KHI Deutsche High Income Trust Shares of Beneficial Interest

ITEM 1.	REPORT TO STOCKHOLDERS

 

Average Annual Total Returns as of 5/31/13
DWS High Income Trust		6-Month ‡				1-Year				5-Year				10-Year
Based on Net Asset Value (a)			5.57	%			15.92	%			10.72	%			9.96	%
Based on Market Price (a)			3.28	%			8.79	%			11.30	%			7.55	%
Credit Suisse High Yield Index (b)			5.78	%			14.18	%			10.15	%			9.26	%
Morningstar Closed-End High Yield Bond Funds Category (based on Net Asset Value) (c)			7.73	%			19.17	%			8.54	%			9.83	%

Portfolio Summary (Unaudited)

 

 

Investment Portfolio as of May 31, 2013 (Unaudited)

			Principal Amount ($)(a)				Value ($)
Corporate Bonds 115.2%
Consumer Discretionary 22.0%
AMC Entertainment, Inc., 8.75%, 6/1/2019				705,000				773,737
AMC Networks, Inc., 7.75%, 7/15/2021				90,000				101,925
APX Group, Inc., 144A, 6.375%, 12/1/2019				220,000				219,450
Asbury Automotive Group, Inc.:
7.625%, 3/15/2017				475,000				488,661
8.375%, 11/15/2020				235,000				263,200
Avis Budget Car Rental LLC:
144A, 5.5%, 4/1/2023				215,000				217,150
8.25%, 1/15/2019				270,000				293,962
BC Mountain LLC, 144A, 7.0%, 2/1/2021				210,000				222,600
Block Communications, Inc., 144A, 7.25%, 2/1/2020				445,000				482,825
Boyd Gaming Corp., 9.0%, 7/1/2020				165,000				177,788
Bresnan Broadband Holdings LLC, 144A, 8.0%, 12/15/2018				530,000				573,725
Cablevision Systems Corp., 8.0%, 4/15/2020				70,000				79,275
Caesar's Entertainment Operating Co., Inc.:
8.5%, 2/15/2020				435,000				414,337
11.25%, 6/1/2017				1,000,000				1,045,000
Carlson Wagonlit BV, 144A, 6.875%, 6/15/2019				245,000				257,863
CCO Holdings LLC:
5.25%, 9/30/2022				1,525,000				1,525,000
5.75%, 1/15/2024				280,000				282,800
6.5%, 4/30/2021				175,000				188,125
6.625%, 1/31/2022				510,000				548,250
7.0%, 1/15/2019				125,000				133,594
7.375%, 6/1/2020				65,000				72,556
8.125%, 4/30/2020				75,000				83,813
CDR DB Sub, Inc., 144A, 7.75%, 10/15/2020				125,000				130,313
Cequel Communications Holdings I LLC:
144A, 5.125%, 12/15/2021				285,000				279,656
144A, 6.375%, 9/15/2020				1,205,000				1,259,225
144A, 8.625%, 11/15/2017				1,217,000				1,298,539
Chester Downs & Marina LLC, 144A, 9.25%, 2/1/2020				85,000				82,450
Clear Channel Communications, Inc., 144A, 11.25%, 3/1/2021				150,000				162,375
Clear Channel Worldwide Holdings, Inc.:
Series A, 144A, 6.5%, 11/15/2022				270,000				283,500
Series B, 144A, 6.5%, 11/15/2022				390,000				411,450
Series A, 7.625%, 3/15/2020				65,000				68,738
Series B, 7.625%, 3/15/2020				655,000				695,937
Cogeco Cable, Inc., 144A, 4.875%, 5/1/2020				25,000				24,938
Crown Media Holdings, Inc., 10.5%, 7/15/2019				155,000				176,700
Cumulus Media Holdings, Inc., 7.75%, 5/1/2019				200,000				205,000
Delphi Corp., 5.0%, 2/15/2023				305,000				323,681
DISH DBS Corp.:
4.625%, 7/15/2017				190,000				190,000
144A, 5.0%, 5/15/2017				310,000				310,000
6.75%, 6/1/2021				80,000				84,600
7.125%, 2/1/2016				550,000				602,250
Fontainebleau Las Vegas Holdings LLC, 144A, 11.0%, 6/15/2015*				455,000				0
Griffey Intermediate, Inc., 144A, 7.0%, 10/15/2020				220,000				222,750
Harron Communications LP, 144A, 9.125%, 4/1/2020				465,000				517,312
Hertz Corp.:
144A, 4.25%, 4/1/2018				2,605,000				2,676,637
6.75%, 4/15/2019				340,000				369,325
7.5%, 10/15/2018				930,000				1,011,375
Jo-Ann Stores Holdings, Inc., 144A, 9.75%, 10/15/2019 (PIK)				410,000				436,137
L Brands, Inc., 7.0%, 5/1/2020				185,000				215,756
Libbey Glass, Inc., 6.875%, 5/15/2020				130,000				140,725
Lions Gate Entertainment, Inc., 144A, 10.25%, 11/1/2016				285,000				307,444
LKQ Corp., 144A, 4.75%, 5/15/2023				340,000				339,150
MDC Partners, Inc., 144A, 6.75%, 4/1/2020				165,000				168,713
Mediacom Broadband LLC, 6.375%, 4/1/2023				465,000				483,600
Mediacom LLC:
7.25%, 2/15/2022				125,000				135,938
9.125%, 8/15/2019				295,000				325,975
MGM Resorts International:
6.625%, 12/15/2021				635,000				688,181
144A, 6.75%, 10/1/2020				95,000				103,550
7.5%, 6/1/2016				105,000				117,994
7.625%, 1/15/2017				290,000				330,962
8.625%, 2/1/2019				975,000				1,152,937
10.0%, 11/1/2016				120,000				145,050
National CineMedia LLC:
6.0%, 4/15/2022				245,000				262,762
7.875%, 7/15/2021				260,000				291,200
Norcraft Companies LP, 10.5%, 12/15/2015				1,030,000				1,076,350
Palace Entertainment Holdings LLC, 144A, 8.875%, 4/15/2017				215,000				229,513
Petco Animal Supplies, Inc., 144A, 9.25%, 12/1/2018				165,000				179,850
Petco Holdings, Inc., 144A, 8.5%, 10/15/2017 (PIK)				60,000				61,425
Quebecor Media, Inc., 5.75%, 1/15/2023				220,000				225,500
Regal Entertainment Group:
5.75%, 2/1/2025				50,000				49,875
9.125%, 8/15/2018				185,000				210,900
Rent-A-Center, Inc., 144A, 4.75%, 5/1/2021				170,000				166,600
Seminole Hard Rock Entertainment, Inc., 144A, 5.875%, 5/15/2021				140,000				139,125
Seminole Indian Tribe of Florida:
144A, 7.75%, 10/1/2017				225,000				240,188
144A, 7.804%, 10/1/2020				375,000				406,875
Sirius XM Radio, Inc., 144A, 8.75%, 4/1/2015				920,000				1,023,500
SIWF Merger Sub, Inc., 144A, 6.25%, 6/1/2021 (b)				340,000				338,300
Starz LLC, 5.0%, 9/15/2019				175,000				177,625
Taylor Morrison Communities, Inc., 144A, 5.25%, 4/15/2021				270,000				273,375
Toys "R" Us-Delaware, Inc., 144A, 7.375%, 9/1/2016				205,000				211,406
UCI International, Inc., 8.625%, 2/15/2019				125,000				129,375
Unitymedia Hessen GmbH & Co., KG:
144A, 5.5%, 1/15/2023				1,020,000				1,040,400
144A, 7.5%, 3/15/2019				515,000				558,775
Unitymedia KabelBW GmbH, 144A, 9.625%, 12/1/2019	EUR			530,000				767,260
Univision Communications, Inc.:
144A, 6.875%, 5/15/2019				1,560,000				1,657,500
144A, 7.875%, 11/1/2020				140,000				153,300
144A, 8.5%, 5/15/2021				75,000				81,188
UPC Holding BV, 144A, 8.375%, 8/15/2020	EUR			530,000				758,512
Viking Cruises Ltd., 144A, 8.5%, 10/15/2022				220,000				247,500
Visant Corp., 10.0%, 10/1/2017				235,000				225,013
Visteon Corp., 6.75%, 4/15/2019				184,000				196,420
Yonkers Racing Corp., 144A, 11.375%, 7/15/2016				180,000				191,250
								36,495,361
Consumer Staples 3.1%
Alliance One International, Inc., 10.0%, 7/15/2016				155,000				162,944
B&G Foods, Inc., 4.625%, 6/1/2021 (b)				285,000				284,287
Chiquita Brands International, Inc., 144A, 7.875%, 2/1/2021				95,000				102,125
Constellation Brands, Inc.:
3.75%, 5/1/2021				285,000				277,875
6.0%, 5/1/2022				110,000				123,475
7.25%, 9/1/2016				930,000				1,071,825
Del Monte Corp., 7.625%, 2/15/2019				435,000				450,769
FAGE Dairy Industry SA, 144A, 9.875%, 2/1/2020				395,000				436,475
JBS U.S.A. LLC, 144A, 8.25%, 2/1/2020				180,000				197,550
NBTY, Inc., 9.0%, 10/1/2018				140,000				154,000
Pilgrim's Pride Corp., 7.875%, 12/15/2018				160,000				174,000
Smithfield Foods, Inc.:
6.625%, 8/15/2022				450,000				511,875
7.75%, 7/1/2017				385,000				447,562
Sun Products Corp., 144A, 7.75%, 3/15/2021				385,000				388,850
Tops Holding Corp., 144A, 8.875%, 12/15/2017				105,000				115,500
U.S. Foods, Inc., 8.5%, 6/30/2019				215,000				230,319
								5,129,431
Energy 15.9%
Access Midstream Partners LP:
4.875%, 5/15/2023				265,000				261,688
6.125%, 7/15/2022				380,000				406,600
Arch Coal, Inc.:
7.0%, 6/15/2019				120,000				108,000
7.25%, 10/1/2020				115,000				102,925
Berry Petroleum Co.:
6.375%, 9/15/2022				220,000				228,250
6.75%, 11/1/2020				335,000				360,963
BreitBurn Energy Partners LP:
7.875%, 4/15/2022				215,000				233,275
