UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-21949 |
DWS Dreman Value Income Edge Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue
New York, NY 10154-0004
(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 10154-0004
(Name and Address of Agent for Service)
Date of fiscal year end: | 09/30 |
Date of reporting period: | 09/30/08 |
ITEM 1. REPORT TO STOCKHOLDERS
SEPTEMBER 30, 2008 Annual Report
to Stockholders |
|
DWS Dreman Value Income
Edge Fund, Inc. Ticker Symbol: DHG |
 |
Contents
3 Performance Summary 5 Portfolio Management Review 12 Portfolio Summary 14 Investment Portfolio 25 Financial Statements 30 Financial Highlights 31 Notes to Financial Statements 40 Report of Independent Registered Public Accounting Firm 41 Tax Information 42 Dividend Reinvestment and Cash Purchase Plan 45 Investment Management Agreement Approval 50 Directors and Officers 54 Additional Information |
Investments in funds involve risk. Some funds have more risk than others. This fund is subject to market risk, meaning securities in the fund may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The fund can take short positions in securities, which means the fund could incur a loss by subsequently buying a security at a higher price than the price at which the fund previously sold the security short. The use of short sales — in effect, leveraging the fund's portfolio — could increase the fund's exposure to the market, magnify losses and increase the volatility of returns. The fund may focus its investments on certain industries or sectors, thereby increasing its vulnerability to any single industry, sector or regulatory development. Derivatives may be more volatile and less liquid than traditional securities, and the fund could suffer losses on its derivatives positions. Yields and market value will fluctuate. Additionally, the fund invests in lower-quality and non-rated securities, which present greater risk of loss of principal and interest than higher-quality securities. Fixed-income securities are subject to interest-rate risk such that when interest rates rise, the prices of the fixed-income securities, and thus the value of the investment, can decline and the investor can lose principal value. All of these factors may result in greater share price volatility. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail 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 September 30, 2008
Performance 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 visit www.dws-investments.com for the Fund's most recent month-end performance.
Fund specific data and performance are provided for information purposes only and are not intended for trading purposes.
Average Annual Total Returns as of 9/30/08 |
DWS Dreman Value Income Edge Fund, Inc. | 1-Year | Life of Fund* |
Based on Net Asset Value(a) | -34.70% | -20.59% |
Based on Market Price(a) | -37.47% | -31.17% |
Credit Suisse Tremont Long/Short Equity Index(b)
| -11.21% | .34% |
Zacks Yield Hog Index(b)
| -28.07% | -16.97% |
Bear Stearns High-Yield Index(b)
| -10.84% | -3.84% |
Blended Index(b)
| -18.04% | -8.40% |
Lipper Closed-End Core Funds Category(c)
| -21.18% | -9.27% |
Sources: Lipper, Inc. and Deutsche Investment Management Americas Inc.
* The Fund commenced operations on November 22, 2006. Index comparison began on November 30, 2006. Returns are not annualized.Net Asset Value and Market Price |
| As of 9/30/08 | As of 9/30/07 |
Net Asset Value
| $ 10.34 | $ 17.91 |
Market Price
| $ 8.30 | $ 15.02 |
Prices and net asset value fluctuate and are not guaranteed.
Distribution Information: Twelve Months as of 9/30/08:
Income Dividends | $ 1.59 |
Lipper Rankings — Closed-End Core Funds Category as of 9/30/08 |
Period | Rank | | Number of Funds Tracked | Percentile Ranking (%) |
1-Year
| 26 | of | 26 | 97 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on net asset value total return with distributions reinvested.
(a) Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period.(b) The Blended Index that the Fund utilizes as its benchmark is calculated using the performance of the three unmanaged indices listed below. These results are summed to produce the aggregate benchmark. The Credit Suisse Tremont Long/Short Equity Index (20%) is an unmanaged, asset-weighted fund index with an objective to be market neutral. The Zacks Yield Hog Index (40%) is an unmanaged, yield-oriented index to combine equities, preferred stocks, ADRs, REITs, master limited partnerships (MLPs), and closed-end funds. The Bear Stearns High-Yield Index (40%) is an unmanaged index that measures the performance of a large group of high-yield securities across a wide spectrum of industries with at least one year to maturity. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.(c) Lipper Closed-End Core Funds Category represents funds that typically have an average price-to-earnings ratio, price-to-book ratio, and three year sales-per-growth value, compared to the S&P SuperComposite 1500 Index. Lipper figures represent the average of the total returns based on net asset value reported by all of the closed-end funds designated by Lipper Inc. as falling into the Closed-End Core Funds Category. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper category.Portfolio Management Review
DWS Dreman Value Income Edge Fund, Inc.: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for DWS Dreman Value Income Edge Fund, Inc. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to institutional and retail clients.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Dreman Value Management, LLC ("DVM"), Aspen, Colorado, is the subadvisor for the fund. DVM was founded in 1997, with predecessor firms dating back to 1977, and currently manages over $11 billion in assets as of September 30, 2008.
Portfolio Management Team
Dreman Value Management, LLC is the subadvisor for the fund.
David N. Dreman
Chairman and Chief Investment Officer of Dreman Value Management, LLC and Lead Portfolio Manager of the fund.
• Began investment career in 1957.
• Joined the fund team in 2006.
• Founder, Dreman Value Management, LLC.
F. James Hutchinson
President and Managing Director of Dreman Value Management, LLC and Portfolio Manager of the fund.
• Joined Dreman Value Management, LLC in 2000.
• Began investment career in 1986.
• Joined the fund team in 2006.
• Prior to joining Dreman Value Management, LLC, 30 years of experience in finance and trust/investment management with The Bank of New York.
E. Clifton Hoover, Jr.
Co-Chief Investment Officer and Managing Director of Dreman Value Management, LLC and Portfolio Manager of the fund.
• Joined Dreman Value Management, LLC in 2006.
• Joined the fund team in 2007.
• Prior to joining Dreman Value Management, LLC, Managing Director and Portfolio Manager at NFJ Investment Group. Has over 20 years of investment experience.
Gary P. Herbert, CFA
Head of High Yield Group and Managing Director of Dreman Value Management, LLC and Portfolio Manager of the fund.
• Joined Dreman Value Management, LLC in 2007.
• Began investment career in 1992.
• Joined the fund team in 2008.
• Prior to joining Dreman Value Management, LLC, Executive Director of the Investment Management Group and Portfolio Manager and Analyst at Morgan Stanley Investment Management and Miller, Anderson & Sherrerd.
In the following interview, the portfolio management team discusses market conditions and DWS Dreman Value Income Edge Fund, Inc.'s investment strategy during the 12-month period ended September 30, 2008.
The views expressed in the following discussion reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk.
Q: How would you characterize the market environment over the last year?
A: This has been an extraordinarily challenging time for all investors. Liquidity has nearly vanished from many areas of the financial markets. By early 2008, what began as a correction in the subprime housing market had accelerated into the worst financial crisis in decades, with profound implications for the entire US economy and related effects on global markets and economies. Very wide spreads between bid and ask prices of high-yield bonds, preferred stocks and other high-yield securities mean that it has been extremely difficult to trade these securities. Because of a few rather dramatic trading excesses and business failures, banks have been afraid to lend to one another, and there is a high degree of risk aversion throughout credit markets. The US government has taken unprecedented actions, including instituting temporary insurance on money market funds and making direct investments in financial institutions.
1 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. Index returns, unlike fund returns, do not include fees or expenses. It is not possible to invest directly into an index.In this very tough environment, markets have been extremely volatile, and returns of almost all asset classes have been negative. The Standard & Poor's 500® (S&P 500) Index, which is generally regarded as a good indicator of the broad stock market, returned -21.98% for the period.1 The best-performing securities were those with no credit risk: the Merrill Lynch 10+ Year US Treasury Index returned 10.63%.2 By comparison, the return of the Barclays Capital US Corporate High-Yield Index was -11.24%.3
2 The Merrill Lynch 10+ Year US Treasury Index is an index of US Treasury securities with maturities of more than 10 years. It is constructed by Merrill Lynch & Co. and is frequently used as a measure of returns on US Treasury securities.3 The Barclays Capital US Corporate High-Yield Index (name changed from Lehman Brothers US Corporate High-Yield Index, effective November 3, 2008) covers the US dollar- denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of the major rating agencies (Moody's, Fitch and S&P) is Ba1/BB+/BB+ or lower.Index returns, unlike fund returns, do not include fees or expenses. It is not possible to invest directly into an index.Q: How is the fund managed?
A: The fund seeks to achieve a high level of total return. The fund pursues its investment objective through a combination of an income strategy and a hedge strategy. The income strategy, is implemented using a value-oriented approach to select investments in preferred shares, dividend-paying common stocks, high-yield bonds and other income-producing securities. The hedge strategy is implemented using a quantitative long/short methodology. It consists of buying stocks with low price-earnings ratios, while taking short positions in stocks with high price-earnings ratios.
Q: How did the fund perform during this period?
A: On a net asset value basis, total return from September 30, 2007 through September 30, 2008, was -34.70%. (All performance numbers assume reinvestment of dividends.) Net asset value (NAV) as of September 30, 2008, was $10.34, compared with $17.91 as of September 30, 2007. On a market price basis, total return for the same period was -37.47%. The fund underperformed both its blended benchmark and the average return of its Lipper peer group. (See page 3 through 4 for complete performance information for the blended benchmark and the Lipper peer group.)
Through September 30, 2008, the securities in the fund's portfolio have provided adequate income to cover the fund's monthly dividend, which was $0.1167 during the 2008 fiscal year. In addition to the regular dividend, the fund's Board of Directors declared a special income distribution of $0.1942 per share, which was paid on January 10, 2008. Total distributions paid during the 12-month period ended September 30, 2008, were $1.5946 per share.
Q: How is the portfolio structured, and what does that mean for performance?
A: There are really three distinct segments of this portfolio. Approximately 80% of the fund's assets are invested in income-producing securities. These include common stocks that pay attractive dividends, preferred stocks, high-yield bonds and other securities, such as Canadian royalty trusts, that offer good yields. The relative proportions of equities and bonds may vary over time, depending on which asset class appears to offer better potential for return. This portion of the portfolio is managed using a fundamentally based active management strategy, meaning that we analyze the underlying characteristics of each security under consideration to decide which ones offer the best potential for income and total return. The remaining 20% is invested using a quantitative hedge strategy, managed using a mathematical model. And then, like many closed-end funds, the portfolio uses leverage, which has the potential to enhance return when markets are strong. In this extraordinarily weak market, the fund's use of leverage proved to be detrimental, as it magnified the downward trend in the fund's holdings. We generally leverage approximately 30% of the portfolio; we have reduced leverage somewhat in this very weak market. However, we do not consider it advisable to eliminate leverage, as that would require selling securities at a time we believe many are severely undervalued.
The hedge portion of the portfolio performed relatively well; its return was negative, but it was down less than most equity indices. In the hedge portion of the portfolio, we generally use the S&P 500 Index futures for the long portion of the hedge. Early in 2008 we moved most of the long portion to Nasdaq futures, which had performed well. In recent months we significantly reduced the exposure to Nasdaq futures, and this proved to be a good decision as the market became extremely risk-averse.4 We will continue to evaluate the hedge to determine the optimal way to implement this strategy.
4 Futures are legally binding agreements between two parties to pay or receive the difference between the specified underlying price set when entering into the contract and the actual price of the underlying asset when the contract expires. Nasdaq futures are based on the Nasdaq Composite, a stock market index of all of the common stocks and similar securities (e.g., ADRs, tracking stocks limited partnership interests) listed on the Nasdaq stock market, meaning that it has over 3,000 components. It is highly followed in the US as an indicator of the performance of stocks of technology companies and growth companies.In the pure equity portion of the portfolio — the portion that is not part of the hedge strategy — positions in Canadian income trusts contributed to returns over the last year. Following what we believe was an overreaction to an unfavorable change in tax treatment of income from these trusts, there was a significant recovery in income trusts in the last few months of 2007, and they continued to perform relatively well through most of 2008. Crescent Point Energy Trust, Pengrowth Energy Trust and Harvest Energy Trust were among the positions that had positive returns for the 12 months ended September 30, 2008, as well as providing attractive levels of income.
The high-yield bond portion of the portfolio performed in line with its benchmark; total return was negative, but these securities continued to provide significant income. Holdings that performed relatively well were bonds issued by Casella Waste Systems Inc. and Cablevision Systems Corporation. However, performance was hurt by a position in a bond issued by Ineos Group Holdings PLC, a privately owned chemical company based in the UK. We believe that the low prices that currently prevail in the high-yield market provide some attractive opportunities for investors such as ourselves who are willing to look beyond the present illiquid situation and value each security under consideration on the basis of the underlying credit.
The greatest detractor from performance was a convertible preferred issue of Fannie Mae, which was taken over by the federal government in September. This extraordinary government intervention came as a surprise, since the Secretary of the Treasury had stated a short time earlier that Fannie Mae and other government-sponsored entities would be maintained as private companies, and the firm was rated investment-grade by the major rating agencies.
In the mid-year report, we said that we were considering investing in credit default swaps and similar structured investment vehicles. After further consideration, we elected not to invest in these securities at that time because of the potential counterparty risk, and that proved to be a good decision.
Portfolio Summary
Long Position Sector Diversification (As a % of Total Long Positions, excluding Closed-End Investment Companies and Cash Equivalents)
| 9/30/08 | 9/30/07 |
| | |
Energy | 35% | 31% |
Consumer Discretionary | 17% | 19% |
Financials | 17% | 14% |
Industrials | 8% | 10% |
Materials | 8% | 16% |
Health Care | 8% | 3% |
Information Technology | 2% | 3% |
Consumer Staples | 2% | 1% |
Telecommunications Services | 2% | 2% |
Utilities | 1% | 1% |
| 100% | 100% |
Ten Largest Long Equity Holdings at September 30, 2008 (29.3% of Net Assets) |
1. Crescent Point Energy Trust
Royalty trust that invests in oil and gas reservoirs
| 5.3% |
2. Pengrowth Energy Trust
Royalty trust that invests in beneficial interests in producing oil and gas fields
| 3.7% |
3. Harvest Energy Trust
Focuses on acquiring high-quality, mature oil and natural gas properties
| 3.5% |
4. ARC Energy Trust
Royalty trust formed to provide investors with indirect ownership in cash generating energy assets
| 3.1% |
5. Bonavista Energy Trust
Investment trust that generates income from its oil and gas interests in western Canada
| 2.8% |
6. Penn West Energy Trust
Produces oil and natural gas
| 2.4% |
7. Eagle Bulk Shipping, Inc.
Transporter of iron ore, coal, grain, cement and fertilizer
| 2.3% |
8. NAL Oil & Gas Trust
Conventional oil and natural gas royalty trust
| 2.3% |
9. Frontline Ltd.
Operator of large crude oil carriers and tankers
| 2.0% |
10. New Flyer Industries, Inc.
Manufactures heavy-duty transit buses
| 1.9% |
Sector diversification and portfolio holdings are subject to change.
Securities Sold Short Position Sector Diversification (As a % of Common Stocks Sold Short) | 9/30/08 | 9/30/07 |
| | |
Health Care | 17% | 5% |
Consumer Discretionary | 16% | 25% |
Information Technology | 16% | 20% |
Industrials | 13% | 11% |
Financials | 13% | 14% |
Energy | 8% | 12% |
Consumer Staples | 7% | 5% |
Materials | 7% | 8% |
Utilities | 3% | — |
| 100% | 100% |
Ten Largest Sold Short Equity Holdings at September 30, 2008 (1.2% of Net Assets) |
1. Wm. Wrigley Jr. Co.
Manufacturer of chewing gum
| 0.2% |
2. Celgene Corp.
Producer of pharmaceuticals
| 0.2% |
3. Hudson City Bancorp., Inc.
Holding company for Hudson City Bank
| 0.1% |
4. Fastenal Co.
Sells and distributes industrial supplies
| 0.1% |
5. Varian Medical Systems, Inc.
Supplier of integrated cancer-care systems
| 0.1% |
6. Plum Creek Timber Co., Inc.
Manufacturer of forest products such as lumber and plywood
| 0.1% |
7. Comcast Corp.
Develops, manages and operates cable communications networks
| 0.1% |
8. Activision Blizzard, Inc.
Publishes, develops and distributes entertainment software
| 0.1% |
9. Boston Scientific Corp.
Developer and producer of medical devices
| 0.1% |
10. Charles Schwab Corp.
Provider of diversified financial services
| 0.1% |
Sector diversification and portfolio holdings are subject to change.
For more complete details about the Fund's investment portfolio, see page 14. A quarterly Fact Sheet is available upon request. A complete list of the fund's portfolio holdings is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com. Please see the Additional Information section for contact information.
