UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-04760 |
DWS Advisor Funds
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
(Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
Date of fiscal year end: | 10/31 |
Date of reporting period: | 10/31/06 |
ITEM 1. REPORT TO STOCKHOLDERS
OCTOBER 31, 2006
Annual Report
to Shareholders
DWS High Income Plus Fund
Contents
Click Here Performance Summary
Click Here Information About Your Fund's Expenses
Click Here Portfolio Management Review
Click Here Portfolio Summary
Click Here Investment Portfolio
Click Here Financial Statements
Click Here Financial Highlights
Click Here Notes to Financial Statements
Click Here Report of Independent Registered Public Accounting Firm
Click Here Tax Information
Click Here Other Information
Click Here Investment Management Agreement Approval
Click Here Trustees and Officers
Click Here Account Management Resources
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. The fund invests in individual bonds whose yields and market values fluctuate, so that your investment may be worth more or less than its original cost. Bond investments are subject to interest-rate risk such that when interest rates rise, the prices of the bonds, and thus the value of the bond fund, can decline and the investor can lose principal value. Additionally, investing in foreign securities and emerging markets presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. The fund may invest in lower-quality and nonrated securities, which present greater risk of loss of principal and interest than higher-quality securities. Derivatives could produce disproportionate losses due to a variety of factors, including the unwillingness or inability of the counterparty to meet its obligations or unexpected price or interest-rate movements. All of these factors may result in greater share price volatility. Please read the prospectus for specific details regarding the fund's risk profile.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Asset Management, Inc., 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 October 31, 2006
Classes A, B, C and Institutional
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-scudder.com for the Fund's most recent month-end performance.
The maximum sales charge for Class A shares is 4.5%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had. Institutional Class shares are not subject to sales charges.
To discourage short-term trading, the Fund imposes a 2% redemption fee on shareholders redeeming shares held less than 60 days, which has the effect of lowering total return.
Returns and rankings during all periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
On July 10, 2006, the fund was reorganized from DWS High Income Plus Fund, a series of DWS Investments Trust (the "Predecessor Fund"), into DWS High Income Plus Fund, a newly created series of the DWS Advisor Funds. This change in the legal entity had no economic impact relative to accounting or tax. Performance shown prior to July 10, 2006 is derived from the historical performance of the Predecessor Fund.
Returns shown for Class A, B and C shares for the periods prior to their inception on May 16, 2005, are derived from the historical performance of the Institutional Class shares of DWS High Income Plus Fund during such periods and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any difference in expenses will affect performance.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 10/31/06 | ||||
DWS High Income Plus Fund | 1-Year | 3-Year | 5-Year | Life of Fund* |
Class A | 9.38% | 9.22% | 10.03% | 6.76% |
Class B | 8.48% | 8.37% | 9.18% | 5.94% |
Class C | 8.50% | 8.36% | 9.17% | 5.92% |
Institutional Class | 9.74% | 9.59% | 10.44% | 7.18% |
Credit Suisse High Yield Index+ | 10.29% | 8.86% | 11.13% | 6.07% |
Sources: Lipper Inc. and Deutsche Asset Management, Inc.
* The Institutional Class commenced operations on March 16, 1998. Index returns began on March 31, 1998.
Net Asset Value and Distribution Information | ||||
| Class A | Class B | Class C | Institutional Class |
Net Asset Value: 10/31/06 | $ 7.67 | $ 7.67 | $ 7.67 | $ 7.67 |
10/31/05 | $ 7.58 | $ 7.58 | $ 7.58 | $ 7.58 |
Distribution Information: Twelve Months: Income Dividends as of 10/31/06 | $ .59 | $ .53 | $ .53 | $ .62 |
October Income Dividend | $ .0483 | $ .0426 | $ .0431 | $ .0510 |
SEC 30-day Yield++ as of 10/31/06 | 7.10% | 6.59% | 6.66% | 7.84% |
Current Annualized Distribution Rate++ as of 10/31/06 | 7.41% | 6.54% | 6.62% | 7.83% |
++ The SEC yield is net investment income per share earned over the month ended October 31, 2006, shown as an annualized percentage of the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. The SEC yields would have been 6.93%, 6.40%, 6.48% and 7.60% for Class A, B, C and Institutional Class, respectively, had certain expenses not been reduced. Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on October 31, 2006. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The current annualized distribution rates would have been 7.24%, 6.35%, 6.44% and 7.59%, for Class A, B, C and Institutional Class, respectively, had certain expenses not been reduced. Yields and distribution rates are historical, not guaranteed and will fluctuate.
Institutional Class Lipper Rankings — High Current Yield Funds Category as of 10/31/06 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking (%) |
1-Year | 144 | of | 448 | 33 |
3-Year | 36 | of | 387 | 10 |
5-Year | 61 | of | 311 | 20 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return with distributions reinvested. Rankings are for Institutional Class shares; other share classes may vary.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] DWS High Income Plus Fund — Class A [] Credit Suisse High Yield Index+ |
Yearly periods ended October 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.5%. This results in a net initial investment of $9,550.
Comparative Results (Adjusted for Maximum Sales Charge) as of 10/31/06 | |||||
DWS High Income Plus Fund | 1-Year | 3-Year | 5-Year | Life of Fund* | |
Class A | Growth of $10,000 | $10,445 | $12,444 | $15,401 | $16,791 |
Average annual total return | 4.45% | 7.56% | 9.02% | 6.19% | |
Class B | Growth of $10,000 | $10,548 | $12,528 | $15,414 | $16,450 |
Average annual total return | 5.48% | 7.80% | 9.04% | 5.94% | |
Class C | Growth of $10,000 | $10,850 | $12,725 | $15,504 | $16,427 |
Average annual total return | 8.50% | 8.36% | 9.17% | 5.92% | |
Credit Suisse High Yield Index+ | Growth of $10,000 | $11,029 | $12,899 | $16,946 | $16,592 |
Average annual total return | 10.29% | 8.86% | 11.13% | 6.07% |
The growth of $10,000 is cumulative.
* Returns shown for Class A, B and C shares for the periods prior to their inception on May 16, 2005 are derived from the historical performance of the Institutional Class shares. The Institutional Class commenced operations on March 16, 1998. Index returns began on March 31, 1998.
+ Credit Suisse High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market. 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.
Growth of an Assumed $1,000,000 Investment |
[] DWS High Income Plus Fund — Institutional Class [] Credit Suisse High Yield Index+ |
Yearly periods ended October 31 |
Comparative Results as of 10/31/06 | |||||
DWS High Income Plus Fund | 1-Year | 3-Year | 5-Year | Life of Fund* | |
Institutional Class | Growth of $1,000,000 | $1,097,400 | $1,316,200 | $1,642,700 | $1,818,800 |
Average annual total return | 9.74% | 9.59% | 10.44% | 7.18% | |
Credit Suisse High Yield Index+ | Growth of $1,000,000 | $1,102,900 | $1,289,900 | $1,694,600 | $1,659,200 |
Average annual total return | 10.29% | 8.86% | 11.13% | 6.07% |
The growth of $1,000,000 is cumulative.
The minimum initial investment for Institutional Class shares is $1,000,000.
* The Fund commenced operations on March 16, 1998. Index returns began on March 31, 1998.
+ Credit Suisse High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market. 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.
Class S
Class S shares are no longer available to new investors except under certain circumstances. (Please refer to the Fund's Statement of Additional Information.)
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-scudder.com for the Fund's most recent month-end performance.
To discourage short-term trading, the Fund imposes a 2% redemption fee on shareholders redeeming shares held less than 60 days, which has the effect of lowering total return.
Returns and rankings during all periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemptions of fund shares. Returns and rankings may differ by share class.
On July 10, 2006, the fund was reorganized from DWS High Income Plus Fund, a series of DWS Investments Trust (the "Predecessor Fund"), into DWS High Income Plus Fund, a newly created series of the DWS Advisor Funds. This change in the legal entity had no economic impact relative to accounting or tax. Performance shown prior to July 10, 2006 is derived from the historical performance of the Predecessor Fund.
Returns shown for Class S shares prior to its inception on May 16, 2005 are derived from the historical performance of Institutional Class shares of DWS High Income Plus Fund during such periods and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any difference in expenses will affect performance.
Average Annual Total Returns as of 10/31/06 | ||||
DWS High Income Plus Fund | 1-Year | 3-Year | 5-Year | Life of Fund* |
Class S | 9.62% | 9.50% | 10.32% | 7.04% |
Credit Suisse High Yield Index+ | 10.29% | 8.86% | 11.13% | 6.07% |
Sources: Lipper Inc. and Deutsche Asset Management, Inc.
* The Institutional Class commenced operations on March 16, 1998. Index returns began on March 31, 1998.
Net Asset Value and Distribution Information | |
| Class S |
Net Asset Value: 10/31/06 | $ 7.67 |
10/31/05 | $ 7.58 |
Distribution Information: Twelve Months: Income Dividends as of 10/31/06 | $ .61 |
October Income Dividend | $ .0475 |
SEC 30-day Yield++ as of 10/31/06 | 7.64% |
Current Annualized Distribution Rate++ as of 10/31/06 | 7.29% |
++ The SEC yield is net investment income per share earned over the month ended October 31, 2006, shown as an annualized percentage of the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. The SEC yields would have been 7.46% for Class S, had certain expenses not been reduced. Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on October 31, 2006. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The current annualized distribution rates would have been 7.11% for Class S, had certain expenses not been reduced. Yields and distribution rates are historical, not guaranteed and will fluctuate.
Class S Lipper Rankings — High Current Yield Funds Category as of 10/31/06 | ||||
Period | Rank |
| Number of Funds Tracked | Percentile Ranking (%) |
1-Year | 158 | of | 448 | 36 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return with distributions reinvested. Rankings are for Class S shares; other share classes may vary.
Growth of an Assumed $10,000 Investment |
[] DWS High Income Plus Fund — Class S [] Credit Suisse High Yield Index+ |
Yearly periods ended October 31 |
Comparative Results as of 10/31/06 | |||||
DWS High Income Plus Fund | 1-Year | 3-Year | 5-Year | Life of Fund* | |
Class S | Growth of $10,000 | $10,962 | $13,130 | $16,338 | $17,991 |
Average annual total return | 9.62% | 9.50% | 10.32% | 7.04% | |
Credit Suisse High Yield Index+ | Growth of $10,000 | $11,029 | $12,899 | $16,946 | $16,592 |
Average annual total return | 10.29% | 8.86% | 11.13% | 6.07% |
The growth of $10,000 is cumulative.
* Returns shown for Class S shares for the periods prior to its inception on May 16, 2005 are derived from the historical performance of the Institutional Class shares. The Institutional Class commenced operations on March 16, 1998. Index returns began on March 31, 1998.
+ Credit Suisse High Yield Index is an unmanaged trader-priced portfolio constructed to mirror the global high-yield debt market. 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.
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in each Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (May 1, 2006 to October 31, 2006).
The tables illustrate your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended October 31, 2006 | |||||
Actual Fund Return | Class A | Class B | Class C | Class S | Institutional Class |
Beginning Account Value 5/1/06 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 10/31/06 | $ 1,040.70 | $ 1,036.40 | $ 1,036.50 | $ 1,041.60 | $ 1,042.60 |
Expenses Paid per $1,000* | $ 4.63 | $ 8.67 | $ 8.62 | $ 3.34 | $ 2.78 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Class S | Institutional Class |
Beginning Account Value 5/1/06 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 10/31/06 | $ 1,020.67 | $ 1,016.69 | $ 1,016.74 | $ 1,021.93 | $ 1,022.48 |
Expenses Paid per $1,000* | $ 4.58 | $ 8.59 | $ 8.54 | $ 3.31 | $ 2.75 |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A | Class B | Class C | Class S | Institutional Class |
DWS High Income Plus Fund | .90% | 1.69% | 1.68% | .65% | .54% |
For more information, please refer to the Fund's prospectus.
DWS High Income Plus Fund: A Team Approach to Investing
Deutsche Asset Management, Inc. ("DeAM, Inc." or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for DWS High Income Plus Fund. DeAM, Inc. provides a full range of investment advisory services to institutional and retail clients. DeAM, Inc. is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
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.
DeAM, Inc. 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.
Portfolio Manager
Gary Sullivan, CFA
Director of Deutsche Asset Management and Portfolio Manager of the fund.
Joined Deutsche Asset Management in 1996 and the fund in 2006. Served as the head of the High Yield group in Europe and as an Emerging Markets portfolio manager.
Prior to that, four years at Citicorp as a research analyst and structurer of collateralized mortgage obligations. Prior to Citicorp, served as an officer in the US Army from 1988 to 1991.
BS, United States Military Academy (West Point); MBA, New York University, Stern School of Business
In the following interview, Portfolio Manager Gary Sullivan discusses the DWS High Income Plus Fund's strategy and the market environment during the 12-month period ended October 31, 2006.
Q: How did the high-yield bond market perform during the period?
A: High-yield bonds delivered a strong return on both an absolute and a relative basis during the past year. The fund's benchmark, the Credit Suisse High Yield Index, returned 10.29% for the annual period. In comparison, the broader bond market — as measured by the Lehman Brothers Aggregate Bond Index — returned 5.19%.1
Although bouts of volatility periodically affected the performance of the high-yield market, the investment backdrop remained broadly positive. Economic growth, while appearing to moderate throughout the course of the year, remained on a solid footing. High-yield companies were able to maintain their sound financial positions as a result, and this was reflected in a continuation of the low default rate. As of October 31, 2006, Moody's 12-month rolling default rate stood at 1.71%, compared with 1.91% a year ago. Comparatively, the average default rate since 1986 is about 4.93%.2 The ratio of rating upgrades to downgrades also remained intact — another indication of the market's solid fundamentals.3 On the technical side, the high-yield asset category remained supported by the low level of supply coming into the market at a time when demand remained firm.