8.625%, 10/15/2020				115,000				126,500
Chaparral Energy, Inc., 7.625%, 11/15/2022				195,000				210,600
Chesapeake Energy Corp.:
3.25%, 3/15/2016				535,000				530,987
7.25%, 12/15/2018				1,490,000				1,717,225
9.5%, 2/15/2015				495,000				551,925
Chesapeake Oilfield Operating LLC, 144A, 6.625%, 11/15/2019				235,000				246,750
CITGO Petroleum Corp., 144A, 11.5%, 7/1/2017				295,000				333,350
Cloud Peak Energy Resources LLC, 8.5%, 12/15/2019				70,000				77,000
Continental Resources, Inc.:
144A, 4.5%, 4/15/2023				65,000				65,650
5.0%, 9/15/2022				190,000				196,650
7.125%, 4/1/2021				175,000				196,438
7.375%, 10/1/2020				200,000				225,500
Crosstex Energy LP:
7.125%, 6/1/2022				115,000				123,050
8.875%, 2/15/2018				345,000				370,875
Denbury Resources, Inc., 4.625%, 7/15/2023				515,000				498,262
Dresser-Rand Group, Inc., 6.5%, 5/1/2021				425,000				460,063
Eagle Rock Energy Partners LP, 8.375%, 6/1/2019				65,000				68,088
El Paso LLC, 7.25%, 6/1/2018				455,000				528,281
EP Energy LLC:
6.875%, 5/1/2019				395,000				426,600
7.75%, 9/1/2022				95,000				105,925
9.375%, 5/1/2020				90,000				102,038
EPE Holdings LLC, 144A, 8.125%, 12/15/2017 (PIK)				470,000				501,725
EV Energy Partners LP, 8.0%, 4/15/2019				985,000				1,012,087
Global Geophysical Services, Inc., 10.5%, 5/1/2017				265,000				237,175
Halcon Resources Corp.:
8.875%, 5/15/2021				425,000				432,438
9.75%, 7/15/2020				175,000				181,781
Holly Energy Partners LP, 6.5%, 3/1/2020				125,000				132,813
HollyFrontier Corp., 9.875%, 6/15/2017				530,000				557,136
Kodiak Oil & Gas Corp., 144A, 5.5%, 1/15/2021				260,000				269,750
Linn Energy LLC:
144A, 6.25%, 11/1/2019				635,000				639,762
6.5%, 5/15/2019				1,390,000				1,414,325
MEG Energy Corp.:
144A, 6.375%, 1/30/2023				900,000				922,500
144A, 6.5%, 3/15/2021				240,000				248,400
Memorial Production Partners LP, 144A, 7.625%, 5/1/2021				380,000				381,900
Midstates Petroleum Co., Inc.:
144A, 9.25%, 6/1/2021				565,000				562,175
144A, 10.75%, 10/1/2020				125,000				133,750
Murray Energy Corp., 144A, 8.625%, 6/15/2021				55,000				56,650
Newfield Exploration Co., 5.75%, 1/30/2022				225,000				240,750
Northern Oil & Gas, Inc., 8.0%, 6/1/2020				665,000				691,600
Oasis Petroleum, Inc.:
6.5%, 11/1/2021				180,000				194,400
6.875%, 1/15/2023				135,000				147,150
7.25%, 2/1/2019				415,000				447,163
Offshore Group Investment Ltd.:
144A, 7.125%, 4/1/2023				430,000				443,975
7.5%, 11/1/2019				310,000				334,800
Pacific Drilling SA, 144A, 5.375%, 6/1/2020 (b)				285,000				282,150
Plains Exploration & Production Co.:
6.125%, 6/15/2019				265,000				290,838
6.75%, 2/1/2022				605,000				676,087
6.875%, 2/15/2023				550,000				622,187
Range Resources Corp., 144A, 5.0%, 3/15/2023				110,000				111,100
Regency Energy Partners LP, 144A, 4.5%, 11/1/2023				115,000				113,850
Sabine Pass Liquefaction LLC:
144A, 5.625%, 2/1/2021				740,000				742,775
144A, 5.625%, 4/15/2023				165,000				165,000
SandRidge Energy, Inc., 7.5%, 3/15/2021				545,000				561,350
SESI LLC:
6.375%, 5/1/2019				245,000				264,600
7.125%, 12/15/2021				795,000				892,387
Swift Energy Co., 7.875%, 3/1/2022				300,000				313,500
Talos Production LLC, 144A, 9.75%, 2/15/2018				410,000				410,000
Tesoro Corp.:
4.25%, 10/1/2017				235,000				244,400
5.375%, 10/1/2022				165,000				173,250
Venoco, Inc., 8.875%, 2/15/2019				305,000				305,000
WPX Energy, Inc., 5.25%, 1/15/2017				1,015,000				1,078,437
								26,294,574
Financials 19.7%
Abengoa Finance SAU, 144A, 8.875%, 11/1/2017				145,000				139,200
AerCap Aviation Solutions BV, 6.375%, 5/30/2017				790,000				855,175
Ally Financial, Inc.:
5.5%, 2/15/2017				1,540,000				1,647,800
6.25%, 12/1/2017				550,000				605,301
8.0%, 3/15/2020				705,000				838,950
Alphabet Holding Co., Inc., 144A, 7.75%, 11/1/2017 (PIK)				110,000				113,575
Altice Financing SA, 144A, 7.875%, 12/15/2019				245,000				271,031
AmeriGas Finance LLC:
6.75%, 5/20/2020				125,000				136,250
7.0%, 5/20/2022				125,000				135,625
Antero Resources Finance Corp.:
7.25%, 8/1/2019				305,000				329,400
9.375%, 12/1/2017				195,000				209,138
Ashtead Capital, Inc., 144A, 6.5%, 7/15/2022				350,000				378,000
Ashton Woods U.S.A. LLC, 144A, 6.875%, 2/15/2021				350,000				362,688
AWAS Aviation Capital Ltd., 144A, 7.0%, 10/17/2016				463,600				485,621
Banco Bradesco SA, 144A, 5.75%, 3/1/2022				920,000				965,540
BOE Merger Corp., 144A, 9.5%, 11/1/2017 (PIK)				220,000				229,350
Caesar's Operating Escrow LLC, 144A, 9.0%, 2/15/2020				265,000				255,063
Case New Holland, Inc., 7.875%, 12/1/2017				645,000				757,875
CIT Group, Inc.:
4.25%, 8/15/2017				560,000				576,800
5.0%, 5/15/2017				230,000				244,950
5.25%, 3/15/2018				645,000				693,375
CNH Capital LLC, 144A, 3.625%, 4/15/2018				435,000				438,262
DuPont Fabros Technology LP, (REIT), 8.5%, 12/15/2017				420,000				449,400
E*TRADE Financial Corp.:
6.0%, 11/15/2017				1,490,000				1,553,325
6.375%, 11/15/2019				759,000				796,950
6.75%, 6/1/2016				385,000				411,950
Fibria Overseas Finance Ltd., 144A, 6.75%, 3/3/2021				150,000				164,250
Ford Motor Credit Co., LLC:
5.0%, 5/15/2018				435,000				479,191
5.875%, 8/2/2021				325,000				370,196
6.625%, 8/15/2017				360,000				418,674
8.125%, 1/15/2020				225,000				283,506
Fresenius Medical Care U.S. Finance II, Inc.:
144A, 5.625%, 7/31/2019				250,000				274,375
144A, 5.875%, 1/31/2022				220,000				246,400
Fresenius Medical Care U.S. Finance, Inc.:
144A, 5.75%, 2/15/2021				190,000				211,375
144A, 6.5%, 9/15/2018				125,000				142,500
General Motors Financial Co., Inc., 144A, 3.25%, 5/15/2018				115,000				113,994
Hellas Telecommunications Finance SCA, 144A, 8.21%**, 7/15/2015 (PIK)*	EUR			294,810				0
Hexion U.S. Finance Corp.:
6.625%, 4/15/2020				110,000				114,400
8.875%, 2/1/2018				385,000				401,844
International Lease Finance Corp.:
2.224%, 6/15/2016				755,000				758,775
3.875%, 4/15/2018				805,000				806,006
4.625%, 4/15/2021				385,000				382,112
5.75%, 5/15/2016				1,215,000				1,302,273
6.25%, 5/15/2019				345,000				376,912
8.625%, 9/15/2015				245,000				275,931
8.625%, 1/15/2022				350,000				436,625
8.75%, 3/15/2017				685,000				810,869
Kinder Morgan Finance Co., LLC, 144A, 6.0%, 1/15/2018				450,000				496,777
Level 3 Financing, Inc.:
7.0%, 6/1/2020				415,000				432,637
8.125%, 7/1/2019				215,000				232,738
8.625%, 7/15/2020				180,000				198,000
MPT Operating Partnership LP:
(REIT), 6.375%, 2/15/2022				210,000				229,950
(REIT), 6.875%, 5/1/2021				305,000				337,025
National Money Mart Co., 10.375%, 12/15/2016				385,000				412,431
Neuberger Berman Group LLC:
144A, 5.625%, 3/15/2020				190,000				201,400
144A, 5.875%, 3/15/2022				310,000				330,150
Nielsen Finance LLC, 144A, 4.5%, 10/1/2020				55,000				55,138
NII Capital Corp., 7.625%, 4/1/2021				170,000				141,525
Reynolds Group Issuer, Inc.:
5.75%, 10/15/2020				435,000				441,525
6.875%, 2/15/2021				580,000				619,150
7.125%, 4/15/2019				1,545,000				1,645,425
8.25%, 2/15/2021				120,000				122,400
9.875%, 8/15/2019				100,000				109,000
Schaeffler Finance BV:
144A, 4.75%, 5/15/2021				300,000				294,750
144A, 7.75%, 2/15/2017				475,000				534,375
Serta Simmons Holdings LLC, 144A, 8.125%, 10/1/2020				125,000				132,188
Sky Growth Acquisition Corp., 144A, 7.375%, 10/15/2020				190,000				201,875
Tronox Finance LLC, 144A, 6.375%, 8/15/2020				275,000				270,188
UPCB Finance III Ltd., 144A, 6.625%, 7/1/2020				1,575,000				1,677,375