Following the Fund'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 as of September 30, 2008
| Shares | Value ($) |
| |
Long Positions 137.7% Common Stocks 44.4% |
Consumer Discretionary 1.7% |
Automobiles 0.1% |
Harley-Davidson, Inc. | 12,100 | 451,330 |
Hotels Restaurants & Leisure 0.1% |
Centerplate, Inc. (IDS) (Units) | 133,800 | 401,400 |
Household Durables 0.1% |
Whirlpool Corp. | 9,500 | 753,255 |
Media 0.5% |
CBS Corp. "B" | 21,300 | 310,554 |
Cinram International Income Fund (Units) (a) | 364,300 | 1,376,073 |
Gannett Co., Inc. | 14,900 | 251,959 |
Liberty Media Corp. — Capital "A"* | 4,900 | 65,562 |
Liberty Media Corp. — Entertainment "A"* | 19,600 | 489,412 |
| 2,493,560 |
Multiline Retail 0.3% |
J.C. Penney Co., Inc. | 13,300 | 443,422 |
Kohl's Corp.* | 12,700 | 585,216 |
Macy's, Inc. | 22,900 | 411,742 |
Nordstrom, Inc. | 15,900 | 458,238 |
| 1,898,618 |
Specialty Retail 0.5% |
AutoZone, Inc.* | 4,800 | 592,032 |
Home Depot, Inc. | 21,400 | 554,046 |
Limited Brands, Inc. | 30,900 | 535,188 |
Lowe's Companies, Inc. | 24,800 | 587,512 |
The Sherwin-Williams Co. | 9,900 | 565,884 |
| 2,834,662 |
Textiles, Apparel & Luxury Goods 0.1% |
VF Corp. | 8,100 | 626,211 |
Energy 31.4% |
Energy Equipment & Services 0.3% |
ENSCO International, Inc. | 9,600 | 553,248 |
National-Oilwell Varco, Inc.* | 4,571 | 229,602 |
Noble Corp. | 10,200 | 447,780 |
Transocean, Inc.* | 3,900 | 428,376 |
| 1,659,006 |
Oil, Gas & Consumable Fuels 31.1% |
Anadarko Petroleum Corp. | 8,600 | 417,186 |
Apache Corp. | 5,400 | 563,112 |
ARC Energy Trust (Units) (a) | 766,900 | 16,645,891 |
Bonavista Energy Trust (Unit) (a) | 606,500 | 14,982,274 |
BP Prudhoe Bay Royalty Trust (a) | 98,900 | 9,194,733 |
Chesapeake Energy Corp. | 14,700 | 527,142 |
Chevron Corp. | 6,100 | 503,128 |
ConocoPhillips | 6,500 | 476,125 |
Crescent Point Energy Trust (Unit) (a) | 971,600 | 28,401,669 |
Devon Energy Corp. | 6,400 | 583,680 |
DHT Maritime, Inc. | 1,039,000 | 6,982,080 |
EnCana Corp. | 8,300 | 545,559 |
ExxonMobil Corp. | 6,100 | 473,726 |
Freehold Royalty Trust (Units) (a) | 592,300 | 9,516,871 |
Frontier Oil Corp. | 13,600 | 250,512 |
Frontline Ltd. (a) | 222,700 | 10,705,189 |
Harvest Energy Trust (Units) | 1,116,200 | 18,863,780 |
Hess Corp. | 5,600 | 459,648 |
Marathon Oil Corp. | 32,200 | 1,283,814 |
NAL Oil & Gas Trust (Units) | 1,045,700 | 12,311,601 |
Occidental Petroleum Corp. | 7,400 | 521,330 |
Pengrowth Energy Trust (Units) (a) | 1,333,500 | 19,922,490 |
Penn West Energy Trust (Units) | 530,300 | 12,780,230 |
Sunoco, Inc. | 8,100 | 288,198 |
Tesoro Corp. | 11,900 | 196,231 |
Valero Energy Corp. | 8,200 | 248,460 |
| 167,644,659 |
Financials 2.6% |
Capital Markets 0.1% |
American Capital Ltd. | 17,200 | 438,772 |
Morgan Stanley | 10,700 | 246,100 |
| 684,872 |
Commercial Banks 0.8% |
Comerica, Inc. | 13,100 | 429,549 |
Fifth Third Bancorp. | 22,700 | 270,130 |
KeyCorp. | 24,200 | 288,948 |
M&T Bank Corp. | 7,100 | 633,675 |
PNC Financial Services Group, Inc. (a) | 8,800 | 657,360 |
SunTrust Banks, Inc. | 9,200 | 413,908 |
US Bancorp. | 18,100 | 651,962 |
Wachovia Corp. | 5,500 | 19,250 |
Wells Fargo & Co. | 18,900 | 709,317 |
| 4,074,099 |
Consumer Finance 0.1% |
Capital One Financial Corp. | 12,300 | 627,300 |
Diversified Financial Services 0.3% |
Bank of America Corp. | 13,800 | 483,000 |
Citigroup, Inc. | 38,800 | 795,788 |
JPMorgan Chase & Co. | 13,100 | 611,770 |
| 1,890,558 |
Insurance 1.2% |
ACE Ltd. | 9,300 | 503,409 |
Allstate Corp. | 11,000 | 507,320 |
American International Group, Inc. | 9,900 | 32,967 |
Assurant, Inc. | 8,500 | 467,500 |
Chubb Corp. | 10,600 | 581,940 |
Cincinnati Financial Corp. | 14,500 | 412,380 |
CNA Financial Corp. | 17,200 | 451,328 |
Hartford Financial Services Group, Inc. | 11,200 | 459,088 |
Lincoln National Corp. | 9,900 | 423,819 |
Loews Corp. | 11,700 | 462,033 |
MetLife, Inc. | 9,300 | 520,800 |
Progressive Corp. | 30,600 | 532,440 |
The Travelers Companies, Inc. | 10,600 | 479,120 |
W.R. Berkley Corp. | 19,300 | 454,515 |
| 6,288,659 |
Real Estate Investment Trusts 0.0% |
Gramercy Capital Corp. (REIT) | 87,490 | 226,599 |
Thrifts & Mortgage Finance 0.1% |
Fannie Mae | 35,700 | 54,621 |
Freddie Mac | 34,000 | 58,140 |
Sovereign Bancorp., Inc. | 49,700 | 196,315 |
Washington Mutual, Inc. | 47,000 | 3,854 |
| 312,930 |
Health Care 0.5% |
Biotechnology 0.1% |
Amgen, Inc.* | 12,100 | 717,167 |
Health Care Providers & Services 0.1% |
CIGNA Corp. | 10,500 | 356,790 |
Pharmaceuticals 0.3% |
Forest Laboratories, Inc.* | 15,600 | 441,168 |
Pfizer, Inc. | 25,000 | 461,000 |
Wyeth | 12,800 | 472,832 |
| 1,375,000 |
Industrials 6.2% |
Building Products 0.1% |
Masco Corp. | 26,500 | 475,410 |
Commercial Services & Supplies 0.3% |
Newalta Income Fund (Units) | 39,200 | 506,460 |
Pitney Bowes, Inc. | 14,900 | 495,574 |
R.R. Donnelley & Sons Co. | 15,100 | 370,403 |
| 1,372,437 |
Machinery 2.4% |
Eaton Corp. | 5,800 | 325,844 |
Ingersoll-Rand Co., Ltd. "A" | 2,899 | 90,362 |
New Flyer Industries, Inc. (IDS) (Unit) | 920,600 | 10,077,509 |
Terex Corp.* | 8,800 | 268,576 |
Wajax Income Fund (Unit) | 75,800 | 2,154,522 |
| 12,916,813 |
Marine 2.3% |
Eagle Bulk Shipping, Inc. | 891,700 | 12,430,298 |
Road & Rail 1.1% |
Contrans Income Fund (Unit) (a) | 683,800 | 5,384,303 |
Norfolk Southern Corp. | 11,300 | 748,173 |
| 6,132,476 |
Information Technology 0.3% |
Computers & Peripherals 0.1% |
Western Digital Corp.* | 19,100 | 407,212 |
IT Services 0.1% |
Computer Sciences Corp.* | 11,600 | 466,204 |
Semiconductors & Semiconductor Equipment 0.1% |
Lam Research Corp.* | 13,000 | 409,370 |
Materials 0.6% |
Chemicals 0.2% |
Celanese Corp. "A" | 13,500 | 376,785 |
Dow Chemical Co. | 14,200 | 451,276 |
PPG Industries, Inc. | 8,100 | 472,392 |
| 1,300,453 |
Metals & Mining 0.4% |
Alcoa, Inc. | 15,500 | 349,990 |
Allegheny Technologies, Inc. | 6,600 | 195,030 |
BHP Billiton Ltd. (ADR) | 8,100 | 421,119 |
Freeport-McMoRan Copper & Gold, Inc. | 5,500 | 312,675 |
Nucor Corp. | 9,500 | 375,250 |
Southern Copper Corp. | 16,100 | 307,188 |
| 1,961,252 |
Telecommunication Services 0.5% |
Diversified Telecommunication Services |
Embarq Corp. | 11,700 | 474,435 |
FairPoint Communications, Inc. | 217,600 | 1,886,592 |
Windstream Corp. | 44,600 | 487,924 |
| 2,848,951 |
Utilities 0.6% |
Electric Utilities 0.1% |
Duke Energy Corp. | 28,300 | 493,269 |
Independent Power Producers & Energy Traders 0.3% |
Primary Energy Recycling Corp. (EIS) (Units) | 316,800 | 1,533,023 |
Multi-Utilities 0.2% |
Consolidated Edison, Inc. | 11,900 | 511,224 |
Sempra Energy | 9,300 | 469,371 |
| 980,595 |
Total Common Stocks Long Positions (Cost $275,167,207) | 239,044,438 |
|
Convertible Preferred Stocks 2.1% |
Financials |
CIT Group, Inc., Series C, 8.75% | 225,000 | 7,409,250 |
Fannie Mae, Series 08-1, 8.75% | 1,500,000 | 3,750,000 |
Total Convertible Preferred Stocks (Cost $86,250,000) | 11,159,250 |
| Principal Amount ($) | Value ($) |
| |
Corporate Bonds 70.0% |
Consumer Discretionary 21.2% |
ArvinMeritor, Inc., 8.125%, 9/15/2015 | 20,000,000 | 15,400,000 |
Ford Motor Co., 7.45%, 7/16/2031 | 12,000,000 | 5,160,000 |
General Motors Corp., 8.375%, 7/15/2033 | 17,000,000 | 6,800,000 |
H&E Equipment Services, Inc., 8.375%, 7/15/2016 | 17,000,000 | 12,580,000 |
Hertz Corp., 10.5%, 1/1/2016 | 20,000,000 | 16,700,000 |
Libbey Glass, Inc., 9.928%**, 6/1/2011 | 15,000,000 | 13,800,000 |
Neiman-Marcus Group, Inc., 9.0%, 10/15/2015 (PIK) | 18,000,000 | 15,075,000 |
Station Casinos, Inc., 6.5%, 2/1/2014 | 7,810,000 | 2,303,950 |
United Rentals North America, Inc., 7.75%, 11/15/2013 | 20,000,000 | 15,250,000 |
Univision Communications, Inc., 144A, 9.75%, 3/15/2015 (PIK) | 24,300,000 | 11,299,500 |
| 114,368,450 |
Consumer Staples 2.9% |
Alliance One International, Inc., 12.75%, 11/15/2012 | 5,395,000 | 5,179,200 |
Rite Aid Corp., 8.625%, 3/1/2015 | 20,000,000 | 10,500,000 |
| 15,679,200 |
Energy 9.0% |
Allis-Chalmers Energy, Inc., 9.0%, 1/15/2014 | 19,750,000 | 17,775,000 |
Clayton Williams Energy, Inc., 7.75%, 8/1/2013 (a) | 20,973,000 | 18,351,375 |
Connacher Oil & Gas Ltd., 144A, 10.25%, 12/15/2015 (a) | 4,500,000 | 4,320,000 |
Dynegy Holdings, Inc., 7.75%, 6/1/2019 | 10,000,000 | 8,000,000 |
| 48,446,375 |
Financials 10.9% |
Compton Petroleum Finance Corp., 7.625%, 12/1/2013 | 25,200,000 | 22,113,000 |
DJO Finance LLC, 10.875%, 11/15/2014 | 15,400,000 | 14,745,500 |
Ford Motor Credit Co., LLC, 7.375%, 2/1/2011 | 12,000,000 | 7,973,772 |
Hexion US Finance Corp., 7.304%**, 11/15/2014 | 12,000,000 | 8,640,000 |
Rainbow National Services LLC, 144A, 8.75%, 9/1/2012 | 5,500,000 | 5,500,000 |
| 58,972,272 |
Health Care 6.9% |
HCA, Inc.: | | |
6.5%, 2/15/2016 | 25,000,000 | 19,812,500 |
9.25%, 11/15/2016 | 15,000,000 | 14,587,500 |
Select Medical Corp., 8.834%**, 9/15/2015 | 3,200,000 | 2,608,000 |
| 37,008,000 |
Industrials 4.9% |
Casella Waste Systems, Inc., 9.75%, 2/1/2013 | 17,740,000 | 17,385,200 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015 | 10,000,000 | 9,025,000 |
| 26,410,200 |
Information Technology 2.8% |
First Data Corp., 144A, 9.875%, 9/24/2015 | 12,000,000 | 9,420,000 |
Freescale Semiconductor, Inc., 8.875%, 12/15/2014 | 8,500,000 | 5,865,000 |
| 15,285,000 |
Materials 9.4% |
Berry Plastics Holding Corp., 8.875%, 9/15/2014 | 3,000,000 | 2,340,000 |
Bowater, Inc., 9.375%, 12/15/2021 | 7,500,000 | 2,568,750 |
Crown Cork & Seal Co., Inc., 8.0%, 4/15/2023 (a) | 20,394,000 | 17,130,960 |
Georgia Gulf Corp., 9.5%, 10/15/2014 | 5,000,000 | 3,075,000 |
Ineos Group Holdings PLC, 144A, 8.5%, 2/15/2016 | 30,500,000 | 16,470,000 |
Union Carbide Corp., 7.75%, 10/1/2096 (a) | 10,000,000 | 8,787,370 |
| 50,372,080 |
Telecommunication Services 2.0% |
Level 3 Financing, Inc., 12.25%, 3/15/2013 (a) | 3,000,000 | 2,655,000 |
Nortel Networks Ltd., 10.75%, 7/15/2016 | 13,500,000 | 8,268,750 |
| 10,923,750 |
Total Corporate Bonds (Cost $496,479,114) | 377,465,327 |
|
Senior Bank Debt** 15.7% |
Bausch & Lomb, Inc.: Term Delay Draw, 5.946%, 11/30/2008 | 2,400,000 | 2,247,276 |
Term Loan, 5.946%, 11/30/2008 | 15,880,000 | 14,866,931 |
First Data Corp., Term Loan, 5.552%, 10/8/2012 | 39,600,000 | 34,025,524 |
TXU Corp., Term Loan, 6.234%, 11/1/2017 | 39,700,000 | 33,546,500 |
Total Senior Bank Debt (Cost $95,907,418) | 84,686,231 |
|
Subordinated Income Notes*** 1.2% |
Preferred Term Securities XVI Ltd., 144A, Income Note, 0.00%, 3/23/2035* | 3,900,000 | 284,700 |
Preferred Term Securities XVII Ltd., 144A, Income Note, 0.00%, 6/23/2035* | 3,750,000 | 153,750 |
Preferred Term Securities XVIII Ltd., 144A, Income Note, 7.26%, 9/23/2035 | 3,750,000 | 1,053,750 |
Preferred Term Securities XIX Ltd., 144A, Income Note, 12.60%, 12/22/2035 | 2,500,000 | 1,390,000 |
Preferred Term Securities XXI Ltd., 144A, Income Note, 0.00%, 3/22/2038* | 3,750,000 | 0 |
Preferred Term Securities XXIII Ltd., 144A, Income Note, 4.07%, 12/22/2036 | 3,750,000 | 1,192,500 |
Preferred Term Securities XXIV Ltd., 144A, Income Note, 5.99%, 3/22/2037 | 7,500,000 | 2,242,500 |
Total Subordinated Income Notes (Cost $23,162,136) | 6,317,200 |
|
Preferred Security 0.0% |
Financials |
Washington Mutual Preferred Funding III, 144A, 6.895%, 6/15/2012 (b) (Cost $12,031,658) | 20,000,000 | 25,000 |
|
Shares
| Value ($) |
| |
Closed-End Investment Companies 4.3% |
Apollo Investment Corp. (a) | 897,900 | 15,309,196 |
Evergreen Income Advantage Fund (a) | 902,668 | 6,724,877 |
Pioneer High Income Trust | 115,300 | 1,189,896 |
Total Closed-End Investment Companies (Cost $35,081,551) | 23,223,969 |
| % of Net Assets | Value ($) |
| |
Total Long Positions (Cost $1,024,079,084)+ | 137.7 | 741,921,415 |
Other Assets and Liabilities, Net | 19.7 | 106,041,582 |
Notes Payable | (49.4) | (266,000,000) |
Securities Sold Short | (8.0) | (43,034,771) |
Net Assets | 100.0 | 538,928,226 |
+ The cost for federal income tax purposes was $1,044,504,809. At September 30, 2008, net unrealized depreciation for all securities based on tax cost was $302,583,394. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $23,996,867 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $326,580,261. |
Shares
| Value ($) |
| |
Common Stocks Sold Short 8.0% |
Consumer Discretionary 1.3% |
Diversified Consumer Services 0.1% |
Apollo Group, Inc. "A" | 8,600 | 509,980 |
Hotels Restaurants & Leisure 0.4% |
International Game Technology | 13,900 | 238,802 |
Las Vegas Sands Corp. | 5,800 | 209,438 |
McDonald's Corp. | 10,300 | 635,510 |
MGM MIRAGE | 6,215 | 177,128 |
Starbucks Corp. | 29,900 | 444,613 |
Wynn Resorts Ltd. | 5,300 | 432,692 |
| 2,138,183 |
Household Durables 0.0% |
Garmin Ltd. | 6,100 | 207,034 |
Internet & Catalog Retail 0.2% |
Amazon.com, Inc. | 7,600 | 552,976 |
Expedia, Inc. | 19,100 | 288,601 |
Liberty Media Corp. — Interactive "A" | 31,400 | 405,374 |
| 1,246,951 |
Media 0.5% |
Ascent Media Corp. "A" | 1,220 | 29,780 |
Cablevision Systems Corp. "A" (NY Group) | 24,900 | 626,484 |
Comcast Corp. "A" | 33,200 | 651,716 |
Discovery Communications, Inc. "A" | 12,200 | 173,850 |
Discovery Communications, Inc. "C" | 12,200 | 172,752 |
Time Warner Cable, Inc. "A" | 22,400 | 542,080 |
Washington Post Co. "B" | 800 | 445,408 |
| 2,642,070 |
Specialty Retail 0.1% |
GameStop Corp. "A" | 9,800 | 335,258 |
Consumer Staples 0.6% |
Beverages 0.1% |
Coca-Cola Co. | 9,800 | 518,224 |
Food & Staples Retailing 0.1% |
Costco Wholesale Corp. | 8,800 | 571,384 |
Food Products 0.2% |
Wm. Wrigley Jr. Co. | 10,400 | 825,760 |
Household Products 0.1% |
Colgate-Palmolive Co. | 7,800 | 587,730 |
Personal Products 0.1% |
Avon Products, Inc. | 15,300 | 636,021 |
Energy 0.6% |
Energy Equipment & Services 0.1% |
Schlumberger Ltd. | 6,300 | 491,967 |
Oil, Gas & Consumable Fuels 0.5% |
Arch Coal, Inc. | 13,800 | 453,882 |
CONSOL Energy, Inc. | 8,600 | 394,654 |
Enterprise Products Partners LP | 19,400 | 499,938 |
Kinder Morgan Energy Partners LP | 11,300 | 587,939 |
Plains Exploration & Production Co. | 11,200 | 393,792 |
Range Resources Corp. | 12,000 | 514,440 |
| 2,844,645 |
Financials 1.0% |
Capital Markets 0.5% |
BlackRock, Inc. | 2,800 | 544,600 |
Charles Schwab Corp. | 24,600 | 639,600 |
Eaton Vance Corp. | 13,400 | 472,082 |
Janus Capital Group, Inc. | 18,800 | 456,464 |
T. Rowe Price Group, Inc. | 10,200 | 547,842 |
| 2,660,588 |
Diversified Financial Services 0.2% |
CME Group, Inc. | 1,355 | 503,396 |
IntercontinentalExchange, Inc. | 3,200 | 258,176 |
NYSE Euronext | 7,000 | 274,260 |
| 1,035,832 |
Insurance 0.1% |
MBIA, Inc. | 35,300 | 420,070 |
Real Estate Investment Trusts 0.1% |
Plum Creek Timber Co., Inc. (REIT) | 13,100 | 653,166 |
Thrifts & Mortgage Finance 0.1% |
Hudson City Bancorp., Inc. | 41,100 | 758,295 |
Health Care 1.4% |
Biotechnology 0.4% |
Biogen Idec, Inc. | 10,500 | 528,045 |
Celgene Corp. | 13,000 | 822,640 |
Gilead Sciences, Inc. | 13,200 | 601,656 |
| 1,952,341 |
Health Care Equipment & Supplies 0.5% |
Boston Scientific Corp. | 52,300 | 641,721 |
DENTSPLY International, Inc. | 13,600 | 510,544 |
Hologic, Inc. | 17,600 | 340,208 |
Stryker Corp. | 8,100 | 504,630 |
Varian Medical Systems, Inc. | 11,600 | 662,708 |
| 2,659,811 |
Health Care Providers & Services 0.2% |
Express Scripts, Inc. | 8,300 | 612,706 |
Medco Health Solutions, Inc. | 12,000 | 540,000 |
| 1,152,706 |
Life Sciences Tools & Services 0.2% |
Covance, Inc. | 7,000 | 618,870 |
Waters Corp. | 7,800 | 453,804 |
| 1,072,674 |
Pharmaceuticals 0.1% |
Allergan, Inc. | 9,500 | 489,250 |
Industrials 1.0% |
Aerospace & Defense 0.1% |
Precision Castparts Corp. | 4,400 | 346,632 |
Air Freight & Logistics 0.2% |
C.H. Robinson Worldwide, Inc. | 11,400 | 580,944 |
Expeditors International of Washington, Inc. | 13,500 | 470,340 |
| 1,051,284 |
Commercial Services & Supplies 0.1% |
Iron Mountain, Inc. | 16,400 | 400,324 |
Construction & Engineering 0.2% |
Fluor Corp. | 8,400 | 467,880 |
Foster Wheeler Ltd. | 7,800 | 281,658 |
Jacobs Engineering Group, Inc. | 6,200 | 336,722 |
KBR, Inc. | 15,400 | 235,158 |
| 1,321,418 |
Electrical Equipment 0.1% |
Roper Industries, Inc. | 9,800 | 558,208 |
SunPower Corp. "B" | 4,498 | 310,587 |
| 868,795 |
Machinery 0.2% |
