UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-07507 |
DWS Investments VIT Funds
(Exact Name of Registrant as Specified in Charter)
Two International Place
Boston, MA 02110
(Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
Date of fiscal year end: | 12/31 |
Date of reporting period: | 12/31/07 |
ITEM 1. REPORT TO STOCKHOLDERS
December 31, 2007
ANNUAL REPORT
DWS INVESTMENTS VIT FUNDS
DWS Equity 500 Index VIP
Contents
3 Performance Summary
4 Information About Your Portfolio's Expenses
5 Management Summary
6 Portfolio Summary
7 Investment Portfolio
15 Financial Statements
17 Financial Highlights
19 Notes to Financial Statements
23 Report of Independent Registered Public Accounting Firm
24 Tax Information
24 Proxy Voting
25 Investment Management Agreement Approval
28 Summary of Management Fee Evaluation by Independent Fee Consultant
31 Trustees and Officers
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus, call (800) 778-1482 or your financial representative. We advise you to consider the portfolio's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the portfolio. Please read the prospectus carefully before you invest.
The portfolio is subject to investment risks, including possible loss of principal amount invested. There is no guarantee that the portfolio will be able to mirror the S&P 500® Index closely enough to track its performance. Please read the prospectus for specific details regarding its investments and risk profile.
"Standard & Poor's," "S&P, " "S&P 500," "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by the portfolio's advisor. DWS Equity 500 Index VIP is not sponsored, endorsed, sold, nor promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the portfolio. There is no guarantee that the portfolio will be able to mirror the S&P 500® Index closely enough to track its performance.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary December 31, 2007
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Portfolio's most recent month-end performance. Performance figures for Classes A, B and B2 differ because each class maintains a distinct expense structure. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
The total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are 0.31%, 0.56% and 0.70% for Class A, Class B and Class B2 shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
Portfolio returns during all periods shown reflect a fee waiver/and or reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment |
[] DWS Equity 500 Index VIP — Class A [] S&P 500® Index | The Standard & Poor's (S&P) 500® Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. |
 | |
Yearly periods ended December 31 |
|
Comparative Results (as of December 31, 2007) |
DWS Equity 500 Index VIP | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | Growth of $10,000
| $10,530 | $12,733 | $18,046 | $17,315 |
Average annual total return
| 5.30% | 8.39% | 12.53% | 5.64% |
S&P 500 Index
| Growth of $10,000
| $10,549 | $12,816 | $18,286 | $17,756 |
Average annual total return
| 5.49% | 8.62% | 12.83% | 5.91% |
DWS Equity 500 Index VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $10,503 | $12,639 | $17,823 | $14,693 |
Average annual total return
| 5.03% | 8.12% | 12.25% | 7.02% |
S&P 500 Index
| Growth of $10,000
| $10,549 | $12,816 | $18,286 | $15,123 |
Average annual total return
| 5.49% | 8.62% | 12.83% | 7.57% |
DWS Equity 500 Index VIP | 1-Year | 3-Year | 5-Year | Life of Class** |
Class B2 | Growth of $10,000
| $10,485 | N/A | N/A | $12,219 |
Average annual total return
| 4.85% | N/A | N/A | 9.15% |
S&P 500 Index
| Growth of $10,000
| $10,549 | N/A | N/A | $12,471 |
Average annual total return
| 5.49% | N/A | N/A | 10.31% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on April 30, 2002. Index returns began on April 30, 2002.** The Portfolio commenced offering Class B2 shares on September 16, 2005. Index returns began on September 30, 2005.Information concerning portfolio holdings of the Portfolio as of a month end will be posted to www.dws-scudder.com on or after the last day of the following month.
Information About Your Portfolio's Expenses
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 |
Actual Portfolio Return | Class A | | Class B | | Class B2 | |
Beginning Account Value 7/1/07
| $ 1,000.00 | | $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/07
| $ 985.40 | | $ 984.10 | | $ 983.50 | |
Expenses Paid per $1,000*
| $ 1.40 | | $ 2.65 | | $ 3.15 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | | Class B2 | |
Beginning Account Value 7/1/07
| $ 1,000.00 | | $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/07
| $ 1,023.79 | | $ 1,022.53 | | $ 1,022.03 | |
Expenses Paid per $1,000*
| $ 1.43 | | $ 2.70 | | $ 3.21 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.Annualized Expense Ratios | Class A | | Class B | | Class B2 | |
DWS Equity 500 Index VIP
| 0.28% | | 0.53% | | 0.63% | |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
Except for a period of weakness in late February and early March, equity markets were quite strong during the first half of 2007. By the end of May, most indices were at or near their all-time highs, and positive trends continued through mid-July before drifting lower in the late summer. A rally in September was sparked in part by the first of the US Federal Reserve Board's (the Fed's) three interest rate reductions. Volatility increased in the fourth quarter, as markets responded to further bad news about the potential impact of the subprime mortgage crisis.
For the full year, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14%. Growth stocks, as measured by the Russell 1000® Growth Index, performed significantly better than value stocks, as measured by the Russell 1000® Value Index. The Portfolio returned 5.30% (Class A shares, unadjusted for contract charges). Since the Portfolio's investment strategy is to replicate, as closely as possible, before the deduction of expenses, the performance of the Standard & Poor's 500® (S&P 500) Index, the Portfolio's return is normally quite close to return of the index, which was 5.49%.
Although eight of the 10 industry sectors into which the S&P 500 Index is divided had positive returns, there was great divergence among sector performance during 2007. The best-performing sectors were energy, with a return of 34.8%, and materials, with a return of 22.5%. The weakest sector was financials, with a return of - -18.6%, which weakened throughout the year as problems in the subprime mortgage market affected the entire financial sector. Also negative was the consumer discretionary sector, which includes many retailers and housing stocks.
Brent Reeder
Vice President
Northern Trust Investments, N.A. (NTI), Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please contact your participating insurance company for the Portfolio's most recent month-end performance. Performance figures for Classes A and B differ because each class maintains a distinct expense structure. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The Portfolio is subject to investment risks, including possible loss of principal amount invested. The Portfolio may not be able to mirror the S&P 500 index closely enough to track its performance for several reasons, including the Portfolio's cost to buy and sell securities, the flow of money into and out of the Portfolio and the potential underperformance of stocks selected. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Russell 1000 Growth Index is an unmanaged, capitalization-weighted index consisting of those stocks in the Russell 1000 Index that have greater-than-average growth orientation.
The Russell 1000 Value Index is an unmanaged, capitalization-weighted index which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values.
The Standard & Poor's 500 (S&P 500) Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
"Standard & Poor's," "S&P 500," "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by the Portfolio's investment advisor. This Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio.
Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance does not guarantee future results.
Portfolio Summary
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
| | |
Common Stocks | 99% | 97% |
Cash Equivalents | 1% | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
| | |
Financials | 18% | 22% |
Information Technology | 17% | 15% |
Energy | 13% | 10% |
Health Care | 12% | 12% |
Industrials | 11% | 11% |
Consumer Staples | 10% | 9% |
Consumer Discretionary | 8% | 11% |
Telecommunication Services | 4% | 3% |
Utilities | 4% | 4% |
Materials | 3% | 3% |
| 100% | 100% |
Ten Largest Equity Holdings (19.8% of Net Assets) |
1. ExxonMobil Corp.
Explorer and producer of oil and gas
| 4.0% |
2. General Electric Co.
Manufactures, distributes and markets electrical products
| 2.9% |
3. Microsoft Corp.
Developer of computer software
| 2.2% |
4. AT&T, Inc.
Provider of communications services
| 1.9% |
5. Procter & Gamble Co.
Manufacturer of diversified consumer products
| 1.8% |
6. Chevron Corp.
Operator of petroleum exploration, delivery and refining facilities
| 1.5% |
7. Johnson & Johnson
Provider of health care products
| 1.5% |
8. Bank of America Corp.
Provider of commercial banking services
| 1.4% |
9. Apple, Inc.
Manufacturer of personal computers and related personal computing and communication solutions
