570
Manitowoc Company, Inc.
992,000 EUR 10.375%, 05/15/11 1,413,298
944,000 10.500%, 08/01/12(c) 1,096,220
944,000 Monitronics International,
Inc.(a)
11.750%, 09/01/10 1,034,860
1,133,000 Navistar International
Corp.(c)
7.500%, 06/15/11 1,229,305
567,000 Orbital Sciences Corp.
9.000%, 07/15/11 640,710
944,000 Sequa Corp.
8.875%, 04/01/08 1,036,040
944,000 United Rentals, Inc.(c)
7.000%, 02/15/14 875,560
---------------
27,259,127
---------------
INFORMATION TECHNOLOGY (0.8%)
3,022,000 Advanced Micro Devices,
Inc.(a)
7.750%, 11/01/12 3,044,665
3,588,000 Avnet, Inc.
9.750%, 02/15/08 4,126,200
1,605,000 Celestica, Inc.(c)
7.875%, 07/01/11 1,725,375
944,000 Freescale Semiconductor,
Inc.(a)(c)
7.125%, 07/15/14 1,005,360
473,000 GBP Iron Mountain, Inc.(a)
7.250%, 04/15/14 834,178
1,322,000 Sanmina-Sci Corp.
10.375%, 01/15/10 1,556,655
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
$ 944,000 Stratus Technologies, Inc.
10.375%, 12/01/08 $ 807,120
Xerox Corp.(c)
2,267,000 8.000%, 02/01/27 2,278,335
1,889,000 7.625%, 06/15/13 2,087,345
---------------
17,465,233
---------------
MATERIALS (1.6%)
2,266,000 Arch Western Finance, LLC(c)
6.750%, 07/01/13 2,418,955
567,000 Century Aluminum
Company(a)(c)
7.500%, 08/15/14 603,855
2,971,000 Freeport-McMoRan Copper &
Gold, Inc.(c)
10.125%, 02/01/10 3,349,803
1,794,000 Georgia-Pacific Corp.
7.375%, 12/01/25 1,933,035
2,833,000 Global iTechnology, Inc.
10.250%, 02/15/12 3,243,785
850,000 Graham Packaging Holdings
Company(a)(c)
9.875%, 10/15/14 905,250
1,605,000 IMCO Recycling, Inc.
10.375%, 10/15/10 1,797,600
1,889,000 IPSCO, Inc.
8.750%, 06/01/13 2,191,240
3,116,000 Ispat Inland ULC(c)
9.750%, 04/01/14 3,801,520
1,889,000 Phelps Dodge Corp.
9.500%, 06/01/31 2,814,589
944,000 Polyone Corp.(c)
10.625%, 05/15/10 1,052,560
1,605,000 Steel Dynamics, Inc.(c)
9.500%, 03/15/09 1,783,556
2,266,000 Texas Industries, Inc.
10.250%, 06/15/11 2,617,230
1,511,000 U.S. Concrete, Inc.
8.375%, 04/01/14 1,622,436
Union Carbide Corp.(c)
1,813,000 7.875%, 04/01/23 1,858,325
1,256,000 7.500%, 06/01/25 1,262,280
---------------
33,256,019
---------------
TELECOMMUNICATION SERVICES (0.5%)
Alamosa Holdings, Inc.
2,456,000 8.500%, 01/31/12(c) 2,615,640
944,000 11.000%, 07/31/10 1,109,200
4,155,000 AT&T Corp.(c)
8.750%, 11/15/31 4,830,187
850,000 IPCS Escrow Company(a)(c)
11.500%, 05/01/12 930,750
1,889,000 Nextel Communications, Inc.
7.375%, 08/01/15 2,106,235
---------------
11,592,012
---------------
</Table>
8 See accompanying Notes to Schedule of Investments.
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
UTILITIES (0.4%)
Calpine Corp.(c)
$ 4,835,000 8.500%, 05/01/08 $ 2,997,700
3,683,000 8.500%, 02/15/11 2,126,933
919,000 7.750%, 04/15/09 523,830
2,266,000 Edison International
9.875%, 04/15/11 2,690,875
---------------
8,339,338
---------------
TOTAL CORPORATE BONDS 242,135,427
---------------
<Caption>
NUMBER OF
CONTRACTS VALUE
- -----------------------------------------------------------------
OPTIONS (1.9%)
CONSUMER DISCRETIONARY (1.2%)
3,400 Carnival Corp.(b)
Call, 01/21/06, Strike $45.00 2,992,000
2,423 eBay, Inc.(b)
Call, 01/20/07, Strike $95.00 5,790,970
7,450 Home Depot, Inc.(b)
Call, 01/20/07, Strike $40.00 5,215,000
1,300 Nike, Inc.(b)
Call, 01/21/06, Strike $80.00 1,183,000
3,400 Starbucks Corp.(b)
Call, 01/21/06, Strike $40.00 5,304,000
6,300 YUM! Brands, Inc.(b)
Call, 01/20/07, Strike $40.00 5,544,000
---------------
26,028,970
---------------
CONSUMER STAPLES (0.1%)
3,500 Altria Group, Inc.(b)
Call, 01/21/06, Strike $55.00 752,500
2,513 Coca-Cola Company(b)
Call, 01/21/06, Strike $50.00 175,910
1,840 Gillette Company(b)
Call, 01/21/06, Strike $40.00 920,000
1,330 Kellogg Company(b)
Call, 01/21/06, Strike $45.00 305,900
---------------
2,154,310
---------------
ENERGY (0.3%)
1,000 Amerada Hess Corp.(b)
Call, 01/20/07, Strike $80.00 1,340,000
5,000 Chevrontexaco Corp.(b)
Call, 01/20/07, Strike $45.00 4,750,000
---------------
6,090,000
---------------
FINANCIALS (0.1%)
1,300 Allstate Corp.(b)
Call, 01/21/06, Strike $45.00 728,000
3,600 Citigroup, Inc.(b)
Call, 01/20/07, Strike $40.00 2,808,000
---------------
3,536,000
---------------
</Table>
<Table>
<Caption>
NUMBER OF
CONTRACTS VALUE
- -----------------------------------------------------------------
HEALTH CARE (0.0%)
100 Bausch & Lomb, Inc.(b)
Call, 01/21/06, Strike $65.00 $ 59,500
1,400 Biogen Idec, Inc.(b)
Call, 01/21/06, Strike $70.00 637,000
---------------
696,500
---------------
INFORMATION TECHNOLOGY (0.2%)
4,800 QUALCOMM, Inc.(b)
Call, 01/21/06, Strike $37.50 4,224,000
---------------
TOTAL OPTIONS 42,729,780
---------------
TOTAL SYNTHETIC CONVERTIBLE
SECURITIES
(Cost $270,235,794) 284,865,207
===============
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (12.5%)
CONSUMER DISCRETIONARY (3.4%)
1,505,000 Ford Motor Company Capital
Trust II
6.500% 75,234,950
---------------
CONSUMER STAPLES (0.7%)
680,000 Albertson's, Inc.