AGCO Corp. | 8,900 | 379,229 |
Flowserve Corp. | 6,200 | 550,374 |
| 929,603 |
Trading Companies & Distributors 0.1% |
Fastenal Co. | 15,000 | 740,850 |
Information Technology 1.3% |
Communications Equipment 0.1% |
Juniper Networks, Inc. | 18,200 | 383,474 |
Motorola, Inc. | 37,500 | 267,750 |
| 651,224 |
Computers & Peripherals 0.1% |
EMC Corp. | 33,100 | 395,876 |
Electronic Equipment, Instruments & Components 0.1% |
Amphenol Corp. "A" | 13,200 | 529,848 |
Internet Software & Services 0.2% |
Akamai Technologies, Inc. | 17,300 | 301,712 |
Google, Inc. "A" | 900 | 360,468 |
VeriSign, Inc. | 16,300 | 425,104 |
| 1,087,284 |
IT Services 0.3% |
Cognizant Technology Solutions Corp. "A" | 17,800 | 406,374 |
MasterCard, Inc. "A" | 2,900 | 514,257 |
Paychex, Inc. | 16,700 | 551,601 |
| 1,472,232 |
Semiconductors & Semiconductor Equipment 0.1% |
Cypress Semiconductor Corp. | 16,400 | 85,608 |
Intel Corp. | 22,800 | 427,044 |
MEMC Electronic Materials, Inc. | 6,800 | 192,168 |
| 704,820 |
Software 0.4% |
Activision Blizzard, Inc. | 41,600 | 641,888 |
Adobe Systems, Inc. | 14,500 | 572,315 |
Autodesk, Inc. | 12,300 | 412,665 |
Citrix Systems, Inc. | 16,200 | 409,212 |
| 2,036,080 |
Materials 0.6% |
Chemicals 0.4% |
Ecolab, Inc. | 11,700 | 567,684 |
Monsanto Co. | 5,400 | 534,492 |
Praxair, Inc. | 6,800 | 487,832 |
The Mosaic Co. | 6,400 | 435,328 |
| 2,025,336 |
Paper & Forest Products 0.2% |
MeadWestvaco Corp. | 19,300 | 449,883 |
Weyerhaeuser Co. | 8,400 | 508,872 |
| 958,755 |
Utilities 0.2% |
Electric Utilities 0.1% |
Allegheny Energy, Inc. | 9,600 | 352,992 |
Gas Utilities 0.1% |
Equitable Resources, Inc. | 11,500 | 421,820 |
Independent Power Producers & Energy Traders 0.0% |
AES Corp. | 28,200 | 329,658 |
Total Common Stocks Sold Short (Proceeds $55,726,946) | 43,034,771 |
* Non-income producing security.** Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of September 30, 2008.*** Annualized yield at September 30, 2008. Not a coupon rate.(a) Security pledged as collateral for short sales.(b) Date shown is call date; not a maturity date for the perpetual preferred securities.144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR: American Depositary Receipt
EIS: Enhanced Income Security
IDS: Income Deposit Security
PIK: Denotes that all or a portion of income is paid in-kind.
REIT: Real Estate Investment Trust
At September 30, 2008, the Fund had unfunded loan commitments of $1,504,063, which could be extended at the option of the borrower, pursuant to the following loan agreement:
Borrower | Unfunded Loan Commitment ($) | Value ($) | Unrealized Depreciation ($) |
Bausch & Lomb, Inc., Term Delay Draw, 11/30/2008
| 1,504,063 | 1,398,184 | (105,879) |
As of September 30, 2008, open future contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Depreciation ($) |
Nasdaq 100 Index | 12/18/2008 | 458 | 80,411,502 | 73,486,100 | (6,925,402) |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of September 30, 2008 |
Assets |
Investments in securities, at value (cost $1,024,079,084)
| $ 741,921,415 |
Foreign currency, at value (cost $222,206)
| 222,184 |
Deposit with broker for securities sold short
| 46,590,265 |
Deposit with broker for open futures contracts
| 5,038,000 |
Receivable for investments sold
| 41,837,624 |
Interest receivable
| 11,192,381 |
Dividends receivable
| 1,753,661 |
Receivable for daily variation margin on open futures contracts
| 4,236,500 |
Deferred loan costs
| 375,789 |
Other assets
| 3,921 |
Total assets
| 853,171,740 |
Liabilities |
Notes payable
| 266,000,000 |
Cash overdraft
| 1,905,833 |
Payable for securities sold short, at value (proceeds of $55,726,946)
| 43,034,771 |
Payable for investments purchased
| 2,000,000 |
Interest on notes payable
| 68,553 |
Dividends payable for securities sold short
| 30,522 |
Unrealized depreciation on unfunded loan commitments
| 105,879 |
Accrued management fee
| 734,543 |
Other accrued expenses and payables
| 363,413 |
Total liabilities
| 314,243,514 |
Net assets, at value | $ 538,928,226 |
Net Assets Consist of |
Undistributed net investment income
| 6,397,307 |
Net unrealized appreciation (depreciation) on:
Investments | (282,157,669) |
Futures | (6,925,402) |
Securities sold short | 12,692,175 |
Unfunded loan commitments | (105,879) |
Foreign currency | (31,622) |
Accumulated net realized gain (loss)
| (186,439,362) |
Paid-in capital
| 995,498,678 |
Net assets, at value | $ 538,928,226 |
Net Asset Value |
Net Asset Value per share ($538,928,226 ÷ 52,140,426 shares of common stock issued and outstanding, $.01 par value, 100,000,000 shares authorized)
| $ 10.34 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended September 30, 2008 |
Investment Income |
Dividends (net of foreign taxes withheld of $3,343,301)
| $ 35,334,131 |
Interest* (net of foreign taxes withheld of $59,868)
| 59,421,094 |
Interest — Cash Management QP Trust
| 765,850 |
Total Income
| 95,521,075 |
Expenses:
Management fee
| 10,275,772 |
Administration fee
| 1,027,577 |
Services to shareholders
| 16,588 |
Custodian fee
| 46,539 |
Professional fees
| 171,735 |
Directors' fees and expenses
| 78,267 |
Reports to shareholders
| 161,139 |
Interest expense
| 8,932,017 |
Stock exchange listing fee
| 47,807 |
Dividends on short positions
| 376,722 |
Other
| 83,312 |
Total expenses before expense reductions
| 21,217,475 |
Expense reductions
| (48,496) |
Total expenses after expense reductions
| 21,168,979 |
Net investment income | 74,352,096 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (71,337,681) |
Futures
| (30,921,845) |
Written options
| 16,614,360 |
Closed short positions
| (11,092,531) |
Foreign currency
| (214,656) |
| (96,952,353) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (293,302,797) |
Futures
| (16,028,443) |
Written options
| (97,137) |
Securities sold short
| 19,640,420 |
Unfunded loan commitments
| (105,879) |
Foreign currency
| (58,894) |
| (289,952,730) |
Net gain (loss) | (386,905,083) |
Net increase (decrease) in net assets resulting from operations | $ (312,552,987) |
* Includes $1,474,700 of income earned on segregated cash for securities sold short.The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows for the year ended September 30, 2008 |
Cash Flows from Operating Activities: |
Investment income received**
| $ 97,595,456 |
Payment of operating expenses
| (12,723,735) |
Payment of interest expense
| (9,253,505) |
Proceeds from sales and maturities of investments
| 588,081,186 |
Proceeds from options written
| 11,959,788 |
Proceeds from securities sold short
| 83,522,672 |
Purchases of investments
| (848,951,466) |
Purchases to cover securities sold short
| (98,250,678) |
Net purchases, sales and maturities of short-term investments
| 49,762,892 |
Net receipt (payment) on futures contracts
| (52,040,788) |
Net proceeds from foreign currency transactions
| (214,656) |
Change in unrealized gain (loss) on foreign currency
| (58,894) |
Cash provided (used) by operating activities | $ (190,571,728) |
Cash Flows from Financing Activities: |
Net increase (decrease) in notes payable
| $ 266,000,000 |
Cost of shares repurchased
| (2,384,602) |
Distributions paid
| (89,289,174) |
Cash provided (used) by financing activities | 174,326,224 |
Increase (decrease) in cash
| (16,245,504) |
Cash at beginning of period*
| 66,190,120 |
Cash at end of period* | $ 49,944,616 |
* Includes foreign currency and deposits with broker for securities sold short and open futures contracts.** Non-cash activity from market discount accretion and premium amortization in the net amount of $94,570 has been excluded from the Statement of Cash Flows.The accompanying notes are an integral part of the financial statements.
Statement of Cash Flows for the year ended September 30, 2008 (continued) |
Reconciliation of Net Increase (Decrease) in Net Assets Resulting from Operations to Cash Provided (Used) by Operating Activities: |
Increase (decrease) in net assets resulting from operations
| $ (312,552,987) |
(Increase) decrease in cost of investments
| (89,512,272) |
(Increase) decrease in unrealized appreciation (depreciation) on investments
| 293,302,797 |
(Increase) decrease in unrealized appreciation (depreciation) on securities sold short
| (19,640,420) |
(Increase) decrease in receivable for investments sold
| (41,837,624) |
(Increase) decrease in interest receivable
| 1,691,804 |
(Increase) decrease in dividends receivable
| 477,147 |
(Increase) decrease in deferred loan costs
| (375,789) |
(Increase) decrease in other assets
| 384,705 |
Increase (decrease) in proceeds from securities sold short
| (3,635,475) |
Increase (decrease) in payable for investments purchased
| (4,314,942) |
Increase (decrease) in written options, at value
| (8,756,874) |
Increase (decrease) in payable for daily variation margin on open futures contracts
| (5,090,500) |
Increase (decrease) in dividends payable for securities sold short
| (13,808) |
Increase (decrease) in unrealized depreciation on unfunded loan commitments
| 105,879 |
Increase (decrease) in interest on notes payable
| (334,325) |
Increase (decrease) in other accrued expenses and payables
| (469,044) |
Cash provided (used) by operating activities | $ (190,571,728) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets | Year Ended September 30, 2008 | Period Ended September 30, 2007* |
Operations:
Net investment income
| $ 74,352,096 | $ 71,931,140 |
Net realized gain (loss) on investment transactions
| (96,952,353) | (89,485,503) |
Change in net unrealized appreciation (depreciation)
| (289,952,730) | 13,424,333 |
Net increase (decrease) in net assets resulting from operations
| (312,552,987) | (4,130,030) |
Distributions to shareholders from:
Net investment income
| (83,183,964) | (56,703,471) |
Fund share transactions:
Net proceeds from shares issued to shareholders
| — | 999,407,500 |
Reinvestment of distributions
| — | 3,572 |
Cost of shares repurchased
| (2,384,602) | (381,822) |
Offering costs from issuance of common shares
| — | (1,245,970) |
Net increase (decrease) in net assets from Fund share transactions
| (2,384,602) | 997,783,280 |
Increase (decrease) in net assets | (398,121,553) | 936,949,779 |
Net assets at beginning of period
| 937,049,779 | 100,000** |
Net assets at end of period (including undistributed net investment income of $6,397,307 and $15,459,644, respectively)
| $ 538,928,226 | $ 937,049,779 |
Other Information |
Shares outstanding at beginning of period
| 52,305,426 | 5,236** |
Shares issued
| — | 52,325,000 |
Shares issued to shareholders in reinvestment of dividends
| — | 190 |
Shares repurchased
| (165,000) | (25,000) |
Shares outstanding at end of period
| 52,140,426 | 52,305,426 |
* For the period from November 22, 2006 (commencement of operations) to September 30, 2007.** Initial capital and shares issued from initial capital.The accompanying notes are an integral part of the financial statements.
Financial Highlights
Years Ended September 30, | 2008 | 2007a |
Selected Per Share Data |
Net asset value, beginning of period | $ 17.91 | $ 19.10d |
Income (loss) from investment operations: Net investment incomeb | 1.43 | 1.38 |
Net realized and unrealized gain (loss) | (7.42) | (1.46) |
Total from investment operations | (5.99) | (.08) |
Less distributions from: Net investment income | (1.59) | (1.08) |
NAV accretion resulting from repurchases of shares at valueb
| .01 | .00*** |
Offering costs charged to paid-in capital
| — | (.03) |
Net asset value, end of period | $ 10.34 | $ 17.91 |
Market value, end of period | $ 8.30 | $ 15.02 |
Total Return |
Based on net asset value (%)c
| (34.70) | (.23)** |
Based on market value (%)c
| (37.47) | (20.15)** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 539 | 937 |
Ratio of expenses including interest expense and dividend expense for securities sold short (%)
| 2.63 | 4.17* |
Ratio of expenses excluding interest expense and dividend expense for securities sold short (%)
| 1.47 | 1.61* |
Ratio of net investment income (%)
| 9.23 | 8.65* |
Portfolio turnover rate (%)
| 75 | 160** |
Total debt outstanding, end of period ($ thousands)
| 266,000 | — |
Asset coverage per $1,000 of debte
| 3,026 | — |
a For the period from November 22, 2006 (commencement of operations) to September 30, 2007.
b Based on average shares outstanding during the period.
c Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares traded during the period.
d Beginning per share amount reflects $20.00 initial public offering price net of sales load ($0.90 per share).
e Asset coverage equals the total net assets plus borrowings of the Fund divided by the borrowings outstanding at period end.
* Annualized
** Not annualized
*** Amount is less than $.005.
|
The accompanying notes are an integral part of the financial statements.
Notes to Financial Statements
A. Significant Accounting Policies
DWS Dreman Value Income Edge Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended (the ``1940 Act''), as a closed-end, non-diversified management investment company organized as a Maryland corporation.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Directors of the Fund. If the pricing services are unable to provide valuations, the securities are valued at the most recent bid quotation or evaluated price, as applicable, obtained from one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Equity securities and closed-end investment companies 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. Long positions 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. Short positions for which no sales are reported are valued at the calculated mean between the most recent bid and ask quotations on the relevant market or, if a mean cannot be determined, at the most recent ask 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 Directors.
New Accounting Pronouncements. 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 September 30, 2008, 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 levels of 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.
In addition, in March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("FAS 161"), "Disclosures about Derivative Instruments and Hedging Activities". FAS 161 requires enhanced disclosure about an entity's derivative and hedging activities including qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management is currently reviewing the enhanced disclosure requirements for the adoption of FAS 161.
Short Sales. When the Fund takes a short position, it sells at the current market price a stock it does not own but has borrowed in anticipation that the market price of the stock will decline. To complete, or close out, the short sale transaction, the Fund buys the same stock in the market and returns it to the lender.
Upon entering into a short sale, the Fund is required to designate liquid assets it owns as segregated assets on the books of its custodian in an amount at least equal to its obligations to purchase the securities sold short (exclusive of short sales proceeds held with the broker-dealer). For financial statements purposes, this is reflected as an asset on the Statement of Assets and Liabilities, and the settlement amount for securities sold short is reflected as a corresponding liability. The amount of the liability is marked-to-market to reflect the current value of the short position.
Short sales involve the risk that the Fund will incur a loss by subsequently buying a security at a higher price than the price at which the Fund previously sold the security short. Any loss will be increased by the amount of compensation, interest or dividends, and transaction costs the Fund must pay to a lender of the security. In addition, because the Fund's loss on a short sale stems from increases in the value of the security sold short, the extent of such loss, like the price of the security sold short, is theoretically unlimited. By contrast, the Fund's loss on a long position arises from decreases in the value of the security held by the Fund and therefore is limited by the fact that a security's value cannot drop below zero.