UPCB Finance V Ltd., 144A, 7.25%, 11/15/2021				235,000				259,088
UPCB Finance VI Ltd., 144A, 6.875%, 1/15/2022				300,000				324,000
Wind Acquisition Finance SA:
144A, 6.5%, 4/30/2020				225,000				231,188
144A, 7.25%, 2/15/2018				280,000				291,900
WMG Acquisition Corp., 144A, 6.0%, 1/15/2021				99,000				104,445
								32,577,445
Health Care 10.8%
Aviv Healthcare Properties LP, 7.75%, 2/15/2019				565,000				617,262
Bausch & Lomb, Inc., 9.875%, 11/1/2015				380,000				393,300
Biomet, Inc.:
144A, 6.5%, 8/1/2020				380,000				399,950
144A, 6.5%, 10/1/2020				110,000				111,375
Community Health Systems, Inc.:
5.125%, 8/15/2018				3,440,000				3,586,200
7.125%, 7/15/2020				1,830,000				2,008,425
HCA Holdings, Inc., 7.75%, 5/15/2021				605,000				668,525
HCA, Inc.:
5.875%, 3/15/2022				315,000				345,712
6.5%, 2/15/2020				3,645,000				4,109,737
7.5%, 2/15/2022				915,000				1,065,975
7.875%, 2/15/2020				855,000				931,950
8.5%, 4/15/2019				335,000				365,150
Hologic, Inc., 6.25%, 8/1/2020				230,000				245,813
IMS Health, Inc., 144A, 6.0%, 11/1/2020				275,000				290,813
Physio-Control International, Inc., 144A, 9.875%, 1/15/2019				180,000				203,400
STHI Holding Corp., 144A, 8.0%, 3/15/2018				180,000				196,200
Tenet Healthcare Corp.:
144A, 4.375%, 10/1/2021				460,000				446,200
144A, 4.5%, 4/1/2021				50,000				49,125
6.25%, 11/1/2018				1,200,000				1,329,000
Warner Chilcott Co., LLC, 7.75%, 9/15/2018				430,000				474,344
								17,838,456
Industrials 9.0%
Accuride Corp., 9.5%, 8/1/2018				175,000				182,438
Aguila 3 SA, 144A, 7.875%, 1/31/2018				520,000				559,650
Air Lease Corp.:
4.75%, 3/1/2020				310,000				314,650
6.125%, 4/1/2017				530,000				571,075
BE Aerospace, Inc., 6.875%, 10/1/2020				190,000				208,525
Belden, Inc., 144A, 5.5%, 9/1/2022				380,000				390,450
Bombardier, Inc.:
144A, 5.75%, 3/15/2022				505,000				525,200
144A, 7.75%, 3/15/2020				1,365,000				1,597,050
Casella Waste Systems, Inc., 7.75%, 2/15/2019				645,000				619,200
Clean Harbors, Inc., 5.125%, 6/1/2021				265,000				272,950
DigitalGlobe, Inc., 144A, 5.25%, 2/1/2021				155,000				156,163
Ducommun, Inc., 9.75%, 7/15/2018				180,000				199,800
DynCorp International, Inc., 10.375%, 7/1/2017				505,000				517,625
Florida East Coast Railway Corp., 8.125%, 2/1/2017				115,000				122,475
FTI Consulting, Inc.:
144A, 6.0%, 11/15/2022				220,000				232,650
6.75%, 10/1/2020				850,000				909,500
Garda World Security Corp., 144A, 9.75%, 3/15/2017				195,000				209,137
GenCorp, Inc., 144A, 7.125%, 3/15/2021				770,000				823,900
Huntington Ingalls Industries, Inc.:
6.875%, 3/15/2018				305,000				332,450
7.125%, 3/15/2021				60,000				65,850
Interline Brands, Inc., 7.5%, 11/15/2018				300,000				321,000
Iron Mountain, Inc., 5.75%, 8/15/2024				265,000				268,312
Kenan Advantage Group, Inc., 144A, 8.375%, 12/15/2018				415,000				444,050
Meritor, Inc.:
6.75%, 6/15/2021				225,000				222,187
10.625%, 3/15/2018				185,000				202,806
Navios Maritime Holdings, Inc.:
8.125%, 2/15/2019				220,000				213,950
8.875%, 11/1/2017				130,000				136,825
Navios South American Logistics, Inc.:
9.25%, 4/15/2019				155,000				168,563
144A, 9.25%, 4/15/2019				30,000				32,625
Nortek, Inc., 8.5%, 4/15/2021				235,000				257,325
Ply Gem Industries, Inc., 9.375%, 4/15/2017				54,000				58,860
Rexel SA, 144A, 5.25%, 6/15/2020				290,000				295,800
Spirit AeroSystems, Inc.:
6.75%, 12/15/2020				205,000				219,350
7.5%, 10/1/2017				210,000				220,500
Titan International, Inc.:
7.875%, 10/1/2017				535,000				572,450
144A, 7.875%, 10/1/2017				145,000				155,150
TransDigm, Inc., 7.75%, 12/15/2018				380,000				414,675
U.S. Airways Group, Inc., 6.125%, 6/1/2018				285,000				277,519
United Rentals North America, Inc.:
5.75%, 7/15/2018				425,000				453,687
6.125%, 6/15/2023				30,000				31,425
7.375%, 5/15/2020				350,000				384,125
7.625%, 4/15/2022				350,000				387,625
Watco Companies LLC, 144A, 6.375%, 4/1/2023				165,000				173,663
Welltec A/S, 144A, 8.0%, 2/1/2019				200,000				216,000
								14,939,210
Information Technology 4.6%
Alliance Data Systems Corp., 144A, 5.25%, 12/1/2017				270,000				282,825
CDW LLC, 8.5%, 4/1/2019				470,000				519,937
CyrusOne LP, 144A, 6.375%, 11/15/2022				110,000				117,425
eAccess Ltd., 144A, 8.25%, 4/1/2018				180,000				199,350
EarthLink, Inc., 144A, 7.375%, 6/1/2020				285,000				280,725
Equinix, Inc.:
4.875%, 4/1/2020				290,000				295,075
5.375%, 4/1/2023				765,000				789,862
7.0%, 7/15/2021				250,000				278,125
First Data Corp.:
144A, 6.75%, 11/1/2020				765,000				799,425
144A, 7.375%, 6/15/2019				280,000				295,400
144A, 8.875%, 8/15/2020				500,000				552,500
144A, 10.625%, 6/15/2021				215,000				216,075
144A, 11.25%, 1/15/2021				140,000				143,150
Freescale Semiconductor, Inc., 144A, 9.25%, 4/15/2018				710,000				772,125
Hughes Satellite Systems Corp.:
6.5%, 6/15/2019				540,000				589,950
7.625%, 6/15/2021				245,000				273,788
IAC/InterActiveCorp., 144A, 4.75%, 12/15/2022				210,000				206,325
Jabil Circuit, Inc., 5.625%, 12/15/2020				315,000				339,413
NXP BV, 144A, 3.75%, 6/1/2018				420,000				413,700
VeriSign, Inc., 144A, 4.625%, 5/1/2023				220,000				221,100
								7,586,275
Materials 8.1%
APERAM, 144A, 7.375%, 4/1/2016				230,000				231,725
Ashland, Inc., 144A, 3.875%, 4/15/2018				165,000				169,538
Axiall Corp., 144A, 4.875%, 5/15/2023				65,000				65,325
Berry Plastics Corp.:
9.5%, 5/15/2018				190,000				208,050
9.75%, 1/15/2021				230,000				265,650
Bluescope Steel Ltd., 144A, 7.125%, 5/1/2018				165,000				171,188
BOE Intermediate Holding Corp., 144A, 9.0%, 11/1/2017 (PIK)				340,000				334,900
Clearwater Paper Corp., 7.125%, 11/1/2018				395,000				427,587
Compass Minerals International, Inc., 8.0%, 6/1/2019				380,000				412,300
Crown Americas LLC, 6.25%, 2/1/2021				55,000				60,088
Eagle Spinco, Inc., 144A, 4.625%, 2/15/2021				130,000				130,975
Essar Steel Algoma, Inc.:
144A, 9.375%, 3/15/2015				600,000				558,000
144A, 9.875%, 6/15/2015				105,000				80,850
Exopack Holding Corp., 10.0%, 6/1/2018				245,000				256,638
FMG Resources (August 2006) Pty Ltd.:
144A, 6.0%, 4/1/2017				380,000				384,750
144A, 6.875%, 4/1/2022				270,000				272,700
144A, 7.0%, 11/1/2015				390,000				401,700
144A, 8.25%, 11/1/2019				305,000				321,775
Greif, Inc., 7.75%, 8/1/2019				110,000				129,800
Huntsman International LLC:
4.875%, 11/15/2020				245,000				247,450
8.625%, 3/15/2020				350,000				386,750
8.625%, 3/15/2021				140,000				156,450
IAMGOLD Corp., 144A, 6.75%, 10/1/2020				320,000				292,800
Inmet Mining Corp.:
144A, 7.5%, 6/1/2021				600,000				610,500
144A, 8.75%, 6/1/2020				360,000				387,900
Kaiser Aluminum Corp., 8.25%, 6/1/2020				300,000				338,250
KGHM International Ltd., 144A, 7.75%, 6/15/2019				660,000				689,700
LyondellBasell Industries NV, 6.0%, 11/15/2021				120,000				141,863
Novelis, Inc.:
8.375%, 12/15/2017				905,000				977,400
8.75%, 12/15/2020				1,330,000				1,486,275
OI European Group BV, 144A, 6.75%, 9/15/2020	EUR			195,000				293,420
Packaging Dynamics Corp., 144A, 8.75%, 2/1/2016				270,000				282,487
Perstorp Holding AB, 144A, 8.75%, 5/15/2017				200,000				206,500
Polymer Group, Inc., 7.75%, 2/1/2019				310,000				334,025
PolyOne Corp., 144A, 5.25%, 3/15/2023				625,000				642,187
Rain CII Carbon LLC:
144A, 8.0%, 12/1/2018				275,000				291,500
144A, 8.25%, 1/15/2021				200,000				214,000
Sealed Air Corp., 144A, 5.25%, 4/1/2023				55,000				55,550
Viskase Companies, Inc., 144A, 9.875%, 1/15/2018				455,000				485,712