1 The Credit Suisse High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the global high-yield debt market. The Lehman Brothers Aggregate Bond Index represents US domestic taxable investment-grade bonds that include securities from the following sectors: US Treasuries, agencies, corporate bonds, mortgage-backed bonds and asset-backed securities. The index includes more than 5,500 publicly issued securities with a minimum one year to final maturity and $150 million par amount outstanding. The average maturity and duration of the index is in the intermediate range. Index returns assume reinvestment of dividends and, unlike fund returns, do not include fees or expenses. It is not possible to invest directly into an index.
2 Source: Moody's Investors Service.
3 Bond ratings are the alphabetical designations indicating the credit quality of a particular bond, as measured by the major agencies. Treasuries, which are backed by the government and therefore free of default risk, are ranked AAA. The riskiest bonds are generally rated CCC and below.
Taken together, these factors helped keep high-yield spreads at a relatively low level.4 Spreads touched near-historic lows in mid-May, but increased in subsequent months as US Treasuries embarked on a powerful rally and outperformed high-yield in the process. At the close of the period, the yield spread stood at 357 basis points (3.57 percentage points), lower than the 393 level of a year earlier.
4 The long-term historical spread-to-worst average is based upon the average monthly spread-to-worst of the Credit Suisse High-Yield Index from January 31, 1986 to October 31, 2006. The yield spread is the difference between the yield of a given fixed-income asset class and the yield on Treasuries. A large spread indicates that investors require yields substantially above those of Treasuries in order to invest in high-yield bonds. This is generally indicative of a higher-risk environment. A smaller spread generally indicates a more positive environment, since investors are less concerned about risk and therefore willing to accept lower yields.
5 Lipper's High Current Yield Funds category represents funds that aim at a high (relative) current yield from fixed-income securities, have no quality or maturity restrictions and tend to invest in lower-grade debt issues. The Class A shares of the fund ranked 186 of 448 funds for the one-year period as of October 31, 2006. Its Institutional shares ranked 144, 36 and 61 for the one-, three- and five-year periods. There were 448, 387 and 311 funds in Lipper's High Current Yield Funds category for the one-, three- and five-year periods. Performance includes the reinvestment of dividends and capital gains and is no guarantee of future results. Source: Lipper Inc. as of October 31, 2006. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper category.
Q: How did the fund perform?
A: The fund's Class A shares returned 9.38%, below the 10.29% return of the benchmark but ahead of the 9.18% average return of the 448 funds in its Lipper peer group, High Current Yield Funds category. (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results. Please see pages 4 through 10 for the performance of other share classes and more complete performance information.)
The fund's oldest share class, its Institutional shares, has outpaced the Lipper peer group over the one-, three- and five-year periods. It ranks in the top 10% of funds for the three-year period, and in the top 20% of funds over the five-year period.5
Q: What individual securities helped performance?
A: A strong contribution to relative performance came from the fund's security selection. In terms of individual securities, top contributors included General Motors Acceptance Corporation (GMAC), North Atlantic Trading Company and Charter Communications Holdings LLC. An overweight position in emerging market securities, such as Argentina, also helped relative performance.6
6 "Overweight" means the fund holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the fund holds a lower weighting.
GMAC's bonds outperformed largely due to the announcement, in April 2006, that the company's parent — General Motors — would sell a majority stake in the company. Closure of the sale is targeted for year-end, and we are maintaining an overweight position in GMAC based on our opinion that the bonds continue to offer good relative value. GMAC is one of the fund's largest positions, so the strong performance of its bonds had a meaningful impact on performance. The tobacco producer North Atlantic Trading Company reported improved operating results as a result of its decision to discontinue its planned launch of a new cigarette brand, an initiative that was pressuring the company's financial margins. The prospect of improving finances for the company helped lift its bond prices higher. Charter Communications Holdings LLC offered investors the chance to exchange some of their current bond holdings for new securities that would have a better position within the company's capital structure. Given our longer-term view that the Charter bonds the fund owns have a higher intrinsic value than the price that was offered in the exchange offer, we did not participate in this exchange. However, the exchange offer lifted the company's bond prices — benefiting the fund accordingly. Finally, emerging-market debt remained supported by robust investor demand, rising commodity prices and the strong economic fundamentals of many emerging countries. In particular, Argentina's sovereign bond price increased as a result of the recent debt restructuring and the overall political and economic stability within the country.
Q: What investments detracted from performance?
A: The fund's positions in Tembec Industries, Inc. and Georgia Pacific detracted from relative performance.* In addition, underweight positions in L-3 Communications Corp. and our non-holding of Federal-Mogul — two companies whose bonds outperformed the index — also dampened relative returns.
Tembec, a forest products/paper company, traded lower as cost pressures caused earnings to fall short of prior estimates. Additionally, the company's bonds traded further down in price as seasonal investment reduced the company's liquidity and contributed to negative press speculating about the potential for a future bankruptcy. We have since reduced the portfolio's exposure in Tembec to an underweight. Georgia Pacific, also a forest products/paper company, was acquired through a leveraged buy-out (LBO) at the end of 2005. This action led to an increase in the company's debt load.7 Georgia Pacific, originally an investment-grade company that was downgraded to non-investment grade, has been one of the fund's larger holdings for some time and has been a positive contributor to relative performance over past periods. Prior to the LBO, we believed the company was on course to regain its investment-grade status, but the LBO appeared to end the possibility of an upgrade in the near term.
* As of October 31, 2006, the position in Georgia Pacific was sold.
** As of October 31, 2006, the position in Global Crossing UK was sold.
7 A leveraged buyout, or LBO, is the takeover of a company using borrowed money. The target company's assets often serve as collateral.
L-3 Communications' bond prices increased following its decision to restructure its businesses in an effort to boost profit margins. However, we saw better risk-adjusted value in Global Crossing UK**, another company within the telecommunications industry, and this caused the fund to hold an underweight in L-3. As a result, we were not able to fully participate in the rally. Similarly, an underweight in Federal-Mogul, an auto parts supplier whose bonds rallied along with strength in the auto sector as a whole, detracted from relative performance.
Q: Outside of individual security selection, what factors helped and hurt performance?
A: Throughout the course of the year, we continued to take opportunities to position the fund in a more defensive manner. First, we allowed its average credit quality to drift higher. From a short-term perspective, this shift weighed on the fund's results because of the way performance was distributed among tiers during the past year. Lower-quality securities (CCC/split CCC/default) were the best-performing credit-quality segment for the period, returning 17.48%, followed by middle-tier (split BB/B/split B) and upper-tier securities (split BBB/BB), which returned 10.27% and 7.06%, respectively (as compared with the 10.29% for the overall asset class).
Second, given the flat yield curve, we believed that longer-maturity bonds did not offer the most attractive risk-adjusted relative value, and we therefore took opportunities to invest in shorter-maturity, more defensive bonds whenever possible.8 This strategy resulted in a shorter (lower) duration position versus the benchmark and helped performance during the earlier part of the period, when bond yields were rising, but it weighed on performance amidst the rally in longer-term debt during the end of the fiscal year.9
8 A "flat" yield curve occurs when longer-term bonds pay roughly the same yield as shorter-term bonds.
9 Duration is a measure of interest rate sensitivity. A portfolio with a longer, or higher, duration than the benchmark should outperform when bond prices are rising and yields falling. A portfolio with a shorter, or lower, duration should outperform when prices are falling and yields rising.
It is worth emphasizing that both of these strategies were implemented with a longer-term view in mind. Although the fundamentals of the high-yield market remain sound at the present time, it is likely that, over time, defaults will begin to rise from their record-low levels. As a result, we believe our shift to a more defensive posture will result in strong risk-adjusted returns over the long term.
Q: What is your view on the current state of the high-yield market?
A: While we remain positive on the fundamental backdrop of the high-yield market, it is possible that a "reversion to the mean" could occur in terms of the historically low levels of both default rates and yield spreads. As a result, we will continue to look for bonds with attractive risk-adjusted relative values. We will continue to look for stable credits where we can generate yield but at the same time minimize the potential of principal loss. Overall, we remain focused on adding value by emphasizing fundamental research and individual security analysis.
The views expressed in this report reflect those of the portfolio manager only through the end of the period of the report as stated on the cover. The manager'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.
Asset Allocation (Excludes Securities Lending Collateral) | 10/31/06 | 10/31/05 |
|
|
|
Corporate Bonds | 81% | 80% |
Foreign Bonds — US$ Denominated | 12% | 15% |
Cash Equivalents | 5% | 2% |
Foreign Bonds — Non US$ Denominated | 1% | 1% |
Other Investments | 1% | — |
Convertible Bonds | — | 1% |
US Treasury Obligations | — | 1% |
| 100% | 100% |
Corporate and Foreign Bonds Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 10/31/06 | 10/31/05 |
|
|
|
Consumer Discretionary | 26% | 24% |
Materials | 14% | 14% |
Financials | 13% | 14% |
Industrials | 11% | 15% |
Energy | 9% | 9% |
Utilities | 9% | 7% |
Telecommunication Services | 8% | 9% |
Information Technology | 4% | 3% |
Consumer Staples | 3% | 2% |
Health Care | 2% | 2% |
Sovereign Bonds | 1% | 1% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 10/31/06 | 10/31/05 |
|
|
|
A* | 2% | 4% |
BBB | 4% | 4% |
BB | 29% | 30% |
B | 49% | 48% |
CCC | 16% | 14% |
| 100% | 100% |
* Includes cash equivalents.
Asset allocation, corporate and foreign bonds diversification and quality are subject to change.
The quality ratings represent the lower of Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.
Effective Maturity | 10/31/06 | 10/31/05 |
|
|
|
Under 1 year | 12% | 6% |
1-4.99 years | 47% | 52% |
5-9.99 years | 32% | 31% |
10-14.99 years | 2% | 2% |
15 years or greater | 7% | 9% |
| 100% | 100% |
Weighted average effective maturity: 5.68 years and 6.06 years, respectively.
Effective maturity is subject to change.