Options. An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices, will require cash settlement by the Fund if the option is exercised. The Fund may enter into option contracts in order to hedge against potential adverse price movements in the value of portfolio assets; as a temporary substitute for selling selected investments; to lock in the purchase price of a security or currency which it expects to purchase in the near future; as a temporary substitute for purchasing selected investments; and to enhance potential gain.
The liability representing the Fund's obligation under an exchange traded written option or investment in a purchased option is valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid and asked prices are available. Over-the-counter written or purchased options are valued using dealer supplied quotations. Gain or loss is recognized when the option contract expires or is closed.
If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the market value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.
Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
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 Fund may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes, risk management and return enhancement purposes.
Upon entering into a futures contract, the Fund 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 Fund dependent 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 Fund. When entering into a closing transaction, the Fund 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 Fund'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 or currencies hedged. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
Senior Bank Debt. Senior loans are portions of loans originated by banks and sold in pieces to investors. These US dollar-denominated fixed and floating rate loans ("Loans") in which the Fund invests, are arranged through private negotiations between the borrower and one or more financial institutions ("Lenders"). The Fund invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. All Senior Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders.
At September 30, 2008, the Fund had a net tax basis capital loss carryforward of approximately $58,400,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until September 30, 2016, the expiration date, whichever occurs first.
In addition, from November 1, 2007 through September 30, 2008, the Fund incurred approximately $116,649,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ending September 30, 2009.
The Fund has reviewed the tax positions for the open tax years as of September 30, 2008 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior fiscal year remain subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. Net investment income of the Fund is declared and distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The 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 investments in passive foreign investment companies, recognition of certain foreign currency gains (losses) as ordinary income (loss), investments in options and futures 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 Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
At September 30, 2008, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income*
| $ 8,538,611 |
Capital loss carryfowards
| $ (58,400,000) |
Net unrealized appreciation (depreciation) on investments
| $ (302,583,394) |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
Distributions from ordinary income*
| $ 83,183,964 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the cash position in the Fund's custodian bank and deposits with brokers for securities sold short and open futures contracts at September 30, 2008. Non-cash activity from market discount accretion and premium amortization has been excluded from the Statement of Cash Flows.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment 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. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.
B. Purchases and Sales of Securities
During the year ended September 30, 2008, purchases and sales of investment securities (excluding short-term instruments and short sales transactions) aggregated $844,636,524 and $629,918,810, respectively. Purchases to cover securities sold short and securities sold short aggregated $98,250,678 and $83,522,672, respectively.
For the year ended September 30, 2008, transactions for written options on securities were as follows:
| Number of Contracts | Premium |
Outstanding, beginning of period
| 37,243 | $ 8,854,011 |
Options written
| 51,335 | 11,959,788 |
Options exercised
| (13,255) | (4,199,439) |
Options expired
| (75,323) | (16,614,360) |
Outstanding, end of period | — | $ — |
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas, Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The management fee payable under the Investment Management Agreement is equal to an annual rate of 1.00% of the Fund's average daily managed assets, computed and accrued daily and payable monthly. Total managed assets equal the net asset value of the Common Shares plus the principal amount of any borrowings.
Dreman Value Management LLC ("Dreman") is the subadvisor for the Fund. While DIMA is the investment advisor to the Fund, the day-to-day activities of managing the Fund's portfolio have been delegated to Dreman. DIMA compensates Dreman out of the investment management fee it receives from the Fund.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration fee") of 0.10% of the Fund's average daily managed assets, computed and accrued daily and payable monthly. For the year ended September 30, 2008, the Advisor received an Administration fee of $1,027,577, of which $73,454 is unpaid.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent and dividend-paying agent for the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent and dividend-paying agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended September 30, 2008, the amount charged to the Fund by DISC aggregated $15,243, of which $3,850 is unpaid.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended September 30, 2008, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $17,193, of which $8,401 is unpaid.
Directors' Fees and Expenses. The Fund paid each Director not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson and Vice Chairperson.
In connection with the board consolidation on April 1, 2008, of the two DWS Funds Boards of Directors, certain Independent Board Members retired prior to their normal retirement date, and received a one-time retirement benefit. DIMA has agreed to reimburse the Funds for the cost of this benefit. During the period ended September 30, 2008, the Fund paid its allocated portion of the retirement benefit of $38,732 to the non-continuing Independent Board Members, and the Fund was reimbursed by DIMA for this payment.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC or as otherwise permitted, the Fund may invest in the Cash Management QP Trust (the ``QP Trust''), an affiliated cash management vehicle, and other affiliated funds managed by the 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 Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Investing in High-Yield Securities
Investing in high-yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high-yield market and impair the ability of issuers to repay principal and pay interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid to the extent that there is no established retail secondary market and because of a decline in the value of such securities.
E. Fee Reductions
The Fund 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 Fund's custodian expenses. During the year ended September 30, 2008, the Fund's custodian fee was reduced by $9,764 for custody credits earned.
F. Borrowings
Through September 29, 2008, the Fund had the ability to borrow up to $465,000,000 under a credit facility with Barton Capital LLC. The note bore interest at the commercial paper rate plus dealer fees (2.05% at September 28, 2008), which is paid in full. A commitment fee was charged to the Fund and is included with "interest expense" on the Statement of Operations. An arrangement fee incurred by the Fund in connection with its loan was deferred and was fully amortized. The facility had a maturity date of December 19, 2011, and was terminated early by Barton Capital LLC pursuant to the terms of the credit agreement with the Fund.
On September 29, 2008, the Fund entered into a credit facility with State Street Bank and Trust. This facility has a one-year term ending September 29, 2009. The aggregate commitment under the facility is $300 million. For the six-month period beginning September 29, 2008, State Street Bank and Trust Company has agreed to fund the entire $300 million commitment. For the subsequent six-month period ending September 28, 2009, State Street Bank and Trust Company has agreed to fund a maximum commitment under the facility of $150 million. If State Street Bank and Trust is unable to syndicate the remaining portion of the commitment, the Fund will be forced to reduce its leverage. The note bears interest at LIBOR plus dealer fees (4.23% at September 30, 2008), which is payable at maturity. A commitment fee is charged to the Fund and is included with "interest expense" on the Statement of Operations. A closing fee incurred by the Fund in connection with its loan was deferred and is being amortized on a straight-line basis over a one-year period.
At September 30, 2008, the Fund had a notes payable outstanding of $266,000,000. The weighted average outstanding daily balance of all loans (based on the number of days the loans were outstanding) during the year ended September 30, 2008 was $241,851,632 with a weighted average interest rate of 3.41%.
G. Share Repurchases
Effective December 1, 2008 through November 30, 2009, the Fund is authorized to effect periodic repurchases for up to 5% of its shares in the open market from time to time when the Fund's shares trade at a discount to their net asset value. During the year ended September 30, 2008, the Fund was authorized to purchase up to 5% of its shares and purchased 165,000 shares of common stock on the open market at a total cost of $2,384,602 ($14.45 average per share). The average discount of the purchases, comparing the purchase price to the net asset value at the time of purchase, was 15.10%.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of DWS Dreman Value Income Edge Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of DWS Dreman Value Income Edge Fund, Inc. (the "Fund"), including the investment portfolio, as of September 30, 2008, and the related statements of operations and cash flows for the year then ended, and the statement of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of DWS Dreman Value Income Edge Fund, Inc. at September 30, 2008, the results of its operations and its cash flows for the year then ended, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
November 25, 2008 | |  |
Tax Information (Unaudited)
For corporate shareholders, 38% of the income dividends paid during the Fund's fiscal year ended September 30, 2008, qualified for the dividends received deductions.
For federal income tax purposes, the fund designates $43,430,000, or the maximum amount allowable under tax law, as qualified dividend income.
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) 621-1048.
Dividend Reinvestment and Cash Purchase Plan
The Board of Directors of the Fund has established a Dividend Reinvestment and Cash Purchase Plan (the "Plan") for shareholders that elect to have all dividends and distributions automatically reinvested in shares of common stock of the Fund (each a "Participant"). Computershare Inc. (the "Plan Agent") has been appointed by the Fund's Board of Directors to act as agent for each Participant.
A summary of the Plan is set forth below. Shareholders may obtain a copy of the entire Dividend Reinvestment and Cash Purchase Plan by visiting the Fund's Web site at www.dws-investments.com or by calling (800) 349-4281.
Whenever the Fund declares an income dividend or a capital gains distribution payable in common shares or cash at the option of the shareholders, each Participant is deemed to have elected to take such dividend or distribution entirely in additional shares of common stock of the Fund. If the market price per share of the Fund's common stock on the valuation date equals or exceeds the net asset value per share on the valuation date, the number of additional shares to be issued by the Fund and credited to the Participant's account shall be determined by dividing the dollar amount of the dividend or capital gains distribution payable on the Participant's shares by the greater of the following amounts per share of the Fund's common stock on the valuation date: (a) the net asset value, or (b) 95% of the market price. If the market price per share of the Common Shares on the valuation date is less than the net asset value per share on the valuation date, the Plan Agent shall apply the dollar amount of the dividend or capital gains distribution on such Participant's shares (less such Participant's pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of such dividend and distribution) to the purchase on the open market of shares of the common stock for the Participant's account. Should the Fund declare an income dividend or capital gains distribution payable only in cash, the amount of such dividend or distribution on each Participant's shares (less such Participant's pro rata share of brokerage commissions incurred with respect to open-market purchases in connection with the reinvestment of such dividend or distribution) shall be applied to the purchase on the open market of shares of common stock for the Participant's account. Each Participant, semiannually, also has the option of sending additional funds, in any amount from $100 to $3,000, for the purchase on the open market of shares of common stock for such Participant's account. Voluntary payments will be invested by the Plan Agent on or shortly after the 15th of February and August, and in no event more than 45 days after such dates, except where temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of federal securities law. Optional cash payments received from a Participant on or prior to the fifth day preceding the 15th of February or August will be applied by the Plan Agent to the purchase of additional shares of common stock as of that investment date. Funds received after the fifth day preceding the 15th of February or August and prior to the 30th day preceding the next investment date will be returned to the Participant. No interest will be paid on optional cash payments held until investment. Consequently, Participants are strongly urged to make their optional cash payments shortly before the 15th of February or August. Optional cash payments should be made in US dollars and be sent by first-class mail, postage prepaid, to the Fund's transfer agent and dividend-disbursing agent at the following address:
DWS Dreman Value Income Edge Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
210 West 10th Street, Kansas City, MO 64105
(800) 294-4366
Participants may withdraw their entire voluntary cash payment by written notice received by the Plan Agent not less than 48 hours before such payment is to be invested.
Investment of voluntary cash payments and other open-market purchases may be made on any securities exchange where the shares of common stock are traded, in the OTC market or in negotiated transactions.
A statement reflecting the amount of cash received by the Fund's Transfer Agent will be issued on receipt of each cash deposit. The statements are the record of the costs of shares and should be retained for tax purposes.
The reinvestment of dividends and capital gains distributions does not relieve the Participant of any tax that may be payable on such dividends and distributions. The Fund's Transfer Agent will report to each Participant the taxable amount of dividends and distributions credited to his or her account. Participants will be treated as receiving the amount of the distributions made by the Fund, which amount generally will be either equal to the amount of the cash distribution the shareholder would have received if the shareholder had elected to receive cash or, for shares issued by the Fund, the fair market value of the shares issued to the shareholder.
The service fees for handling capital gains distributions or income dividends will be paid by the Fund. Participants will be charged a $1.00 service fee for each optional cash investment and a pro rata share of brokerage commissions on all open market purchases.
Participants may terminate their accounts under the Plan by notifying the Fund's Transfer Agent in writing. Such termination will be effective immediately if such Participant's notice is received by the Fund's Transfer Agent not less than ten days prior to any dividend or distribution record date; otherwise such termination will be effective as soon as practicable upon completion of the reinvestment of capital gains distributions or income dividends. The Plan may be terminated by the Fund upon notice in writing mailed to Participants at least 30 days prior to any record date for the payment of any dividend or distribution by the Fund. The terms and conditions of the Plan may be amended or supplemented by the Fund at any time or times, but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission, any securities exchange on which shares of the Fund are listed, or any other regulatory authority and with certain other limited exceptions, only by mailing to Participants appropriate written notice at least 30 days prior to the effective date thereof.
If a Participant elects by notice to the Plan Agent in writing in advance of such termination to have the Plan Agent sell part or all of such Participant's shares and remit the proceeds to such Participant, the Plan Agent is authorized to deduct a fee of 5% of the gross proceeds, to a maximum of $3.50, plus brokerage commissions for this transaction and any transfer taxes.
All correspondence and inquiries concerning the Plan, and requests for additional information about the Plan, should be directed to DWS Investments Service Company at P.O. Box 219066, Kansas City, Missouri 64105 or (800) 294-4366.
Investment Management Agreement Approval
The Board of Directors, including the Independent Directors, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA") and sub-advisory agreement (the "Sub-Advisory Agreement" and together with the Agreement, the "Agreements") between DIMA and Dreman Value Management L.L.C. ("DVM") in September 2008.
In terms of the process that the Board followed prior to approving the Agreements, shareholders should know that:
• At the present time, all but one of your Fund's Directors are independent of DIMA and its affiliates.
• The Directors meet frequently to discuss fund matters. Each year, the Directors dedicate part or all of several meetings to contract review matters. Over the course of several months, the Board's Contract Committee, in coordination with the Board's Equity Oversight Committee, reviewed comprehensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund's performance, fees and expenses, and profitability compiled by the Fund's independent fee consultant. The Board also received extensive information throughout the year regarding performance of the Fund.
• The Independent Directors regularly meet privately with their independent counsel (and, as needed, other advisors) to discuss contract review and other matters. In addition, the Independent Directors were also advised by the Fund's independent fee consultant in the course of their review of the Fund's contractual arrangements and considered a comprehensive report prepared by the independent fee consultant in connection with their deliberations (the "IFC Report").
• In connection with reviewing the Agreements, the Board also reviewed the terms of the Fund's administrative services agreement, transfer agency agreement and other material service agreements.
• Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Independent Directors as a group. The Independent Directors reviewed the Contract Committee's findings and recommendations and presented their recommendations to the full Board.
In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund. DIMA is part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Board believes 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.
While shareholders may focus primarily on fund performance and fees, the Fund's Board considers these and many other factors, including the quality and integrity of DIMA's and DVM's personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.
Nature, Quality and Extent of Services. The Board considered the terms of the Agreements, including the scope of advisory services provided under the Agreements. The Board noted that, under the Agreements, DIMA and DVM provide portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of DIMA and DVM to attract and retain high-quality personnel, and the organizational depth and stability of DIMA and DVM. The Board reviewed the Fund's performance and compared those returns to various agreed-upon performance measures, including market indices and a peer universe compiled by the independent fee consultant using information supplied by Lipper Inc. ("Lipper"). The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer group compiled by Lipper), and receives more frequent reporting and information from DIMA regarding such funds, along with DIMA's remedial plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that for the one-year period ended December 31, 2007, the Fund's performance was in the 4th quartile of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-year period ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA and DVM the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first six months of 2008.
On the basis of this evaluation and the ongoing review of investment results by the Board, the Board concluded that the nature, quality and extent of services provided by DIMA and DVM historically have been and continue to be satisfactory.
Fees and Expenses. The Board considered the Fund's investment management fee schedule, sub-advisory fee schedule, operating expenses and total expense ratios, and comparative information provided by Lipper and the independent fee consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include a 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (4th quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the management fee and administrative services fee are charged on managed assets and the management fees received by the Advisor will be higher during periods in which the Fund uses leverage. The Board considered that the Fund currently employs leverage through borrowings. With respect to the sub-advisory fee paid to DVM, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that after the first three years of the Fund's operations (i.e., until November 2009) the sub-advisory fee rate would increase. The Board considered DIMA's representation that the lower sub-advisory fee rate for the first three years of the Fund's operations is intended to be the way in which DVM shares in the up-front costs incurred in connection with the Fund's creation and launch. The Board also considered that DIMA has agreed to pay DVM certain minimum sub-advisory fees for the first six years of the Fund's operations (i.e., until November 2012). The Board noted that like the management fee and administrative services fee, the sub-advisory fee is charged on managed assets, and therefore, the sub-advisory fees received by DVM will be higher during periods in which the Fund uses leverage. The Board noted that the Fund's total (net) operating expenses including leverage costs and based on net assets were expected to be higher than the median (4th quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007). The Board considered information provided by the independent fee consultant showing that the Fund's total (net) operating expenses excluding leverage costs and based on managed assets would be in the 3rd quartile of Lipper expense universe. 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).
On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and DVM.
Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs and pre-tax profits realized by DIMA from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of the DWS Investments organization with respect to all fund services in totality and by fund. The Board reviewed DIMA's methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. 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 Investments 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 Board also considered the estimated profitability of DVM based on revenues and expenses provided by DVM and concluded that the estimated profitability realized by DVM in connection with the management of the Fund was not unreasonable.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board concluded that the Fund's fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.
Other Benefits to DIMA and DVM and Their Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and DVM and their affiliates, including any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA and DVM related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA and DVM related to DWS Funds advertising and cross-selling opportunities among DWS Investments products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.
Compliance. The Board 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.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Directors) determined that the continuation of the Agreements is in the best interests of the Fund and its shareholders. In making this determination the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Directors and their counsel present. It is possible that individual Directors may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreements.
Directors and Officers
The following table presents certain information regarding the Board Members and Officers of the Fund as of September 30, 2008. 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. Except as otherwise noted below, 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. The Board Members may also serve in similar capacities with other funds in the fund complex. The Length of Time Served represents the year in which the Board Member joined the board of one or more DWS funds now overseen by the Board.