| 1.3% |
10. Cisco Systems, Inc.
Developer of computer network products
| 1.3% |
Asset allocation, sector diversification, and holdings are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 7. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
|
Shares
| Value ($) |
| |
Common Stocks 99.3% |
Consumer Discretionary 8.4% |
Auto Components 0.2% |
Goodyear Tire & Rubber Co.* | 20,894 | 589,629 |
Johnson Controls, Inc. | 52,738 | 1,900,677 |
| 2,490,306 |
Automobiles 0.3% |
Ford Motor Co.* (a) | 186,475 | 1,254,977 |
General Motors Corp. | 51,966 | 1,293,433 |
Harley-Davidson, Inc. (a) | 21,586 | 1,008,282 |
| 3,556,692 |
Distributors 0.1% |
Genuine Parts Co. | 15,009 | 694,917 |
Diversified Consumer Services 0.1% |
Apollo Group, Inc. "A"* | 12,244 | 858,916 |
H&R Block, Inc. | 27,896 | 518,029 |
| 1,376,945 |
Hotels Restaurants & Leisure 1.4% |
Carnival Corp. | 39,046 | 1,737,157 |
Darden Restaurants, Inc. | 12,254 | 339,558 |
Harrah's Entertainment, Inc. | 16,619 | 1,474,936 |
International Game Technology | 28,056 | 1,232,500 |
Marriott International, Inc. "A" | 28,340 | 968,661 |
McDonald's Corp. | 105,991 | 6,243,930 |
Starbucks Corp.* | 66,228 | 1,355,687 |
Starwood Hotels & Resorts Worldwide, Inc. | 17,625 | 776,029 |
Wendy's International, Inc. | 7,711 | 199,252 |
Wyndham Worldwide Corp. | 15,837 | 373,120 |
Yum! Brands, Inc. | 46,216 | 1,768,686 |
| 16,469,516 |
Household Durables 0.4% |
Black & Decker Corp. | 5,622 | 391,572 |
Centex Corp. | 12,035 | 304,004 |
D.R. Horton, Inc. | 24,600 | 323,982 |
Fortune Brands, Inc. | 13,655 | 988,076 |
Harman International Industries, Inc. | 5,400 | 398,034 |
KB HOME | 6,892 | 148,867 |
Leggett & Platt, Inc. (a) | 15,164 | 264,460 |
Lennar Corp. "A" (a) | 12,600 | 225,414 |
Newell Rubbermaid, Inc. | 23,497 | 608,103 |
Pulte Homes, Inc. | 18,582 | 195,854 |
Snap-on, Inc. | 5,193 | 250,510 |
The Stanley Works | 7,256 | 351,771 |
Whirlpool Corp. | 6,888 | 562,268 |
| 5,012,915 |
Internet & Catalog Retail 0.3% |
Amazon.com, Inc.* | 27,328 | 2,531,666 |
Expedia, Inc.* | 18,153 | 573,998 |
IAC/InterActiveCorp.* | 17,100 | 460,332 |
| 3,565,996 |
Leisure Equipment & Products 0.1% |
Brunswick Corp. | 7,906 | 134,797 |
Eastman Kodak Co. (a) | 25,007 | 546,903 |
Hasbro, Inc. | 13,086 | 334,740 |
Mattel, Inc. | 32,598 | 620,666 |
| 1,637,106 |
|
Shares
| Value ($) |
| |
Media 2.8% |
CBS Corp. "B" | 60,887 | 1,659,171 |
Clear Channel Communications, Inc. | 45,752 | 1,579,359 |
Comcast Corp. "A"* | 274,487 | 5,012,133 |
E.W. Scripps Co. "A" | 7,500 | 337,575 |
Gannett Co., Inc. | 21,542 | 840,138 |
Interpublic Group of Companies, Inc.* | 39,697 | 321,943 |
McGraw-Hill Companies, Inc. | 30,264 | 1,325,866 |
Meredith Corp. | 3,424 | 188,252 |
New York Times Co. "A" (a) | 12,910 | 226,312 |
News Corp. "A" | 205,554 | 4,211,801 |
Omnicom Group, Inc. | 29,332 | 1,394,150 |
The DIRECTV Group, Inc.* | 63,700 | 1,472,744 |
Time Warner, Inc. | 323,130 | 5,334,876 |
Viacom, Inc. "B"* | 58,687 | 2,577,533 |
Walt Disney Co. | 170,180 | 5,493,410 |
Washington Post Co. "B" | 518 | 409,961 |
| 32,385,224 |
Multiline Retail 0.8% |
Big Lots, Inc.* (a) | 9,092 | 145,381 |
Dillard's, Inc. "A" (a) | 5,251 | 98,614 |
Family Dollar Stores, Inc. | 12,570 | 241,721 |
J.C. Penney Co., Inc. | 19,822 | 871,970 |
Kohl's Corp.* | 28,078 | 1,285,972 |
Macy's, Inc. | 38,708 | 1,001,376 |
Nordstrom, Inc. | 16,848 | 618,827 |
Sears Holdings Corp.* (a) | 6,543 | 667,713 |
Target Corp. | 74,210 | 3,710,500 |
| 8,642,074 |
Specialty Retail 1.5% |
Abercrombie & Fitch Co. "A" | 7,700 | 615,769 |
AutoNation, Inc.* | 13,551 | 212,209 |
AutoZone, Inc.* | 4,091 | 490,552 |
Bed Bath & Beyond, Inc.* | 24,316 | 714,647 |
Best Buy Co., Inc. | 31,336 | 1,649,840 |
Circuit City Stores, Inc. | 13,030 | 54,726 |
GameStop Corp. "A"* | 14,100 | 875,751 |
Home Depot, Inc. | 150,885 | 4,064,842 |
Limited Brands, Inc. | 27,770 | 525,686 |
Lowe's Companies, Inc. | 131,300 | 2,970,006 |
Office Depot, Inc.* | 24,403 | 339,446 |
OfficeMax, Inc. | 6,741 | 139,269 |
RadioShack Corp. | 12,345 | 208,137 |
Staples, Inc. | 63,789 | 1,471,612 |
The Gap, Inc. | 41,632 | 885,929 |
The Sherwin-Williams Co. | 9,389 | 544,938 |
Tiffany & Co. | 12,000 | 552,360 |
TJX Companies, Inc. | 39,058 | 1,122,136 |
| 17,437,855 |
Textiles, Apparel & Luxury Goods 0.4% |
Coach, Inc.* | 32,900 | 1,006,082 |
Jones Apparel Group, Inc. | 8,094 | 129,423 |
Liz Claiborne, Inc. | 8,624 | 175,498 |
NIKE, Inc. "B" | 34,450 | 2,213,068 |
Polo Ralph Lauren Corp. | 5,300 | 327,487 |
VF Corp. | 7,887 | 541,522 |
| 4,393,080 |
|
Shares
| Value ($) |
| |
Consumer Staples 10.2% |
Beverages 2.4% |
Anheuser-Busch Companies, Inc. | 65,609 | 3,433,975 |
Brown-Forman Corp. "B" | 7,080 | 524,699 |
Coca-Cola Co. | 179,114 | 10,992,226 |
Coca-Cola Enterprises, Inc. | 25,150 | 654,655 |
Constellation Brands, Inc. "A"* | 17,900 | 423,156 |
Molson Coors Brewing Co. "B" | 12,984 | 670,234 |
Pepsi Bottling Group, Inc. | 12,211 | 481,846 |
PepsiCo, Inc. | 143,446 | 10,887,551 |
| 28,068,342 |
Food & Staples Retailing 2.3% |
Costco Wholesale Corp. | 38,845 | 2,709,827 |
CVS Caremark Corp. | 131,490 | 5,226,727 |
Kroger Co. | 63,263 | 1,689,755 |
Safeway, Inc. | 39,027 | 1,335,114 |
SUPERVALU, Inc. | 18,648 | 699,673 |
Sysco Corp. | 54,157 | 1,690,240 |
Wal-Mart Stores, Inc. | 211,227 | 10,039,619 |
Walgreen Co. | 88,696 | 3,377,544 |
Whole Foods Market, Inc. (a) | 12,300 | 501,840 |
| 27,270,339 |
Food Products 1.5% |
Archer-Daniels-Midland Co. | 57,107 | 2,651,478 |
Campbell Soup Co. | 19,485 | 696,199 |
ConAgra Foods, Inc. | 44,505 | 1,058,774 |
Dean Foods Co. | 11,600 | 299,976 |
General Mills, Inc. | 29,328 | 1,671,696 |
H.J. Heinz Co. | 28,979 | 1,352,740 |
Kellogg Co. | 22,032 | 1,155,138 |
Kraft Foods, Inc. "A" | 139,982 | 4,567,613 |
McCormick & Co., Inc. | 12,214 | 463,033 |
Sara Lee Corp. | 64,339 | 1,033,284 |
The Hershey Co. | 15,246 | 600,692 |
Tyson Foods, Inc. "A" | 22,800 | 349,524 |
Wm. Wrigley Jr. Co. | 19,333 | 1,131,947 |
| 17,032,094 |
Household Products 2.4% |
Clorox Co. | 12,230 | 797,029 |
Colgate-Palmolive Co. | 45,321 | 3,533,225 |
Kimberly-Clark Corp. | 37,747 | 2,617,377 |
Procter & Gamble Co. | 277,755 | 20,392,772 |
| 27,340,403 |
Personal Products 0.2% |
Avon Products, Inc. | 38,470 | 1,520,719 |
Estee Lauder Companies, Inc. "A" | 10,200 | 444,822 |
| 1,965,541 |
Tobacco 1.4% |
Altria Group, Inc. | 187,970 | 14,206,773 |
Reynolds American, Inc. | 15,228 | 1,004,439 |
UST, Inc. | 14,135 | 774,598 |
| 15,985,810 |
Energy 12.8% |
Energy Equipment & Services 2.6% |
Baker Hughes, Inc. | 28,371 | 2,300,888 |
BJ Services Co. | 25,886 | 627,994 |
ENSCO International, Inc. | 13,200 | 786,984 |
Halliburton Co. | 79,073 | 2,997,657 |
Nabors Industries Ltd.* | 24,996 | 684,641 |
|
Shares
| Value ($) |
| |
National-Oilwell Varco, Inc.* | 31,600 | 2,321,336 |
Noble Corp. | 23,890 | 1,350,024 |
Rowan Companies, Inc. | 9,782 | 385,998 |
Schlumberger Ltd. | 107,918 | 10,615,894 |
Smith International, Inc. | 17,800 | 1,314,530 |
Transocean, Inc.* | 28,099 | 4,022,372 |
Weatherford International Ltd.* | 29,944 | 2,054,158 |
| 29,462,476 |
Oil, Gas & Consumable Fuels 10.2% |
Anadarko Petroleum Corp. | 43,214 | 2,838,728 |
Apache Corp. | 29,453 | 3,167,376 |
Chesapeake Energy Corp. | 39,400 | 1,544,480 |
Chevron Corp. | 188,782 | 17,619,024 |
ConocoPhillips | 142,942 | 12,621,778 |
CONSOL Energy, Inc. | 16,300 | 1,165,776 |
Devon Energy Corp. | 40,892 | 3,635,708 |
El Paso Corp. | 62,154 | 1,071,535 |
EOG Resources, Inc. | 21,857 | 1,950,737 |
ExxonMobil Corp. | 488,404 | 45,758,571 |
Hess Corp. | 24,550 | 2,476,113 |
Marathon Oil Corp. | 63,542 | 3,867,166 |
Murphy Oil Corp. | 16,300 | 1,382,892 |
Noble Energy, Inc. | 15,300 | 1,216,656 |
Occidental Petroleum Corp. | 73,788 | 5,680,938 |
Peabody Energy Corp. | 24,100 | 1,485,524 |
Range Resources Corp. | 10,100 | 518,736 |
Spectra Energy Corp. | 56,191 | 1,450,852 |
Sunoco, Inc. | 10,516 | 761,779 |
Tesoro Corp. | 12,200 | 581,940 |
Valero Energy Corp. (a) | 49,172 | 3,443,515 |
Williams Companies, Inc. | 53,287 | 1,906,609 |
XTO Energy, Inc. | 43,485 | 2,233,389 |
| 118,379,822 |
Financials 17.5% |
Capital Markets 3.3% |
American Capital Strategies Ltd. (a) | 16,100 | 530,656 |
Ameriprise Financial, Inc. | 20,905 | 1,152,075 |
Bank of New York Mellon Corp. | 101,248 | 4,936,852 |
Bear Stearns Companies, Inc. | 10,330 | 911,623 |
Charles Schwab Corp. | 84,963 | 2,170,805 |
E*TRADE Financial Corp.* (a) | 37,800 | 134,190 |
Federated Investors, Inc. "B" | 7,200 | 296,352 |