For more complete details about the Fund's investment portfolio, see page 22. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to www.dws-scudder.com as of each calendar quarter-end on or after the last day of the following month. Please see the Account Management Resources 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. This form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio as of October 31, 2006
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 79.3% | ||
Consumer Discretionary 21.9% | ||
Affinia Group, Inc., 9.0%, 11/30/2014 | 1,114,000 | 1,058,300 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 1,663,000 | 1,594,401 |
American Achievement Corp., 8.25%, 4/1/2012 | 110,000 | 112,200 |
American Media Operations, Inc., Series B, 10.25%, 5/1/2009 | 450,000 | 427,500 |
Aztar Corp., 7.875%, 6/15/2014 | 2,314,000 | 2,490,442 |
Buffets, Inc., 144A, 12.5%, 11/1/2014 | 445,000 | 447,225 |
Cablevision Systems Corp., Series B, 9.87%**, 4/1/2009 | 349,000 | 365,578 |
Caesars Entertainment, Inc., 8.875%, 9/15/2008 | 750,000 | 780,937 |
Charter Communications Holdings LLC: |
|
|
8.625%, 4/1/2009 | 55,000 | 52,250 |
9.625%, 11/15/2009 | 50,000 | 47,500 |
10.25%, 9/15/2010 | 3,491,000 | 3,604,457 |
Series B, 10.25%, 9/15/2010 | 1,005,000 | 1,035,150 |
11.0%, 10/1/2015 | 3,268,000 | 3,149,535 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 | 822,000 | 606,225 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 590,000 | 596,638 |
7.875%, 12/15/2007 | 1,920,000 | 1,946,400 |
Series B, 8.125%, 7/15/2009 | 210,000 | 216,563 |
Series B, 8.125%, 8/15/2009 | 215,000 | 221,719 |
Denny's Corp. Holdings, Inc., 10.0%, 10/1/2012 | 210,000 | 218,400 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 5,888,000 | 6,550,400 |
EchoStar DBS Corp.: |
|
|
6.625%, 10/1/2014 | 973,000 | 938,945 |
144A, 7.125%, 2/1/2016 | 735,000 | 718,463 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 220,000 | 210,100 |
Ford Motor Co., 7.45%, 7/16/2031 (b) | 665,000 | 521,194 |
French Lick Resorts & Casinos, 144A, 10.75%, 4/15/2014 | 3,365,000 | 3,095,800 |
General Motors Corp., 8.375%, 7/15/2033 (b) | 1,640,000 | 1,459,600 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 3,915,000 | 4,306,500 |
Gregg Appliances, Inc., 9.0%, 2/1/2013 | 375,000 | 346,406 |
Hanesbrands, Inc., 9.647%, 10/15/2007 | 1,000,000 | 1,009,750 |
Hertz Corp.: |
|
|
144A, 8.875%, 1/1/2014 (b) | 1,520,000 | 1,588,400 |
144A, 10.5%, 1/1/2016 | 360,000 | 395,100 |
ION Media Networks, Inc., 144A, 11.624%**, 1/15/2013 | 610,000 | 610,763 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 2,225,000 | 2,136,000 |
Jacobs Entertainment, Inc., 144A, 9.75%, 6/15/2014 | 1,175,000 | 1,166,187 |
Lear Corp.: |
|
|
Series B, 5.75%, 8/1/2014 | 45,000 | 37,688 |
Series B, 8.11%, 5/15/2009 (b) | 765,000 | 775,519 |
Levi Strauss & Co., 10.122%**, 4/1/2012 | 50,000 | 51,563 |
Liberty Media Corp.: |
|
|
5.7%, 5/15/2013 | 100,000 | 94,196 |
8.25%, 2/1/2030 | 800,000 | 786,053 |
8.5%, 7/15/2029 | 1,085,000 | 1,093,494 |
Linens 'n Things, Inc., 10.999%**, 1/15/2014 | 650,000 | 637,000 |
Mediacom Broadband LLC, 8.5%, 10/15/2015 | 45,000 | 44,944 |
Metaldyne Corp.: |
|
|
10.0%, 11/1/2013 | 520,000 | 533,000 |
11.0%, 6/15/2012 | 235,000 | 217,375 |
MGM MIRAGE: |
|
|
8.375%, 2/1/2011 | 585,000 | 607,669 |
9.75%, 6/1/2007 | 960,000 | 979,200 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 1,135,000 | 1,191,750 |
NCL Corp., 10.625%, 7/15/2014 | 235,000 | 229,125 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 1,725,000 | 1,427,437 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 1,369,000 | 1,440,872 |
Pokagon Gaming Authority, 144A, 10.375%, 6/15/2014 | 310,000 | 332,475 |
Premier Entertainment Biloxi LLC/Finance, 10.75%, 2/1/2012 | 4,120,000 | 4,181,800 |
PRIMEDIA, Inc.: |
|
|
8.875%, 5/15/2011 | 681,000 | 675,893 |
10.78%**, 5/15/2010 | 1,813,000 | 1,876,455 |
Resorts International Hotel & Casino, Inc., 11.5%, | 4,029,000 | 4,039,072 |
Sinclair Broadcast Group, Inc., 8.75%, 12/15/2011 | 2,750,000 | 2,870,312 |
Sirius Satellite Radio, Inc., 9.625%, 8/1/2013 (b) | 1,520,000 | 1,482,000 |
Six Flags, Inc., 9.75%, 4/15/2013 (b) | 1,990,000 | 1,840,750 |
Station Casinos, Inc., 6.5%, 2/1/2014 | 1,330,000 | 1,213,625 |
The Bon-Ton Department Stores, Inc., 10.25%, | 675,000 | 684,281 |
The Toy Bank, 9.643%, 7/19/2012 | 1,000,000 | 1,020,000 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 | 368,000 | 275,080 |
Trump Entertainment Resorts, Inc., 8.5%, | 3,935,000 | 3,851,381 |
TRW Automotive, Inc.: |
|
|
11.0%, 2/15/2013 | 2,892,000 | 3,173,970 |
11.75%, 2/15/2013 EUR | 484,000 | 694,945 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 2,685,000 | 2,829,319 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 452,000 | 462,170 |
XM Satellite Radio, Inc., 9.75%, 5/1/2014 (b) | 2,860,000 | 2,717,000 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 4,192,000 | 3,605,120 |
| 91,997,561 | |
Consumer Staples 2.9% | ||
Birds Eye Foods, Inc., 11.875%, 11/1/2008 | 1,939,000 | 1,939,000 |
Del Laboratories, Inc., 8.0%, 2/1/2012 (b) | 590,000 | 535,425 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 185,000 | 195,945 |
9.0%, 4/15/2031 | 2,965,000 | 3,478,503 |
Harry & David Holdings, Inc., 10.4%**, 3/1/2012 | 620,000 | 613,800 |
North Atlantic Trading Co., 9.25%, 3/1/2012 | 1,430,000 | 1,244,100 |
Swift & Co.: |
|
|
10.125%, 10/1/2009 | 385,000 | 396,550 |
12.5%, 1/1/2010 | 185,000 | 188,700 |
Viskase Co., Inc., 11.5%, 6/15/2011 | 3,445,000 | 3,445,000 |
| 12,037,023 | |
Energy 7.5% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 2,909,000 | 2,967,180 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 1,515,000 | 1,511,212 |
Chesapeake Energy Corp.: |
|
|
6.25%, 1/15/2018 | 720,000 | 682,200 |
6.875%, 1/15/2016 | 2,044,000 | 2,028,670 |
7.75%, 1/15/2015 | 275,000 | 283,250 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 1,775,000 | 1,646,312 |
Dynegy Holdings, Inc.: |
|
|
7.625%, 10/15/2026 | 1,764,000 | 1,640,520 |
8.375%, 5/1/2016 | 1,415,000 | 1,453,912 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 1,165,000 | 1,194,125 |
Encore Acquisition Co., 6.0%, 7/15/2015 | 310,000 | 282,875 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 475,000 | 469,063 |
NGC Corp., Series B, 8.316%, 6/1/2027 | 665,000 | 613,463 |
Plains Exploration & Production Co.: |
|
|
7.125%, 6/15/2014 | 1,033,000 | 1,107,893 |
Series B, 8.75%, 7/1/2012 | 1,010,000 | 1,073,125 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 415,000 | 392,175 |
Southern Natural Gas, 8.875%, 3/15/2010 | 2,423,000 | 2,545,345 |
Stone Energy Corp.: |
|
|
6.75%, 12/15/2014 | 2,315,000 | 2,210,825 |
144A, 8.124%**, 7/15/2010 | 1,960,000 | 1,947,750 |
Transmeridian Exploration, Inc., 12.0%, 12/15/2010 | 820,000 | 811,800 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 | 4,065,000 | 4,359,712 |
8.75%, 3/15/2032 | 1,827,000 | 2,027,970 |
| 31,249,377 | |
Financials 10.4% | ||
ACE Cash Express, Inc., 144A, 10.25%, 10/1/2014 | 220,000 | 221,100 |
Alamosa Delaware, Inc., 11.0%, 7/31/2010 | 900,000 | 982,125 |
Ashton Woods USA LLC, 9.5%, 10/1/2015 | 1,685,000 | 1,444,887 |
E*TRADE Financial Corp.: |
|
|
7.375%, 9/15/2013 | 550,000 | 565,125 |
7.875%, 12/1/2015 | 410,000 | 433,575 |
8.0%, 6/15/2011 | 972,000 | 1,008,450 |
Eaton Vance Corp., CDO II, Series C-X, 13.68%, 7/15/2012* | 2,325,520 | 0 |
Ford Motor Credit Co.: |
|
|
7.25%, 10/25/2011 | 4,350,000 | 4,114,213 |
7.375%, 10/28/2009 | 8,370,000 | 8,147,124 |
7.875%, 6/15/2010 | 2,120,000 | 2,068,726 |
GMAC LLC: |
|
|
6.875%, 9/15/2011 | 9,220,000 | 9,283,286 |
8.0%, 11/1/2031 (b) | 4,040,000 | 4,328,739 |
Hexion US Finance Corp., 144A, 9.75%, 11/15/2014 | 445,000 | 443,887 |
iPayment, Inc., 144A, 9.75%, 5/15/2014 | 585,000 | 601,087 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 | 2,040,000 | 2,126,700 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 | 2,312,000 | 2,528,750 |
TIG Holdings, Inc., 144A, 8.597%, 1/15/2027 | 1,760,000 | 1,364,000 |
Triad Acquisition Corp., Series B, 11.125%, 5/1/2013 | 900,000 | 837,000 |
Universal City Development, 11.75%, 4/1/2010 | 2,780,000 | 2,995,450 |
| 43,494,224 | |
Health Care 1.1% | ||
HCA, Inc., 6.5%, 2/15/2016 (b) | 595,000 | 471,537 |
HEALTHSOUTH Corp.: |
|
|
144A, 10.75%, 6/15/2016 | 1,365,000 | 1,399,125 |
144A, 11.418%**, 6/15/2014 | 205,000 | 209,613 |
Tenet Healthcare Corp., 9.25%, 2/1/2015 | 2,827,000 | 2,682,116 |
| 4,762,391 | |
Industrials 8.7% | ||
AAC Group Holding Corp., 144A, 12.75%, 10/1/2012 (PIK) | 529,688 | 557,497 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 950,000 | 954,750 |
Allied Waste North America, Inc., Series B, 9.25%, 9/1/2012 | 2,153,000 | 2,290,254 |
American Color Graphics, 10.0%, 6/15/2010 | 1,055,000 | 680,475 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 1,762,000 | 1,621,040 |
9.25%, 5/1/2021 | 913,000 | 958,650 |
Case New Holland, Inc., 9.25%, 8/1/2011 | 2,520,000 | 2,674,350 |
Cenveo Corp., 7.875%, 12/1/2013 | 1,877,000 | 1,773,765 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 | 1,932,000 | 1,970,640 |
Congoleum Corp., 8.625%, 8/1/2008* | 1,188,000 | 1,176,120 |
CPG International I, Inc.: |
|
|
10.5%, 7/1/2013 | 1,880,000 | 1,917,600 |
12.39%**, 7/1/2012 | 640,000 | 652,800 |
DRS Technologies, Inc.: |
|
|
6.625%, 2/1/2016 | 230,000 | 227,700 |
7.625%, 2/1/2018 | 1,345,000 | 1,375,262 |
Education Management LLC, 144A, 8.75%, 6/1/2014 | 540,000 | 553,500 |
Iron Mountain, Inc., 8.75%, 7/15/2018 | 415,000 | 437,825 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 | 1,880,000 | 1,710,800 |
8.875%, 4/1/2012 (b) | 2,085,000 | 2,085,000 |
Kansas City Southern: |
|
|
7.5%, 6/15/2009 | 400,000 | 404,500 |
9.5%, 10/1/2008 | 2,989,000 | 3,142,186 |
Kinetek, Inc., Series D, 10.75%, 11/15/2006 | 2,622,000 | 2,622,000 |
Millennium America, Inc., 9.25%, 6/15/2008 | 851,000 | 876,530 |
Mobile Services Group, Inc., 144A, 9.75%, 8/1/2014 | 1,020,000 | 1,056,975 |
Panolam Industries International, Inc., 144A, 10.75%, 10/1/2013 | 335,000 | 341,700 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 205,000 | 228,063 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 532,000 | 518,700 |
The Brickman Group Ltd., Series B, 11.75%, 12/15/2009 | 1,564,000 | 1,665,660 |
Wesco Aircraft, 7.62%, 9/29/2013 | 250,000 | 251,797 |
Xerox Corp., 6.4%, 3/15/2016 | 1,220,000 | 1,223,050 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 380,000 | 388,075 |
| 36,337,264 | |
Information Technology 3.6% | ||
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 2,385,000 | 2,307,488 |
Series B, 6.375%, 10/15/2015 | 835,000 | 822,475 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 3,584,000 | 3,207,680 |
Sanmina-SCI Corp., 8.125%, 3/1/2016 (b) | 1,555,000 | 1,529,731 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 1,960,000 | 2,053,100 |
UGS Corp., 10.0%, 6/1/2012 | 1,837,000 | 1,983,960 |
Unisys Corp., 7.875%, 4/1/2008 | 3,275,000 | 3,275,000 |
| 15,179,434 | |
Materials 10.3% | ||
ARCO Chemical Co., 9.8%, 2/1/2020 | 5,307,000 | 5,996,910 |
Associated Materials, Inc., Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 545,000 | 320,188 |
Chemtura Corp., 6.875%, 6/1/2016 | 1,045,000 | 1,021,487 |
Constar International, Inc., 11.0%, 12/1/2012 | 265,000 | 237,838 |
Crystal US Holdings, Series A, Step-up Coupon, 0% to 10/1/2009, 10.0% to 10/1/2014 | 1,225,000 | 1,028,999 |
Dayton Superior Corp.: |
|
|
10.75%, 9/15/2008 | 378,000 | 391,230 |
13.0%, 6/15/2009 | 645,000 | 645,000 |
Equistar Chemical Funding, 10.625%, 5/1/2011 | 1,270,000 | 1,358,900 |
Exopac Holding Corp., 144A, 11.25%, 2/1/2014 | 1,805,000 | 1,890,737 |
GEO Specialty Chemicals, Inc., 144A, 13.866%**, 12/31/2009 | 3,005,000 | 2,479,125 |
Greif, Inc., 8.875%, 8/1/2012 | 945,000 | 992,250 |
Hexcel Corp., 6.75%, 2/1/2015 | 1,980,000 | 1,920,600 |
Huntsman LLC, 11.625%, 10/15/2010 | 2,810,000 | 3,098,025 |
International Coal Group, Inc., 144A, 10.25%, 7/15/2014 | 735,000 | 714,788 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 1,265,000 | 961,400 |
Lyondell Chemical Co., 10.5%, 6/1/2013 | 365,000 | 401,500 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 3,135,000 | 3,103,650 |
6.875%, 12/15/2013 | 770,000 | 721,875 |
Mueller Holdings, Inc., Step-up Coupon, 0% to 4/15/2009, 14.75% to 4/15/2014 | 2,801,000 | 2,464,880 |
Neenah Foundry Co.: |
|
|
144A, 11.0%, 9/30/2010 | 3,280,000 | 3,604,490 |
144A, 13.0%, 9/30/2013 | 929,254 | 931,577 |
OM Group, Inc., 9.25%, 12/15/2011 | 780,000 | 813,150 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 2,952,000 | 3,169,710 |