Independent Board Members |
Name, Year of Birth, Position with the Fund and Length of Time Served1 | Business Experience and Directorships During the Past Five Years | Number of Funds in DWS Fund Complex Overseen |
Dawn-Marie Driscoll (1946)
Chairperson since 20042
Board Member since 1987
| 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)
| 134 |
Paul K. Freeman (1950)
Vice Chairperson since 2008
Board Member since 1993
| Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998)
| 134 |
John W. Ballantine (1946)
Board Member since 1999
| Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC (private equity). Former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank
| 134 |
Henry P. Becton, Jr. (1943)
Board Member since 1990
| Vice Chair, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Becton Dickinson and Company3 (medical technology company); Belo Corporation3 (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
| 134 |
Keith R. Fox (1954)
Board Member since 1996
| 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)
| 134 |
Kenneth C. Froewiss (1945)
Board Member since 2001
| 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)
| 134 |
Richard J. Herring (1946)
Board Member since 1990
| 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)
| 134 |
William McClayton (1944)
Board Member since 2004
| Managing Director, Diamond Management & Technology Consultants, Inc. (global management consulting firm) (2001-present); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966-2001); Trustee, Ravinia Festival
| 134 |
Rebecca W. Rimel (1951)
Board Member since 1995
| 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 (2001-2007); Trustee, Pro Publica (2007-present) (charitable organization). 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 Care3 (January 2007-June 2007)
| 134 |
William N. Searcy, Jr. (1946)
Board Member since 1993
| 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 Corporation3 (telecommunications) (November 1989-September 2003)
| 134 |
Jean Gleason Stromberg (1943)
Board Member since 1997
| 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)
| 134 |
Robert H. Wadsworth
(1940)
Board Member since 1999
| President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present); Director, The Phoenix Boys Choir Association
| 137 |
Interested Board Member |
Name, Year of Birth, Position with the Fund and Length of Time Served1 | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Axel Schwarzer4 (1958)
Board Member since 2006
| Managing Director5, Deutsche Asset Management; Head of Deutsche Asset Management Americas; CEO of DWS Investments; 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)
| 134 |
Officers6 |
Name, Year of Birth, Position with the Fund and Length of Time Served7 | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Michael G. Clark8 (1965)
President, 2006-present
| Managing Director5, 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 Millette9 (1962)
Vice President and Secretary, 1999-present
| Director5, Deutsche Asset Management
|
Paul H. Schubert8 (1963)
Chief Financial Officer, 2004-present
Treasurer, 2005-present
| Managing Director5, 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 DeFilippis10 (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. Metzger10 (1962)
Assistant Secretary 2005-present
| Director5, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005)
|
Caroline Pearson9 (1962)
Assistant Secretary, 1997-present
| Managing Director5, Deutsche Asset Management
|
Paul Antosca9 (1957)
Assistant Treasurer, 2007-present
| Director5, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)
|
Jack Clark9 (1967)
Assistant Treasurer, 2007-present
| Director5, Deutsche Asset Management (since 2007); formerly, Vice President, State Street Corporation (2002-2007)
|
Kathleen Sullivan D'Eramo9 (1957)
Assistant Treasurer, 2003-present
| Director5, Deutsche Asset Management
|
Diane Kenneally9 (1966)
Assistant Treasurer, 2007-present
| Director5, Deutsche Asset Management
|
Jason Vazquez10 (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 Kloby10 (1962)
Chief Compliance Officer, 2006-present
| Managing Director5, 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 Jackson10 (1951)
Chief Legal Officer, 2006-present
| Director5, 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 The length of time served represents the year in which the Board Member joined the board of one or more DWS funds currently overseen by the Board.2 Represents the year Ms. Driscoll was first appointed Chairperson of certain DWS funds.3 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.4 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. As an interested person, Mr. Schwarzer receives no compensation from the fund.5 Executive title, not a board directorship.6 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 fund.7 The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.8 Address: 345 Park Avenue, New York, New York 10154.9 Address: One Beacon Street, Boston, MA 02108.10 Address: 280 Park Avenue, New York, New York 10017.Additional Information
|
Automated Information Line | DWS Investments Closed-End Fund Info Line (800) 349-4281
|
Web Site | www.dws-investments.com Obtain quarterly fact sheets, financial reports, press releases and webcasts when available.
|
Written Correspondence | Deutsche Investment Management Americas Inc. 345 Park Avenue
New York, NY 10154
|
Proxy Voting | The fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.
|
Legal Counsel | Vedder Price P.C. 222 North LaSalle Street
Chicago, IL 60601
|
Dividend Reinvestment Plan Agent | Computershare Inc. P.O. Box 43078
Providence, RI 02940-3078
|
Transfer Agent | DWS Investments Service Company P.O. Box 219066
Kansas City, MO 64121-9066
(800) 294-4366 |
Custodian | State Street Bank and Trust Company 225 Franklin Street
Boston, MA 02110
|
Independent Registered Public Accounting Firm | Ernst & Young LLP 200 Clarendon Street
Boston, MA 02116
|
NYSE Symbol | DHG
|
CUSIP Number | 23339M105
|
Notes
Notes
Notes
Notes
ITEM 2. | CODE OF ETHICS |
| |
| As of the end of the period, September 30, 2008, DWS Dreman Value Income Edge Fund, Inc. 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” (as such term has been defined by the Regulations) serving on the Funds’ audit committee including Mr. William McClayton, the chair of the Funds’ audit committee. The SEC has stated that an audit committee financial expert is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and 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. |
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ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
| |
DWS DREMAN VALUE INCOME EDGE FUND, INC.
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young LLP (“E&Y”), the Fund’s Independent Registered Public Accountant, 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 E&Y 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 Accountant Billed to the Fund
Fiscal Year
Ended
September 30, | Audit Fees Billed to Fund | Audit-Related
Fees Billed to Fund | Tax Fees Billed to Fund | All
Other Fees Billed to Fund |
2008 | $67,750 | $0 | $8,373 | $0 |
2007 | $52,955 | $0 | $7,221 | $0 |
The above "Tax Fees" were billed for professional services rendered for tax return preparation.
Services that the Fund’s Independent Registered Public Accountant Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. (“DIMA” or the “Adviser”), and any entity controlling, controlled by or under common control with DIMA (“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
Ended
September 30, | 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 |
2008 | $0 | $382,000 | $0 |
2007 | $250,000 | $486,614 | $0 |
The “Audit-Related Fees” were billed for services in connection with agreed upon procedures related to fund mergers and the above “Tax Fees” were billed in connection with tax compliance services and agreed upon procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y 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 E&Y about any non-audit services that E&Y rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y’s independence.
Fiscal Year
Ended
September 30, | 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) |
2008 | $8,373 | $382,000 | $1,474,733 | $1,865,106 |
2007 | $7,221 | $486,614 | $1,484,326 | $1,978,161 |
All other engagement fees were billed for services in connection with internal control reviews, agreed upon procedures and tax compliance for DIMA and other related entities that provide support for the operations of the fund.
***
In connection with the audit of the 2007 and 2008 financial statements, the Fund entered into an engagement letter with E&Y. The terms of the engagement letter required by E&Y, and agreed to by the Audit Committee, include provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury and an exclusion of punitive damages.
***
E&Y advised the Fund’s Audit Committee that certain arrangements between the Ernst & Young member firm in Germany (“E&Y Germany”) and Deutsche Bank AG (“DB”) had been determined to be inconsistent with the SEC auditor independence rules. DB is within the “Investment Company Complex” (as defined by SEC rules) and therefore covered by the SEC auditor independence rules applicable to the Fund. In 2006 and 2007, DB provided standard overdraft protection on a depository account and a guarantee of certain lease deposits to E&Y Germany. E&Y advised the Audit Committee that while neither of these arrangements was ever utilized by E&Y Germany, they could constitute lending type arrangements in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)(1)(ii)(A) provides that an accountant is not independent when an accounting firm has a loan to or from an audit client.) E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audits of the Fund. In reaching this conclusion, E&Y noted a number of factors, including that neither of the arrangements was ever utilized and, accordingly, E&Y Germany never had amounts outstanding to DB, these arrangements were immaterial to E&Y Germany and DB and the E&Y professionals responsible for the Fund’s audits were not aware of these arrangements. E&Y informed the Audit Committee that E&Y Germany has cancelled the overdraft arrangements and has terminated the guarantee on the lease deposits.
| |
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
| |
| The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The registrant's audit committee consists of William McClayton (Chairman), Keith R. Fox, Kenneth C. Froewiss, Henry P. Becton, Jr., John W. Ballantine and William N. Searcy. |
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ITEM 6. | SCHEDULE OF INVESTMENTS |
| |
| Not Applicable |
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ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
| |
Proxy Voting and Guidelines
AM has adopted and implemented the following policies and procedures, which it believes are reasonably designed to ensure that proxies are voted in the best economic interest of clients, in accordance with its fiduciary duties and local regulation. These Proxy Voting Policies, Procedures and Guidelines shall apply to all accounts managed by US domiciled advisers and to all US client accounts managed by non US regional offices. Non US regional offices are required to maintain procedures and to vote proxies as may be required by law on behalf of their non US clients. In addition, AM’s proxy policies reflect the fiduciary standards and responsibilities for ERISA accounts.
The attached guidelines represent a set of global recommendations that were determined by the Global Proxy Voting Sub-Committee (“the GPVSC”). These guidelines were developed to provide AM with a comprehensive list of recommendations that represent how AM will generally vote proxies for its clients. The recommendations derived from the application of these guidelines are not intended to influence the various AM legal entities either directly or indirectly by parent or affiliated companies. In addition, the organizational structures and documents of the various AM legal entities allows, where necessary or appropriate, the execution by individual AM subsidiaries of the proxy voting rights independently of any DB parent or affiliated company. This applies in particular to non U.S. fund management companies. The individuals that make proxy voting decisions are also free to act independently, subject to the normal and customary supervision by the management/boards of these AM legal entities.
II. | AM’S PROXY VOTING RESPONSIBILITIES |
Proxy votes are the property of AM’s advisory clients.1 As such, AM’s authority and responsibility to vote such proxies depend upon its contractual relationships with its clients. AM has delegated responsibility for effecting its advisory clients’ proxy votes to Institutional Shareholder Services (“ISS”), an independent third-party proxy voting specialist. ISS votes AM’s advisory clients’ proxies in accordance with AM’s proxy guidelines or AM’s specific instructions. Where a client has given specific instructions as to how a proxy should be voted, AM will notify ISS to carry out those instructions. Where no specific instruction exists, AM will follow the procedures in voting the proxies set forth in this document. Certain Taft-Hartley clients may direct AM to have ISS vote their proxies in accordance with Taft Hartley voting Guidelines
Clients may in certain instances contract with their custodial agent and notify AM that they wish to engage in securities lending transactions. In such cases, it is the responsibility of the custodian to deduct the number of shares that are on loan so that they do not get voted twice.
1. | Proxy voting activities are conducted in the best economic interest of clients |
AM has adopted the following policies and procedures to ensure that proxies are voted in accordance with the best economic interest of its clients, as determined by AM in good faith after appropriate review.
2. | The Global Proxy Voting Sub-Committee |
The Global Proxy Voting Sub-Committee (the “GPVSC”) is an internal working group established by the applicable AM’s Investment Risk Oversight Committee pursuant to a written charter. The GPVSC is responsible for overseeing AM’s proxy voting activities, including:
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1 purposes of these Policies and Procedures, “clients” refers to persons or entities: for which AM serves as investment adviser or sub-adviser; for which AM votes proxies; and that have an economic or beneficial ownership interest in the portfolio securities of issuers soliciting such proxies.
(i) | adopting, monitoring and updating guidelines, attached as Exhibit A (the “Guidelines”), that provide how AM will generally vote proxies pertaining to a comprehensive list of common proxy voting matters; |
(ii) | voting proxies where (A) the issues are not covered by specific client instruction or the Guidelines; (B) the Guidelines specify that the issues are to be determined on a case-by-case basis; or (C) where an exception to the Guidelines may be in the best economic interest of AM’s clients; and |
(iii) | monitoring the Proxy Vendor Oversight’s proxy voting activities (see below). |
AM’s Proxy Vendor Oversight, a function of AM’s Operations Group, is responsible for coordinating with ISS to administer AM’s proxy voting process and for voting proxies in accordance with any specific client instructions or, if there are none, the Guidelines, and overseeing ISS’ proxy responsibilities in this regard.
3. | Availability of Proxy Voting Policies and Procedures and proxy voting record |
Copies of these Policies and Procedures, as they may be updated from time to time, are made available to clients as required by law and otherwise at AM’s discretion. Clients may also obtain information on how their proxies were voted by AM as required by law and otherwise at AM’s discretion; however, AM must not selectively disclose its investment company clients’ proxy voting records. The Proxy Vendor Oversight will make proxy voting reports available to advisory clients upon request. The investment companies’ proxy voting records will be disclosed to shareholders by means of publicly-available annual filings of each company’s proxy voting record for 12-month periods ended June 30 (see “Recordkeeping” below), if so required by relevant law.
The key aspects of AM’s proxy voting process are as follows:
1. | The GPVSC’s Proxy Voting Guidelines |
The Guidelines set forth the GPVSC’s standard voting positions on a comprehensive list of common proxy voting matters. The GPVSC has developed, and continues to update the Guidelines based on consideration of current corporate governance principles, industry standards, client feedback, and the impact of the matter on issuers and the value of the investments.
The GPVSC will review the Guidelines as necessary to support the best economic interests of AM’s clients and, in any event, at least annually. The GPVSC will make changes to the Guidelines, whether as a result of the annual review or otherwise, taking solely into account the best economic interests of clients. Before changing the Guidelines, the GPVSC will thoroughly review and evaluate the proposed change and the reasons therefore, and the GPVSC Chair will ask GPVSC members whether anyone outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM advisory client has requested or attempted to influence the proposed change and whether any member has a conflict of interest with respect to the proposed change. If any such matter is reported to the GPVSC Chair, the Chair will promptly notify the Conflicts of Interest Management Sub-Committee (see below) and will defer the approval, if possible. Lastly, the GPVSC will fully document its rationale for approving any change to the Guidelines.
The Guidelines may reflect a voting position that differs from the actual practices of the public company(ies) within the Deutsche Bank organization or of the investment companies for which AM or an affiliate serves as investment adviser or sponsor. Investment companies, particularly closed-end investment companies, are different from traditional operating companies. These differences may call for differences in voting positions on the same matter. Further, the manner in which AM votes investment company proxies may differ from proposals for which a AM-advised or sponsored investment company solicits proxies from its shareholders. As reflected in the Guidelines, proxies solicited by closed-end (and open-end) investment companies are generally voted in accordance with the pre-determined guidelines of ISS. See Section IV.3.B.
Funds (“Underlying Funds”) in which Topiary Fund Management Fund of Funds (each, a “Fund”) invest, may from time to time seek to revise their investment terms (i.e. liquidity, fees, etc.) or investment structure. In such event, the Underlying Funds may require approval/consent from its investors to effect the relevant changes. Topiary Fund Management has adopted Proxy Voting Procedures which outline the process for these approvals.
2. | Specific proxy voting decisions made by the GPVSC |
The Proxy Vendor Oversight will refer to the GPVSC all proxy proposals (i) that are not covered by specific client instructions or the Guidelines; or (ii) that, according to the Guidelines, should be evaluated and voted on a case-by-case basis.
Additionally, if, the Proxy Vendor Oversight, the GPVSC Chair or any member of the GPVSC, a portfolio manager, a research analyst or a sub-adviser believes that voting a particular proxy in accordance with the Guidelines may not be in the best economic interests of clients, that individual may bring the matter to the attention of the GPVSC Chair and/or the Proxy Vendor Oversight.2
If the Proxy Vendor Oversight refers a proxy proposal to the GPVSC or the GPVSC determines that voting a particular proxy in accordance with the Guidelines is not in the best economic interests of clients, the GPVSC will evaluate and vote the proxy, subject to the procedures below regarding conflicts.
The GPVSC endeavors to hold meetings to decide how to vote particular proxies sufficiently before the voting deadline so that the procedures below regarding conflicts can be completed before the GPVSC’s voting determination.
3. | Certain proxy votes may not be cast |
In some cases, the GPVSC may determine that it is in the best economic interests of its clients not to vote certain proxies. If the conditions below are met with regard to a proxy proposal, AM will abstain from voting:
• | Neither the Guidelines nor specific client instructions cover an issue; |
• | ISS does not make a recommendation on the issue; |
• | The GPVSC cannot convene on the proxy proposal at issue to make a determination as to what would be in the client’s best interest. (This could happen, for example, if the Conflicts of Interest Management Sub-committee found that there was a material conflict or if despite all best efforts being made, the GPVSC quorum requirement could not be met). |
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2 Proxy Vendor Oversight generally monitors upcoming proxy solicitations for heightened attention from the press or the industry and for novel or unusual proposals or circumstances, which may prompt the Proxy Vendor Oversight to bring the solicitation to the attention of the GPVSC Chair. AM portfolio managers, AM research analysts and sub-advisers also may bring a particular proxy vote to the attention of the GPVSC Chair, as a result of their ongoing monitoring of portfolio securities held by advisory clients and/or their review of the periodic proxy voting record reports that the GPVSC Chair distributes to AM portfolio managers and AM research analysts.
In addition, it is AM’s policy not to vote proxies of issuers subject to laws of those jurisdictions that impose restrictions upon selling shares after proxies are voted, in order to preserve liquidity. In other cases, it may not be possible to vote certain proxies, despite good faith efforts to do so. For example, some jurisdictions do not provide adequate notice to shareholders so that proxies may be voted on a timely basis. Voting rights on securities that have been loaned to third-parties transfer to those third-parties, with loan termination often being the only way to attempt to vote proxies on the loaned securities. Lastly, the GPVSC may determine that the costs to the client(s) associated with voting a particular proxy or group of proxies outweighs the economic benefits expected from voting the proxy or group of proxies.
The Proxy Vendor Oversight will coordinate with the GPVSC Chair regarding any specific proxies and any categories of proxies that will not or cannot be voted. The reasons for not voting any proxy shall be documented.
4. | Conflict of Interest Procedures |
A. | Procedures to Address Conflicts of Interest and Improper Influence |
Overriding Principle. In the limited circumstances where the GPVSC votes proxies,3 the GPVSC will vote those proxies in accordance with what it, in good faith, determines to be the best economic interests of AM’s clients.4
Independence of the GPVSC. As a matter of Compliance policy, the GPVSC and the Proxy Vendor Oversight are structured to be independent from other parts of Deutsche Bank. Members of the GPVSC and the employee responsible for Proxy Vendor Oversight are employees of AM. As such, they may not be subject to the supervision or control of any employees of Deutsche Bank Corporate and Investment Banking division (“CIB”). Their compensation cannot be based upon their contribution to any business activity outside of AM without prior approval of Legal and Compliance. They can have no contact with employees of Deutsche Bank outside of the Private Client and Asset Management division (“PCAM”) regarding specific clients, business matters or initiatives without the prior approval of Legal and Compliance. They furthermore may not discuss proxy votes with any person outside of AM (and within AM only on a need to know basis).