Franklin Resources, Inc. | 14,352 | 1,642,299 |
Janus Capital Group, Inc. | 14,871 | 488,512 |
Legg Mason, Inc. | 11,800 | 863,170 |
Lehman Brothers Holdings, Inc. | 47,142 | 3,084,972 |
Merrill Lynch & Co., Inc. | 77,172 | 4,142,593 |
Morgan Stanley | 93,840 | 4,983,842 |
Northern Trust Corp. | 16,549 | 1,267,322 |
State Street Corp. | 34,565 | 2,806,678 |
T. Rowe Price Group, Inc. | 23,520 | 1,431,898 |
The Goldman Sachs Group, Inc. | 35,933 | 7,727,392 |
| 38,571,231 |
Commercial Banks 3.0% |
BB&T Corp. | 48,834 | 1,497,739 |
Comerica, Inc. | 13,737 | 597,972 |
Commerce Bancorp, Inc. | 17,300 | 659,822 |
Fifth Third Bancorp | 47,806 | 1,201,365 |
First Horizon National Corp. (a) | 10,698 | 194,169 |
Huntington Bancshares, Inc. | 33,160 | 489,441 |
KeyCorp. | 34,629 | 812,050 |
|
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| Value ($) |
| |
M&T Bank Corp. | 6,650 | 542,440 |
Marshall & Ilsley Corp. | 21,852 | 578,641 |
National City Corp. | 56,876 | 936,179 |
PNC Financial Services Group, Inc. | 30,326 | 1,990,902 |
Regions Financial Corp. | 62,561 | 1,479,568 |
SunTrust Banks, Inc. | 30,971 | 1,935,378 |
Synovus Financial Corp. | 30,503 | 734,512 |
US Bancorp. | 156,554 | 4,969,024 |
Wachovia Corp. | 179,299 | 6,818,741 |
Wells Fargo & Co. | 298,248 | 9,004,107 |
Zions Bancorp. | 9,511 | 444,068 |
| 34,886,118 |
Consumer Finance 0.8% |
American Express Co. | 105,025 | 5,463,400 |
Capital One Financial Corp. | 34,702 | 1,640,017 |
Discover Financial Services | 42,370 | 638,940 |
SLM Corp. | 46,078 | 928,011 |
| 8,670,368 |
Diversified Financial Services 4.4% |
Bank of America Corp. | 397,886 | 16,416,776 |
CIT Group, Inc. | 16,924 | 406,684 |
Citigroup, Inc. | 443,831 | 13,066,385 |
CME Group, Inc. | 4,800 | 3,292,800 |
IntercontinentalExchange, Inc.* | 6,500 | 1,251,250 |
JPMorgan Chase & Co. | 301,362 | 13,154,451 |
Leucadia National Corp. | 14,600 | 687,660 |
Moody's Corp. | 19,452 | 694,436 |
NYSE Euronext | 23,500 | 2,062,595 |
| 51,033,037 |
Insurance 4.3% |
ACE Ltd. | 29,176 | 1,802,493 |
Aflac, Inc. | 44,237 | 2,770,563 |
Allstate Corp. | 50,956 | 2,661,432 |
Ambac Financial Group, Inc. (a) | 8,978 | 231,363 |
American International Group, Inc. | 226,681 | 13,215,502 |
Aon Corp. | 25,983 | 1,239,129 |
Assurant, Inc. | 8,600 | 575,340 |
Chubb Corp. | 34,870 | 1,903,205 |
Cincinnati Financial Corp. | 15,309 | 605,318 |
Genworth Financial, Inc. "A" | 38,000 | 967,100 |
Hartford Financial Services Group, Inc. | 28,234 | 2,461,723 |
Lincoln National Corp. | 24,069 | 1,401,297 |
Loews Corp. | 39,470 | 1,986,920 |
Marsh & McLennan Companies, Inc. | 48,113 | 1,273,551 |
MBIA, Inc. (a) | 11,264 | 209,848 |
MetLife, Inc. | 65,932 | 4,062,730 |
Principal Financial Group, Inc. | 23,611 | 1,625,381 |
Progressive Corp. (a) | 64,256 | 1,231,145 |
Prudential Financial, Inc. | 40,763 | 3,792,590 |
Safeco Corp. | 9,218 | 513,258 |
The Travelers Companies, Inc. | 57,871 | 3,113,460 |
Torchmark Corp. | 8,510 | 515,110 |
Unum Group | 31,165 | 741,416 |
XL Capital Ltd. "A" | 15,877 | 798,772 |
| 49,698,646 |
Real Estate Investment Trusts 1.0% |
Apartment Investment & Management Co. "A" (REIT) | 7,700 | 267,421 |
AvalonBay Communities, Inc. (REIT) | 7,100 | 668,394 |
|
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| Value ($) |
| |
Boston Properties, Inc. (REIT) | 10,600 | 973,186 |
Developers Diversified Realty Corp. (REIT) | 13,200 | 505,428 |
Equity Residential (REIT) | 24,930 | 909,197 |
General Growth Properties, Inc. (REIT) | 22,600 | 930,668 |
Host Hotels & Resorts, Inc. (REIT) | 46,400 | 790,656 |
Kimco Realty Corp. (REIT) | 21,000 | 764,400 |
Plum Creek Timber Co., Inc. (REIT) | 15,900 | 732,036 |
ProLogis (REIT) | 22,800 | 1,445,064 |
Public Storage (REIT) | 10,546 | 774,182 |
Simon Property Group, Inc. (REIT) | 19,941 | 1,732,075 |
Vornado Realty Trust (REIT) | 11,700 | 1,029,015 |
| 11,521,722 |
Real Estate Management & Development 0.0% |
CB Richard Ellis Group, Inc. "A"* | 17,000 | 366,350 |
Thrifts & Mortgage Finance 0.7% |
Countrywide Financial Corp. (a) | 51,138 | 457,174 |
Fannie Mae | 86,550 | 3,460,269 |
Freddie Mac | 57,963 | 1,974,800 |
Hudson City Bancorp, Inc. | 49,000 | 735,980 |
MGIC Investment Corp. | 7,442 | 166,924 |
Sovereign Bancorp, Inc. (a) | 31,798 | 362,497 |
Washington Mutual, Inc. (a) | 77,843 | 1,059,443 |
| 8,217,087 |
Health Care 11.9% |
Biotechnology 1.1% |
Amgen, Inc.* | 96,516 | 4,482,203 |
Biogen Idec, Inc.* | 25,560 | 1,454,875 |
Celgene Corp.* | 34,500 | 1,594,245 |
Genzyme Corp.* | 23,403 | 1,742,119 |
Gilead Sciences, Inc.* | 84,472 | 3,886,557 |
| 13,159,999 |
Health Care Equipment & Supplies 1.7% |
Baxter International, Inc. | 57,603 | 3,343,854 |
Becton, Dickinson & Co. | 21,878 | 1,828,563 |
Boston Scientific Corp.* | 116,665 | 1,356,814 |
C.R. Bard, Inc. | 8,898 | 843,530 |
Covidien Ltd. | 44,188 | 1,957,087 |
Hospira, Inc.* | 13,720 | 585,021 |
Medtronic, Inc. | 100,725 | 5,063,446 |
St. Jude Medical, Inc.* | 30,488 | 1,239,032 |
Stryker Corp. | 21,182 | 1,582,719 |
Varian Medical Systems, Inc.* | 11,400 | 594,624 |
Zimmer Holdings, Inc.* | 21,084 | 1,394,707 |
| 19,789,397 |
Health Care Providers & Services 2.4% |
Aetna, Inc. | 44,772 | 2,584,687 |
AmerisourceBergen Corp. | 16,482 | 739,547 |
Cardinal Health, Inc. | 32,600 | 1,882,650 |
CIGNA Corp. | 24,905 | 1,338,146 |
Coventry Health Care, Inc.* | 13,895 | 823,279 |
Express Scripts, Inc.* | 22,568 | 1,647,464 |
Humana, Inc.* | 14,775 | 1,112,705 |
Laboratory Corp. of America Holdings* | 10,291 | 777,279 |
McKesson Corp. | 26,415 | 1,730,447 |
Medco Health Solutions, Inc.* | 23,964 | 2,429,950 |
Patterson Companies, Inc.* | 12,700 | 431,165 |
Quest Diagnostics, Inc. | 13,916 | 736,156 |
Tenet Healthcare Corp.* | 43,100 | 218,948 |
|
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| Value ($) |
| |
UnitedHealth Group, Inc. | 115,508 | 6,722,566 |
WellPoint, Inc.* | 50,688 | 4,446,858 |
| 27,621,847 |
Health Care Technology 0.0% |
IMS Health, Inc. | 16,930 | 390,067 |
Life Sciences Tools & Services 0.4% |
Applera Corp. — Applied Biosystems Group | 16,029 | 543,704 |
Millipore Corp.* | 4,815 | 352,362 |
PerkinElmer, Inc. | 11,136 | 289,759 |
Thermo Fisher Scientific, Inc.* | 37,821 | 2,181,515 |
Waters Corp.* | 8,900 | 703,723 |
| 4,071,063 |
Pharmaceuticals 6.3% |
Abbott Laboratories | 137,482 | 7,719,614 |
Allergan, Inc. | 27,424 | 1,761,718 |
Barr Pharmaceuticals, Inc.* | 9,200 | 488,520 |
Bristol-Myers Squibb Co. | 179,162 | 4,751,376 |
Eli Lilly & Co. | 87,937 | 4,694,956 |
Forest Laboratories, Inc.* | 28,095 | 1,024,063 |
Johnson & Johnson | 257,034 | 17,144,168 |
King Pharmaceuticals, Inc.* | 21,886 | 224,113 |
Merck & Co., Inc. | 193,259 | 11,230,281 |
Mylan, Inc. (a) | 23,336 | 328,104 |
Pfizer, Inc. | 610,589 | 13,878,688 |
Schering-Plough Corp. | 143,850 | 3,832,164 |
Watson Pharmaceuticals, Inc.* | 9,355 | 253,895 |
Wyeth | 119,376 | 5,275,225 |
| 72,606,885 |
Industrials 11.4% |
Aerospace & Defense 2.8% |
Boeing Co. | 69,308 | 6,061,678 |
General Dynamics Corp. | 36,034 | 3,206,666 |
Goodrich Corp. | 10,561 | 745,712 |
Honeywell International, Inc. | 66,447 | 4,091,142 |
L-3 Communications Holdings, Inc. | 11,200 | 1,186,528 |
Lockheed Martin Corp. | 30,993 | 3,262,323 |
Northrop Grumman Corp. | 30,531 | 2,400,958 |
Precision Castparts Corp. | 12,300 | 1,706,010 |
Raytheon Co. | 38,696 | 2,348,847 |
Rockwell Collins, Inc. | 14,731 | 1,060,190 |
United Technologies Corp. | 88,100 | 6,743,174 |
| 32,813,228 |
Air Freight & Logistics 0.9% |
C.H. Robinson Worldwide, Inc. | 15,300 | 828,036 |
Expeditors International of Washington, Inc. | 18,900 | 844,452 |
FedEx Corp. | 27,465 | 2,449,054 |
United Parcel Service, Inc. "B" | 93,258 | 6,595,206 |
| 10,716,748 |
Airlines 0.1% |
Southwest Airlines Co. | 65,595 | 800,259 |
Building Products 0.1% |
Masco Corp. | 32,765 | 708,052 |
Trane, Inc. | 15,264 | 712,981 |
| 1,421,033 |
Commercial Services & Supplies 0.5% |
Allied Waste Industries, Inc.* | 23,275 | 256,491 |
Avery Dennison Corp. | 8,886 | 472,202 |
Cintas Corp. | 12,042 | 404,852 |
|
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| Value ($) |
| |
Equifax, Inc. | 11,791 | 428,721 |
Monster Worldwide, Inc.* | 11,385 | 368,874 |
Pitney Bowes, Inc. | 19,646 | 747,334 |
R.R. Donnelley & Sons Co. | 19,629 | 740,798 |
Robert Half International, Inc. | 14,400 | 389,376 |
Waste Management, Inc. | 46,369 | 1,514,875 |
| 5,323,523 |
Construction & Engineering 0.2% |
Fluor Corp. | 7,825 | 1,140,259 |
Jacobs Engineering Group, Inc.* | 11,400 | 1,089,954 |