7.250% 16,687,200
---------------
FINANCIALS (3.5%)
335,000 Capital One Financial Corp.
6.250% 17,651,150
300,000 Chubb Corp.
7.000% 8,475,000
650,000 Genworth Financial, Inc.
6.000% 19,032,000
650,000 Lehman Brothers Holdings,
Inc.
6.250% 16,295,500
220,000 National Australia Bank, Ltd.
7.875% 7,876,000
35,000 State Street Corp.
6.750% 7,257,250
---------------
76,586,900
---------------
HEALTH CARE (2.2%)
635,000 Baxter International, Inc.(c)
7.000% 32,651,700
314,000 Schering-Plough Corp.(f)
6.000% 16,108,200
---------------
48,759,900
---------------
INDUSTRIALS (0.3%)
80,000 Cummins, Inc.
7.000% 6,140,000
---------------
INFORMATION TECHNOLOGY (1.5%)
255,000 Xerox Corp.
6.250% 33,703,350
---------------
TELECOMMUNICATION SERVICES (0.4%)
170,000 ALLTEL Corp.
7.750% 8,619,000
---------------
</Table>
See accompanying Notes to Schedule of Investments. 9
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
UTILITIES (0.5%)
150,000 Southern Union Company
5.750% $ 10,065,750
---------------
TOTAL CONVERTIBLE PREFERRED
STOCKS
(Cost $282,194,158) 275,797,050
===============
COMMON STOCKS (70.8%)
CONSUMER DISCRETIONARY (4.4%)
2,000,000 AUD APN News & Media, Ltd. 7,137,512
577,000 General Motors Corp.(c) 22,243,350
425,000 Genuine Parts Company(c) 16,953,250
731,000 May Department Stores
Company(c) 19,049,860
490,000 Maytag Corp.(c) 8,526,000
980,000 Saks, Inc.(c) 11,975,600
300,000 Sears Roebuck & Company(c) 10,500,000
---------------
96,385,572
---------------
CONSUMER STAPLES (5.5%)
320,000 Altria Group, Inc. 15,507,200
644,000 Gillette Company 26,713,120
410,000 Kimberly-Clark Corp. 24,464,700
482,000 Procter & Gamble Company 24,668,760
951,000 Sara Lee Corp. 22,139,280
263,000 Supervalu, Inc.(c) 7,755,870
---------------
121,248,930
---------------
ENERGY (5.3%)
1,040,000 Chevrontexaco Corp. 55,182,400
366,000 Conocophillips 30,857,460
36,000 EUR OMV, AG 8,640,717
395,000 PetroChina Company, Ltd.(c) 20,784,900
---------------
115,465,477
---------------
FINANCIALS (20.0%)
732,900 Allstate Corp. 35,245,161
980,000 Bank Of America Corp. 43,894,200
1,372,000 Citigroup, Inc. 60,875,640
477,000 Federal National Mortgage
Association 33,461,550
220,000 Fidelity National Corp. 8,302,800
803,700 General Growth Properties,
Inc. 26,514,063
191,000 Independence Community Bank
Corp. 7,187,330
176,000 Jefferson-Pilot Corp. 8,499,040
449,600 Mills Corp. 24,930,320
439,000 Morgan Stanley 22,428,510
</Table>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
1,395,100 New York Community Bancorp,
Inc. $ 25,614,036
118,900 UnionBanCal Corp. 7,223,175
855,000 Wachovia Corp. 42,074,550
2,428,000 Washington Mutual, Inc. 93,987,880
---------------
440,238,255
---------------
HEALTH CARE (11.4%)
4,146,000 Bristol-Myers Squibb
Company(c) 97,140,780
1,155,000 Johnson & Johnson 67,428,900
1,755,000 Merck & Company, Inc. 54,949,050
1,082,000 Pfizer, Inc. 31,323,900
---------------
250,842,630
---------------
INDUSTRIALS (9.1%)
308,000 3M Company 23,891,560
315,000 Caterpillar, Inc. 25,370,100
439,000 Eaton Corp. 28,074,050
410,000 Emerson Electric Company 26,260,500
819,000 General Electric Company 27,944,280
724,000 Rockwell Automation, Inc.(c) 30,183,560
1,346,000 Waste Management, Inc. 38,334,080
---------------
200,058,130
---------------
INFORMATION TECHNOLOGY (5.4%)
1,382,000 Intel Corp. 30,763,320
410,000 International Business
Machines Corp. 36,797,500
1,228,000 QUALCOMM, Inc. 51,342,680
---------------
118,903,500
---------------
MATERIALS (1.3%)
44,000 CHF Givaudan, SA 27,455,152
---------------
TELECOMMUNICATION SERVICES (8.4%)
1,850,000 Bellsouth Corp. 49,339,500
950,000 MCI, Inc. 16,387,500
3,071,000 SBC Communications, Inc. 77,573,460
1,039,000 Verizon Communications, Inc. 40,624,900
---------------
183,925,360
---------------
TOTAL COMMON STOCKS
(Cost $1,577,949,776) 1,554,523,006
===============
WARRANTS (0.0%)
FINANCIALS (0.0%)
80,370 General Growth Properties,
Inc. 85,192
---------------
TOTAL WARRANTS
(Cost $0) 85,192
===============
</Table>
10 See accompanying Notes to Schedule of Investments.
STRATEGIC TOTAL RETURN FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------
SHORT TERM INVESTMENTS (1.8%)
$ 25,000,000 Citigroup, Inc.
Commercial Paper
1.650%, 11/01/04 $ 25,000,000
15,507,000 Exxon Mobil Corporation
Commercial Paper
1.650%, 11/01/04 15,507,000
---------------
TOTAL SHORT TERM INVESTMENTS
(Cost $40,507,000) 40,507,000
===============
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
INVESTMENT OF CASH COLLATERAL FOR SECURITIES ON LOAN (16.9%)
371,513,731 Bank of New York
Institutional Cash Reserve
Fund(d)
current rate 1.865% 371,513,731
---------------
TOTAL INVESTMENT OF CASH
COLLATERAL FOR SECURITIES ON
LOAN
(Cost $371,513,731) 371,513,731
===============
TOTAL INVESTMENTS (165.9%)
(Cost $3,631,196,742) 3,648,179,259
===============
</Table>
<Table>
<Caption>
NUMBER OF
CONTRACTS VALUE
- -----------------------------------------------------------------
WRITTEN OPTIONS (-0.0%)
HEALTH CARE (-0.0%)
(6,900) Schering-Plough Corp.(b)
Call, 01/21/05, Strike $17.50 $ (862,500)
---------------
TOTAL WRITTEN OPTIONS
(Proceeds $1,127,898) (862,500)
---------------
LIABILITIES, LESS OTHER ASSETS (-16.8%) (367,742,912)
PREFERRED SHARES AT REDEMPTION VALUE INCLUDING
DIVIDENDS PAYABLE (-49.1%)
(1,080,344,632)
---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
(100.0%) $ 2,199,229,215
===============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS
Note: Market values for securities denominated in foreign currencies are shown
in U.S. dollars.