Oxford Automotive, Inc., 144A, 12.0%, 10/15/2010* | 1,740,470 | 26,107 |
Pliant Corp., 11.625%, 6/15/2009 (PIK) | 5 | 6 |
Radnor Holdings Corp., 11.0%, 3/15/2010* | 290,000 | 32,625 |
Rockwood Specialties Group, Inc., 10.625%, 5/15/2011 | 432,000 | 463,320 |
TriMas Corp., 9.875%, 6/15/2012 | 1,468,000 | 1,383,590 |
United States Steel Corp., 9.75%, 5/15/2010 | 1,704,000 | 1,812,630 |
Witco Corp., 6.875%, 2/1/2026 | 435,000 | 384,975 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 (b) | 960,000 | 835,200 |
| 43,206,762 | |
Telecommunication Services 4.6% | ||
Centennial Communications Corp., 10.0%, 1/1/2013 | 840,000 | 871,500 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 (b) | 2,409,000 | 2,481,270 |
8.375%, 1/15/2014 | 1,698,000 | 1,731,960 |
Dobson Cellular Systems, 9.875%, 11/1/2012 | 840,000 | 907,200 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 800,000 | 800,000 |
Insight Midwest LP, 9.75%, 10/1/2009 | 275,000 | 279,813 |
Intelsat Corp., 144A, 9.0%, 6/15/2016 | 390,000 | 407,550 |
MetroPCS Wireless, Inc., 144A, 9.25%, 11/1/2014 | 840,000 | 847,350 |
Nextel Communications, Inc., Series D, 7.375%, 8/1/2015 | 4,750,000 | 4,905,353 |
Qwest Corp., 7.25%, 9/15/2025 | 1,580,000 | 1,572,100 |
Rural Cellular Corp., 9.875%, 2/1/2010 | 1,000,000 | 1,050,000 |
SunCom Wireless Holdings, Inc., 8.5%, 6/1/2013 (b) | 1,207,000 | 1,146,650 |
Ubiquitel Operating Co., 9.875%, 3/1/2011 | 651,000 | 704,707 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 1,249,000 | 1,373,900 |
Windstream Corp., 144A, 8.625%, 8/1/2016 | 50,000 | 53,938 |
| 19,133,291 | |
Utilities 8.3% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 6,378,000 | 6,848,377 |
Allegheny Energy Supply Co. LLC, 144A, 8.25%, 4/15/2012 | 4,219,000 | 4,588,162 |
CMS Energy Corp., 8.5%, 4/15/2011 | 3,740,000 | 4,057,900 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 415,000 | 420,188 |
Mirant North America LLC, 7.375%, 12/31/2013 | 405,000 | 409,556 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 5,280,000 | 5,887,200 |
NRG Energy, Inc.: |
|
|
7.25%, 2/1/2014 | 1,765,000 | 1,784,856 |
7.375%, 2/1/2016 | 3,635,000 | 3,675,894 |
Peabody Energy Corp., 7.375%, 11/1/2016 | 445,000 | 462,800 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 4,415,000 | 4,834,425 |
Sierra Pacific Resources: |
|
|
6.75%, 8/15/2017 | 1,255,000 | 1,263,613 |
8.625%, 3/15/2014 | 665,000 | 720,643 |
| 34,953,614 | |
Total Corporate Bonds (Cost $332,852,384) | 332,350,941 | |
| ||
Foreign Bonds — US$ Denominated 12.2% | ||
Consumer Discretionary 1.7% | ||
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 2,930,000 | 3,146,087 |
Shaw Communications, Inc., 8.25%, 4/11/2010 | 681,000 | 717,604 |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 2,863,000 | 2,573,121 |
Unity Media GmbH, 144A, 10.375%, 2/15/2015 | 395,000 | 373,275 |
Vitro, SA de CV, Series A, 11.75%, 11/1/2013 | 260,000 | 274,950 |
| 7,085,037 | |
Energy 1.0% | ||
Gaz Capital SA, 144A, 8.625%, 4/28/2034 | 565,000 | 718,963 |
OAO Gazprom, 144A, 9.625%, 3/1/2013 (b) | 2,180,000 | 2,588,750 |
Secunda International Ltd., 13.374%**, 9/1/2012 | 920,000 | 952,200 |
| 4,259,913 | |
Financials 1.6% | ||
Conproca SA de CV, Series REG S, 12.0%, 6/16/2010 | 2,900,000 | 3,349,500 |
Doral Financial Corp., 6.204%**, 7/20/2007 | 2,335,000 | 2,154,624 |
Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012 | 660,000 | 590,700 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 650,000 | 481,812 |
| 6,576,636 | |
Health Care 0.6% | ||
Biovail Corp., 7.875%, 4/1/2010 | 2,550,000 | 2,556,375 |
Industrials 1.4% | ||
Grupo Transportacion Ferroviaria Mexicana SA de CV: |
|
|
9.375%, 5/1/2012 | 1,360,000 | 1,451,800 |
10.25%, 6/15/2007 | 2,826,000 | 2,886,053 |
12.5%, 6/15/2012 | 1,034,000 | 1,132,230 |
Stena AB, 9.625%, 12/1/2012 | 375,000 | 400,781 |
Supercanal Holding SA, Series REG S, 11.5%, 5/15/2005* | 464,000 | 46,400 |
| 5,917,264 | |
Information Technology 0.3% | ||
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 1,045,000 | 1,031,938 |
Materials 2.1% | ||
Cascades, Inc., 7.25%, 2/15/2013 | 2,081,000 | 2,039,380 |
ISPAT Inland ULC, 9.75%, 4/1/2014 | 2,071,000 | 2,319,520 |
Novelis, Inc., 144A, 7.25%, 2/15/2015 | 2,635,000 | 2,516,425 |
Rhodia SA: |
|
|
8.875%, 6/1/2011 | 656,000 | 688,800 |
10.25%, 6/1/2010 | 725,000 | 821,062 |
Tembec Industries, Inc., 8.625%, 6/30/2009 | 750,000 | 435,000 |
| 8,820,187 | |
Sovereign Bonds 0.4% | ||
Federative Republic of Brazil, 8.875%, 10/14/2019 | 690,000 | 834,210 |
Republic of Argentina, 5.59%**, 8/3/2012 (PIK) | 1,360,000 | 956,301 |
| 1,790,511 | |
Telecommunication Services 3.1% | ||
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 2,105,000 | 2,018,169 |
Embratel, Series B, 11.0%, 12/15/2008 | 244,000 | 268,400 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 279,000 | 262,260 |
Intelsat Bermuda Ltd., 144A, 11.25%, 6/15/2016 | 1,010,000 | 1,099,637 |
Intelsat Ltd., 5.25%, 11/1/2008 | 1,005,000 | 972,338 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 535,000 | 575,794 |
Mobifon Holdings BV, 12.5%, 7/31/2010 | 2,247,000 | 2,482,966 |
Nortel Networks Ltd.: |
|
|
144A, 9.624%**, 7/15/2011 | 2,080,000 | 2,147,600 |
144A, 10.125%, 7/15/2013 | 950,000 | 1,007,000 |
144A, 10.75%, 7/15/2016 | 770,000 | 823,900 |
Stratos Global Corp., 144A, 9.875%, 2/15/2013 | 1,270,000 | 1,143,000 |
| 12,801,064 | |
Total Foreign Bonds — US$ Denominated (Cost $50,314,544) | 50,838,925 | |
| ||
Foreign Bonds — Non US$ Denominated 1.1% | ||
Consumer Discretionary 0.5% | ||
Codere Finance (Luxembourg) SA, 8.25%, 6/15/2015 EUR | 500,000 | 684,415 |
Unity Media GmbH, 144A, 8.75%, 2/15/2015 EUR | 1,025,000 | 1,223,174 |
| 1,907,589 | |
Financials 0.2% | ||
Ono Finance II, 144A, 8.0%, 5/16/2014 EUR | 490,000 | 612,879 |
Materials 0.2% | ||
Rhodia SA, 144A, 6.242%**, 10/15/2013 EUR | 705,000 | 898,262 |
Sovereign Bonds 0.2% | ||
Republic of Argentina, 7.82%, 12/31/2033 (PIK) EUR | 797,419 | 1,020,291 |
Total Foreign Bonds — Non US$ Denominated (Cost $4,310,943) | 4,439,021 | |
| ||
Loan Participation 0.2% | ||
Alliance Mortgage Cycle Loan, LIBOR plus 7.25%, 12.64%**, 6/4/2010 (Cost $721,469) | 712,500 | 712,500 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Dayton Superior Corp. 144A, Expiration 6/15/2009* | 648 | 0 |
DeCrane Aircraft Holdings, Inc. 144A, Expiration 9/30/2008* | 1,230 | 0 |
TravelCenters of America, Inc., Expiration 5/1/2009* | 2155 | 25,860 |
Total Warrants (Cost $12,575) | 25,860 |
|
| Value ($) |
|
| |
Other Investments 0.5% | ||
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 1,219,000 | 987,390 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 6/15/2008, 13.0% to 12/15/2012 | 1,935,000 | 1,248,075 |
Total Other Investments (Cost $2,349,370) | 2,235,465 |
|
| Value ($) |
|
| |
Common Stocks 0.0% | ||
GEO Specialty Chemicals, Inc.* | 18,710 | 14,033 |
GEO Specialty Chemicals, Inc. 144A* | 1,703 | 1,277 |
IMPSAT Fiber Networks, Inc.* | 12,625 | 115,013 |
Total Common Stocks (Cost $877,265) | 130,323 | |
| ||
Convertible Preferred Stocks 0.1% | ||
Consumer Discretionary | ||
ION Media Networks, Inc. 144A, 9.75%, (PIK) | 69 | 394,640 |
ION Media Networks, Inc. Series AI, 144A, 9.75%, (PIK) | 8 | 46,000 |
Total Convertible Preferred Stocks (Cost $525,275) | 440,640 | |
| ||
Securities Lending Collateral 6.0% | ||
Daily Assets Fund Institutional, 5.32% (c) (d) (Cost $25,129,580) | 25,129,580 | 25,129,580 |
| ||
Cash Equivalents 4.4% | ||
Cash Management QP Trust, 5.31% (e) (Cost $18,444,091) | 18,444,091 | 18,444,091 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $435,537,496)+ | 103.8 | 434,747,346 |
Other Assets and Liabilities, Net | (3.8) | (15,746,414) |
Net Assets | 100.0 | 419,000,932 |
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest. The following table represents bonds that are in default.
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 1,188,000 | USD | 1,088,628 | 1,176,120 |
Eaton Vance Corp. CDO II | 13.68% | 7/15/2012 | 2,325,520 | USD | 2,037,287 | 0 |
Grupo Iusacell SA de CV | 10.0% | 7/15/2004 | 279,000 | USD | 193,815 | 262,260 |
Oxford Automotive, Inc. | 12.0% | 10/15/2010 | 1,740,470 | USD | 151,449 | 26,107 |
Radnor Holdings Corp. | 11.0% | 3/15/2010 | 290,000 | USD | 200,409 | 32,625 |
Supercanal Holding SA | 11.5% | 5/15/2005 | 464,000 | USD | 281,627 | 46,400 |
|
|
|
|
| $ 3,953,215 | $ 1,543,512 |
** 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 October 31, 2006.
+ The cost for federal income tax purposes was $436,792,897. At October 31, 2006, net unrealized depreciation for all securities based on tax cost was $2,045,551. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $6,651,491 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $8,697,042.
(a) Principal amount stated in US dollars unless otherwise noted.
(b) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at October 31, 2006 amounted to $23,897,662 which is 5.7% of net assets.
(c) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.
(d) Represents collateral held in connection with securities lending.
(e) Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
CDO: Collateralized Debt Obligation
LIBOR: Represents the London InterBank Offered Rate.
PIK: Denotes that all or a portion of the income is paid in kind.
As of October 31, 2006, the Fund had the following open forward foreign currency exchange contracts:
Contracts to Deliver |
| In Exchange For |
| Settlement Date | Unrealized Appreciation (US$) | ||
EUR | 150,183 |
| USD | 194,915 |
| 12/13/2006 | 2,789 |
Total unrealized appreciation | 2,789 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date | Unrealized (Depreciation) (US$) | ||
EUR | 2,532,856 |
| USD | 3,230,088 |
| 12/13/2006 | (10,145) |
EUR | 705,000 |
| USD | 899,510 |
| 1/5/2007 | (3,313) |
EUR | 120,000 |
| USD | 151,342 |
| 1/12/2007 | (2,382) |
Total unrealized depreciation | (15,840) |
Currency Abbreviations |
EUR Euro USD US Dollars |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of October 31, 2006 | |
Assets | |
Investments: Investments in securities, at value (cost $391,963,825) — including $23,897,662 of securities loaned | $ 391,173,675 |
Investment in Daily Assets Fund Institutional (cost $25,129,580)* | 25,129,580 |
Investment in Cash Management QP Trust (cost $18,444,091) | 18,444,091 |
Total investments in securities, at value (cost $435,537,496) | 434,747,346 |
Cash | 10,318 |
Receivable for investments sold | 5,901,759 |
Interest receivable | 8,625,123 |
Receivable for Fund shares sold | 349,861 |
Unrealized appreciation on forward foreign currency exchange contracts | 2,789 |
Other assets | 52,770 |
Total assets | 449,689,966 |
Liabilities | |
Payable for investments purchased | 3,963,784 |
Payable upon return of securities loaned | 25,129,580 |
Payable for Fund shares redeemed | 633,086 |
Distributions payable | 520,041 |
Unrealized depreciation on forward foreign currency exchange contracts | 15,840 |
Accrued management fee | 107,740 |
Other accrued expenses and payables | 318,963 |
Total liabilities | 30,689,034 |
Net assets, at value | $ 419,000,932 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 713,693 |
Net unrealized appreciation (depreciation) on: Investments | (790,150) |
Foreign currency related transactions | (13,186) |
Accumulated net realized gain (loss) | (89,919,850) |
Paid-in capital | 509,010,425 |
Net assets, at value | $ 419,000,932 |
* Represents collateral on securities loaned.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of October 31, 2006 (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price(a) per share ($28,752,961 ÷ 3,750,329 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 7.67 |
Maximum offering price per share (100 ÷ 95.50 of $7.67) | $ 8.03 |
Class B Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($6,232,403 ÷ 812,436 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 7.67 |
Class C Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($11,413,823 ÷ 1,488,038 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 7.67 |
Class S Net Asset Value, offering and redemption price(a) per share ($316,425,332 ÷ 41,255,329 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 7.67 |
Institutional Class Net Asset Value, offering and redemption price(a) per share ($56,176,413 ÷ 7,326,207 outstanding shares of beneficial interest, $.001 par value, unlimited number of shares authorized) | $ 7.67 |
(a) Redemption price per share for shares held less than 60 days is equal to net asset value less a 2% redemption fee.