Wolverine Tube, Inc., 6.0%, 6/28/2014 (PIK)				28,867				28,867
								13,433,125
Telecommunication Services 17.9%
Altice Finco SA, 144A, 9.875%, 12/15/2020				245,000				278,075
CenturyLink, Inc., Series V, 5.625%, 4/1/2020				110,000				113,713
Cincinnati Bell, Inc.:
8.25%, 10/15/2017				1,270,000				1,336,675
8.375%, 10/15/2020				1,050,000				1,115,625
8.75%, 3/15/2018				1,295,000				1,327,375
CPI International, Inc., 8.0%, 2/15/2018				135,000				142,763
Cricket Communications, Inc., 7.75%, 10/15/2020				1,610,000				1,605,975
Crown Castle International Corp., 7.125%, 11/1/2019				280,000				303,800
Digicel Group Ltd.:
144A, 8.25%, 9/30/2020				520,000				553,800
144A, 10.5%, 4/15/2018				260,000				282,334
Digicel Ltd.:
144A, 7.0%, 2/15/2020				200,000				207,500
144A, 8.25%, 9/1/2017				1,625,000				1,690,000
ERC Ireland Preferred Equity Ltd., 144A, 7.69%**, 2/15/2017 (PIK)*	EUR			529,971				0
Frontier Communications Corp.:
7.125%, 1/15/2023				1,475,000				1,541,375
7.625%, 4/15/2024				115,000				120,463
8.25%, 4/15/2017				357,000				415,905
8.5%, 4/15/2020				540,000				618,300
8.75%, 4/15/2022				70,000				78,925
Intelsat Jackson Holdings SA:
144A, 5.5%, 8/1/2023 (b)				725,000				710,500
144A, 6.625%, 12/15/2022 (b)				285,000				296,756
7.25%, 10/15/2020				1,235,000				1,339,975
7.5%, 4/1/2021				1,205,000				1,323,994
8.5%, 11/1/2019				620,000				680,450
Intelsat Luxembourg SA:
144A, 7.75%, 6/1/2021				705,000				741,131
144A, 8.125%, 6/1/2023				105,000				112,350
11.25%, 2/4/2017				789,000				834,762
Level 3 Communications, Inc., 8.875%, 6/1/2019				30,000				32,550
MetroPCS Wireless, Inc.:
6.625%, 11/15/2020				260,000				278,200
144A, 6.625%, 4/1/2023				285,000				301,387
7.875%, 9/1/2018				435,000				474,150
Millicom International Cellular SA, 144A, 4.75%, 5/22/2020				835,000				824,562
Pacnet Ltd., 144A, 9.25%, 11/9/2015				441,000				456,435
SBA Communications Corp., 144A, 5.625%, 10/1/2019				215,000				221,450
SBA Telecommunications, Inc., 8.25%, 8/15/2019				97,000				106,215
Sprint Nextel Corp.:
6.0%, 12/1/2016				2,230,000				2,408,400
6.0%, 11/15/2022				380,000				391,400
9.125%, 3/1/2017				180,000				210,600
Syniverse Holdings, Inc., 9.125%, 1/15/2019				65,000				71,013
Telesat Canada, 144A, 6.0%, 5/15/2017				2,560,000				2,675,200
tw telecom holdings, Inc., 5.375%, 10/1/2022				300,000				310,500
Windstream Corp.:
6.375%, 8/1/2023				265,000				261,687
7.0%, 3/15/2019				515,000				525,300
7.5%, 6/1/2022				180,000				190,800
7.5%, 4/1/2023				440,000				462,000
7.75%, 10/15/2020				185,000				197,487
7.75%, 10/1/2021				355,000				381,625
7.875%, 11/1/2017				710,000				816,500
8.125%, 9/1/2018				300,000				325,500
								29,695,482
Utilities 4.1%
AES Corp.:
4.875%, 5/15/2023				115,000				112,987
7.75%, 10/15/2015				638,000				708,180
8.0%, 10/15/2017				440,000				515,900
8.0%, 6/1/2020				480,000				576,000
Calpine Corp.:
144A, 7.5%, 2/15/2021				441,000				478,485
144A, 7.875%, 7/31/2020				486,000				534,600
DPL, Inc., 6.5%, 10/15/2016				1,380,000				1,486,950
Energy Future Holdings Corp., Series Q, 6.5%, 11/15/2024				300,000				219,000
Energy Future Intermediate Holding Co., LLC:
10.0%, 12/1/2020				70,000				79,713
11.0%, 10/1/2021				595,000				657,475
IPALCO Enterprises, Inc.:
5.0%, 5/1/2018				715,000				768,625
144A, 7.25%, 4/1/2016				315,000				352,012
NRG Energy, Inc.:
7.625%, 1/15/2018				210,000				236,775
8.25%, 9/1/2020				75,000				84,094
								6,810,796
Total Corporate Bonds (Cost $182,340,403)								190,800,155
Government & Agency Obligations 3.4%
Sovereign Bonds
Republic of Croatia, 144A, 6.25%, 4/27/2017				690,000				746,380
Republic of Poland, 5.125%, 4/21/2021				2,110,000				2,400,125
Russian Federation, 144A, 5.0%, 4/29/2020				2,165,000				2,408,562
Total Government & Agency Obligations (Cost $4,982,182)								5,555,067
Loan Participations and Assignments 19.5%
Senior Loans** 19.0%
Consumer Discretionary 6.1%
Buffets, Inc., Letter of Credit, First Lien, LIBOR plus 9.25%, 4/22/2015*				59,491				27,812
Burger King Corp., Term Loan B, 3.75%, 9/27/2019				467,650				472,743
Caesars Entertainment Operating Co., Term Loan B6, 5.443%, 1/26/2018				95,807				85,889
Clear Channel Communications, Inc., Term Loan B, 3.844%, 1/29/2016				286,320				266,756
Cumulus Media Holdings, Inc., Second Lien Term Loan, 7.5%, 9/16/2019				375,000				389,687
Goodyear Tire & Rubber Co., Second Lien Term Loan, 4.75%, 4/30/2019				2,390,000				2,411,582
Petco Animal Supplies, Inc., Term Loan, 4.0%, 11/24/2017				409,655				414,264
Pilot Travel Centers LLC:
Term Loan B, 3.75%, 3/30/2018				663,751				656,701
Term Loan B2, 4.25%, 8/7/2019				1,726,325				1,716,398
Tomkins LLC:
First Lien Term Loan, 5.0%, 11/9/2018				413,963				418,965
Term Loan B2, 3.75%, 9/29/2016				2,720,030				2,745,544
Univision Communications, Inc., Term Loan, 4.5%, 3/2/2020				435,702				435,508
								10,041,849
Consumer Staples 2.5%
Albertson's LLC, Term Loan, 5.75% , 3/21/2016				865,000				871,626
Del Monte Foods Co., Term Loan, 4.0%, 3/8/2018				1,051,999				1,059,042
HJ Heinz Co., Term Loan B2, 3.5% , 3/27/2020				1,890,000				1,909,448
Pinnacle Foods Finance LLC, Term Loan G, 3.25%, 4/29/2020				340,000				340,885
								4,181,001
Energy 2.5%
Chesapeake Energy Corp., Term Loan, 5.75%, 12/1/2017				865,000				889,523
NRG Energy, Inc., Term Loan B, 3.25%, 7/2/2018				975,000				970,622
Ruby Western Pipeline Holdings LLC, Term Loan B, 3.5%, 3/27/2020				220,000				221,650
Samson Investment Co., Second Lien Term Loan, 6.0%, 9/25/2018				1,295,000				1,306,733
Tallgrass Operations LLC:
Term Loan, 5.25%, 11/13/2018				718,675				725,862
								4,114,390
Financials 0.0%
Alliance Mortgage Cycle Loan, Term Loan A, 9.5%, 6/1/2010*				466,667				0
Health Care 1.1%
Par Pharmaceutical Companies, Inc., Term Loan B, 4.25%, 9/30/2019				771,130				774,596
Warner Chilcott Co., LLC, Term Loan B2, 4.25%, 3/15/2018				107,556				108,551
Warner Chilcott Corp.:
Incremental Term Loan B1, 4.25%, 3/15/2018				132,129				133,352
Term Loan B1, 4.25%, 3/15/2018				303,532				306,339
WC Luxco SARL, Term Loan B3, 4.25%, 3/15/2018				239,186				241,399
WP Prism, Inc., Term Loan, 6.25%, 5/31/2018				300,000				301,500
								1,865,737
Industrials 1.9%
Buffalo Gulf Coast Terminals LLC, Term Loan, 5.25%, 10/31/2017				497,500				507,450
Transdigm, Inc., Term Loan C, 3.75%, 2/28/2020				1,554,307				1,575,290
WP CPP Holdings LLC, First Lien Term Loan, 4.75%, 12/27/2019				1,147,125				1,151,427
								3,234,167
Information Technology 1.2%
First Data Corp., Term Loan, 4.199%, 3/24/2017				1,945,000				1,944,154
Telecommunication Services 3.7%
Crown Castle International Corp., Term Loan, 3.25%, 1/31/2019				2,955,553				2,970,345
DigitalGlobe, Inc., Term Loan B, 3.75%, 1/31/2020				40,000				40,320
Kabel Deutschland GmbH, Term Loan F1, 3.25%, 2/1/2019				3,040,000				3,046,840
								6,057,505
Sovereign Loan 0.5%
Financials
VTB Bank OJSC, 144A, 6.315%, 2/22/2018				750,000				813,150
Total Loan Participations and Assignments (Cost $32,411,903)								32,251,953
Convertible Bonds 0.9%
Consumer Discretionary 0.2%
Group 1 Automotive, Inc., 3.0%, 3/15/2020				195,000				349,903
Materials 0.7%
GEO Specialty Chemicals, Inc., 144A, 7.5%, 3/31/2015 (PIK)				776,436				1,202,544
Total Convertible Bonds (Cost $964,774)								1,552,447
Preferred Security 0.4%
Materials
Hercules, Inc., 6.5%, 6/30/2029 (Cost $407,049)				810,000				749,250

 

		Units				Value ($)
Other Investments 0.2%
Consumer Discretionary
AOT Bedding Super Holdings LLC* (c) (Cost $25,000)			75				260,820

 

		Shares				Value ($)
Common Stocks 0.1%
Consumer Discretionary 0.0%
Buffets Restaurants Holdings, Inc.*			533				3,198
Trump Entertainment Resorts, Inc.*			51				0
Vertis Holdings, Inc.*			520				0
							3,198
Industrials 0.0%
Congoleum Corp.*			14,300				0
Materials 0.1%
GEO Specialty Chemicals, Inc.*			14,091				8,378
GEO Specialty Chemicals, Inc. 144A*			1,283				763
Wolverine Tube, Inc.*			5,489				99,461
							108,602
Total Common Stocks (Cost $302,355)							111,800
Preferred Stock 0.3%
Financials
Ally Financial, Inc. 144A, 7.0% (Cost $427,075)			455				446,099
Warrants 0.0%
Consumer Discretionary 0.0%
Reader's Digest Association, Inc., Expiration Date 2/19/2014*			972				0
Materials 0.0%
GEO Specialty Chemicals, Inc., Expiration Date 3/31/2015*			71,669				42,077
Hercules Trust II, Expiration Date 3/31/2029*			775				11,572
							53,649
Total Warrants (Cost $124,997)							53,649
Cash Equivalents 5.5%
Central Cash Management Fund, 0.07% (d) (Cost $9,156,895)			9,156,895				9,156,895

 

		% of Net Assets				Value ($)
Total Investment Portfolio (Cost $231,142,633) †			145.5				240,938,135
Notes Payable			(45.3	)			(75,000,000	)
Other Assets and Liabilities, Net			(0.2	)			(372,252	)
Net Assets			100.0				165,565,883

Security		Coupon			Maturity Date	Principal Amount						Cost ($)				Value ($)
Alliance Mortgage Cycle Loan*			9.5	%	6/01/2010	USD			466,667				467,631				0
Buffets, Inc.*		LIBOR plus 9.25%			4/22/2015	USD			59,491				57,792				27,812
ERC Ireland Preferred Equity Ltd.*			7.69	%	2/15/2017	EUR			529,971				721,442				0
Fontainebleau Las Vegas Holdings LLC*			11.0	%	6/15/2015	USD			455,000				456,800				0
Hellas Telecommunications Finance SCA*			8.21	%	7/15/2015	EUR			294,810				84,504				0
													1,788,169				27,812

Schedule of Restricted Securities

Acquisition Date

Cost ($)

Value ($)

Value as % of Net Assets

AOT Bedding Super Holdings LLC*

June 2010

25,000

260,820

0.16

Borrower

Unfunded Loan Commitment ($)

Value ($)

Unrealized Appreciation ($)

Tallgrass Operations LLC, Term Delay Draw, 11/13/2017

330,000

330,000

—

Effective/ Expiration Date		Notional Amount ($) (e)				Fixed Cash Flows Received			Underlying Debt Obligation/ Quality Rating (f)		Value ($)				Upfront Payments Paid/ (Received) ($)				Unrealized Appreciation ($)
6/21/2010 9/20/2013			865,000	1			5.0	%	Ford Motor Co., 6.5%, 8/1/2018, BBB-			21,649				(4,305	)			25,954
6/21/2010 9/20/2013			405,000	2			5.0	%	Ford Motor Co., 6.5%, 8/1/2018, BBB-			10,136				4,964				5,172
6/21/2010 9/20/2015			1,220,000	3			5.0	%	Ford Motor Co., 6.5%, 8/1/2018, BBB-			135,088				(27,925	)			163,013
12/20/2011 3/20/2017			440,000	4			5.0	%	CIT Group, Inc., 5.5%, 2/15/2019, BB-			63,889				14,106				49,783
12/20/2012 12/20/2017			3,500,000	3			5.0	%	Markit Dow Jones CDX North America High Yield Index			243,247				75,739				167,508
9/20/2012 12/20/2017			525,000	5			5.0	%	General Motors Corp., 3.3%, 12/20/2017, BB+			76,201				35,547				40,654
Total unrealized appreciation																				452,084

 

(e) The maximum potential amount of future undiscounted payments that the Fund could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Fund for the same referenced debt obligation, if any.

 

(f) The quality ratings represent the higher of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings and are unaudited.

 

Counterparties:

 

1 The Goldman Sachs & Co.

 

2 Citigroup, Inc.

 

3 Bank of America

 

4 Credit Suisse

 

5 UBS AG

 

As of May 31, 2013, the Fund had the following open forward foreign currency exchange contracts:

Assets		Level 1				Level 2				Level 3				Total
Fixed Income Investments (g)
Corporate Bonds		$	—			$	190,771,288			$	28,867			$	190,800,155
Government & Agency Obligations			—				5,555,067				—				5,555,067
Loan Participations and Assignments			—				32,251,953				0				32,251,953
Convertible Bonds			—				349,903				1,202,544				1,552,447
Preferred Securities			—				749,250				—				749,250
Other Investments			—				—				260,820				260,820
Common Stocks (g)			—				3,198				108,602				111,800
Preferred Stock (g)			—				446,099				—				446,099
Warrants (g)			—				—				53,649				53,649
Short-Term Investments			9,156,895				—				—				9,156,895
Derivatives (h)
Credit Default Swap Contracts			—				452,084				—				452,084
Total		$	9,156,895			$	230,578,842			$	1,654,482			$	241,390,219
Liabilities
Derivatives (h)
Forward Foreign Currency Exchange Contracts		$	—			$	(3,884	)		$	—			$	(3,884	)
Total		$	—			$	(3,884	)		$	—			$	(3,884	)

Statement of Assets and Liabilities

as of May 31, 2013 (Unaudited)
Assets
Investments: Investments in non-affiliated securities, at value (cost $221,985,738)		$	231,781,240
Investment in Central Cash Management Fund (cost $9,156,895)			9,156,895
Total investments in securities, at value (cost $231,142,633)			240,938,135
Cash			39,292
Foreign currency, at value (cost $57)			58
Deposit from broker on swap contracts			250,000
Receivable for investments sold			1,374,025
Receivable for investments sold — when-issued securities			450,281
Interest receivable			3,318,362
Unrealized appreciation on swap contracts			452,084
Upfront payments paid on swap contracts			130,356
Other assets			3,570
Total assets			246,956,163
Liabilities
Payable for investments purchased			3,330,115
Payable for investments purchased — when-issued securities			2,401,878
Notes payable			75,000,000
Interest on notes payable			141,142
Payable on return of deposit for swap contracts			250,000
Unrealized depreciation on forward foreign currency exchange contracts			3,884
Upfront payments received on swap contracts			32,230
Accrued management fee			121,959
Accrued Trustees' fees			6,977
Other accrued expenses and payables			102,095
Total liabilities			81,390,280
Net assets, at value		$	165,565,883

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Assets and Liabilities as of May 31, 2013 (Unaudited) (continued)
Net Assets Consist of
Distributions in excess of net investment income			(364,486	)
Net unrealized appreciation (depreciation) on: Investments			9,795,502
Swap contracts			452,084
Foreign currency			(4,252	)
Accumulated net realized gain (loss)			(43,308,045	)
Paid-in capital			198,995,080
Net assets, at value		$	165,565,883
Net Asset Value
Net Asset Value per share ($165,565,883 ÷ 16,333,173 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)		$	10.14

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Operations

for the six months ended May 31, 2013 (Unaudited)
Investment Income
Income: Interest		$	7,224,016
Dividends			14,000
Income distributions — Central Cash Management Fund			5,512
Total income			7,243,528
Expenses: Management fee			703,116
Services to shareholders			17,102
Custodian fee			36,678
Professional fees			45,778
Reports to shareholders			31,781
Trustees' fees and expenses			6,310
Interest expense			553,308
Stock exchange listing fees			11,960
Other			28,989
Total expenses			1,435,022
Net investment income			5,808,506
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from: Investments			2,390,079
Swap contracts			100,126
Foreign currency			(63,712	)
			2,426,493
Change in net unrealized appreciation (depreciation) on: Investments			484,189
Unfunded loan commitment			(1,650	)
Swap contracts			206,224
Foreign currency			58,706
			747,469
Net gain (loss)			3,173,962
Net increase (decrease) in net assets resulting from operations		$	8,982,468

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Cash Flows

for the six months ended May 31, 2013 (Unaudited)
Increase (Decrease) in Cash: Cash Flows from Operating Activities
Net increase (decrease) in net assets resulting from operations		$	8,982,468
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) by operating activities: Purchases of long-term investments			(78,691,136	)
Net purchases, sales and maturities of short-term investments			(653,168	)
Net amortization of premium/(accretion of discount)			124,100
Proceeds from sales and maturities of long-term investments			68,888,585
(Increase) decrease in deposit with broker for open swap contracts			(250,000	)
(Increase) decrease in interest receivable			64,684
(Increase) decrease in other assets			3,821
(Increase) decrease in receivable for investments sold			306,751
(Increase) decrease in receivable for investments sold — when-issued securities			(287,756	)
Increase (decrease) in interest on notes payable			21,810
Increase (decrease) in payable for investments purchased			(1,724,180	)
Increase (decrease) in payable for investments purchased — when-issued securities			1,156,878
Increase (decrease) in payable upon return of deposit for swap contracts			250,000
(Increase) decrease in upfront payments paid/received on swap contracts			(109,437	)
Increase (decrease) in other accrued expenses and payables			11,304
Change in unrealized (appreciation) depreciation on investments			(484,189	)
Change in unrealized (appreciation) depreciation on swaps			(206,224	)
Change in unrealized (appreciation) depreciation on forward foreign currency exchange contracts			(61,014	)
Change in unrealized (appreciation) depreciation in unfunded commitments			1,650
Net realized (gain) loss from investments			(2,390,079	)
Cash provided (used) by operating activities			(5,045,132	)
Cash Flows from Financing Activities
Net increase (decrease) in notes payable			11,000,000
Distributions paid (net of reinvestment of distributions)			(5,939,543	)
Cash provided (used) by financing activities			5,060,457
Increase (decrease) in cash			15,325
Cash at beginning of period (including foreign currency)			24,025
Cash at end of period (including foreign currency)		$	39,350
Supplemental Disclosure
Reinvestment of distributions		$	277,906
Interest paid on notes		$	(531,498	)

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Changes in Net Assets

Increase (Decrease) in Net Assets		Six Months Ended May 31, 2013 (Unaudited)				Year Ended November 30, 2012
Operations: Net investment income		$	5,808,506			$	12,940,826
Net realized gain (loss)			2,426,493				3,131,747
Change in net unrealized appreciation (depreciation)			747,469				12,317,836
Net increase (decrease) in net assets resulting from operations			8,982,468				28,390,409
Distributions to shareholders from: Net investment income			(6,217,449	)			(14,504,306	)
Fund share transactions: Reinvestment of distributions			277,906				710,050
Net increase (decrease) in net assets from Fund share transactions			277,906				710,050
Increase (decrease) in net assets			3,042,925				14,596,153
Net assets at beginning of period			162,522,958				147,926,805
Net assets at end of period (including distributions in excess of net investment income and undistributed net investment income of $364,486 and $44,457, respectively)		$	165,565,883			$	162,522,958
Other Information
Shares outstanding at beginning of period			16,305,776				16,233,177
Shares issued to shareholders in reinvestment of distributions			27,397				72,599
Shares outstanding at end of period			16,333,173				16,305,776

 

The accompanying notes are an integral part of the financial statements.

 

Financial Highlights

						Years Ended November 30,
		Six Months Ended 5/31/13 (Unaudited)				2012				2011				2010					2009	f			2008	f
Selected Per Share Data
Net asset value, beginning of period		$	9.97			$	9.11			$	9.70			$	8.89			$	6.06			$	10.85
Income (loss) from investment operations: Net investment income a			.36				.80				.90				1.00				.89				.98
Net realized and unrealized gain (loss)			.19				.95				(.36	)			.68				2.80				(4.75	)
Total from investment operations			.55				1.75				.54				1.68				3.69				(3.77	)
Less distributions from: Net investment income			(.38	)			(.89	)			(1.13	)			(.87	)			(.86	)			(1.02	)
NAV accretion resulting from repurchases of shares at a discount to NAV a			—				—				—				—				.00	***			—
Net asset value, end of period		$	10.14			$	9.97			$	9.11			$	9.70			$	8.89			$	6.06
Market price, end of period		$	10.05			$	10.10			$	9.96			$	10.02			$	8.18			$	5.04
Total Return
Based on net asset value (%) b			5.57	**			19.83				5.70				19.83				66.75				(37.13	) d,e
Based on market price (%) b			3.28	**			11.04				11.76				34.66				83.88				(41.98	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)			166				163				148				157				143				98
Ratio of expenses before fee reductions (including interest expense) (%)			1.73	*			1.75				1.61				1.79				1.93				2.54
Ratio of expenses after fee reductions (including interest expense) (%)			1.73	*			1.75				1.61				1.79				1.93				2.53
Ratio of expenses after fee reductions (excluding interest expense) (%)			1.07	*			1.09				1.11				1.20				1.27				1.11
Ratio of net investment income (%)			7.02	*			8.21				9.35				10.65				11.91				10.19
Portfolio turnover rate (%)			30	**			49				60				68				59				53
Total debt outstanding at end of period ($ thousands)			75,000				64,000				64,000				65,000				65,000				45,800
Asset coverage per $1,000 of debt c			3,200				3,539				3,311				3,412				3,207				3,137

 

a Based on average shares outstanding during the period. b Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market price reflects changes in market price. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period. c Asset coverage equals the total net assets plus borrowings of the Fund divided by the borrowings outstanding at period end. d Total return would have been lower had certain fees not been reduced. e Includes a reimbursement from the Advisor to reimburse the effect of a loss incurred in violation of investment restrictions during the period. Excluding this reimbursement, total return would have been 0.16% lower. f Per share data, including the proportionate impact to market price, have been restated to reflect the effects of a 1 for 2 reverse stock split effective prior to the opening of trading on the NYSE on August 10, 2009. * Annualized ** Not annualized *** Amount is less than $.005.

 

Notes to Financial Statements (Unaudited)

 

A. Organization and Significant Accounting Policies

 

DWS High Income Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as a closed-end, diversified management investment company organized as a Massachusetts business trust.

 

The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

 

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.

 

Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

Debt securities and loan participations and assignments are valued at prices supplied by independent pricing services approved by the Fund's Board. If the pricing services are unable to provide valuations, debt securities are valued at the most recent bid quotation or evaluated price and loan participations and assignments are valued at the mean of the most recent bid and ask quotations, as applicable, obtained from one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. These securities are generally categorized as Level 2.

 

Equity securities are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade and are categorized as Level 1 securities. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.

 

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

 

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.

 

Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.

 

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

 

Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.

 

New Accounting Pronouncement. In January 2013, Accounting Standard Update 2013-01 (ASU 2013-01), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, replaced Accounting Standards Update 2011-11 (ASU 2011-11), Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 was intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. The ASU 2013-01 limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. Management is currently evaluating the application of ASU 2013-01 and its impact, if any, on the Fund's financial statements.

 

Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.

 

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

 

Securities Lending. The Fund may lend securities to certain financial institutions. The Fund retains the benefits of owning the securities it has loaned and continues to receive interest and dividends generated by the securities and to participate in any changes in their market price. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best efforts to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments. The Fund had no securities on loan during the six months ended May 31, 2013.

 

Loan Participations and Assignments. Senior loans are portions of loans originated by banks and sold in pieces to investors. These U.S. dollar-denominated fixed and floating rate loans ("Loans") in which the Fund invests, are arranged between the borrower and one or more financial institutions ("Lenders"). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy-outs and refinancings, and Sovereign Loans, which are debt instruments between a foreign sovereign entity and one or more financial institutions. The Fund invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, or any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. Loans held by the Fund are generally in the form of Assignments, but the Fund may also invest in Participations. All Loan Participations and Assignments involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.

 

When-Issued/Delayed Delivery Securities. The Fund may purchase or sell securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the transaction is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. At the time the Fund enters into a purchase transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.

 

Certain risks may arise upon entering into when-issued or delayed delivery transactions from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.

 

Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders.

 

Under the Regulated Investment Company Modernization Act of 2010, net capital losses incurred post-enactment may be carried forward indefinitely, and their character is retained as short-term and/or long-term. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.

 

At November 30, 2012, the Fund had a net tax basis capital loss carryforward of approximately $45,301,000, including $40,905,000 of pre-enactment losses, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until November 30, 2013 ($515,000), November 30, 2014 ($3,515,000), November 30, 2015 ($1,318,000), November 30, 2016 ($18,292,000) and November 30, 2017 ($17,265,000), the respective expiration dates, whichever occurs first; and approximately $4,396,000 of post-enactment long-term losses, which may be applied against realized net taxable capital gains indefinitely.

 

The Fund has reviewed the tax positions for the open tax years as of November 30, 2012 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

 

Distribution of Income and Gains. Distributions from net investment income of the Fund are declared and distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary.

 

The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to forward currency contracts, swap contracts, certain securities sold at a loss and premium amortization on debt securities. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

 

The tax character of current year distributions will be determined at the end of the current fiscal year.

 

Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the foreign currency position and cash position held at the Fund's custodian bank at May 31, 2013.

 

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

 

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis net of foreign withholding taxes. Dividend income is recorded on the ex-dividend date, net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.

 

B. Derivative Instruments

 

Credit Default Swap Contracts. A credit default swap is a contract between a buyer and a seller of protection against pre-defined credit events for the reference entity. The Fund may enter into credit default swap contracts to gain exposure to an underlying issuer's credit quality characteristics without directly investing in that issuer or to hedge against the risk of a credit event on debt securities. As a seller in the credit default swap contract, the Fund is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a U.S. or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Fund. In return, the Fund receives from the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund keeps the stream of payments with no payment obligations. The Fund may also buy credit default swap contracts, in which case the Fund functions as the counterparty referenced above. This involves the risk that the contract may expire worthless. It also involves counterparty risk that the seller may fail to satisfy its payment obligations to the Fund with the occurrence of a credit event. When the Fund sells a credit default swap contract it will cover its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the reference entities for all outstanding credit default swap contracts sold by the Fund. For the six months ended May 31, 2013, the Fund entered into credit default swap contracts to gain exposure to the underlying issuer's credit quality characteristics.

 

The value of the credit default swap is adjusted daily and the change in value, if any, is recorded daily as unrealized appreciation or depreciation in the Statement of Assets and Liabilities. An upfront payment, if any, made by the Fund is recorded as an asset in the Statement of Assets and Liabilities. An upfront payment, if any, received by the Fund is recorded as a liability in the Statement of Assets and Liabilities. Under the terms of the credit default swap contracts, the Fund receives or makes quarterly payments based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss in the Statement of Operations. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses in the Statement of Operations.

 

A summary of the open credit default swap contracts as of May 31, 2013 is included in a table following the Fund's Investment Portfolio. For the six months ended May 31, 2013, the investment in credit default swap contracts sold had a total notional value generally indicative of a range from $2,930,000 to $6,955,000.

 

Forward Foreign Currency Exchange Contracts. The Fund is subject to foreign exchange rate risk in its securities denominated in foreign currencies. Changes in exchange rates between foreign currencies and the U.S. dollar may affect the U.S. dollar value of foreign securities or the income or gains received on these securities. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. For the six months ended May 31, 2013, the Fund entered into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and to facilitate transactions in foreign currency denominated securities.

 

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.

 

A summary of the open forward currency contracts as of May 31, 2013 is included in a table following the the Fund's Investment Portfolio. For the six months ended May 31, 2013, the investment in forward currency contracts short vs. U.S. dollars had a total contract value generally indicative of a range from approximately $1,844,000 to $3,162,000, and the investment in forward currency contracts long vs. U.S. dollars had a total contract value generally indicative of a range from $0 to approximately $617,000.

 

The following tables summarize the value of the Fund's derivative instruments held as of May 31, 2013 and the related location in the accompanying Statement of Assets and Liabilities presented by primary underlying risk exposure:

Asset Derivative		Swap Contracts
Credit Contracts (a)		$	452,084

 

The above derivative is located in the following Statement of Assets and Liabilities account:

 

(a) Unrealized appreciation on swap contracts

 

Liability Derivative		Forward Contracts
Foreign Exchange Contracts (a)		$	(3,884	)

 

The above derivative is located in the following Statement of Assets and Liabilities account:

 

(a) Unrealized depreciation on forward foreign currency exchange contracts

 

Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended May 31, 2013 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:

Realized Gain (Loss)		Forward Contracts				Swap Contracts				Total
Foreign Exchange Contracts (a)		$	(46,036	)		$	—			$	(46,036	)
Credit Contracts (b)			—				100,126				100,126
		$	(46,036	)		$	100,126			$	54,090

 

Each of the above derivatives is located in the following Statement of Operations accounts:

 

(a) Net realized gain (loss) from foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)

 

(b) Net realized gain (loss) from swap contracts

 

Change in Net Unrealized Appreciation (Depreciation)		Forward Contracts				Swap Contracts				Total
Foreign Exchange Contracts (a)		$	61,014			$	—			$	61,014
Credit Contracts (b)			—				206,224				206,224
		$	61,014			$	206,224			$	267,238

 

Each of the above derivatives is located in the following Statement of Operations accounts:

 

(a) Change in net unrealized appreciation (depreciation) on foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)

 

(b) Change in net unrealized appreciation (depreciation) on swap contracts

 

C. Purchases and Sales of Securities

 

During the six months ended May 31, 2013, purchases and sales of investment securities (excluding short-term instruments) aggregated $78,691,136 and $68,888,585, respectively.

 

D. Related Parties

 

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Investment Management Agreement. The Fund pays a monthly management fee based on the Fund's average weekly net assets, computed and accrued daily and payable monthly at the following annual rates:

First $250 million of the Fund's average weekly net assets			.85	%
Over $250 million of such assets			.75	%

 

Accordingly, for the six months ended May 31, 2013, the fee pursuant to the Investment Management Agreement was equivalent to an annualized effective rate of 0.85% of the Fund's average weekly net assets.

 

Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended May 31, 2013, the amount charged to the Fund by DISC aggregated $10,495, of which $5,371 is unpaid.

 

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended May 31, 2013, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $8,190, all of which is unpaid.

 

Trustees' Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

 

Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.

 

E. Investing in High-Yield Securities

 

The Fund's performance could be hurt if a security declines in credit quality or goes into default, or if an issuer does not make timely payments of interest or principal. Because the issuers of high-yield debt securities or junk bonds (debt securities rated below the fourth-highest category) may be in uncertain financial health, the risk of loss from default by the issuer is significantly greater. Prices and yields of high-yield securities will fluctuate over time and, during periods of economic uncertainty, volatility of high-yield securities may adversely affect a fund's net asset value. Because the Fund may invest in securities not paying current interest or in securities already in default, these risks may be more pronounced.

 

F. Borrowings

 

During the period covered by the report, the Fund was party to a secured revolving line of credit with a commercial bank (the "Lender") in an amount up to $75,000,000 (the "Credit Facility"). The Credit Facility has an initial scheduled maturity date of June 21, 2013 (the "Initial Scheduled Maturity Date"). Unless the Credit Facility is terminated by either party or not extended by the Lender in accordance with its terms, (i) the Initial Scheduled Maturity Date automatically extends by six months on the date that is six months after June 21, 2012; and (ii) each subsequent Scheduled Maturity Date (as defined in the Credit Facility) automatically extends by six months on each date occurring every six months thereafter. Effective June 21, 2013, the Credit Facility was amended to increase the aggregate facility size to $80,000,000 and to modify the renewal terms as amended. The Credit Facility will automatically be renewed for a six-month period on each day after June 21, 2013 unless it is terminated by either party or not extended by the Lender in accordance with its terms.

 

Loans under the Credit Facility, at the option of the Fund and subject to certain conditions, typically bear interest with reference to LIBOR (a "LIBOR Loan") or, less frequently, with reference to a base rate (a "Base Rate Loan"). Each LIBOR Loan shall bear interest at a rate per annum equal to the applicable LIBOR rate (as defined in the Credit Facility) plus 1.25% (0.85% effective June 21, 2013). As a general matter, each Base Rate Loan shall bear interest at a rate per annum equal to the greatest of certain specified rates as set forth in the Credit Facility. At May 31, 2013, under the Credit Facility, the outstanding loans balance was $75,000,000. The borrowings were valued at cost, which approximates fair value.

 

Under the Credit Facility, the weighted average outstanding daily balance of all loans during the six months ended May 31, 2013 was approximately $70,093,000, with a weighted average annual borrowing cost of 1.58%. In addition, a commitment fee was charged to the Fund on the unused portion of the credit lines and is included with "interest expense" in the Statement of Operations.

 

Leverage involves risks and special considerations for the Fund's stockholders, including the likelihood of greater volatility of net asset value and market price of, and dividends on, the Fund's shares than a comparable portfolio without leverage; the risk that fluctuations in interest rates on such borrowings will reduce the return to stockholders; and the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the Fund's shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the Fund's shares.

 

Changes in the value of the Fund's portfolio will be borne by the stockholders. If there is a net decrease (or increase) in the value of the Fund's investment portfolio, leverage will decrease (or increase) the net asset value per share to a greater extent than if leverage were not used. It is also possible that the Fund will be required to sell assets at a time when it would otherwise not do so, possibly at a loss, in order to meet payment obligations on borrowings to comply with asset coverage or other restrictions imposed by the Lender. The Fund is subject to certain restrictions on its investments, including asset coverage and portfolio composition requirements, under the terms of the Credit Facility. Such restrictions and covenants contained in the Credit Facility impose asset coverage and portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act.

 

There is no assurance that the Fund's leveraging strategy will be successful.

 

G. Share Repurchases

 

The Board has authorized the Fund to effect periodic repurchases of its outstanding shares in the open market from time to time when the Fund's shares trade at a discount to their net asset value. During the six months ended May 31, 2013 and the year ended November 30, 2012, the Fund did not repurchase shares in the open market.

 

Dividend Reinvestment Plan

 

A summary of the Fund's Dividend Reinvestment Plan (the "Plan") is set forth below. Shareholders may obtain a copy of the entire Plan by visiting the Fund's Web site at www.dws-investments.com or by writing or calling DWS Investment Service Company ("DISC") at:

 

P.O. Box 219066

 

Kansas City, Missouri 64121-9066

 

(800) 294-4366

 

If you wish to participate in the Plan and your shares are held in your own name, simply contact DISC for the appropriate form. If your shares are held in the name of a broker or other nominee, you should contact the broker or nominee in whose name your shares are held to determine whether and how you may participate in the Plan. The Fund's transfer agent and dividend disbursing agent (the "Transfer Agent") will establish a Dividend Investment Account (the "Account") for each shareholder participating in the Plan. The Transfer Agent will credit to the Account of each participant any cash dividends and capital gains distributions (collectively, "Distributions") paid on shares of the Fund (the "Shares"). Shares in a participant's Account are transferable upon proper written instructions to the Transfer Agent. Upon request to the Transfer Agent, a certificate for any or all full Shares in a participant's Account will be sent to the participant.

 

If, on the record date for a Distribution (the "Record Date"), Shares are trading at a discount from net asset value per Share, funds credited to a participant's Account will be used to purchase Shares (the "Purchase"). The Plan Agent (currently Computershare Inc.) will attempt, commencing five days prior to the Payment Date and ending at the close of business on the Payment Date ("Payment Date" as used herein shall mean the last business day of the month in which such Record Date occurs), to acquire Shares in the open market. If and to the extent that the Plan Agent is unable to acquire sufficient Shares to satisfy the Distribution by the close of business on the Payment Date, the Fund will issue to the Plan Agent, Shares valued at net asset value per Share in the aggregate amount of the remaining value of the Distribution. If, on the Record Date, Shares are trading at a premium over net asset value per Share, the Fund will issue on the Payment Date Shares valued at net asset value per Share on the Record Date to the Transfer Agent in the aggregate amount of the funds credited to the participants' Accounts. The Fund will increase the price at which Shares may be issued under the Plan to 95% of the fair market value of the shares on the Record Date if the net asset value per Share of the Shares on the Record Date is less than 95% of the fair market value of the Shares on the Record Date.

 

The reinvestment of Distributions does not relieve the participant of any tax that many be payable on the Distributions. The Transfer Agent will report to each participant the taxable amount of Distributions credited to his or her account. Participants will be treated for federal income tax purposes as receiving the amount of the Distributions made by the Fund, which amount generally will be either equal to the amount of the cash distribution the shareholder would have received if the shareholder had elected to receive cash or, for shares issued by the Fund, the fair market value of the shares issued to the shareholder.

 

The cost of Shares acquired for each participant's Account in connection with a Purchase shall be determined by the average cost per Share, including brokerage commissions, of the Shares acquired in connection with that Purchase. There will be no brokerage charges with respect to Shares issued directly by the Fund as a result of Distributions. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to open market purchases. Brokerage charges for purchasing small amounts of Shares for individual Accounts through the Plan probably will be less than the usual brokerage charges for such transactions, as the Plan Agent will be purchasing Shares for all participants in blocks and prorating the lower commission thus attainable.

 

A participant may from time to time make voluntary cash contributions to his Account in a minimum amount of $100 (no more than $500 may be contributed per month). Participants making voluntary cash investments will be charged a $0.75 service fee for each such investment and will be responsible for their pro rata share of brokerage commissions. Please contact DISC for more information on voluntary cash contributions.

 

The Fund reserves the right to amend the Plan, including provisions with respect to any Distribution paid, subsequent to notice thereof sent to participants in the Plan at least ninety days before the record date for such Distribution, except when such amendment is necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, in which case such amendment shall be effective as soon as practicable. The Plan may be terminated by the Fund.

 

Shareholders may withdraw from the Plan at any time by giving the Transfer Agent a written notice. A notice of withdrawal will be effective for the next Distribution following receipt of the notice by the Transfer Agent provided the notice is received by the Transfer Agent at least ten days prior to the Record Date for the Distribution. When a participant withdraws from the Plan, or when the Plan is terminated by the Fund, the participant will receive a certificate for full Shares in the Account, plus a check for any fractional Shares based on market price; or, if a participant so desires, the Transfer Agent will notify the Plan Agent to sell his Shares in the Plan and send the proceeds to the participant, less brokerage commissions and a $2.50 service fee.

 

Shareholders will receive tax information annually for personal records and to assist in preparation of their federal income tax returns.

 

Additional Information

Automated Information Lines		DWS Investments Closed-End Fund Info Line (800) 349-4281
Web Site		www.dws-investments.com Obtain fact sheets, financial reports, press releases and webcasts when available.
Written Correspondence		Deutsche Investment Management Americas Inc. 345 Park Avenue New York, NY 10154
Legal Counsel		Vedder Price P.C. 222 North LaSalle Street Chicago, IL 60601
Dividend Reinvestment Plan Agent		Computershare Inc. P.O. Box 43078 Providence, RI 02940-3078
Shareholder Service Agent and Transfer Agent		DWS Investments Service Company P.O. Box 219066 Kansas City, MO 64121-9066 (800) 294-4366
Custodian		State Street Bank and Trust Company Lafayette Corporate Center 2 Avenue De Lafayette Boston, MA 02111
Independent Registered Public Accounting Firm		Ernst & Young LLP 200 Clarendon Street Boston, MA 02116
Proxy Voting		The fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 728-3337.

 

Portfolio Holdings		Following the fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. This form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. The fund's portfolio holdings as of the month-end are posted on www.dws-investments.com on or after the last day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
Investment Management		Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset & Wealth Management, is the investment advisor for the fund. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to both institutional and retail clients. DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution engaged in a wide variety of financial services, including investment management, retail, private and commercial banking, investment banking and insurance. DWS Investments is the retail brand name in the U.S. for the asset management activities of Deutsche Bank AG and DIMA. As such, DWS is committed to delivering the investing expertise, insight and resources of this global investment platform to American investors.
NYSE Symbol		KHI
CUSIP Number		23337C 208

 

Privacy Statement

FACTS		What Does DWS Investments Do With Your Personal Information?
Why?		Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do.
What?		The types of personal information we collect and share can include: • Social Security number • Account balances • Purchase and transaction history • Bank account information • Contact information such as mailing address, e-mail address and telephone number
How?		All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information, the reasons DWS Investments chooses to share and whether you can limit this sharing.

 

Reasons we can share your personal information	Does DWS Investments share?	Can you limit this sharing?
For our everyday business purposes — such as to process your transactions, maintain your account(s), respond to court orders or legal investigations	Yes	No
For our marketing purposes — to offer our products and services to you	Yes	No
For joint marketing with other financial companies	No	We do not share
For our affiliates' everyday business purposes — information about your transactions and experiences	No	We do not share
For our affiliates' everyday business purposes — information about your creditworthiness	No	We do not share
For non-affiliates to market to you	No	We do not share

 

Questions?

Call (800) 728-3337 or e-mail us at dws-investments.info@dws.com

 

Who we are
Who is providing this notice?		DWS Investments Distributors, Inc.; Deutsche Investment Management Americas Inc.; DeAM Investor Services, Inc.; DWS Trust Company; the DWS Funds
What we do
How does DWS Investments protect my personal information?		To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
How does DWS Investments collect my personal information?		We collect your personal information, for example. When you: • open an account • give us your contact information • provide bank account information for ACH or wire transactions • tell us where to send money • seek advice about your investments
Why can't I limit all sharing?		Federal law gives you the right to limit only • sharing for affiliates' everyday business purposes — information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing.
Definitions
Affiliates		Companies related by common ownership or control. They can be financial or non-financial companies. Our affiliates include financial companies with the DWS or Deutsche Bank ("DB") name, such as DB AG Frankfurt and DB Alex Brown.
Non-affiliates		Companies not related by common ownership or control. They can be financial and non-financial companies. Non-affiliates we share with include account service providers, service quality monitoring services, mailing service providers and verification services to help in the fight against money laundering and fraud.
Joint marketing		A formal agreement between non-affiliated financial companies that together market financial products or services to you. DWS Investments does not jointly market.

 

Rev. 09/2012

 

Notes

 

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