(a) 144A securities are those that are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities are generally
issued to qualified institutional buyers ("QIBs"), such as the Fund. Any
resale of these securities must generally be effected through a sale that is
exempt from registration (e.g., a sale to another QIB), or the security must
be registered for public sale. At October 31, 2004, the market value of 144A
securities that cannot currently be exchanged to the registered form is
$251,584,012 or 11.4% of net assets applicable to common shareholders of the
Fund.
(b) Non-income producing security.
(c) Security, or portion of security, is on loan.
(d) Security is purchased with the cash collateral from securities loaned.
(e) Variable rate security. Coupon changes periodically. Stated rate in effect
at October 31, 2004.
(f) Security, or portion of security, is being held as collateral for written
options.
FOREIGN CURRENCY ABBREVIATIONS
AUD: Australian Dollar
CHF: Swiss Franc
EUR: European Monetary Unit
GBP: British Pound Sterling
See accompanying Notes to Financial Statements. 11
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
<Table>
<Caption>
- ------------------------------------------------------------------------------
ASSETS
Investments, at value* (cost $3,631,196,742) $3,648,179,259
Cash with custodian (interest bearing) 712,014
Restricted cash for open options (interest bearing) 150,000
Receivable for investments sold 463,500
Accrued interest and dividends receivable 36,690,123
Prepaid expenses 52,796
Other assets 4,762
--------------
Total assets 3,686,252,454
--------------
LIABILITIES
Options written, at value (premium $1,127,898) 862,500
Unrealized depreciation on interest rate swaps 10,450,028
Payable upon return of securities loaned 371,513,731
Payable for investments purchased 16,843,000
Payable for income distribution 3,761,021
Payable for offering and organizational fees 105,425
Payable to investment advisor 2,758,324
Payable to financial accountant 32,304
Payable for deferred compensation to Trustees 4,762
Other accounts payable and accrued liabilities 347,512
--------------
Total liabilities 406,678,607
--------------
PREFERRED SHARES
$25,000 liquidation value per share applicable to 43,200
shares, including dividends payable 1,080,344,632
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $2,199,229,215
==============
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Common stock, no par value, unlimited shares authorized,
154,514,000 shares issued and outstanding $2,200,733,859
Undistributed net investment income (loss) 6,048,858
Accumulated net realized gain (loss) on investments, written
options, foreign currency transactions and interest rate
swaps (14,405,838)
Net unrealized appreciation (depreciation) on investments,
written options, foreign currency translations and
interest rate swaps 6,852,336
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $2,199,229,215
==============
Net asset value per common share based on 154,514,000 shares
issued and outstanding $ 14.23
==============
</Table>
* Includes $363,839,184 of securities loaned.
12 See accompanying Notes to Financial Statements.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 2004*
<Table>
<Caption>
- ----------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 60,377,865
Dividends (net of foreign taxes withheld of $127,410) 39,064,510
Securities lending income 382,267
------------
Total investment income 99,824,642
------------
EXPENSES
Investment advisory fees 17,903,542
Financial accounting fees 206,060
Auction agent and rating agencies fees 1,340,242
Accounting fees 403,161
Printing and mailing fees 225,398
Custodian fees 145,113
Registration fees 74,032
Audit and legal fees 61,531
Organization fees 46,729
Transfer agent fees 15,699
Trustees' fees 9,525
Other 16,586
------------
Total expenses 20,447,618
------------
NET INVESTMENT INCOME (LOSS) 79,377,024
------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS,
WRITTEN OPTIONS, FOREIGN CURRENCY AND INTEREST RATE SWAPS
Net realized gain (loss) from:
Investments (11,274,845)
Written options 123,996
Foreign currency transactions 72,402
Interest rate swaps (10,198,515)
Change in net unrealized appreciation/depreciation on:
Investments 16,982,517
Written options 265,398
Foreign currency translations 54,449
Interest rate swaps (10,450,028)
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS,
WRITTEN OPTIONS, FOREIGN CURRENCY AND INTEREST RATE SWAPS (14,424,626)
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 64,952,398
------------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM
Net investment income (8,528,292)
------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS RESULTING FROM OPERATIONS $ 56,424,106
============
</Table>
* The Fund commenced operations on March 26, 2004.
See accompanying Notes to Financial Statements. 13
STATEMENT OF CHANGES
IN NET ASSETS
FOR THE PERIOD ENDED OCTOBER 31, 2004*
<Table>
<Caption>
- ------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 79,377,024
Net realized gain (loss) from investments, options, foreign
currency transactions and interest rate swaps (21,276,962)
Change in net unrealized appreciation/depreciation on
investments, options, foreign currency translations and
interest rate swaps 6,852,336
Dividends to preferred shareholders from net investment
income (8,528,292)
--------------
Net increase (decrease) in net assets applicable to common
shareholders resulting from operations 56,424,106
--------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM
Net investment income (57,942,750)
--------------
CAPITAL STOCK TRANSACTIONS
Proceeds from initial offering 2,213,412,630
Offering costs on common shares (1,329,771)
Offering costs on preferred shares (11,335,000)
--------------
Net increase (decrease) in net assets from capital stock
transactions 2,200,747,859
--------------
TOTAL INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS 2,199,229,215
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Beginning of period* --
End of period $2,199,229,215
==============
Undistributed net investment income (loss) $ 6,048,858
</Table>
* The Fund commenced operations on March 26, 2004.
14 See accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. CALAMOS Strategic Total Return Fund (the "Fund") was organized as
a Delaware statutory trust on December 31, 2003 and is registered under the
Investment Company Act of 1940 as a diversified, closed-end management
investment company. The Fund commenced operations on March 26, 2004.
The Fund's investment objective is to provide total return through a combination
of capital appreciation and current income.
PORTFOLIO VALUATION. In computing the net asset value of the Fund, portfolio
securities, including options, that are traded on a national securities exchange
are valued at the last reported sales price. Securities quoted on the NASDAQ
National Market System are valued at the Nasdaq Official Closing Price ("NOCP"),
as determined by Nasdaq, or lacking an NOCP, the last current reported sale
price as of the time of valuation. Securities traded in the over-the-counter
market and listed securities for which no sales were reported are valued at the
mean of the most recently quoted bid and asked prices. Short-term securities
with maturities of 60 days or less are valued at amortized cost, which
approximates market value.