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended October 31, 2006 | |
Investment Income | |
Income: Interest | $ 33,577,922 |
Interest — Cash Management QP Trust | 343,738 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 116,964 |
Dividends | 133,665 |
Total Income | 34,172,289 |
Expenses: Investment advisory fee | 1,975,594 |
Administration fee | 168,694 |
Services to shareholders | 157,039 |
Administrator service fee | 354,027 |
Distribution and shareholder servicing fees | 474,334 |
Custodian fees | 34,770 |
Auditing | 62,694 |
Legal | 58,970 |
Trustees' fees and expenses | 15,989 |
Reports to shareholders and shareholder meeting | 111,667 |
Registration fees | 91,480 |
Other | 112,684 |
Total expenses before expense reductions | 3,617,942 |
Expense reductions | (757,242) |
Total expenses after expense reductions | 2,860,700 |
Net investment income | 31,311,589 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | (3,666,729) |
Credit default swap | (18,693) |
Foreign currency related transactions | 36,102 |
Net increase from payment by affiliates and gain (losses) realized on a trade executed incorrectly | — |
| (3,649,320) |
Net unrealized appreciation (depreciation) during the period on: Investments | 8,946,532 |
Foreign currency related transactions | (266,561) |
| 8,679,971 |
Net gain (loss) on investment transactions | 5,030,651 |
Net increase (decrease) in net assets resulting from operations | $ 36,342,240 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended October 31, | |
Increase (Decrease) in Net Assets | 2006 | 2005 |
Operations: Net investment income | $ 31,311,589 | $ 20,114,068 |
Net realized gain (loss) on investment transactions | (3,649,320) | 1,860,174 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 8,679,971 | (2,419,130) |
Net increase (decrease) in net assets resulting from operations | 36,342,240 | 19,555,112 |
Distributions to shareholders from: Net investment income: Class A | (2,014,772) | (914,162) |
Class B | (450,672) | (237,859) |
Class C | (699,245) | (310,321) |
Investment Class | (8,809,918) | (6,058,012) |
Class AARP | (3,674,143) | (2,261,464) |
Class S | (11,181,116) | (4,782,412) |
Institutional Class | (3,599,934) | (2,889,113) |
Premier Class | (1,023,239) | (2,099,061) |
Net realized gains: Investment Class | — | (119,267) |
Institutional Class | — | (54,301) |
Premier Class | — | (42,171) |
Fund share transactions: Proceeds from shares sold | 120,028,739 | 114,166,831 |
Net assets acquired in tax-free reorganization | — | 230,696,533 |
Reinvestment of distributions | 21,843,629 | 14,849,918 |
Cost of shares redeemed | (114,901,430) | (83,753,676) |
In-kind redemption | — | (11,311,811) |
Redemption fees | 80,346 | 97,674 |
Net increase (decrease) in net assets from Fund share transactions | 27,051,284 | 264,745,469 |
Increase (decrease) in net assets | 31,940,485 | 264,532,438 |
Net assets at beginning of period | 387,060,447 | 122,528,009 |
Net assets at end of period (including undistributed net investment income of $713,693 and $1,257,417, respectively) | $ 419,000,932 | $ 387,060,447 |
Class A Years Ended October 31, | 2006 | 2005a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 7.58 | $ 7.46 |
Income from investment operations: Net investment incomeb | .59 | .28 |
Net realized and unrealized gain (loss) on investment transactions | .09 | .11 |
Total from investment operations | .68 | .39 |
Less distributions from: Net investment income | (.59) | (.27) |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 7.67 | $ 7.58 |
Total Return (%)c,d | 9.38 | 5.23** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 29 | 24 |
Ratio of expenses before expense reductions (%) | 1.07 | 1.10* |
Ratio of expenses after expense reductions (%) | .89 | .93* |
Ratio of net investment income (%) | 7.76 | 7.77* |
Portfolio turnover rate (%) | 100 | 109e |
a For the period May 16, 2005 (commencement of operations of Class A shares) to October 31, 2005. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total returns would have been lower had certain operating expenses not been reduced. e Excludes portfolio securities delivered as a result of processing redemption in-kind transactions. * Annualized ** Not annualized *** Amount is less than $.005. |
Class B Years Ended October 31, | 2006 | 2005a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 7.58 | $ 7.46 |
Income from investment operations: Net investment incomeb | .53 | .25 |
Net realized and unrealized gain (loss) on investment transactions | .09 | .11 |
Total from investment operations | .62 | .36 |
Less distributions from: Net investment income | (.53) | (.24) |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 7.67 | $ 7.58 |
Total Return (%)c,d | 8.48 | 4.83** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 6 | 7 |
Ratio of expenses before expense reductions (%) | 1.90 | 1.86* |
Ratio of expenses after expense reductions (%) | 1.67 | 1.69* |
Ratio of net investment income (%) | 6.98 | 7.01* |
Portfolio turnover rate (%) | 100 | 109e |
a For the period May 16, 2005 (commencement of operations of Class B shares) to October 31, 2005. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total returns would have been lower had certain operating expenses not been reduced. e Excludes portfolio securities delivered as a result of processing redemption in-kind transactions. * Annualized ** Not annualized *** Amount is less than $.005. |
Class C Years Ended October 31, | 2006 | 2005a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 7.58 | $ 7.46 |
Income from investment operations: Net investment incomeb | .53 | .25 |
Net realized and unrealized gain (loss) on investment transactions | .09 | .11 |
Total from investment operations | .62 | .36 |
Less distributions from: Net investment income | (.53) | (.24) |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 7.67 | $ 7.58 |
Total Return (%)c,d | 8.50 | 4.83** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 11 | 9 |
Ratio of expenses before expense reductions (%) | 1.85 | 1.86* |
Ratio of expenses after expense reductions (%) | 1.66 | 1.69* |
Ratio of net investment income (%) | 6.99 | 7.01* |
Portfolio turnover rate (%) | 100 | 109e |
a For the period May 16, 2005 (commencement of operations of Class C shares) to October 31, 2005. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total returns would have been lower had certain operating expenses not been reduced. e Excludes portfolio securities delivered as a result of processing redemption in-kind transactions. * Annualized ** Not annualized *** Amount is less than $.005. |
Class S Years Ended October 31, | 2006 | 2005a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 7.58 | $ 7.46 |
Income from investment operations: Net investment incomeb | .61 | .29 |
Net realized and unrealized gain (loss) on investment transactions | .09 | .11 |
Total from investment operations | .70 | .40 |
Less distributions from: Net investment income | (.61) | (.28) |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 7.67 | $ 7.58 |
Total Return (%)c | 9.62 | 5.34** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 316 | 131 |
Ratio of expenses before expense reductions (%) | .84 | .83* |
Ratio of expenses after expense reductions (%) | .64 | .66* |
Ratio of net investment income (%) | 8.01 | 8.04* |
Portfolio turnover rate (%) | 100 | 109d |
a For the period May 16, 2005 (commencement of operations of Class S shares) to October 31, 2005. b Based on average shares outstanding during the period. c Total returns would have been lower had certain operating expenses not been reduced. d Excludes portfolio securities delivered as a result of processing redemption in-kind transactions. * Annualized ** Not annualized *** Amount is less than $.005. |
Institutional Class Years Ended October 31, | 2006 | 2005 | 2004 | 2003 | 2002 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 7.58 | $ 7.75 | $ 7.42 | $ 6.32 | $ 7.25 |
Income from investment operations: Net investment incomea | .62 | .62 | .63 | .66 | .73 |
Net realized and unrealized gain (loss) on investment transactions | .09 | (.18) | .31 | 1.10 | (.93) |
Total from investment operations | .71 | .44 | .94 | 1.76 | (.20) |
Less distributions from: Net investment income | (.62) | (.60) | (.61) | (.66) | (.73) |
Net realized gain on investment transactions | — | (.01) | — | — | — |
Total distributions | (.62) | (.61) | (.61) | (.66) | (.73) |
Redemption fees | .00* | .00* | .00* | .00* | .00* |
Net asset value, end of period | $ 7.67 | $ 7.58 | $ 7.75 | $ 7.42 | $ 6.32 |
Total Return (%)b | 9.74 | 5.88 | 13.27 | 28.76 | (3.07) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 56 | 44 | 33 | 18 | 18 |
Ratio of expenses before expense reductions (%) | .77 | .80 | .72 | .68 | .70 |
Ratio of expenses after expense reductions (%) | .55 | .59 | .59 | .62 | .65 |
Ratio of net investment income (%) | 8.10 | 8.04 | 8.33 | 9.48 | 10.50 |
Portfolio turnover rate (%) | 100 | 109c | 152c | 143 | 132 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Excludes portfolio securities delivered as a result of processing redemption in-kind transactions. * Amount is less than $.005. |
A. Significant Accounting Policies
DWS High Income Plus Fund (formerly Scudder High Income Plus Fund) (the "Fund") is a diversified series of DWS Advisor Funds (the "Trust") which is registered under the Investment Company Act of 1940, as amended, (the "1940 Act"), as an open-end investment management company. The Trust is organized as a business trust under the laws of the state of Delaware. On July 10, 2006, DWS High Income Plus Fund became a series of DWS Advisor Funds. Prior to July 10, 2006, DWS High Income Plus Fund was a series of DWS Investments Trust.
The Fund currently offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge, but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered without an initial sales charge, but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Class S shares are no longer available to new investors except under certain circumstances. Class S shares are not subject to initial or contingent deferred sales charges. Premier Class shares were offered to a limited group of investors. Shares of Premier Class were converted to Institutional Class on August 18, 2006. Investment Class shares were converted to Class S shares on October 20, 2006. Shares of Class AARP were designed for members of AARP (please see Note C, under the caption Other Related Parties).
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution fees, service fees and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
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 Trustees of the Funds. 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 a broker-dealer. 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 are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
In September 2006, 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 October 31, 2006, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.
Securities Lending. The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to an Exemptive Order issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to the lending agent. Either the Fund or the borrower may terminate the loan. The Fund is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Credit Default Swap Contracts. A credit default swap is a contract between a buyer and a seller of protection against a pre-defined credit event. The Fund may buy or sell credit default swap contracts to seek to increase the Fund's income, to add leverage to the portfolio, or to hedge the risk of default on portfolio securities. As a seller in the credit default swap contract, the Fund would be required to pay the par (or other agreed-upon) value of the referenced debt obligation to the counterparty in the event of a default by a third party, such as a US or foreign corporate issuer, on the debt obligation, which would likely result in a loss to the Fund. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would keep the stream of payments and would have no payment obligations. The Fund may also buy credit default swap contracts in order to hedge against the risk of default of debt securities, in which case the Fund would function as the counterparty referenced above. This would involve the risk that the contract may expire worthless. It would also involve credit risk — that the seller may fail to satisfy its payment obligations to the Fund in the event of a default. When the Fund sells a credit default swap contract it will "cover" its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the underlying debt obligations for all outstanding credit default swap contracts sold by the Fund.
Credit default swap contracts are marked to market daily based upon quotations from the counterparty and the change in value, if any, is recorded daily as unrealized gain or loss. An upfront payment made by the Fund, is recorded as an asset on the statement of assets and liabilities. An upfront payment received by the Fund, is recorded as a liability on the statement of assets and liabilities. Under the terms of the credit default swap contracts, the Fund receives or makes payments semiannually based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss on the statement of operations. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses.
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 gains and losses on investment securities.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings and to facilitate transactions in foreign currency denominated securities.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. Sales and purchases of forward currency contracts having the same settlement date and broker are offset and any gain (loss) is realized on the date of offset; otherwise, gain (loss) is realized on settlement date. Realized and unrealized gains and losses which represent the difference between the value of a forward currency contract to buy and a forward currency contract to sell are included in net realized and unrealized gain (loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
Short Sales. The Fund may sell securities it does not own in an attempt to profit from an anticipated decline in its value or in order to hedge portfolio positions. The Fund borrows securities to complete the transaction. The Fund maintains collateral with the lender of the securities in the form of cash and/or liquid securities. At October 31, 2006, there were no securities sold short.
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. Accordingly, the Fund paid no federal income taxes and no federal income tax provisions were required.
At October 31, 2006, the Fund had a net tax basis capital loss carryforward of approximately $88,664,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2007 ($5,043,000), October 31, 2008 ($12,891,000), October 31, 2009 ($31,238,000), October 31, 2010 ($32,488,000), October 31,2011 ($3,345,000),October 31, 2014 ($3,659,000), the respective expiration dates, whichever occurs first, which maybe subject to certain limitations under Sections 382-383 of the Internal Revenue Code.
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109" (the "Interpretation"). The Interpretation establishes for the Fund a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether the Fund is taxable in certain jurisdictions), and requires certain expanded tax disclosures. The Interpretation is effective for fiscal years beginning after December 15, 2006. Management has begun to evaluate the application of the Interpretation to the Fund and is not in a position at this time to estimate the significance of its impact, if any, on the Fund's financial statements.
Distribution of Income and Gains. Net investment income of the Fund is declared daily and distributed 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 relate primarily to securities sold at a loss and forward foreign currency commitments. 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 October 31, 2006, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:
Undistributed ordinary income* | $ 1,298,209 |
Capital loss carryforwards | $ (88,664,000) |
Net unrealized appreciation (depreciation) on investments | $ (2,045,551) |
In addition, during the year ended October 31, 2006, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended October 31, | |
| 2006 | 2005 |
Distributions from ordinary income* | $ 31,453,039 | $ 19,552,404 |
Distributions from long-term capital gains | $ — | $ 215,739 |
* For tax purposes short-term capital gains distributions are considered ordinary income distributions.
Redemption Fees. The Fund imposes a redemption fee of 2% of the total redemption amount on all Fund shares redeemed or exchanged within 60 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in capital.