| 2,230,213 |
Electrical Equipment 0.5% |
Cooper Industries Ltd. "A" | 16,128 | 852,849 |
Emerson Electric Co. | 70,304 | 3,983,424 |
Rockwell Automation, Inc. | 13,347 | 920,409 |
| 5,756,682 |
Industrial Conglomerates 3.6% |
3M Co. | 63,536 | 5,357,356 |
General Electric Co. | 903,432 | 33,490,224 |
Textron, Inc. | 22,182 | 1,581,577 |
Tyco International Ltd. | 44,188 | 1,752,054 |
| 42,181,211 |
Machinery 1.9% |
Caterpillar, Inc. | 56,736 | 4,116,764 |
Cummins, Inc. | 9,156 | 1,166,200 |
Danaher Corp. | 21,465 | 1,883,339 |
Deere & Co. | 39,424 | 3,671,163 |
Dover Corp. | 17,502 | 806,667 |
Eaton Corp. | 12,905 | 1,251,140 |
Illinois Tool Works, Inc. (a) | 36,894 | 1,975,305 |
Ingersoll-Rand Co., Ltd. "A" | 24,322 | 1,130,243 |
ITT Corp. | 15,894 | 1,049,640 |
Manitowoc Co., Inc. | 11,100 | 542,013 |
PACCAR, Inc. | 34,001 | 1,852,374 |
Pall Corp. | 10,853 | 437,593 |
Parker Hannifin Corp. | 15,068 | 1,134,771 |
Terex Corp.* | 9,900 | 649,143 |
| 21,666,355 |
Road & Rail 0.8% |
Burlington Northern Santa Fe Corp. | 26,638 | 2,217,081 |
CSX Corp. | 37,548 | 1,651,361 |
Norfolk Southern Corp. | 34,786 | 1,754,606 |
Ryder System, Inc. | 4,852 | 228,092 |
Union Pacific Corp. | 23,481 | 2,949,683 |
| 8,800,823 |
Trading Companies & Distributors 0.0% |
W.W. Grainger, Inc. | 6,009 | 525,908 |
Information Technology 16.6% |
Communications Equipment 2.6% |
Ciena Corp.* (a) | 8,765 | 298,974 |
Cisco Systems, Inc.* | 540,895 | 14,642,028 |
Corning, Inc. | 139,722 | 3,351,931 |
JDS Uniphase Corp.* (a) | 18,978 | 252,407 |
Juniper Networks, Inc.* | 47,100 | 1,563,720 |
Motorola, Inc. | 206,480 | 3,311,939 |
QUALCOMM, Inc. | 148,720 | 5,852,132 |
Tellabs, Inc.* | 42,116 | 275,439 |
| 29,548,570 |
|
Shares
| Value ($) |
| |
Computers & Peripherals 4.5% |
Apple, Inc.* | 78,562 | 15,561,561 |
Dell, Inc.* | 201,609 | 4,941,437 |
EMC Corp.* | 186,267 | 3,451,527 |
Hewlett-Packard Co. | 228,927 | 11,556,235 |
International Business Machines Corp. | 122,202 | 13,210,036 |
Lexmark International, Inc. "A"* | 8,468 | 295,194 |
Network Appliance, Inc.* | 31,784 | 793,329 |
QLogic Corp.* | 13,118 | 186,276 |
SanDisk Corp.* | 20,400 | 676,668 |
Sun Microsystems, Inc.* | 73,745 | 1,337,001 |
Teradata Corp.* | 15,651 | 428,994 |
| 52,438,258 |
Electronic Equipment & Instruments 0.3% |
Agilent Technologies, Inc.* | 34,297 | 1,260,072 |
Jabil Circuit, Inc. | 16,647 | 254,200 |
Molex, Inc. | 12,217 | 333,524 |
Tyco Electronics Ltd. | 44,188 | 1,640,700 |
| 3,488,496 |
Internet Software & Services 1.9% |
Akamai Technologies, Inc.* | 15,100 | 522,460 |
eBay, Inc.* | 101,368 | 3,364,404 |
Google, Inc. "A"* | 20,653 | 14,281,136 |
VeriSign, Inc.* | 21,100 | 793,571 |
Yahoo!, Inc.* | 119,488 | 2,779,291 |
| 21,740,862 |
IT Services 0.8% |
Affiliated Computer Services, Inc. "A"* | 9,173 | 413,702 |
Automatic Data Processing, Inc. | 47,408 | 2,111,078 |
Cognizant Technology Solutions Corp. "A"* | 25,800 | 875,652 |
Computer Sciences Corp.* | 15,544 | 768,962 |
Convergys Corp.* | 10,872 | 178,953 |
Electronic Data Systems Corp. | 45,491 | 943,029 |
Fidelity National Information Services, Inc. | 15,200 | 632,168 |
Fiserv, Inc.* | 14,942 | 829,131 |
Paychex, Inc. | 30,911 | 1,119,597 |
Unisys Corp.* | 27,480 | 129,980 |
Western Union Co. | 68,612 | 1,665,899 |
| 9,668,151 |
Office Electronics 0.1% |
Xerox Corp.* | 83,088 | 1,345,195 |
Semiconductors & Semiconductor Equipment 2.7% |
Advanced Micro Devices, Inc.* | 50,960 | 382,200 |
Altera Corp. | 29,786 | 575,465 |
Analog Devices, Inc. | 27,835 | 882,369 |
Applied Materials, Inc. | 122,430 | 2,174,357 |
Broadcom Corp. "A"* | 41,621 | 1,087,973 |
Intel Corp. | 521,545 | 13,904,390 |
KLA-Tencor Corp. | 16,645 | 801,623 |
Linear Technology Corp. (a) | 19,814 | 630,680 |
LSI Corp.* | 64,013 | 339,909 |
MEMC Electronic Materials, Inc.* | 20,100 | 1,778,649 |
Microchip Technology, Inc. | 19,400 | 609,548 |
Micron Technology, Inc.* | 66,620 | 482,995 |
National Semiconductor Corp. | 21,426 | 485,085 |
Novellus Systems, Inc.* | 11,114 | 306,413 |
|
Shares
| Value ($) |
| |
NVIDIA Corp.* | 50,221 | 1,708,518 |
Teradyne, Inc.* | 16,804 | 173,753 |
Texas Instruments, Inc. | 126,879 | 4,237,759 |
Xilinx, Inc. | 26,446 | 578,374 |
| 31,140,060 |
Software 3.7% |
Adobe Systems, Inc.* | 52,910 | 2,260,844 |
Autodesk, Inc.* | 20,448 | 1,017,493 |
BMC Software, Inc.* | 17,806 | 634,606 |
CA, Inc. | 34,459 | 859,752 |
Citrix Systems, Inc.* | 16,098 | 611,885 |
Compuware Corp.* | 25,446 | 225,960 |
Electronic Arts, Inc.* | 29,058 | 1,697,278 |
Intuit, Inc.* | 30,070 | 950,513 |
Microsoft Corp. | 716,571 | 25,509,928 |
Novell, Inc.* | 31,036 | 213,217 |
Oracle Corp.* | 353,178 | 7,974,759 |
Symantec Corp.* | 79,852 | 1,288,811 |
| 43,245,046 |
Materials 3.3% |
Chemicals 1.8% |
Air Products & Chemicals, Inc. | 19,239 | 1,897,543 |
Ashland, Inc. | 4,908 | 232,786 |
Dow Chemical Co. | 84,361 | 3,325,511 |
E.I. du Pont de Nemours & Co. | 81,712 | 3,602,682 |
Eastman Chemical Co. | 7,030 | 429,463 |
Ecolab, Inc. | 15,466 | 792,014 |
Hercules, Inc. | 11,107 | 214,920 |
International Flavors & Fragrances, Inc. | 6,543 | 314,915 |
Monsanto Co. | 49,116 | 5,485,766 |
PPG Industries, Inc. | 14,250 | 1,000,777 |
Praxair, Inc. | 28,385 | 2,518,033 |
Rohm & Haas Co. | 11,794 | 625,908 |
Sigma-Aldrich Corp. | 11,640 | 635,544 |
| 21,075,862 |
Construction Materials 0.1% |
Vulcan Materials Co. (a) | 8,825 | 697,969 |
Containers & Packaging 0.1% |
Ball Corp. | 8,836 | 397,620 |
Bemis Co., Inc. | 7,872 | 215,535 |
Pactiv Corp.* | 11,619 | 309,414 |
Sealed Air Corp. | 14,896 | 344,694 |
| 1,267,263 |
Metals & Mining 1.0% |
Alcoa, Inc. | 78,281 | 2,861,170 |
Allegheny Technologies, Inc. | 9,017 | 779,069 |
Freeport-McMoRan Copper & Gold, Inc. | 33,899 | 3,472,613 |
Newmont Mining Corp. | 40,032 | 1,954,763 |
Nucor Corp. | 25,630 | 1,517,809 |
Titanium Metals Corp. | 7,800 | 206,310 |
United States Steel Corp. | 10,459 | 1,264,598 |
| 12,056,332 |
Paper & Forest Products 0.3% |
International Paper Co. | 38,172 | 1,236,009 |
MeadWestvaco Corp. | 16,259 | 508,907 |
Weyerhaeuser Co. | 19,198 | 1,415,660 |
| 3,160,576 |
|
Shares
| Value ($) |
| |
Telecommunication Services 3.6% |
Diversified Telecommunication Services 3.2% |
AT&T, Inc. | 541,536 | 22,506,236 |
CenturyTel, Inc. | 9,919 | 411,242 |
Citizens Communications Co. | 27,790 | 353,767 |
Embarq Corp. | 13,598 | 673,509 |
Qwest Communications International, Inc.* (a) | 143,840 | 1,008,318 |
Verizon Communications, Inc. | 258,529 | 11,295,132 |
Windstream Corp. | 44,259 | 576,252 |
| 36,824,456 |
Wireless Telecommunication Services 0.4% |
American Tower Corp. "A"* | 36,600 | 1,559,160 |
Sprint Nextel Corp. | 252,768 | 3,318,844 |
| 4,878,004 |
Utilities 3.6% |
Electric Utilities 2.1% |
Allegheny Energy, Inc. | 14,110 | 897,537 |
American Electric Power Co., Inc. | 35,916 | 1,672,249 |
Duke Energy Corp. | 112,583 | 2,270,799 |
Edison International | 28,867 | 1,540,632 |
Entergy Corp. | 18,256 | 2,181,957 |
Exelon Corp. | 60,242 | 4,918,157 |
FirstEnergy Corp. | 27,054 | 1,957,086 |
FPL Group, Inc. (a) | 36,184 | 2,452,552 |
Pepco Holdings, Inc. | 17,300 | 507,409 |
Pinnacle West Capital Corp. | 7,608 | 322,655 |
PPL Corp. | 34,028 | 1,772,519 |
Progress Energy, Inc. | 21,831 | 1,057,275 |
Southern Co. | 67,304 | 2,608,030 |
| 24,158,857 |
Gas Utilities 0.1% |
Nicor, Inc. | 3,984 | 168,722 |
Questar Corp. | 15,300 | 827,730 |
| 996,452 |
Independent Power Producers & Energy Traders 0.3% |
AES Corp.* | 59,348 | 1,269,454 |
Constellation Energy Group | 16,010 | 1,641,505 |
Dynegy, Inc. "A"* | 39,872 | 284,686 |
| 3,195,645 |
|
Shares
| Value ($) |
| |
Multi-Utilities 1.1% |
Ameren Corp. | 17,369 | 941,574 |
CenterPoint Energy, Inc. | 26,021 | 445,740 |
CMS Energy Corp. | 22,772 | 395,777 |
Consolidated Edison, Inc. | 26,622 | 1,300,485 |
Dominion Resources, Inc. | 51,658 | 2,451,172 |
DTE Energy Co. | 15,657 | 688,282 |
Integrys Energy Group, Inc. | 6,800 | 351,492 |
NiSource, Inc. | 24,408 | 461,067 |
PG&E Corp. | 31,349 | 1,350,828 |
Public Service Enterprise Group, Inc. | 22,675 | 2,227,591 |
Sempra Energy | 23,387 | 1,447,188 |
TECO Energy, Inc. (a) | 24,500 | 421,645 |
Xcel Energy, Inc. | 34,057 | 768,667 |
| 13,251,508 |
Total Common Stocks (Cost $893,054,106) | 1,150,184,815 |
| Principal Amount ($) | Value ($) |
| |
Government & Agency Obligations 0.1% |
US Treasury Bill, 5.08%**, 1/17/2008 (b) (Cost $798,833) | 800,000 | 799,121 |
|
Shares
| Value ($) |
| |
Securities Lending Collateral 1.0% |