When market quotations are not readily available or when the valuation methods
mentioned above are not reflective of the fair value of the security, the
security is valued at a fair value following procedures or guidelines approved
by the Board of Trustees or a committee approved by the Board of Trustees. The
Fund may also use fair value pricing, if the value of a security it holds is, in
the opinion of the valuation committee or pursuant to Board of Trustees'
guidelines, may be significantly affected by events occurring after the close of
the primary market or exchange on which the security is traded. These procedures
may utilize valuations furnished by pricing services approved by the Board of
Trustees or a committee thereof, which may be based on market transactions for
comparable securities and various relationships between securities that are
generally recognized by institutional traders, a computerized matrix system, or
appraisals derived from information concerning the securities or similar
securities received from recognized dealers in those securities. When fair value
pricing is employed, the value of the portfolio security used to calculate the
Fund's net asset value may differ from quoted or published prices.
Securities that are principally traded in a foreign market are valued as of the
close of the appropriate exchange or other designated time. Trading in
securities on European and Far Eastern securities exchanges and over-the-counter
markets is normally completed at various times before the close of business on
each day on which the New York Stock Exchange ("NYSE") is open. Trading of these
securities may not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other days when the
NYSE is not open and on which the Fund's net asset value is not calculated. As
stated above, if the market prices are not readily available or are not
reflective of the fair value of the security, the security will be valued at a
fair value following procedures approved by the Board of Trustees or a committee
approved by the Board of Trustees.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME. Short term investment
transactions are recorded on a trade date basis. Long term investment
transactions are recorded on a trade date plus one basis, except for fiscal
quarter ends, which are recorded on trade date. Net realized gains and losses
from investment transactions are reported on an identified cost basis. Interest
income is recognized using the accrual method and includes accretion of original
issue and market discount and amortization of premium. Dividend income is
recognized on the ex-dividend date, except that certain dividends from foreign
securities are recorded as soon as the information becomes available.
FOREIGN CURRENCY TRANSLATION. Values of investments and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
using the spot market rate of exchange at the date of valuation. Purchases and
sales of investments and dividend and interest income are translated into U.S.
dollars using the spot market rate of exchange prevailing on the respective
dates of such transaction.
15
NOTES TO FINANCIAL STATEMENTS
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign currency gains or losses arise from disposition of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books on the transaction date and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes (due to the changes in the exchange rate) in the value
of foreign currency and other assets and liabilities denominated in foreign
currencies held at period end.
OPTION TRANSACTIONS. For hedging and investment purposes, the Fund may purchase
or write (sell) put and call options. One of the risks associated with
purchasing an option among others, is that the Fund pays a premium whether or
not the option is exercised. Additionally, the Fund bears the risk of loss of
premium and change in market value should the counterparty not perform under the
contract. Put and call options purchased are accounted for in the same manner as
portfolio securities. The cost of securities acquired through the exercise of
call options is increased by premiums paid. The proceeds from securities sold
through the exercise of put options are decreased by the premiums paid.
When the 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
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. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or, if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency 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.
USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results may differ from
those estimates.
NOTE 2 - INVESTMENT ADVISER AND TRANSACTIONS WITH AFFILIATES OR CERTAIN OTHER
PARTIES
Pursuant to an investment advisory agreement with Calamos Advisors LLC ("Calamos
Advisors"), the Fund pays an annual fee, payable monthly, equal to 1.00% based
on the average weekly managed assets. "Managed Assets" means the total assets of
the Fund (including any assets attributable to any leverage that may be
outstanding) minus the sum of total liabilities (other than debt representing
financial leverage).
Calamos Advisors receives a fee payable monthly at the annual rate of 0.0175% on
the first $1 billion of combined assets; 0.0150% on the next $1 billion of
combined assets; and 0.0110% on combined assets above $2 billion for financial
accounting services (for purposes of this calculation combined assets means the
managed assets of Calamos Investment Trust, Calamos Advisors Trust, Calamos
Convertible and High Income Fund and Calamos Strategic Total Return Fund).
Effective November 1, 2004 the managed assets of Calamos Convertible
Opportunities and Income Fund will be included in combined assets. Financial
accounting services include, but are not limited to, the following: managing
expenses and expense payment processing; monitoring the calculation of expense
accrual amounts; calculating, tracking, and reporting tax adjustments on all
assets and monitoring trustee deferred compensation plan accruals and
valuations. The Funds will pay their pro rata share of the financial accounting
service fee payable to Calamos Advisors based on relative assets of each Fund.
16
NOTES TO FINANCIAL STATEMENTS
Certain officers and trustees of the Fund are also officers and directors of CFS
and Calamos Advisors. All officers and affiliated trustees serve without direct
compensation from the Fund. The Fund has adopted a deferred compensation plan
(the "Plan"). Under the Plan, a Trustee who is not an "interested person" of
Calamos Advisors and has elected to participate in the Plan (a "participating
trustee") may defer receipt of all or a portion of his compensation from the
Fund. The deferred compensation payable to the participating trustee is credited
to the trustee's deferral account as of the business day such compensation would
have been paid to the trustee. The value of a trustee's deferred compensation
account at any time is equal to what would be the value if the amounts credited
to the account had instead been invested in shares of one or more of the funds
of the Calamos Investment Trust as designated by the trustee. Thus, the value of
the account increases with contributions to the account or with increases in the
value of the measuring shares, and the value of the account decreases with
withdrawals from the account or with declines in the value of the measuring
shares. If a participating trustee retires, the trustee may elect to receive
payments under the plan in a lump sum or in equal installments over a period of
five years. If a participating trustee dies, any amount payable under the Plan
will be paid to the trustee's beneficiaries. Deferred compensation investments
of $4,762 are included in "Other Assets" on the Statement of Assets and
Liabilities at October 31, 2004. The Fund's obligation to make payments under
the Plan is a general obligation of the Fund.
NOTE 3 - INVESTMENTS
Purchases and sales of investments other than short-term obligations for the
period ended October 31, 2004 were as follows.
<Table>
Purchases $3,521,965,126
Proceeds from sales 289,499,881
</Table>
The following information is presented on an income tax basis as of October 31,
2004. Differences between amounts for financial statements and Federal income
tax purposes are primarily due to timing differences. The cost basis of
investments for Federal income tax purposes at October 31, 2004 was as follows:
<Table>
Cost basis of investments $3,637,224,291
--------------
Gross unrealized appreciation 151,029,186
Gross unrealized depreciation (140,074,218)
--------------
Net unrealized appreciation (depreciation) $ 10,954,968
==============
</Table>
NOTE 4 - INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and distribute to shareholders substantially all of its taxable
income and gains.
Dividends and distributions paid to shareholders are recorded on the ex-dividend
date. The amount of dividends and distributions from net investment income and
net realized capital gains is determined in accordance with Federal income tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. To the extent these "book/tax" differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their Federal tax-basis treatment. These differences are primarily due
to differing treatments for foreign currency transactions, contingent payment
debt instruments and methods of amortizing and accreting on fixed income
securities. Financial records are not adjusted for temporary differences.