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's that have not yet been made. However, based on experience, the Fund's 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. Other income including commitment fees, included in the Statement of Operations, is recorded as income when received by the Fund. Dividend income is recorded on the ex-dividend date. Realized gains and losses from investment transactions are recorded on an identified cost basis. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended October 31, 2006, purchases and sales of investment securities (excluding short-term investments and US Treasury Obligations) aggregated $391,266,882 and $372,409,219, respectively. Purchase and sales of US Treasury Obligations aggregated $2,040,074 and $3,512,730, respectively.
C. Related Parties
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG. Deutsche Asset Management, Inc. ("DeAM, Inc." or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, is the Fund's Advisor and Administrator.
Investment Advisory Agreement. Under the Investment Advisory Agreement (the "Investment Advisory Agreement"), DeAM directs the investments of the Fund in accordance with its investment objectives, policies and restrictions.
The Fund pays a monthly investment advisory fee, based on the average daily net assets of the Fund, computed and accrued daily and payable monthly, at the following annual rates:
First $1 billion of the Fund's average daily net assets | .50% |
Next $1.5 billion of such net assets | .49% |
Next $2.5 billion of such net assets | .48% |
Next $5 billion of such net assets | .47% |
Over $10 billion of such net assets | .46% |
For the period from November 1, 2005 through May 31, 2006, the Advisor and Administrator had contractually agreed to waive all or a portion of its investment advisory fee and reimburse or pay certain operating expenses of the fund (excluding certain expenses such as extraordinary expenses, proxy/shareholder meeting costs, taxes, brokerage, interest, trustee and trustee counsel fees and organizational and offering expenses) to the extent necessary to maintain the annual expenses of each class at the following rates:
Class A | 1.07% |
Class B | 1.83% |
Class C | 1.83% |
Class S | .80% |
Institutional Class | .65% |
For the period from June 1, 2006 through September 30, 2006, the Advisor and Administrator contractually agreed to waive all or a portion of its investment advisory fee and reimburse or pay certain operating expenses of the Fund (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, and organizational and offering expenses) to the extent necessary to maintain the annual expenses of each class as follows:
Class A | .89% |
Class B | 1.67% |
Class C | 1.66% |
Class S | .64% |
For Institutional Class shares, effective June 1, 2006 through August 18, 2006, the Advisor had contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) to the extent necessary to maintain the annual expenses at 0.59%. Effective August 19, 2006 through September 30, 2006, the Advisor had contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) to the extent necessary to maintain the annual expenses at 0.50%.
Effective October 1, 2006 through September 30, 2007, the Advisor and Administrator have contractually agreed to waive all or a portion of its investment advisory fee and reimburse or pay certain operating expenses of the Fund (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) to the extent necessary to maintain the annual expenses of each class as follows:
Class A | 1.07% |
Class B | 1.83% |
Class C | 1.83% |
Class S | .80% |
Institutional Class | .50% |
In addition, for the period from November 1, 2005 through October 31, 2006, the Advisor agreed to a voluntarily waive of 0.12% of average daily net assets. Furthermore, for the period from November 1, 2005 through October 31, 2006, the Advisor also agreed to a voluntary waiver of 0.05% of average daily net assets.
Accordingly, for the year ended October 31, 2006, the Advisor waived a portion of its investment advisory fee pursuant to the Investment Advisory Agreement aggregating $671,702 and the amount charged aggregated $1,303,892 which was equivalent to an annual effective rate of 0.33% of the Fund's average daily net assets.
Administrator Service Fee. Prior to June 1, 2006, DeAM, Inc. received a Fee (the "Administrator Service Fee") of 0.19%, 0.20%, 0.20%, 0.17%, 0.17%, 0.12%, 0.12% and 0.10% of the average daily net assets for Class A, B, C, AARP, S, Investment Class, Institutional Class and Premier Class shares, respectively, of the average daily net assets, computed and accrued daily and paid monthly.
For the period from November 1, 2005 through May 31, 2006, the Administrator Service Fee was as follows:
Administrator Service Fee | Total Aggregated | Waived | Annualized Effective Rate |
Class A | $ 27,335 | $ — | .19% |
Class B | 7,685 | — | .20% |
Class C | 11,195 | — | .20% |
Investment Class | 73,491 | — | .12% |
Class AARP | 66,978 | — | .17% |
Class S | 128,356 | — | .17% |
Institutional Class | 29,230 | 1,969 | .11% |
Premier Class | 9,757 | 5,057 | .05% |
| $ 354,027 | $ 7,026 |
|
Effective June 1, 2006, the Administrative Services Agreement with DeAM, Inc. was terminated and the Fund entered into an Administrative Services Agreement with Deutsche Investment Management Americas Inc. ("DeIM"), an indirect, wholly owned subsidiary of Deutsche Bank AG pursuant to which DeIM provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays DeIM an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the period from June 1, 2006 through October 31, 2006, DeIM received an Administration Fee of $168,694, of which $35,360 is unpaid.
Service Provider Fees. DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the Advisor and Administrator, is the Fund's transfer agent, shareholder service agent and dividend-paying agent. Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has delegated certain transfer agent and dividend-paying agent functions to DST. DWS-SISC compensates DST out of the shareholder servicing fee it receives from the Fund. Prior to June 1, 2006, this fee was included in the Administrator Service Agreement. For the period from June 1, 2006 through October 31, 2006, the amounts charged to the Fund by DWS-SISC were as follows:
Service Provider Fee | Total Aggregated | Waived | Unpaid at October 31, 2006 |
Class A | $ 19,079 | $ 866 | $ 14,510 |
Class B | 7,278 | 3,432 | 3,455 |
Class C | 6,786 | 1,194 | — |
Investment Class | 6,492 | — | 5,660 |
Class AARP | 8,175 | 2,566 | 5,028 |
Class S | 68,016 | 37,337 | 20,519 |
Institutional Class | 11,797 | 11,797 | — |
Premier Class | 2,135 | — | 711 |
| $ 129,758 | $ 57,192 | $ 49,883 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS Scudder Distributors, Inc. ("DWS-SDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of the Class B and C shares. Pursuant to the agreement, DWS-SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended October 31, 2006, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at October 31, 2006 |
Class B | $ 48,333 | $ 1,584 |
Class C | 74,964 | 4,271 |
| $ 123,297 | $ 5,855 |
In addition, DWS-SDI or an affiliate provides information and administrative services ("Shareholder Servicing Fee") to the shareholders of Class A, B, C and Investment Class (until October 20, 2006) at an annual rate of up to 0.25% of average daily net assets for each such class. DWS-SDI or an affiliate in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended October 31, 2006, the Shareholder Servicing Fee was as follows:
Shareholder Servicing Fee | Total Aggregated | Unpaid at October 31, 2006 | Annual Effective Rate |
Class A | $ 54,830 | $ 14,609 | .21% |
Class B | 15,950 | 567 | .25% |
Class C | 24,535 | 5,201 | .25% |
Investment Class | 255,722 | 110,557 | .23% |
| $ 351,037 | $ 130,934 |
|
Underwriting Agreement and Contingent Deferred Sales Charge. DWS-SDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares of the Fund for the year ended October 31, 2006 aggregated $20,428.
In addition, DWS-SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended October 31, 2006, the CDSC for Class B and C shares aggregated $21,895 and $4,204, respectively. A deferred sales charge of up to 0.85% is assessed on certain redemptions of Class A. For the year ended October 31, 2006, DWS-SDI received $355 for Class A shares.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Cash Management QP Trust (the "QP Trust"), 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 its Advisor a management fee for the affiliated funds' investments in the QP Trust.
Typesetting and Filing Service Fees. Under an agreement with DeIM, DeIM is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended October 31, 2006, the amount charged to the Fund by DeIM included in reports to shareholders aggregated $31,360, of which $8,520 is unpaid.
Trustees' Fees and Expenses. As compensation for his or her services, each Independent Trustee receives an aggregated annual fee, plus a fee for each meeting attended (plus reimbursement for reasonable out-of-pocket expenses incurred in connection with his or her attendance at board and committee meetings) from each fund in the Fund Complex for which he or she serves. In addition, the Chairman of the Board and the Chairman of each committee of the Board receive additional compensation for their services. Payment of such fees and expenses is allocated among all such funds described above in direct proportion to their relative net assets.
Other Related Parties. Through December 31, 2005, AARP through its affiliate, AARP Services, Inc., monitored and approved the AARP Investment Program from DWS Scudder, but did not act as an investment advisor or recommend specific mutual funds. The contractual relationship between DWS Scudder and AARP ended on December 31, 2005. As a result, the funds are no longer part of the AARP Investment Program and the AARP name and logo were phased out in 2006.
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 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 due to the extent that there is no established retail secondary market and because of a decline in the value of such securities.
E. Expense Reductions
For the year ended October 31, 2006, the Advisor reimbursed the Fund $18,729, which represented a portion of the expected fee savings for the Advisor through May 31, 2006, related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.
In addition, 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 custodian expenses. During the year ended October 31, 2006, the custodian agent fee was reduced by $2,593 for custody credits earned.
F. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Year Ended October 31, 2006 | Year Ended October 31, 2005 | ||
| Shares | Dollars | Shares | Dollars |
Shares sold | ||||
Class A | 1,327,408 | $ 10,098,462 | 347,954* | $ 2,675,765* |
Class B | 171,178 | 1,302,070 | 37,964* | 291,002* |
Class C | 664,608 | 5,057,471 | 228,807* | 1,758,282* |
Investment Class | 7,797,947 | 59,379,096 | 7,908,772 | 61,461,796 |
Class AARP | 1,341,008 | 10,207,308 | 1,040,451* | 7,990,870* |
Class S | 2,614,813 | 19,899,000 | 1,649,971* | 12,628,957* |
Institutional Class | 1,533,718 | 11,682,979 | 2,737,466 | 21,198,289 |
Premier Class | 314,383 | 2,402,353 | 802,887 | 6,161,870 |
|
| $ 120,028,739 |
| $ 114,166,831 |
Shares issued in tax-free reorganization** | ||||
Class A | — | $ — | 3,582,939 | $ 26,728,798 |
Class B | — | — | 1,049,444 | 7,828,945 |
Class C | — | — | 1,277,108 | 9,527,144 |
Class AARP | — | — | 8,189,097 | 61,089,308 |
Class S | — | — | 16,825,456 | 125,522,338 |
|
| $ — |
| $ 230,696,533 |
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 151,659 | $ 1,152,607 | 61,089* | $ 468,953* |
Class B | 26,443 | 201,085 | 13,662* | 104,911* |
Class C | 41,623 | 316,496 | 18,004* | 138,269* |
Investment Class | 1,019,298 | 7,747,149 | 739,228 | 5,715,228 |
Class AARP | 214,416 | 1,630,049 | 138,965* | 1,066,763* |
Class S | 890,350 | 6,768,750 | 390,161* | 2,995,310* |
Institutional Class | 404,450 | 3,075,131 | 316,312 | 2,445,202 |
Premier Class | 125,416 | 952,362 | 247,409 | 1,915,282 |
|
| $ 21,843,629 |
| $ 14,849,918 |
Shares redeemed | ||||
Class A | (925,102) | $ (7,053,220) | (795,618)* | $ (6,123,227)* |
Class B | (293,347) | (2,231,934) | (192,908)* | (1,481,556)* |
Class C | (445,703) | (3,381,776) | (296,409)* | (2,267,317)* |
Investment Class | (3,226,413) | (24,628,246) | (3,697,762) | (28,590,855) |
Class AARP | (1,305,533) | (9,924,042) | (1,014,057)* | (7,729,129)* |
Class S | (5,689,820) | (43,261,097) | (1,605,756)* | (12,304,684)* |
Institutional Class | (1,849,615) | (14,095,760) | (1,502,204) | (11,544,112) |
Premier Class | (1,356,346) | (10,325,355) | (1,796,351) | (13,712,796) |
|
| $ (114,901,430) |
| $ (83,753,676) |
Shares converted*** | ||||
Investment Class | (17,575,821) | $ (134,435,981) | — | $ — |
Class AARP | (8,604,347) | (64,896,014) | — | — |
Class S | 26,180,154 | 199,331,995 | — | — |
Institutional Class | 1,478,743 | 11,224,371 | — | — |
Premier Class | (1,479,912) | (11,224,371) | — | — |
|
| $ — |
| $ — |
In-Kind Redemption | ||||
Premier Class | — | $ — | (1,422,869) | $ (11,311,811) |
|
| $ — |
| $ (11,311,811) |
Redemption fees | $ 80,346 |
| $ 97,674 | |
Net increase (decrease) | ||||
Class A | 553,965 | $ 4,223,685 | 3,196,364* | $ 23,750,599* |
Class B | (95,726) | (727,798) | 908,162* | 6,743,343* |
Class C | 260,528 | 1,992,653 | 1,227,510* | 9,156,378* |
Investment Class | (11,984,989) | (91,897,974) | 4,950,238 | 38,677,192 |
Class AARP | (8,354,456) | (62,974,326) | 8,354,456* | 62,419,285* |
Class S | 23,995,497 | 182,743,287 | 17,259,832* | 128,843,983* |
Institutional Class | 1,567,296 | 11,886,768 | 1,551,574 | 12,102,144 |
Premier Class | (2,396,459) | (18,195,011) | (2,168,924) | (16,947,455) |
|
| $ 27,051,284 |
| $ 264,745,469 |
* For the period May 16, 2005 (commencement of operations of Class A, B, C, AARP and S shares) to October 31, 2005.
** On May 16, 2005 the Scudder High Income Opportunity Fund was acquired by the Fund through a tax-free reorganization.
*** On June 28, 2006, the Board of the Fund approved the conversion of the Class AARP shares and Investment Class shares of the Fund into the Class S shares of the Fund and the conversion of Premier Class shares of the Fund into Institutional Class shares of the Fund. The Class AARP shares, Premier Class shares and Investment Class shares conversions were completed on July 14, 2006, August 18, 2006 and October 20, 2006, respectively, and these shares are no longer offered.