Conflict Review Procedures. There will be a committee (the “Conflicts of Interest Management Sub-Committee”) established within AM that will monitor for potential material conflicts of interest in connection with proxy proposals that are to be evaluated by the GPVSC. Promptly upon a determination that a vote shall be presented to the GPVSC, the GPVSC Chair shall notify the Conflicts of Interest Management Sub-Committee. The Conflicts of Interest Management Sub-Committee shall promptly collect and review any information deemed reasonably appropriate to evaluate, in its reasonable judgment, if AM or any person participating in the proxy voting process has, or has the appearance of, a material conflict of interest. For the purposes of this policy, a conflict of interest shall be considered “material” to the extent that a reasonable person could expect the conflict to influence, or appear to influence, the GPVSC’s decision on the particular vote at issue. GPVSC should provide the Conflicts of Interest Management Sub-Committee a reasonable amount of time (no less than 24 hours) to perform all necessary and appropriate reviews. To the extent that a conflicts review can not be sufficiently completed by the Conflicts of Interest Management Sub-Committee the proxies will be voted in accordance with the standard guidelines.
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3 mentioned above, the GPVSC votes proxies (i) where neither a specific client instruction nor a Guideline directs how the proxy should be voted, (ii) where the Guidelines specify that an issue is to be determined on a case by case basis or (iii) where voting in accordance with the Guidelines may not be in the best economic interests of clients.
4 | The Proxy Vendor Oversight, who serves as the non-voting secretary of the GPVSC, may receive routine calls from proxy solicitors and other parties interested in a particular proxy vote. Any contact that attempts to exert improper pressure or influence shall be reported to the Conflicts of Interest Management Sub-Committee. |
The information considered by the Conflicts of Interest Management Sub-Committee may include without limitation information regarding (i) AM client relationships; (ii) any relevant personal conflict known by the Conflicts of Interest Management Sub-Committee or brought to the attention of that sub-committee; (iii) and any communications with members of the GPVSC (or anyone participating or providing information to the GPVSC) and any person outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM advisory client regarding the vote at issue. In the context of any determination, the Conflicts of Interest Management Sub-Committee may consult with, and shall be entitled to rely upon, all applicable outside experts, including legal counsel.
Upon completion of the investigation, the Conflicts of Interest Management Sub-Committee will document its findings and conclusions. If the Conflicts of Interest Management Sub-Committee determines that (i) AM has a material conflict of interest that would prevent it from deciding how to vote the proxies concerned without further client consent or (ii) certain individuals should be recused from participating in the proxy vote at issue, the Conflicts of Interest Management Sub-Committee will so inform the GPVSC chair.
If notified that AM has a material conflict of interest as described above, the GPVSC chair will obtain instructions as to how the proxies should be voted either from (i) if time permits, the effected clients, or (ii) in accordance with the standard guidelines. If notified that certain individuals should be recused from the proxy vote at issue, the GPVSC Chair shall do so in accordance with the procedures set forth below.
Note: Any AM employee who becomes aware of a potential, material conflict of interest in respect of any proxy vote to be made on behalf of clients shall notify Compliance. Compliance shall call a meeting of the conflict review committee to evaluate such conflict and determine a recommended course of action.
Procedures to be followed by the GPVSC. At the beginning of any discussion regarding how to vote any proxy, the GPVSC Chair (or his or her delegate) will inquire as to whether any GPVSC member (whether voting or ex officio) or any person participating in the proxy voting process has a personal conflict of interest or has actual knowledge of an actual or apparent conflict that has not been reported to the Conflicts of Interest Management Sub-Committee.
The GPVSC Chair also will inquire of these same parties whether they have actual knowledge regarding whether any director, officer or employee outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM advisory client, has: (i) requested that AM, the Proxy Vendor Oversight (or any member thereof) or a GPVSC member vote a particular proxy in a certain manner; (ii) attempted to influence AM, the Proxy Vendor Oversight (or any member thereof), a GPVSC member or any other person in connection with proxy voting activities; or (iii) otherwise communicated with a GPVSC member or any other person participating or providing information to the GPVSC regarding the particular proxy vote at issue, and which incident has not yet been reported to the Conflicts of Interest Management Sub- Committee.
If any such incidents are reported to the GPVSC Chair, the Chair will promptly notify the Conflicts of Interest Management Sub-Committee and, if possible, will delay the vote until the Conflicts of Interest Management Sub-Committee can complete the conflicts report. If a delay is not possible, the Conflicts of Interest Management Sub-Committee will instruct the GPVSC whether anyone should be recused from the proxy voting process, or whether AM should vote the proxy in accordance with the standard guidelines, seek instructions as to how to vote the proxy at issue from ISS or, if time permits, the effected clients. These inquiries and discussions will be properly reflected in the GPVSC’s minutes.
Duty to Report. Any AM employee, including any GPVSC member (whether voting or ex officio), that is aware of any actual or apparent conflict of interest relevant to, or any attempt by any person outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM advisory client to influence, how AM votes its proxies has a duty to disclose the existence of the situation to the GPVSC Chair (or his or her designee) and the details of the matter to the Conflicts of Interest Management Sub-Committee. In the case of any person participating in the deliberations on a specific vote, such disclosure should be made before engaging in any activities or participating in any discussion pertaining to that vote.
Recusal of Members. The GPVSC will recuse from participating in a specific proxy vote any GPVSC members (whether voting or ex officio) and/or any other person who (i) are personally involved in a material conflict of interest; or (ii) who, as determined by the Conflicts of Interest Management Sub-Committee, have actual knowledge of a circumstance or fact that could effect their independent judgment, in respect of such vote. The GPVSC will also exclude from consideration the views of any person (whether requested or volunteered) if the GPVSC or any member thereof knows, or if the Conflicts of Interest Management Sub-Committee has determined, that such other person has a material conflict of interest with respect to the particular proxy, or has attempted to influence the vote in any manner prohibited by these policies.
If, after excluding all relevant GPVSC voting members pursuant to the paragraph above, there are three or more GPVSC voting members remaining, those remaining GPVSC members will determine how to vote the proxy in accordance with these Policies and Procedures. If there are fewer than three GPVSC voting members remaining, the GPVSC Chair will vote the proxy in accordance with the standard guidelines, will obtain instructions as to how to have the proxy voted from, if time permits, the effected clients and otherwise from ISS.
B. | Investment Companies and Affiliated Public Companies |
Investment Companies. As reflected in the Guidelines, all proxies solicited by open-end and closed-end investment companies are voted in accordance with the pre-determined guidelines of ISS, unless the investment company client directs AM to vote differently on a specific proxy or specific categories of proxies. However, regarding investment companies for which AM or an affiliate serves as investment adviser or principal underwriter, such proxies are voted in the same proportion as the vote of all other shareholders (i.e., “mirror” or “echo” voting). Master fund proxies solicited from feeder funds are voted in accordance with applicable provisions of Section 12 of the Investment Company Act of 1940.
Subject to participation agreements with certain Exchange Traded Funds ("ETF") issuers that have received exemptive orders from the U.S. Securities and Exchange Commission allowing investing DWS funds to exceed the limits set forth in Section 12(d)(1)(A) and (B) of the Investment Company Act of 1940, DeAM will echo vote proxies for ETFs in which Deutsche Bank holds more than 25% of outstanding voting shares globally when required to do so by participation agreements and SEC orders.
Affiliated Public Companies. For proxies solicited by non-investment company issuers of or within the Deutsche Bank organization, e.g., Deutsche bank itself, these proxies will be voted in the same proportion as the vote of other shareholders (i.e., “mirror” or “echo” voting).
Note: With respect to the QP Trust (not registered under the Investment Company Act of 1940), the Fund is not required to engage in echo voting and the investment adviser will use these Guidelines, and may determine, with respect to the QP Trust, to vote contrary to the positions in the Guidelines, consistent with the Fund’s best interest.
C. | Other Procedures That Limit Conflicts of Interest |
AM and other entities in the Deutsche Bank organization have adopted a number of policies, procedures and internal controls that are designed to avoid various conflicts of interest, including those that may arise in connection with proxy voting, including:
• | Deutsche Bank Americas Restricted Activities Policy. This policy provides for, among other things, independence of AM employees from CIB, and information barriers between AM and other affiliates. Specifically, no AM employee may be subject to the supervision or control of any employee of CIB. No AM employee shall have his or her compensation based upon his or her contribution to any business activity within the Bank outside of the business of AM, without the prior approval of Legal or Compliance. Further, no employee of CIB shall have any input into the compensation of a AM employee without the prior approval of Legal or Compliance. Under the information barriers section of this policy, as a general rule, AM employees who are associated with the investment process should have no contact with employees of Deutsche Bank or its affiliates, outside of PCAM, regarding specific clients, business matters, or initiatives. Further, under no circumstances should proxy votes be discussed with any Deutsche Bank employee outside of AM (and should only be discussed on a need-to-know basis within AM). |
Other relevant internal policies include the Deutsche Bank Americas Code of Professional Conduct, the Deutsche Asset Management Information Sharing Procedures, the Deutsche Asset Management Code of Ethics, the Sarbanes-Oxley Senior Officer Code of Ethics, and the Deutsche Bank Group Code of Conduct. The GPVSC expects that these policies, procedures and internal controls will greatly reduce the chance that the GPVSC (or, its members) would be involved in, aware of or influenced by, an actual or apparent conflict of interest.
At a minimum, the following types of records must be properly maintained and readily accessible in order to evidence compliance with this policy.
• | AM will maintain a record of each vote cast by AM that includes among other things, company name, meeting date, proposals presented, vote cast and shares voted. |
• | The Proxy Vendor Oversight maintains records for each of the proxy ballots it votes. Specifically, the records include, but are not limited to: |
| – | The proxy statement (and any additional solicitation materials) and relevant portions of annual statements. |
| – | Any additional information considered in the voting process that may be obtained from an issuing company, its agents or proxy research firms. |
| – | Analyst worksheets created for stock option plan and share increase analyses. |
| – | Proxy Edge print-screen of actual vote election. |
• | AM will retain these Policies and Procedures and the Guidelines; will maintain records of client requests for proxy voting information; and will retain any documents the Proxy Vendor Oversight or the GPVSC prepared that were material to making a voting decision or that memorialized the basis for a proxy voting decision. |
• | The GPVSC also will create and maintain appropriate records documenting its compliance with these Policies and Procedures, including records of its deliberations and decisions regarding conflicts of interest and their resolution. |
• | With respect to AM’s investment company clients, ISS will create and maintain records of each company’s proxy voting record for 12-month periods ended June 30. AM will compile the following information for each matter relating to a portfolio security considered at any shareholder meeting held during the period covered by the report and with respect to which the company was entitled to vote: |
| – | The name of the issuer of the portfolio security; |
| – | The exchange ticker symbol of the portfolio security (if symbol is available through reasonably practicable means); |
| – | The Council on Uniform Securities Identification Procedures number for the portfolio security (if the number is available through reasonably practicable means); |
| – | The shareholder meeting date; |
| – | A brief identification of the matter voted on; |
| – | Whether the matter was proposed by the issuer or by a security holder; |
| – | Whether the company cast its vote on the matter; |
| – | How the company cast its vote (e.g., for or against proposal, or abstain; for or withhold regarding election of directors); and |
| – | Whether the company cast its vote for or against management. |
Note: This list is intended to provide guidance only in terms of the records that must be maintained in accordance with this policy. In addition, please note that records must be maintained in accordance with the applicable AM Records Management Policy.
With respect to electronically stored records, “properly maintained” is defined as complete, authentic (unalterable) usable and backed-up. At a minimum, records should be retained for a period of not less than six years (or longer, if necessary to comply with applicable regulatory requirements), the first three years in an appropriate AM office.
VI. | THE GPVSC’S OVERSIGHT ROLE |
In addition to adopting the Guidelines and making proxy voting decisions on matters referred to it as set forth above, the GPVSC will monitor the proxy voting process by reviewing summary proxy information presented by ISS. The GPVSC will use this review process to determine, among other things, whether any changes should be made to the Guidelines. This review will take place at least quarterly and will be documented in the GPVSC’s minutes.
Attachment A – Global Proxy Voting Guidelines
Deutsche Asset Management
Global Proxy Voting Guidelines
As Amended October 2008
Table of contents
I | Board Of Directors And Executives |
| B | Classified Boards Of Directors |
| C | Board And Committee Independence |
| D | Liability And Indemnification Of Directors |
| E | Qualifications Of Directors |
| F | Removal Of Directors And Filling Of Vacancies |
| G | Proposals To Fix The Size Of The Board |
| H | Proposals to Restrict Chief Executive Officer’s Service on Multiple Boards |
| I | Proposals to Restrict Supervisory Board Members Service on Multiple Boards |
| J | Proposals to Establish Audit Committees |
| A | Authorization Of Additional Shares |
| B | Authorization Of “Blank Check” Preferred Stock |
| C | Stock Splits/Reverse Stock Splits |
| D | Dual Class/Supervoting Stock |
| F | Recapitalization Into A Single Class Of Stock |
III | Corporate Governance Issues |
| C | Supermajority Voting Requirements |
| D | Shareholder Right To Vote |
| A | Establishment of a Remuneration Committee |
| B | Executive And Director Stock Option Plans |
| C | Employee Stock Option/Purchase Plans |
| E | Proposals To Limit Benefits Or Executive Compensation |
| G | Management board election and motion |
| H | Remuneration (variable pay) |
| I | Long-term incentive plans |
| J | Shareholder Proposals Concerning “Pay For Superior Performance” |
| K | Executive Compensation Advisory |
V | Anti-Takeover Related Issues |
| A | Shareholder Rights Plans (“Poison Pills”) |
| D | Exemption From State Takeover Laws |
| E | Non-Financial Effects Of Takeover Bids |
VII | Social & Political Issues |
| A | Ratification Of Auditors |
| B | Limitation Of Non-Audit Services Provided By Independent Auditor |
| D | Transaction Of Other Business |
| E | Motions To Adjourn The Meeting |
| H | Proposals Related To The Annual Meeting |
| I | Reimbursement Of Expenses Incurred From Candidate Nomination |
| J | Investment Company Proxies |
| K | International Proxy Voting |
These Guidelines may reflect a voting position that differs from the actual practices of the public company (ies) within the Deutsche Bank organization or of the investment companies for which AM or an affiliate serves as investment adviser or sponsor.
NOTE: Because of the unique structure and regulatory scheme applicable to closed-end investment companies, the voting guidelines (particularly those related to governance issues) generally will be inapplicable to holdings of closed-end investment companies. As a result, determinations on the appropriate voting recommendation for closed-end investment company shares will be made on a case-by-case basis.
I. | Board of Directors and Executives |
Routine: AM Policy is to vote “for” the uncontested election of directors. Votes for a director in an uncontested election will be withheld in cases where a director has shown an inability to perform his/her duties in the best interests of the shareholders.
Proxy contest: In a proxy contest involving election of directors, a case-by-case voting decision will be made based upon analysis of the issues involved and the merits of the incumbent and dissident slates of directors. AM will incorporate the decisions of a third party proxy research vendor, currently, Institutional Shareholder Services (“ISS”) subject to review by the Proxy Voting Sub-Committee (GPVSC) as set forth in the AM’s Proxy Voting Policies and Procedures.
Rationale: The large majority of corporate directors fulfill their fiduciary obligation and in most cases support for management’s nominees is warranted. As the issues relevant to a contested election differ in each instance, those cases must be addressed as they arise.
B. | Classified Boards of Directors |
AM policy is to vote against proposals to classify the board and for proposals to repeal classified boards and elect directors annually.
Rationale: Directors should be held accountable on an annual basis. By entrenching the incumbent board, a classified board may be used as an anti-takeover device to the detriment of the shareholders in a hostile take-over situation.
C. | Board and Committee Independence |
AM policy is to vote:
1. | “For” proposals that require that a certain percentage (majority up to 66 2/3%) of members of a board of directors be comprised of independent or unaffiliated directors. |
2. | “For” proposals that require all members of a company's compensation, audit, nominating, or other similar committees be comprised of independent or unaffiliated directors. |
3. | “Against” shareholder proposals to require the addition of special interest, or constituency, representatives to boards of directors. |
4. | “For” separation of the Chairman and CEO positions. |
5. | “Against” proposals that require a company to appoint a Chairman who is an independent director. |
Rationale: Board independence is a cornerstone of effective governance and accountability. A board that is sufficiently independent from management assures that shareholders' interests are adequately represented. However, the Chairman of the board must have sufficient involvement in and experience with the operations of the company to perform the functions required of that position and lead the company.
No director qualifies as 'independent' unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).
Whether a director is in fact not "independent" will depend on the laws and regulations of the primary market for the security and the exchanges, if any, on which the security trades.
D. | Liability and Indemnification of Directors |
AM policy is to vote “for” management proposals to limit directors' liability and to broaden the indemnification of directors, unless broader indemnification or limitations on directors' liability would effect shareholders' interests in pending litigation.
Rationale: While shareholders want directors and officers to be responsible for their actions, it is not in the best interests of the shareholders for them to be to risk averse. If the risk of personal liability is too great, companies may not be able to find capable directors willing to serve. We support expanding coverage only for actions taken in good faith and not for serious violations of fiduciary obligation or negligence.
E. | Qualifications of Directors |
AM policy is to follow management’s recommended vote on either management or shareholder proposals that set retirement ages for directors or require specific levels of stock ownership by directors.
Rationale: As a general rule, the board of directors, and not the shareholders, is most qualified to establish qualification policies.
F. | Removal of Directors and Filling of Vacancies |
AM policy is to vote “against” proposals that include provisions that directors may be removed only for cause or proposals that include provisions that only continuing directors may fill board vacancies.
Rationale: Differing state statutes permit removal of directors with or without cause. Removal of directors for cause usually requires proof of self-dealing, fraud or misappropriation of corporate assets, limiting shareholders' ability to remove directors except under extreme circumstances. Removal without cause requires no such showing.
Allowing only incumbent directors to fill vacancies can serve as an anti-takeover device, precluding shareholders from filling the board until the next regular election.
G. | Proposals to Fix the Size of the Board |
AM policy is to vote:
1. | “For” proposals to fix the size of the board unless: (a) no specific reason for the proposed change is given; or (b) the proposal is part of a package of takeover defenses. |
2. | “Against” proposals allowing management to fix the size of the board without shareholder approval. |
Rationale: Absent danger of anti-takeover use, companies should be granted a reasonable amount of flexibility in fixing the size of its board.
H. | Proposals to Restrict Chief Executive Officer’s Service on Multiple Boards |
AM policy is to vote “For” proposals to restrict a Chief Executive Officer from serving on more than three outside boards of directors.
Rationale: Chief Executive Officer must have sufficient time to ensure that shareholders’ interests are represented adequately.
Note: A director’s service on multiple closed-end fund boards within a fund complex are treated as service on a single Board for the purpose of the proxy voting guidelines.