For the year ended October 31, 2004, the Fund recorded the following permanent
reclassifications to reflect tax character. Results of operations and net assets
were not affected by these reclassifications.
<Table>
Paid-in capital $ (14,000)
Undistributed net investment income (loss) (6,857,124)
Accumulated net realized gain (loss) on investments, written
options, foreign currency transactions and interest rate
swaps 6,871,124
</Table>
17
NOTES TO FINANCIAL STATEMENTS
Distributions during the fiscal period ended October 31, 2004 were characterized
for income tax purposes as follows:
<Table>
<Caption>
2004*
- ------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary income $ 62,365,389
Long-term capital gain --
</Table>
* The Fund commenced operations on March 26, 2004.
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 11,360,755
Undistributed capital gains --
--------------
Total undistributed earnings 11,360,755
Accumulated capital and other losses (10,297,008)
Unrealized gains/(losses) 1,560,175
--------------
Total accumulated earnings/(losses) 2,623,922
Other (4,128,566)
Paid-in capital 2,200,733,859
==============
$2,199,229,215
==============
</Table>
The Fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes.
As of October 31, 2004, the Fund had capital loss carryforwards of $10,297,008
which, if not used, will expire in 2012.
NOTE 5 - COMMON STOCK
There are unlimited common shares of beneficial interest authorized and
154,514,000 shares outstanding at October 31, 2004.
Calamos Advisors LLC owned 14,390 of the outstanding shares. Transactions in
common shares were as follows:
<Table>
<Caption>
PERIOD ENDED
OCTOBER 31, 2004*
- ---------------------------------------------------------------------------------
Beginning shares --
Shares sold 154,514,000
Shares issued through reinvestment of distributions --
-----------
Ending shares 154,514,000
-----------
</Table>
* The Fund commenced operations on March 26, 2004.
NOTE 6 - FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may engage in portfolio hedging with respect to changes in currency
exchange rates by entering into forward foreign currency contracts to purchase
or sell currencies. A forward foreign currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. Risks associated with such contracts include movement in the value of the
foreign currency relative to the U.S. dollar and the ability of the counterparty
to perform. The net unrealized gain (loss), if any, represents the credit risk
to the Fund on a forward foreign currency contract. The contracts are valued
daily at forward exchange rates, and an unrealized gain or loss is recorded. The
Fund realizes a gain or loss upon settlement of the contracts. There were no
open forward foreign currency contracts at October 31, 2004.
NOTE 7 - SYNTHETIC CONVERTIBLE SECURITIES
The Fund may create a "synthetic" convertible security by combining separate
securities that possess the two principal characteristics of a true convertible
security, i.e., fixed-income securities ("fixed-income component") and the right
to acquire equity securities ("convertible component"). The fixed-income
component is achieved by investing in non-convertible, fixed-income securities
such as bonds, preferred stocks and money market instruments. The convertible
component is achieved by
18
NOTES TO FINANCIAL STATEMENTS
investing in warrants or options to buy common stock at a certain exercise
price, or options on a stock index. In creating a synthetic security, the Fund
may also pool a basket of fixed-income securities and a basket of warrants or
options that produce the economic characteristics similar to a convertible
security. Within each basket of fixed-income securities and warrants or options,
different companies may issue the fixed-income and convertible components, which
may be purchased separately and at different times.
The Fund may purchase synthetic securities created by other parties, typically
investment banks, including convertible structured notes. Convertible structured
notes are fixed-income debentures linked to equity. Convertible structured notes
have the attributes of a convertible security; however, the investment bank that
issued the convertible note assumes the credit risk associated with the
investment, rather than the issuer of the underlying common stock into which the
note is convertible. Purchasing synthetic convertible securities may offer more
flexibility than purchasing a convertible security. Different companies may
issue the fixed-income and convertible components, which may be purchased
separately and at different times.
NOTE 8 - OPTIONS TRANSACTIONS
The Fund may engage in options transactions and in doing so achieve the similar
objectives to what they would achieve through the sale or purchase of individual
securities. Transactions in options written during the period ended October 31,
2004 were as follows:
<Table>
<Caption>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ---------------------------------------------------------------------------------------
Options written 8,900 $1,313,894
Options closed (2,000) (185,996)
------ ----------
Options outstanding at October 31, 2004 6,900 $1,127,898
====== ==========
</Table>
NOTE 9 - PREFERRED SHARES
There are unlimited shares of Auction Rate Cumulative Preferred Shares
("Preferred Shares") authorized. The Preferred Shares have rights as determined
by the Board of Trustees. The 43,200 shares of Preferred Shares outstanding
consist of seven series, 7,040 shares of M, 7,040 shares of TU, 7,040 shares of
W, 7,040 shares of TH, 7,040 shares of F, 4,000 shares of A, and 4,000 shares of
B. The Preferred Shares have a liquidation value of $25,000 per share plus any
accumulated but unpaid dividends whether or not declared.
Dividends on the Preferred Shares are cumulative at a rate typically reset every
seven or twenty-eight days based on the results of an auction. Dividend rates
ranged from 1.08% to 2.01% for the period ended October 31, 2004. Under the
Investment Company Act of 1940, the Fund may not declare dividends or make other
distributions on shares of common stock or purchase any such shares if, at the
time of the declaration, distribution or purchase, asset coverage with respect
to the outstanding Preferred Shares would be less than 200%.
The Preferred Shares are redeemable at the option of the Fund, in whole or in
part, on any dividend payment date at $25,000 per share plus any accumulated but
unpaid dividends. The Preferred Shares are also subject to mandatory redemption
at $25,000 per share plus any accumulated but unpaid dividends, whether or not
declared, if certain requirements relating to the composition of the assets and
liabilities of the Fund as set forth in the Statement of Preferences are not
satisfied.
The holders of Preferred Shares have voting rights equal to the holders of
common stock (one vote per share) and will vote together with holders of shares
of common stock as a single class except on matters affecting only the holders
of Preferred Shares or the holders of common shares.