G. Credit Facility
The Fund has a revolving credit facility for investment leveraging purposes as approved by the Trustees to be administered by Bank of America, N.A. not to exceed $25 million at any one time which is available until October 11, 2007. The Fund may borrow up to a maximum of 20% of its net assets under the agreement. The Fund is charged an annual commitment fee. Interest is calculated at the Federal Funds Rate or LIBOR Rate plus 0.625 percent. At October 31, 2006, there were no loans outstanding.
H. In-Kind Redemption
In certain circumstances, the Fund may distribute portfolio securities rather than cash as payment for a redemption of fund shares (in-kind redemption). For financial reporting purposes, the Fund recognizes a gain on in-kind redemptions to the extent the value of the distributed securities exceeds their cost; the Fund recognizes a loss if cost exceeds value. Gains and losses realized on in-kind redemptions are not recognized for tax purposes, and are reclassified from undistributed realized gain (loss) to paid-in capital. During the year ended October 31, 2005, the Fund realized $469,153 of net gain attributable to in-kind redemptions.
I. Regulatory Matters and Litigation
Regulatory Settlements. On December 21, 2006, Deutsche Asset Management ("DeAM") settled proceedings with the Securities and Exchange Commission ("SEC") and the New York Attorney General on behalf of Deutsche Asset Management, Inc. ("DeAM, Inc.") and Deutsche Investment Management Americas Inc. ("DeIM"), the investment advisors to many of the DWS Scudder funds, regarding allegations of improper trading at DeAM and at the legacy Scudder and Kemper organizations prior to their acquisition by DeAM in April 2002. These regulators alleged that although the prospectuses for certain funds in the regulators' view indicated that the funds did not permit market timing, DeAM, Inc. and DeIM breached their fiduciary duty to those funds in that their efforts to limit trading activity in the funds were not effective at certain times. The regulators also alleged that DeAM, Inc. and DeIM breached their fiduciary duty to certain funds by entering into certain market timing arrangements with investors. These trading arrangements originated in businesses that existed prior to the currently constituted DeAM organization, which came together as a result of various mergers of the legacy Scudder, Kemper and Deutsche fund groups, and all of the arrangements were terminated prior to the start of the regulatory investigations that began in the summer of 2003. No current DeAM employee approved these trading arrangements. Under the terms of the settlements, DeAM, Inc. and DeIM neither admit nor deny any wrongdoing.
The terms of the SEC settlement, which identified improper trading in the legacy Deutsche and Kemper mutual funds only, provide for payment of disgorgement in the amount of $17.2 million. The terms of the settlement with the New York Attorney General provide for payment of disgorgement in the amount of $102.3 million, which is inclusive of the amount payable under the SEC settlement, plus a civil penalty in the amount of $20 million. The total amount payable by DeAM, approximately $122.3 million, would be distributed to funds and/or shareholders of the affected funds in accordance with a distribution plan to be developed by a distribution consultant. The funds' investment advisors do not believe these amounts will have a material adverse financial impact on them or materially affect their ability to perform under their investment management agreements with the DWS funds. The above-described amounts are not material to Deutsche Bank, and have already been reserved.
Among the terms of the settled orders, DeAM is subject to certain undertakings regarding the conduct of its business in the future, including: formation of a Code of Ethics Oversight Committee to oversee all matters relating to issues arising under the advisors' Code of Ethics; establishment of an Internal Compliance Controls Committee having overall compliance oversight responsibility of the advisors; engagement of an Independent Compliance Consultant to conduct a comprehensive review of the advisors' supervisory compliance and other policies and procedures designed to prevent and detect breaches of fiduciary duty, breaches of the Code of Ethics and federal securities law violations by the advisors and their employees; and commencing in 2008, the advisors shall undergo a compliance review by an independent third party.
In addition, DeAM is subject to certain further undertakings relating to the governance of the mutual funds, including that: at least 75% of the members of the Boards of Trustees/Directors overseeing the DWS Funds continue to be independent of DeAM; the Chairmen of the DWS Funds' Boards of Trustees/Directors continue to be independent of DeAM; DeAM maintain existing management fee reductions for certain funds for a period of five years and not increase management fees for certain funds during this period; the funds retain a senior officer (or independent consultants) responsible for assisting in the review of fee arrangements and monitoring compliance by the funds and the investment advisors with securities laws, fiduciary duties, codes of ethics and other compliance policies, the expense of which shall be borne by DeAM; and periodic account statements, fund prospectuses and the mutual funds' web site contain additional disclosure and/or tools that assist investors in understanding the fees and costs associated with an investment in the funds and the impact of fees and expenses on fund returns.
DeAM also continues to discuss a settlement with the Illinois Secretary of State regarding market timing matters. As previously disclosed, DeAM expects a settlement with the Illinois Secretary of State to provide for investor education contributions totaling approximately $4 million and a payment in the amount of $2 million to the Securities Audit and Enforcement Fund.
On September 28, 2006, the SEC and the National Association of Securities Dealers ("NASD") announced final agreements in which Deutsche Investment Management Americas Inc. ("DeIM"), Deutsche Asset Management, Inc. ("DeAM, Inc.") and Scudder Distributors, Inc. ("SDI") (now known as DWS Scudder Distributors, Inc.) settled administrative proceedings regarding disclosure of brokerage allocation practices in connection with sales of the Scudder Funds' (now known as the DWS Scudder Funds) shares during 2001-2003. The agreements with the SEC and NASD are reflected in orders which state, among other things, that DeIM and DeAM, Inc. failed to disclose potential conflicts of interest to the fund Boards and to shareholders relating to SDI's use of certain funds' brokerage commissions to reduce revenue sharing costs to broker-dealer firms with whom it had arrangements to market and distribute Scudder Fund shares. These directed brokerage practices were discontinued in October 2003.
Under the terms of the settlements, in which DeIM, DeAM, Inc. and SDI neither admitted nor denied any of the regulators' findings, DeIM, DeAM, Inc. and SDI agreed to pay disgorgement, prejudgment interest and civil penalties in the total amount of $19.3 million. The portion of the settlements distributed to the funds was approximately $17.8 million and was paid to the funds as prescribed by the settlement orders based upon the amount of brokerage commissions from each fund used to satisfy revenue sharing agreements with broker-dealers who sold fund shares. Based on the prescribed settlement order, the Fund was not entitled to a portion of the settlement.
As part of the settlements, DeIM, DeAM, Inc. and SDI also agreed to implement certain measures and undertakings relating to revenue sharing payments including making additional disclosures in the fund Prospectuses or Statements of Additional Information, adopting or modifying relevant policies and procedures and providing regular reporting to the fund Boards.
Private Litigation Matters. The matters alleged in the regulatory settlements described above also serve as the general basis of a number of private class action lawsuits involving the DWS funds. These lawsuits name as defendants various persons, including certain DWS funds, the funds' investment advisors and their affiliates, and certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each DWS fund's investment advisor has agreed to indemnify the applicable DWS funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making similar allegations.
Based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a DWS fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the DWS funds.
J. Acquisition of Assets
On May 16, 2005, the Fund acquired all of the net assets of Scudder High Income Opportunity Fund pursuant to a plan of reorganization approved by shareholders on April 26, 2005. The acquisition was accomplished by a tax-free exchange of 2,971,179 Class A shares, 870,646 Class B shares, 1,058,816 Class C shares, 13,955,737 Class S shares and 6,744,387 Class AARP shares of Scudder High Income Opportunity Fund, respectively, for 3,582,939 Class A shares, 1,049,444 Class B shares, 1,277,108 Class C shares, 16,825,456 Class S shares and 8,189,097 Class AARP shares of the Fund, respectively, outstanding on May 16, 2005. Scudder High Income Opportunity Fund's net assets at that date of $230,696,533, including $10,096,957 of net unrealized depreciation, were combined with those of the Fund. The aggregate net assets of the Fund immediately before the acquisition were $136,442,037. The combined net assets of the Fund immediately following the acquisition were $367,138,570.
K. Payments made by Affiliates
During the year ended October 31, 2006, the Advisor fully reimbursed the Fund $24,962 for losses incurred on trades executed incorrectly. The amount of the losses were less than 0.01% of the Fund's average net assets thus having no impact on the Fund's total return.
Report of Independent Registered Public Accounting Firm
To the Trustees of DWS Advisor Funds and Shareholders of DWS High Income Plus Fund:
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of DWS High Income Plus Fund (formerly Scudder High Income Plus Fund) (the "Fund") at October 31, 2006, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
Boston, Massachusetts | PricewaterhouseCoopers LLP |
For federal income tax purposes, the Fund designates approximately $147,000, 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 1-800-621-1048.
Taxpayers filing on a calendar year basis will receive tax information for the 2006 calendar year after year end.
Additional information announced by Deutsche Asset Management regarding the terms of the expected settlements referred to in the Market Timing Related Regulatory and Litigation Matters and Other Regulatory Matters in the Notes to Financial Statements will be made available at www.dws-scudder.com/regulatory_settlements, which will also disclose the terms of any final settlement agreements once they are announced.
Investment Management Agreement Approval
The Fund's Trustees approved the continuation of the Fund's current investment management agreement with DeAM, Inc. in September 2006. The Fund's current investment management agreement was also approved by the Fund's shareholders at a special meeting held in May 2006 as part of an overall plan to standardize and add flexibility to the management agreements for the DWS funds.
In terms of the process that the Trustees followed prior to approving the agreement, shareholders should know that:
At present time, all but one of your Fund's Trustees are independent of DeAM, Inc. and its affiliates.
The Trustees meet frequently to discuss fund matters. Each year, the Trustees dedicate part or all of several meetings to contract review matters. In connection with reviewing the Fund's investment management agreement, the Trustees also review the terms of the Fund's Rule 12b-1 plan, distribution agreement, administration agreement, transfer agency agreement and other material service agreements.
In connection with the Board's 2006 contract review, the Board formed a special committee to facilitate careful review of the funds' contractual arrangements. After reviewing the Fund's arrangements, that committee recommended that the Board vote to approve the continuation of the Fund's investment management agreement.
The Trustees regularly meet privately with their independent counsel to discuss contract review and other matters. In addition, the Trustees were also advised by two consultants in the course of their 2006 review of the Fund's contractual arrangements.
DeAM, Inc. and its predecessors have managed the Fund since inception, and the Trustees believe that a long-term relationship with a capable, conscientious advisor is in the best interest of shareholders. As you may know, DeAM, Inc. is part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Trustees believe that there are significant advantages to being part of a global asset management business that offers a wide range of investing expertise and resources, including hundreds of portfolio managers and analysts with research capabilities in many countries throughout the world.
Shareholders may focus primarily on fund performance and fees, but the Fund's Trustees consider these and many other factors, including the quality and integrity of DeAM, Inc.'s personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.
In determining to approve the continuation of the Fund's current investment management agreement, the Board considered all factors that it believes relevant to the interests of Fund shareholders, including:
The investment management fee schedule for the Fund, including (i) comparative information provided by Lipper regarding investment management fee rates paid to other investment advisors by similar funds and (ii) fee rates paid to DeAM, Inc. by similar funds and institutional accounts advised by DeAM, Inc. (if any). With respect to management fees paid to other investment advisors by similar funds, the Trustees noted that the fee rates paid by the Fund were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2005). The Board gave a lesser weight to fees paid by similar institutional accounts advised by DeAM, Inc., in light of the material differences in the scope of services provided to mutual funds as compared to those provided to institutional accounts. Taking into account the foregoing, the Board concluded that the fee schedule in effect for the Fund represents reasonable compensation in light of the nature, extent and quality of the investment services being provided to the Fund.
The extent to which economies of scale would be realized as the Fund grows. In this regard, the Board noted that the Fund's investment management fee schedule includes fee breakpoints. The Board concluded that the Fund's fee schedule represents an appropriate sharing between Fund shareholders and DeAM, Inc. of such economies of scale as may exist in the management of the Fund at current asset levels.
The total operating expenses of the Fund. In this regard, the Board noted that the total (net) operating expenses of the Fund (Class A shares) are expected to be lower than the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2005, and in each case analyzing Class A expenses less any applicable distribution and/or service plan expenses). The Board considered the expenses of this class to be representative for purposes of evaluating other classes of shares. The Board also considered how the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size). The Board also noted that the expense limitation agreed to by DeAM, Inc. helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
The investment performance of the Fund and DeAM, Inc., both absolute and relative to various benchmarks and industry peer groups. The Board noted that the Fund's performance (Investment Class shares) was in the 1st quartile of the applicable Lipper universe for each of the one-, three- and five-year periods ended June 30, 2006. The Board also observed that the Fund has outperformed its benchmark in the one- and three-year periods ended June 30, 2006 and has underperformed its benchmark in the five-year period ended June 30, 2006. The Board recognized that DeAM, Inc. has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
The nature, extent and quality of the advisory services provided by DeAM, Inc. The Board considered extensive information regarding DeAM, Inc., including DeAM, Inc.'s personnel (including particularly those personnel with responsibilities for providing services to the Fund), resources, policies and investment processes. The Board also considered the terms of the current investment management agreement, including the scope of services provided under the agreement. In this regard, the Board concluded that the quality and range of services provided by DeAM, Inc. have benefited and should continue to benefit the Fund and its shareholders.
