UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-5002 |
DWS VARIABLE SERIES II (FORMERLY SCUDDER VARIABLE SERIES II)
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
Date of fiscal year end: | 12/31 |
Date of reporting period: | 12/31/05 |
ITEM 1. | REPORT TO STOCKHOLDERS |
DECEMBER 31, 2005
ANNUAL REPORT
DWS VARIABLE SERIES II
(formerly Scudder Variable Series II)
DWS Balanced VIP DWS Blue Chip VIP DWS Conservative Allocation VIP DWS Core Fixed Income VIP DWS Davis Venture Value VIP DWS Dreman Financial Services VIP DWS Dreman High Return Equity VIP DWS Dreman Small Cap Value VIP DWS Global Thematic VIP DWS Government & Agency Securities VIP DWS Growth Allocation VIP DWS High Income VIP DWS Income Allocation VIP DWS International Select Equity VIP DWS Janus Growth & Income VIP DWS Janus Growth Opportunities VIP DWS Large Cap Value VIP DWS Mercury Large Cap Core VIP DWS MFS Strategic Value VIP DWS Mid Cap Growth VIP DWS Moderate Allocation VIP DWS Money Market VIP DWS Oak Strategic Equity VIP DWS Salomon Aggressive Growth VIP DWS Small Cap Growth VIP DWS Strategic Income VIP DWS Technology VIP DWS Templeton Foreign Value VIP DWS Turner Mid Cap Growth VIP |
Contents
Performance Summary, Information About Your Portfolio's Expenses, Management Summary, Portfolio Summary, Investment Portfolio, Financial Statements and Financial Highlights for:
Click Here DWS Balanced VIP Click Here DWS Blue Chip VIP Click Here DWS Conservative Allocation VIP Click Here DWS Core Fixed Income VIP Click Here DWS Davis Venture Value VIP Click Here DWS Dreman Financial Services VIP Click Here DWS Dreman High Return Equity VIP Click Here DWS Dreman Small Cap Value VIP Click Here DWS Global Thematic VIP Click Here DWS Government & Agency Securities VIP Click Here DWS Growth Allocation VIP Click Here DWS High Income VIP Click Here DWS Income Allocation VIP Click Here DWS International Select Equity VIP Click Here DWS Janus Growth & Income VIP Click Here DWS Janus Growth Opportunities VIP Click Here DWS Large Cap Value VIP Click Here DWS Mercury Large Cap Core VIP Click Here DWS MFS Strategic Value VIP Click Here DWS Mid Cap Growth VIP Click Here DWS Moderate Allocation VIP Click Here DWS Money Market VIP Click Here DWS Oak Strategic Equity VIP Click Here DWS Salomon Aggressive Growth VIP Click Here DWS Small Cap Growth VIP Click Here DWS Strategic Income VIP Click Here DWS Technology VIP Click Here DWS Templeton Foreign Value VIP Click Here DWS Turner Mid Cap Growth VIP Click Here Notes to Financial Statements Click Here Report of Independent Registered Public Accounting Firm Click Here Tax Information Click Here Proxy Voting Click Here Shareholder Meeting Results Click Here Investment Management Agreement Approvals Click Here Trustees and Officers |
This report must be preceded or accompanied by a prospectus. To obtain a prospectus, call (800) 778-1482 or your financial representative. We advise you to carefully consider the product's objectives, risks, charges and expenses before investing. The prospectus contains this and other important information about the product. Please read the prospectus carefully before you invest.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Investments in variable portfolios involve risk. Some portfolios have more risk than others. These include portfolios that allow exposure to or otherwise concentrate investments in certain sectors, geographic regions, security types, market capitalization or foreign securities (e.g., political or economic instability, which can be accentuated in Emerging Market countries). Please read the prospectus for specific details regarding its investments and 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.
Effective October 28, 2005, Scudder Aggressive Growth Portfolio changed its name to Scudder Mid Cap Growth Portfolio, and effective August 1, 2005, SVS INVESCO Dynamic Growth Portfolio changed its name to Scudder Salomon Aggressive Growth Portfolio.
Performance Summary December 31, 2005
DWS Balanced VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The Portfolio also 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 portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Balanced VIP from 12/31/1995 to 12/31/2005 | ||
[] DWS Balanced VIP — Class A [] S&P 500 Index [] Lehman Brothers Aggregate Bond Index | The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Lehman Brothers Aggregate Bond Index is an unmanaged market value-weighted measure of treasury issues, agency issues, corporate and issues and mortgage securities. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Balanced VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,430 | $13,136 | $10,464 | $18,867 |
Average annual total return | 4.30% | 9.52% | .91% | 6.55% | |
S&P 500 Index | Growth of $10,000 | $10,491 | $14,970 | $10,275 | $23,836 |
Average annual total return | 4.91% | 14.39% | .54% | 9.07% | |
Lehman Brothers Aggregate Bond Index | Growth of $10,000 | $10,243 | $11,126 | $13,303 | $18,189 |
Average annual total return | 2.43% | 3.62% | 5.87% | 6.16% | |
DWS Balanced VIP |
| 1-Year | 3-Year | Life of Class* | |
Class B | Growth of $10,000 |
| $10,390 | $12,991 | $12,444 |
Average annual total return |
| 3.90% | 9.11% | 6.45% | |
S&P 500 Index | Growth of $10,000 |
| $10,491 | $14,970 | $13,428 |
Average annual total return |
| 4.91% | 14.39% | 8.79% | |
Lehman Brothers Aggregate Bond Index | Growth of $10,000 |
| $10,243 | $11,126 | $11,819 |
Average annual total return |
| 2.43% | 3.62% | 4.89% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Balanced VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Advisor limited these expenses, had they not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,035.00 |
| $ 1,033.20 |
|
Expenses Paid per $1,000* | $ 2.62 |
| $ 4.56 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,022.63 |
| $ 1,020.72 |
|
Expenses Paid per $1,000* | $ 2.60 |
| $ 4.53 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Balanced VIP | .51% |
| .89% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Balanced VIP
The US economy posted positive growth for all four quarters of 2005, with concerns about inflation and the sustainability of the economic expansion seeming to abate as the year progressed. All major asset classes — equities, bonds and cash — had positive returns for the year.
For the 12 months ended December 31, 2005, the return of DWS Balanced VIP (Class A shares, unadjusted for contract charges) was 4.30%. As expected, since this Portfolio invests in a blend of equity and bond securities, the Portfolio's return was between those of our major equity and bond benchmarks, the Standard & Poor's 500 (S&P 500) Index, which returned 4.91%, and the Lehman Brothers Aggregate Bond Index, with a return of 2.43%. The Portfolio's Lipper peer group of Balanced Funds had an average return of 4.69%.
During 2005, the Portfolio's asset allocation was close to the revised targets defined in the fourth quarter of 2004 for each of the major asset classes, which are large-cap growth, large-cap value, small cap, investment-grade bonds and high-yield bonds. Throughout the year, equities were overweight and bonds were underweight relative to the target allocations. For most of the year, large-cap growth stocks were the most tactically overweight asset class; this positioning contributed to performance. On balance, tactical asset allocations (that is, overweights or underweights of asset classes relative to the strategic targets) contributed marginally to performance.
Among the equity strategies, large-cap growth had an excellent year, largely because of an overweight in energy, which was the best-performing sector. The large-cap value portion of the Portfolio lagged, mainly because of an emphasis on high-quality large-cap stocks at a time that lower-quality mid-cap issues were performing better, and also because of an emphasis within the energy industry on large integrated oil companies, which performed well but not as well as oil service companies. The small-cap portion of the Portfolio also disappointed, with most of the underperformance occurring in the second half of the year when lower-quality stocks with little or no earnings rallied; this Portfolio's focus is on higher-quality issues. Performance of the high-yield bond portion of the fixed-income Portfolio was exceptionally strong. The core fixed-income sleeve also outperformed its benchmark, the Lehman Brothers Aggregate Bond Index.
Andrew P. Cestone Thomas F. Sassi
William Chepolis, CFA Julie M. Van Cleave, CFA
Inna Okounkova Robert Wang
Portfolio Managers
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The Portfolio also 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 portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Standard & Poor's 500 (S&P 500) Index is an unmanaged capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Lehman Brothers Aggregate Bond Index is an unmanaged, market-value-weighted measure of treasury issues, agency issues, corporate bond issues and mortgage securities.
Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
The Lipper Balanced Fund category includes funds whose primary objective is to conserve principal by maintaining at all times a balanced portfolio of both stocks and bonds. Typically, the stock/bond ratio ranges around 60%/40%. It is not possible to invest directly in a Lipper category.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Balanced VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 58% | 60% |
Corporate Bonds | 12% | 11% |
Commercial and Non-Agency Mortgage Backed Securities | 7% | 2% |
Cash Equivalents | 5% | 3% |
Collateralized Mortgage Obligations | 5% | 7% |
US Treasury Obligations | 3% | 4% |
Foreign Bonds — US$ Denominated | 3% | 5% |
US Government Agency Sponsored Pass-Throughs | 2% | 1% |
Asset Backed | 2% | 3% |
Municipal Bonds and Notes | 2% | 2% |
US Government Sponsored Agencies | 1% | — |
Foreign Bonds — Non US$ Denominated | — | 1% |
Government National Mortgage Association | — | 1% |
| 100% | 100% |
Sector Diversification (As a % of Corporate Bonds and Foreign Bonds) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 19% | 19% |
Information Technology | 18% | 19% |
Consumer Discretionary | 12% | 12% |
Energy | 12% | 9% |
Health Care | 12% | 16% |
Industrials | 10% | 11% |
Consumer Staples | 7% | 8% |
Materials | 4% | 4% |
Utilities | 3% | 1% |
Telecommunication Services | 3% | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 8. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Balanced VIP
|
| Value ($) |
|
| |
Common Stocks 58.2% | ||
Consumer Discretionary 5.7% | ||
Auto Components 0.2% | ||
American Axle & Manufacturing Holdings, Inc. | 20,800 | 381,264 |
ArvinMeritor, Inc. | 24,500 | 352,555 |
CSK Auto Corp.* | 23,200 | 349,856 |
Modine Manufacturing Co. | 7,700 | 250,943 |
| 1,334,618 | |
Automobiles 0.3% | ||
Harley-Davidson, Inc. | 34,000 | 1,750,660 |
Distributors 0.0% | ||
Audiovox Corp. "A"* | 16,100 | 223,146 |
Diversified Consumer Services 0.1% | ||
Alderwoods Group, Inc.* | 22,500 | 357,075 |
Hotels Restaurants & Leisure 0.4% | ||
Ameristar Casinos, Inc. | 15,000 | 340,500 |
CKE Restaurants, Inc. | 15,200 | 205,352 |
Luby's, Inc.* | 9,700 | 129,010 |
MTR Gaming Group, Inc.* | 4,600 | 47,886 |
Multimedia Games, Inc.* | 27,900 | 258,075 |