Daily Assets Fund Institutional, 5.03% (c) (d) (Cost $11,992,775) | 11,992,775 | 11,992,775 |
|
Cash Equivalents 0.5% |
Cash Management QP Trust, 4.67% (c) (Cost $6,003,760) | 6,003,760 | 6,003,760 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $911,849,474)+ | 100.9 | 1,168,980,471 |
Other Assets and Liabilities, Net | (0.9) | (10,003,451) |
Net Assets | 100.0 | 1,158,977,020 |
* Non-income producing security.** Annualized yield at time of purchase; not a coupon rate.+ The cost for federal income tax purposes was $932,022,452. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $236,958,019. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $321,707,558 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $84,749,539.(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $11,704,037 which is 1.0% of net assets.(b) At December 31, 2007, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.(c) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.REIT: Real Estate Investment Trust
At December 31, 2007, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation ($) |
S&P 500 Index
| 3/19/2008 | 23 | 8,444,598 | 8,493,900 | 49,302 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007
|
Assets |
Investments:
Investments in securities, at value (cost $893,852,939) — including $11,704,037 of securities loaned | $ 1,150,983,936 |
Investment in Daily Assets Fund Institutional (cost $11,992,775)* | 11,992,775 |
Investment in Cash Management QP Trust (cost $6,003,760) | 6,003,760 |
Total investments, at value (cost $911,849,474)
| 1,168,980,471 |
Cash
| 68 |
Dividends receivable
| 1,733,336 |
Receivable for investments sold
| 282,725 |
Interest receivable
| 43,348 |
Receivable for Portfolio shares sold
| 1,006,291 |
Other assets
| 58,446 |
Total assets
| 1,172,104,685 |
Liabilities |
Payable upon return of securities loaned
| 11,992,775 |
Payable for investments purchased
| 601,852 |
Payable for Portfolio shares redeemed
| 52,523 |
Payable for daily variation margin on open futures contracts
| 51,867 |
Accrued management fee
| 163,137 |
Other accrued expenses and payables
| 265,511 |
Total liabilities
| 13,127,665 |
Net assets, at value | $ 1,158,977,020 |
Net Assets Consist of |
Undistributed net investment income
| 22,718,721 |
Net unrealized appreciation (depreciation) on:
Investments | 257,130,997 |
Futures | 49,302 |
Accumulated net realized gain (loss)
| (37,582,157) |
Paid-in capital
| 916,660,157 |
Net assets, at value | $ 1,158,977,020 |
Class A Net Asset Value, offering and redemption price per share ($1,045,858,561÷ 67,350,398 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized)
| $ 15.53 |
Class B Net Asset Value, offering and redemption price per share ($64,815,382 ÷ 4,176,782 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized)
| $ 15.52 |
Class B2 Net Asset Value, offering and redemption price per share ($48,303,077 ÷ 3,113,678 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized)
| $ 15.51 |
* Represents collateral on securities loaned.Statement of Operations for the year ended December 31, 2007
|
Investment Income |
Income:
Dividends
| $ 26,200,136 |
Interest
| 101,641 |
Interest — Cash Management QP Trust
| 1,005,927 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 65,504 |
Total Income
| 27,373,208 |
Expenses:
Management fee
| 2,641,783 |
Administration fee
| 1,366,734 |
Custodian fee
| 57,532 |
Distribution service fees (Class B and Class B2)
| 317,064 |
Record keeping fee (Class B2)
| 73,757 |
Services to shareholders
| 1,250 |
Professional fees
| 86,597 |
Trustees' fees and expenses
| 52,883 |
Reports to shareholders and shareholder meeting
| 234,596 |
Other
| 87,081 |
Total expenses before expense reductions
| 4,919,277 |
Expense reductions
| (515,264) |
Total expenses after expense reductions
| 4,404,013 |
Net investment income (loss) | 22,969,195 |
Realized and Unrealized Gain (Loss) on Investment Transactions |
Net realized gain (loss) from:
Investments
| 39,847,922 |
In-kind redemptions
| 73,117,202 |
Futures
| 458,963 |
| 113,424,087 |
Change in net unrealized appreciation (depreciation)
Investments
| (54,260,354) |
Futures
| (5,090) |
| (54,265,444) |
Net gain (loss) | 59,158,643 |
Net increase (decrease) in net assets resulting from operations | $ 82,127,838 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets | Years Ended December 31, |
2007 | 2006 |
Operations:
Net investment income (loss)
| $ 22,969,195 | $ 23,189,108 |
Net realized gain (loss)
| 113,424,087 | 2,943,751 |
Change in net unrealized appreciation (depreciation)
| (54,265,444) | 178,849,313 |
Net increase (decrease) in net assets resulting from operations
| 82,127,838 | 204,982,172 |
Distributions to shareholders from:
| |
Net investment income:
Class A | (21,156,472) | (13,781,595) |
Class B | (1,115,985) | (640,558) |
Class B2 | (629,996) | (485,019) |
Total Distributions
| (22,902,453) | (14,907,172) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 142,014,066 | 369,528,119 |
Reinvestment of distributions
| 21,156,472 | 13,781,595 |
Cost of shares redeemed
| (285,852,359) | (245,811,474) |
In-kind redemptions
| (297,115,219) | — |
Net increase (decrease) in net assets from Class A share transactions
| (419,797,040) | 137,498,240 |
Class B Proceeds from shares sold
| 14,114,550 | 21,759,460 |
Reinvestment of distributions
| 1,115,985 | 640,558 |
Cost of shares redeemed
| (37,769,157) | (15,841,867) |
Net increase (decrease) in net assets from Class B share transactions
| (22,538,622) | 6,558,151 |
Class B2 Proceeds from shares sold
| 3,660,238 | 10,704,216 |
Reinvestment of distributions
| 629,996 | 485,019 |
Cost of shares redeemed
| (15,637,931) | (20,239,713) |
Net increase (decrease) in net assets from Class B2 share transactions
| (11,347,697) | (9,050,478) |
Increase (decrease) in net assets | (394,457,974) | 325,080,913 |
Net assets at beginning of period
| 1,553,434,994 | 1,228,354,081 |
Net assets at end of period (including undistributed net investment income of $22,718,721 and $22,881,660, respectively)
| $ 1,158,977,020 | $ 1,553,434,994 |
Statement of Changes in Net Assets (continued) |
Other Information | Years Ended December 31, |
2007 | 2006 |
Class A Shares outstanding at beginning of period
| 94,305,191 | 84,067,247 |
Shares sold
| 9,198,622 | 27,355,596 |
Shares issued to shareholders in reinvestment of distributions
| 1,366,697 | 1,008,902 |
Shares redeemed
| (18,652,060) | (18,126,554) |
In-kind redemptions
| (18,868,052) | — |
Net increase (decrease) in Class A shares
| (26,954,793) | 10,237,944 |
Shares outstanding at end of period
| 67,350,398 | 94,305,191 |
Class B Shares outstanding at beginning of period
| 5,613,107 | 5,155,670 |
Shares sold
| 915,083 | 1,579,717 |
Shares issued to shareholders in reinvestment of distributions
| 72,046 | 46,858 |
Shares redeemed
| (2,423,454) | (1,169,138) |
Net increase (decrease) in Class B shares
| (1,436,325) | 457,437 |
Shares outstanding at end of period
| 4,176,782 | 5,613,107 |
Class B2 Shares outstanding at beginning of period
| 3,841,811 | 4,506,034 |
Shares sold
| 240,022 | 788,488 |
Shares issued to shareholders in reinvestment of distributions
| 40,645 | 35,455 |
Shares redeemed
| (1,008,800) | (1,488,166) |
Net increase (decrease) in Class B2 shares
| (728,133) | (664,223) |
Shares outstanding at end of period
| 3,113,678 | 3,841,811 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.97 | $ 13.11 | $ 12.73 | $ 11.64 | $ 9.20 |
Income (loss) from investment operations: Net investment income (loss)a | .27 | .24 | .21 | .21 | .15 |
Net realized and unrealized gain (loss) | .52 | 1.78 | .37 | 1.01 | 2.41 |
Total from investment operations | .79 | 2.02 | .58 | 1.22 | 2.56 |
Less distributions from: Net investment income | (.23) | (.16) | (.20) | (.13) | (.12) |
Net asset value, end of period | $ 15.53 | $ 14.97 | $ 13.11 | $ 12.73 | $ 11.64 |
Total Return (%)
| 5.30b | 15.52b | 4.68 | 10.59b | 28.16b |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 1,046 | 1,412 | 1,102 | 790 | 627 |
Ratio of expenses before expense reductions and/or recoupments (%)
| .33 | .28 | .27 | .28 | .30 |
Ratio of expenses after expense reductions and/or recoupments (%)
| .30 | .27 | .27 | .29 | .30 |
Ratio of net investment income (loss) (%)
| 1.71 | 1.73 | 1.62 | 1.76 | 1.50 |
Portfolio turnover rate (%)
| 7c | 9 | 15 | 1 | 1 |
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
c Excludes portfolio securities delivered as a result of processing redemption in-kind transactions.