NOTE 10 - INTEREST RATE TRANSACTIONS
The Fund may enter into interest rate swap or cap transactions to attempt to
protect itself from increasing dividend or interest expense on its leverage
resulting from increasing short-term interest rates. A decline in interest rates
may result in a decline
19
NOTES TO FINANCIAL STATEMENTS
in the value of the swap or cap, which may result in a decline in the net asset
value of the Fund. In addition, if the counterparty to an interest rate swap or
cap defaults, the Fund would not be able to use the anticipated receipts under
the swap or cap to offset the dividend or interest payments on the Fund's
leverage. At the time an interest rate swap or cap reaches its scheduled
termination, there is a risk that the Fund would not be able to obtain a
replacement transaction or that the terms of the replacement would not be as
favorable as on the expiring transaction. In addition, if the Fund is required
to terminate any swap or cap early due to the Fund failing to maintain a
required 200% asset coverage of the liquidation value of the outstanding
Preferred Shares or the Fund loses its credit rating on its Preferred Shares,
then the Fund could be required to make a termination payment, in addition to
redeeming all or some of the Preferred Shares. Details of the swap agreements
outstanding as of October 31, 2004 were as follows:
<Table>
<Caption>
UNREALIZED
TERMINATION NOTIONAL FLOATING APPRECIATION
COUNTERPARTY DATE AMOUNT (000) FIXED RATE RATE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Citibank NA June 4, 2006 $150,000 3.04% 1 month LIBOR $ (893,779)
Citibank NA June 4, 2007 150,000 3.61% 1 month LIBOR (2,353,600)
Citibank NA June 4, 2008 200,000 4.34% 1 month LIBOR (7,202,649)
------------
$(10,450,028)
============ ======== ===== ============= ============
</Table>
NOTE 11 - SECURITIES LENDING
During the period ended October 31, 2004, the Fund lent certain of its
securities to broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained on a current basis
in an amount at least equal to the market value of the securities loaned by the
Fund. The Fund would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging these loans. The Fund would have the right to
call the loan and obtain the securities loaned at any time on notice of not more
than five business days. The Fund would not have the right to vote the
securities during the existence of the loan but could call the loan in an
attempt to permit voting of the securities in certain circumstances. Upon return
of the securities loaned, the cash or cash equivalent collateral will be
returned to the borrower. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses, including (a)
possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights. In an effort to
reduce these risks, the investment manager and security lending agent will
monitor the creditworthiness of the firms to which the Fund lends securities. At
October 31, 2004, the Fund had securities valued at $363,839,184 that were on
loan to broker-dealers and banks and $371,513,731 in cash equivalent collateral.
20
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD WAS AS
FOLLOWS:
<Table>
<Caption>
March 26, 2004*
through
October 31, 2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.32(a)
----------
Income from investment operations:
Net investment income (loss) 0.51
Net realized and unrealized gain (loss) from investments,
options, foreign currency and interest rate swaps (0.09)
Dividends to preferred shareholders from:
Net investment income (common share equivalent basis) (0.06)
----------
Total from investment operations 0.36
- --------------------------------------------------------------------------------
Less dividends to common shareholders from:
Net investment income (0.37)
Capital charge resulting from issuance of common and
preferred shares (0.08)
----------
- --------------------------------------------------------------------------------
Net asset value, end of period $ 14.23
==========
Market value, end of period $ 13.34
- --------------------------------------------------------------------------------
Total investment return based on(b):
Net asset value 2.10%
Market value (8.59)%
- --------------------------------------------------------------------------------
Ratios and Supplemental Data:
Net assets applicable common shareholders, end of period
(000's omitted) $2,199,229
Preferred shares, at redemption value ($25,000 per share
liquidation preference) (000's omitted) $1,080,000
Ratios to average net assets applicable to common
shareholders:
Net expenses(c)(e) 1.61%
Net investment income (loss)(c)(e) 6.27%
Preferred share dividends(c) 0.67%
Net investment income (loss), net of preferred share
dividends(c) 5.59%
Portfolio turnover rate 11%
Average commission rate paid $ .0197
Asset coverage per preferred share, at end of period(d) $ 75,916
- --------------------------------------------------------------------------------
</Table>
* Commencement of operations.
(a) Net of sales load of $0.675 on initial shares issued and beginning net asset
value of $14.325.
(b) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
the period reported. Dividends and distributions are assumed, for purposes
of this calculation, to be reinvested at prices obtained under the Fund's
dividend reinvestment plan. Total return is not annualized for periods less
than one year. Brokerage commissions are not reflected.
(c) Annualized.
(d) Calculated by subtracting the Fund's total liabilities (not including
Preferred Shares) from the Fund's total assets and dividing this by the
number of preferred shares outstanding.
(e) Does not reflect the effect of dividend payments to preferred shareholders.
21
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
CALAMOS Strategic Total Return Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of CALAMOS Strategic Total Return Fund (the "Fund")
as of October 31, 2004, and the related statement of operations, statement of
changes in net assets and the financial highlights for the period from March 26,
2004 (commencement of operations) through October 31, 2004. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of October 31, 2004, and the results of its operations, the changes in
its net assets, and the financial highlights for the period from March 26, 2004
(commencement of operations) through October 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chicago, Illinois
December 21, 2004
22
TAX INFORMATION
(UNAUDITED)
TAX INFORMATION. We are providing this information as required by the Internal
Revenue Code (Code). The amounts shown may differ from those elsewhere in this
report due to differences between tax and financial reporting requirements. In
January 2005, shareholders will receive Form 1099-DIV which will include their
share of qualified dividends and capital gains distributed during the calendar
year 2004. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
Under Section 854(b)(2) of the Code, the Fund hereby designates $30,425,186, or
the maximum amount allowable under the Code, as qualified dividends for the
fiscal year ended October 31, 2004.
Under Section 854(b)(2) of the Code, the Fund hereby designates 38.85% of the
ordinary income dividends as income qualifying for the corporate dividends
received deduction for the fiscal year ended October 31, 2004.
23
TRUSTEES & OFFICERS
The management of the Fund, including general supervision of duties performed
for the Fund under the Investment Management Agreement, is the responsibility of
its board of trustees.
The following table sets forth, as of October 31, 2004 each trustee's
position(s) with the Fund, age, principal occupation during the past five years,
number of portfolios overseen, other directorships, and the date on which the
trustee first became a trustee of the Fund.
<Table>
<Caption>
POSITION(S) HELD WITH FUND NUMBER OF PORTFOLIOS IN
NAME AND AGE AT AND DATE FIRST ELECTED OR FUND COMPLEX(+)
OCTOBER 31, 2004 APPOINTED TO OFFICE OVERSEEN BY TRUSTEE
- ---------------------------------------------------------------------------------------
TRUSTEES WHO ARE INTERESTED PERSONS OF FUND:
John P. Calamos, Sr., 64* Trustee and President 12
(since 2004)
Nick P. Calamos, 42* Trustee and Vice President 12
(since 2004)
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF FUND:
Joe F. Hanauer, 67 Trustee (since 2004) 12
Weston W. Marsh, 54 Trustee (since 2004) 12
John E. Neal, 54 Trustee (since 2004) 12
William R. Rybak, 53 Trustee (since 2004) 12
Stephen B. Timbers, 60 Trustee (since 2004) 12
<Caption>
NAME AND AGE AT PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
OCTOBER 31, 2004 AND OTHER DIRECTORSHIPS HELD
- ------------------------------- -------------------------------------------
TRUSTEES WHO ARE INTERESTED PER
John P. Calamos, Sr., 64* President and CEO, Calamos Asset
Management, Inc. ("CAM"), Calamos Holdings
LLC ("CHLLC"), Calamos Advisors LLC and its
predecessor ("Calamos Advisors"), and
Calamos Financial Services LLC and its
predecessor ("CFS"); Director, CAM
Nick P. Calamos, 42* Senior Executive Vice President, CAM,
CHLLC, Calamos Advisors, and CFS; Director,
CAM
TRUSTEES WHO ARE NOT INTERESTED
Joe F. Hanauer, 67 Private Investor; Director, MAF Bancorp
(banking), Chairman and Director,
Homestore.com, Inc., (Internet provider of
real estate information and products);
Director, Combined Investments, L.P.