RARE Hospitality International, Inc.* | 12,800 | 388,992 |
Starbucks Corp.* | 48,900 | 1,467,489 |
| 2,837,304 | |
Household Durables 0.2% | ||
American Woodmark Corp. | 9,600 | 237,984 |
Fortune Brands, Inc. | 17,000 | 1,326,340 |
| 1,564,324 | |
Internet & Catalog Retail 0.3% | ||
Blair Corp. | 400 | 15,576 |
eBay, Inc.* | 41,800 | 1,807,850 |
Stamps.com, Inc.* | 7,400 | 169,904 |
| 1,993,330 | |
Leisure Equipment & Products 0.0% | ||
JAKKS Pacific, Inc.* | 12,400 | 259,656 |
Media 0.9% | ||
LodgeNet Entertainment Corp.* | 1,400 | 19,516 |
McGraw-Hill Companies, Inc. | 52,100 | 2,689,923 |
Mediacom Communications Corp. "A"* | 50,000 | 274,500 |
Omnicom Group, Inc. | 28,700 | 2,443,231 |
Playboy Enterprises, Inc. "B"* | 6,800 | 94,452 |
Sinclair Broadcast Group, Inc. "A" | 36,400 | 334,880 |
| 5,856,502 | |
Multiline Retail 1.2% | ||
Federated Department Stores, Inc. | 16,000 | 1,061,280 |
Kohl's Corp.* | 71,600 | 3,479,760 |
Target Corp. | 60,300 | 3,314,691 |
The Bon-Ton Stores, Inc. | 10,900 | 208,517 |
| 8,064,248 | |
Specialty Retail 2.0% | ||
Bed Bath & Beyond, Inc.* | 21,600 | 780,840 |
Cato Corp. "A" | 3,550 | 76,147 |
|
| Value ($) |
|
| |
Charming Shoppes, Inc.* | 26,100 | 344,520 |
Home Depot, Inc. | 12,200 | 493,856 |
Jos. A. Bank Clothiers, Inc.* | 7,100 | 308,211 |
Limited Brands, Inc. | 85,400 | 1,908,690 |
Lowe's Companies, Inc. | 48,300 | 3,219,678 |
Pacific Sunwear of California, Inc.* | 16,700 | 416,164 |
Payless ShoeSource, Inc.* | 16,800 | 421,680 |
Select Comfort Corp.* | 11,400 | 311,790 |
Staples, Inc. | 79,000 | 1,794,090 |
TJX Companies, Inc. | 163,500 | 3,798,105 |
Trans World Entertainment Corp.* | 21,000 | 119,700 |
| 13,993,471 | |
Textiles, Apparel & Luxury Goods 0.1% | ||
Guess?, Inc.* | 7,400 | 263,440 |
Steven Madden Ltd. | 12,500 | 365,375 |
| 628,815 | |
Consumer Staples 4.8% | ||
Beverages 0.8% | ||
Diageo PLC | 50,394 | 730,472 |
PepsiCo, Inc. | 77,080 | 4,553,887 |
| 5,284,359 | |
Food & Staples Retailing 1.0% | ||
Casey's General Stores, Inc. | 9,300 | 230,640 |
Longs Drug Stores Corp. | 9,400 | 342,066 |
Nash-Finch Co. | 8,100 | 206,388 |
Pantry, Inc.* | 6,200 | 291,338 |
Wal-Mart Stores, Inc. | 61,600 | 2,882,880 |
Walgreen Co. | 60,600 | 2,682,156 |
| 6,635,468 | |
Food Products 1.4% | ||
Chiquita Brands International, Inc. | 17,000 | 340,170 |
Dean Foods Co.* | 28,400 | 1,069,544 |
General Mills, Inc. | 50,400 | 2,485,728 |
Kellogg Co. | 39,200 | 1,694,224 |
Ralcorp Holdings, Inc.* | 5,600 | 223,496 |
Sanderson Farms, Inc. | 10,100 | 308,353 |
Seaboard Corp. | 100 | 151,100 |
The Hershey Co. | 23,100 | 1,276,275 |
Unilever NV (NY Shares) | 28,500 | 1,956,525 |
| 9,505,415 | |
Household Products 1.6% | ||
Colgate-Palmolive Co. | 67,700 | 3,713,345 |
Kimberly-Clark Corp. | 54,800 | 3,268,820 |
Procter & Gamble Co. | 70,300 | 4,068,964 |
| 11,051,129 | |
Personal Products 0.0% | ||
USANA Health Sciences, Inc.* | 7,000 | 268,520 |
Energy 7.9% | ||
Energy Equipment & Services 2.1% | ||
Baker Hughes, Inc. | 79,100 | 4,807,698 |
Crosstex Energy, Inc. | 600 | 37,836 |
Halliburton Co. | 43,300 | 2,682,868 |
Noble Corp. | 13,000 | 917,020 |
Parker Drilling Co.* | 5,900 | 63,897 |
|
| Value ($) |
|
| |
Schlumberger Ltd. | 32,900 | 3,196,235 |
Transocean, Inc.* | 42,830 | 2,984,823 |
| 14,690,377 | |
Oil, Gas & Consumable Fuels 5.8% | ||
Berry Petroleum Co. "A" | 700 | 40,040 |
BP PLC (ADR) | 44,800 | 2,877,056 |
Cabot Oil & Gas Corp. | 10,400 | 469,040 |
Chevron Corp. | 78,400 | 4,450,768 |
Comstock Resources, Inc.* | 10,900 | 332,559 |
ConocoPhillips | 84,940 | 4,941,809 |
Devon Energy Corp. | 59,400 | 3,714,876 |
Energy Partners Ltd.* | 14,800 | 322,492 |
EOG Resources, Inc. | 51,000 | 3,741,870 |
ExxonMobil Corp. | 118,700 | 6,667,379 |
Frontier Oil Corp. | 9,500 | 356,535 |
Giant Industries, Inc.* | 5,100 | 264,996 |
Harvest Natural Resources, Inc.* | 26,100 | 231,768 |
KCS Energy, Inc.* | 12,200 | 295,484 |
Marathon Oil Corp. | 41,100 | 2,505,867 |
Penn Virginia Corp. | 6,700 | 384,580 |
PetroChina Co., Ltd. (ADR) | 9,600 | 786,816 |
PetroQuest Energy, Inc.* | 25,800 | 213,624 |
Remington Oil & Gas Corp.* | 3,300 | 120,450 |
Royal Dutch Shell PLC "A" (ADR) | 42,000 | 2,582,580 |
Swift Energy Co.* | 8,700 | 392,109 |
Valero Energy Corp. | 48,600 | 2,507,760 |
XTO Energy, Inc. | 37,766 | 1,659,438 |
| 39,859,896 | |
Financials 9.7% | ||
Banks 4.0% | ||
AmSouth Bancorp. | 89,600 | 2,348,416 |
BancFirst Corp. | 600 | 47,400 |
Bank of America Corp. | 160,400 | 7,402,460 |
Center Financial Corp. | 15,900 | 400,044 |
City Holding Co. | 3,700 | 133,015 |
Corus Bankshares, Inc. | 2,200 | 123,794 |
CVB Financial Corp. | 3,775 | 76,670 |
Fidelity Bancshares, Inc. | 5,350 | 174,945 |
First Community Bancorp. | 4,200 | 228,354 |
First Niagara Financial Group, Inc. | 4,400 | 63,668 |
First Place Financial Corp. | 1,100 | 26,455 |
FirstFed Financial Corp.* | 3,100 | 169,012 |
Fremont General Corp. | 16,100 | 374,003 |
Frontier Financial Corp. | 2,050 | 65,600 |
Hanmi Financial Corp. | 11,000 | 196,460 |
Macatawa Bank Corp. | 900 | 32,742 |
Midwest Banc Holdings, Inc. | 4,400 | 97,900 |
Oriental Financial Group, Inc. | 31,400 | 388,104 |
Pacific Capital Bancorp. | 3,200 | 113,856 |
PFF Bancorp., Inc. | 4,450 | 135,814 |
PNC Financial Services Group, Inc. | 35,000 | 2,164,050 |
Prosperity Bancshares, Inc. | 8,500 | 244,290 |
Republic Bancorp., Inc. | 450 | 5,355 |
Sterling Bancshares, Inc. | 21,400 | 330,416 |
SunTrust Banks, Inc. | 17,900 | 1,302,404 |
SVB Financial Group* | 10,700 | 501,188 |
TierOne Corp. | 7,600 | 223,516 |
Umpqua Holdings Corp. | 1,000 | 28,530 |
US Bancorp. | 57,300 | 1,712,697 |
Wachovia Corp. | 78,900 | 4,170,654 |
Wells Fargo & Co. | 60,800 | 3,820,064 |
West Coast Bancorp. | 1,700 | 44,965 |
|
| Value ($) |
|
| |
WSFS Financial Corp. | 3,800 | 232,750 |
| 27,379,591 | |
Capital Markets 1.7% | ||
Bear Stearns Companies, Inc. | 16,400 | 1,894,692 |
Investment Technology Group, Inc.* | 9,300 | 329,592 |
Lehman Brothers Holdings, Inc. | 18,000 | 2,307,060 |
Merrill Lynch & Co., Inc. | 40,900 | 2,770,157 |
Morgan Stanley | 32,500 | 1,844,050 |
Piper Jaffray Companies, Inc.* | 12,400 | 500,960 |
The Goldman Sachs Group, Inc. | 15,100 | 1,928,421 |
| 11,574,932 | |
Consumer Finance 0.3% | ||
American Express Co. | 32,400 | 1,667,304 |
Diversified Financial Services 1.9% | ||
Apollo Investment Corp. | 6,060 | 108,656 |
Citigroup, Inc. | 118,732 | 5,762,064 |
CompuCredit Corp.* | 7,100 | 273,208 |
Freddie Mac | 33,200 | 2,169,620 |
JPMorgan Chase & Co. | 111,100 | 4,409,559 |
Partners Trust Financial Group, Inc. | 14,800 | 178,340 |
Santander BanCorp | 3,000 | 75,360 |
TNS, Inc.* | 13,600 | 260,848 |
| 13,237,655 | |
Insurance 1.2% | ||
AFLAC, Inc. | 81,800 | 3,797,156 |
American International Group, Inc. | 50,400 | 3,438,792 |
Bristol West Holdings, Inc. | 6,100 | 116,083 |
Navigators Group, Inc.* | 6,700 | 292,187 |
Tower Group, Inc. | 22,500 | 494,550 |
Zenith National Insurance Corp. | 3,000 | 138,360 |
| 8,277,128 | |
Real Estate 0.6% | ||
Brandywine Realty Trust (REIT) | 7,000 | 195,370 |
Colonial Properties Trust (REIT) | 4,700 | 197,306 |
Commercial Net Lease Realty (REIT) | 9,100 | 185,367 |
Corporate Office Properties Trust (REIT) | 4,900 | 174,146 |
Cousins Properties, Inc. (REIT) | 5,700 | 161,310 |
EastGroup Properties, Inc. (REIT) | 1,500 | 67,740 |
FelCor Lodging Trust, Inc. (REIT) | 12,000 | 206,520 |
First Industrial Realty Trust, Inc. (REIT) | 3,100 | 119,350 |
Glenborough Realty Trust, Inc. (REIT) | 4,000 | 72,400 |
Glimcher Realty Trust (REIT) | 3,800 | 92,416 |
Heritage Property Investment Trust (REIT) | 4,900 | 163,660 |
Highwoods Properties, Inc. (REIT) | 7,500 | 213,375 |
Home Properties, Inc. (REIT) | 4,500 | 183,600 |
Jones Lang LaSalle, Inc. (REIT) | 8,800 | 443,080 |
Kilroy Realty Corp. (REIT) | 2,800 | 173,320 |
Lexington Corporate Properties Trust (REIT) | 10,100 | 215,130 |
LTC Properties, Inc. (REIT) | 1,300 | 27,339 |
Maguire Properties, Inc. (REIT) | 200 | 6,180 |
Nationwide Health Properties, Inc. (REIT) | 10,300 | 220,420 |
Newcastle Investment Corp. (REIT) | 6,300 | 156,555 |
OMEGA Healthcare Investors, Inc. (REIT) | 2,500 | 31,475 |
Parkway Properties, Inc. (REIT) | 3,600 | 144,504 |
|
| Value ($) |
|
| |
Pennsylvania Real Estate Investment Trust (REIT) | 2,900 | 108,344 |
Senior Housing Properties Trust (REIT) | 11,700 | 197,847 |
Sun Communities, Inc. (REIT) | 1,600 | 50,240 |
Taubman Centers, Inc. (REIT) | 4,100 | 142,475 |
Town & Country Trust (REIT) | 1,200 | 40,572 |
Urstadt Biddle Properties "A" (REIT) | 1,200 | 19,452 |
Washington Real Estate Investment Trust (REIT) | 7,500 | 227,625 |
| 4,237,118 | |
Health Care 8.1% | ||
Biotechnology 1.8% | ||
Albany Molecular Research, Inc.* | 21,500 | 261,225 |
Alkermes, Inc.* | 17,900 | 342,248 |
Amgen, Inc.* | 30,300 | 2,389,458 |
Digene Corp.* | 7,900 | 230,443 |
Genentech, Inc.* | 56,300 | 5,207,750 |
Geron Corp.* | 19,800 | 170,478 |
Gilead Sciences, Inc.* | 66,700 | 3,510,421 |
ImmunoGen, Inc.* | 32,000 | 164,160 |
| 12,276,183 | |
Health Care Equipment & Supplies 2.0% | ||
Align Technology, Inc.* | 32,700 | 211,569 |
Alliance Imaging, Inc.* | 35,600 | 211,820 |
American Medical Systems Holdings, Inc.* | 18,800 | 335,204 |
Baxter International, Inc. | 119,600 | 4,502,940 |
Boston Scientific Corp.* | 46,700 | 1,143,683 |
C.R. Bard, Inc. | 18,700 | 1,232,704 |
Cypress Bioscience, Inc.* | 28,700 | 165,886 |
DJ Orthopedics, Inc.* | 3,000 | 82,740 |
Integra LifeSciences Holdings* | 9,300 | 329,778 |
Medtronic, Inc. | 47,000 | 2,705,790 |
Mentor Corp. | 7,400 | 340,992 |
Vital Images, Inc.* | 6,900 | 180,435 |
Zimmer Holdings, Inc.* | 38,600 | 2,603,184 |
| 14,046,725 | |
Health Care Providers & Services 1.3% | ||
Chemed Corp. | 5,200 | 258,336 |
CorVel Corp.* | 15,900 | 301,941 |
LCA-Vision, Inc. | 800 | 38,008 |
Magellan Health Services, Inc.* | 11,600 | 364,820 |
MedCath Corp.* | 12,500 | 231,875 |
Odyssey HealthCare, Inc.* | 14,200 | 264,688 |
Pediatrix Medical Group, Inc.* | 4,200 | 371,994 |
Per-Se Technologies, Inc.* | 11,900 | 277,984 |
United Surgical Partners International, Inc.* | 10,300 | 331,145 |
UnitedHealth Group, Inc. | 100,100 | 6,220,214 |
| 8,661,005 | |
Pharmaceuticals 3.0% | ||
Abbott Laboratories | 152,400 | 6,009,132 |
Alpharma, Inc. "A" | 10,000 | 285,100 |
Bentley Pharmaceuticals, Inc.* | 11,800 | 193,638 |
Durect Corp.* | 28,400 | 143,988 |
Eli Lilly & Co. | 22,000 | 1,244,980 |
Encysive Pharmaceuticals, Inc.* | 18,500 | 145,965 |
Hi-Tech Pharmacal Co., Inc.* | 3,300 | 146,157 |
Johnson & Johnson | 135,082 | 8,118,428 |
Mylan Laboratories, Inc. | 46,500 | 928,140 |
|
| Value ($) |
|
| |
Pfizer, Inc. | 37,425 | 872,751 |
Progenics Pharmaceuticals, Inc.* | 9,000 | 225,090 |
Rigel Pharmaceuticals, Inc.* | 19,400 | 162,184 |
Salix Pharmaceuticals Ltd.* | 11,500 | 202,170 |
SuperGen, Inc.* | 30,500 | 154,025 |
United Therapeutics Corp.* | 3,600 | 248,832 |
Wyeth | 41,700 | 1,921,119 |
| 21,001,699 | |
Industrials 5.9% | ||
Aerospace & Defense 1.3% | ||
Honeywell International, Inc. | 36,500 | 1,359,625 |
Kaman Corp. | 1,300 | 25,597 |
L-3 Communications Holdings, Inc. | 28,100 | 2,089,235 |
Teledyne Technologies, Inc.* | 12,100 | 352,110 |
United Technologies Corp. | 97,200 | 5,434,452 |
| 9,261,019 | |
Air Freight & Logistics 0.7% | ||
FedEx Corp. | 45,400 | 4,693,906 |