The costs of the services to, and profits realized by, DeAM, Inc. and its affiliates from their relationships with the Fund. The Board reviewed information concerning the costs incurred and profits realized by DeAM, Inc. during 2005 from providing investment management services to the Fund (and, separately, to the entire DWS Scudder fund complex), and reviewed with DeAM, Inc. the cost allocation methodology used to determine DeAM, Inc.'s profitability. In analyzing DeAM, Inc.'s costs and profits, the Board also reviewed the fees paid to and services provided by DeAM, Inc. and its affiliates with respect to administrative services, transfer agent services, shareholder servicing and distribution (including fees paid pursuant to 12b-1 plans), as well as information regarding other possible benefits derived by DeAM, Inc. and its affiliates as a result of DeAM, Inc.'s relationship with the Fund. As part of this review, the Board considered information provided by an independent accounting firm engaged to review DeAM, Inc.'s cost allocation methodology and calculations. The Board concluded that the Fund's investment management fee schedule represented reasonable compensation in light of the costs incurred by DeAM, Inc. and its affiliates in providing services to the Fund. The Board also reviewed information regarding the profitability of certain similar investment management firms. The Board noted that while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), Deutsche Asset Management's overall profitability with respect to the DWS Scudder fund complex (after taking into account distribution and other services provided to the funds by DeAM, Inc. and its affiliates) was lower than the overall profitability levels of many comparable firms for which such data was available.
The practices of DeAM, Inc. regarding the selection and compensation of brokers and dealers executing portfolio transactions for the Fund. The Board considered that a portion of the Fund's brokerage may be allocated to affiliates of DeAM, Inc., subject to compliance with applicable SEC rules. The Board also reviewed and approved, subject to ongoing review by the Board, a plan whereby a limited portion of the Fund's brokerage may in the future be allocated to brokers who acquire (and provide to DeAM, Inc. and its affiliates) research services from third parties that are generally useful to DeAM, Inc. and its affiliates in managing client portfolios. The Board indicated that it would continue to monitor the allocation of the Fund's brokerage to ensure that the principle of "best price and execution" remains paramount in the portfolio trading process.
DeAM, Inc.'s commitment to and record of compliance, including its written compliance policies and procedures. In this regard, the Board considered DeAM, Inc.'s commitment to indemnify the Fund against any costs and liabilities related to lawsuits or regulatory actions making allegations regarding market timing, revenue sharing, fund valuation or other subjects arising from or relating to pending regulatory inquiries. The Board also considered the significant attention and resources dedicated by DeAM, Inc. to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of DeAM, Inc.'s chief compliance officer, who reports to the Board; (ii) the large number of compliance personnel who report to DeAM, Inc.'s chief compliance officer; and (iii) the substantial commitment of resources by Deutsche Asset Management to compliance matters.
Deutsche Bank's commitment to its US mutual fund business. The Board considered recent and ongoing efforts by Deutsche Bank to restructure its US mutual fund business to improve efficiency and competitiveness and to reduce compliance and operational risk. The Board considered assurances received from Deutsche Bank that it would commit the resources necessary to maintain high-quality services to the Fund and its shareholders while various organizational initiatives are being implemented. The Board also considered Deutsche Bank's strategic plans for its US mutual fund business, the potential benefits to Fund shareholders and Deutsche Bank's management of the DWS fund group, one of Europe's most successful fund groups.
Based on all of the foregoing, the Board determined to continue the Fund's current investment management agreement, and concluded that the continuation of such agreement was in the best interests of the Fund's shareholders.
In reaching this conclusion the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, many of which were in executive session with only the Independent Trustees and their counsel present. It is possible that individual Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the current agreement.
The following table presents certain information regarding the Board Members and Officers of the Trust as of October 31, 2006. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Independent Board Member is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. The term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex.
Independent Board Members | ||
Name, Year of Birth, Position with the Fund and Length of Time Served | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Dawn-Marie Driscoll (1946) Chairman since 2004 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: 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) | 88 |
Henry P. Becton, Jr. (1943) Board Member since 1990 | President, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Becton Dickinson and Company1 (medical technology company); Belo Corporation1 (media company); Boston Museum of Science; Public Radio International. Former Directorships: American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service | 86 |
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). Former Directorships: Cloverleaf Transportation Inc. (trucking) | 88 |
Kenneth C. Froewiss (1945) Board Member since 2005 | 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) | 88 |
Martin J. Gruber (1937) Board Member since 2006 | Nomura Professor of Finance, Leonard N. Stern School of Business, New York University (since September 1965); Director, Japan Equity Fund, Inc. (since January 1992), Thai Capital Fund, Inc. (since January 2000), Singapore Fund, Inc. (since January 2000). Formerly, Trustee, TIAA (pension funds) (January 1996-January 2000); Trustee, CREF and CREF Mutual Funds (January 2000-March 2005); Chairman, CREF and CREF Mutual Funds (February 2004-March 2005); and Director, S.G. Cowen Mutual Funds (January 1985-January 2001) | 88 |
Richard J. Herring (1946) Board Member since 2006 | Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Director, Lauder Institute of International Management Studies (since July 2000); Co-Director, Wharton Financial Institutions Center (since July 2000). Formerly, Vice Dean and Director, Wharton Undergraduate Division (July 1995-June 2000) | 88 |
Graham E. Jones (1933) Board Member since 2006 | Senior Vice President, BGK Realty, Inc. (commercial real estate) (since 1995). Formerly, Trustee of various investment companies managed by Sun Capital Advisors, Inc. (1998-2005), Morgan Stanley Asset Management (1985-2001) and Weiss, Peck and Greer (1985-2005) | 88 |
Rebecca W. Rimel (1951) Board Member since 2006 | President and Chief Executive Officer, The Pew Charitable Trusts (charitable foundation) (1994 to present); Trustee, Thomas Jefferson Foundation (charitable organization) (1994 to present); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001 to present). Formerly, Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983 to 2004); Board Member, Investor Education (charitable organization) (2004-2005) | 88 |
Philip Saunders, Jr. (1935) Board Member since 2006 | Principal, Philip Saunders Associates (economic and financial consulting) (since November 1988). Formerly, Director, Financial Industry Consulting, Wolf & Company (consulting) (1987-1988); President, John Hancock Home Mortgage Corporation (1984-1986); Senior Vice President of Treasury and Financial Services, John Hancock Mutual Life Insurance Company, Inc. (1982-1986) | 88 |
William N. Searcy, Jr. (1946) Board Member since 2006 | Private investor since October 2003; Trustee of seven open-end mutual funds managed by Sun Capital Advisers, Inc. (since October 1998). Formerly, Pension & Savings Trust Officer, Sprint Corporation1 (telecommunications) (November 1989-September 2003) | 88 |
Jean Gleason Stromberg (1943) Board Member since 1999 | 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) | 88 |
Carl W. Vogt (1936) Board Member since 2002 | Retired Senior Partner, Fulbright & Jaworski, L.L.P. (law firm); formerly, President (interim) of Williams College (1999-2000); formerly, President of certain funds in the Deutsche Asset Management family of funds (formerly, Flag Investors family of funds) (registered investment companies) (1999-2000). Directorships: Yellow Corporation (trucking); American Science & Engineering (x-ray detection equipment). Former Directorships: ISI Family of Funds (registered investment companies, four funds overseen); National Railroad Passenger Corporation (Amtrak). Formerly, Chairman and Member, National Transportation Safety Board | 86 |
Interested Board Member | ||
Name, Year of Birth, Position with the Fund and Length of Time Served | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Axel Schwarzer2 (1958) Board Member since 2006 | Managing Director4, Deutsche Asset Management; Head of Deutsche Asset Management Americas; CEO of DWS Scudder; formerly, board member of DWS Investments, Germany (1999-2005); formerly, Head of Sales and Product Management for the Retail and Private Banking Division of Deutsche Bank in Germany (1997-1999); formerly, various strategic and operational positions for Deutsche Bank Germany Retail and Private Banking Division in the field of investment funds, tax driven instruments and asset management for corporates (1989-1996) | 86 |
Officers3 | |
Name, Year of Birth, Position with the Fund and Length of Time Served | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Michael G. Clark5 (1965) President, 2006-present | Managing Director4, Deutsche Asset Management (2006-present); President of DWS family of funds; formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000) |
John Millette6 (1962) Vice President and Secretary, 1999-present | Director4, Deutsche Asset Management |
Paul H. Schubert5 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present | Managing Director4, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998) |
Patricia DeFilippis5 (1963) Assistant Secretary, 2005-present | Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003) |
Elisa D. Metzger5 (1962) Assistant Secretary 2005-present | Director4, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005) |
Caroline Pearson6 (1962) Assistant Secretary, 1997-present | Managing Director4, Deutsche Asset Management |
Scott M. McHugh6 (1971) Assistant Treasurer, 2005-present | Director4, Deutsche Asset Management |
Kathleen Sullivan D'Eramo6 (1957) Assistant Treasurer, 2003-present | Director4, Deutsche Asset Management |
John Robbins5 (1966) Anti-Money Laundering Compliance Officer, 2005-present | Managing Director4, Deutsche Asset Management (since 2005); formerly, Chief Compliance Officer and Anti-Money Laundering Compliance Officer for GE Asset Management (1999-2005) |
Robert Kloby5 (1962) Chief Compliance Officer, 2006-present | Managing Director4, Deutsche Asset Management (2004-present); formerly, Chief Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988) |
A. Thomas Smith5 (1956) Chief Legal Officer, 2005-present | Managing Director4, Deutsche Asset Management (2004-present); formerly, General Counsel, Morgan Stanley and Van Kampen and Investments (1999-2004); Vice President and Associate General Counsel, New York Life Insurance Company (1994-1999); senior attorney, The Dreyfus Corporation (1991-1993); senior attorney, Willkie Farr & Gallagher (1989-1991); staff attorney, US Securities & Exchange Commission and the Illinois Securities Department (1986-1989) |
1 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
2 The mailing address of Axel Schwarzer is c/o Deutsche Investment Management Americas Inc., 345 Park Avenue, New York, New York 10154. Mr. Schwarzer is an interested Board Member by virtue of his positions with Deutsche Asset Management.
3 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the funds.
4 Executive title, not a board directorship.
5 Address: 345 Park Avenue, New York, New York 10154.
6 Address: Two International Place, Boston, MA 02110.
The fund's Statement of Additional Information ("SAI") includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: 1-800-621-1048.
For shareholders of Classes A, B, C and Investment and Institutional Classes | |
Automated Information Line | (800) 621-1048 Personalized account information, information on other DWS funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | www.dws-scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a DWS Scudder service representative. |
Written Correspondence | DWS Scudder PO Box 219151 |
Proxy Voting | A description of 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 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at 1-800-621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: DWS Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class A | Class B | Class C |
Nasdaq Symbol | SGHAX | SGHBX | SGHCX |
CUSIP Number | 23339E 699 | 23339E 681 | 23339E 673 |
Fund Number | 416 | 616 | 716 |
| Investment Class | Institutional Class |
Nasdaq Symbol | MGHVX | MGHYX |
CUSIP Number | 23339E 632 | 23339E 640 |
Fund Number | 824 | 596 |
For shareholders of Class S | |
Automated Information Line | (800) 728-3337 Personalized account information, the ability to exchange or redeem shares, and information on other DWS funds and services via touchtone telephone. |
Web Site | www.dws-scudder.com |
| View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 728-3337 To speak with a DWS Scudder service representative. |
Written Correspondence | DWS Scudder PO Box 219151 |
Proxy Voting | A description of 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 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at 1-800-621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: DWS Scudder Distributors, Inc. 222 South Riverside Plaza (800) 621-1148 |
| Class S |
Nasdaq Symbol | SGHSX |
Fund Number | 2100 |
Notes
Notes
| ITEM 2. | CODE OF ETHICS. |
As of the end of the period, October 31, 2006, DWS High Income Plus Fund has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there are several “audit committee financial experts” serving on the Funds’ audit committee. The Board has determined that Keith R Fox, the chair of the Funds’ audit committee, qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on its review of Mr. Fox’s pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
DWS HIGH INCOME PLUS FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP (“PWC”), the Fund’s independent registered public accounting firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund
Fiscal Year | Audit Fees Billed to Fund | Audit-Related | Tax Fees Billed to Fund | All |
2006 | $62,500 | $128 | $0 | $0 |
2005 | $46,250 | $225 | $0 | $0 |
The above “Audit- Related Fees” were billed for agreed upon procedures performed.
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by PWC to Deutsche Investment Management Americas, Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
Fiscal Year | Audit-Related | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All |
2006 | $155,500 | $11,930 | $0 |
2005 | $309,400 | $197,605 | $0 |
The “Audit-Related Fees” were billed for services in connection with the agreed-upon procedures related to fund mergers and additional costs related to annual audits and the above “Tax Fees” were billed in connection with tax advice and agreed-upon procedures.
Non-Audit Services
The following table shows the amount of fees that PWC billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that PWC provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from PWC about any non-audit services that PWC rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating PWC’s independence.
Fiscal Year | Total (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) |
2006 | $0 | $11,930 | $0 | $11,930 |
2005 | $0 | $197,605 | $104,635 | $302,240 |
All other engagement fees were billed for services in connection with training seminars and risk management initiatives for DeIM and other related entities that provide support for the operations of the fund.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
| Not Applicable |
| ITEM 6. | SCHEDULE OF INVESTMENTS |
| Not Applicable |
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| Not Applicable |
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
| Not applicable. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
| Not Applicable. |
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The Committee on Independent Trustees/Directors selects and nominates Independent Trustees/Directors. Fund shareholders may submit nominees that will be considered by the committee when a Board vacancy occurs. Submissions should be mailed to: c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33910.
| 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 registrant’s last half-year (the registrant’s second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
| 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.
Registrant: | DWS High Income Plus Fund, a series of DWS Advisor Funds |
By: | /s/Michael G. Clark |
| Michael G. Clark |
President
Date: | December 29, 2006 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Registrant: | DWS High Income Plus Fund, a series of DWS Advisor Funds |
By: | /s/Michael G. Clark |
| Michael G. Clark |
President
Date: | December 29, 2006 |
By: | /s/Paul Schubert |
| Paul Schubert |
Chief Financial Officer and Treasurer
Date: | December 29, 2006 |