I. | Proposals to Restrict Supervisory Board Members Service on Multiple Boards (For FFT Securities) |
AM policy is to vote “for” proposals to restrict a Supervisory Board Member from serving on more than five supervisory boards.
Rationale: We consider a strong, independent and knowledgeable supervisory board as important counter-balance to executive management to ensure that the interests of shareholders are fully reflected by the company.
Full information should be disclosed in the annual reports and accounts to allow all shareholders to judge the success of the supervisory board controlling their company.
Supervisory Board Member must have sufficient time to ensure that shareholders’ interests are represented adequately.
Note: A director’s service on multiple closed-end fund boards within a fund complex are treated as service on a single Board for the purpose of the proxy voting guidelines.
J. | Proposals to Establish Audit Committees (For FFT and U.S. Securities) |
AM policy is to vote “for” proposals that require the establishment of audit committees.
Rationale: The audit committee should deal with accounting and risk management related questions, verifies the independence of the auditor with due regard to possible conflicts of interest. It also should determine the procedure of the audit process.
A. | Authorization of Additional Shares (For U.S. Securities) |
AM policy is to vote “for” proposals to increase the authorization of existing classes of stock that do not exceed a 3:1 ratio of shares authorized to shares outstanding for a large cap company, and do not exceed a 4:1 ratio of shares authorized to shares outstanding for a small-midcap company (companies having a market capitalization under one billion U.S. dollars.).
Rationale: While companies need an adequate number of shares in order to carry on business, increases requested for general financial flexibility must be limited to protect shareholders from their potential use as an anti-takeover device. Requested increases for specifically designated, reasonable business purposes (stock split, merger, etc.) will be considered in light of those purposes and the number of shares required.
B. | Authorization of “Blank Check” Preferred Stock (For U.S. Securities) |
AM policy is to vote:
1. | “Against” proposals to create blank check preferred stock or to increase the number of authorized shares of blank check preferred stock unless the company expressly states that the stock will not be used for anti-takeover purposes and will not be issued without shareholder approval. |
2. | “For” proposals mandating shareholder approval of blank check stock placement. |
Rationale: Shareholders should be permitted to monitor the issuance of classes of preferred stock in which the board of directors is given unfettered discretion to set voting, dividend, conversion and other rights for the shares issued.
C. | Stock Splits/Reverse Stock Splits |
AM policy is to vote “for” stock splits if a legitimate business purpose is set forth and the split is in the shareholders' best interests. A vote is cast “for” a reverse stock split only if the number of shares authorized is reduced in the same proportion as the reverse split or if the effective increase in authorized shares (relative to outstanding shares) complies with the proxy guidelines for common stock increases (see, Section II.A, above.)
Rationale: Generally, stock splits do not detrimentally effect shareholders. Reverse stock splits, however, may have the same result as an increase in authorized shares and should be analyzed accordingly.
D. | Dual Class/Supervoting Stock |
AM policy is to vote “against” proposals to create or authorize additional shares of super-voting stock or stock with unequal voting rights.
Rationale: The “one share, one vote” principal ensures that no shareholder maintains a voting interest exceeding their equity interest in the company.
E. | Large Block Issuance (For U.S. Securities) |
AM policy is to address large block issuances of stock on a case-by-case basis, incorporating the recommendation of an independent third party proxy research firm (currently ISS) subject to review by the GPVSC as set forth in AM’s Proxy Policies and Procedures.
Additionally, AM supports proposals requiring shareholder approval of large block issuances.
Rationale: Stock issuances must be reviewed in light of the business circumstances leading to the request and the potential impact on shareholder value.
F. | Recapitalization into a Single Class of Stock |
AM policy is to vote “for” recapitalization plans to provide for a single class of common stock, provided the terms are fair, with no class of stock being unduly disadvantaged.
Rationale: Consolidation of multiple classes of stock is a business decision that may be left to the board and/management if there is no adverse effect on shareholders.
AM policy is to vote “for” share repurchase plans provided all shareholders are able to participate on equal terms.
Rationale: Buybacks are generally considered beneficial to shareholders because they tend to increase returns to the remaining shareholders.
H. | Reductions in Par Value |
AM policy is to vote “for” proposals to reduce par value, provided a legitimate business purpose is stated (e.g., the reduction of corporate tax responsibility.)
Rationale: Usually, adjustments to par value are a routine financial decision with no substantial impact on shareholders.
III. | Corporate Governance Issues |
AM policy is to vote “for” proposals to provide for confidential voting and independent tabulation of voting results and to vote “against” proposals to repeal such provisions.
Rationale: Confidential voting protects the privacy rights of all shareholders. This is particularly important for employee-shareholders or shareholders with business or other affiliations with the company, who may be vulnerable to coercion or retaliation when opposing management. Confidential voting does not interfere with the ability of corporations to communicate with all shareholders, nor does it prohibit shareholders from making their views known directly to management.
B. | Cumulative Voting (For U.S. Securities) |
AM policy is to vote “against” shareholder proposals requesting cumulative voting and “for”management proposals to eliminate it. The protections afforded shareholders by cumulative voting are not necessary when a company has a history of good performance and does not have a concentrated ownership interest. Accordingly, a vote is cast “against” cumulative voting and “for” proposals to eliminate it if:
a) | The company has a five year return on investment greater than the relevant industry index, |
b) | All directors and executive officers as a group beneficially own less than 10% of the outstanding stock, and |
c) | No shareholder (or voting block) beneficially owns 15% or more of the company. |
Thus, failure of any one of the three criteria results in a vote for cumulative voting in accordance with the general policy.
Rationale: Cumulative voting is a tool that should be used to ensure that holders of a significant number of shares may have board representation; however, the presence of other safeguards may make their use unnecessary.
C. | Supermajority Voting Requirements |
AM policy is to vote “against” management proposals to require a supermajority vote to amend the charter or bylaws and to vote “for” shareholder proposals to modify or rescind existing supermajority requirements.
*Exception made when company holds a controlling position and seeks to lower threshold to maintain control and/or make changes to corporate by-laws.
Rationale: Supermajority voting provisions violate the democratic principle that a simple majority should carry the vote. Setting supermajority requirements may make it difficult or impossible for shareholders to remove egregious by-law or charter provisions. Occasionally, a company with a significant insider held position might attempt to lower a supermajority threshold to make it easier for management to approve provisions that may be detrimental to shareholders. In that case, it may not be in the shareholders interests to lower the supermajority provision.
D. | Shareholder Right to Vote |
AM policy is to vote “against” proposals that restrict the right of shareholders to call special meetings, amend the bylaws, or act by written consent. Policy is to vote “for” proposals that remove such restrictions.
Rationale: Any reasonable means whereby shareholders can make their views known to management or effect the governance process should be supported.
Annual Incentive Plans or Bonus Plans are often submitted to shareholders for approval. These plans typically award cash to executives based on company performance. Deutsche Bank believes that the responsibility for executive compensation decisions rest with the board of directors and/or the compensation committee, and its policy is not to second-guess the board’s award of cash compensation amounts to executives unless a particular award or series of awards is deemed excessive. If stock options are awarded as part of these bonus or incentive plans, the provisions must meet Deutsche Bank’s criteria regarding stock option plans, or similar stock-based incentive compensation schemes, as set forth below.
A. | Establishment of a Remuneration Committee (For FFT Securities) |
AM policy is to vote “for” proposals that require the establishment of a remuneration committee.
Rationale: Corporations should disclose in each annual report or proxy statement their policies on remuneration. Essential details regarding executive remuneration including share options, long-term incentive plans and bonuses, should be disclosed in the annual report, so that investors can judge whether corporate pay policies and practices meet the standard.
The remuneration committee shall not comprise any board members and should be sensitive to the wider scene on executive pay. It should ensure that performance-based elements of executive pay are designed to align the interests of shareholders.
B. | Executive and Director Stock Option Plans |
AM policy is to vote “for” stock option plans that meet the following criteria:
(1) | The resulting dilution of existing shares is less than (a) 15 percent of outstanding shares for large capital corporations or (b) 20 percent of outstanding shares for small-mid capital companies (companies having a market capitalization under one billion U.S. dollars.) |
(2) | The transfer of equity resulting from granting options at less than FMV is no greater than 3% of the over-all market capitalization of large capital corporations, or 5% of market cap for small-mid capital companies. |
(3) | The plan does not contain express repricing provisions and, in the absence of an express statement that options will not be repriced; the company does not have a history of repricing options. |
(4) | The plan does not grant options on super-voting stock. |
AM will support performance-based option proposals as long as a) they do not mandate that all options granted by the company must be performance based, and b) only certain high-level executives are subject to receive the performance based options.
AM will support proposals to eliminate the payment of outside director pensions.
Rationale: Determining the cost to the company and to shareholders of stock-based incentive plans raises significant issues not encountered with cash-based compensation plans. These include the potential dilution of existing shareholders' voting power, the transfer of equity out of the company resulting from the grant and execution of options at less than FMV and the authority to reprice or replace underwater options. Our stock option plan analysis model seeks to allow reasonable levels of flexibility for a company yet still protect shareholders from the negative impact of excessive stock compensation. Acknowledging that small mid-capital corporations often rely more heavily on stock option plans as their main source of executive compensation and may not be able to compete with their large capital competitors with cash compensation, we provide slightly more flexibility for those companies.
C. | Employee Stock Option/Purchase Plans |
AM policy is to vote for employee stock purchase plans (ESPP's) when the plan complies with Internal Revenue Code 423, allowing non-management employees to purchase stock at 85% of FMV.
AM policy is to vote “for” employee stock option plans (ESOPs) provided they meet the standards for stock option plans in general. However, when computing dilution and transfer of equity, ESOPs are considered independently from executive and director option plans.
Rationale: ESOPs and ESPP’s encourage rank-and-file employees to acquire an ownership stake in the companies they work for and have been shown to promote employee loyalty and improve productivity.
AM policy is to vote “for” proposals to require shareholder approval of golden parachutes and for proposals that would limit golden parachutes to no more than three times base compensation. Policy is to vote “against” more restrictive shareholder proposals to limit golden parachutes.
Rationale: In setting a reasonable limitation, AM considers that an effective parachute should be less attractive than continued employment and that the IRS has opined that amounts greater than three times annual salary, are excessive.
E. | Proposals to Limit Benefits or Executive Compensation |
AM policy is to vote “against”
1. | Proposals to limit benefits, pensions or compensation and |
2. | Proposals that request or require disclosure of executive compensation greater than the disclosure required by Securities and Exchange Commission (SEC) regulations. |
Rationale: Levels of compensation and benefits are generally considered to be day-to-day operations of the company, and are best left unrestricted by arbitrary limitations proposed by shareholders.
AM policy is to support proposals requesting companies to expense stock options.
Rationale: Although companies can choose to expense options voluntarily, the Financial Accounting Standards Board (FASB) does not yet require it, instead allowing companies to disclose the theoretical value of options as a footnote. Because the expensing of stock options lowers earnings, most companies elect not to do so. Given the fact that options have become an integral component of compensation and their exercise results in a transfer of shareholder value, AM agrees that their value should not be ignored and treated as “no cost” compensation. The expensing of stock options would promote more modest and appropriate use of stock options in executive compensation plans and present a more accurate picture of company operational earnings.
G. | Management board election and motion (For FFT Securities) |
AM policy is to vote “against”:
• | the election of board members with positions on either remuneration or audit committees; |
• | the election of supervisory board members with too many supervisory board mandates; |
• | “automatic” election of former board members into the supervisory board. |
Rationale: Management as an entity, and each of its members, are responsible for all actions of the company, and are - subject to applicable laws and regulations - accountable to the shareholders as a whole for their actions.
Sufficient information should be disclosed in the annual company report and account to allow shareholders to judge the success of the company.
H. | Remuneration (variable pay): (For FFT Securities) |
Executive remuneration for Management Board
AM policy is to vote “for” remuneration for Management Board that is transparent and linked to results.
Rationale: Executive compensation should motivate management and align the interests of management with the shareholders. The focus should be on criteria that prevent excessive remuneration; but enable the company to hire and retain first-class professionals.
Shareholder interests are normally best served when management is remunerated to optimise long-term returns. Criteria should include suitable measurements like return on capital employed or economic value added.
Interests should generally also be correctly aligned when management own shares in the company – even more so if these shares represent a substantial portion of their own wealth.
Its disclosure shall differentiate between fixed pay, variable (performance related) pay and long-term incentives, including stock option plans with valuation ranges as well as pension and any other significant arrangements.
Executive remuneration for Supervisory Board
AM policy is to vote “for” remuneration for Supervisory Board that is at least 50% in fixed form.
Rationale: It would normally be preferable if performance linked compensation were not based on dividend payments, but linked to suitable result based parameters. Consulting and procurement services should also be published in the company report.
I. | Long-term incentive plans (For FFT Securities) |
AM policy is to vote “for” long-term incentive plans for members of a management board that reward for above average company performance.
Rationale: Incentive plans will normally be supported if they:
• | directly align the interests of members of management boards with those of shareholders; |
• | establish challenging performance criteria to reward only above average performance; |
• | measure performance by total shareholder return in relation to the market or a range of comparable companies; |
• | are long-term in nature and encourage long-term ownership of the shares once exercised through minimum holding periods; |
• | do not allow a repricing of the exercise price in stock option plans. |
J. | Shareholder Proposals Concerning “Pay for Superior Performance” |
AM policy is to address pay for superior performance proposals on a case-by-case basis, incorporating the recommendation of an independent third party proxy research firm (currently ISS) subject to review by the GPVSC as set forth in AM’s Proxy Policies and Procedures.
Rationale: While AM agrees that compensation issues are better left to the discretion of management, they appreciate the need to monitor for excessive compensation practices on a case by case basis. If, after a review of the ISS metrics, AM is comfortable with ISS’s applying this calculation and will vote according to their recommendation.
K. | Executive Compensation Advisory |
AM policy is to follow management’s recommended vote on shareholder proposals to propose an advisory resolution seeking to ratify the compensation of the company’s named executive officers (NEOs) on an annual basis.
Rationale: AM believes that controls exist within senior management and corporate compensation committees, ensuring fair compensation to executives. This might allow shareholders to require approval for all levels of management’s compensation.
V. | Anti-Takeover Related Issues |
A. | Shareholder Rights Plans (“Poison Pills”) |
AM policy is to vote “for” proposals to require shareholder ratification of poison pills or that request boards to redeem poison pills, and to vote “against” the adoption of poison pills if they are submitted for shareholder ratification.
Rationale: Poison pills are the most prevalent form of corporate takeover defenses and can be (and usually are) adopted without shareholder review or consent. The potential cost of poison pills to shareholders during an attempted takeover outweighs the benefits.
AM policy is to examine reincorporation proposals on a case-by-case basis. The voting decision is based on: (1) differences in state law between the existing state of incorporation and the proposed state of incorporation; and (2) differences between the existing and the proposed charter/bylaws/articles of incorporation and their effect on shareholder rights. If changes resulting from the proposed reincorporation violate the corporate governance principles set forth in these guidelines, the reincorporation will be deemed contrary to shareholder’s interests and a vote cast “against.”
Rationale: Reincorporations can be properly analyzed only by looking at the advantages and disadvantages to their shareholders. Care must be taken that anti-takeover protection is not the sole or primary result of a proposed change.
AM policy is to vote “for” management fair-price proposals, provided that: (1) the proposal applies only to two-tier offers; (2) the proposal sets an objective fair-price test based on the highest price that the acquirer has paid for a company's shares; (3) the supermajority requirement for bids that fail the fair-price test is no higher than two-thirds of the outstanding shares; (4) the proposal contains no other anti-takeover provisions or provisions that restrict shareholders rights.
A vote is cast for shareholder proposals that would modify or repeal existing fair-price requirements that do not meet these standards.
Rationale: While fair price provisions may be used as anti-takeover devices, if adequate provisions are included, they provide some protection to shareholders who have some say in their application and the ability to reject those protections if desired.
D. | Exemption from state takeover laws |
AM policy is to vote “for” shareholder proposals to opt out of state takeover laws and to vote “against” management proposals requesting to opt out of state takeover laws.
Rationale: Control share statutes, enacted at the state level, may harm long-term share value by entrenching management. They also unfairly deny certain shares their inherent voting rights.
E. | Non-financial Effects of Takeover Bids |
Policy is to vote “against” shareholder proposals to require consideration of non-financial effects of merger or acquisition proposals.
Rationale: Non-financial effects may often be subjective and are secondary to AM’s stated purpose of acting in its client’s best economic interest.
VI. | Mergers & Acquisitions |
Evaluation of mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) are performed on a case-by-case basis incorporating information from an independent proxy research source (currently ISS.) Additional resources including portfolio management and research analysts may be considered as set forth in AM’s Policies and Procedures.
VII. | Social, Environmental & Political Issues |
Social and environmental issues are becoming increasingly important to corporate success. We incorporate social and environmental considerations into both our investment decisions and our proxy voting decisions – particularly if the financial performance of the company could be impacted.
With increasing frequency, shareholder proposals are submitted relating to social and political responsibility issues. Almost universally, the company management will recommend a vote “against” these proposals. These types of proposals cover an extremely wide range of issues. Many of the issues tend to be controversial and are subject to more than one reasonable, yet opposing, theory of support. More so than with other types of proxy proposals, social and political responsibility issues may not have a connection to the economic and corporate governance principles effecting shareholders’ interests. AM’s policy regarding social and political responsibility issues, as with any other issue, is designed to protect our client shareholders’ economic interests.
Occasionally, a distinction is made between a shareholder proposal requesting direct action on behalf of the board and a request for a report on (or disclosure of) some information. In order to avoid unduly burdening any company with reporting requirements, AM’s policy is to vote against shareholder proposals that demand additional disclosure or reporting than is required by the Securities and Exchange Commission unless it appears there is a legitimate issue and the company has not adequately addressed shareholders' concerns.
AM policy is to vote “against” adopting global codes of conduct or workplace standards exceeding those mandated by law.
Rationale: Additional requirements beyond those mandated by law are deemed unnecessary and potentially burdensome to companies
1. | AM policy is to vote “against” shareholder proposals to force equal employment opportunity, affirmative action or board diversity. |
Rationale: Compliance with State and Federal legislation along with information made available through filings with the EEOC provides sufficient assurance that companies act responsibly and make information public.
2. | AM policy is also to vote “against” proposals to adopt the Mac Bride Principles. The Mac Bride Principles promote fair employment, specifically regarding religious discrimination. |
Rationale: Compliance with the Fair Employment Act of 1989 makes adoption of the Mac Bride Principles redundant. Their adoption could potentially lead to charges of reverse discrimination.