Airlines 0.1% | ||
Continental Airlines, Inc. "B"* | 11,200 | 238,560 |
Republic Airways Holdings, Inc.* | 24,900 | 378,480 |
| 617,040 | |
Building Products 0.2% | ||
Eagle Materials, Inc. | 3,600 | 440,496 |
LSI Industries, Inc. | 14,400 | 225,504 |
Universal Forest Products, Inc. | 6,700 | 370,175 |
Willian Lyon Homes, Inc.* | 2,700 | 272,430 |
| 1,308,605 | |
Commercial Services & Supplies 0.5% | ||
Administaff, Inc. | 5,700 | 239,685 |
aQuantive, Inc.* | 5,100 | 128,724 |
Bright Horizons Family Solutions, Inc.* | 1,700 | 62,985 |
Clean Harbors, Inc.* | 7,000 | 201,670 |
Consolidated Graphics, Inc.* | 2,600 | 123,084 |
Electro Rent Corp.* | 22,000 | 328,020 |
infoUSA, Inc. | 1,700 | 18,581 |
John H. Harland Co. | 9,700 | 364,720 |
Labor Ready, Inc.* | 14,700 | 306,054 |
LoJack Corp.* | 7,100 | 171,323 |
Pitney Bowes, Inc. | 38,000 | 1,605,500 |
SOURCECORP, Inc.* | 2,500 | 59,950 |
TeleTech Holdings, Inc.* | 23,100 | 278,355 |
| 3,888,651 | |
Construction & Engineering 0.1% | ||
EMCOR Group, Inc.* | 5,000 | 337,650 |
Granite Construction, Inc. | 10,100 | 362,691 |
URS Corp.* | 8,500 | 319,685 |
| 1,020,026 | |
Electrical Equipment 0.4% | ||
C&D Technologies, Inc. | 20,000 | 152,400 |
Emerson Electric Co. | 30,900 | 2,308,230 |
Genlyte Group, Inc.* | 4,700 | 251,779 |
| 2,712,409 | |
Industrial Conglomerates 1.4% | ||
Blount International, Inc.* | 22,600 | 360,018 |
General Electric Co. | 264,700 | 9,277,735 |
| 9,637,753 | |
|
| Value ($) |
|
| |
Machinery 1.0% | ||
Cascade Corp. | 4,900 | 229,859 |
Caterpillar, Inc. | 27,500 | 1,588,675 |
Dover Corp. | 48,100 | 1,947,569 |
Ingersoll-Rand Co., Ltd. "A" | 60,300 | 2,434,311 |
JLG Industries, Inc. | 8,000 | 365,280 |
Mueller Industries, Inc. | 300 | 8,226 |
Sauer-Danfoss, Inc. | 12,400 | 233,244 |
| 6,807,164 | |
Road & Rail 0.1% | ||
Dollar Thrifty Automotive Group, Inc.* | 2,200 | 79,354 |
US Xpress Enterprises, Inc. "A"* | 16,700 | 290,246 |
| 369,600 | |
Trading Companies & Distributors 0.1% | ||
Applied Industrial Technologies, Inc. | 11,200 | 377,328 |
Information Technology 12.5% | ||
Communications Equipment 1.7% | ||
Avocent Corp.* | 7,400 | 201,206 |
Cisco Systems, Inc.* | 315,100 | 5,394,512 |
Comtech Telecommunications Corp.* | 2,400 | 73,296 |
Nokia Oyj (ADR) | 207,100 | 3,789,930 |
QUALCOMM, Inc. | 57,700 | 2,485,716 |
| 11,944,660 | |
Computers & Peripherals 2.5% | ||
Advanced Digital Information Corp.* | 23,600 | 231,044 |
Apple Computer, Inc.* | 36,300 | 2,609,607 |
Dell, Inc.* | 57,900 | 1,736,421 |
EMC Corp.* | 220,800 | 3,007,296 |
Hewlett-Packard Co. | 109,400 | 3,132,122 |
Imation Corp. | 8,600 | 396,202 |
Intergraph Corp.* | 8,100 | 403,461 |
International Business Machines Corp. | 62,400 | 5,129,280 |
Komag, Inc.* | 7,200 | 249,552 |
| 16,894,985 | |
Electronic Equipment & Instruments 0.2% | ||
Agilysys, Inc. | 12,200 | 222,284 |
Itron, Inc.* | 6,400 | 256,256 |
MTS Systems Corp. | 7,900 | 273,656 |
Plexus Corp.* | 15,400 | 350,196 |
Technitrol, Inc. | 18,800 | 321,480 |
Trident Microsystems, Inc.* | 13,000 | 234,000 |
| 1,657,872 | |
Internet Software & Services 0.5% | ||
CNET Networks, Inc.* | 15,100 | 221,819 |
EarthLink, Inc.* | 17,200 | 191,092 |
eResearchTechnology, Inc.* | 5,100 | 77,010 |
Google, Inc. "A"* | 1,250 | 518,575 |
InfoSpace, Inc.* | 2,300 | 59,386 |
j2 Global Communications, Inc.* | 1,200 | 51,288 |
Online Resources Corp.* | 9,900 | 109,395 |
ProQuest Co.* | 4,500 | 125,595 |
Websense, Inc.* | 2,800 | 183,792 |
Yahoo!, Inc.* | 51,900 | 2,033,442 |
| 3,571,394 | |
|
| Value ($) |
|
| |
IT Consulting & Services 1.4% | ||
Accenture Ltd. "A" | 62,300 | 1,798,601 |
Automatic Data Processing, Inc. | 57,900 | 2,657,031 |
Covansys Corp.* | 14,500 | 197,345 |
CSG Systems International, Inc.* | 13,500 | 301,320 |
First Data Corp. | 45,000 | 1,935,450 |
Fiserv, Inc.* | 34,000 | 1,471,180 |
Intrado, Inc.* | 2,300 | 52,946 |
Paychex, Inc. | 23,800 | 907,256 |
Sapient Corp.* | 22,100 | 125,749 |
StarTek, Inc. | 18,100 | 325,800 |
| 9,772,678 | |
Semiconductors & Semiconductor Equipment 3.8% | ||
Advanced Energy Industries, Inc.* | 17,500 | 207,025 |
Applied Materials, Inc. | 201,000 | 3,605,940 |
Broadcom Corp. "A"* | 57,400 | 2,706,410 |
Cymer, Inc.* | 7,200 | 255,672 |
Diodes, Inc.* | 2,950 | 91,598 |
Emulex Corp.* | 15,200 | 300,808 |
Fairchild Semiconductor International, Inc.* | 19,700 | 333,127 |
Intel Corp. | 357,400 | 8,920,704 |
IXYS Corp.* | 18,000 | 210,420 |
Kopin Corp.* | 11,500 | 61,525 |
Kulicke & Soffa Industries, Inc.* | 13,800 | 121,992 |
Linear Technology Corp. | 51,400 | 1,853,998 |
Maxim Integrated Products, Inc. | 49,200 | 1,783,008 |
Micrel, Inc.* | 21,700 | 251,720 |
MKS Instruments, Inc.* | 13,200 | 236,148 |
OmniVision Technologies, Inc.* | 9,600 | 191,616 |
Photronics, Inc.* | 13,900 | 209,334 |
Texas Instruments, Inc. | 141,400 | 4,534,698 |
| 25,875,743 | |
Software 2.4% | ||
Adobe Systems, Inc. | 51,500 | 1,903,440 |
Altiris, Inc.* | 13,500 | 228,015 |
Ansoft Corp.* | 10,100 | 343,905 |
Blackbaud, Inc. | 18,100 | 309,148 |
Electronic Arts, Inc.* | 35,400 | 1,851,774 |
Internet Security Systems, Inc.* | 7,600 | 159,220 |
Lawson Software, Inc.* | 33,400 | 245,490 |
Microsoft Corp. | 357,900 | 9,359,085 |
MicroStrategy, Inc., "A"* | 22 | 1,820 |
Oracle Corp.* | 82,700 | 1,009,767 |
Parametric Technology Corp.* | 52,100 | 317,810 |
Quality Systems, Inc.* | 2,600 | 199,576 |
SPSS, Inc.* | 8,500 | 262,905 |
Witness Systems, Inc.* | 12,700 | 249,809 |
| 16,441,764 | |
Materials 1.5% | ||
Chemicals 0.8% | ||
Air Products & Chemicals, Inc. | 21,900 | 1,296,261 |
E.I. du Pont de Nemours & Co. | 52,700 | 2,239,750 |
Ecolab, Inc. | 43,400 | 1,574,118 |
Terra Industries, Inc.* | 8,500 | 47,600 |
| 5,157,729 | |
Construction Materials 0.0% | ||
Texas Industries, Inc. | 5,400 | 269,136 |
Containers & Packaging 0.3% | ||
Silgan Holdings, Inc. | 11,000 | 397,320 |
|
| Value ($) |
|
| |
Sonoco Products Co. | 61,900 | 1,819,860 |
| 2,217,180 | |
Metals & Mining 0.4% | ||
Aleris International, Inc.* | 8,000 | 257,920 |
Carpenter Technology Corp. | 4,900 | 345,303 |
Century Aluminum Co.* | 11,700 | 306,657 |
Cleveland-Cliffs, Inc. | 1,600 | 141,712 |
Commercial Metals Co. | 10,600 | 397,924 |
Intermet Corp.* | 1,269 | 14,760 |
Metal Management, Inc. | 8,200 | 190,732 |
Quanex Corp. | 7,400 | 369,778 |
Reliance Steel & Aluminum Co. | 6,100 | 372,832 |
USEC, Inc. | 10,100 | 120,695 |
| 2,518,313 | |
Paper & Forest Products 0.0% | ||
Deltic Timber Corp. | 5,400 | 280,044 |
Telecommunication Services 1.0% | ||
Diversified Telecommunication Services 0.9% | ||
Alaska Communications Systems Group, Inc. | 25,300 | 257,048 |
AT&T, Inc. | 99,100 | 2,426,959 |
CT Communications, Inc. | 11,600 | 140,824 |
General Communication, Inc. "A"* | 5,900 | 60,947 |
Golden Telecom, Inc. | 11,100 | 288,156 |
North Pittsburgh Systems, Inc. | 8,300 | 156,621 |
Premiere Global Services, Inc.* | 29,500 | 239,835 |
Shenandoah Telecommunications Co. | 1,600 | 63,744 |
TALK America Holdings, Inc.* | 23,200 | 200,216 |
Verizon Communications, Inc. | 79,200 | 2,385,504 |
| 6,219,854 | |
Wireless Telecommunication Services 0.1% | ||
Centennial Communications Corp.* | 15,200 | 235,904 |
Dobson Communications Corp. "A"* | 29,800 | 223,500 |
Syniverse Holdings, Inc.* | 4,000 | 83,600 |
UbiquiTel, Inc.* | 18,900 | 186,921 |
| 729,925 | |
Utilities 1.1% | ||
Electric Utilities 1.0% | ||
ALLETE, Inc. | 200 | 8,800 |
Cleco Corp. | 5,000 | 104,250 |
FPL Group, Inc. | 41,200 | 1,712,272 |
Otter Tail Corp. | 4,700 | 136,206 |
Progress Energy, Inc. | 38,600 | 1,695,312 |
Sierra Pacific Resources* | 33,200 | 432,928 |
Southern Co. | 84,600 | 2,921,238 |
| 7,011,006 | |
Gas Utilities 0.1% | ||
South Jersey Industries, Inc. | 10,200 | 297,228 |
Total Common Stocks (Cost $323,582,174) | 400,070,665 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Corporate Bonds 12.0% | ||
Consumer Discretionary 2.7% | ||
155 East Tropicana LLC, 8.75%, 4/1/2012 | 135,000 | 129,938 |
Adesa, Inc., 7.625%, 6/15/2012 | 40,000 | 39,800 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Affinia Group, Inc., 9.0%, 11/30/2014 | 220,000 | 173,800 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 285,000 | 257,925 |
AMFM, Inc., 8.0%, 11/1/2008 | 500,000 | 531,575 |
Auburn Hills Trust, 12.375%, 5/1/2020 | 131,000 | 194,788 |
AutoNation, Inc., 9.0%, 8/1/2008 | 150,000 | 161,063 |
Aztar Corp., 7.875%, 6/15/2014 | 315,000 | 329,962 |
Cablevision Systems Corp., Series B, 8.716%**, 4/1/2009 | 60,000 | 60,600 |
Caesars Entertainment, Inc.: |
|
|
8.875%, 9/15/2008 | 85,000 | 91,906 |
9.375%, 2/15/2007 | 75,000 | 78,094 |
Charter Communications Holdings LLC: |
|
|
9.625%, 11/15/2009 | 80,000 | 59,200 |
10.25%, 9/15/2010 | 510,000 | 507,450 |
144A, 11.0%, 10/1/2015 | 541,000 | 454,440 |
Comcast Cable Communications Holdings, Inc., 9.455%, 11/15/2022 | 220,000 | 288,243 |
Comcast MO of Delaware, Inc., 9.0%, 9/1/2008 | 150,000 | 163,885 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 | 215,000 | 163,400 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 75,000 | 74,813 |
7.875%, 12/15/2007 | 305,000 | 310,337 |
DaimlerChrysler NA Holding Corp.: |
|
|
4.75%, 1/15/2008 | 250,000 | 247,719 |
Series E, 4.78%**, 10/31/2008 | 389,000 | 389,217 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 723,000 | 845,910 |
Dura Operating Corp., Series B, 8.625%, 4/15/2012 | 240,000 | 198,000 |
EchoStar DBS Corp., 6.625%, 10/1/2014 | 90,000 | 86,288 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 135,000 | 142,763 |
Ford Motor Co., 7.45%, 7/16/2031 | 45,000 | 30,600 |
General Motors Corp., 8.25%, 7/15/2023 | 35,000 | 22,488 |
Goodyear Tire & Rubber Co., 11.0%, 3/1/2011 | 335,000 | 375,200 |
Gregg Appliances, Inc., 9.0%, 2/1/2013 | 60,000 | 54,300 |
GSC Holdings Corp., 144A, 8.0%, 10/1/2012 | 275,000 | 258,500 |
Harrah's Operating Co., Inc.: |
|
|
5.625%, 6/1/2015 | 668,000 | 656,258 |
5.75%, 10/1/2017 | 393,000 | 382,505 |
Hertz Corp., 144A, 8.875%, 1/1/2014 | 310,000 | 315,812 |
ITT Corp., 7.375%, 11/15/2015 | 80,000 | 86,800 |
Jacobs Entertainment, Inc., 11.875%, 2/1/2009 | 580,000 | 615,525 |
Levi Strauss & Co.: |
|
|
8.804%**, 4/1/2012 | 100,000 | 100,750 |
12.25%, 12/15/2012 | 30,000 | 33,450 |
Liberty Media Corp.: |
|
|
7.875%, 7/15/2009 | 10,000 | 10,537 |
8.5%, 7/15/2029 | 35,000 | 34,661 |
Mandalay Resort Group: |
|
|
6.5%, 7/31/2009 | 117,000 | 118,316 |
Series B, 10.25%, 8/1/2007 | 45,000 | 47,981 |
Mediacom Broadband LLC, 144A, 8.5%, 10/15/2015 | 95,000 | 87,994 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Mediacom LLC, 9.5%, 1/15/2013 | 45,000 | 43,931 |
MGM MIRAGE: |
|
|
6.0%, 10/1/2009 | 235,000 | 233,531 |
6.625%, 7/15/2015 | 85,000 | 84,788 |
8.375%, 2/1/2011 | 275,000 | 294,250 |
9.75%, 6/1/2007 | 145,000 | 152,794 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 95,000 | 101,413 |
NCL Corp., 10.625%, 7/15/2014 | 120,000 | 123,900 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 280,000 | 198,800 |
Paxson Communications Corp., Step-up Coupon, 0% to 1/15/2006, 12.25% to 1/15/2009 | 35,000 | 37,056 |
Petro Stopping Centers, 9.0%, 2/15/2012 | 185,000 | 185,925 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 280,000 | 298,200 |
Premier Entertainment Biloxi LLC/Finance, 10.75%, 2/1/2012 | 290,000 | 279,850 |
PRIMEDIA, Inc.: |
|
|
8.875%, 5/15/2011 | 100,000 | 92,250 |
9.715%**, 5/15/2010 | 310,000 | 297,988 |