(investment management)
Weston W. Marsh, 54 Partner, Freeborn & Peters (law firm)
John E. Neal, 54 Private Investor; Managing Director, Bank
One Capital Markets, Inc. (investment
banking) (June 2004); Executive Vice
President and Head of Real Estate
Department, Bank One (1998-2000); Director,
The Brickman Group, Ltd. (landscaping
company)
William R. Rybak, 53 Private investor; formerly Executive Vice
President and CFO, Van Kampen Investments,
Inc. (investment management) prior thereto;
Director, Private Bancorp, Inc.
Stephen B. Timbers, 60 Private investor; formerly Vice Chairman,
Northern Trust Corporation (bank holding
company); President and Chief Executive
Officer, Northern Trust Global Investments,
N.A. (investment management); formerly
President, Northern Trust Global
Investments, a division of Northern Trust
Corporation, and Executive Vice President,
The Northern Trust Corporation; Trustee,
Northern Mutual Fund Complex** (registered
investment companies)
</Table>
* John P. Calamos and Nick P. Calamos are trustees who are "interested
persons" of the Fund as defined in the Investment Company Act of 1940 (the
"1940 Act") because of their position with Calamos.
** Overseeing 53 portfolios in fund complex.
(+) The Fund Complex consists of CALAMOS Investment Trust, CALAMOS Advisors
Trust, CALAMOS Convertible Opportunities and Income Fund, CALAMOS
Convertible and High Income Fund and CALAMOS Strategic Total Return Fund.
24
Officers. Messrs. John Calamos and Nick Calamos are president and vice
president of the Fund, respectively. The preceding table gives more information
about Messrs. John Calamos and Nick Calamos. The following table sets forth as
of October 31, 2004 each other officer's name, position with the Fund, age,
principal occupation during the past five years, other directorships, and the
date on which he or she first became an officer of the Fund. Each officer serves
until his or her successor is chosen and qualified or until his or her
resignation or removal by the board of trustees.
<Table>
<Caption>
NAME AND AGE AT POSITION(S) HELD WITH FUND AND DATE FIRST
OCTOBER 31, 2004 ELECTED OR APPOINTED TO OFFICE
- ---------------- ---------------------------------------------
Nimish S. Bhatt, 41 Treasurer (since 2004)
Patrick H. Dudasik, 49 Vice President (since 2004)
James S. Hamman, Jr., 34 Secretary (since 2004)
Michael Ciotola, 36 Assistant Treasurer (since 2004)
Ian J. McPheron, 33 Assistant Secretary (since 2004)
<Caption>
NAME AND AGE AT PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
OCTOBER 31, 2004 AND OTHER DIRECTORSHIPS HELD
- ---------------- ------------------------------------------------------------
Nimish S. Bhatt, 41 Senior Vice President and Director of Operations, CAM,
CHLLC, Calamos Advisors and CFS (since 2004); Senior Vice
President, Alternative Investments and Tax Services of
BISYS, prior thereto
Patrick H. Dudasik, 49 Executive Vice President, Chief Financial Officer and
Administrative Officer, and Treasurer of CAM and CHLLC
(since 2004), Calamos Advisors and CFS (since 2001); Chief
Financial Officer, David Gomez and Assoc., Inc. (1998-2001);
and Chief Financial Officer, Scudder Kemper Investments,
Inc., prior thereto
James S. Hamman, Jr., 34 Executive Vice President, Secretary, and General Counsel,
CAM and CHLLC (since 2004), Calamos Advisors and CFS (since
1998)
Michael Ciotola, 36 Manager of Mutual Fund Operations, Calamos Advisors (since
2004); Director of Financial Services, BISYS Fund Services,
Inc. (2003-2004); Various positions within BISYS (prior
thereto)
Ian J. McPheron, 33 Associate Counsel, Calamos Advisors and CFS (since 2004);
Associate Counsel and Director of Compliance, Calamos
Advisors and CFS (2002-2004); Associate, Gardner, Carton &
Douglas (law firm) (2002); Vice President, Associate General
Counsel and Assistant Secretary, Van Kampen Investments,
Inc. (2000-2002); Associate, Wildman, Harrold, Allen & Dixon
(law firm) (1997-2000)
</Table>
The mailing address of the Trustees and Officers is Calamos Funds; Attn:
Secretary, 1111 E. Warrenville Road, Naperville, IL 60563-1463
25
FOR 24 HOUR SHAREHOLDER ASSISTANCE
800.432.8224
TO OBTAIN INFORMATION
800.582.6959
VISIT OUR WEB-SITE
www.calamos.com
INVESTMENT ADVISER
CALAMOS ADVISORS LLC
1111 E. Warrenville Road
Naperville, IL 60563-1463
FUND ACCOUNTING AGENT/ADMINISTRATOR
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02111
CUSTODIAN AND TRANSFER AGENT
The Bank of New York
P.O. Box 11258
Church Street Station
New York, New York 10286
800.524.4458
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Chicago, IL
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, IL
A description of the CALAMOS Proxy Voting Policies and Procedures is available
free of charge upon request by calling (800) 582-6959, by visiting the CALAMOS
website at www.calamos.com, or by writing CALAMOS at: CALAMOS Investments, Attn:
Client Services, 1111 E. Warrenville Road, Naperville, IL 60563. The Fund's
proxy voting record for the twelve month period ended June 30, 2004, is also
available upon request by calling or writing CALAMOS Investments and by visiting
the SEC website at http://www.sec.gov.
The Fund files a complete list of its portfolio holdings with the SEC for the
first and third quarters each fiscal year on Form N-Q. The Form N-Q is available
free of charge, upon request, by calling or writing CALAMOS Investments or by
visiting the SEC website. You may also review or, for a fee, copy the forms at
the SEC's Public Reference Room in Washington, D.C. (202) 942-8090.
CALAMOS STRATEGIC TOTAL RETURN FUND
This report, including the audited financial statements contained herein, is
submitted for general information for the shareholders of the Fund. The views
expressed in this report reflect those of CALAMOS ADVISORS LLC only through
October 31, 2004. The manager's views are subject to change at any time based on
market and other conditions.
[RECYCLED LOGO] 1946 10/04
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or person performing similar
functions.
(b) Not applicable.
(c) The registrant has not amended its Code of Ethics during the period covered
by the shareholder report presented in Item 1 hereto.