1. | AM policy is to vote “against” adopting a pharmaceutical price restraint policy or reporting pricing policy changes. |
Rationale: Pricing is an integral part of business for pharmaceutical companies and should not be dictated by shareholders (particularly pursuant to an arbitrary formula.) Disclosing pricing policies may also jeopardize a company’s competitive position in the marketplace.
2. | AM policy is to vote “against” shareholder proposals to control the use or labeling of and reporting on genetically engineered products. |
Rationale: Additional requirements beyond those mandated by law are deemed unnecessary and potentially burdensome to companies.
1. | AM policy is to vote against shareholder proposals regarding the production or sale of military arms or nuclear or space-based weapons, including proposals seeking to dictate a company's interaction with a particular foreign country or agency. |
Rationale: Generally, management is in a better position to determine what products or industries a company can and should participate in. Regulation of the production or distribution of military supplies is, or should be, a matter of government policy.
2. | AM policy is to vote “against” shareholder proposals regarding political contributions and donations. |
Rationale: The Board of Directors and Management, not shareholders, should evaluate and determine the recipients of any contributions made by the company.
3. | AM policy is to vote “against” shareholder proposals regarding charitable contributions and donations. |
Rationale: The Board of Directors and Management, not shareholders, should evaluate and determine the recipients of any contributions made by the company.
1. | AM policy is to vote “against” shareholder proposals requesting additional standards or reporting requirements for tobacco companies as well as “against” requesting companies to report on the intentional manipulation of nicotine content. |
Rationale: Where a tobacco company’s actions meet the requirements of legal and industry standards, imposing additional burdens may detrimentally effect a company's ability to compete. The disclosure of nicotine content information could affect the company's rights in any pending or future litigation.
2. | Shareholder requests to spin-off or restructure tobacco businesses will be opposed. |
Rationale: These decisions are more appropriately left to the Board and management, and not to shareholder mandate.
VIII. | Environmental Issues |
AM policy is to follow management's recommended vote on CERES Principles or other similar environmental mandates (e.g., those relating to Greenhouse gas emissions or the use of nuclear power).
Rationale: Environmental issues are extensively regulated by outside agencies and compliance with additional requirements often involves significant cost to companies.
A. | Ratification of Auditors |
AM policy is to vote “for” a) the management recommended selection of auditors and b) proposals to require shareholder approval of auditors.
Rationale: Absent evidence that auditors have not performed their duties adequately, support for management’s nomination is warranted.
B. | Limitation of non-audit services provided by independent auditor |
AM policy is to support proposals limiting non-audit fees to 50% of the aggregate annual fees earned by the firm retained as a company's independent auditor.
Rationale: In the wake of financial reporting problems and alleged audit failures at a number of companies, AM supports the general principle that companies should retain separate firms for audit and consulting services to avoid potential conflicts of interest. However, given the protections afforded by the recently enacted Sarbanes-Oxley Act of 2002 (which requires Audit Committee pre-approval for non-audit services and prohibits auditors from providing specific types of services), and the fact that some non-audit services are legitimate audit-related services, complete separation of audit and consulting fees may not be warranted. A reasonable limitation is appropriate to help ensure auditor independence and it is reasonable to expect that audit fees exceed non-audit fees.
AM policy is to support proposals seeking audit firm rotation unless the rotation period sought is less than five years.
Rationale: While the Sarbanes-Oxley Act mandates that the lead audit partner be switched every five years, AM believes that rotation of the actual audit firm would provide an even stronger system of checks and balances on the audit function.
D. | Transaction of Other Business |
AM policy is to vote against “transaction of other business” proposals.
Rationale: This is a routine item to allow shareholders to raise other issues and discuss them at the meeting. As the nature of these issues may not be disclosed prior to the meeting, we recommend a vote against these proposals. This protects shareholders voting by proxy (and not physically present at a meeting) from having action taken at the meeting that they did not receive proper notification of or sufficient opportunity to consider.
E. | Motions to Adjourn the Meeting |
AM Policy is to vote against proposals to adjourn the meeting.
Rationale: Management may seek authority to adjourn the meeting if a favorable outcome is not secured. Shareholders should already have had enough information to make a decision. Once votes have been cast, there is no justification for management to continue spending time and money to press shareholders for support.
AM policy is to vote against bundled proposals if any bundled issue would require a vote against it if proposed individually.
Rationale: Shareholders should not be forced to “take the good with the bad” in cases where the proposals could reasonably have been submitted separately.
AM policy is to support management on proposals to change the company name.
Rationale: This is generally considered a business decision for a company.
H. | Proposals Related to the Annual Meeting |
AM Policy is to vote in favor of management for proposals related to the conduct of the annual meeting (meeting time, place, etc.)
Rationale: These are considered routine administrative proposals.
I. | Reimbursement of Expenses Incurred from Candidate Nomination |
AM policy is to follow management’s recommended vote on shareholder proposals related to the amending of company bylaws to provide for the reimbursement of reasonable expenses incurred in connection with nominating one or more candidates in a contested election of directors to the corporation’s board of directors.
Rationale: Corporations should not be liable for costs associated with shareholder proposals for directors.
J. | Investment Company Proxies |
Proxies solicited by investment companies are voted in accordance with the recommendations of an independent third party, currently ISS. However, regarding investment companies for which AM or an affiliate serves as investment adviser or principal underwriter, such proxies are voted in the same proportion as the vote of all other shareholders. Proxies solicited by master funds from feeder funds will be voted in accordance with applicable provisions of Section 12 of the Investment Company Act of 1940.
Investment companies, particularly closed-end investment companies, are different from traditional operating companies. These differences may call for differences in voting positions on the same matter. For example, AM could vote “for” staggered boards of closed-end investment companies, although AM generally votes “against” staggered boards for operating companies. Further, the manner in which AM votes investment company proxies may differ from proposals for which a AM-advised investment company solicits proxies from its shareholders. As reflected in the Guidelines, proxies solicited by closed-end (and open-end) investment companies are voted in accordance with the pre-determined guidelines of an independent third-party.
Subject to participation agreements with certain Exchange Traded Funds ("ETF") issuers that have received exemptive orders from the U.S. Securities and Exchange Commission allowing investing DWS funds to exceed the limits set forth in Section 12(d)(1)(A) and (B) of the Investment Company Act of 1940, DeAM will echo vote proxies for ETFs in which Deutsche Bank holds more than 25% of outstanding voting shares globally when required to do so by participation agreements and SEC orders.
Note: With respect to the QP Trust (not registered under the Investment Company Act of 1940), the Fund is not required to engage in echo voting and the investment adviser will use these Guidelines, and may determine, with respect to the QP Trust, to vote contrary to the positions in the Guidelines, consistent with the Fund’s best interest.
K. | International Proxy Voting |
The above guidelines pertain to issuers organized in the United States, Canada and Germany. Proxies solicited by other issuers are voted in accordance with international guidelines or the recommendation of ISS and in accordance with applicable law and regulation.
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ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Portfolio Manager Team Disclosure
The Fund is managed by a Team of investment professionals who collaborate to develop and implement the Fund’s investment strategy. Each Portfolio Manager on the Team has authority over all aspects of the Fund's investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio construction techniques, portfolio risk assessment, and the management of daily cash flows in accordance with portfolio holdings.
The following individuals handle the day-to-day management of the fund.
David N. Dreman
Chairman and Chief Investment Officer of Dreman Value Management, LLC and Lead Portfolio Manager of the fund.
| • | Began investment career in 1957. |
| • | Joined the fund team in 2006. |
| • | Founder, Dreman Value Management, LLC. |
F. James Hutchinson
President and Managing Director of Dreman Value Management, LLC and Portfolio Manager of the fund.
| • | Joined Dreman Value Management, LLC in 2000. |
| • | Began investment career in 1986. |
| • | Joined the fund team in 2006. |
| • | Prior to joining Dreman Value Management, LLC, 30 years of experience in finance and trust/investment management with The Bank of New York. |
E. Clifton Hoover, Jr.
Co-Chief Investment Officer and Managing Director of Dreman Value Management, LLC and Portfolio Manager of the fund.
| • | Joined Dreman Value Management, LLC in 2006. |
| • | Joined the fund team in 2007. |
| • | Prior to joining Dreman Value Management, LLC, Managing Director and Portfolio Manager at NFJ Investment Group. Has over 20 years of investment experience. |
Gary P. Herbert, CFA
Head of High Yield Group andManaging Director of Dreman Value Management, LLC and Portfolio Manager of the fund.
| • | Joined Dreman Value Management, LLC in 2007. |
| • | Began investment career in 1992. |
| • | Joined the fund team in 2008. |
| • | Prior to joining Dreman Value Management, LLC, Executive Director of the Investment Management Group and Portfolio Manager and Analyst at Morgan Stanley Investment Management and Miller, Anderson & Sherrerd. |
Compensation of Portfolio Managers:
The Funds have been advised that the subadvisor has implemented a highly competitive compensation plan which seeks to attract and retain exceptional investment professionals who have demonstrated that they can consistently outperform their respective fund’s benchmark. The compensation plan is comprised of both a fixed component and a variable component. The variable component is determined by assessing the investment professional’s performance by utilizing both quantitative and qualitative factors.
The sub-advisor’s investment professionals are each paid a fixed base salary that is determined based on their job function and responsibilities. The base salary is deemed to be competitive with the marketplace and specifically with salaries in the financial services industry by utilizing various salary surveys compiled for the financial services industry specifically investment advisory firms. The variable component of the subadvisor’s compensation plan which takes the form of a cash bonus combined with either, employee retention bonus units payable over time or outright stock grants is discretionary and is designed to reward and retain investment professionals including portfolio managers and research analysts for their contributions to the Fund’s performance relative to its benchmark. Additionally, employees are eligible for a profit sharing plan.
Investment professionals may receive equity in the form of units or fractional units of membership interest in the subadvisor or they may receive employee retention bonus units which enable them to participate in the growth of the firm. Investment professionals also participate in the subadvisor’s profit sharing plan, a defined contribution plan that allows the subadvisor to contribute up to twenty percent of an employee’s total compensation, subject to various regulatory limitations, to each employee’s profit sharing account. The subadvisor’s profit sharing plan is a qualified plan which benefits employees of the firm including both portfolio managers and research analysts. Contributions to the subadvisor’s profit sharing plan vest over a specified term. Finally all employees of the subadvisor including
investment professionals receive additional fringe benefits in the form of subsidized medical, dental, group-term, and life insurance coverage.
The basis for determining the variable component of an investment professional’s total compensation is determined through a subjective process which evaluates an investment professional performance against several quantitative and qualitative factors including the following:
Quantitative factors:
| (i) | Relative ranking of the Fund’s performance against its peers in the one, three and five year pre-tax investment performance categories. The Fund’s performance is evaluated against peers in its fund category and performance is ranked from one to four on a declining scale depending on the quartile in which the portfolio manager’s absolute performance falls. The portfolio manager is rewarded on a graduated scale for outperforming relative to his peers. |
| (ii) | Relative performance of the Fund’s performance against the pre-determined indices for the product strategy against which the Fund’s performance is measured. The portfolio manager is rewarded on a graduated scale for outperforming relative to the fund’s benchmark index. |
| (iii) | Performance of the Fund’s portfolio measured through attribution analysis models which analyzes the portfolio manager’s contribution from both an asset allocation or sector allocation perspective and security selection perspective. This factor evaluates how the investment professional performs in linking performance with the client’s investment objective including investment parameters and risk and return objectives. This factor may include some qualitative characteristics. |
Qualitative factors:
| (i) | Ability to work well with other members of the investment professional team and mentor junior members |
| (ii) | Contributions to the organizational overall success with new product strategies |
| (iii) | Other factors such as contributing to the team in a leadership role and by being responsive to requests for assistance |
The following table identifies the fund’s portfolio manager(s); their role in managing the portfolio; their length of investment experience and business experience over the last five years.
Fund Ownership of Portfolio Managers:
The following table shows the dollar range of shares owned beneficially and of record by each member of the Fund’s portfolio management team in the Fund as well as in all Scudder Funds as a group (i.e. those funds advised by Deutsche Asset Management or its affiliates), including investments by their immediate family members sharing the same household and amounts invested through retirement and deferred compensation plans. This information is provided as of September 30th, 2008.
Name of Portfolio Manager | | Dollar Range of Fund Shares Owned | | Dollar Range of DWS Scudder Fund Shares Owned |
David N. Dreman | | None | | Over $1 million |
F. James Hutchinson | | None | | None |
E. Clifton Hoover, Jr. | | None | | None |
Gary P. Herbert | | None | | None |
Conflicts of Interest:
In addition to managing the assets of the Fund, the portfolio manager may manage other client accounts of the subadvisor. The tables below show, for each portfolio manager, the number and asset size of (1) SEC registered investment companies other than the Fund, (2) pooled investment vehicles that are not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed by each portfolio manager. The tables also show the number of performance based fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the performance of the account. This information is provided as of the Fund's most recent fiscal year end.
Other SEC Registered Investment Companies Managed:
Name of Portfolio Manager | Number of Registered Investment Companies | Total Assets of Registered Investment Companies | Number of Investment Company Accounts with Performance Based Fee | Total Assets of Performance Based Fee Accounts |
David N. Dreman | 18 | $9,433,000,000 | None | None |
F. James Hutchinson | 8 | $2,960,000,000 | None | None |
E. Clifton Hoover, Jr. | 14 | $9,231,000,000 | None | None |
Gary P. Herbert | 1 | $562,000,000 | None | None |
Other Pooled Investment Vehicles Managed:
Name of Portfolio Manager | Number of Pooled Investment Vehicles | Total Assets of Pooled Investment Vehicles | Number of Pooled Investment Vehicles with Performance Based Fee | Total Assets of Performance Based Fee Accounts |
David N. Dreman | 7 | $210,000,000 | 4 | $34,000,000 |
F. James Hutchinson | None | None | None | None |
E. Clifton Hoover, Jr. | None | None | None | None |
Gar P. Herbert | None | None | None | None |
Other Accounts Managed:
Name of Portfolio Manager | Number of Other Accounts | Total Assets of Other Accounts | Number of Other Accounts with Performance Based Fee | Total Assets of Performance Based Fee Accounts |
David N. Dreman | 167 | $1,571,000,000 | None | None |
F. James Hutchinson | None | None | None | None |
E. Clifton Hoover, Jr. | 148 | $1,414,000,000 | None | None |
Gary P. Herbert | None | None | None | None |
The subadvisor manages clients’ accounts using a contrarian value investment strategy. For both its large capitalization and small capitalization strategies the subadvisor utilizes a model portfolio and rebalances client’s
accounts whenever changes are made to the model portfolio. In addition the subadvisor aggregates its trades and allocates the trades to all clients’ accounts in an equitable manner. The subadvisor strongly believes aggregating its orders protect all clients from being disadvantaged by price or time execution. The model portfolio approach and the trade aggregation policy of the subadvisor seek to eliminate conflicts of interest that could arise when a portfolio manager has day-to-day portfolio management responsibilities with respect to more than one fund or account. The subadvisor does not receive any performance-based fees from any of its accounts with the exception of hedge funds that are managed by an affiliated firm. The hedge funds are treated like all other client accounts and trades done for the fund are generally aggregated with trades done for its other client accounts.
The subadvisor’s investment professionals are compensated in the same manner for all client accounts irrespective of the type of account.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
| (a) | (b) | (c) | (d) |
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or
Programs *, ** |
Period |
|
|
| | | | |
October 1 through October 31 | 55,000 | $15.32 | 55,000 | 2,536,521 |
November 1 through November 30 | 45,000 | $14.16 | 45,000 | 2,491,521 |
December 1 through December 31 | 50,000 | $13.98 | 50,000 | 2,441,521 |
January 1 through January 31 | 15,000 | $13.74 | 15,000 | 2,426,521 |
February 1 through February 28 | 0 | n/a | 0 | 2,426,521 |
March 1 through March 31 | 0 | n/a | 0 | 2,426,521 |
April 1 through April 30 | 0 | n/a | 0 | 2,426,521 |
May 1 through May 31 | 0 | n/a | 0 | 2,426,521 |
June 1 through June 30 | 0 | n/a | 0 | 2,426,521 |
July 1 through July 31 | 0 | n/a | 0 | 2,426,521 |
August 1 through August 31 | 0 | n/a | 0 | 2,426,521 |
September 1 through September 30 | 0 | n/a | 0 | 2,607,021 |
| | | | |
Total | 165,000 | $14.45 | 165,000 | n/a |
| | | | |
* Pursuant to the fund's open market stock repurchase program, the fund was authorized to purchase, at management's discretion, an aggregate of up to 5% (2,616,521) of the fund's outstanding common shares in open market transactions over a 12-month period. The Board approved the repurchase program on August 17, 2007, with notice of the program being sent to fund shareholders on August 27, 2007. The program expired on August 31, 2008. |
| | | | |
** Effective December 1, 2008, pursuant to the fund's open market stock repurchase program, the fund is authorized to purchase, at management's discretion, an aggregate of up to 5% (2,607,021) of the fund's outstanding common shares in open market transactions over a 12-month period. The Board approved the repurchase program on September 19, 2008, with notice of the program being sent to fund shareholders on November 28, 2008. The program will expire on November 30, 2009. |
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
| |
| The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Chairman of the Board, P.O. Box 100176, Cape Coral, FL 33910. |
| |
ITEM 11. | CONTROLS AND PROCEDURES |
| |
| (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. |
| |
| (b) There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
| |
ITEM 12. | EXHIBITS |
| |
| (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
| |
| (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. |
| |
| (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.
DWS Micro Cap Fund, a series of DWS Advisor Funds
DWS Mid Cap Growth Fund, a series of DWS Advisor Funds
DWS Short Duration Plus Fund, a series of DWS Advisor Funds
DWS Small Cap Growth Fund, a series of DWS Advisor Funds
DWS Dreman Value Income Edge Fund, Inc.
DWS High Income Fund, a series of DWS High Income Series
DWS GNMA Fund, a series of DWS Income Trust
DWS Inflation Protected Plus Fund, a series of DWS Institutional Funds
DWS Capital Growth Fund, a series of DWS Investment Trust
DWS Growth & Income Fund, a series of DWS Investment Trust
DWS Small Cap Core Fund, a series of DWS Investment Trust
Tax-Exempt California Money Market Fund
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.
President
Chief Financial Officer and Treasurer