Renaissance Media Group LLC, 10.0%, 4/15/2008 | 130,000 | 130,163 |
Resorts International Hotel & Casino, Inc., 11.5%, 3/15/2009 | 315,000 | 348,862 |
Schuler Homes, Inc., 10.5%, 7/15/2011 | 295,000 | 317,125 |
SGS International, Inc., 144A, 12.0%, 12/15/2013 | 80,000 | 80,131 |
Simmons Bedding Co.: |
|
|
144A, Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 335,000 | 180,900 |
7.875%, 1/15/2014 | 70,000 | 64,750 |
Sinclair Broadcast Group, Inc., 8.75%, 12/15/2011 | 560,000 | 589,400 |
Sirius Satellite Radio, Inc., 144A, 9.625%, 8/1/2013 | 350,000 | 344,750 |
TCI Communications, Inc., 8.75%, 8/1/2015 | 135,000 | 163,579 |
Tele-Communications, Inc.: |
|
|
9.875%, 6/15/2022 | 670,000 | 909,672 |
10.125%, 4/15/2022 | 28,000 | 38,306 |
Time Warner, Inc.: |
|
|
6.625%, 5/15/2029 | 95,000 | 94,867 |
7.625%, 4/15/2031 | 825,000 | 918,760 |
Toys "R" Us, Inc.: |
|
|
6.875%, 8/1/2006 | 40,000 | 39,800 |
7.375%, 10/15/2018 | 150,000 | 108,000 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 | 610,000 | 594,750 |
TRW Automotive, Inc., 11.0%, 2/15/2013 | 425,000 | 477,062 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 225,000 | 236,813 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 75,000 | 78,656 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14.0% to 12/31/2009 | 415,000 | 441,975 |
Young Broadcasting, Inc.: |
|
|
8.75%, 1/15/2014 | 540,000 | 475,875 |
10.0%, 3/1/2011 | 60,000 | 56,175 |
| 18,327,840 | |
| Principal Amount ($)(b) | Value ($) |
|
| |
Consumer Staples 0.4% | ||
Agrilink Foods, Inc., 11.875%, 11/1/2008 | 40,000 | 40,800 |
Alliance One International, Inc., 144A, 11.0%, 5/15/2012 | 215,000 | 189,200 |
Altria Group, Inc., 7.0%, 11/4/2013 | 250,000 | 273,561 |
Del Laboratories, Inc., 8.0%, 2/1/2012 | 95,000 | 75,050 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 30,000 | 30,780 |
9.0%, 4/15/2031 | 85,000 | 99,927 |
GNC Corp., 8.5%, 12/1/2010 | 25,000 | 21,500 |
Harry & David Holdings, Inc., 9.41%**, 3/1/2012 | 50,000 | 50,375 |
Kraft Foods, Inc., 6.25%, 6/1/2012 | 500,000 | 527,472 |
North Atlantic Trading Co., 9.25%, 3/1/2012 | 645,000 | 425,700 |
Swift & Co.: |
|
|
10.125%, 10/1/2009 | 110,000 | 113,575 |
12.5%, 1/1/2010 | 205,000 | 215,762 |
Viskase Co., Inc., 11.5%, 6/15/2011 | 385,000 | 410,025 |
| 2,473,727 | |
Energy 0.6% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 330,000 | 336,600 |
Chaparral Energy, Inc., 144A, 8.5%, 12/1/2015 | 205,000 | 212,175 |
Chesapeake Energy Corp.: |
|
|
6.5%, 8/15/2017 | 100,000 | 100,500 |
6.875%, 1/15/2016 | 240,000 | 246,000 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 | 65,000 | 64,025 |
7.125%, 5/15/2018 | 100,000 | 89,000 |
7.625%, 10/15/2026 | 60,000 | 53,400 |
8.75%, 2/15/2012 | 30,000 | 32,400 |
144A, 9.875%, 7/15/2010 | 465,000 | 509,756 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 150,000 | 155,625 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 60,000 | 61,200 |
Mission Resources Corp., 9.875%, 4/1/2011 | 15,000 | 15,750 |
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007 | 250,000 | 250,000 |
NGC Corp. Capital Trust I, Series B, 8.316%, 6/1/2027 | 300,000 | 265,500 |
Sonat, Inc., 7.0%, 2/1/2018 | 30,000 | 28,500 |
Southern Natural Gas, 8.875%, 3/15/2010 | 265,000 | 283,209 |
Stone Energy Corp.: |
|
|
6.75%, 12/15/2014 | 405,000 | 383,738 |
8.25%, 12/15/2011 | 205,000 | 211,663 |
Transmeridian, 12.0%**, 12/15/2010 | 80,000 | 92,800 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 | 545,000 | 594,050 |
8.75%, 3/15/2032 | 180,000 | 208,800 |
| 4,194,691 | |
Financials 3.3% | ||
Alamosa Delaware, Inc.: |
|
|
8.5%, 1/31/2012 | 30,000 | 32,438 |
11.0%, 7/31/2010 | 105,000 | 118,388 |
12.0%, 7/31/2009 | 110,000 | 120,313 |
American General Finance Corp.: |
|
|
Series H, 4.0%, 3/15/2011 | 1,314,000 | 1,243,048 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Series I, 4.875%, 5/15/2010 | 480,000 | 475,877 |
American General Institutional Capital, 144A, 8.125%, 3/15/2046 | 230,000 | 298,381 |
American International Group, Inc., 144A, 5.05%, 10/1/2015 | 700,000 | 687,001 |
AmeriCredit Corp., 9.25%, 5/1/2009 | 530,000 | 557,825 |
Ashton Woods USA LLC, 144A, 9.5%, 10/1/2015 | 230,000 | 207,288 |
Bear Stearns Companies, Inc., 5.3%, 10/30/2015 | 465,000 | 463,966 |
Dow Jones CDX HY: |
|
|
Series 5-T2, 144A, 7.25%, 12/29/2010 | 570,000 | 563,587 |
Series 5-T3, 144A, 8.25%, 12/29/2010 | 685,000 | 686,712 |
Series 5-T1, 144A, 8.75%, 12/29/2010 (a) | 1,975,050 | 1,982,456 |
E*TRADE Financial Corp.: |
|
|
144A, 7.375%, 9/15/2013 | 185,000 | 187,313 |
7.875%, 12/1/2015 | 225,000 | 232,312 |
8.0%, 6/15/2011 | 130,000 | 135,200 |
ERAC USA Finance Co., 144A, 5.9%, 11/15/2015 | 493,000 | 501,479 |
ERP Operating LP, 6.95%, 3/2/2011 | 211,000 | 226,464 |
Exopack Holding Corp., 9.59%, 11/16/2006 | 500,000 | 500,000 |
Ford Motor Credit Co.: |
|
|
6.5%, 1/25/2007 | 414,000 | 400,533 |
6.875%, 2/1/2006 | 877,000 | 875,114 |
7.25%, 10/25/2011 | 770,000 | 665,169 |
7.375%, 10/28/2009 | 690,000 | 611,951 |
General Electric Capital Corp., Series A, 6.75%, 3/15/2032 | 500,000 | 586,925 |
General Motors Acceptance Corp.: |
|
|
4.375%, 12/10/2007 | 134,000 | 119,072 |
5.22%**, 3/20/2007 | 100,000 | 94,455 |
6.125%, 9/15/2006 | 184,000 | 178,729 |
6.125%, 2/1/2007 | 1,377,000 | 1,314,549 |
6.125%, 8/28/2007 | 622,000 | 576,580 |
6.875%, 9/15/2011 | 350,000 | 319,181 |
8.0%, 11/1/2031 (a) | 2,124,000 | 2,034,539 |
H&E Equipment/Finance, 11.125%, 6/15/2012 | 235,000 | 259,675 |
HSBC Bank USA, 5.625%, 8/15/2035 | 374,000 | 365,801 |
HSBC Finance Capital Trust IX, 5.911%, 11/30/2035 | 800,000 | 806,806 |
JPMorgan Chase Capital XV, 5.875%, 3/15/2035 | 585,000 | 581,625 |
Merrill Lynch & Co., Inc., Series C, 4.79%, 8/4/2010 | 626,000 | 618,959 |
Ohio Casualty Corp., 7.3%, 6/15/2014 | 155,000 | 166,597 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 | 280,000 | 288,400 |
PXRE Capital Trust I, 8.85%, 2/1/2027 | 135,000 | 132,638 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 | 255,000 | 287,512 |
Radnor Holdings Corp., 11.0%, 3/15/2010 | 195,000 | 157,950 |
Stripes Acquisition LLC/Susser Finance Corp., 144A, 10.625%, 12/15/2013 | 80,000 | 81,200 |
| Principal Amount ($)(b) | Value ($) |
|
| |
The Goldman Sachs Group, Inc., 5.5%, 11/15/2014 | 750,000 | 760,641 |
TIG Capital Holdings Trust, 144A, 8.597%, 1/15/2027 | 235,000 | 186,825 |
Triad Acquisition Corp., 144A, 11.125%, 5/1/2013 | 145,000 | 143,550 |
UGS Corp., 10.0%, 6/1/2012 | 200,000 | 218,000 |
Universal City Development, 11.75%, 4/1/2010 | 365,000 | 409,256 |
Verizon Global Funding Corp., 7.75%, 12/1/2030 | 170,000 | 202,072 |
| 22,664,352 | |
Health Care 0.3% | ||
Accellent, Inc., 144A, 10.5%, 12/1/2013 | 200,000 | 205,000 |
Health Care Service Corp., 144A, 7.75%, 6/15/2011 | 825,000 | 923,381 |
HEALTHSOUTH Corp., 10.75%, 10/1/2008 (a) | 440,000 | 440,000 |
InSight Health Services Corp.: |
|
|
144A, 9.174%**, 11/1/2011 | 55,000 | 53,213 |
Series B, 9.875%, 11/1/2011 (a) | 70,000 | 52,850 |
Tenet Healthcare Corp., 144A, 9.25%, 2/1/2015 | 460,000 | 456,550 |
| 2,130,994 | |
Industrials 1.3% | ||
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 348,000 | 357,570 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 210,000 | 202,449 |
Allied Waste North America, Inc.: |
|
|
Series B, 5.75%, 2/15/2011 | 115,000 | 108,963 |
Series B, 9.25%, 9/1/2012 | 295,000 | 319,337 |
American Color Graphics, 10.0%, 6/15/2010 | 210,000 | 146,737 |
Avondale Mills, Inc., 144A, 11.065%**, 7/1/2012 | 100,000 | 97,000 |
BAE System 2001 Asset Trust, "B", Series 2001, 144A, 7.156%, 12/15/2011 | 365,118 | 382,573 |
Beazer Homes USA, Inc.: |
|
|
6.875%, 7/15/2015 | 20,000 | 19,175 |
8.375%, 4/15/2012 | 165,000 | 171,600 |
8.625%, 5/15/2011 | 200,000 | 209,000 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 345,000 | 305,325 |
9.25%, 5/1/2021 | 20,000 | 20,600 |
Case New Holland, Inc., 9.25%, 8/1/2011 | 370,000 | 395,900 |
Cenveo Corp., 7.875%, 12/1/2013 | 165,000 | 159,225 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 | 280,000 | 246,400 |
Columbus McKinnon Corp., 10.0%, 8/1/2010 | 105,000 | 116,288 |
Compression Polymers Corp.: |
|
|
144A, 10.46%**, 7/1/2012 | 70,000 | 68,600 |
144A, 10.5%, 7/1/2013 | 255,000 | 247,350 |
Congoleum Corp., 8.625%, 8/1/2008* | 190,000 | 189,287 |
Cornell Companies, Inc., 10.75%, 7/1/2012 | 105,000 | 108,675 |
D.R. Horton, Inc., 5.375%, 6/15/2012 | 1,355,000 | 1,309,811 |
Dana Corp., 7.0%, 3/1/2029 (a) | 260,000 | 186,550 |
DRS Technologies, Inc., 6.875%, 11/1/2013 | 50,000 | 47,813 |
| Principal Amount ($)(b) | Value ($) |
|
| |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 390,000 | 415,350 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2015 | 370,000 | 348,210 |
6.25%, 1/15/2016 | 210,000 | 194,843 |
8.875%, 4/1/2012 | 270,000 | 280,561 |
Kansas City Southern, 9.5%, 10/1/2008 | 435,000 | 470,887 |
Kinetek, Inc., Series D, 10.75%, 11/15/2006 | 300,000 | 288,000 |
Millennium America, Inc., 9.25%, 6/15/2008 | 345,000 | 372,169 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 160,000 | 179,200 |
Securus Technologies, Inc., 11.0%, 9/1/2011 | 120,000 | 102,000 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 225,000 | 210,375 |
Standard Pacific Corp., 6.5%, 8/15/2010 | 150,000 | 143,062 |
Technical Olympic USA, Inc.: |
|
|
7.5%, 3/15/2011 | 75,000 | 66,844 |
10.375%, 7/1/2012 | 185,000 | 181,994 |
The Brickman Group Ltd., Series B, 11.75%, 12/15/2009 | 125,000 | 138,437 |
United Rentals North America, Inc., 7.0%, 2/15/2014 | 210,000 | 196,350 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 120,000 | 123,600 |
| 9,128,110 | |
Information Technology 0.3% | ||
Activant Solutions, Inc.: |
|
|
144A, 10.054%**, 4/1/2010 | 20,000 | 20,625 |
10.5%, 6/15/2011 | 165,000 | 180,675 |
Eschelon Operating Co., 8.375% | 126,000 | 116,550 |
International Business Machines Corp., 8.375%, 11/1/2019 | 250,000 | 324,628 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 35,000 | 33,950 |
144A, 6.375%, 10/15/2015 | 75,000 | 74,813 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 445,000 | 381,587 |
Sanmina-SCI Corp.: |
|
|
6.75%, 3/1/2013 (a) | 255,000 | 242,569 |
10.375%, 1/15/2010 | 403,000 | 445,315 |
SS&C Technologies, Inc., 144A, 11.75%, 12/1/2013 | 65,000 | 66,625 |
SunGard Data Systems, Inc., 144A, 10.25%, 8/15/2015 | 235,000 | 235,000 |
| 2,122,337 | |
Materials 1.0% | ||
ARCO Chemical Co., 9.8%, 2/1/2020 | 580,000 | 651,050 |
Associated Materials, Inc.: |
|
|
Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 260,000 | 127,400 |
9.75%, 4/15/2012 | 85,000 | 82,025 |
Caraustar Industries, Inc., 9.875%, 4/1/2011 | 375,000 | 382,500 |
Constar International, Inc., 11.0%, 12/1/2012 | 60,000 | 43,800 |
Dayton Superior Corp.: |
|
|
10.75%, 9/15/2008 | 145,000 | 139,925 |
13.0%, 6/15/2009 | 200,000 | 151,000 |
| Principal Amount ($)(b) | Value ($) |
|
| |
GEO Specialty Chemicals, Inc., 12.565%**, 12/31/2009 | 446,000 | 370,180 |
Georgia-Pacific Corp.: |
|
|
8.0%, 1/15/2024 | 355,000 | 339,025 |
8.875%, 5/15/2031 | 45,000 | 45,113 |
Huntsman LLC, 11.625%, 10/15/2010 | 312,000 | 355,290 |
IMC Global, Inc., 10.875%, 8/1/2013 | 400,000 | 459,500 |
International Steel Group, Inc., 6.5%, 4/15/2014 | 95,000 | 95,000 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 95,000 | 96,544 |
144A, 6.875%, 12/15/2013 | 75,000 | 75,656 |
MMI Products, Inc., Series B, 11.25%, 4/15/2007 | 335,000 | 314,900 |
Neenah Foundry Co.: |
|
|
144A, 11.0%, 9/30/2010 | 495,000 | 542,025 |
144A, 13.0%, 9/30/2013 | 40,000 | 40,800 |
Newmont Mining Corp., 5.875%, 4/1/2035 | 1,094,000 | 1,079,583 |
NewPage Corp., 10.5%**, 5/1/2012 | 145,000 | 143,550 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 385,000 | 401,362 |
Oregon Steel Mills, Inc., 10.0%, 7/15/2009 | 90,000 | 96,300 |
Oxford Automotive, Inc., 144A, 12.0%, 10/15/2010* | 257,130 | 23,142 |
Portola Packaging, Inc., 8.25%, 2/1/2012 | 125,000 | 91,875 |
Rockwood Specialties Group, Inc., 10.625%, 5/15/2011 | 51,000 | 55,909 |
TriMas Corp., 9.875%, 6/15/2012 | 370,000 | 305,250 |
UAP Holding Corp., Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012 | 85,000 | 73,631 |
United States Steel Corp., 9.75%, 5/15/2010 | 273,000 | 296,887 |
| 6,879,222 | |
Telecommunication Services 0.6% | ||
AirGate PCS, Inc., 7.9%**, 10/15/2011 | 115,000 | 118,738 |
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 85,000 | 92,225 |
Bell Atlantic New Jersey, Inc., Series A, 5.875%, 1/17/2012 | 745,000 | 751,709 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 | 230,000 | 239,200 |
8.375%, 1/15/2014 | 230,000 | 226,262 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 120,000 | 119,700 |
Insight Midwest LP, 9.75%, 10/1/2009 | 45,000 | 46,350 |
LCI International, Inc., 7.25%, 6/15/2007 | 210,000 | 211,050 |
Level 3 Financing, Inc., 10.75%, 10/15/2011 | 35,000 | 31,063 |
MCI, Inc., 8.735%, 5/1/2014 | 570,000 | 630,562 |
Nextel Communications, Inc., Series D, 7.375%, 8/1/2015 | 855,000 | 902,297 |
Nextel Partners, Inc., 8.125%, 7/1/2011 | 150,000 | 160,312 |
Qwest Corp.: |
|
|
7.25%, 9/15/2025 | 155,000 | 154,225 |
144A, 7.741%**, 6/15/2013 | 50,000 | 53,938 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Rural Cellular Corp.: |
|
|
9.75%, 1/15/2010 | 30,000 | 30,300 |
9.875%, 2/1/2010 | 30,000 | 31,650 |
144A, 10.041%**, 11/1/2012 | 30,000 | 30,225 |
SBA Telecom, Inc., Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011 | 102,000 | 94,605 |
Telex Communications Holdings, Inc., 11.5%, 10/15/2008 | 15,000 | 15,975 |
Triton PCS, Inc., 8.5%, 6/1/2013 | 20,000 | 18,600 |
Ubiquitel Operating Co., 9.875%, 3/1/2011 | 95,000 | 105,213 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 155,000 | 174,375 |
| 4,238,574 | |
Utilities 1.5% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 495,000 | 538,931 |
Allegheny Energy Supply Co. LLC, 144A, 8.25%, 4/15/2012 | 525,000 | 591,938 |
CC Funding Trust I, 6.9%, 2/16/2007 | 179,000 | 182,443 |
CMS Energy Corp.: |
|
|
8.5%, 4/15/2011 | 245,000 | 266,744 |
9.875%, 10/15/2007 | 305,000 | 326,350 |
Consumers Energy Co.: |
|
|
Series F, 4.0%, 5/15/2010 | 1,590,000 | 1,509,950 |
5.0%, 2/15/2012 | 975,000 | 953,782 |
DPL, Inc., 6.875%, 9/1/2011 | 76,000 | 80,085 |
Entergy Louisiana, Inc., 6.3%, 9/1/2035 | 220,000 | 215,378 |
Mirant North America LLC, 144A, 7.375%, 12/31/2013 | 65,000 | 65,731 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 615,000 | 713,400 |
NorthWestern Corp., 5.875%, 11/1/2014 | 50,000 | 50,094 |
NRG Energy, Inc., 8.0%, 12/15/2013 | 408,000 | 454,920 |
Pedernales Electric Cooperative, Series2002-A, 144A, 6.202%, 11/15/2032 | 1,260,000 | 1,382,901 |
Progress Energy, Inc., 6.75%, 3/1/2006 | 1,495,000 | 1,499,694 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 635,000 | 698,500 |
TXU Energy Co., 7.0%, 3/15/2013 | 345,000 | 367,654 |
| 9,898,495 | |
Total Corporate Bonds (Cost $82,977,546) | 82,058,342 | |
| ||
Foreign Bonds — US$ Denominated 3.2% | ||
Consumer Discretionary 0.3% | ||
Cablemas SA de CV, 144A, 9.375%, 11/15/2015 | 30,000 | 30,750 |
IESY Repository GmbH, 144A, 10.375%, 2/15/2015 | 75,000 | 78,000 |
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 410,000 | 448,950 |
Kabel Deutschland GmbH, 144A, 10.625%, 7/1/2014 | 240,000 | 252,600 |
Royal Caribbean Cruises Ltd., 8.75%, 2/2/2011 | 422,000 | 476,860 |
Shaw Communications, Inc., 8.25%, 4/11/2010 | 160,000 | 171,800 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 279,000 | 228,780 |
Vitro SA de CV, Series A, 144A, 12.75%, 11/1/2013 | 120,000 | 113,400 |
| 1,801,140 | |
Energy 0.1% | ||
OAO Gazprom, 144A, 9.625%, 3/1/2013 | 300,000 | 361,875 |
Secunda International Ltd., 12.15%**, 9/1/2012 | 110,000 | 115,500 |
| 477,375 | |
Financials 1.1% | ||
BNP Paribas SA, 144A, 5.186%, 6/29/2049 | 155,000 | 150,371 |
Chuo Mitsui Trust & Banking Co., Ltd, 144A, 5.506%, 12/29/2049 | 795,000 | 770,365 |
Conproca SA de CV, 12.0%, 6/16/2010 | 200,000 | 238,000 |
DBS Capital Funding Corp., 144A, 7.657%, 3/31/2049 | 198,000 | 219,077 |
Doral Financial Corp., 5.004%**, 7/20/2007 | 375,000 | 364,516 |
Mizuho Financial Group (Cayman), 8.375%, 12/29/2049 | 2,290,000 | 2,481,215 |
National Capital Trust II, 144A, 5.486%, 12/29/2049 | 383,000 | 382,743 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 105,000 | 72,450 |
Nordea Bank AB, 144A, 5.424%, 12/29/2049 | 555,000 | 550,159 |
Pemex Finance Ltd., "A1", Series 2000-1, 9.03%, 2/15/2011 | 725,000 | 791,823 |
Royal Bank of Scotland Group PLC, Series 1, 9.118%, 3/31/2049 | 50,000 | 57,280 |
SPI Electricity & Gas Australia Holdings Property Ltd., 144A, 6.15%, 11/15/2013 | 905,000 | 966,084 |
Svenska Handelsbanken AB, 144A, 7.125%, 3/29/2049 | 330,000 | 337,505 |
| 7,381,588 | |
Health Care 0.0% | ||
Biovail Corp., 7.875%, 4/1/2010 | 215,000 | 222,794 |
Industrials 0.3% | ||
Grupo Transportacion Ferroviaria Mexicana SA de CV: |
|
|
144A, 9.375%, 5/1/2012 | 120,000 | 131,400 |
10.25%, 6/15/2007 | 450,000 | 474,750 |
12.5%, 6/15/2012 | 163,000 | 185,820 |
J. Ray McDermott SA, 144A, 11.5%, 12/15/2013 | 240,000 | 283,200 |
LeGrand SA, 8.5%, 2/15/2025 | 115,000 | 138,287 |
Stena AB, 9.625%, 12/1/2012 | 95,000 | 103,194 |
Tyco International Group SA, 7.0%, 6/15/2028 | 553,000 | 608,343 |
| 1,924,994 | |
Materials 0.8% | ||
Cascades, Inc., 7.25%, 2/15/2013 | 435,000 | 395,850 |
ISPAT Inland ULC, 9.75%, 4/1/2014 | 249,000 | 281,993 |
Novelis, Inc., 144A, 7.25%, 2/15/2015 | 460,000 | 428,950 |
Rhodia SA, 8.875%, 6/1/2011 (a) | 345,000 | 353,625 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Sino-Forest Corp., 144A, 9.125%, 8/17/2011 | 10,000 | 10,725 |
Sociedad Concesionaria Autopista Central, 144A, 6.223%, 12/15/2026 | 2,450,000 | 2,572,083 |
Tembec Industries, Inc.: |
|
|
8.5%, 2/1/2011 | 1,040,000 | 577,200 |
8.625%, 6/30/2009 | 455,000 | 259,350 |
Vale Overseas Ltd., 8.25%, 1/17/2034 | 178,000 | 204,923 |
| 5,084,699 | |
Sovereign Bonds 0.1% | ||
Federative Republic of Brazil, 8.875%, 10/14/2019 | 55,000 | 61,627 |
Republic of Argentina: |
|
|
Zero Coupon, 12/15/2035 | 2,177,924 | 113,252 |
Step-up Coupon, 1.33% to 3/31/2009, 2.5% to 3/31/2019, 3.75% to 3/31/2029, 5.25% to 12/31/2038 | 330,000 | 108,900 |
8.28%, 12/31/2033 (PIK) | 663,886 | 552,685 |
United Mexican States, 8.375%, 1/14/2011 | 60,000 | 68,400 |
| 904,864 | |
Telecommunication Services 0.5% | ||
British Telecommunications PLC, 8.875%, 12/15/2030 | 658,000 | 880,366 |
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 185,000 | 188,238 |
Embratel, Series B, 11.0%, 12/15/2008 | 104,000 | 117,780 |
Global Crossing UK Finance, 10.75%, 12/15/2014 | 165,000 | 151,800 |
Intelsat Bermuda Ltd., 144A, 8.695%**, 1/15/2012 | 105,000 | 106,706 |
Intelsat Ltd., 5.25%, 11/1/2008 | 155,000 | 141,244 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 80,000 | 82,600 |
Mobifon Holdings BV, 12.5%, 7/31/2010 | 265,000 | 307,400 |
Nortel Networks Ltd., 6.125%, 2/15/2006 | 370,000 | 370,000 |
Telecom Italia Capital: |
|
|
4.95%, 9/30/2014 | 470,000 | 448,891 |
5.25%, 11/15/2013 | 655,000 | 642,734 |
| 3,437,759 | |
Utilities 0.0% | ||
Scottish Power PLC, 5.81%, 3/15/2025 | 170,000 | 172,427 |
Total Foreign Bonds — US$ Denominated (Cost $21,241,448) | 21,407,640 | |
| ||
Foreign Bonds — Non US$ Denominated 0.1% | ||
Consumer Discretionary 0.0% | ||
IESY Repository GmbH, 144A, 8.75%, 2/15/2015 EUR | 160,000 | 187,056 |
Consumer Staples 0.0% | ||
Fage Dairy Industry SA, 144A, 7.5%, 1/15/2015 EUR | 95,000 | 97,568 |
Industrials 0.0% | ||
Grohe Holdings GmbH, 144A, 8.625%, 10/1/2014 EUR | 85,000 | 93,336 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Sovereign Bonds 0.1% | ||
Republic of Argentina: |
|
|
Zero Coupon, 12/31/2035 EUR | 988,353 | 15,780 |
Zero Coupon, 12/31/2035 EUR | 178,011 | 10,223 |
5.83%, 12/31/2033 (PIK) ARS | 333,075 | 128,769 |
7.82%, 12/31/2033 (PIK) EUR | 63,738 | 63,009 |
| 217,781 | |
Total Foreign Bonds — Non US$ Denominated (Cost $599,103) | 595,741 | |
| ||
Asset Backed 1.8% | ||
Automobile Receivables 0.4% | ||
Hertz Vehicle Financing LLC, "A6", Series 2005-2A, 144A, 5.08%, 11/25/2011 | 1,347,000 | 1,349,000 |
MMCA Automobile Trust: |
|
|
"A4", Series 2002-4, 3.05%, 11/16/2009 | 375,626 | 372,203 |
"A4", Series 2002-3, 3.57%, 8/17/2009 | 175,122 | 174,669 |
"A4", Series 2002-2, 4.3%, 3/15/2010 | 170,937 | 170,437 |
"B", Series 2002-2, 4.67%, 3/15/2010 | 75,452 | 74,450 |
"B", Series 2002-1, 5.37%, 1/15/2010 | 327,711 | 326,839 |
| 2,467,598 | |
Credit Card Receivables 0.5% | ||
Citibank Credit Card Issuance Trust, "A6" Series 2003-A6, 2.9%, 5/17/2010 | 2,000,000 | 1,914,716 |
MBNA Credit Card Master Note Trust, "A7", Series 2003-A7, 2.65%, 11/15/2010 | 1,500,000 | 1,426,301 |
| 3,341,017 | |
Home Equity Loans 0.6% | ||
Advanta Mortgage Loan Trust, "A6", Series 2000-2, 7.72%, 3/25/2015 | 251,420 | 255,269 |
Countrywide Asset-Backed Certificates, "1AF2", Series 2005-17, 5.363%, 5/25/2036 | 689,000 | 688,998 |
New Century Home Equity Loan Trust, "AII3", Series 2004-A, 4.45%, 8/25/2034 | 1,530,000 | 1,519,590 |
Renaissance Home Equity Loan Trust, "AF6", Series 2005-2, 4.781%, 8/25/2035 | 450,000 | 431,609 |
Residential Asset Securities Corp., "AI6", Series 2000-KS1, 7.905%, 2/25/2031 | 1,284,491 | 1,290,076 |
| 4,185,542 | |
Manufactured Housing Receivables 0.0% | ||
Vanderbilt Acquisition Loan Trust, "A2", Series 2002-1, 4.77%, 10/7/2018 | 110,512 | 110,420 |
Miscellaneous 0.3% | ||
PP&L Transition Bond Co. LLC, "A8", Series 1999-1, 7.15%, 6/25/2009 | 1,800,000 | 1,894,465 |
Total Asset Backed (Cost $12,159,359) | 11,999,042 | |
| Principal Amount ($)(b) | Value ($) |
|
| |
Convertible Bond 0.1% | ||
Consumer Discretionary | ||
HIH Capital Ltd.: |
|
|
144A, Series DOM, 7.5%, 9/25/2006 | 210,000 | 207,900 |
144A, Series EURO, 7.5%, 9/25/2006 | 185,000 | 183,150 |
Total Convertible Bond (Cost $393,508) | 391,050 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Industrials | ||
MicroStrategy, Inc.* | 96 | 13 |
TravelCenters of America, Inc.* | 59 | 7 |
Total Warrants (Cost $251) | 20 | |
| ||
Preferred Stock 0.1% | ||
Financials | ||
Axis Capital Holdings Ltd., Series B, 7.5% | 1,950 | 202,922 |
Farm Credit Bank of Texas, Series 1 | 198,000 | 217,164 |
Markel Capital Trust I, Series B, 8.71% | 107,000 | 115,011 |
Paxson Communications Corp., 14.25% (PIK) | 20 | 174,006 |
Total Preferred Stock (Cost $672,417) | 709,103 |
| Principal Amount ($)(b) | Value ($) |
|
| |
US Government Sponsored Agencies 1.5% | ||
Federal Home Loan Mortgage Corp., 4.375%, 11/16/2007 (Cost $10,002,921) | 10,000,000 | 9,934,375 |
| ||
US Government Agency Sponsored Pass-Throughs 2.1% | ||
Federal Home Loan Mortgage Corp.: |
|
|
5.0%, with various maturities from 11/1/2035 until 12/1/2035 | 534,999 | 517,946 |
6.0%, with various maturities from 8/1/2035 until 10/1/2035 | 2,285,894 | 2,292,691 |
Federal National Mortgage Association: |
|
|
4.5%, with various maturities from 7/1/2018 until 9/1/2035 (h) | 4,854,782 | 4,647,190 |
5.0%, with various maturities from 4/1/2024 until 5/1/2034 (h) | 3,322,738 | 3,240,217 |
5.5%, with various maturities from 7/1/2023 until 1/1/2034 (h) | 3,231,356 | 3,214,897 |
6.0%, 1/1/2024 | 197,850 | 201,169 |
6.5%, 5/1/2017 | 114,779 | 117,927 |
7.13%, 1/1/2012 | 192,514 | 194,662 |
| Principal Amount ($)(b) | Value ($) |
|
| |
8.0%, 9/1/2015 | 269,343 | 287,627 |
Total US Government Agency Sponsored Pass-Throughs (Cost $14,936,784) | 14,714,326 | |
| ||
Commercial and Non-Agency Mortgage-Backed Securities 7.1% | ||
Adjustable Rate Mortgage Trust, "3A31", Series 2005-10, 5.437%**, 1/25/2036 | 1,000,000 | 993,445 |
Bank of America Mortgage Securities, "2A6", Series 2004-G, 4.657%**, 8/25/2034 | 2,275,000 | 2,250,428 |
Bear Stearns Adjustable Rate Mortgage Trust, "2A3", Series 2005-4, 4.45%**, 8/25/2035 | 705,000 | 684,678 |
Bear Stearns Commercial Mortgage Securities, "AJ", Series 2005-PW10, 5.464%, 12/11/2040 | 1,630,000 | 1,657,342 |
Chase Mortgage Finance Corp., "2A1", Series 2004-S3, 5.25%, 3/25/2034 | 681,160 | 679,867 |
Citigroup Commercial Mortgage Trust, "A5", Series 2004-C2, 4.733%, 10/15/2041 | 2,000,000 | 1,942,248 |
Citigroup Mortgage Loan Trust, Inc., "1CB2", Series 2004-NCM2, 6.75%, 8/25/2034 | 413,180 | 425,446 |
Commercial Mortgage Acceptance Corp., "A3", Series 1998-C2, 6.04%, 9/15/2030 | 1,510,000 | 1,544,612 |
Countrywide Alternative Loan Trust: |
|
|
"A1", Series 2004-1T1, 5.0%, 2/25/2034 | 940,903 | 931,255 |
"1A5", Series 2003-J1, 5.25%, 10/25/2033 | 880,537 | 877,801 |
"A2", Series 2004-1T1, 5.5%, 2/25/2034 | 621,878 | 621,314 |
"4A3", Series 2005-43, 5.763%**, 10/25/2035 | 973,976 | 974,897 |
"1A1", Series 2004-J1, 6.0%, 2/25/2034 | 391,892 | 392,809 |
"A1", Series 2004-35T2, 6.0%, 2/25/2035 | 1,061,291 | 1,064,171 |
Countrywide Home Loans, "A6", Series 2003-57, 5.5%, 1/25/2034 | 553,708 | 553,043 |
DLJ Mortgage Acceptance Corp., "A1B", Series 1997-CF2, 144A, 6.82%, 10/15/2030 | 139,851 | 142,858 |
First Union-Lehman Brothers Commercial Mortgage, "A3", Series 1997-C1, 7.38%, 4/18/2029 | 968,875 | 984,342 |
GMAC Commercial Mortgage Securities, Inc., "A3", Series 1997-C1, 6.869%, 7/15/2029 | 77,766 | 79,489 |
Greenwich Capital Commercial Funding Corp, "A4", Series 2005-GG3, 4.799%, 8/10/2042 | 2,000,000 | 1,948,623 |
GS Mortgage Securities Corp. II: |
|
|
"AJ", Series 2005-GG4, 4.782%, 7/10/2039 | 900,000 | 865,779 |
"C", Series 1998-C1, 6.91%, 10/18/2030 | 205,000 | 213,769 |
GSR Mortgage Loan Trust, "4A5", Series 2005-AR6, 4.556%**, 9/25/2035 | 1,025,000 | 1,000,112 |
| Principal Amount ($)(b) | Value ($) |
|
| |
JPMorgan Chase Commercial Mortgage Securities Corp., "A3", Series 2001-CIBC, 6.26%, 3/15/2033 | 2,145,000 | 2,255,524 |
JPMorgan Mortgage Trust, "2A1", Series 2005-A8, 4.969%, 11/25/2035 | 952,961 | 945,838 |
LB-UBS Commercial Mortgage Trust: |
|
|
"AM", Series 2005-C3, 4.794%, 7/15/2040 | 905,000 | 877,072 |
"A2", Series 2005-C2, 4.821%, 4/15/2030 | 165,000 | 163,447 |
Master Alternative Loans Trust: |
|
|
"5A1", Series 2005-1, 5.5%, 1/25/2020 | 1,175,734 | 1,177,838 |
"3A1", Series 2004-5, 6.5%, 6/25/2034 | 292,266 | 297,381 |
"5A1", Series 2005-2, 6.5%, 12/25/2034 | 443,879 | 447,521 |
"8A1", Series 2004-3, 7.0%, 4/25/2034 | 198,092 | 199,787 |
Master Asset Securitization Trust, "8A1", Series 2003-6, 5.5%, 7/25/2033 | 994,301 | 977,522 |
Mortgage Capital Funding, Inc., "A3", Series 1997-MC1, 7.288%, 7/20/2027 | 207,262 | 209,854 |
Residential Accredit Loans, Inc., "CB", Series 2004-QS2, 5.75%, 2/25/2034 | 1,075,194 | 1,068,139 |
Residential Asset Mortgage Products, "2A6", Series 2005-SP1, 5.25%, 9/25/2034 | 1,250,300 | 1,244,315 |
Residential Asset Securities Corp., "AI", Series 2003-KS9, 4.71%, 11/25/2033 | 1,845,000 | 1,840,693 |
Structured Adjustable Rate Mortgage Loan Trust: |
|
|
"1A4", Series 2005-22, 5.25%, 12/25/2035 | 970,000 | 967,196 |
"6A3", Series 2005-21, 5.4%, 11/25/2035 | 900,000 | 894,100 |
"1A1", Series 2005-17, 5.729%**, 8/25/2035 | 1,678,871 | 1,683,938 |
Structured Asset Securities Corp.: |
|
|
"4A1", Series 2005-6, 5.0%, 5/25/2035 | 181,418 | 174,955 |
"2A1", Series 2003-1, 6.0%, 2/25/2018 | 132,439 | 133,625 |
Wachovia Bank Commercial Mortgage Trust, "AMFX", Series 2005-C20, 5.179%, 7/15/2042 | 1,890,000 | 1,878,166 |
Washington Mutual: |
|
|
"A6", Series 2004-AR4, 3.804%**, 6/25/2034 | 190,000 | 182,557 |
"A6", Series 2003-AR11, 3.985%, 10/25/2033 | 885,000 | 859,396 |
"A6", Series 2003-AR10, 4.067%**, 10/25/2033 | 1,620,000 | 1,583,180 |
"A7, Series 2004-AR9, 4.181%**, 8/25/2034 | 1,325,000 | 1,297,771 |
"1A6", Series 2005-AR12, 4.844%**, 10/25/2035 | 1,880,000 | 1,849,805 |
"1A3", Series 2005-AR16, 5.132%, 12/25/2035 | 1,005,000 | 992,036 |
Wells Fargo Mortgage Backed Securities Trust: |
|
|
"2A17", Series 2005-AR10, 3.5%**, 6/25/2035 | 230,000 | 221,373 |
| Principal Amount ($)(b) | Value ($) |
|
| |
"2A14", Series 2005-AR10, 4.11%**, 6/25/2035 | 1,355,000 | 1,317,054 |
"B1", Series 2005-AR12, 4.326%**, 7/25/2035 | 937,784 | 901,951 |
"4A2", Series 2005-AR16, 4.993%, 10/25/2035 | 1,470,000 | 1,450,253 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $49,480,906) | 48,920,615 | |
| ||
Collateralized Mortgage Obligations 4.9% | ||
Fannie Mae Whole Loan: |
|
|
"3A2B", Series 2003-W10, 3.056%, 7/25/2037 | 371,318 | 368,959 |
"1A3", Series 2004-W1, 4.49%, 11/25/2043 | 575,631 | 573,534 |
"1A3", Series 2003-W18, 4.732%, 8/25/2043 | 76,933 | 76,706 |
"1A3", Series 2003-W19, 4.783%, 11/25/2033 | 396,053 | 394,106 |
"1A1", Series 2004-W15, 6.0%, 8/25/2044 | 1,125,825 | 1,137,734 |
Federal Home Loan Mortgage Corp.: |
|
|
"YN", Series 2852, 3.75%, 6/15/2024 | 410,000 | 397,003 |
"NB", Series 2750, 4.0%, 12/15/2022 | 1,558,000 | 1,527,569 |
"QC", Series 2836, 5.0%, 9/15/2022 | 2,220,000 | 2,215,162 |
"TK", Series 2693, 5.0%, 8/15/2027 | 1,655,000 | 1,642,127 |
"BG", Series 2640, 5.0%, 2/15/2032 | 510,000 | 496,777 |
"JD", Series 2778, 5.0%, 12/15/2032 | 290,000 | 279,968 |
"EG", Series 2836, 5.0%, 12/15/2032 | 455,000 | 438,437 |
"TE", Series 2780, 5.0%, 1/15/2033 | 1,685,000 | 1,627,876 |
"PD", Series 2783, 5.0%, 1/15/2033 | 975,000 | 942,134 |
"NE", Series 2802, 5.0%, 2/15/2033 | 460,000 | 444,382 |
"PD", Series 2893, 5.0%, 2/15/2033 | 370,000 | 355,956 |
"OG", Series 2889, 5.0%, 5/15/2033 | 2,115,000 | 2,041,504 |
"PE", Series 2898, 5.0%, 5/15/2033 | 1,715,000 | 1,649,686 |
"XD", Series 2941, 5.0%, 5/15/2033 | 1,830,000 | 1,758,472 |
"BG", Series 2869, 5.0%, 7/15/2033 | 213,000 | 205,007 |
"PD", Series 2939, 5.0%, 7/15/2033 | 1,105,000 | 1,062,160 |
"JG", Series 2937, 5.0%, 8/15/2033 | 1,705,000 | 1,650,674 |
"KD", Series 2915, 5.0%, 9/15/2033 | 1,177,000 | 1,132,005 |
"ND", Series 2938, 5.0%, 10/15/2033 | 170,000 | 163,426 |
"KG", Series 2987, 5.0%, 12/15/2034 | 1,360,000 | 1,305,923 |
"PE", Series 2512, 5.5%, 2/15/2022 | 420,000 | 427,587 |
"BD", Series 2453, 6.0%, 5/15/2017 | 1,869,590 | 1,915,793 |
| Principal Amount ($)(b) | Value ($) |
|
| |
"Z", Series 2173, 6.5%, 7/15/2029 | 67,594 | 69,906 |
"H", Series 2278, 6.5%, 1/15/2031 | 51,284 | 51,741 |
Federal National Mortgage Association: |
|
|
"TU", Series 2003-122, 4.0%, 5/25/2016 | 350,000 | 345,459 |
"WB", Series 2003-106, 4.5%, 10/25/2015 | 1,870,000 | 1,853,734 |
"NE", Series 2004-52, 4.5%, 7/25/2033 | 1,118,000 | 1,048,518 |
"PE", Series 2005-44, 5.0%, 7/25/2033 | 365,000 | 350,182 |
"QD", Series 2005-29, 5.0%, 8/25/2033 | 760,000 | 729,251 |
"EG", Series 2005-22, 5.0%, 11/25/2033 | 1,042,000 | 1,000,053 |
"PM", Series 2001-60, 6.0%, 3/25/2030 | 165,139 | 165,317 |
"HM", Series 2002-36, 6.5%, 12/25/2029 | 46,456 | 46,517 |
"A1", Series 2002-93, 6.5%, 3/25/2032 | 273,818 | 277,998 |
"C", Series 1997-M5, 6.74%, 8/25/2007 | 390,000 | 398,836 |
Government National Mortgage Association, "PD", Series 2004-30, 5.0%, 2/20/2033 | 1,115,000 | 1,078,727 |
Total Collateralized Mortgage Obligations (Cost $34,347,361) | 33,646,906 | |
| ||
Municipal Bonds and Notes 1.7% | ||
Brockton, MA, General Obligation, Economic Development, Series A, 6.45%, 5/1/2017 (c) | 560,000 | 608,423 |
Broward County, FL, Airport Revenue, Airport Systems Revenue, Series J-2, 6.13%, 10/1/2007 (c) | 1,000,000 | 1,020,850 |
Charlotte-Mecklenberg, NC, Hospital Authority, Health Care System Revenue, ETM, 5.0%, 8/1/2015 | 510,000 | 513,142 |
Hoboken, NJ, General Obligation, Series B, 3.8%, 1/1/2008 (c) | 185,000 | 182,782 |
Illinois, Higher Education Revenue, Educational Facilities Authority, Series C, 7.1%, 7/1/2012 (c) | 1,000,000 | 1,118,890 |
Jersey City, NJ, Water & Sewer Revenue, Municipal Utilities Authority, Water Revenue, Series B, 4.91%, 5/15/2015 (c) | 385,000 | 381,985 |
Jicarilla, NM, Sales & Tax Special Revenue, Apache Nation Revenue, 144A, 5.2%, 12/1/2013 | 215,000 | 215,849 |
Mashantucket, CT, Special Assessment Revenue, Western Pequot Tribe Special Revenue, Series A, 144A, 6.57%, 9/1/2013 (c) | 1,285,000 | 1,358,939 |
Ohio, Sales & Special Tax Revenue, 7.6%, 10/1/2016 (c) | 1,000,000 | 1,039,520 |
Passaic County, NJ, County General Obligation, 5.0%, 2/15/2017 (c) | 1,120,000 | 1,127,347 |
| Principal Amount ($)(b) | Value ($) |
|
| |
Texas, American Campus Properties Student Housing Financing Ltd, 144A, 6.125%, 8/1/2023 (c) | 1,040,000 | 1,122,025 |
Union County, NJ, Improvement Authority, Student Loan Revenue, 5.29%, 4/1/2018 (c) | 1,185,000 | 1,195,866 |
Washington, State Economic Development Finance Authority Revenue, CSC Tacoma LLC Project, Series A, 3.5%, 10/1/2010 (c) | 1,840,000 | 1,733,722 |
Yazoo County, MS, Sales & Special Tax Revenue, Series B, 4.3%, 9/1/2010 (c) | 355,000 | 347,272 |
Total Municipal Bonds and Notes (Cost $11,930,483) | 11,966,612 | |
| ||
US Treasury Obligations 3.2% | ||
US Treasury Bills, 3.75%***, 1/19/2006 (d) | 675,000 | 673,732 |
US Treasury Bond, 6.0%, 2/15/2026 | 3,275,000 | 3,861,942 |
US Treasury Notes: |
|
|
3.375%, 2/15/2008 | 4,728,000 | 4,630,669 |
4.25%, 11/30/2007 | 3,800,000 | 3,788,866 |
4.5%, 11/15/2015 | 3,265,000 | 3,291,783 |
4.75%, 5/15/2014 | 250,000 | 256,084 |
5.0%, 8/15/2011 | 5,380,000 | 5,552,956 |
Total US Treasury Obligations (Cost $21,762,017) | 22,056,032 |
|
| Value ($) |
|
| |
Other Investments 0.0% | ||
Hercules, Inc. (Bond Unit), 6.5%, 6/30/2029 | 230,000 | 172,500 |
IdleAire Technologies Corp., 144A, Step-up Coupon, 0% to 12/15/2009, 13.0% to 12/15/2012 | 220,000 | 161,307 |
Total Other Investments (Cost $325,185) | 333,807 | |
|
|
|
|
| Value ($) |
|
| |
Securities Lending Collateral 1.5% | ||
Daily Assets Fund Institutional, 4.28% (e) (f) (Cost $10,432,555) | 10,432,555 | 10,432,555 |
| ||
Cash Equivalents 5.1% | ||
Cash Management QP Trust, 4.26% (g) (Cost $35,179,405) | 35,179,405 | 35,179,405 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $630,023,423)+ | 102.6 | 704,416,236 |
Other Assets and Liabilities, Net | (2.6) | (17,333,597) |
Net Assets | 100.0 | 687,082,639 |
Notes to DWS Balanced VIP Portfolio of Investments
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or the interest or has filed for bankruptcy. The following table represents bonds that are in default:
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 190,000 | USD | 190,156 | 189,287 |
Oxford Automotive, Inc. | 12.0% | 10/15/2010 | 257,130 | USD | 22,782 | 23,142 |
|
|
|
|
| $ 212,938 | $ 212,429 |
** 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 December 31, 2005.
*** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $637,375,790. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $67,040,446. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $76,484,775 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $9,444,329.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $10,207,529 which is 1.5% of net assets.
(b) Principal amount stated in US dollars unless otherwise noted.
(c) Bond is insured by one of these companies:
Insurance Coverage | As a % of Total Investment Portfolio |
Ambac Financial Group | 0.7% |
Financial Guarantee Insurance Company | 0.1% |
Financial Security Assurance, Inc. | 0.3% |
MBIA Corp. | 0.5% |
(d) At December 31, 2005, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(e) 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.
(f) Represents collateral held in connection with securities lending.
(g) 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.
ADR: American Depositary Receipt
ETM: Bonds bearing the description ETM (escrow to maturity) are collateralized by US Treasury securities which are held in escrow and used to pay principal and interest on bonds so designated.
PIK: Denotes that all or a portion of the income is paid in-kind.
REIT: Real Estate Investment Trust
Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal National Mortgage Association and Federal Home Loan Corp. issues which have similar coupon rates have been aggregated for presentation purposes in this investment portfolio.
At December 31, 2005, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Canada Government Bond | 3/22/2006 | 29 | 2,842,739 | 2,853,473 | 10,734 |
10 Year Federal Germany Bond | 3/8/2006 | 47 | 6,726,245 | 6,779,579 | 53,334 |
10 Year Japanese Government Bond | 3/9/2006 | 4 | 4,673,856 | 4,658,498 | (15,358) |
Russell 2000 Index | 3/16/2006 | 2 | 690,409 | 678,300 | (12,109) |
Total net unrealized appreciation | 36,601 |
At December 31, 2005, open futures contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Depreciation ($) |
10 Year Australian Bond | 3/15/2006 | 29 | 2,202,815 | 2,255,614 | (52,799) |
10 Year US Treasury Note | 3/22/2006 | 58 | 6,309,575 | 6,345,562 | (35,987) |
10 Year United Kingdom Treasury Bond | 3/29/2006 | 29 | 5,657,978 | 5,710,429 | (52,451) |
Total net unrealized depreciation | (141,237) |
Currency Abbreviations |
ARS Argentina Peso EUR Euro |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $584,411,463) — including $10,207,529 of securities loaned | $ 658,804,276 |
Investment in Daily Assets Fund Institutional (cost $10,432,555)* | 10,432,555 |
Investment in Cash Management QP Trust (cost $35,179,405) | 35,179,405 |
Total investments in securities, at value (cost $630,023,423) | 704,416,236 |
Foreign currency, at value (cost $194,656) | 195,054 |
Receivable for investments sold | 1,045,566 |
Dividends receivable | 363,703 |
Interest receivable | 3,017,199 |
Receivable for Portfolio shares sold | 19,901 |
Receivable for daily variation margin on open futures contracts | 4,587 |
Unrealized appreciation on forward foreign currency exchange contracts | 208,357 |
Foreign taxes recoverable | 6,046 |
Due from Advisor | 3,830 |
Other assets | 22,414 |
Total assets | 709,302,893 |
Liabilities | |
Due to custodian bank | 9,816,248 |
Payable for investments purchased | 898,235 |
Payable for Portfolio shares redeemed | 477,110 |
Payable upon return of securities loaned | 10,432,555 |
Net payable on closed forward foreign currency exchange contracts | 22,706 |
Unrealized depreciation on forward foreign currency exchange contracts | 144,715 |
Accrued management fee | 273,695 |
Other accrued expenses and payables | 154,990 |
Total liabilities | 22,220,254 |
Net assets, at value | $ 687,082,639 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 16,253,135 |
Net unrealized appreciation (depreciation) on: Investments | 74,392,813 |
Futures | (104,636) |
Foreign currency related transactions | 64,026 |
Accumulated net realized gain (loss) | (83,310,602) |
Paid-in capital | 679,787,903 |
Net assets, at value | $ 687,082,639 |
Class A Net Asset Value, offering and redemption price per share ($653,468,367 ÷ 28,729,438 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 22.75 |
Class B Net Asset Value, offering and redemption price per share ($33,614,272 ÷ 1,479,683 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 22.72 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $52,845) | $ 6,512,590 |
Interest | 14,257,081 |
Interest — Cash Management QP Trust | 985,033 |
Mortgage dollar roll income | 8,167 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 11,107 |
Total Income | 21,773,978 |
Expenses: Management fee | 3,294,501 |
Custodian fees | 109,376 |
Distribution service fees (Class B) | 82,992 |
Record keeping fees (Class B) | 50,599 |
Auditing | 48,698 |
Legal | 6,390 |
Trustees' fees and expenses | 55,000 |
Reports to shareholders | 100,507 |
Other | 131,579 |
Total expenses before expense reductions | 3,879,642 |
Expense reductions | (117,893) |
Total expenses after expense reductions | 3,761,749 |
Net investment income (loss) | 18,012,229 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 15,943,902 |
Futures | 393,288 |
Foreign currency related transactions | 48,014 |
| 16,385,204 |
Net unrealized appreciation (depreciation) during the period on: Investments | (2,066,610) |
Futures | (102,802) |
Foreign currency related transactions | 158,401 |
| (2,011,011) |
Net gain (loss) on investment transactions | 14,374,193 |
Net increase (decrease) in net assets resulting from operations | $ 32,386,422 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 18,012,229 | $ 14,447,088 |
Net realized gain (loss) on investment transactions | 16,385,204 | 39,912,342 |
Net unrealized appreciation (depreciation) during the period on investment and foreign currency transactions | (2,011,011) | (12,171,380) |
Net increase (decrease) in net assets resulting from operations | 32,386,422 | 42,188,050 |
Distributions to shareholders from: Net investment income: Class A | (14,467,177) | (10,706,370) |
Class B | (715,158) | (287,648) |
Portfolio share transactions: Class A Proceeds from shares sold | 6,832,194 | 8,149,762 |
Net assets acquired in tax free reorganization | 118,997,707 | — |
Reinvestment of distributions | 14,467,177 | 10,706,370 |
Cost of shares redeemed | (125,051,390) | (94,301,996) |
Net increase (decrease) in net assets from Class A share transactions | 15,245,688 | (75,445,864) |
Class B Proceeds from shares sold | 5,663,125 | 12,535,568 |
Reinvestment of distributions | 715,158 | 287,648 |
Cost of shares redeemed | (6,295,649) | (2,353,690) |
Net increase (decrease) in net assets from Class B share transactions | 82,634 | 10,469,526 |
Increase (decrease) in net assets | 32,532,409 | (33,782,306) |
Net assets at beginning of period | 654,550,230 | 688,332,536 |
Net assets at end of period (including undistributed net investment income of $16,253,135 and $13,460,556, respectively) | $ 687,082,639 | $ 654,550,230 |
Other Information | ||
Class A Shares outstanding at beginning of period | 27,789,320 | 31,305,397 |
Shares sold | 311,313 | 380,053 |
Shares issued in tax free reorganization | 5,591,767 | — |
Shares issued to shareholders in reinvestment of distributions | 672,579 | 499,597 |
Shares redeemed | (5,635,541) | (4,395,727) |
Net increase (decrease) in Class A shares | 940,118 | (3,516,077) |
Shares outstanding at end of period | 28,729,438 | 27,789,320 |
Class B Shares outstanding at beginning of period | 1,477,597 | 988,869 |
Shares sold | 254,860 | 584,945 |
Shares issued to shareholders in reinvestment of distributions | 33,201 | 13,398 |
Shares redeemed | (285,975) | (109,615) |
Net increase (decrease) in Class B shares | 2,086 | 488,728 |
Shares outstanding at end of period | 1,479,683 | 1,477,597 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 22.37 | $ 21.32 | $ 18.66 | $ 22.57 | $ 25.91 |
Income (loss) from investment operations: Net investment income (loss)b | .59 | .47 | .37 | .47 | .61 |
Net realized and unrealized gain (loss) on investment transactions | .34 | .93 | 2.90 | (3.81) | (2.20) |
Total from investment operations | .93 | 1.40 | 3.27 | (3.34) | (1.59) |
Less distributions from: Net investment income | (.55) | (.35) | (.61) | (.57) | (.80) |
Net realized gain on investment transactions | — | — | — | — | (.95) |
Total distributions | (.55) | (.35) | (.61) | (.57) | (1.75) |
Net asset value, end of period | $ 22.75 | $ 22.37 | $ 21.32 | $ 18.66 | $ 22.57 |
Total Return (%) | 4.30c | 6.64 | 18.10 | (15.17) | (6.09) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 653 | 622 | 667 | 640 | 861 |
Ratio of expenses before expense reduction (%) | .55 | .59 | .59 | .58 | .58 |
Ratio of expenses after expense reduction (%) | .53 | .59 | .59 | .58 | .58 |
Ratio of net investment income (%) | 2.66 | 2.18 | 1.88 | 2.32 | 2.63 |
Portfolio turnover rate (%) | 121d | 131d | 102d | 140 | 115 |
a As required, effective January 1, 2001, the Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d The portfolio turnover rate including mortgage dollar roll transactions was 122%, 140% and 108% for the periods ended December 31, 2005, December 31, 2004 and December 31, 2003, respectively. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 22.33 | $ 21.28 | $ 18.64 | $ 19.46 |
Income (loss) from investment operations: Net investment income (loss)b | .51 | .39 | .28 | .18 |
Net realized and unrealized gain (loss) on investment transactions | .35 | .92 | 2.92 | (1.00) |
Total from investment operations | .86 | 1.31 | 3.20 | (.82) |
Less distributions from: Net investment income | (.47) | (.26) | (.56) | — |
Net asset value, end of period | $ 22.72 | $ 22.33 | $ 21.28 | $ 18.64 |
Total Return (%) | 3.90d | 6.26 | 17.66 | (4.21)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 34 | 33 | 21 | .8 |
Ratio of expenses before expense reductions (%) | .95 | .97 | .99 | .86* |
Ratio of expenses after expense reductions (%) | .91 | .97 | .99 | .86* |
Ratio of net investment income (%) | 2.28 | 1.80 | 1.48 | 1.96* |
Portfolio turnover rate (%) | 121c | 131c | 102c | 140 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c The portfolio turnover rate including mortgage dollar roll transactions was 122%, 140% and 108% for the periods ended December 31, 2005, December 31, 2004 and December 31, 2003, respectively. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Blue Chip VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. It may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS Blue Chip VIP from 5/1/1997 to 12/31/2005 | ||
[] DWS Blue Chip VIP — Class A [] Russell 1000 Index | The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest US companies based on total market capitalization. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index. Index returns assume reinvested dividends and unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Blue Chip VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,006 | $16,251 | $10,656 | $15,618 |
Average annual total return | 10.06% | 17.57% | 1.28% | 5.28% | |
Russell 1000 Index | Growth of $10,000 | $10,627 | $15,377 | $10,548 | $18,540 |
Average annual total return | 6.27% | 15.42% | 1.07% | 7.38% | |
DWS Blue Chip VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,968 | $16,066 | $14,613 |
Average annual total return |
| 9.68% | 17.12% | 11.45% | |
Russell 1000 Index | Growth of $10,000 |
| $10,627 | $15,377 | $13,819 |
Average annual total return |
| 6.27% | 15.42% | 9.68% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1997. Index returns begin April 30, 1997.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Blue Chip VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,088.50 |
| $ 1,086.40 |
|
Expenses Paid per $1,000* | $ 3.68 |
| $ 5.89 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.68 |
| $ 1,019.56 |
|
Expenses Paid per $1,000* | $ 3.57 |
| $ 5.70 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Blue Chip VIP | .70% |
| 1.12% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2005
DWS Blue Chip VIP
The US stock market was up modestly in 2005; the return of the S&P 500 Index was 4.91%. The Portfolio returned 10.06% (Class A shares, unadjusted for contract charges), ahead of the 6.27% return of its benchmark, the Russell 1000 Index.