|
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.96 | $ 13.10 | $ 12.72 | $ 11.63 | $ 9.20 |
Income (loss) from investment operations: Net investment income (loss)a | .23 | .21 | .17 | .20 | .14 |
Net realized and unrealized gain (loss) | .52 | 1.78 | .38 | .99 | 2.40 |
Total from investment operations | .75 | 1.99 | .55 | 1.19 | 2.54 |
Less distributions from: Net investment income | (.19) | (.13) | (.17) | (.10) | (.11) |
Net asset value, end of period | $ 15.52 | $ 14.96 | $ 13.10 | $ 12.72 | $ 11.63 |
Total Return (%)
| 5.03b | 15.24b | 4.42 | 10.32b | 27.83 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 65 | 84 | 68 | 53 | 17 |
Ratio of expenses before expense reductions and/or recoupments (%)
| .58 | .53 | .52 | .53 | .55 |
Ratio of expenses after expense reductions and/or recoupments (%)
| .55 | .52 | .52 | .54 | .55 |
Ratio of net investment income (loss) (%)
| 1.46 | 1.48 | 1.37 | 1.71 | 1.29 |
Portfolio turnover rate (%)
| 7c | 9 | 15 | 1 | 1 |
a Based on average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
c Excludes portfolio securities delivered as a result of processing redemption in-kind transactions.
|
Class B2 Years Ended December 31, | 2007 | 2006 | 2005a |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.96 | $ 13.09 | $ 12.94 |
Income (loss) from investment operations: Net investment income (loss)b | .21 | .19 | .05 |
Net realized and unrealized gain (loss) | .52 | 1.79 | .10 |
Total from investment operations | .73 | 1.98 | .15 |
Less distributions from: Net investment income | (.18) | (.11) | — |
Net asset value, end of period | $ 15.51 | $ 14.96 | $ 13.09 |
Total Return (%)c
| 4.85 | 15.20 | 1.16** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 48 | 57 | 59 |
Ratio of expenses before expense reductions (%)
| .72 | .67 | .66* |
Ratio of expenses after expense reductions (%)
| .65 | .63 | .63* |
Ratio of net investment income (loss) (%)
| 1.36 | 1.37 | 1.34* |
Portfolio turnover rate (%)
| 7d | 9 | 15 |
a For the period September 16, 2005 (commencement of operations) to December 31, 2005.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
d Excludes portfolio securities delivered as a result of processing redemption in-kind transactions.
* Annualized
** Not annualized
|
Notes to Financial Statements
A. Significant Accounting Policies
DWS Investments VIT Funds (the "Trust") is registered under the Investment Company Act of 1940 as amended, (the "1940 Act"), as a diversified, open-end management investment company. The Trust is organized as a Massachusetts business trust. The Trust is comprised of several portfolios. DWS Equity 500 Index VIP (the "Portfolio") is one of the series the Trust offers to investors. The Portfolio is an underlying investment vehicle for variable annuity contracts and variable life insurance policies to be offered by the separate accounts of certain life insurance companies ("Participating Insurance Companies").
Multiple Classes of Shares of Beneficial Interest. The Portfolio offers three classes of shares to investors: Class A shares, Class B shares and Class B2 shares. Class B and Class B2 shares are subject to Rule 12b-1 distribution fees under the 1940 Act equal to an annual rate up to 0.25% of Class B and Class B2 shares average daily net assets. In addition, Class B2 shares are subject to record keeping fees equal to an annual rate of up to 0.15% of average daily net assets. Class A shares are not subject to such fees.
Investment income, realized and unrealized gains and losses, and certain Portfolio-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class (including the applicable 12b-1 distribution fees and record keeping fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The Portfolio's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Portfolio in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
In September 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. As of December 31, 2007, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.
Securities Lending. The Portfolio may lend securities to financial institutions. The Portfolio retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Portfolio requires the borrowers of the securities to maintain collateral with the Portfolio consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The Portfolio may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Portfolio receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of fees paid to a lending agent. Either the Portfolio or the borrower may terminate the loan. The Portfolio is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Portfolio may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes and for duration management, risk management and return enhancement purposes.
Upon entering into a futures contract, the Portfolio is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Portfolio depending upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Portfolio. When entering into a closing transaction, the Portfolio will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Portfolio's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities hedged. When utilizing futures contracts to hedge, the Portfolio gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
Federal Income Taxes. The Portfolio's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable and tax-exempt income to its shareholders. Accordingly, the Portfolio paid no federal income taxes and no federal income tax provision was required.
At December 31, 2007, DWS Equity 500 Index VIP had a net tax basis capital loss carryforward of approximately $17,360,000 which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2012, whichever occurs first. During the year ended December 31, 2007, the Portfolio utilized $42,684,000 of its prior year capital loss carryforward.
The Portfolio has reviewed the tax positions for each of the three open tax years as of December 31, 2007 and has determined that no provision for income tax is required in the Portfolio's financial statements. Each of the Portfolio's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. Net investment income of the Portfolio, if any, is declared and distributed to shareholders annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Portfolio if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to in-kind redemptions, investments in futures contracts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Portfolio may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Portfolio.
At December 31, 2007, the Portfolio's components of distributable earnings (accumulated gains) on a tax basis were as follows:
Undistributed ordinary income
| $ 22,692,989 |
Capital loss carryforwards
| $ (17,360,000) |
Unrealized appreciation (depreciation) on investments
| $ 236,958,019 |
In addition, the tax character of distributions paid to shareholders by the Portfolio is summarized as follows:
| Years Ended December 31, |
| 2007 | 2006 |
Distributions from ordinary income
| $ 22,902,453 | $ 14,907,172 |
Contingencies. In the normal course of business, the Portfolio may enter into contracts with service providers that contain general indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet been made. However, based on experience, the Portfolio expects the risk of loss to be remote.
Expenses. Expenses of the Trust arising in connection with a specific portfolio are allocated to that portfolio. Other Trust expenses which cannot be directly attributed to a portfolio are apportioned among the portfolios in the Trust.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset valuation calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend as soon as the Portfolio is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the year ended December 31, 2007, purchases and sales of investment securities (excluding short-term investments and in-kind redemptions) aggregated $93,652,438 and $213,532,731, respectively.
C. Related Parties
Investment Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Portfolio in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold, or entered into by the Portfolio or delegates such responsibility to the Portfolio's subadvisor. Pursuant to the Investment Management Agreement with the Advisor, the Portfolio pays an annual management fee based on the Portfolio's average daily net assets, accrued daily and payable monthly, at the following annual rates:
First $1 billion of the Portfolio's average daily net assets
| .200% |
Next $1 billion of such net assets
| .175% |
Over $2 billion of such net assets
| .150% |
Northern Trust Investments, N.A. ("NTI") acts as investment sub-advisor for the Portfolio. As the Portfolio's investment sub-advisor, NTI makes the Portfolio's investment decisions. It buys and sells securities for the Portfolio and conducts the research that leads to these purchase and sale decisions. NTI is paid by the Advisor for its services.
For the period from January 1, 2007 through April 30, 2009, the Advisor contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Portfolio to the extent necessary to maintain operating expenses of each class (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, proxy and organizational and offering costs) as follows:
Class A
| .28% |
Class B
| .53% |
Class B2
| .63% |
Accordingly, for the year ended December 31, 2007, the Advisor waived a portion of its Management fee aggregating $491,063 and the amount charged aggregated $2,150,720, which was equivalent to an annual effective rate of 0.16% of the Portfolio's average daily net assets.
In addition, the Advisor reimbursed the Portfolio $20,496 of record keeping fees for Class B2 shares for the year ended December 31, 2007.
Prior to June 1, 2006, the Advisor was able to recoup any of its waived management fees within the following three years if the Portfolio was able to make repayment without exceeding its contractual expense limits during the period of the waiver/reimbursement.
Administration Fee. Pursuant to the Administrative Services Agreement, DIMA provides most administrative services to the Portfolio. For all services provided under the Administrative Services Agreement, the Portfolio pays DIMA an annual fee ("Administration fee") of 0.10% of the Portfolio's average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2007, DIMA received an Administration fee of $1,366,734, of which $99,303 is unpaid.
Distribution Service Agreement. DWS Scudder Distributors, Inc. ("DWS-SDI"), an affiliate of the Advisor, is the Portfolio's distributor. In accordance with the Distribution Plan, DWS-SDI receives 12b-1 fees of up to 0.25% of average daily net assets of Class B and B2 shares. For the year ended December 31, 2007, the Distribution Service Fees were as follows:
Distribution Service Fees | Total Aggregated | Waived | Unpaid at December 31, 2007 |
Class B
| $ 183,309 | $ 23 | $ 17,623 |
Class B2
| 133,755 | — | 10,932 |
| $ 317,064 | $ 23 | $ 28,555 |
Service Provider Fees. DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent of the Portfolio. Pursuant to a sub-transfer agency agreement among DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has delegated certain transfer agent, dividend paying agent and shareholder service agent functions to DST. DWS-SISC compensates DST out of the shareholder servicing fee they receive from the Portfolio. For the year ended December 31, 2007, the amounts charged to the Portfolio by DWS-SISC were as follows:
Services to Shareholders | Total Aggregated | Waived | Unpaid at December 31, 2007 |
Class A
| $ 944 | $ 944 | $ — |
Class B
| 163 | 163 | — |
Class B2
| 143 | 143 | — |
| $ 1,250 | $ 1,250 | $ — |
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Portfolio. For the year ended December 31, 2007, the amount charged to the Portfolio by DIMA included in the Statement of Operations under "reports to shareholders and shareholder meeting" aggregated $15,584, of which $6,004 is unpaid.