(d) The registrant has not granted a waiver or an implicit waiver from its Code
of Ethics during the period covered by the shareholder report presented in Item
1 hereto.
(e) Not applicable.
(f) (1) The registrant's Code of Ethics is attached as an Exhibit hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that, for the period covered
by the shareholder report presented in Item 1 hereto, it has two audit committee
financial experts serving on its audit committee, each of whom is an independent
Trustee for purpose of this N-CSR item: John E. Neal and William Rybak. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligation, or
liabilities that are greater than the duties, obligations and liabilities
imposed on such person as a member of audit committee and Board of Trustees in
the absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fee - $0 and $34,500 are the aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
to the registrant for the audit of the registrant; annual financial statements
or services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years.
(b) Audit-Related Fees - $0 and $49,917 are the aggregate fees billed in each of
the last two fiscal years for assurance and related services rendered by the
principal accountant to the registrant that are reasonably related to the
performance of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item 4.
(c) Tax Fees - $0 and $4,667 are the aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal accountant
to the registrant for tax compliance, tax advice, tax planning and tax return
preparation.
There were no fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant to the investment
adviser for tax compliance, tax advice and tax planning that were required to be
pre-approved by the audit committee as described in paragraph (e)(1) of this
Item 4.
(d) All Other Fees - $0 and $2,500 are the aggregate fees billed in each of the
last two fiscal years for products and services provided by the principal
accountant to the registrant, other than the services reported in paragraph
(a)-(c) of this Item 4.
There were no fees billed in each of the last two fiscal years for products
and services provided by the principal accountant to the investment adviser,
other than the services reported in paragraphs (a)-(c) of this Item 4, that were
required to be pre-approved by the audit committee as described in paragraph
(e)(1) of this Item 4.
(e) (1) Registrant's audit committee meets with the principal accountants and
management to review and pre-approve all audit services to be provided by the
principal accountants.
The audit committee shall pre-approve all non-audit services to be provided
by the principal accountants to the registrant, including the fees and other
compensation to be paid to the principal accountants; provided that the
pre-approval of non-audit services is waived if (i) the services were not
recognized by management at the time of the engagement as non-audit services,
(ii) the aggregate fees for all non-audit services provided to the registrant
are less than 5% of the total fees paid by the registrant to its principal
accountants during the fiscal year in which the non-audit services are provided,
and (iii) such services are promptly brought to the attention of the audit
committee by management and the audit committee approves them prior to the
completion of the audit.
The audit committee shall pre-approve all non-audit services to be provided
by the principal accountants to the investment adviser or any entity
controlling, controlled by or under common control with the adviser that
provides ongoing services to the registrant if the engagement relates directly
to the operations or financial reporting of the registrant, including the fees
and other compensation to be paid to the principal accountants; provided that
pre-approval of non-audit services to the adviser or an affiliate of the adviser
is not required if (i) the services were not recognized by management at the
time of the engagement as non-audit services, (ii) the aggregate fees for all
non-audit services provided to the adviser and all entities controlling,
controlled by or under common control with the adviser are less than 5% of the
total fees for non-audit services requiring pre-approval under paragraph (e)(1)
of this Item 4 paid by the registrant, the adviser or its affiliates to the
registrant's principal accountants during the fiscal year in which the non-audit
services are provided, and (iii) such services are promptly brought to the
attention of the audit committee by management and the audit committee approves
them prior to the completion of the audit.
(2) 100% of the services provided to the registrant described in paragraphs
(b)-(d) of this Item 4 were pre-approved by the audit committee pursuant to
paragraphs (e)(1) of this Item 4. There were no services provided to the
investment adviser or any entity controlling, controlled by or under common
control with the adviser described in paragraphs (b)-(d) of this Item 4 that
were required pre-approved by the audit committee.
(f) No disclosures are required by this Item 4(f).
(g) $0 and $7,167 are the aggregate non-audit fees billed in each of the last
two fiscal years for services rendered by the principal accountant to the
registrant. $75,500 and $58,000 are the aggregate non-audit fees billed in each
of the last two fiscal years for services rendered by the principal accountant
to the investment adviser or any entity controlling, controlled by or under
common control with the adviser. All of the aggregate fees billed by the
principal accountant for non-audit services to the registrant's investment
adviser relate to services that began prior to the adoption of rules requiring
audit committee pre-approval. However, the registrant's audit committee did
approve such non-audit services.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee. The members
of the registrant's audit committee are John E. Neal, Joe F. Hanauer, Weston W.
Marsh, William R. Rybak and Stephen B. Timbers.
ITEM 6. SCHEDULE OF INVESTMENTS
Included in the Report to Shareholders in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant has delegated the voting of proxies relating to its voting
securities to its investment adviser, Calamos Advisors, LLC ("Calamos"). A
description of Proxy Voting Policies and Procedures of ("Calamos") are included
as an Exhibit hereto.
ITEM 8. PURCHASES OF EQUITY SECURITIES
REGISTRANT PURCHASES OF EQUITY SECURITIES
- ----------------------- --------------------- -------------------- --------------------- --------------------
PERIOD (a) TOTAL NUMBER OF (b)AVERAGE PRICE (c) TOTAL NUMBER OF (d) MAXIMUM NUMBER
SHARES (OR PAID PER SHARE (OR SHARES (OR UNITS) (OR APPROXIMATE
UNITS)PURCHASED UNIT) PURCHASED AS PART DOLLAR VALUE) OF
OF PUBLICLY SHARES (OR UNITS)
ANNOUNCED PLANS OR THAT MAY YET BE
PROGRAMS PURCHASED UNDER
THE PLANS OR
PROGRAMS
- ----------------------- --------------------- -------------------- --------------------- --------------------
MAY 1-MAY 30, 2004 21,000* $12.49 N/A N/A
- ----------------------- --------------------- -------------------- --------------------- --------------------
* Shares acquired on the open market.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No material changes.
ITEM 10. CONTROLS AND PROCEDURES.
a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the registrant's last fiscal half-year (the registrant's
second fiscal half-year in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics
(a)(2)(i) Certification of Principal Executive Officer.
(a)(2)(ii) Certification of Principal Financial Officer.
(b) Description of Proxy Voting Policies and Procedures
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.
Calamos Strategic Total Return Fund
By: /s/ John P. Calamos, Sr.
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Name: John P. Calamos, Sr.
Title: Principal Executive Officer
Date:
By: /s/ Patrick H. Dudasik
-----------------------------------------------------------------------------
Name: Patrick H. Dudasik
Title: Principal Financial Officer
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Calamos Strategic Total Return Fund
By: /s/ John P. Calamos, Sr.
-----------------------------------------------------------------------------
Name: John P. Calamos, Sr.
Title: Principal Executive Officer
Date:
By: /s/ Patrick H. Dudasik
-----------------------------------------------------------------------------
Name: Patrick H. Dudasik
Title: Principal Financial Officer
Date: