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: 2020 Calamos Court, Naperville,
Illinois 60563-2787
NAME AND ADDRESS OF AGENT FOR SERVICE: James S. Hamman, Jr., Secretary,
Calamos Advisors LLC
2020 Calamos Court
Naperville, Illinois
60563-2787
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (630) 245-7200
DATE OF FISCAL YEAR END: October 31, 2006
DATE OF REPORTING PERIOD: November 1, 2005 through October 31, 2006
ITEM 1. REPORTS TO SHAREHOLDERS
Include a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1).
(INSERT FINANCIAL STATEMENTS HERE)
(GRAPHIC)
CALAMOS(R) STRATEGIC TOTAL RETURN FUND (CSQ)
ANNUAL REPORT OCTOBER 31, 2006
(CALAMOS INVESTMENTS(R) LOGO)
Managing Your Calamos Funds Investments
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confident about your Calamos investment choice.
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24-HOUR AUTOMATED SHAREHOLDER ASSISTANCE
800.823.7386 Through a single toll-free number, Calamos 24-hour shareholder
assistance is fast and easy.
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- Review recent transactions
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PERSONAL ASSISTANCE
800.582.6959 Dial this toll-free number to speak with a knowledgeable Client
Services Representative who can help answer questions or address
issues concerning your Calamos Fund.
YOUR FINANCIAL ADVISOR
We encourage you to talk to your financial advisor to determine
how CALAMOS INVESTMENTS can benefit your investment portfolio
based on your financial goals, risk tolerance, time horizon and
income needs.
Table of Contents
Letter to Shareholders .................................................... 1
Economic and Market Review ................................................ 3
Investment Team Interview ................................................. 4
Schedule of Investments ................................................... 9
Statement of Assets and Liabilities ....................................... 17
Statement of Operations ................................................... 18
Statements of Changes In Net Assets ....................................... 19
Notes to Financial Statements ............................................. 20
Financial Highlights ...................................................... 27
Report of Independent Registered Public Accounting Firm ................... 28
Tax Information ........................................................... 29
Trustee Approval of Management Agreement .................................. 30
Trustees & Officers ....................................................... 33
Other Information ......................................................... 35
About Closed-End Funds .................................................... 37
Leverage .................................................................. 38
Level Rate Distribution Policy and Automatic Dividend
Reinvestment Plan ...................................................... 39
The Calamos Investments Advantage ......................................... 40
Calamos Closed-End Funds .................................................. 41
Letter to Shareholders
(PHOTO OF JOHN P. CALAMOS, SR.)
Dear Fellow Shareholders:
We are pleased to submit to you our annual report for the year ended October 31,
2006. As always, we value and look forward to the opportunity to communicate
with you.
At CALAMOS INVESTMENTS, we view our communication with you as vitally important,
so we encourage you to review this report carefully. Inside, you will find
investment team commentary, share price and NAV performance, fund sector
allocation, fund holdings and financial highlights regarding your Calamos
closed-end fund. We hope that you find this report both informative and relevant
to your investment needs, and we welcome your feedback.
For information about your fund throughout the year, we invite you to visit our
website at www.calamos.com. There, you can find the most up-to-date fund
information. To help you interpret the big picture, we also post monthly manager
commentaries, which provide our latest economic and market outlook.
It has been an exciting year for the CALAMOS INVESTMENTS closed-end funds. All
four funds delivered strong performance while continuing to provide a stable
monthly distribution to shareholders. In fact, strong performance by the
Strategic Total Return Fund (the "Fund") portfolio allowed us to raise its
monthly distribution during the period by 11%. The Fund is designed to offer
investors a defensive approach to equity participation. By combining equities,
convertible bonds and higher-yielding corporate securities, the Fund has the
potential to generate capital gains as well as income, taking advantage of its
flexibility to manage risk and reward over the full course of a market cycle. In
effect, the Fund seeks to participate in long-term upward trends of the equity
markets but with the added benefit--and potential downside protection--of a
stable monthly distribution. For the 12-month period ended October 31, 2006, the
Fund delivered an NAV return of 18.03% and a market price return of 17.99%.
At Calamos, one of our key tenets is to maximize risk-adjusted return. One way
to improve total return is to reduce expenses, and one way you can help us
reduce expenses is to sign up for e-delivery by visiting our website and
clicking on the "Go Paperless!" link. By doing so, you will be able to view
important shareholder communications online--including fund prospectuses,
shareholder reports and proxy statements--long before the printed publications
would have arrived by traditional mail.
We are firm believers in remaining positioned for the long term and have long
recognized the impossibility of predicting the exact timing of market shifts.
Accordingly, we continue to position our portfolios ahead of events and market
turns rather than trying to chase them. Based on our view that the economy is in
a period of mid-cycle slowdown, which we explain at greater length in the
"Economic and Market Review" that follows, we are emphasizing investments in
companies with quality characteristics--such as low debt, high return on
invested capital, capable management and well-planned business strategies.
Strategic Total Return Fund
Letter to Shareholders ANNUAL REPORT 1
Letter to Shareholders
If you have any questions regarding your investment, you can contact your
financial advisor or contact a Calamos Client Service Representative at
800.582.6959, Monday through Friday, 8:00 a.m. to 6:00 p.m. (Central time).
As always, we thank you for your continued trust and the opportunity to help you
achieve your financial goals.
Sincerely,
/s/ JOHN P. CALAMOS, SR.
-----------------------------------
Chairman, CEO and Co-CIO
Calamos Advisors LLC
This report is presented for informational purposes and should not be considered
investment advice.
Strategic Total Return Fund
2 ANNUAL REPORT Letter to Shareholders
Economic and Market Review
FOR THE LATEST MARKET AND ECONOMIC OUTLOOK, PLEASE VISIT OUR
WEBSITE AT WWW.CALAMOS.COM AND SELECT THE "INDIVIDUAL INVESTORS" BUTTON.
Mid-cycle slowdowns are typically characterized by a number of factors, most of
which are present today:
- An end to Fed rate hikes
- Moderation of energy prices
- Slowing in the housing market
- Increasing market volatility
- Moderation of consumer spending
- Declining commodity prices
Historically, mid-cycle slowdowns have been accompanied by a shift in market
leadership from cyclical investments to growth-oriented investments. Across the
Calamos Funds, we are favoring companies we believe have good prospects for
sustainable growth and reduced sensitivity to the economy. Our investment
discipline and outlook have led us to a number of traditional large-cap growth
companies trading at prices we believe are very attractive relative to the broad
market and historical values.
This report is presented for informational purposes and should not be considered
investment advice.
During the 12-month period ended October 31, 2006, market participants found
themselves distracted by crosscurrents of economic data. In the United States,
declines in gross domestic product growth, sliding home prices and
rising--though modest--inflation troubled investors. Yet, there was better news
as well. The Fed paused its rate tightening in August, improving sentiment
somewhat. And despite OPEC's decision to reduce oil supplies, gasoline prices
dropped. Furthermore, corporate earnings and balance sheets remained strong.
Broadly, stocks advanced in the U.S. market, with the S&P 500 Index1 rising
16.34% for the 12-month period. This solid return was achieved at a pace that
was far from consistent. After a slow summer, a substantial portion of the S&P
500 Index's performance was earned during the final three months of the period.
And, not all stocks were equally rewarded, as growth-oriented stocks trailed
value and cyclical issues.
International stocks performed with even greater strength and the MSCI EAFE(R)
Index(2) gained 28.04% for the 12-month period. Meanwhile, convertible
securities and high-yield issues participated in the rise of the equity markets.
The Value Line Convertible Index(3) returned 10.43% for the 12-month period and
the CS High Yield Index(4) returned 10.29% for the 12-month period.
We believe the U.S. economy--while remaining fundamentally strong--is in the
midst of a mid-cycle slowdown. The current environment draws parallels to other
mid-cycle slowdowns, including those of the mid-1960s, mid-1980s, and mid-1990s.
In each of these periods, the Fed initiated an interest rate tightening campaign
that caused a slowdown, first in the investment markets and then in the economy
as reflected by waning gross domestic product (GDP) growth. Although no one can
predict where a change in the economy will occur, each of these past economic
slowdowns was followed by a solid upswing in the markets driven by securities in
traditional, stable-growth companies. Accordingly, we believe that the current
mid-cycle slowdown can bring considerable opportunity for long-term investors
such as ourselves.
Although we do believe the U.S. economy is in the middle of a slowdown, we do
not believe a recession is imminent. With three consecutive pauses, we believe
the Fed is near or at the end of its tightening phase, and this could serve as a
catalyst for stronger growth going forward. Even though gross domestic product
growth has declined from the levels achieved during the economic expansion, we
believe growth remains respectable and is consistent with what we expect in a
period of mid-cycle slowdown. Moreover, our constructive outlook is supported by
the current strength in corporate balance sheets and earnings. And, with
corporations having cash to spend, we believe that corporate spending will
provide the fuel for economic growth. While gasoline prices remain high, they
have dropped considerably; this decline, along with increases to wages, could
spur increased consumer spending, which we believe will remain helpful for the
economy.
As always, we are firm believers in remaining positioned for the long term and
we have long recognized the impossibility of predicting the exact timing of
market shifts. And, as always, we continue to position our portfolios ahead of
events and market turns rather than trying to chase them. Based on our view that
the economy is in a period of mid-cycle slowdown, we're emphasizing investments
in companies with higher-quality characteristics such as low debt, high return
on invested capital, capable management and well-planned business strategies.
Strategic Total Return Fund
Economic and Market Review ANNUAL REPORT 3
Investment Team Interview
In the following interview, the Calamos Investment Team, led by Co-Chief
Investment Officers, John P. Calamos, Sr. and Nick P. Calamos, reviews the
Fund's market environment, performance and positioning during the 12-month
period ended October 31, 2006.
AVERAGE ANNUAL TOTAL RETURN*
COMMON SHARES - INCEPTION 03/26/04
SINCE
1 YEAR INCEPTION **
------ ------------
On Share Price 17.99% 6.91%
On NAV 18.03 11.03
* Total return measures net investment income and capital gain or loss from
portfolio investments, assuming reinvestment of income and capital gains
distributions.
** Annualized since inception.
DISTRIBUTION HISTORY
(LATEST 12 MONTHS)
DATE PAID PER SHARE
--------- ---------
October $0.0975
September 0.0975
August 0.0975
July 0.0975
June 0.0975
May 0.0975
April 0.0975
March 0.0975
February 0.0975
January 0.0975
December 0.0875
November 0.0875
Monthly distributions are from net investment income, short-term capital gains
and/or long-term capital gains. For more details please go to the Tax Center
located at www.calamos.com.
Q. HOW DID THE FUND PERFORM OVER THE REPORTING PERIOD?
A. As you know, Calamos Strategic Total Return Fund (CSQ) takes a defensive
approach to equity participation. By combining equities, convertible securities
and high-yield corporate bonds, the Fund has the potential to generate capital
gains as well as income, using its flexibility to manage risk and reward over
the full course of a market cycle. Because convertible and high-yield securities
tend to follow the movements of their companies' equity counterparts, the Fund
can be viewed as having substantial equity sensitivity, yet with significant
income potential. In effect, the Fund seeks to participate in the long-term
upward trend of the equity markets, but with the added benefit--and potential
downside protection--of a level monthly distribution.
Based on performance results, the Fund's investment strategy proved its
effectiveness these past 12 months. The Fund finished strong for the annual
period ended October 31, 2006. Its underlying portfolio (as represented by net
asset value or NAV) returned 18.03% during the period, in line with the Fund's
market price return of 17.99%. This compares with a return of 16.34% for the
all-equity S&P 500 Index. The Fund's robust performance allowed for an increase
in its monthly distribution during the period by 11% to $0.0975 per share. This
equated to an annualized distribution rate of 7.85% based on the Fund's market
price as of October 31, 2006.
SINCE INCEPTION NAV AND MARKET PRICE HISTORY
(PERFORMANCE GRAPH)
STRATEGIC TOTAL RETURN FUND
-----------------------------
Date NAV Market
---------- ------ -------
3/26/2004 14.325 15.000
3/29/2004 14.310 15.040
3/30/2004 14.310 15.040
3/31/2004 14.310 15.050
4/1/2004 14.340 15.200
4/2/2004 14.340 15.150
4/5/2004 14.390 15.110
4/6/2004 14.380 15.010
4/7/2004 14.340 15.100
4/8/2004 14.300 15.070
4/12/2004 14.330 15.050
4/13/2004 14.210 15.000
4/14/2004 14.170 15.000
4/15/2004 14.200 15.000
4/16/2004 14.250 15.000
4/19/2004 14.250 15.010
4/20/2004 14.150 15.000
4/21/2004 14.160 14.800
4/22/2004 14.260 14.800
4/23/2004 14.230 14.800
4/26/2004 14.230 14.760
4/27/2004 14.260 14.750
4/28/2004 14.150 14.750
4/29/2004 14.080 14.700
4/30/2004 14.050 14.550
5/3/2004 14.110 14.550
5/4/2004 14.130 13.980
5/5/2004 14.140 14.000
5/6/2004 14.040 13.450
5/7/2004 13.800 13.530
5/10/2004 13.590 12.600
5/11/2004 13.660 13.200
5/12/2004 13.670 13.500
5/13/2004 13.620 13.490
5/14/2004 13.620 13.650
5/17/2004 13.500 13.100
5/18/2004 13.570 13.260
5/19/2004 13.570 13.140
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
5/20/2004 13.590 13.060
5/21/2004 13.690 13.180
5/24/2004 13.720 12.930
5/25/2004 13.860 13.200
5/26/2004 13.920 13.470
5/27/2004 14.010 13.550
5/28/2004 13.990 13.790
6/1/2004 13.990 13.980
6/2/2004 14.000 13.820
6/3/2004 13.900 13.950
6/4/2004 13.940 14.030
6/7/2004 14.140 13.970
6/8/2004 14.170 14.000
6/9/2004 14.010 13.670
6/10/2004 14.070 13.550
6/14/2004 13.910 13.400
6/15/2004 14.030 13.400
6/16/2004 14.030 13.400
6/17/2004 14.040 13.330
6/18/2004 14.070 13.350
6/21/2004 14.040 13.290
6/22/2004 14.070 13.150
6/23/2004 14.190 13.000
6/24/2004 14.170 13.300
6/25/2004 14.090 13.300
6/28/2004 14.080 13.240
6/29/2004 14.080 13.190
6/30/2004 14.150 13.220
7/1/2004 14.020 13.260
7/2/2004 14.040 13.190
7/6/2004 13.950 13.180
7/7/2004 13.990 13.200
7/8/2004 13.900 13.140
7/9/2004 13.950 13.060
7/12/2004 13.980 13.140
7/13/2004 13.920 13.050
7/14/2004 13.900 12.990
7/15/2004 13.830 12.860
7/16/2004 13.840 12.930
7/19/2004 13.840 12.830
7/20/2004 13.870 12.890
7/21/2004 13.750 12.950
7/22/2004 13.770 12.990
7/23/2004 13.710 12.830
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
7/26/2004 13.690 12.680
7/27/2004 13.780 12.590
7/28/2004 13.820 12.690
7/29/2004 13.830 13.020
7/30/2004 13.830 13.170
8/2/2004 13.910 13.100
8/3/2004 13.860 13.350
8/4/2004 13.860 13.350
8/5/2004 13.710 13.270
8/6/2004 13.580 13.070
8/9/2004 13.570 12.990
8/10/2004 13.710 13.170
8/11/2004 13.700 13.120
8/12/2004 13.560 12.890
8/13/2004 13.580 12.790
8/16/2004 13.710 12.980
8/17/2004 13.740 12.950
8/18/2004 13.870 13.350
8/19/2004 13.830 13.270
8/20/2004 13.920 13.260
8/23/2004 13.900 13.020
8/24/2004 13.910 13.040
8/25/2004 13.990 13.180
8/26/2004 13.990 13.290
8/27/2004 14.040 13.420
8/30/2004 13.980 13.520
8/31/2004 14.070 13.580
9/1/2004 14.070 13.760
9/2/2004 14.210 13.790
9/3/2004 14.210 13.850
9/7/2004 14.310 13.930
9/8/2004 14.310 13.750
9/9/2004 14.290 13.920
9/10/2004 14.350 13.930
9/13/2004 14.330 13.770
9/14/2004 14.360 13.740
9/15/2004 14.250 13.550
9/16/2004 14.320 13.580
9/17/2004 14.370 13.760
9/20/2004 14.270 13.550
9/21/2004 14.350 13.400
9/22/2004 14.180 13.330
9/23/2004 14.120 13.270
9/24/2004 14.120 13.270
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
9/27/2004 14.060 13.330
9/28/2004 14.140 13.460
9/29/2004 14.180 13.580
9/30/2004 14.080 13.730
10/1/2004 14.260 13.760
10/4/2004 14.330 13.750
10/5/2004 14.320 13.790
10/6/2004 14.380 13.770
10/7/2004 14.270 13.890
10/8/2004 14.220 13.800
10/11/2004 14.240 13.700
10/12/2004 14.210 13.690
10/13/2004 14.040 13.590
10/14/2004 13.920 13.350
10/15/2004 14.020 13.460
10/18/2004 14.080 13.500
10/19/2004 13.980 13.430
10/20/2004 13.960 13.360
10/21/2004 13.980 13.400
10/22/2004 13.890 13.240
10/25/2004 13.850 13.130
10/26/2004 13.980 13.090
10/27/2004 14.150 13.310
10/28/2004 14.210 13.240
10/29/2004 14.230 13.340
11/1/2004 14.240 13.580
11/2/2004 14.240 13.700
11/3/2004 14.400 13.650
11/4/2004 14.620 13.850
11/5/2004 14.670 13.630
11/8/2004 14.650 13.550
11/9/2004 14.670 13.480
11/10/2004 14.620 13.390
11/11/2004 14.730 13.560
11/12/2004 14.890 13.730
11/15/2004 14.870 13.700
11/16/2004 14.810 13.570
11/17/2004 14.880 13.620
11/18/2004 14.890 13.620
11/19/2004 14.780 13.560
11/22/2004 14.830 13.450
11/23/2004 14.830 13.460
11/24/2004 14.890 13.540
11/26/2004 14.940 13.600
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
11/29/2004 14.910 13.500
11/30/2004 14.860 13.500
12/1/2004 15.020 13.570
12/2/2004 15.020 13.650
12/3/2004 15.040 13.840
12/6/2004 15.020 13.720
12/7/2004 14.910 13.580
12/8/2004 14.960 13.610
12/9/2004 14.930 13.420
12/10/2004 14.940 13.430
12/13/2004 15.060 13.450
12/14/2004 15.130 13.410
12/15/2004 15.190 13.440
12/16/2004 15.200 13.490
12/17/2004 15.130 13.480
12/20/2004 15.130 13.490
12/21/2004 15.230 13.570
12/22/2004 15.320 13.530
12/23/2004 15.340 13.550
12/27/2004 15.290 13.780
12/28/2004 15.310 13.870
12/29/2004 15.330 13.920
12/30/2004 15.340 14.040
12/31/2004 15.320 14.010
1/3/2005 15.210 14.030
1/4/2005 15.070 14.140
1/5/2005 14.960 14.050
1/6/2005 14.970 14.100
1/7/2005 14.940 14.160
1/10/2005 14.950 14.100
1/11/2005 14.860 14.060
1/12/2005 14.910 13.990
1/13/2005 14.810 13.870
1/14/2005 14.870 13.900
1/15/1900 14.980 14.000
1/19/2005 14.890 13.920
1/20/2005 14.760 13.790
1/21/2005 14.690 13.690
1/24/2005 14.640 13.720
1/25/2005 14.680 13.760
1/26/2005 14.780 13.810
1/27/2005 14.780 13.880
1/28/2005 14.740 13.900
1/31/2005 14.840 14.110
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
2/1/2005 14.940 14.060
2/2/2005 15.010 13.990
2/3/2005 15.010 13.940
2/4/2005 15.130 14.080
2/7/2005 15.130 14.080
2/8/2005 15.150 14.030
2/9/2005 15.040 14.070
2/10/2005 15.000 14.090
2/11/2005 15.120 14.240
2/14/2005 15.170 14.140
2/15/2005 15.210 14.130
2/16/2005 15.250 14.050
2/17/2005 15.160 13.920
2/18/2005 15.230 13.880
2/22/2005 15.080 13.710
2/23/2005 15.150 13.780
2/24/2005 15.270 13.930
2/25/2005 15.390 14.070
2/28/2005 15.340 14.040
3/1/2005 15.400 14.150
3/2/2005 15.380 14.140
3/3/2005 15.360 14.070
3/4/2005 15.480 14.070
3/7/2005 15.530 14.050
3/8/2005 15.480 14.030
3/9/2005 15.320 13.850
3/10/2005 15.250 13.860
3/11/2005 15.200 13.790
3/14/2005 15.250 13.820
3/15/2005 15.140 13.680
3/16/2005 14.980 13.380
3/17/2005 14.970 13.410
3/18/2005 14.950 13.290
3/21/2005 14.830 13.100
3/22/2005 14.690 12.900
3/23/2005 14.640 12.810
3/24/2005 14.660 13.000
3/28/2005 14.670 12.650
3/29/2005 14.560 13.000
3/30/2005 14.720 13.370
3/31/2005 14.740 13.310
4/1/2005 14.670 13.210
4/4/2005 14.660 13.120
4/5/2005 14.720 13.350
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
4/6/2005 14.790 13.590
4/7/2005 14.880 13.630
4/8/2005 14.790 13.610
4/11/2005 14.730 13.440
4/12/2005 14.760 13.650
4/13/2005 14.570 13.290
4/14/2005 14.420 13.240
4/15/2005 14.190 13.230
4/18/2005 14.210 13.390
4/19/2005 14.300 13.340
4/20/2005 14.200 13.150
4/21/2005 14.420 13.160
4/22/2005 14.420 13.210
4/25/2005 14.520 13.310
4/26/2005 14.430 13.200
4/27/2005 14.420 13.430
4/28/2005 14.290 13.480
4/29/2005 14.420 13.570
5/2/2005 14.480 13.348
5/3/2005 14.470 13.370
5/4/2005 14.630 13.700
5/5/2005 14.580 13.670
5/6/2005 14.540 13.660
5/9/2005 14.620 13.720
5/10/2005 14.500 13.660
5/11/2005 14.390 13.520
5/12/2005 14.250 13.330
5/13/2005 14.130 13.260
5/16/2005 14.240 13.280
5/17/2005 14.250 13.480
5/18/2005 14.400 13.450
5/19/2005 14.460 13.560
5/20/2005 14.500 13.400
5/23/2005 14.600 13.500
5/24/2005 14.590 13.380
5/25/2005 14.580 13.380
5/26/2005 14.680 13.670
5/27/2005 14.740 13.850
5/31/2005 14.700 13.810
6/1/2005 14.790 13.900
6/2/2005 14.870 13.990
6/3/2005 14.830 13.990
6/6/2005 14.810 13.920
6/7/2005 14.800 13.880
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
6/8/2005 14.800 13.830
6/9/2005 14.830 13.910
6/10/2005 14.860 13.890
6/13/2005 14.800 13.840
6/14/2005 14.870 13.840
6/15/2005 14.920 13.840
6/16/2005 14.990 13.830
6/17/2005 15.080 13.900
6/20/2005 15.060 13.890
6/21/2005 15.040 13.860
6/22/2005 15.010 13.790
6/23/2005 14.880 13.740
6/24/2005 14.800 13.650
6/27/2005 14.790 13.660
6/28/2005 14.890 13.940
6/29/2005 14.890 13.970
6/30/2005 14.810 13.950
7/1/2005 14.890 13.950
7/5/2005 15.020 13.920
7/6/2005 14.910 13.980
7/7/2005 14.900 14.040
7/8/2005 15.040 14.160
7/11/2005 15.150 14.240
7/12/2005 15.220 14.250
7/13/2005 15.130 14.230
7/14/2005 15.180 14.280
7/15/2005 15.200 14.270
7/18/2005 15.130 14.250
7/19/2005 15.190 14.350
7/20/2005 15.230 14.270
7/21/2005 15.140 14.250
7/22/2005 15.230 14.200
7/25/2005 15.210 14.140
7/26/2005 15.230 14.290
7/27/2005 15.330 14.400
7/28/2005 15.390 14.500
7/29/2005 15.340 14.470
8/1/2005 15.360 14.410
8/2/2005 15.440 14.420
8/3/2005 15.450 14.420
8/4/2005 15.380 14.380
8/5/2005 15.260 14.350
8/8/2005 15.220 14.120
8/9/2005 15.290 14.230
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
8/10/2005 15.310 14.280
8/11/2005 15.300 14.270
8/12/2005 15.230 14.230
8/15/2005 15.250 14.190
8/16/2005 15.140 14.160
8/17/2005 15.110 14.140
8/18/2005 15.060 14.100
8/19/2005 15.070 14.090
8/22/2005 15.100 14.190
8/23/2005 15.050 14.110
8/24/2005 14.990 14.060
8/25/2005 15.010 14.050
8/26/2005 14.920 14.030
8/29/2005 15.000 14.270
8/30/2005 14.970 14.350
8/31/2005 15.110 14.400
9/1/2005 15.160 14.260
9/2/2005 15.150 14.140
9/6/2005 15.280 14.380
9/7/2005 15.330 14.380
9/8/2005 15.280 14.410
9/9/2005 15.400 14.490
9/12/2005 15.350 14.390
9/13/2005 15.170 14.220
9/14/2005 15.140 14.070
9/15/2005 15.140 14.070
9/16/2005 15.250 14.090
9/19/2005 15.180 13.980
9/20/2005 15.080 13.900
9/21/2005 14.980 13.790
9/22/2005 14.950 13.700
9/23/2005 14.980 13.800
9/26/2005 15.030 13.680
9/27/2005 15.020 13.470
9/28/2005 15.020 13.870
9/29/2005 15.120 14.030
9/30/2005 15.130 13.990
10/3/2005 15.110 13.990
10/4/2005 14.970 13.940
10/5/2005 14.720 13.820
10/6/2005 14.600 13.650
10/7/2005 14.600 13.850
10/10/2005 14.490 13.750
10/11/2005 14.450 13.780
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
10/12/2005 14.260 13.390
10/13/2005 14.170 13.180
10/14/2005 14.270 13.620
10/17/2005 14.350 13.590
10/18/2005 14.190 13.350
10/19/2005 14.300 13.440
10/20/2005 14.090 13.240
10/21/2005 14.070 13.210
10/24/2005 14.280 13.450
10/25/2005 14.320 13.400
10/26/2005 14.300 13.380
10/27/2005 14.150 13.460
10/28/2005 14.310 13.700
10/31/2005 14.440 13.710
11/1/2005 14.350 13.620
11/2/2005 14.460 13.500
11/3/2005 14.520 13.470
11/4/2005 14.490 13.390
11/7/2005 14.480 13.370
11/8/2005 14.450 13.350
11/9/2005 14.460 13.240
11/10/2005 14.470 13.180
11/11/2005 14.530 13.270
11/14/2005 14.410 13.120
11/15/2005 14.360 12.940
11/16/2005 14.340 13.040
11/17/2005 14.450 13.010
11/18/2005 14.580 13.250
11/21/2005 14.650 13.200
11/22/2005 14.720 13.120
11/23/2005 14.780 13.180
11/25/2005 14.800 13.280
11/28/2005 14.700 13.160
11/29/2005 14.700 13.170
11/30/2005 14.620 13.200
12/1/2005 14.800 13.260
12/2/2005 14.790 13.240
12/5/2005 14.770 13.100
12/6/2005 14.780 13.070
12/7/2005 14.710 13.070
12/8/2005 14.700 13.070
12/9/2005 14.730 13.110
12/12/2005 14.730 12.990
12/13/2005 14.750 12.960
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
12/14/2005 14.840 12.880
12/15/2005 14.810 12.980
12/16/2005 14.800 12.990
12/19/2005 14.760 12.970
12/20/2005 14.730 12.920
12/21/2005 14.770 13.060
12/22/2005 14.810 13.320
12/23/2005 14.800 13.430
12/27/2005 14.690 13.420
12/28/2005 14.620 13.480
12/29/2005 14.600 13.450
12/30/2005 14.560 13.510
1/3/2006 14.810 13.710
1/4/2006 14.920 13.820
1/5/2006 14.950 13.710
1/6/2006 15.090 13.760
1/9/2006 15.150 14.010
1/10/2006 15.150 14.040
1/11/2006 15.230 14.080
1/12/2006 15.160 13.970
1/13/2006 15.160 14.060
1/17/2006 15.120 14.050
1/18/2006 15.040 14.140
1/19/2006 15.150 14.050
1/20/2006 14.960 13.920
1/23/2006 15.010 13.860
1/24/2006 15.030 13.890
1/25/2006 15.050 13.880
1/26/2006 15.170 13.910
1/27/2006 15.330 13.980
1/30/2006 15.340 14.000
1/31/2006 15.310 14.040
2/1/2006 15.340 14.010
2/2/2006 15.180 13.970
2/3/2006 15.090 13.910
2/6/2006 15.140 14.010
2/7/2006 14.980 14.000
2/8/2006 15.080 13.970
2/9/2006 14.970 13.930
2/10/2006 14.960 13.920
2/13/2006 14.910 13.950
2/14/2006 15.030 14.000
2/15/2006 15.110 14.090
2/16/2006 15.210 14.020
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
2/17/2006 15.240 14.070
2/21/2006 15.250 14.120
2/22/2006 15.320 14.220
2/23/2006 15.270 14.260
2/24/2006 15.290 14.220
2/27/2006 15.300 14.190
2/28/2006 15.170 14.270
3/1/2006 15.260 14.300
3/2/2006 15.240 14.200
3/3/2006 15.210 14.210
3/6/2006 15.110 14.100
3/7/2006 15.020 14.130
3/8/2006 15.030 14.150
3/9/2006 14.890 14.060
3/10/2006 14.970 13.990
3/13/2006 15.030 13.900
3/14/2006 15.150 13.950
3/15/2006 15.210 14.060
3/16/2006 15.290 14.060
3/17/2006 15.300 14.140
3/20/2006 15.270 14.120
3/21/2006 15.200 14.200
3/22/2006 15.350 14.280
3/23/2006 15.330 14.270
3/24/2006 15.380 14.240
3/27/2006 15.350 14.110
3/28/2006 15.270 14.030
3/29/2006 15.360 14.100
3/30/2006 15.330 14.020
3/31/2006 15.270 14.040
4/3/2006 15.310 14.090
4/4/2006 15.400 14.080
4/5/2006 15.470 14.140
4/6/2006 15.450 14.090
4/7/2006 15.290 14.080
4/10/2006 15.280 14.070
4/11/2006 15.100 13.870
4/12/2006 15.100 13.900
4/13/2006 15.090 13.910
4/17/2006 15.120 13.770
4/18/2006 15.380 13.880
4/19/2006 15.430 13.930
4/20/2006 15.470 14.000
4/21/2006 15.470 14.000
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
4/24/2006 15.400 14.100
4/25/2006 15.350 14.050
4/26/2006 15.440 13.970
4/27/2006 15.480 13.930
4/28/2006 15.510 13.890
5/1/2006 15.460 13.890
5/2/2006 15.580 13.910
5/3/2006 15.510 13.870
5/4/2006 15.560 13.980
5/5/2006 15.700 14.080
5/8/2006 15.720 14.090
5/9/2006 15.640 14.060
5/10/2006 15.640 13.980
5/11/2006 15.490 13.980
5/12/2006 15.290 13.940
5/15/2006 15.290 13.830
5/16/2006 15.270 13.810
5/17/2006 14.980 13.850
5/18/2006 14.900 13.880
5/19/2006 14.950 13.850
5/22/2006 14.840 13.740
5/23/2006 14.860 13.770
5/24/2006 14.800 13.670
5/25/2006 14.970 13.800
5/26/2006 15.090 13.910
5/30/2006 14.870 13.900
5/31/2006 14.980 13.940
6/1/2006 15.160 14.010
6/2/2006 15.210 14.080
6/5/2006 14.980 14.020
6/6/2006 14.900 14.030
6/7/2006 14.810 14.080
6/8/2006 14.680 13.980
6/9/2006 14.620 13.980
6/12/2006 14.470 13.850
6/13/2006 14.320 13.670
6/14/2006 14.320 13.600
6/15/2006 14.610 13.720
6/16/2006 14.560 13.790
6/19/2006 14.490 13.830
6/20/2006 14.470 13.800
6/21/2006 14.560 13.890
6/22/2006 14.500 13.850
6/23/2006 14.480 13.860
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
6/26/2006 14.540 13.890
6/27/2006 14.460 13.900
6/28/2006 14.510 13.890
6/29/2006 14.790 13.940
6/30/2006 14.900 13.970
7/3/2006 15.000 13.950
7/5/2006 14.890 13.930
7/6/2006 14.940 14.000
7/7/2006 14.890 13.990
7/10/2006 14.900 14.000
7/11/2006 14.840 14.020
7/12/2006 14.700 13.960
7/13/2006 14.530 13.860
7/14/2006 14.480 13.600
7/17/2006 14.420 13.710
7/18/2006 14.460 13.880
7/19/2006 14.710 14.000
7/20/2006 14.640 14.040
7/21/2006 14.560 14.040
7/24/2006 14.770 14.080
7/25/2006 14.870 14.090
7/26/2006 14.960 14.140
7/27/2006 14.890 14.170
7/28/2006 15.050 14.160
7/31/2006 15.000 14.200
8/1/2006 14.940 14.220
8/2/2006 15.040 14.230
8/3/2006 15.100 14.240
8/4/2006 15.120 14.250
8/7/2006 15.080 14.190
8/8/2006 15.040 14.150
8/9/2006 14.880 14.120
8/10/2006 14.890 14.170
8/11/2006 14.810 14.210
8/14/2006 14.850 14.230
8/15/2006 15.060 14.340
8/16/2006 15.160 14.390
8/17/2006 15.150 14.430
8/18/2006 15.180 14.450
8/21/2006 15.120 14.440
8/22/2006 15.130 14.450
8/23/2006 15.080 14.400
8/24/2006 15.110 14.400
8/25/2006 15.110 14.340
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
8/28/2006 15.180 14.480
8/29/2006 15.210 14.400
8/30/2006 15.220 14.480
8/31/2006 15.230 14.560
9/1/2006 15.300 14.590
9/5/2006 15.340 14.460
9/6/2006 15.220 14.380
9/7/2006 15.030 14.300
9/8/2006 15.070 14.480
9/11/2006 15.040 14.470
9/12/2006 15.170 14.550
9/13/2006 15.220 14.490
9/14/2006 15.210 14.440
9/15/2006 15.170 14.500
9/18/2006 15.160 14.570
9/19/2006 15.130 14.650
9/20/2006 15.190 14.700
9/21/2006 15.180 14.640
9/22/2006 15.170 14.600
9/25/2006 15.280 14.750
9/26/2006 15.370 14.660
9/27/2006 15.380 14.730
9/28/2006 15.410 14.730
9/29/2006 15.390 14.810
10/2/2006 15.340 14.780
10/3/2006 15.350 14.700
10/4/2006 15.510 14.750
10/5/2006 15.490 14.830
10/6/2006 15.460 14.840
10/9/2006 15.490 14.900
10/10/2006 15.420 14.690
10/11/2006 15.420 14.790
10/12/2006 15.540 14.870
10/13/2006 15.580 14.900
10/16/2006 15.610 14.930
10/17/2006 15.590 14.930
10/18/2006 15.620 14.930
10/19/2006 15.610 15.000
10/20/2006 15.620 14.950
10/23/2006 15.680 14.990
10/24/2006 15.720 14.990
10/25/2006 15.780 14.930
10/26/2006 15.830 14.970
10/27/2006 15.720 14.940
STRATEGIC TOTAL RETURN FUND
----------------------------
Date NAV Market
---------- ------ ------
10/30/2006 15.700 14.960
10/31/2006 15.710 14.910
Q. WHAT MAJOR DEVELOPMENTS OCCURRED WITH THE ECONOMY AND MARKET THIS PAST YEAR,
AND HOW DID THESE FACTORS AFFECT THE FUND?
A. Rising short-term interest rates were the big story through the first half of
2006, though it had little impact on the Fund's cost of leverage. Many
closed-end funds use leverage by borrowing funds at very short-term rates. As
short-term interest rates rise, this increases the cost of leverage and can
impact the yield and total return of the portfolio. While the Fund does employ
leverage through preferred shares, a large share of the cost of leverage was
locked in for longer periods earlier in the interest rate
Strategic Total Return Fund
4 ANNUAL REPORT Investment Team Interview
Investment Team Interview
cycle--when rates were lower. Because the cost of leverage was locked in at
longer-term fixed rates, the portfolio was not significantly affected by the
rising short-term interest rates that marked 2005 and the first half of 2006.
10-YEAR TREASURY FOR THE PERIOD ENDED OCTOBER 31,2006
(PERFORMANCE GRAPH)
10 YEAR TREASURY
Date Market
---- ------
10/31/2005 4.57%
11/05 4.49%
12/05 4.39%
1/06 4.53%
2/06 4.55%
3/06 4.86%
4/06 5.07%
5/06 5.12%
6/06 5.15%
7/06 4.99%
8/06 4.74%
9/06 4.64%
10/06 4.61%
Long-term interest rates also rose over the period, with the yield on the
10-year Treasury moving from 4.57% at the beginning of the period to 5.15% in
June 2006 before falling off in third calendar quarter. Rising long-term
interest rates tend to negatively affect high-quality fixed-income securities.
The Fund's portfolio combines high-yield corporate bonds and convertible bonds
that tend to be more economically sensitive and much less interest-rate
sensitive. This was demonstrated over the period as the portfolio benefited from
continued economic growth and a general rise in the equity market.
Mixed economic data stirred up investor apprehension at the start of the third
calendar quarter of 2006. This anxiety spurred a continuation of the saw-toothed
markets of the second quarter, when stocks would rise for a few days or weeks,
only to retreat again. By the end of September, however, the landscape had
significantly changed. Markets gained a degree of traction, and major stock
indexes around the globe posted solid gains for the quarter. Convertible and
high-yield securities participated in the equity market upside during the
period, earning respectable returns as well.
Despite media reports of decreased consumer spending, a downward revision of
gross domestic product (GDP) growth and higher year-over-year inflation, there
was considerable good news in the third quarter. The Fed's decision in August to
pause its rate increases served to alleviate recession fears, and investors
became cautiously hopeful of economic expansion. Corporate earnings remained
robust. The release of strong consumer confidence data, in part a reaction to
the continuing slide of gasoline prices, encouraged investors as well. In fact,
energy prices continued to drop through October, despite OPEC's announcement
that it would cut production. These positive events contributed to a robust
market with the S&P 500 rising 3.26% in October alone.
Strategic Total Return Fund
Investment Team Interview ANNUAL REPORT 5
Investment Team Interview
ASSET ALLOCATION
(PIE CHART)
SHORT-TERM INVESTMENTS 0.6%
HIGH YIELD/ CORPORATE BONDS 27.4%
CONVERTIBLE SECURITIES 27.5%
COMMON STOCKS 44.5%
Fund asset allocations are based on total investments (excluding security
lending collateral) and may vary over time.
SECTOR ALLOCATION
Financials 20.1%
Consumer Discretionary 17.7
Health Care 11.5
Information Technology 10.2
Energy 10.1
Consumer Staples 8.4
Industrials 8.4
Telecommunication Services 7.2
Utilities 2.7
Materials 2.4
Sector allocations are based on net assets and may vary over time.
QUALITY ALLOCATION
Weighted Average Credit Quality BB+
AAA 1.4%
AA 1.1
A 10.4
BBB 17.7
BB 24.1
B 29.0
CCC or below 6.7
Not rated 9.6
Data is based on portfolio holdings. Credit quality shown reflects the higher of
the ratings of Standard & Poor's Corporation or Moody's Investors Service, Inc.
Ratings are relative, subjective and not absolute standards of quality. Excludes
equity securities and cash.
Our analysis indicates that the economy is in the midst of a mid-cycle slowdown
much like those of 1965, 1985-86 and 1995. However, we don't believe the risk of
inflation or recession is high at this time. One significant change that
occurred in past mid-cycle slowdowns was a shift from a pro-cyclical market to a
more growth-oriented market. We believe the portfolio's emphasis on
higher-quality, sustainable growth names and reduction in cyclical sectors
positions it well for a rotation in market leadership to stable growth.
Q. WHAT WORKED WELL FOR THE FUND OVER THE PERIOD?
A. The Fund's three major asset classes (equities, high-yield bonds and
convertible bonds) posted strong positive returns for the fiscal year, with
equities leading the charge. During the period, we made no dramatic shifts in
the weightings of asset classes. At period end, equities represented 45% of
assets, while high-yield and convertible bonds represented 27% and 28%,
respectively. Overall, performance during the period was helped by the Fund's
equity sensitivity, reflected in its stock and convertible security allocations.
The portfolio's convertible holdings got an added boost as valuations in the
convertible market continued to improve over the period. In keeping with our
overall strategic positioning, our selection among larger-cap securities also
proved advantageous.
From a sector standpoint, all of the portfolio's sector allocations delivered
positive performance, with several of the sectors providing double-digit
returns. Relative to the all-equity S&P 500 Index, an overweight and security
selection in telecommunication services--particularly in the wireless
telecommunication services industry--benefited the portfolio. The Fund's
selection of information technology securities also bolstered return.
Q. WHAT DETRACTED FROM THE FUND'S PERFORMANCE?
A. Relative to the S&P 500, selection within the financials energy and consumer
discretionary sectors dampened performance.
In addition, the portfolio's higher credit quality hindered overall performance,
as low-quality issues performed well. From a long-term risk/reward perspective,
however, we believe that our rigorous credit research will benefit clients over
the full course of a market cycle.
Q. THE FUND USES SWAP AGREEMENTS TO LIMIT THE INTEREST-RATE RISK OF LEVERAGE.
WHAT WILL YOU DO AS THESE SWAPS ROLL OFF?
A. In order to avoid a significant impact on the Fund's portfolio, the
maturities of the swap agreements have been staggered over a three-year time
period. While we will continue to actively evaluate the opportunity to use
swaps, given the current economic environment and the low likelihood of
near-term interest rate increases, it does not appear to be advantageous to lock
in rates by entering into new swap agreements. See the section titled "Leverage"
to learn how the Fund uses leverage and swap agreements to enhance total return
and manage interest-rate risk.
Strategic Total Return Fund
6 ANNUAL REPORT Investment Team Interview
Investment Team Interview
Q. WHAT IS YOUR OUTLOOK IN THE COMING YEAR AND HOW ARE YOU POSITIONING THE
PORTFOLIO ACCORDINGLY?
A. Among the three main asset categories, we do not currently anticipate making
major allocation changes, but are open to adjusting weightings as we identify
opportunities. Across the portfolio, we are favoring traditional high-quality
growth companies with quality characteristics, such as strong balance sheets,
capable management and solid prospects for steady earnings growth. Many of these
types of companies have seen a great deal of earnings growth in recent years
that's not reflected in their stock prices. The portfolio also reflects our
economic outlook and identification of global themes that we believe will drive
the markets and the economy over the long term.
We continue to emphasize investments in software names and consulting. We
believe these information technology companies are well positioned to benefit
from multiple trends. For example, as corporations strive to remain competitive
in a global economy, they make considerable investment in technology in order to
enhance productivity. Given the strong state of corporate balance sheets, we
expect capital expenditures to bolster these information technology companies.
Moreover, information technology companies continue to be the source of
innovations that are changing the world; and consumer demand remains extremely
robust.
We have also increased allocations to consumer discretionary and health care, in
keeping with our economic outlook and positive view on the prospects for quality
companies with sustainable businesses. In particular, we're favoring health care
industries that contain fast-growing, top-line businesses such as biotechnology
and services.
In contrast, we are increasingly selective about energy and materials and have
pared allocations to these areas. For example, in energy, we are placing less
emphasis on companies whose fortunes are most closely tied to fluctuations in
crude prices. Of course, we balance these considerations with our use of
diversification as a risk management tool. Because no one can predict what will
happen next in the world, we do believe it is prudent to maintain allocations
across the major sectors of the market.
We believe convertible bonds continue to offer an attractive risk/reward choice
for investors. With regard to our convertible holdings, we continue to favor
hybrid, equity-sensitive convertibles so that we can continue to participate in
any upward movement of the stock market.
The fundamentals of the high-yield market remain solid, and we believe the
market looks fairly priced: defaults are low, corporate balance sheets are sound
and companies have sufficient cash on hand to service their debts. As high-yield
issues are typically more economically sensitive than interest-rate sensitive,
these securities should benefit from continued economic growth. While remaining
attuned to top-down concerns, we emphasize an issue-by-issue approach in our
high-yield portfolios. We look for companies with good return on invested
capital and stable or improving credit position; we also favor companies that
may benefit from equity issuance or M&A activity. As in many of our other
strategies, we have a bias toward sustainable growth companies over those with
cyclical vulnerabilities. We are avoiding distressed issues, instead positioning
Strategic Total Return Fund
Investment Team Interview ANNUAL REPORT 7
Investment Team Interview
our portfolios with a bias toward securities in the higher quality tiers of the
high-yield universe. Given that the performance of high-yield bonds is equity
sensitive, our research seeks to determine the financial strength and prospects
of issuing companies--as well as catalysts for upside.
Q. ANY FINAL THOUGHTS FOR INVESTORS?
A. We are firm believers in remaining positioned for the long term and have long
recognized the impossibility of predicting the exact timing of market shifts.
Accordingly, we continue to attempt to position our portfolios ahead of events
and market turns, rather than trying to chase them. Based on our economic
outlook, we continue to emphasize investments in companies with quality
hallmarks--such as strong balance sheets, capable management and well-planned
business strategies. We have found many opportunities to invest in these
companies at what we believe are attractive prices. We thank you for your
continued support and look forward to helping you attain your financial goals.
(1) The S&P 500 Index is an unmanaged index generally considered representative
of the U.S. stock market. Source: Lipper Analytical Services.
(2) The MSCI EAFE(R) Index measures developed market equity performance
(excluding the U.S. and Canada). Source: Lipper Analytical Services.
(3) The Value Line Convertible Index is an equally-weighted index of the larger
convertibles, representing 90% of the U.S. convertible securities market.
Source: Russell/Mellon Analytical Services LLC.
(4) The CS High Yield Index is an unmanaged index of high yield debt
securities. Source: Russell/Mellon Analytical Services LLC.
Strategic Total Return Fund
8 ANNUAL REPORT Investment Team Interview
Schedule of Investments
OCTOBER 31, 2006
PRINCIPAL
AMOUNT VALUE
----------- --------------
CORPORATE BONDS (39.4%)
CONSUMER DISCRETIONARY (13.0%)
$ 4,549,000 Asbury Automotive Group, Inc.
8.000%, 03/15/14 $ 4,617,235
7,278,000 Aztar Corp.@
7.875%, 06/15/14 7,869,337
10,330,000 Beazer Homes USA, Inc.
8.375%, 04/15/12 10,614,075
4,549,000 Boyd Gaming Corp.
7.750%, 12/15/12 4,696,843
8,415,000 DIRECTV Financing Company, Inc.
8.375%, 03/15/13 8,772,637
14,100,000 EchoStar Communications Corp.*
7.125%, 02/01/16 13,853,250
2,001,000 EchoStar DBS Corporation
6.625%, 10/01/14 1,935,968
5,913,000 GBP EMI Group, PLC
8.250%, 05/20/08 11,924,514
19,104,000 Expedia, Inc.*
7.456%, 08/15/18 19,974,359
8,187,000 GameStop Corp.@
8.000%, 10/01/12 8,534,947
13,646,000 General Motors Corp.
7.200%, 01/15/11 12,793,125
18,194,000 Goodyear Tire & Rubber Company@
7.857%, 08/15/11 17,693,665
7,732,000 Group 1 Automotive, Inc.
8.250%, 08/15/13 7,992,955
8,187,000 Hovnanian Enterprises, Inc.@
7.750%, 05/15/13 7,787,884
6,368,000 IMAX Corp.@
9.625%, 12/01/10 5,954,080
6,922,000 Jarden Corp.@
9.750%, 05/01/12 7,354,625
2,950,000 Kellwood Company
7.625%, 10/15/17 2,728,750
6,823,000 Landry's Restaurants, Inc.@
7.500%, 12/15/14 6,550,080
4,549,000 Liberty Media Corporation@
8.250%, 02/01/30 4,492,438
15,692,000 Linens 'n Things, Inc.++
10.999%, 01/15/14 15,456,620
Mandalay Resort Group@
13,232,000 10.250%, 08/01/07 13,678,580
5,913,000 7.625%, 07/15/13 5,802,131
11,826,000 Meritage Corp.
7.000%, 05/01/14 11,234,700
5,458,000 NCL Holding, ASA
10.625%, 07/15/14 5,348,840
4,549,000 Oxford Industries, Inc.
8.875%, 06/01/11 4,691,156
Pinnacle Entertainment, Inc.
8,187,000 8.250%, 03/15/12 8,350,740
4,680,000 8.750%, 10/01/13@ 4,949,100
PRINCIPAL
AMOUNT VALUE
----------- --------------
$ 9,111,000 Reader's Digest Association, Inc.
6.500%, 03/01/11 $ 8,837,670
11,826,000 Royal Caribbean Cruises, Ltd.@
7.500%, 10/15/27 11,592,389
17,284,000 Service Corp. International
6.750%, 04/01/16 16,765,480
13,646,000 Standard Pacific Corp.@
9.250%, 04/15/12 13,850,690
2,001,000 Station Casinos, Inc.@
6.875%, 03/01/16 1,845,923
4,549,000 Vail Resorts, Inc.@
6.750%, 02/15/14 4,458,020
Warner Music Group
16,829,000 7.375%, 04/15/14 16,534,493
2,274,000 GBP 8.125%, 04/15/14 4,446,210
2,001,000 Wynn Las Vegas, LLC@
6.625%, 12/01/14 1,970,985
--------------
315,954,494
--------------
CONSUMER STAPLES (2.4%)
1,819,000 Alimentation Couche-Tard Inc.@
7.500%, 12/15/13 1,873,570
7,732,000 Central Garden & Pet Company
9.125%, 02/01/13 8,118,600
13,418,000 Chiquita Brands International, Inc.@
7.500%, 11/01/14 11,673,660
10,462,000 Del Monte Foods Company
8.625%, 12/15/12 11,050,487
15,465,000 Jean Coutu Group, Inc.
8.500%, 08/01/14 15,252,356
10,007,000 NBTY, Inc.
7.125%, 10/01/15 9,781,843
--------------
57,750,516
--------------
ENERGY (5.3%)
10,916,000 Arch Western Finance, LLC
6.750%, 07/01/13 10,588,520
Chesapeake Energy Corp.@
6,368,000 6.875%, 01/15/16 6,352,080
3,639,000 7.500%, 06/15/14 3,743,621
4,899,000 Comstock Resources, Inc.
6.875%, 03/01/12 4,660,174
1,810,000 Energy Partners, Ltd.
8.750%, 08/01/10 1,891,450
13,464,000 Giant Industries, Inc.
8.000%, 05/15/14 14,642,100
4,549,000 Houston Exploration Company
7.000%, 06/15/13 4,412,530
4,549,000 Petrohawk Energy Corp.
7.125%, 04/01/12 4,389,785
Petroleo Brasileiro, SA
15,010,000 9.125%, 07/02/13 17,674,275
14,100,000 8.375%, 12/10/18@ 16,602,750
1,819,000 Premcor Refining Group, Inc.
7.500%, 06/15/15 1,906,279
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
Schedule of Investments ANNUAL REPORT 9
Schedule of Investments
OCTOBER 31, 2006
PRINCIPAL
AMOUNT VALUE
----------- --------------
$ 4,549,000 Superior Energy Services, Inc.*@
6.875%, 06/01/14 $ 4,537,628
10,302,000 Swift Energy Company@
9.375%, 05/01/12 10,894,365
6,868,000 Whiting Petroleum Corp.
7.250%, 05/01/12 6,833,660
18,194,000 Williams Companies, Inc.@
7.750%, 06/15/31 18,694,335
--------------
127,823,552
--------------
FINANCIALS (3.9%)
36,388,000 Dow Jones & Company, Inc.*@
8.000%, 12/29/11 36,569,940
E*TRADE Financial Corporation
17,612,000 7.375%, 09/15/13 18,184,390
12,145,000 7.875%, 12/01/15@ 12,904,062
3,093,000 8.000%, 06/15/11 3,224,453
13,646,000 Leucadia National Corp.
7.000%, 08/15/13 13,799,517
9,552,000 Senior Housing Properties Trust
8.625%, 01/15/12 10,340,040
--------------
95,022,402
--------------
HEALTH CARE (2.9%)
4,549,000 Ameripath, Inc.
10.500%, 04/01/13 4,912,920
2,729,000 Angiotech Pharmaceuticals, Inc.*
7.750%, 04/01/14 2,606,195
4,549,000 Bio-Rad Laboratories, Inc.
7.500%, 08/15/13 4,708,215
5,231,000 Biovail Corp.
7.875%, 04/01/10 5,270,233
2,001,000 DaVita, Inc.@
7.250%, 03/15/15 2,001,000
1,456,000 Omnicare, Inc.
6.875%, 12/15/15 1,434,160
10,007,000 Psychiatric Solutions, Inc.
7.750%, 07/15/15 9,956,965
16,102,000 Tenet Healthcare Corp.@
9.250%, 02/01/15 15,357,282
11,826,000 Valeant Pharmaceuticals International
7.000%, 12/15/11 11,412,090
12,281,000 Vanguard Health Systems, Inc.@
9.000%, 10/01/14 11,943,272
--------------
69,602,332
--------------
INDUSTRIALS (3.9%)
5,003,000 Accuride Corp.
8.500%, 02/01/15 4,877,925
6,050,000 American Airlines, Inc.
7.250%, 02/05/09 6,125,625
2,729,000 Armor Holdings, Inc.
8.250%, 08/15/13 2,838,160
15,010,000 CNH Global, NV
9.250%, 08/01/11 16,004,412
PRINCIPAL
AMOUNT VALUE
----------- --------------
$12,281,000 Cummins, Inc.@
9.500%, 12/01/10 $ 12,893,134
1,819,000 FTI Consulting, Inc.@
7.625%, 06/15/13 1,869,023
4,549,000 Gardner Denver, Inc.
8.000%, 05/01/13 4,765,077
8,642,000 General Cable Corp.
9.500%, 11/15/10 9,246,940
1,639,000 Greenbrier Companies, Inc.
8.375%, 05/15/15 1,667,683
4,121,000 H&E Equipment Service, Inc.*@
8.375%, 07/15/16 4,275,538
3,416,000 Manitowoc Company, Inc.
10.500%, 08/01/12 3,706,360
2,729,000 Orbital Sciences Corp.@
9.000%, 07/15/11 2,909,796
4,549,000 Sequa Corp.
8.875%, 04/01/08 4,742,332
5,231,000 Trinity Industries, Inc.
6.500%, 03/15/14 5,159,074
4,549,000 Wesco Distribution, Inc.
7.500%, 10/15/17 4,617,235
4,549,000 Westinghouse Air Brake Technologies
Corporation
6.875%, 07/31/13 4,492,138
5,003,000 Williams Scotsman International, Inc.@
8.500%, 10/01/15 5,190,612
--------------
95,381,064
--------------
INFORMATION TECHNOLOGY (1.8%)
16,623,000 Advanced Micro Devices, Inc.@
7.750%, 11/01/12 16,955,460
2,024,000 Anixter International, Inc.
5.950%, 03/01/15 1,912,680
2,001,000 Avago Technologies*@
11.875%, 12/01/15 2,211,105
7,732,000 Celestica, Inc.@
7.875%, 07/01/11 7,847,980
4,549,000 Freescale Semiconductor, Inc.
7.125%, 07/15/14 4,878,848
1,001,000 Sanmina-SCI Corporation
8.125%, 03/01/16 989,739
9,552,000 SunGard Data Systems, Inc.@
9.125%, 08/15/13 9,957,960
--------------
44,753,772
--------------
MATERIALS (3.1%)
2,274,000 Agrium, Inc.
7.125%, 05/23/36 2,432,868
2,729,000 Century Aluminum Company
7.500%, 08/15/14 2,735,822
7,942,000 Freeport-McMoRan Copper & Gold, Inc.
10.125%, 02/01/10 8,448,302
2,001,000 Gibraltar Industries, Inc.
8.000%, 12/01/15 1,990,995
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
10 ANNUAL REPORT Schedule of Investments
Schedule of Investments
OCTOBER 31, 2006
PRINCIPAL
AMOUNT VALUE
----------- --------------
Ineos Group Holdings, PLC*
$12,281,000 EUR 7.875%, 02/15/16 $ 15,066,861
2,274,000 8.500%, 02/15/16@ 2,200,095
9,097,000 IPSCO, Inc.
8.750%, 06/01/13 9,733,790
2,729,000 P.H. Glatfelter Company*
7.125%, 05/01/16 2,734,644
3,639,000 U.S. Concrete, Inc.
8.375%, 04/01/14 3,511,635
Union Carbide Corp.
9,961,000 7.875%, 04/01/23@ 10,631,296
7,869,000 7.500%, 06/01/25 8,492,524
6,686,000 Westlake Chemical Corporation@
6.625%, 01/15/16 6,435,275
--------------
74,414,107
--------------
TELECOMMUNICATION SERVICES (2.0%)
11,826,000 Alamosa Holdings, Inc.
8.500%, 01/31/12 12,580,026
1,546,000 Citizens Communications Company@
9.000%, 08/15/31 1,687,073
4,094,000 IPCS, Inc.
11.500%, 05/01/12 4,595,515
4,303,000 Leap Wireless International, Inc.*
9.375%, 11/01/14 4,410,575
5,913,000 CAD Rogers Cable, Inc.
7.250%, 12/15/11 5,680,840
4,549,000 Sprint Nextel Corporation
11.000%, 07/31/10 4,964,983
4,549,000 Syniverse Technologies, Inc.
7.750%, 08/15/13 4,389,785
8,187,000 Windstream Corp.*@
8.625%, 08/01/16 8,872,661
--------------
47,181,458
--------------
UTILITIES (1.1%)
10,916,000 Edison International
7.730%, 06/15/09 11,407,220
16,375,000 TXU Corp.
6.500%, 11/15/24 15,802,645
--------------
27,209,865
--------------
TOTAL CORPORATE BONDS
(Cost $949,530,093) 955,093,562
==============
CONVERTIBLE BONDS (14.5% )
CONSUMER DISCRETIONARY (4.0%)
7,000,000 General Motors Corp.
6.250%, 07/15/33 6,647,200
16,500,000 GBP Punch Taverns Redwood Jersey Co. Ltd.
5.000%, 12/14/10 35,533,648
United Auto Group, Inc.
10,151,000 3.500%, 04/01/26* 11,635,584
5,849,000 3.500%, 04/01/26 6,704,416
PRINCIPAL
AMOUNT VALUE
----------- --------------
$32,000,000 Walt Disney Company@
2.125%, 04/15/23 $ 36,520,000
--------------
97,040,848
--------------
ENERGY (0.6%)
10,500,000 Helix Energy Solutions Group, Inc.*
3.250%, 12/15/25 13,689,375
--------------
FINANCIALS (1.1%)
4,350,000 Host Hotels & Resorts, Inc.*
3.250%, 04/15/24 6,100,875
18,750,000 Travelers Property Casualty Corp.
4.500%, 04/15/32 19,500,000
--------------
25,600,875
--------------
HEALTH CARE (1.6%)
15,000,000 Advanced Medical Optics, Inc.*
3.250%, 08/01/26 14,681,250
3,570,000 Valeant Pharmaceuticals International
3.000%, 08/16/10 3,422,737
20,000,000 Wyeth@++
5.109%, 01/15/24 21,904,000
--------------
40,007,987
--------------
INDUSTRIALS (1.6%)
9,000,000 GATX Corp.
7.500%, 02/01/07 11,531,250
16,000,000 Lockheed Martin Corp.++
5.155%, 08/15/33 20,393,600
7,500,000 Quanta Services, Inc.*
3.750%, 04/30/26 8,184,375
--------------
40,109,225
--------------
INFORMATION TECHNOLOGY (3.5%)
14,500,000 DST Systems, Inc.
4.125%, 08/15/23 20,046,250
17,000,000 Electronic Data Systems Corp.
3.875%, 07/15/23 17,467,500
8,000,000 Mentor Graphics Corp.*
6.250%, 03/01/26 10,140,000
36,500,000 Vishay Intertechnology, Inc.
3.625%, 08/01/23 36,408,750
--------------
84,062,500
--------------
UTILITIES (2.1%)
20,000,000 CenterPoint Energy, Inc.
3.750%, 05/15/23 27,450,000
8,750,000 GBP Scottish & Southern Energy, PLC
3.750%, 10/29/09 24,667,047
--------------
52,117,047
--------------
TOTAL CONVERTIBLE BONDS
(Cost $322,131,188) 352,627,857
==============
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
Schedule of Investments ANNUAL REPORT 11
Schedule of Investments
OCTOBER 31, 2006
PRINCIPAL
AMOUNT VALUE
--------- --------------
SYNTHETIC CONVERTIBLE SECURITIES (4.6%)
CORPORATE BONDS (3.9%)
CONSUMER DISCRETIONARY (1.3%)
$ 451,000 Asbury Automotive Group, Inc.
8.000%, 03/15/14 $ 457,765
722,000 Aztar Corp.@
7.875%, 06/15/14 780,662
1,025,000 Beazer Homes USA, Inc.
8.375%, 04/15/12 1,053,187
451,000 Boyd Gaming Corp.
7.750%, 12/15/12 465,658
835,000 DIRECTV Financing Company, Inc.
8.375%, 03/15/13 870,487
1,400,000 EchoStar Communications Corp.*
7.125%, 02/01/16 1,375,500
199,000 EchoStar DBS Corporation
6.625%, 10/01/14 192,533
587,000 GBP EMI Group, PLC
8.250%, 05/20/08 1,183,780
1,896,000 Expedia, Inc.*
7.456%, 08/15/18 1,982,380
813,000 GameStop Corp.@
8.000%, 10/01/12 847,552
1,354,000 General Motors Corp.
7.200%, 01/15/11 1,269,375
1,806,000 Goodyear Tire & Rubber Company@
7.857%, 08/15/11 1,756,335
768,000 Group 1 Automotive, Inc.
8.250%, 08/15/13 793,920
813,000 Hovnanian Enterprises, Inc.@
7.750%, 05/15/13 773,366
632,000 IMAX Corp.@
9.625%, 12/01/10 590,920
687,000 Jarden Corp.@
9.750%, 05/01/12 729,937
293,000 Kellwood Company
7.625%, 10/15/17 271,025
677,000 Landry's Restaurants, Inc.@
7.500%, 12/15/14 649,920
451,000 Liberty Media Corporation@
8.250%, 02/01/30 445,392
1,558,000 Linens 'n Things, Inc.@++
10.999%, 01/15/14 1,534,630
Mandalay Resort Group@
1,313,000 10.250%, 08/01/07 1,357,314
587,000 7.625%, 07/15/13 575,994
1,174,000 Meritage Corp.
7.000%, 05/01/14 1,115,300
542,000 NCL Holding, ASA
10.625%, 07/15/14 531,160
451,000 Oxford Industries, Inc.
8.875%, 06/01/11 465,094
Pinnacle Entertainment, Inc.
813,000 8.250%, 03/15/12 829,260
PRINCIPAL
AMOUNT VALUE
--------- --------------
$ 465,000 8.750%, 10/01/13@ $ 491,737
904,000 Reader's Digest Association, Inc.
6.500%, 03/01/11 876,880
1,174,000 Royal Caribbean Cruises, Ltd.@
7.500%, 10/15/27 1,150,809
1,716,000 Service Corp. International
6.750%, 04/01/16 1,664,520
1,354,000 Standard Pacific Corp.@
9.250%, 04/15/12 1,374,310
199,000 Station Casinos, Inc.@
6.875%, 03/01/16 183,578
451,000 Vail Resorts, Inc.@
6.750%, 02/15/14 441,980
Warner Music Group
1,671,000 7.375%, 04/15/14 1,641,758
226,000 GBP 8.125%, 04/15/14 441,884
199,000 Wynn Las Vegas, LLC@
6.625%, 12/01/14 196,015
--------------
31,361,917
--------------
CONSUMER STAPLES (0.2%)
181,000 Alimentation Couche-Tard Inc.@
7.500%, 12/15/13 186,430
768,000 Central Garden & Pet Company
9.125%, 02/01/13 806,400
1,332,000 Chiquita Brands International, Inc.@
7.500%, 11/01/14 1,158,840
1,038,000 Del Monte Foods Company
8.625%, 12/15/12 1,096,387
1,535,000 Jean Coutu Group, Inc.
8.500%, 08/01/14 1,513,894
993,000 NBTY, Inc.
7.125%, 10/01/15 970,658
--------------
5,732,609
--------------
ENERGY (0.5%)
1,084,000 Arch Western Finance, LLC
6.750%, 07/01/13 1,051,480
Chesapeake Energy Corp.@
632,000 6.875%, 01/15/16 630,420
361,000 7.500%, 06/15/14 371,379
486,000 Comstock Resources, Inc.
6.875%, 03/01/12 462,307
180,000 Energy Partners, Ltd.
8.750%, 08/01/10 188,100
1,336,000 Giant Industries, Inc.
8.000%, 05/15/14 1,452,900
451,000 Houston Exploration Company
7.000%, 06/15/13 437,470
451,000 Petrohawk Energy Corp.
7.125%, 04/01/12 435,215
Petroleo Brasileiro, SA
1,490,000 9.125%, 07/02/13 1,754,475
1,400,000 8.375%, 12/10/18@ 1,648,500
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
12 ANNUAL REPORT Schedule of Investments
Schedule of Investments
OCTOBER 31, 2006
PRINCIPAL
AMOUNT VALUE
--------- --------------
$ 181,000 Premcor Refining Group, Inc.
7.500%, 06/15/15 $ 189,685
451,000 Superior Energy Services, Inc.*@
6.875%, 06/01/14 449,873
1,023,000 Swift Energy Company@
9.375%, 05/01/12 1,081,822
682,000 Whiting Petroleum Corp.
7.250%, 05/01/12 678,590
1,806,000 Williams Companies, Inc.@
7.750%, 06/15/31 1,855,665
--------------
12,687,881
--------------
FINANCIALS (0.4%)
3,612,000 Dow Jones & Company, Inc.*@
8.000%, 12/29/11 3,630,060
E*TRADE Financial Corporation
1,748,000 7.375%, 09/15/13 1,804,810
1,205,000 7.875%, 12/01/15@ 1,280,313
307,000 8.000%, 06/15/11 320,048
1,354,000 Leucadia National Corp.
7.000%, 08/15/13 1,369,232
948,000 Senior Housing Properties Trust
8.625%, 01/15/12 1,026,210
--------------
9,430,673
--------------
HEALTH CARE (0.3%)
451,000 Ameripath, Inc.
10.500%, 04/01/13 487,080
271,000 Angiotech Pharmaceuticals, Inc.*
7.750%, 04/01/14 258,805
451,000 Bio-Rad Laboratories, Inc.
7.500%, 08/15/13 466,785
519,000 Biovail Corp.
7.875%, 04/01/10 522,893
199,000 DaVita, Inc.@
7.250%, 03/15/15 199,000
144,000 Omnicare, Inc.
6.875%, 12/15/15 141,840
993,000 Psychiatric Solutions, Inc.
7.750%, 07/15/15 988,035
1,598,000 Tenet Healthcare Corp.@
9.250%, 02/01/15 1,524,092
1,174,000 Valeant Pharmaceuticals International
7.000%, 12/15/11 1,132,910
1,219,000 Vanguard Health Systems, Inc.@
9.000%, 10/01/14 1,185,478
--------------
6,906,918
--------------
INDUSTRIALS (0.4%)
497,000 Accuride Corp.
8.500%, 02/01/15 484,575
600,000 American Airlines, Inc.
7.250%, 02/05/09 607,500
271,000 Armor Holdings, Inc.
8.250%, 08/15/13 281,840
PRINCIPAL
AMOUNT VALUE
--------- --------------
$ 1,490,000 CNH Global, NV
9.250%, 08/01/11 $ 1,588,712
1,219,000 Cummins, Inc.@
9.500%, 12/01/10 1,279,760
181,000 FTI Consulting, Inc.@
7.625%, 06/15/13 185,978
451,000 Gardner Denver, Inc.
8.000%, 05/01/13 472,422
858,000 General Cable Corp.
9.500%, 11/15/10 918,060
163,000 Greenbrier Companies, Inc.
8.375%, 05/15/15 165,853
409,000 H&E Equipment Service, Inc.*@
8.375%, 07/15/16 424,338
339,000 Manitowoc Company, Inc.
10.500%, 08/01/12 367,815
271,000 Orbital Sciences Corp.@
9.000%, 07/15/11 288,954
451,000 Sequa Corp.
8.875%, 04/01/08 470,167
519,000 Trinity Industries, Inc.
6.500%, 03/15/14 511,864
451,000 Wesco Distribution, Inc.
7.500%, 10/15/17 457,765
451,000 Westinghouse Air Brake Technologies
Corporation
6.875%, 07/31/13 445,362
497,000 Williams Scotsman International, Inc.@
8.500%, 10/01/15 515,637
--------------
9,466,602
--------------
INFORMATION TECHNOLOGY (0.2%)
1,650,000 Advanced Micro Devices, Inc.@
7.750%, 11/01/12 1,683,000
201,000 Anixter International, Inc.
5.950%, 03/01/15 189,945
199,000 Avago Technologies*@
11.875%, 12/01/15 219,895
768,000 Celestica, Inc.@
7.875%, 07/01/11 779,520
451,000 Freescale Semiconductor, Inc.
7.125%, 07/15/14 483,702
99,000 Sanmina-SCI Corporation
8.125%, 03/01/16 97,886
948,000 SunGard Data Systems, Inc.@
9.125%, 08/15/13 988,290
--------------
4,442,238
--------------
MATERIALS (0.3%)
226,000 Agrium, Inc.
7.125%, 05/23/36 241,789
271,000 Century Aluminum Company
7.500%, 08/15/14 271,677
788,000 Freeport-McMoRan Copper & Gold, Inc.
10.125%, 02/01/10 838,235
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
Schedule of Investments ANNUAL REPORT 13
Schedule of Investments
OCTOBER 31, 2006
PRINCIPAL
AMOUNT VALUE
--------- --------------
$ 199,000 Gibraltar Industries, Inc.
8.000%, 12/01/15 $ 198,005
Ineos Group Holdings, PLC*
1,219,000 EUR 7.875%, 02/15/16 1,495,522
226,000 8.500%, 02/15/16@ 218,655
903,000 IPSCO, Inc.
8.750%, 06/01/13 966,210
271,000 P.H. Glatfelter Company*
7.125%, 05/01/16 271,560
361,000 U.S. Concrete, Inc.
8.375%, 04/01/14 348,365
Union Carbide Corp.
989,000 7.875%, 04/01/23@ 1,055,552
781,000 7.500%, 06/01/25 842,885
664,000 Westlake Chemical Corporation@
6.625%, 01/15/16 639,100
--------------
7,387,555
--------------
TELECOMMUNICATION SERVICES (0.2%)
1,174,000 Alamosa Holdings, Inc.
8.500%, 01/31/12 1,248,854
154,000 Citizens Communications Company@
9.000%, 08/15/31 168,052
406,000 IPCS, Inc.
11.500%, 05/01/12 455,735
427,000 Leap Wireless International, Inc.*
9.375%, 11/01/14 437,675
587,000 CAD Rogers Cable, Inc.
7.250%, 12/15/11 563,953
451,000 Sprint Nextel Corporation
11.000%, 07/31/10 492,242
451,000 Syniverse Technologies, Inc.
7.750%, 08/15/13 435,215
813,000 Windstream Corp.*@
8.625%, 08/01/16 881,089
--------------
4,682,815
--------------
UTILITIES (0.1%)
1,084,000 Edison International
7.730%, 06/15/09 1,132,780
1,625,000 TXU Corp.
6.500%, 11/15/24 1,568,201
--------------
2,700,981
--------------
TOTAL CORPORATE BONDS 94,800,189
--------------
NUMBER OF
CONTRACTS VALUE
--------- --------------
OPTIONS (0.7%)
CONSUMER DISCRETIONARY (0.1%)
600 Garmin, Ltd.#
Call, 01/19/08, Strike $50.00 681,000
760 Office Depot, Inc.#
Call, 01/19/08, Strike $40.00 573,800
--------------
1,254,800
--------------
NUMBER OF
CONTRACTS VALUE
--------- --------------
CONSUMER STAPLES (0.0%)
1,500 Kroger Company#
Call, 01/19/08, Strike $20.00 $ 630,000
635 PepsiCo, Inc.#
Call, 01/19/08, Strike $60.00 457,200
--------------
1,087,200
--------------
ENERGY (0.0%)
315 BJ Services Company#
Call, 01/19/08, Strike $40.00 63,000
500 Nabors Industries, Ltd.#
Call, 01/19/08, Strike $37.50 120,000
215 Petroleo Brasileiro, SA#
Call, 01/19/08, Strike $90.00 258,000
360 Schlumberger, Ltd.#
Call, 01/19/08, Strike $65.00 334,800
330 Weatherford International, Ltd.#
Call, 01/19/08, Strike $55.00 89,925
--------------
865,725
--------------
FINANCIALS (0.2%)
1,150 Charles Schwab Corp.#
Call, 01/19/08, Strike $17.50 345,000
50 Chicago Mercantile Exchange Holdings, Inc.#
Call, 01/19/08, Strike $420.00 635,750
650 E*TRADE Financial Corporation#
Call, 01/19/08, Strike $25.00 201,500
170 Goldman Sachs Group, Inc.#
Call, 01/19/08, Strike $160.00 743,750
360 Lehman Brothers Holdings, Inc.#
Call, 01/19/08, Strike $75.00 450,000
430 Merrill Lynch & Company, Inc.#
Call, 01/19/08, Strike $70.00 939,550
550 State Street Corp.#
Call, 01/19/08, Strike $60.00 547,250
--------------
3,862,800
--------------
HEALTH CARE (0.0%)
215 Allergan, Inc.#
Call, 01/19/08, Strike $110.00 396,675
--------------
INFORMATION TECHNOLOGY (0.3%)
550 Agilent Technologies, Inc.#
Call, 01/19/08, Strike $35.00 341,000
1,750 Apple Computer, Inc.#
Call, 01/19/08, Strike $75.00 3,237,500
820 Hewlett-Packard Company#
Call, 01/19/08, Strike $30.00 934,800
950 Intuit, Inc.#
Call, 01/19/08, Strike $27.50 973,750
800 Motorola, Inc.#
Call, 01/19/08, Strike $22.50 304,000
580 NVIDIA Corp.#
Call, 01/19/08, Strike $30.00 585,800
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
14 ANNUAL REPORT Schedule of Investments
Schedule of Investments
OCTOBER 31,2006
NUMBER OF
CONTRACTS VALUE
----------- ---------------
230 Sandisk Corp.#
Call, 01/19/08, Strike $65.00 $ 132,250
---------------
6,509,100
---------------
MATERIALS (0.1%)
320 Alcan, Inc.#
Call, 01/19/08, Strike $55.00 134,400
625 Goldcorp, Inc.#
Call, 01/19/08, Strike $27.50 309,375
849 Harmony Gold Mining Co., Ltd.#
Call, 01/19/08, Strike $15.00 305,640
260 Phelps Dodge Corp.#
Call, 01/19/08, Strike $72.50 798,200
230 United States Steel Corp.#
Call, 01/19/08, Strike $70.00 236,900
---------------
1,784,515
---------------
TELECOMMUNICATION SERVICES (0.0%)
500 America Movil, S.A. de CV#
Call, 01/19/08, Strike $40.00 435,000
300 NII Holdings, Inc.#
Call, 01/19/08, Strike $55.00 534,000
---------------
969,000
---------------
TOTAL OPTIONS 16,729,815
---------------
TOTAL SYNTHETIC CONVERTIBLE SECURITIES
(Cost $110,135,092) 111,530,004
===============
NUMBER OF
SHARES VALUE
----------- ---------------
CONVERTIBLE PREFERRED STOCKS (20.4% )
CONSUMER DISCRETIONARY (3.8%)
2,652,400 Ford Motor Company Capital Trust II
6.500% 91,375,180
---------------
CONSUMER STAPLES (1.6%)
1,500,000 SUPERVALU, Inc.
7.250% 37,710,000
---------------
ENERGY (1.7%)
110,000 Chesapeake Energy Corp.
6.250% 30,118,000
110,000 Hess Corp.
7.000% 11,715,000
---------------
41,833,000
---------------
FINANCIALS (10.4%)
850,000 Citigroup, Inc. (Genworth Financial,
Inc.)++&
5.020% 27,174,500
27,600 Fortis Insurance, N.V. (Assurant, Inc.)*&
7.750% 37,627,080
650,000 Genworth Financial, Inc.
6.000% 23,432,500
725,000 Lazard, Ltd.
6.625% 26,585,750
NUMBER OF
SHARES VALUE
----------- ---------------
1,950,000 Lehman Brothers Holdings, Inc.
(General Mills, Inc.)&
6.250% $ 53,625,000
460,000 Merrill Lynch & Co., Inc.
(Nuveen Investments, Inc.)&
6.750% 20,092,800
1,400,000 Metlife, Inc.
6.375% 41,468,000
470,000 National Australia Bank, Ltd.
7.875% 22,489,500
---------------
252,495,130
---------------
HEALTH CARE (1.4%)
639,000 Schering-Plough Corp.
6.000% 35,183,340
---------------
INDUSTRIALS (1.0%)
6,500,000 GBP BAE Systems, PLC
7.750% 24,870,185
---------------
UTILITIES (0.5%)
200,000 Southern Union Company
5.000% 11,150,000
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $469,473,798) 494,616,835
===============
COMMON STOCKS (63.7%)
CONSUMER DISCRETIONARY (3.4%)
400,000 Carnival Corp. 19,528,000
550,000 Home Depot, Inc. 20,531,500
375,000 Tupperware Corporation@ 7,961,250
450,000 V.F. Corp. 34,204,500
---------------
82,225,250
---------------
CONSUMER STAPLES (7.9%)
320,000 Altria Group, Inc.@ 26,025,600
350,000 Anheuser-Busch Companies, Inc. 16,597,000
1,100,000 Coca-Cola Company 51,392,000
700,000 Conagra Foods, Inc. 18,305,000
425,000 H. J. Heinz Company@ 17,918,000
250,000 Kraft Foods, Inc.@ 8,600,000
840,000 Reynolds American, Inc.@ 53,054,400
---------------
191,892,000
---------------
ENERGY (6.6%)
775,000 Chevron Corp. 52,080,000
550,000 ConocoPhillips 33,132,000
250,000 Marathon Oil Corp. 21,600,000
360,000 EUR OMV, AG 19,556,966
295,000 PetroChina Company, Ltd.@ 32,565,050
---------------
158,934,016
---------------
FINANCIALS (13.2%)
500,000 Bank of America Corp.@ 26,935,000
1,372,000 Citigroup, Inc. 68,819,520
See accompanying Notes to Schedule of Investments.
Strategic Total Return Fund
Schedule of Investments ANNUAL REPORT 15
Schedule of Investments
OCTOBER 31, 2006
NUMBER OF
SHARES VALUE
----------- ---------------
250,000 Federal Home Loan Mortgage Corp. $ 17,247,500
777,000 Federal National Mortgage Association 46,045,020
600,000 J.P. Morgan Chase & Company 28,464,000
158,074 Lincoln National Corp. 10,007,665
360,000 Wachovia Corp.@ 19,980,000
2,428,000 Washington Mutual, Inc. 102,704,400
---------------
320,203,105
---------------
HEALTH CARE (10.3%)
525,000 Abbott Laboratories@ 24,942,750
300,000 Eli Lilly and Company 16,803,000
1,300,000 Johnson & Johnson 87,620,000
1,755,000 Merck & Company, Inc. 79,712,100
1,575,000 Pfizer, Inc. 41,973,750
---------------
251,051,600
---------------
INDUSTRIALS (5.1%)
630,000 Caterpillar, Inc. 38,247,300
819,000 General Electric Company 28,755,090
450,000 Masco Corp.@ 12,442,500
350,000 R.R. Donnelley & Sons Company 11,851,000
435,000 Raytheon Company@ 21,728,250
375,000 Tyco International, Ltd.@ 11,036,250
---------------
124,060,390
---------------
INFORMATION TECHNOLOGY (9.0%)
450,000 Cisco Systems, Inc.@# 10,858,500
615,000 Electronic Data Systems Corp. 15,577,950
850,000 Hewlett-Packard Company@ 32,929,000
570,000 Infosys Technologies, Ltd.@ 29,697,000
1,382,000 Intel Corp. 29,491,880
1,225,000 Microsoft Corp. 35,169,750
2,725,000 Nokia Corp. 54,173,000
600,000 Oracle Corp.# 11,082,000
---------------
218,979,080
---------------
TELECOMMUNICATION SERVICES (8.2%)
3,071,000 AT&T, Inc.@ 105,181,750
823,500 CAD BCE Inc. 23,246,760
735,000 Bellsouth Corp.@ 33,148,500
1,039,000 Verizon Communications, Inc. 38,443,000
---------------
200,020,010
---------------
TOTAL COMMON STOCKS
(Cost $1,393,774,012) 1,547,365,451
===============
PRINCIPAL
AMOUNT VALUE
----------- ---------------
SHORT-TERM INVESTMENT (0.8%)
COMMERCIAL PAPER (0.8%)
$19,249,000 Citigroup, Inc.
5.230%, 11/01/06
(Cost $19,249,000) 19,249,000
---------------
NUMBER OF
SHARES VALUE
----------- ---------------
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES ON LOAN (21.7%)
527,235,000 Bank of New York Institutional Cash Reserve
Fund current rate 5.389%
(Cost $527,235,000) $ 527,235,000
---------------
TOTAL INVESTMENTS (165.1%)
(Cost $3,791,528,183) 4,007,717,709
===============
PAYABLE UPON RETURN OF SECURITIES ON LOAN (-21.7%) (527,235,000)
---------------
OTHER ASSETS, LESS LIABILITIES (1.1%) 28,028,663
---------------
PREFERRED SHARES AT REDEMPTION VALUE INCLUDING DIVIDENDS
PAYABLE (-44.5%) (1,080,879,088)
---------------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS (100.0%) $ 2,427,632,284
===============
NOTES TO SCHEDULE OF INVESTMENTS
Note: Value for Securities denominated in foreign currencies are shown in U.S.
dollars.
* 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, 2006, the market value
of 144A securities that were not subject to mandatory issuer registration
obligations is $172,686,158 or 7.1% of net assets.
@ Security, or portion of security, is on loan.
# Non-income producing security.
++ Variable rate security. The interest rate shown is the rate in effect at
October 31, 2006.
& Securities exchangeable or convertible into securities of an entity
different than the issuer. Such entity is identified in the parenthetical.
FOREIGN CURRENCY ABBREVIATIONS
CAD Canadian Dollar
EUR European Monetary Unit
GBP British Pound Sterling
See accompanying Notes to Financial Statements
Strategic Total Return Fund
16 ANNUAL REPORT Schedule of Investments
Statement of Assets and Liabilities
OCTOBER 31, 2006
ASSETS
Investments, at value* (cost $3,791,528,183) $4,007,717,709
Cash with custodian (interest bearing) 4,106
Restricted cash for open options (interest bearing) 150,000
Foreign currency (cost $312,104) 312,957
Accrued interest and dividends receivables 30,940,154
Unrealized appreciation on interest rate swaps 4,709,000
Prepaid expenses 85,131
Other assets 42,866
--------------
Total assets 4,043,961,923
--------------
LIABILITIES
Payables:
Cash collateral for securities on loan 527,235,000
Investments purchased 4,834,454
Affiliates:
Investment advisory fees 2,957,186
Deferred compensation to Trustees 42,866
Financial accounting fees 33,483
Trustee fees and officer compensation 1,059
Accounts payable and accrued liabilities 346,503
--------------
Total liabilities 535,450,551
--------------
PREFERRED SHARES
$25,000 liquidation value per share applicable to 43,200
shares, including dividends payable 1,080,879,088
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $2,427,632,284
==============
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) (851,765)
Accumulated net realized gain (loss) on investments, written
options, foreign currency transactions and interest rate
swaps 6,829,494
Net unrealized appreciation (depreciation) on investments,
written options, foreign currency translations and interest
rate swaps 220,920,696
--------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $2,427,632,284
==============
Net asset value per common share based on 154,514,000
shares issued and outstanding $ 15.71
==============
* Including securities on loan with a value of $512,014,547.
See accompanying Notes to Financial Statements.
Strategic Total Return Fund
Statement of Assets and Liabilities ANNUAL REPORT 17
Statement of Operations
YEAR ENDED OCTOBER 31, 2006
INVESTMENT INCOME
Interest $ 99,743,291
Dividends (net of foreign taxes withheld of $367,035) 75,472,397
Securities lending 914,525
income
------------
Total investment income 176,130,213
============
EXPENSES
Investment advisory fees 34,049,644
Financial accounting fees 385,141
Auction agent and rating agency fees 2,750,756
Printing and mailing fees 335,635
Accounting fees 290,977
Custodian fees 214,301
Audit and legal fees 188,004
Registration fees 136,264
Trustees' fees and officer compensation 75,354
Transfer agent fees 38,924
Other 103,183
------------
Total expenses 38,568,183
Less earnings credits (41,913)
============
Net expenses 38,526,270
============
NET INVESTMENT INCOME (LOSS) 137,603,943
============
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS, WRITTEN
OPTIONS, FOREIGN CURRENCY AND INTEREST RATE SWAPS
NET REALIZED GAIN (LOSS) FROM:
Investments 79,432,717
Written options (1,516,084)
Foreign currency transactions 507,593
Interest rate swaps 4,323,763
CHANGE IN NET UNREALIZED APPRECIATION/DEPRECIATION ON:
Investments 216,209,533
Written options (251,427)
Foreign currency translations 22,965
Interest rate swaps (11,584,318)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS,
WRITTEN OPTIONS, FOREIGN CURRENCY AND INTEREST RATE SWAPS 287,144,742
============
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 424,748,685
============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM
Net investment income (50,773,343)
------------
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS RESULTING FROM OPERATIONS $373,975,342
============
See accompanying Notes to Financial Statements.
Strategic Total Return Fund
18 ANNUAL REPORT Statement of Operations
Statements of Changes in Net Assets
Year Ended October 31,
-------------------------------
2006 2005
-------------- --------------
OPERATIONS
Net investment income (loss) $ 137,603,943 $ 143,752,406
Net realized gain (loss) from investments, written options,
foreign currency transactions and interest rate swaps 82,747,989 63,608,151
Change in net unrealized appreciation/depreciation on investments,
written options, foreign currency translations and interest rate swaps 204,396,753 9,671,607
Distributions to preferred shareholders from
Net investment income (50,773,343) (32,330,741)
-------------- --------------
Net increase (decrease) in net assets applicable to common shareholders
resulting from operations 373,975,342 184,701,423
-------------- --------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM
Net investment income (118,970,833) (108,979,250)
Capital gains (58,720,277) (43,603,336)
-------------- --------------
Net decrease in net assets from distributions to common shareholders (177,691,110) (152,582,586)
-------------- --------------
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) in net assets from capital stock transactions -- --
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS 196,284,232 32,118,837
-------------- --------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Beginning of year 2,231,348,052 2,199,229,215
-------------- --------------
End of year $2,427,632,284 $2,231,348,052
============== ==============
Undistributed net investment income (loss) $ (851,765) $ 9,123,770
See accompanying Notes to Financial Statements.
Strategic Total Return Fund
Statements of Changes in Net Assets ANNUAL REPORT 19
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 (the "1940 Act") 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. Under normal circumstances, the Fund
will invest primarily in common and preferred stocks and income producing
securities such as investment grade and below investment grade debt securities.
PORTFOLIO VALUATION. Calamos Advisors LLC ("Calamos Advisors") values the Fund's
portfolio securities in accordance with policies and procedures on the valuation
of securities adopted by the Board of Trustees and under the ultimate
supervision of the Board of Trustees.
Portfolio securities that are traded on U.S. securities exchanges, except option
securities, are valued at the last current reported sales price at the time as
of which the Fund determines its NAV. Securities traded in the over-the-counter
("OTC") market and quoted on The Nasdaq Stock Market are valued at the Nasdaq
Official Closing Price ("NOCP"), as determined by Nasdaq, or lacking a NOCP, the
last current reported sale price on Nasdaq at the time as of which the Fund
determines its NAV.
When a most recent last sale or closing price is not available, portfolio
securities, other than option securities, that are traded on a U.S. securities
exchange and other securities traded in the OTC market are valued at the mean
between the most recent bid and asked quotations in accordance with guidelines
adopted by the Board of Trustees. Each option security traded on a U.S.
securities exchange is valued at the mid-point of the consolidated bid/ask quote
for the option security, also in accordance with guidelines adopted by the Board
of Trustees. Each OTC option that is not traded through the Options Clearing
Corporation is valued by the counterparty to such option. If the pricing
committee determines that the valuation of a security in accordance with the
methods described above is not reflective of a fair value for such security, the
security, including any thinly-traded security, junk bond or synthetic
convertible instrument, is valued at a fair value by the pricing committee,
under the ultimate supervision of the Board of Trustees, following the
guidelines and/or procedures adopted by the Board of Trustees.
Trading in securities on European and Far Eastern securities exchanges and OTC
markets is typically completed at various times before the close of business on
each day on which the NYSE is open. Each security trading on these exchanges or
OTC markets is evaluated utilizing a systematic fair valuation model provided by
an independent pricing service approved by the Board of Trustees. The valuation
of each security that meets certain criteria in relation to the valuation model
is systematically adjusted to reflect the impact of movement in the U.S. market
after the foreign markets close. Securities that do not meet the criteria, or
that are principally traded in other foreign markets, are valued as of the last
current sale price at the time as of which the Fund determines its NAV, or when
reliable market prices or quotations are not readily available, at the mean
between the most recent bid and asked quotations as of the close of the
appropriate exchange or other designated time, in accordance with guidelines
adopted by the Board of Trustees. Trading of foreign 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 NAV is not calculated. As stated above, if the market prices
are not readily available or are not reflective of a security's fair value, the
security is valued at a fair value by the pricing committee, under the ultimate
supervision of the Board of Trustees, following the guidelines and/or procedures
adopted by the Board of Trustees.
The Fund also may use fair value pricing, pursuant to Board of Trustees
guidelines and under the ultimate supervision of the Board of Trustees if the
value of a foreign security it holds is materially affected by events occurring
before their pricing time but after the close of the primary market or exchange
on which the security is traded. Those procedures may utilize valuations
furnished by pricing services approved by the Board of Trustees, 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.
Strategic Total Return Fund
20 ANNUAL REPORT Notes to Financial Statements
Notes to Financial Statements
When fair value pricing of securities is employed, the prices of securities used
by the Fund to calculate its NAV may differ from market quotations or official
closing prices.
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 a rate quoted by a major bank or dealer in the particular currency market,
as reported by a recognized quotation dissemination service.
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, the difference in the foreign exchange rates 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
ex-date or accrual 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 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 purchased
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 written options. 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 written 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 written 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
U.S. generally accepted accounting principles 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.
INCOME TAXES. No provision has been made for U.S. income taxes because the
Fund's policy is to continue to qualify as a regulated investment company under
the Internal Revenue Code of 1986, as amended (the "Code") and distribute to
shareholders substantially all of its taxable income and net realized gains.
Strategic Total Return Fund
Notes to Financial Statements ANNUAL REPORT 21
Notes to Financial Statements
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 U.S. generally accepted accounting
principles. 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 fixed income securities. Financial records
are not adjusted for temporary differences.
INDEMNIFICATIONS. Under the Fund's organizational documents, its officers and
trustees are indemnified against certain liabilities incurred by them by reason
of having been an officer or trustee of the Fund. In addition, in the normal
course of business, the Fund enters into contracts that provide general
indemnifications to other parties. 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 occurred. However, the Fund has not had prior
claims or losses pursuant to these contracts and expects the risk of loss to be
remote.
NEW ACCOUNTING PRONOUNCEMENTS. On July 13, 2006, the Financial Accounting
Standards Board (FASB) released FASB Interpretation No. 48 Accounting for
Uncertainty in Income Taxes (FIN 48). FIN 48 provides guidance for how uncertain
tax positions should be recognized, measured, presented and disclosed in the
financial statements. FIN 48 requires the evaluation of tax positions taken in
the course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax benefits of positions not deemed to meet the more-likely-than-not
threshold would be recorded as a tax expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the Fund's
financial statements has not yet been determined.
In addition, in September 2006, the Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statements and their
disclosures and its impact has not yet been determined.
NOTE 2 - INVESTMENT ADVISOR AND TRANSACTIONS WITH AFFILIATES OR CERTAIN OTHER
PARTIES
Pursuant to an investment advisory agreement with Calamos Advisors LLC, the Fund
pays an annual fee, payable monthly, equal to 1.00% based on the average weekly
managed assets. "Managed assets" means the Fund's total assets (including any
assets attributable to any leverage that may be outstanding) minus total
liabilities (other than debt representing financial leverage).
Pursuant to a financial accounting services agreement, 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 total of the average
daily net assets of Calamos Investment Trust, Calamos Advisors Trust and the
average weekly managed assets of Calamos Convertible and High Income Fund,
Calamos Convertible Opportunities and Income Fund, Calamos Strategic Total
Return Fund and Calamos Global Total Return Fund). 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 Fund
pays its pro rata share of the financial accounting services fee payable to
Calamos Advisors based on the Fund's relative portion of combined assets.
The Fund reimburses the advisor for a portion of compensation paid to the Fund's
Chief Compliance Officer. This compensation is reported as part of "Trustees'
fees and officer compensation" expenses on the Statement of Operations.
Included in the statement of operations under the caption "Earnings credits" is
an expense offset of $41,913, arising from credits on cash balances maintained
on deposit.
Strategic Total Return Fund
22 ANNUAL REPORT Notes to Financial Statements
Notes to Financial Statements
Certain officers and trustees of the Fund are also officers and directors of
Calamos Financial Services LLC ("CFS") and Calamos Advisors. All officers and
affiliated Trustees serve without direct compensation from the Fund, except for
the Chief Compliance Officer as described above.
The Fund has adopted a deferred compensation plan (the "Plan"). Under the Plan,
a trustee who is not an "interested person" (as defined in the 1940 Act) of CFS
or 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 participating trustee. 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. Deferred
compensation of $42,866 is included in "Other assets" on the Statement of Assets
and Liabilities at October 31, 2006. The Fund's obligation to make payments
under the Plan is a general obligation of the Fund and is included on the
Statement of Assets and Liabilities as a payable for "Deferred compensation for
Trustees" at October 31, 2006.
NOTE 3 - INVESTMENTS
Purchases and sales of investments, other than short-term investments for the
year ended October 31, 2006 were as follows:
Purchases $1,608,749,243
Proceeds from sales 2,535,554,039
The following information is presented on an income tax basis as of October 31,
2006. 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,
2006 was as follows:
Cost basis of investments $3,808,424,259
--------------
Gross unrealized appreciation 294,916,081
Gross unrealized depreciation (95,622,631)
--------------
Net unrealized appreciation (depreciation) $ 199,293,450
--------------
NOTE 4 - INCOME TAXES
For the year ended October 31, 2006, the Fund recorded the following permanent
reclassifications to reflect tax character. Results of operations and net assets
were not affected by these reclassifications.
Paid-in capital $ --
Undistributed net investment income (loss) 22,164,698
Accumulated net realized gain/(loss) on investments, written
options, foreign currency transactions and interest rate
swaps (22,164,698)
Distributions during the fiscal year ended October 31, 2006 and 2005 were
characterized for Federal income tax purposes as follows:
2006 2005
------------ ------------
DISTRIBUTIONS PAID FROM:
Ordinary income $216,951,537 $184,587,693
Long-term capital gains 15,065,115 --
Strategic Total Return Fund
Notes to Financial Statements ANNUAL REPORT 23
Notes to Financial Statements
As of October 31, 2006, the components of accumulated earnings/(losses) on a tax
basis were as follows:
Undistributed ordinary income $ 6,370,479
Undistributed capital gains 17,788,433
--------------
Total undistributed earnings 24,158,912
Accumulated capital and other losses --
Net unrealized gains/(losses) 203,671,995
--------------
Total accumulated earnings/(losses) 227,830,907
Other (932,482)
Paid-in capital 2,200,733,859
--------------
Net assets applicable to common shareholders $2,427,632,284
--------------
NOTE 5 - COMMON STOCK
There are unlimited common shares of beneficial interest authorized and
154,514,000 shares outstanding at October 31, 2006. Calamos Advisors owned
16,759 of the outstanding shares at October 31, 2006. Transactions in common
shares were as follows:
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
------------------ ------------------
Beginning shares 154,514,000 154,514,000
Shares issued through reinvestment of
distributions -- --
----------- -----------
Ending shares 154,514,000 154,514,000
=========== ===========
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, among other things, 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, 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 when a position is closed or upon
settlement of the contracts. There were no open forward foreign currency
contracts at October 31, 2006.
NOTE 7 - SYNTHETIC CONVERTIBLE SECURITIES
The Fund may establish a "synthetic" convertible instrument by combining
separate securities that possess the economic characteristics similar to a
convertible security, i.e., fixed-income securities ("fixed-income component",
which may be a convertible or non-convertible security) and the right to acquire
equity securities ("convertible component"). The fixed-income component is
achieved by investing in fixed income securities such as bonds, preferred
stocks, and money market instruments. The convertible component is achieved by
investing in warrants or options to buy common stock at a certain exercise
price, or options on a stock index. In establishing a synthetic instrument, the
Fund may 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 convertible instruments 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.
Strategic Total Return Fund
24 ANNUAL REPORT Notes to Financial Statements
Notes to Financial Statements
NOTE 8 - WRITTEN OPTIONS TRANSACTIONS
The Fund may engage in options transactions and in doing so achieve the similar
objectives to what it would achieve through the sale or purchase of individual
securities. Transactions in options written during the year ended October 31,
2006 were as follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
Options outstanding at October 31, 2005 2,100 $ 387,677
Options written 2,900 977,270
Options closed (3,975) (1,281,782)
Options expired (1,000) (74,741)
Options exercised (25) (8,424)
------ -----------
Options outstanding at October 31, 2006 -- $ --
====== ===========
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 3.75% to 5.34% for the year ended October 31, 2006. Under the 1940
Act, 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 Fund's option, 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 only the holders of common stock, when the respective
classes vote alone.
NOTE 10 - INTEREST RATE TRANSACTIONS
The Fund may engage in swaps primarily to manage duration and yield curve risk,
or as alternatives to direct investments. Unrealized gains are reported as an
asset and unrealized losses are reported as a liability on the Statement of
Assets and Liabilities. The change in value of swaps, including accruals of
periodic amounts of interest to be paid or received on swaps, is reported as
unrealized gains or losses in the Statement of Operations. A realized gain or
loss is recorded upon payment or receipt of a periodic payment or termination of
the swap agreements. Swap agreements are stated at fair value. Notional
principal amounts are used to express the extent of involvement in these
transactions, but the amounts potentially subject to credit risk are much
smaller.
Premiums paid to or by the Fund are accrued daily and included in realized gain
(loss) when paid on swaps in the accompanying Statement of Operations. The
contracts are marked-to-market daily based on dealer-supplied valuations and
changes in value are recorded as unrealized appreciation (depreciation). Gains
or losses are realized upon early termination of the contract. Risks may exceed
amounts recognized in the Statement of Assets and Liabilities. These risks
include changes in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack of
liquidity with respect to the contracts.
Strategic Total Return Fund
Notes to Financial Statements ANNUAL REPORT 25
Notes to Financial Statements
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 additional to redeeming all or some of the Preferred Shares.
Details of the swap agreements outstanding as of October 31, 2006 were as
follows:
UNREALIZED
TERMINATION NOTIONAL FIXED RATE FLOATING RATE APPRECIATION
COUNTERPARTY DATE AMOUNT (000) (FUND PAYS) (FUND RECEIVES) (DEPRECIATION)
------------ ------------ ------------ ----------- --------------- --------------
Citibank NA June 4, 2007 $150,000 3.61% 1 month LIBOR $1,689,351
Citibank NA June 4, 2009 200,000 4.34% 1 month LIBOR 3,019,649
----------
$4,709,000
==========
NOTE 11 - SECURITIES LENDING
During the year ended October 31, 2006, the Fund loaned 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 continues to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and also receives 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 has 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 does 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) the expenses of
enforcing its rights. In an effort to reduce these risks, Calamos Advisors LLC
and the security lending agent will monitor the creditworthiness of the firms to
which the Fund lends securities. At October 31, 2006, the Fund had securities
valued at $512,014,547 that were on loan to broker-dealers and banks and
$527,235,000 in cash or cash equivalent collateral.
Strategic Total Return Fund
26 ANNUAL REPORT Notes to Financial Statements
Financial Highlights
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD WERE AS FOLLOWS:
For the Year March 26, 2004*
Ended October 31, through
------------------------ October 31,
2006 2005 2004
----------- ----------- ---------------
Net asset value, beginning of period $ 14.44 $ 14.23 $ 14.32(a)
Income from investment operations:
Net investment income (loss) 0.89 0.93 0.51
Net realized and unrealized gain (loss) from investments,
written options, foreign currency and interest rate swaps 1.86 0.48 (0.09)
Distributions to preferred shareholders from:
Net investment income (common share equivalent basis) (0.33) (0.21) (0.06)
Total from investment operations 2.42 1.20 0.36
Less distributions to common shareholders from:
Net investment income (0.77) (0.71) (0.37)
Capital gains (0.38) (0.28) --
Capital charge resulting from issuance of common and preferred shares -- -- (0.08)
Net asset value, end of period $ 15.71 $ 14.44 $ 14.23
Market value, end of period $ 14.91 $ 13.71 $ 13.34
Total investment return based on(b):
Net asset value 18.03% 8.95% 2.10%
Market value 17.99% 10.35% (8.59)%
Ratios and supplemental data:
Net assets applicable to common shareholders, end of period (000's omitted) $2,427,632 $2,231,348 $2,199,229
Preferred shares, at redemption value ($25,000 per share liquidation
preference) (000's omitted) $1,080,000 $1,080,000 $1,080,000
Ratios to average net assets applicable to common shareholders:
Net expenses(c)(d) 1.66% 1.67% 1.61%
Gross expenses prior to waiver of expenses by the advisor and
earnings credits(c)(d) 1.66% -- --
Net investment income (loss)(c)(d) 5.92% 6.25% 6.27%
Preferred share distributions(c) 2.18% 1.40% 0.67%
Net investment income (loss), net of preferred share distributions(c) 3.74% 4.85% 5.60%
Portfolio turnover rate 48% 71% 11%
Average commission rate paid $ 0.0342 $ 0.0381 $ 0.0197
Asset coverage per preferred share, at end of period(e) $ 81,216 $ 76,667 $ 75,916
* 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. NAV
per share is determined by dividing the value of the Fund's portfolio
securities, cash and other assets, less all liabilities, by the total
number of common shares outstanding. The common share market price is the
price the market is willing to pay for shares of the Fund at a given time.
Common share market price is influenced by a range of factors, including
supply and demand and market conditions.
(c) Annualized for periods less than one year.
(d) Does not reflect the effect of dividend payments to Preferred Shareholders.
(e) 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.
Strategic Total Return Fund
Financial Highlights ANNUAL REPORT 27
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, 2006, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years then
ended and the financial highlights for each of the two years then ended and 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the Fund's
custodian and brokers. We believe that our audits provide 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, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years then ended and
the financial highlights for each of the two years then ended and 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.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 19, 2006
Strategic Total Return Fund
28 ANNUAL REPORT Report of Independent Registered Public Accounting Firm
Tax Information (unaudited)
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 2007,
shareholders will receive Form 1099-DIV which will include their share of
qualified dividends and capital gains distributed during the calendar year 2006.
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 852(b)(3)(c) of the Code, the Fund hereby designates $15,065,115
as capital gain dividends for the fiscal year ended October 31, 2006.
Under Section 854(b)(2) of the Code, the Fund hereby designates $53,960,972, or
the maximum amount allowable under the Code, as qualified dividends for the
fiscal year ended October 31, 2006.
Under Section 854(b)(2) of the Code, the Fund hereby designates 23.66% of the
ordinary income dividends as income qualifying for the corporate dividends
received deduction for the fiscal year ended October 31, 2006.
Strategic Total Return Fund
Tax Information ANNUAL REPORT 29
Trustee Approval of Management Agreement (unaudited)
The Board of Trustees of the Fund oversees the Fund's management, and, as
required by law, determines annually whether to continue the Fund's management
agreement with Calamos Advisors under which Calamos Advisors serves as the
investment manager for the Fund.
In connection with their most recent consideration regarding the continuation of
that agreement, the Trustees received and reviewed information provided by
Calamos Advisors in response to detailed requests of the Independent Trustees
and their independent legal counsel and discussed with representatives of
Calamos Advisors the Fund's operations and the nature and quality of the
advisory and other services provided by Calamos Advisors to the Fund. The
Trustees also received and reviewed a memorandum from counsel to the Independent
Trustees regarding the Trustees' responsibilities in evaluating the management
agreement. In the course of their consideration of the agreement, the
Independent Trustees were advised by their counsel and, in addition to meeting
with management of Calamos Advisors, they met separately in executive session
with their counsel.
At a meeting on June 29, 2006, based on their evaluation of the information
referred to above and other information, the Trustees determined that the
overall arrangements between the Fund and Calamos Advisors were fair and
reasonable in light of the nature and quality of the services provided by
Calamos Advisors and its affiliates, the fees charged for those services and
other matters that the Trustees considered relevant in the exercise of their
business judgment. At that meeting the Trustees, including all of the
Independent Trustees, unanimously approved continuation of the management
agreement through August 1, 2007, subject to earlier termination as provided in
the agreement.
In considering the continuation of the management agreement, the Trustees
reviewed and analyzed various factors that they determined were relevant,
including the factors described below, none of which by itself was considered
the sole factor in the Trustees' determinations. However, the material factors
and conclusions that formed the basis for the Trustees' determination to approve
the continuation of the management agreement are discussed separately below.
NATURE, QUALITY AND EXTENT OF SERVICES
The Trustees reviewed the nature, extent and quality of Calamos Advisors'
services to the Fund, taking into account the Fund's investment objective and
strategy and the knowledge of the Trustees gained from their regular meetings
with management on at least a quarterly basis. In addition, the Trustees
reviewed Calamos Advisors' resources and key personnel, especially those who
provide investment management services to the Fund. The Trustees also considered
other services provided to the Fund by Calamos Advisors, such as managing the
execution of portfolio transactions and the selection of broker-dealers for
those transactions, monitoring adherence to the Fund's investment restrictions,
producing shareholder reports, providing support services for the Board and
Board committees, communicating with shareholders, overseeing the activities of
other service providers and monitoring compliance with various Fund policies and
procedures and with applicable securities laws and regulations.
The Trustees concluded that the nature and extent of the services provided by
Calamos Advisors to the Fund were appropriate and consistent with the terms of
the management agreement, that the quality of those services had been consistent
with or superior to quality norms in the industry and that the Fund was likely
to benefit from the continued provision of those services. They also concluded
that Calamos Advisors had sufficient personnel, with the appropriate education
and experience, to serve the Fund effectively and had demonstrated its
continuing ability to attract and retain well-qualified personnel.
PERFORMANCE
The Trustees considered the Fund's performance results over various time
periods. They reviewed information comparing the performance of the Fund with
the performance of comparable funds and peer groups identified by Lipper Inc.,
an independent provider of investment company data, and with the Fund's
benchmark. The Trustees heard from representatives of Calamos Advisors, who
provided additional information with regard to certain aspects of the Lipper
materials and answered questions from the Trustees. The Trustees also noted that
the Fund had less than three years of performance data, and thus did not have a
Strategic Total Return Fund
30 ANNUAL REPORT Trustee Approval of Management Agreement
Trustee Approval of Management Agreement (unaudited)
long-term performance record. The Trustees concluded that the Fund's operating
history was too short a period to allow for a meaningful performance comparison.
COSTS OF SERVICES AND PROFITS REALIZED BY CALAMOS ADVISORS
The Trustees examined information on the Fund's fees and expenses in comparison
to information for other comparable funds as provided by Lipper. Also, the
Trustees reviewed information on fees and expenses for additional funds
identified by Calamos Advisors. The Trustees noted that, although the Fund's
contractual rate of management fees, actual management fees after fee waivers
and overall expense ratio were higher than those of its peer group, each of
those data points appeared to be within a range of what was determined to be
reasonable.
The Trustees considered the methodology used by Calamos Advisors in determining
compensation payable to portfolio managers, the competitive environment for
investment management talent, and the competitive market for mutual funds in
different distribution channels.
The Trustees reviewed information on the profitability of Calamos Advisors in
serving as the Fund's investment manager and of Calamos Advisors and its
affiliates in all of their relationships with the Fund, as well as an
explanation of the methodology utilized in allocating various expenses among the
Fund and other business units. Data was provided to the Trustees with respect to
profitability, both on a pre- and post-marketing cost basis. The Trustees also
reviewed the annual report of Calamos Advisors' parent company and discussed its
corporate structure. The Trustees recognized that profitability comparisons
among fund managers are difficult because very little comparative information is
publicly available and profitability of any manager is affected by numerous
factors, including the organizational structure of the particular manager, the
types of funds and other accounts it manages, possible other lines of business,
the methodology for allocating expenses and the manager's capital structure and
cost of capital. However, based on the information available and taking those
factors into account, the Trustees concluded that the profitability of Calamos
Advisors regarding the Fund in relation to the services rendered was not
unreasonable.
The Trustees also reviewed Calamos Advisors' management fees for its
institutional separate accounts and for its subadvised funds (for which Calamos
Advisors provides portfolio management services only), as well as managed fees
for secondary accounts. Although in most instances its sub-advisory fees, and in
many instances its institutional separate accounts fees, for various investment
strategies are lower than the management fees charged to the Fund, the Trustees
noted that Calamos Advisors performs significant additional services for the
Fund that it does not provide to those other clients, including administrative
services, oversight of the Fund's other service providers, trustee support,
regulatory compliance and numerous other services. Finally, the Trustees
considered Calamos Advisors' financial condition, which they found to be sound.
The Trustees concluded that the management fees and other compensation payable
by the Fund to Calamos Advisors and its affiliates were reasonable in relation
to the nature and quality of the services to be provided, taking into account
the fees charged by other advisers for managing comparable mutual funds with
similar strategies and the fees Calamos Advisors charges to other clients. The
Trustees also concluded that the Fund's overall expense ratio was reasonable,
taking into account the quality of services provided by Calamos Advisors and the
Fund's investment performance.
ECONOMIES OF SCALE
In reviewing the Fund's fees and expenses, the Trustees examined the potential
benefits of economies of scale and whether any economies of scale should be
reflected in the Fund's fee structure. They noted that the Fund has had a
relatively stable asset base since commencement of operation and that there do
not appear to have been any significant economies of scale realized since that
time.
Strategic Total Return Fund
Trustee Approval of Management Agreement ANNUAL REPORT 31
Trustee Approval of Management Agreement (unaudited)
OTHER BENEFITS TO CALAMOS ADVISORS
The Trustees also considered benefits that accrue to Calamos Advisors and its
affiliates from their relationship with the Fund. The Trustees concluded that,
other than the services to be provided by Calamos Advisors and its affiliates
pursuant to their agreements with the Fund and the fees payable by the Fund
therefor, the Fund and Calamos Advisors may potentially benefit from their
relationship with each other in other ways. The Trustees considered Calamos
Advisors' use of commissions paid by the Fund on its portfolio brokerage
transactions to obtain proprietary research products and services benefiting the
Fund and/or other clients of Calamos Advisors. The Trustees concluded that
Calamos Advisors' use of "soft" commission dollars to obtain research products
and services was consistent with regulatory requirements and is beneficial to
the Fund. They concluded that, although Calamos Advisors derives or may derive
additional benefits through the use of soft dollars from the Fund's portfolio
transactions, the Fund also benefits from the receipt of research products and
services acquired through commissions paid on the portfolio transactions of
other clients of Calamos Advisors. They also concluded that the Fund's success
could attract other business to Calamos Advisors or its other funds and that
Calamos Advisors' success could enhance its ability to serve the Fund.
After full consideration of the above factors as well as other factors that were
instructive in analyzing continuation of the management agreement for the
one-year period ending August 1, 2007, the Trustees, including all of the
Independent Trustees, concluded that the continuation of the management
agreement with Calamos Advisors was in the best interest of the Fund and its
shareholders.
Strategic Total Return Fund
32 ANNUAL REPORT Trustee Approval of Management Agreement
Trustees & Officers (unaudited)
The management of the Trust+, 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, 2006 each trustee's
position(s) with the Trust, 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 Trust.
POSITION(S)
HELD WITH TRUST AND NUMBER OF PORTFOLIOS
NAME AND AGE DATE FIRST ELECTED OR IN FUND COMPLEX@ PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
AT OCTOBER 31, 2006 APPOINTED TO OFFICE OVERSEEN BY TRUSTEE AND OTHER DIRECTORSHIPS HELD
------------------- --------------------- -------------------- --------------------------------------------------------
TRUSTEES WHO ARE INTERESTED PERSONS OF TRUST:
John P. Calamos, Sr., 66* Trustee and President 15 Chairman, CEO, and Co-Chief Investment Officer Calamos
(since 2003) Asset Management, Inc. ("CAM"), Calamos Holdings LLC
("CHLLC") and Calamos Advisors LLC and its predecessor
("Calamos Advisors"), and President and Co-Chief
Investment Officer, Calamos Financial Services LLC and
its predecessor ("CFS"); Director, CAM
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF TRUST:
Joe F. Hanauer, 69 Trustee (since 2003) 15 Private investor; Director, MAF Bancorp (bank holding
company); Chairman and Director, Move, Inc., (Internet
provider of real estate information and products);
Director, Combined Investments, L.P. (investment
management)
Weston W. Marsh, 56 Trustee (since 2003) 15 Of Counsel, and formerly, Partner, Freeborn & Peters
(law firm)
John E. Neal, 56 Trustee (since 2003) 15 Private investor; Managing Director, Banc One Capital
Markets, Inc. (investment banking) (2000-2004);
Director, The Brickman Group, Ltd. (landscaping
company); Director, Equity Residential (publicly-owned
REIT); Director, Ranir LLC (oral products company);
Director, CBA Commercial (commercial mortgage
securitization company); Partner, Private Perfumery LLC
(private label perfume company); Partner, Linden LLC
(health care private equity)
William R. Rybak, 55 Trustee (since 2003) 15 Private investor; formerly Executive Vice President and
Chief Financial Officer, Van Kampen Investments, Inc.
and subsidiaries (investment manager); Director, Howe
Barnes Investments (investment services firm); Director,
Private Bancorp (bank holding company)
Stephen B. Timbers, 62 Trustee (since 2004); 15 Private investor; formerly Vice Chairman, Northern Trust
Independent Lead Corporation (bank holding company); President and Chief
Trustee (since 2005) Executive Officer, Northern Trust Investments, N.A.
(investment manager); formerly President, Northern Trust
Global Investments, a division of Northern Trust
Corporation and Executive Vice President, The Northern
Trust Corporation; Director, Northern Trust Securities,
Inc.
David D. Tripple, 62 Trustee (since 2006) 15 Private investor; Trustee, Century Shares Trust and
Century Small Cap Select Fund**; Pioneer Investment
Management, a subsidiary of UniCredito Italiano
(investment advisor); prior thereto, The Pioneer Group,
Inc. (asset management)
+ The Trust is defined as the CALAMOS Strategic Total Return Fund.
* John P. Calamos is an "interested person" of the Trust as defined in the
Investment Company Act of 1940 (the "1940 Act") because he is an affiliate
of Calamos Advisors and Calamos Financial Services, LLC.
** Overseeing two 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, CALAMOS Strategic Total Return Fund and
CALAMOS Global Total Return Fund.
Strategic Total Return Fund
Trustees & Officers ANNUAL REPORT 33
Trustees & Officers (unaudited)
OFFICERS. Mr. John Calamos is president of the Trust. The preceding table gives
more information about Mr. John Calamos. The following table sets forth as of
October 31, 2006 each other officer's name, position with the Trust, age,
principal occupation during the past five years, other directorships, and the
date on which he or she first became and officer of the Trust. 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.
POSITION(S) HELD WITH TRUST PRINCIPAL OCCUPATION(S)
NAME AND AGE AT AND DATE FIRST ELECTED DURING PAST 5 YEARS
OCTOBER 31, 2006 OR APPOINTED TO OFFICE AND OTHER DIRECTORSHIPS HELD
---------------- --------------------------- ---------------------------------
Nimish S. Bhatt, 43 Treasurer (since 2003) Senior Vice President and
Director of Operations, CAM,
CHLLC, Calamos Advisors and CFS
(since 2004); Senior Vice
President, Alternative
Investments and Tax Services, The
BISYS Group, Inc., prior thereto
Nick P. Calamos, 45* Vice President (since 2003) Senior Executive Vice President
and Co-Chief Investment Officer,
CAM, CHLLC, Calamos Advisors and
CFS
Patrick H. Dudasik, 51 Vice President (since 2003) Executive Vice President, Chief
Financial Officer and Treasurer,
CAM and CHLLC (since 2004),
Calamos Advisors and CFS (since
2001); Administrative Officer,
CAM and CHLLC (2004-2005),
Calamos Advisors and CFS
(2001-2005)
James S. Hamman, Jr., 37 Secretary (since 2003) Executive Vice President,
Secretary and General Counsel,
CAM and CHLLC (since 2004),
Calamos Advisors and CFS (since
1998); Chief Compliance Officer
(2004-2005)
Mark Mickey, 55 Chief Compliance Officer Chief Compliance Officer, Calamos
(since 2005) Funds (since 2005) and Chief
Compliance Officer, Calamos
Advisors (2005-2006); Director of
Risk Assessment and Internal
Audit, Calamos Advisors
(2003-2005); President, Mark
Mickey Consulting (2002- 2003);
Executive Vice President and Head
of Compliance, ABN AMRO, Inc.,
prior thereto
* Mr. Nick Calamos resigned from the board of trustees effective June 28,
2006.
The mailing address of the Trustees and Officers is Calamos Funds; Attn:
Secretary, 2020 Calamos Court, Naperville, IL 60563-2787
PROXY VOTING POLICIES. A description of the CALAMOS Proxy Voting Policies and
Procedures is available by calling (800) 582-6959, by visiting its website at
www.calamos.com or by writing CALAMOS at: CALAMOS INVESTMENTS, Attn: Client
Services, 2020 Calamos Court, Naperville, IL 60563, and on the Securities and
Exchange Commission's website at www.sec.gov.
Strategic Total Return Fund
34 ANNUAL REPORT Trustees & Officers
Other Information (unaudited)
CHANGE IN DATE OF 2007 SHAREHOLDER MEETING. The 2007 annual meeting of
shareholders of the Fund is expected to be held on June 28, 2007, rather than in
March, as it was held in 2006. Any shareholder wishing to submit a proposal for
inclusion in the Fund's proxy materials for the 2007 annual meeting must do so
not later than February 9, 2007. Any shareholder wishing to submit a proposal in
the manner prescribed by Rule 14a-4(c)(1), and therefore outside of the process
prescribed by Rule 14a-8, under the Securities Exchange Act of 1934, must submit
written notice of such proposal to the Fund not later than April 23, 2007.
Strategic Total Return Fund
Other Information ANNUAL REPORT 35
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About Closed-End Funds
WHAT IS A CLOSED-END FUND?
A closed-end fund is a publicly traded investment company that raises its
initial investment capital through the issuance of a fixed number of shares to
investors in a public offering. Shares of a closed-end fund are listed on a
stock exchange or traded in the over-the-counter market. Like all investment
companies, a closed-end fund is professionally managed and offers investors a
unique investment solution based on its investment objective approved by the
fund's Board of Directors.
ADVANTAGES OF CLOSED-END FUND INVESTING
- DEFINED ASSET POOL ALLOWS EFFICIENT PORTFOLIO MANAGEMENT--Although
closed-end fund shares trade actively on a securities exchange, this
doesn't affect the closed-end fund manager because there are no new
investors buying into or selling out of the fund's portfolio.
- MORE FLEXIBILITY IN THE TIMING AND PRICE OF TRADES--Investors can purchase
and sell shares of closed-end funds throughout the trading day, just like
the shares of other publicly traded securities.
- LOWER EXPENSE RATIOS--The expense ratios of closed-end funds are oftentimes
less than those of mutual funds. Over time, a lower expense ratio could
enhance investment performance.
- CLOSED-END STRUCTURE MAKES SENSE FOR LESS-LIQUID ASSET CLASSES--A
closed-end structure makes sense for investors considering less-liquid
asset classes, such as high-yield bonds or micro-cap stocks.
- ABILITY TO PUT LEVERAGE TO WORK--Closed-end funds may issue senior
securities (such as preferred stock or debentures) or borrow money to
"leverage" their investment positions.
- NO MINIMUM INVESTMENT REQUIREMENTS
OPEN-END MUTUAL FUNDS VERSUS CLOSED-END FUNDS
OPEN-END FUND CLOSED-END FUND
------------- ---------------
Issues new shares on an ongoing basis Issues a fixed number of shares
Issues one class of shares Can issue senior securities such as
preferred stock and bonds
Sold at NAV plus any sales charge Price determined by the marketplace
Sold through the fund's distributor Traded in the secondary market
Fund redeems shares at NAV calculated Fund does not redeem shares
at the close of business day
Strategic Total Return Fund
About Closed-End Funds ANNUAL REPORT 37
Leverage
USING LEVERAGE TO ENHANCE TOTAL RETURN
Closed-end funds can use leverage which utilizes borrowed money to increase the
return on invested capital. The Fund invests the borrowed assets into
securities, which we believe will provide a greater total return to investors
than the cost of the borrowing.
HIGHLIGHTS ON LEVERAGE
- Leveraging the portfolio allows the investment team to potentially enhance
the income and total returns of the Fund.
- In a rising-rate environment, the cost of leverage typically increases. To
protect against increases, the investment team has locked in the cost of
leverage for a longer term. In leveraged closed-end funds that invest in
interest-rate sensitive securities (high-quality traditional fixed income),
rising rates can negatively impact a fund in two ways: increasing the cost
of leverage and decreasing the value of securities.
- This portfolio does not have notable sensitivity to rising interest rates.
Much of the cost of leverage has been locked in, and the portfolio seeks to
invest in securities that should be more economically sensitive and less
interest rate-sensitive.
MANAGING THE INTEREST RATE RISK OF LEVERAGE
In general, leverage can expose a closed-end fund to the risk of fluctuations in
short-term interest rates. As we discussed in the Investment Team Interview,
Calamos Investments has taken steps to mitigate some of this risk to our
shareholders. Specifically, we hedged the Fund's preferred shares (used these
shares as principal) to enter into interest rate swap agreements. In its
simplest form, an interest rate swap involves two parties agreeing to exchange
or "swap" one set of cash flows for another set. In essence, the agreement
allows a party that desires to avoid a variable rate (Calamos) to pay a fixed
rate to a party that desires variability.
THE DEALER MARKET FOR INTEREST RATE SWAPS
(FLOW CHART)
Under these agreements, the Fund pays a potentially higher rate for borrowing
initially, but that rate is fixed for a period of three to five years, thereby
potentially reducing the interest costs that the Fund would otherwise pay over
the period based on a floating or variable rate.
Strategic Total Return Fund
38 ANNUAL REPORT Leverage
Level Rate Distribution Policy
USING A LEVEL RATE DISTRIBUTION POLICY TO PROMOTE DEPENDABLE INCOME AND TOTAL
RETURN
The goal of the level rate distribution policy is to provide investors a
predictable, though not assured, level of cash flow, which can either serve as a
stable income stream or, through reinvestment, contribute significantly to
long-term total return.
We understand the importance that investors place on the stability of dividends
and their ability to contribute to long-term total return, which is why we have
instituted a level rate distribution policy for the Fund. Under the policy,
monthly distributions paid may include net investment income, net realized
short-term capital gains and, if necessary, return of capital. In addition, a
limited number of distributions per calendar year may include net realized
long-term capital gains. There is no guarantee that the Fund will realize
capital gains in any given year. Distributions are subject to
re-characterization for tax purposes after the end of the fiscal year. All
shareholders with taxable accounts will receive written notification regarding
the components and tax treatment for distributions via Form 1099-DIV.
Distributions from the Fund are generally subject to Federal income taxes. For
purposes of maintaining the level rate distribution policy, the Fund may realize
short-term capital gains on securities that, if sold at a later date, would have
resulted in long-term capital gains. Maintenance of a level rate distribution
policy may increase transaction and tax costs associated with the Fund.
Automatic Dividend Reinvestment Plan
MAXIMIZING INVESTMENT WITH AN AUTOMATIC DIVIDEND REINVESTMENT PLAN
The Automatic Dividend Reinvestment Plan offers a simple, cost-efficient and
convenient way to reinvest your dividends and capital gains distributions in
additional shares of the Fund, allowing you to increase your investment in the
Fund.
BENEFITS
- COMPOUNDED GROWTH: By automatically reinvesting with the Plan, you gain the
potential to allow your dividends and capital gains to compound over time.
- POTENTIAL FOR LOWER COMMISSION COSTS: Additional shares are purchased in
large blocks, with brokerage commissions shared among all plan
participants. There is no cost to enroll in the Plan.
- CONVENIENCE: After enrollment, the Plan is automatic and includes detailed
statements for participants. Participants can terminate their enrollment at
any time.
For additional information about the Plan, please contact the Plan Agent, The
Bank of New York, at 800.432.8224 or visit us on the web at
www.calamos.com/csq.aspx. If you wish to participate in the Plan and your shares
are held in your own name, simply call the Plan Agent. If your shares are not
held in your name, please contact your brokerage firm, bank, or other nominee to
request that they participate in the Plan on your behalf. If your brokerage
firm, bank, or other nominee is unable to participate on your behalf, you may
request that your shares be re-registered in your own name.
We're pleased to provide our shareholders with the additional benefit of the
Fund's Dividend Reinvestment Plan and hope that it may serve your financial
plan.
Strategic Total Return Fund
Level Rate Distribution Policy and
Automatic Dividend Reinvestment Plan ANNUAL REPORT 39
The Calamos Investments Advantage
Calamos' history is one of performing well for our clients through nearly 30
years of advances and declines in the market. We use proprietary risk-management
strategies designed to control volatility, maintaining a balance between risk
and reward throughout a market cycle.
DISCIPLINED INVESTMENT PHILOSOPHY AND PROCESS
Calamos Investments has developed a proprietary research and monitoring process
that goes far beyond traditional security analysis. This process applies to each
of our investment strategies, with emphasis varying by strategy. When combined
with the company-specific research and industry insights of our investment team,
the result is nimble dynamic management of a portfolio that allows us to
anticipate and adapt to changing market conditions. In each of our investment
strategies, from the most conservative to the most aggressive, our goals include
maximizing return while controlling risk, protecting principal during volatile
markets, avoiding short-term market timing, and maintaining a vigilant long-term
outlook.
COMPREHENSIVE RISK MANAGEMENT
Our approach to risk management includes continual monitoring, adherence to our
discipline, and a focus on assuring a consistent risk profile during all phases
of the market cycle. Incorporating qualitative and quantitative factors as well
as a strong sell discipline, this risk-control policy seeks to help preserve
investors' capital over the long term.
PROVEN MANAGEMENT TEAM
The Calamos family of mutual funds benefit from our team's decades of experience
in the investment industry. We follow a one-team, one-process approach that
leverages the expertise of more than 50 investment professionals, led by John P.
Calamos, Sr. and Nick P. Calamos, whose investment industry experience dates
back to 1970 and 1983, respectively. Through the collective industry experience
and educational achievements of our research and portfolio staff, we can respond
to the challenges of the market with innovative and timely ideas.
SOUND PROPRIETARY RESEARCH
Over the years, we have invested significant time and resources in developing
and refining sophisticated analytical models that are the foundation of the
firm's research capabilities, which we apply in conjunction with our assessment
of broad themes. We believe evolving domestic policies, the growing global
economy, and new technologies present long-term investment opportunities for
those who can detect them.
Strategic Total Return Fund
40 ANNUAL REPORT The Calamos Investments Advantage
Calamos Closed-End Funds
INTELLIGENT ASSET ALLOCATION IN FOUR DISTINCT CLOSED-END FUNDS
Depending on which Calamos closed-end fund you currently own, you may want to
consider one or more of our other closed-end strategies to help further
diversify your investment portfolio.
Seek the advice of your financial advisor, who can help you determine your
financial goals, risk tolerance, time horizon and income needs. To learn more,
you can also visit our website at www.calamos.com.
FUND ASSET ALLOCATION AS OF 10/31/06
CALAMOS CONVERTIBLE OPPORTUNITIES AND INCOME FUND (CHI)
(PIE CHART)
SHORT-TERM INVESTMENTS 1.3%
HIGH YIELD/CORPORATE BONDS 54.08%
CONVERTIBLE SECURITIES 42.2%
COMMON STOCKS 1.7%
FUND PROFILE
PROVIDING ENHANCED FIXED INCOME POTENTIAL
OBJECTIVE: The Fund seeks total return through a combination of capital
appreciation and current income by investing in a diversified portfolio of
convertible securities and below investment-grade (high-yield) fixed-income
securities.
FUND ASSET ALLOCATION AS OF 10/31/06
CALAMOS CONVERTIBLE AND HIGH INCOME FUND (CHY)
(PIE CHART)
SHORT-TERM INVESTMENTS 2.0%
HIGH YIELD/CORPORATE BONDS 58.04%
CONVERTIBLE SECURITIES 39.6%
FUND PROFILE
PROVIDING ENHANCED FIXED INCOME POTENTIAL
OBJECTIVE: The Fund seeks total return through a combination of capital
appreciation and current income by investing in a diversified portfolio of
convertible securities and below investment-grade (high-yield) fixed-income
securities.
FUND ASSET ALLOCATION AS OF 10/31/06
CALAMOS STRATEGIC TOTAL RETURN FUND (CSQ)
(PIE CHART)
SHORT-TERM INVESTMENTS 0.6%
HIGH YIELD/CORPORATE BONDS 27.4%
CONVERTIBLE SECURITIES 27.5%
COMMON STOCKS 44.5%
FUND PROFILE
PROVIDING DEFENSIVE EQUITY
OBJECTIVE: The Fund seeks total return through a combination of capital
appreciation and current income by investing in a diversified portfolio of
equity, convertible and below investment-grade (high-yield) fixed-income
securities.
FUND ASSET ALLOCATION AS OF 10/31/06
CALAMOS GLOBAL TOTAL RETURN FUND (CGO)
(PIE CHART)
SHORT-TERM INVESTMENTS 0.3%
HIGH YIELD/CORPORATE BONDS 28.3%
CONVERTIBLE SECURITIES 17.2%
COMMON STOCKS 54.2%
FUND PROFILE
PROVIDING DEFENSIVE GLOBAL EQUITY
OBJECTIVE: The Fund seeks total return through a combination of capital
appreciation and current income by investing in a diversified portfolio of
global equity, global convertible and below investment-grade (high-yield)
fixed-income securities.
Strategic Total Return Fund
Calamos Closed-End Funds ANNUAL REPORT 41
(CALAMOS INVESTMENTS(R) LOGO)
Calamos Investments - 2020 Calamos Court - Naperville, IL 60563-2787
- 800.582.6959 - www.calamos.com
A description of the Calamos Proxy Voting Policies and Procedures and the Fund's
proxy voting record for the 12 month period ended June 30, 2006 are available
free of charge upon request by calling 800.582.6959, by visiting the Calamos
website at www.calamos.com, by writing Calamos at: Calamos Investments, Attn:
Client Services, 2020 Calamos Court, Naperville, IL 60563 or by visiting the SEC
website at http://www.sec.gov.
The Funds file a complete list of their portfolio holdings with the SEC for the
first and third quarters each fiscal year on Form N-Q. The Forms N-Q are
available free of charge, upon request, by calling or writing Calamos
Investments at the phone number or address provided above or by visiting the SEC
website at http://www.sec.gov. You may also review or, for a fee, copy the forms
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling 800.732.0330.
On April 27, 2006, the Fund submitted a CEO annual certification to the NYSE on
which the Fund's chief executive officer certified that he was not aware, as of
that date, of any violation by the Fund of the NYSE's corporate governance
listing standards. In addition, the Fund's report to the SEC on Form N-CSR
contains certifications by the fund's principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the 1940 Act, relating to,
among other things, the quality of the Fund's disclosure controls and procedures
and internal control over financial reporting.
FOR 24 HOUR SHAREHOLDER ASSISTANCE
800.432.8224
TO OBTAIN INFORMATION
800.582.6959
VISIT OUR WEB SITE
www.calamos.com
INVESTMENT ADVISOR
Calamos Advisors LLC
2020 Calamos Court
Naperville, IL 60563-2787
FUND ACCOUNTING AGENT
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, NY 10286
800.524.4458
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Chicago, IL
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, IL
(C) 2006 Calamos Holdings LLC. All Rights Reserved.
Calamos(R), CALAMOS INVESTMENTS(R), Strategies for Serious Money(R)
and the Calamos(R) logo are registered trademarks of Calamos Holdings LLC.
CSQANR 1946 2006
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 four 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, Stephen B.
Timbers, David D. Tripple 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 - $34,717 and $54,623 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 - $27,192 and $64,270 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 - $4,850 and $9,296 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 - $101,848 and $0 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) $106,698 and $9,296 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. $31,256 and $0 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, David D. Tripple 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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) As of October 31, 2006, the registrant is lead by a team of investment
professionals, including the following individuals who are responsible for the
day-to-day management of the registrant's portfolio ("portfolio managers"):
POSITIONS HELD WITH THE PRINCIPAL OCCUPATION(S) DURING
NAME REGISTRANT PAST FIVE YEARS
---- ----------------------- ------------------------------
*John P. Calamos, Sr. Trustee and President Chairman, CEO and Co-Chief
(since 2003) Investment Officer, Calamos
Asset Management, Inc.
("CAM"), Calamos Holdings LLC
("CHLLC") and Calamos Advisors
LLC and its predecessor
("Calamos Advisors"), and
President and Co-Chief
Investment Officer, Calamos
Financial Services LLC and its
predecessor ("CFS"); Director,
CAM
**Nick P. Calamos Vice President Senior Executive Vice
(since 2003) President and Co-Chief
Investment Officer, CAM,
CHLLC, Calamos Advisors and
CFS
* John P. Calamos, Sr. is an "interested person" of the registrant as defined
in the Investment Company Act of 1940.
** Nick Calamos resigned from the board of trustees effective June 28, 2006.
(a)(2) The portfolio managers also have responsibility for the day-to-day
management of accounts other than the registrant. Information regarding these
other accounts is set forth below.
NUMBER OF OTHER ACCOUNTS MANAGED AND ASSETS BY ACCOUNT TYPE AS OF OCTOBER 31,
2006
Registered Other Pooled
Investment Companies Investment Vehicles Other Accounts
------------------------- ---------------------- -------------------------
Accounts Assets Accounts Assets Accounts Assets
-------- -------------- -------- ----------- -------- --------------
John P. Calamos, Sr. 18 34,272,794,840 3 157,150,982 24,128 10,943,683,684
Nick P. Calamos 18 34,272,794,840 3 157,150,982 24,128 10,943,683,684
NUMBER OF ACCOUNTS AND ASSETS FOR WHICH ADVISORY FEE IS PERFORMANCE BASED AS OF
OCTOBER 31, 2006
Registered Other Pooled
Investment Companies Investment Vehicles Other Accounts
---------------------- --------------------- --------------------
Accounts Assets Accounts Assets Accounts Assets
-------- ----------- -------- ---------- -------- ---------
John P. Calamos, Sr. 1 298,575,715 2 95,215,600 1 9,326,764
Nick P. Calamos 1 298,575,715 2 95,215,600 1 9,326,764
The registrant's portfolio managers are responsible for managing the registrant
and other accounts, including separate accounts and unregistered funds.
Other than potential conflicts between investment strategies, the side-by-side
management of both the registrant and other accounts may raise potential
conflicts of interest due to the interest held by Calamos in an account and
certain trading practices used by the portfolio managers (e.g., cross trades
between the registrant and another account and allocation of aggregated
trades). Calamos has developed policies and procedures reasonably designed to
mitigate those conflicts. For example, Calamos will only place cross-trades in
securities held by the registrant in accordance with the rules promulgated under
the
Investment Company Act of 1940 and has adopted policies designed to ensure the
fair allocation of securities purchased on an aggregated basis.
The portfolio managers advise certain accounts under a performance fee
arrangement. A performance fee arrangement may create an incentive for a
portfolio manager to make investments that are riskier or more speculative than
would be the case in the absence of performance fees. A performance fee
arrangement may result in increased compensation to the portfolio managers from
such accounts due to unrealized appreciation as well as realized gains in the
client's account.
(a)(3) The portfolio managers have each entered into employment agreements that
provide for compensation in the form of a minimum annual base salary, a maximum
discretionary target bonus and participation in various benefits programs. The
amounts paid to portfolio managers and the criteria utilized to determine the
amounts are benchmarked against industry specific data provided by third party
analytical agencies. The discretionary target bonus is set at a percentage of
base salary. Portfolio performance, as measured by risk-adjusted portfolio
performance over a rolling three-year period, is utilized to determine the
discretionary target bonus. The portfolio managers are also eligible to receive
annual equity awards under a long term incentive compensation program.
(a)(4) As of October 31, 2006, the end of the registrant's most recently
completed fiscal year, the dollar range of securities beneficially owned by each
portfolio manager in the registrant is shown below:
PORTFOLIO MANAGER REGISTRANT
----------------- ---------------
John P. Calamos, Sr. Over $1,000,000
Nick P. Calamos Over $1,000,000
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
(C) TOTAL
NUMBER OF
SHARES (OR (D) MAXIMUM NUMBER
UNITS) (OR APPROXIMATE
(A) TOTAL (B) PURCHASED AS DOLLAR VALUE) OF
NUMBER OF AVERAGE PART OF SHARES (OR UNITS)
SHARES (OR PRICE PAID PUBLICLY THAT MAY YET BE
UNITS) PER SHARE ANNOUNCED PLANS PURCHASED UNDER THE
PERIOD PURCHASED (OR UNIT) OR PROGRAMS PLANS OR PROGRAMS
------ ---------- ---------- --------------- -------------------
May 1 to May 31 N/A N/A N/A N/A
June 1 to June 30 N/A N/A N/A N/A
July 1 to July 31 N/A N/A N/A N/A
August 1 to August 31 N/A N/A N/A N/A
September 1 to September 30 N/A N/A N/A N/A
October 1 to October 31 N/A N/A N/A N/A
Total N/A N/A N/A N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No material changes.
ITEM 11. 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 second fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics
(a)(2)(i) Certification of Principal Executive Officer.
(a)(2)(ii) Certification of Principal Financial Officer.
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.
---------------------------------
Name: John P. Calamos, Sr.
Title: Principal Executive Officer
Date: December 26, 2006
By: /s/ Patrick H. Dudasik
---------------------------------
Name: Patrick H. Dudasik
Title: Principal Financial Officer
Date: December 26, 2006
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: December 26, 2006
By: /s/ Patrick H. Dudasik
---------------------------------
Name: Patrick H. Dudasik
Title: Principal Financial Officer
Date: December 26, 2006