Trustees Fees and Expenses. As compensation for his or her services, each Independent Trustee receives an aggregated annual fee, plus a fee for each meeting attended (plus reimbursement for reasonable out-of-pocket expenses incurred in connection with his or her attendance at board and committee meetings) from each Fund in the Fund Complex for which he or she serves. In addition, the Chairperson of the Board and the Chairperson of each committee of the Board receives additional compensation for their services. Payment of such fees and expenses is allocated among all such Funds described above in direct proportion to their relative net assets.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Portfolio may invest in the Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Manager or Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Manager or Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Fee Reductions
The Portfolio has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolio's custodian expenses. During the year ended December 31, 2007, the Portfolio's custodian fee was reduced by $2,432 for custody credits earned.
E. Line of Credit
The Portfolio and other affiliated funds (the "Participants") share in a $750 million revolving credit facility administered by JPMorgan Chase Bank N.A. for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.35%. The Portfolio may borrow up to a maximum of 33% of its net assets under the agreement.
F. Ownership of the Portfolio
At December 31, 2007, two participating insurance companies were beneficial owners of record of 10% or more of the total outstanding Class A shares of the Portfolio, each owning 53% and 18%, respectively. At December 31, 2007, one participating insurance company was a beneficial owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 82%. At December 31, 2007, three participating insurance companies were beneficial owners of record of 10% or more of the outstanding Class B2 shares of the Portfolio, each owning 74%, 15% and 12%, respectively.
G. In-Kind Redemptions
In certain circumstances, the Portfolio may distribute portfolio securities rather than cash as payments for a redemption of Portfolio shares (in-kind redemption). For financial reporting purposes, the Portfolio recognizes a gain on in-kind redemptions to the extent the value of the distributed securities exceeds their costs; the Portfolio recognizes a loss if cost exceeds value. Gains and losses realized on in-kind redemptions are not recognized for tax purposes, and are reclassified from undistributed realized gain (loss) to paid-in capital. During the year ended December 31, 2007, the Portfolio realized $73,117,202 of net gain attributable to in-kind redemptions.
Report of Independent Registered Public Accounting Firm
To the Trustees of DWS Investments VIT Funds and the Shareholders of DWS Equity 500 Index VIP:
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of DWS Equity 500 Index VIP (the "Portfolio") at December 31, 2007, and the results of its operations for the year ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the three years ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Portfolio for each of the periods ended on or prior to December 31, 2004 were audited by another Independent Registered Public Accounting Firm whose report dated February 8, 2005 expressed an unqualified opinion on those statements.
Boston, Massachusetts
February 13, 2008 | PricewaterhouseCoopers LLP |
Tax Information (Unaudited)
For corporate shareholders, 100% of the income dividends paid during the Portfolio's fiscal year ended December 31, 2007 qualified as a dividend received deduction.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 778-1482.
Proxy Voting
A description of the Portfolio's policies and procedures for voting proxies for portfolio securities and information about how the Portfolio voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Portfolio's policies and procedures without charge, upon request, call us toll free at (800) 778-1482.
Investment Management Agreement Approval
The Fund's Trustees approved the continuation of the Fund's current investment management agreement with DIMA and sub-advisory agreement between DIMA and Northern Trust Investments, N.A. (NTI) in September 2007.
In terms of the process that the Trustees followed prior to approving the agreements, shareholders should know that:
At the present time, all but one of your Fund's Trustees are independent of DIMA and its affiliates.
The Trustees meet frequently to discuss fund matters. Each year, the Trustees dedicate part or all of several meetings to contract review matters. In connection with reviewing the Fund's investment management agreement, the Trustees also review the terms of the Fund's Rule 12b-1 plan, distribution agreement, administration agreement, transfer agency agreement and other material service agreements.
In connection with the Board's 2007 contract review, the Board formed a special committee to facilitate careful review of the funds' contractual arrangements. After reviewing the Fund's arrangements, that committee recommended that the Board vote to approve the continuation of the Fund's investment management agreement and sub-advisory agreement.
The Trustees regularly meet privately with their independent counsel to discuss contract review and other matters. In addition, the Trustees were also advised by two consultants, including the Fund's independent fee consultant, in the course of their 2007 review of the Fund's contractual arrangements. In particular, the Trustees considered the report prepared by the independent fee consultant in connection with their deliberations.
The sub-advisory fee paid to NTI is paid by DIMA out of its fee and not directly by the Fund.
The Trustees believe that a long-term relationship with a capable, conscientious advisor is in the best interest of shareholders. As you may know, DIMA is part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Trustees believe that there are significant advantages to being part of a global asset management business that offers a wide range of investing expertise and resources, including hundreds of portfolio managers and analysts with research capabilities in many countries throughout the world.
Shareholders may focus primarily on fund performance and fees, but the Fund's Trustees consider these and many other factors, including the quality and integrity of DIMA's and NTI's personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.
In determining to approve the continuation of the Fund's current investment management agreement and sub-advisory agreement, the Board considered all factors that it believes relevant to the interests of Fund shareholders, including:
The investment management fee schedule for the Fund, including (i) comparative information provided by Lipper regarding investment management fee rates paid to other investment advisors by similar funds and (ii) fee rates paid to DIMA by similar funds and institutional accounts advised by DIMA (if any). With respect to management fees paid to other investment advisors by similar funds, the Trustees noted that the contractual fee rates paid by the Fund were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2006). The Board gave a lesser weight to fees paid by similar institutional accounts advised by DIMA, in light of the material differences in the scope of services provided to mutual funds as compared to those provided to institutional accounts. Taking into account the foregoing, the Board concluded that the fee schedule in effect for the Fund represents reasonable compensation in light of the nature, extent and quality of the investment services being provided to the Fund.
The extent to which economies of scale would be realized as the Fund grows. In this regard, the Board noted that the Fund's investment management fee schedule includes fee breakpoints. The Board concluded that the Fund's fee schedule represents an appropriate sharing between Fund shareholders and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.
The total operating expenses of the Fund. In this regard, the Board noted that the total (net) operating expenses of the Fund (Class A shares) are expected to be lower than the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2006, and in each case analyzing Class A expenses less any applicable distribution and/or service plan expenses). The Board considered the expenses of this class to be representative for purposes of evaluating other classes of shares. The Board also considered how the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size). The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
The investment performance of the Fund and DIMA, both absolute and relative to various benchmarks and industry peer groups. The Board noted that for the one-, three- and five-year periods ended December 31, 2006, the Fund's performance (Class A shares) was in the 1st quartile, 1st quartile and 2nd quartile, respectively, of the applicable Lipper universe. The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2006. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
The nature, extent and quality of the advisory services provided by DIMA and NTI. The Board considered extensive information regarding DIMA, including DIMA's personnel (including particularly those personnel with responsibilities for providing services to the Fund), resources, policies and investment processes. The Board also considered the terms of the current investment management agreement and the sub-advisory agreement, including the scope of services provided under the agreements. In this regard, the Board concluded that the quality and range of services provided by DIMA and NTI have benefited and should continue to benefit the Fund and its shareholders.
The costs of the services to, and profits realized by, DIMA and its affiliates from their relationships with the Fund. The Board reviewed information concerning the costs incurred and profits realized by DIMA during 2006 from providing investment management services to the Fund (and, separately, to the entire DWS Scudder fund complex), and reviewed with DIMA the cost allocation methodology used to determine DIMA's profitability. In analyzing DIMA's costs and profits, the Board also reviewed the fees paid to and services provided by DIMA and its affiliates with respect to administrative services, transfer agent services, shareholder servicing and distribution (including fees paid pursuant to 12b-1 plans), as well as information regarding other possible benefits derived by DIMA and its affiliates as a result of DIMA's relationship with the Fund. As part of this review, the Board considered information provided by an independent accounting firm engaged to review DIMA's cost allocation methodology and calculations. The Board concluded that the Fund's investment management fee schedule represented reasonable compensation in light of the costs incurred by DIMA and its affiliates in providing services to the Fund. The Board also reviewed information regarding the profitability of certain similar investment management firms. The Board noted that while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates' overall profitability with respect to the DWS Scudder fund complex (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of many comparable firms for which such data was available.
The practices of DIMA and NTI regarding the selection and compensation of brokers and dealers executing portfolio transactions for the Fund. The Board considered that a portion of the Fund's brokerage may be allocated to affiliates of DIMA or NTI, subject to compliance with applicable SEC rules. The Board also considered that, subject to ongoing review by the Board, a limited portion of the Fund's brokerage may be allocated to brokers who acquire (and provide to DIMA and its affiliates) research services from third parties that are generally useful to DIMA and its affiliates in managing client portfolios. The Board indicated that it would continue to monitor the allocation of the Fund's brokerage to ensure that the principle of "best price and execution" remains paramount in the portfolio trading process.
DIMA's commitment to and record of compliance, including its written compliance policies and procedures. In this regard, the Board considered DIMA's commitment to indemnify the Fund against any costs and liabilities related to lawsuits or regulatory actions arising from allegations regarding market timing, revenue sharing, fund valuation or other subjects arising from or relating to pending regulatory inquiries. The Board also considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of DIMA's chief compliance officer; (ii) the large number of compliance personnel who report to DIMA's chief compliance officer; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.
Deutsche Bank's commitment to its US mutual fund business. The Board considered recent and ongoing efforts by Deutsche Bank to restructure its US mutual fund business to improve efficiency and competitiveness and to reduce compliance and operational risk. The Board considered assurances received from Deutsche Bank that it would commit the resources necessary to maintain high quality services to the Fund and its shareholders. The Board also considered Deutsche Bank's strategic plans for its US mutual fund business, the potential benefits to Fund shareholders and Deutsche Bank's management of one of Europe's most successful fund groups.
Based on all of the foregoing, the Board determined to continue the Fund's current investment management agreement and the sub-advisory agreement, and concluded that the continuation of such agreements was in the best interests of the Fund's shareholders.
In reaching this conclusion the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, many of which were in executive session with only the Independent Trustees and their counsel present. It is possible that individual Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the current agreements.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 26, 2007
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Scudder Funds. My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2007, including my qualifications, the evaluation process for each of the DWS Scudder Funds, consideration of certain complex-level factors, and my conclusions.
Qualifications
For more than 30 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past several years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University; and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds, serve on the board of directors of a private market research company, and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Scudder Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 136 Fund portfolios in the DWS Scudder Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper, Strategic Insight, and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Scudder Fund. These similar products included the other DWS Scudder Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Scudder Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Scudder funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Scudder Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Scudder Funds are reasonable.
Thomas H. Mack
Trustees and Officers
The following table presents certain information regarding the Board Members and Officers of the Trust as of December 31, 2007. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Independent Board Member is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. The term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.
Independent Board Members | |
Name, Year of Birth, Position with the Fund and Length of Time Served | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Dawn-Marie Driscoll (1946)
Chairperson since 2006
Board Member since 2006
| President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley College; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: Trustee of eight open-end mutual funds managed by Sun Capital Advisers, Inc. (since 2007); Director of ICI Mutual Insurance Company (since 2007); Advisory Board, Center for Business Ethics, Bentley College; Trustee, Southwest Florida Community Foundation (charitable organization). Former Directorships: Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)
| 76 |
Henry P. Becton, Jr. (1943)
Board Member since 2006
| Vice Chair, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Becton Dickinson and Company1 (medical technology company); Belo Corporation1 (media company); Boston Museum of Science; Public Radio International. Former Directorships: American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service
| 76 |
Keith R. Fox (1954)
Board Member since 2006
| Managing General Partner, Exeter Capital Partners (a series of private equity funds). Directorships: Progressive Holding Corporation (kitchen goods importer and distributor); Natural History, Inc. (magazine publisher); Box Top Media Inc. (advertising); The Kennel Shop (retailer)
| 76 |
Kenneth C. Froewiss (1945)
Board Member since 2006
| Clinical Professor of Finance, NYU Stern School of Business (1997-present); Member, Finance Committee, Association for Asian Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US) (2004-present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)
| 76 |
Martin J. Gruber (1937)
Board Member since 1999
| Nomura Professor of Finance, Leonard N. Stern School of Business, New York University (since September 1965); Director, Japan Equity Fund, Inc. (since January 1992), Thai Capital Fund, Inc. (since January 2000), Singapore Fund, Inc. (since January 2000), National Bureau of Economic Research (since January 2006). Formerly, Trustee, TIAA (pension funds) (January 1996-January 2000); Trustee, CREF and CREF Mutual Funds (January 2000-March 2005); Chairman, CREF and CREF Mutual Funds (February 2004-March 2005); and Director, S.G. Cowen Mutual Funds (January 1985-January 2001)
| 76 |
Richard J. Herring (1946)
Board Member since 1999
| Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center (since July 2000); Director, Japan Equity Fund, Inc. (since September 2007), Thai Capital Fund, Inc. (since September 2007), Singapore Fund, Inc. (since September 2007). Formerly, Vice Dean and Director, Wharton Undergraduate Division (July 1995-June 2000); Director, Lauder Institute of International Management Studies (July 2000-June 2006)
| 76 |
Graham E. Jones (1933)
Board Member since 2002
| Senior Vice President, BGK Realty, Inc. (commercial real estate) (since 1995). Formerly, Trustee of various investment companies managed by Sun Capital Advisors, Inc. (1998-2005), Morgan Stanley Asset Management (1985-2001) and Weiss, Peck and Greer (1985-2005)
| 76 |
Rebecca W. Rimel (1951)
Board Member since 2002
| President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 to present); Trustee, Thomas Jefferson Foundation (charitable organization) (1994 to present); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001 to present). Formerly, Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983-2004); Board Member, Investor Education (charitable organization) (2004-2005); Director, Viasys Health Care1 (January 2007-June 2007)
| 76 |
William N. Searcy, Jr. (1946)
Board Member since 2002
| Private investor since October 2003; Trustee of eight open-end mutual funds managed by Sun Capital Advisers, Inc. (since October 1998). Formerly, Pension & Savings Trust Officer, Sprint Corporation1 (telecommunications) (November 1989-September 2003)
| 76 |
Jean Gleason Stromberg (1943)
Board Member since 2006
| Retired. Formerly, Consultant (1997-2001); Director, US Government Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation; Service Source, Inc. Former Directorships: Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and 1994-1996)
| 76 |
Carl W. Vogt (1936)
Board Member since 2006
| Retired Senior Partner, Fulbright & Jaworski, L.L.P. (law firm); formerly, President (interim) of Williams College (1999-2000); formerly, President of certain funds in the Deutsche Asset Management family of funds (formerly, Flag Investors family of funds) (registered investment companies) (1999-2000). Directorships: Yellow Corporation (trucking); American Science & Engineering (x-ray detection equipment). Former Directorships: ISI Family of Funds (registered investment companies, four funds overseen); National Railroad Passenger Corporation (Amtrak); Waste Management, Inc. (solid waste disposal). Formerly, Chairman and Member, National Transportation Safety Board
| 74 |
Interested Board Member |
Name, Year of Birth, Position with the Fund and Length of Time Served | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Axel Schwarzer2 (1958)
Board Member since 2006
| Managing Director4, Deutsche Asset Management; Head of Deutsche Asset Management Americas; CEO of DWS Scudder; formerly, board member of DWS Investments, Germany (1999-2005); formerly, Head of Sales and Product Management for the Retail and Private Banking Division of Deutsche Bank in Germany (1997-1999); formerly, various strategic and operational positions for Deutsche Bank Germany Retail and Private Banking Division in the field of investment funds, tax driven instruments and asset management for corporates (1989-1996)
| 82 |
Officers3 |
Name, Year of Birth, Position with the Fund and Length of Time Served | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Michael G. Clark5 (1965)
President, 2006-present
| Managing Director4, Deutsche Asset Management (2006-present); President of DWS family of funds; Director, ICI Mutual Insurance Company (since October 2007); formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000)
|
John Millette6 (1962)
Vice President and Secretary, 2003-present
| Director4, Deutsche Asset Management
|
Paul H. Schubert5 (1963)
Chief Financial Officer, 2004-present
Treasurer, 2005-present
| Managing Director4, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998)
|
Patricia DeFilippis5 (1963)
Assistant Secretary, 2005-present
| Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003)
|
Elisa D. Metzger5 (1962)
Assistant Secretary 2005-present
| Director4, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005)
|
Caroline Pearson6 (1962)
Assistant Secretary, 2002-present
| Managing Director4, Deutsche Asset Management
|
Paul Antosca6 (1957)
Assistant Treasurer, 2007-present
| Director4, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)
|
Jack Clark6 (1967)
Assistant Treasurer, 2007-present
| Director4, Deutsche Asset Management (since 2007); formerly, Vice President, State Street Corporation (2002-2007)
|
Kathleen Sullivan D'Eramo6 (1957)
Assistant Treasurer, 2003-present
| Director4, Deutsche Asset Management
|
Diane Kenneally6 (1966)
Assistant Treasurer, 2007-present
| Director4, Deutsche Asset Management
|
Jason Vazquez4 (1972)
Anti-Money Laundering Compliance Officer, 2007-present
| Vice President, Deutsche Asset Management (since 2006); formerly, AML Operations Manager for Bear Stearns (2004-2006), Supervising Compliance Principal and Operations Manager for AXA Financial (1999-2004)
|
Robert Kloby5 (1962)
Chief Compliance Officer, 2006-present
| Managing Director4, Deutsche Asset Management (2004-present); formerly, Chief Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988)
|
J. Christopher Jackson5 (1951)
Chief Legal Officer, 2006-present
| Director4, Deutsche Asset Management (2006-present); formerly, Director, Senior Vice President, General Counsel and Assistant Secretary, Hansberger Global Investors, Inc. (1996-2006); Director, National Society of Compliance Professionals (2002-2005) (2006-2009)
|
1 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.2 The mailing address of Axel Schwarzer is c/o Deutsche Investment Management Americas Inc., 345 Park Avenue, New York, New York 10154. Mr. Schwarzer is an interested Board Member by virtue of his positions with Deutsche Asset Management.3 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the funds.4 Executive title, not a board directorship.5 Address: 345 Park Avenue, New York, New York 10154.6 Address: Two International Place, Boston, MA 02110.The fund's Statement of Additional Information ("SAI") includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 621-1048.
Deutsche Investment Management Americas Inc. ("DIMA"), an indirect, wholly owned subsidiary of Deutsche Bank AG, is the Portfolio's Advisor.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by individual investors.
DWS Scudder Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 778-1482
vit-equ500-2 (53316 2/08)
ITEM 2. | CODE OF ETHICS |
| |
| As of the end of the period, December 31, 2007, DWS Equity 500 Index VIP has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer. There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2. A copy of the code of ethics is filed as an exhibit to this Form N-CSR. |
| |
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
| |
| The Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there are several “audit committee financial experts” serving on the Funds’ audit committee. The Board has determined that Keith R Fox, the chair of the Funds’ audit committee, qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on its review of Mr. Fox’s pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. |
| |
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
DWS EQUITY 500 INDEX VIP
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP (“PWC”), the Fund’s independent registered public accounting firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund
Fiscal Year
Ended
December 31, | Audit Fees Billed to Fund | Audit-Related
Fees Billed to Fund | Tax Fees Billed to Fund | All
Other Fees Billed to Fund |
2007 | $34,250 | $0 | $0 | $0 |
2006 | $35,000 | $128 | $0 | $0 |
The above “Audit- Related Fees” were billed for agreed upon procedures performed.
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by PWC to Deutsche Investment Management Americas, Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
Fiscal Year
December 31, | Audit-Related
Fees Billed to Adviser and Affiliated Fund Service Providers | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All
Other Fees Billed to Adviser and Affiliated Fund Service Providers |
2007 | $58,500 | $25,000 | $0 |
2006 | $155,500 | $11,930 | $0 |
The “Audit-Related Fees” were billed for services in connection with the agreed-upon procedures related to fund mergers and additional costs related to annual audits and the above “Tax Fees” were billed in connection with tax consultation and agreed-upon procedures.
Non-Audit Services
The following table shows the amount of fees that PWC billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that PWC provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from PWC about any non-audit services that PWC rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating PWC’s independence.
Fiscal Year
Ended
December 31, | Total
Non-Audit Fees Billed to Fund (A) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) | Total of (A), (B)
and (C) |
2007 | $0 | $25,000 | $600,000 | $625,000 |
2006 | $0 | $11,930 | $0 | $11,930 |
All other engagement fees were billed for services provided by PWC for services related to consulting on an IT project.
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ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
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| Not Applicable |
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ITEM 6. | SCHEDULE OF INVESTMENTS |
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| Not Applicable |
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ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
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ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
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| Not Applicable. |
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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| The Committee on Independent Trustees/Directors selects and nominates Independent Trustees/Directors. Fund shareholders may submit nominees that will be considered by the committee when a Board vacancy occurs. Submissions should be mailed to: c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33910. |
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ITEM 11. | CONTROLS AND PROCEDURES |
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| (a) The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
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| (b) There have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last half-year (the registrant’s second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
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ITEM 12. | EXHIBITS |
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| (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
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| (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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| (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | DWS Equity 500 Index VIP, a series of DWS Investments VIT Funds |
President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Registrant: | DWS Equity 500 Index VIP, a series of DWS Investments VIT Funds |
President
Chief Financial Officer and Treasurer