The Portfolio's solid performance resulted from a combination of value and growth factors among the nine stock selection signals that guide our stock selection, which uses a combination of quantitative processes and fundamental analysis applied across 24 distinct industry groups. Among these 24 industry groups, the Portfolio outperformed the index in 15 during the period. From a sector perspective, we achieved the strongest relative performance in energy, health care, materials and consumer discretionary. Holdings that performed especially well were energy companies Burlington Resources, Inc. and Sunoco, Inc., the latter of which was sold in October after the price increased to the point that it began to appear expensive relative to its peers. Other contributors to performance included copper producer Phelps Dodge Corp., in the materials group, and Apple Computer, Inc., in the information technology group. In retailing, performance benefited from Safeway, Inc. and Nordstrom, Inc., two holdings that were in the Portfolio during the year but were sold when our selection criteria indicated they no longer offered good value. Detractors included Cree, Inc., LifePoint Hospitals, Inc. and Ryder System, Inc. Except for Cree, a developer and supplier of semiconductors, which we sold in May, we continue to own these stocks, as we believe they offer good value relative to peers and have the potential for revenue and earnings growth.
Overall, we are pleased with the Portfolio's performance and its current positioning. We believe our stock selection process provides a good balance between value and growth, and has proven to work well in many different market conditions.
Janet Campagna
Robert Wang
Portfolio Managers
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. It may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Standard & Poor's 500 (S&P 500) Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest US companies based on total market capitalization. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index.
Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Blue Chip VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 98% | 96% |
Cash Equivalents | 2% | 4% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 19% | 19% |
Information Technology | 17% | 14% |
Health Care | 15% | 15% |
Consumer Discretionary | 13% | 12% |
Industrials | 10% | 13% |
Energy | 9% | 8% |
Consumer Staples | 8% | 8% |
Materials | 4% | 5% |
Utilities | 3% | 2% |
Telecommunication Services | 2% | 4% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 36. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Blue Chip VIP
|
| Value ($) |
|
| |
Common Stocks 98.3% | ||
Consumer Discretionary 12.5% | ||
Auto Components 0.3% | ||
TRW Automotive Holdings Corp.* | 41,600 | 1,096,160 |
Hotels Restaurants & Leisure 2.2% | ||
Brinker International, Inc. | 59,200 | 2,288,672 |
Darden Restaurants, Inc. | 15,000 | 583,200 |
YUM! Brands, Inc. | 98,000 | 4,594,240 |
7,466,112 | ||
Internet & Catalog Retail 0.6% | ||
eBay, Inc.* | 44,100 | 1,907,324 |
Media 3.4% | ||
Cablevision Systems Corp. (New York Group) "A"* | 124,300 | 2,917,321 |
McGraw-Hill Companies, Inc. | 43,400 | 2,240,742 |
R.H. Donnelley Corp.* | 17,600 | 1,084,512 |
Viacom, Inc. "B"* | 162,500 | 5,297,500 |
11,540,075 | ||
Multiline Retail 1.7% | ||
Federated Department Stores, Inc. | 56,100 | 3,721,113 |
J.C. Penney Co., Inc. | 19,100 | 1,061,960 |
Target Corp. | 20,200 | 1,110,394 |
5,893,467 | ||
Specialty Retail 2.2% | ||
American Eagle Outfitters, Inc. | 129,500 | 2,975,910 |
Barnes & Noble, Inc. | 83,700 | 3,571,479 |
Claire's Stores, Inc. | 30,000 | 876,600 |
7,423,989 | ||
Textiles, Apparel & Luxury Goods 2.1% | ||
Coach, Inc.* | 105,600 | 3,520,704 |
Polo Ralph Lauren Corp. | 60,700 | 3,407,698 |
6,928,402 | ||
Consumer Staples 7.9% | ||
Beverages 2.3% | ||
PepsiCo, Inc. | 128,800 | 7,609,504 |
Food & Staples Retailing 1.2% | ||
Kroger Co.* | 217,600 | 4,108,288 |
Wal-Mart Stores, Inc. | 100 | 4,680 |
4,112,968 | ||
Food Products 1.9% | ||
Pilgrim's Pride Corp. | 100,600 | 3,335,896 |
Tyson Foods, Inc. "A" | 186,000 | 3,180,600 |
6,516,496 | ||
Household Products 1.4% | ||
Procter & Gamble Co. | 81,300 | 4,705,644 |
Tobacco 1.1% | ||
Altria Group, Inc. | 19,200 | 1,434,624 |
Loews Corp. — Carolina Group | 55,200 | 2,428,248 |
3,862,872 | ||
|
| Value ($) |
|
| |
Energy 8.9% | ||
Oil, Gas & Consumable Fuels | ||
Burlington Resources, Inc. | 51,800 | 4,465,160 |
ConocoPhillips | 100,800 | 5,864,544 |
ExxonMobil Corp. | 214,440 | 12,045,095 |
Occidental Petroleum Corp. | 52,800 | 4,217,664 |
Pogo Producing Co. | 74,100 | 3,690,921 |
XTO Energy, Inc. | 1 | 44 |
30,283,428 | ||
Financials 19.0% | ||
Banks 5.3% | ||
Bank of America Corp. | 14,700 | 678,405 |
KeyCorp | 55,200 | 1,817,736 |
PNC Financial Services Group, Inc. | 38,800 | 2,399,004 |
US Bancorp. | 187,400 | 5,601,386 |
Wells Fargo & Co. | 118,400 | 7,439,072 |
17,935,603 | ||
Capital Markets 3.1% | ||
Franklin Resources, Inc. | 10,700 | 1,005,907 |
Mellon Financial Corp. | 90,200 | 3,089,350 |
Merrill Lynch & Co., Inc. | 9,300 | 629,889 |
Morgan Stanley | 28,200 | 1,600,068 |
The Goldman Sachs Group, Inc. | 33,800 | 4,316,598 |
10,641,812 | ||
Diversified Financial Services 4.1% | ||
Citigroup, Inc. | 240,600 | 11,676,318 |
Fannie Mae | 25,400 | 1,239,774 |
Moody's Corp. | 15,900 | 976,578 |
13,892,670 | ||
Insurance 4.8% | ||
AFLAC, Inc. | 29,000 | 1,346,180 |
American Financial Group, Inc. | 19,200 | 735,552 |
Hartford Financial Services Group, Inc. | 5,400 | 463,806 |
Loews Corp. | 8,600 | 815,710 |
MetLife, Inc. | 98,800 | 4,841,200 |
Philadelphia Consolidated Holding Corp.* | 30,200 | 2,920,038 |
W.R. Berkley Corp. | 103,825 | 4,944,147 |
16,066,633 | ||
Real Estate 1.7% | ||
Apartment Investment & Management Co. "A" (REIT) | 5,700 | 215,859 |
AvalonBay Communities, Inc. (REIT) | 5,900 | 526,575 |
Boston Properties, Inc. (REIT) | 4,300 | 318,759 |
Camden Property Trust (REIT) | 6,600 | 382,272 |
CenterPoint Properties Trust (REIT) | 5,200 | 257,296 |
Equity Office Properties Trust (REIT) | 33,700 | 1,022,121 |
Equity Residential (REIT) | 16,300 | 637,656 |
General Growth Properties, Inc. (REIT) | 12,300 | 577,977 |
Pan Pacific Retail Properties, Inc. (REIT) | 1,600 | 107,024 |
Rayonier, Inc. | 12,300 | 490,155 |
|
Shares | Value ($) |
|
| |
Simon Property Group, Inc. (REIT) | 2,100 | 160,923 |
Vornado Realty Trust (REIT) | 10,800 | 901,476 |
5,598,093 | ||
Health Care 14.3% | ||
Biotechnology 2.3% | ||
Amgen, Inc.* | 4,300 | 339,098 |
Genzyme Corp.* | 52,300 | 3,701,794 |
Gilead Sciences, Inc.* | 70,900 | 3,731,467 |
7,772,359 | ||
Health Care Equipment & Supplies 1.9% | ||
Baxter International, Inc. | 103,400 | 3,893,010 |
Hospira, Inc.* | 57,400 | 2,455,572 |
6,348,582 | ||
Health Care Providers & Services 6.6% | ||
Aetna, Inc. | 6,200 | 584,722 |
AmerisourceBergen Corp. | 101,200 | 4,189,680 |
Community Health Systems, Inc.* | 77,500 | 2,971,350 |
Express Scripts, Inc.* | 46,000 | 3,854,800 |
LifePoint Hospitals, Inc.* | 40,400 | 1,515,000 |
Pharmaceutical Product Development, Inc. | 22,900 | 1,418,655 |
UnitedHealth Group, Inc. | 104,800 | 6,512,272 |
WellPoint, Inc.* | 15,400 | 1,228,766 |
22,275,245 | ||
Pharmaceuticals 3.5% | ||
Allergan, Inc. | 44,100 | 4,761,036 |
Barr Pharmaceuticals, Inc.* | 49,900 | 3,108,271 |
Johnson & Johnson | 13,382 | 804,258 |
Merck & Co., Inc. | 68,500 | 2,178,985 |
Pfizer, Inc. | 47,050 | 1,097,206 |
11,949,756 | ||
Industrials 9.7% | ||
Aerospace & Defense 5.6% | ||
Boeing Co. | 81,700 | 5,738,608 |
Lockheed Martin Corp. | 87,000 | 5,535,810 |
Raytheon Co. | 84,100 | 3,376,615 |
Rockwell Collins, Inc. | 93,500 | 4,344,945 |
18,995,978 | ||
Air Freight & Logistics 1.2% | ||
Ryder System, Inc. | 94,600 | 3,880,492 |
Airlines 0.6% | ||
AMR Corp.* | 52,500 | 1,167,075 |
Southwest Airlines Co. | 43,800 | 719,634 |
1,886,709 | ||
Commercial Services & Supplies 0.3% | ||
Republic Services, Inc. | 24,500 | 919,975 |
Industrial Conglomerates 1.5% | ||
General Electric Co. | 137,900 | 4,833,395 |
Teleflex, Inc. | 5,600 | 363,888 |
5,197,283 | ||
Machinery 0.2% | ||
Toro Co. | 17,000 | 744,090 |
Road & Rail 0.3% | ||
Burlington Northern Santa Fe Corp. | 15,100 | 1,069,382 |
Information Technology 16.9% | ||
Communications Equipment 0.9% | ||
Corning, Inc.* | 158,300 | 3,112,178 |
|
Shares | Value ($) |
|
| |
Computers & Peripherals 3.5% | ||
Apple Computer, Inc.* | 61,700 | 4,435,613 |
Hewlett-Packard Co. | 174,400 | 4,993,072 |
Network Appliance, Inc.* | 87,500 | 2,362,500 |
11,791,185 | ||
Electronic Equipment & Instruments 1.0% | ||
Agilent Technologies, Inc.* | 98,000 | 3,262,420 |
Internet Software & Services 1.0% | ||
Google, Inc. "A"* | 4,300 | 1,783,898 |
Yahoo!, Inc.* | 40,600 | 1,590,708 |
3,374,606 | ||
IT Consulting & Services 0.2% | ||
Paychex, Inc. | 18,600 | 709,032 |
Semiconductors & Semiconductor Equipment 6.3% | ||
Advanced Micro Devices, Inc.* | 84,300 | 2,579,580 |
Broadcom Corp. "A"* | 25,200 | 1,188,180 |
Freescale Semiconductor, Inc. "B"* | 102,400 | 2,577,408 |
Intel Corp. | 286,400 | 7,148,544 |
Lam Research Corp.* | 64,600 | 2,304,928 |
Micron Technology, Inc.* | 120,700 | 1,606,517 |
Texas Instruments, Inc. | 124,000 | 3,976,680 |
21,381,837 | ||
Software 4.0% | ||
Cadence Design Systems, Inc.* | 185,500 | 3,138,660 |
Microsoft Corp. | 393,100 | 10,279,565 |
13,418,225 | ||
Materials 4.2% | ||
Chemicals 0.3% | ||
Lyondell Chemical Co. | 41,500 | 988,530 |
Metals & Mining 3.9% | ||
Freeport-McMoRan Copper & Gold, Inc. "B" | 64,400 | 3,464,720 |
Phelps Dodge Corp. | 24,700 | 3,553,589 |
Southern Copper Corp. | 47,400 | 3,174,852 |
United States Steel Corp. | 63,900 | 3,071,673 |
13,264,834 | ||
Telecommunication Services 1.8% | ||
Diversified Telecommunication Services 1.8% | ||
Verizon Communications, Inc. | 205,300 | 6,183,636 |
Wireless Telecommunication Services 0.0% | ||
United States Cellular Corp.* | 1,100 | 54,340 |
Utilities 3.1% | ||
Electric Utilities 2.0% | ||
Allegheny Energy, Inc.* | 34,800 | 1,101,420 |
FirstEnergy Corp. | 110,300 | 5,403,597 |
Southern Co. | 8,000 | 276,240 |
6,781,257 | ||
Multi-Utilities 1.1% | ||
Dominion Resources, Inc. | 14,700 | 1,134,841 |
Sempra Energy | 54,600 | 2,448,264 |
3,583,105 | ||
Total Common Stocks (Cost $302,116,906) | 332,426,288 |
| Principal Amount ($) | Value ($) |
|
| |
US Treasury Obligations 0.2% | ||
US Treasury Bill, 3.75% **, 1/19/2006 (a) (Cost $728,631) | 730,000 | 728,631 |
|
Shares | Value ($) |
|
| |
Cash Equivalents 1.4% | ||
Cash Management QP Trust, 4.26% (b) (Cost $4,842,086) | 4,842,086 | 4,842,086 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $307,687,623)+ | 99.9 | 337,997,005 |
Other Assets and Liabilities, Net | 0.1 | 175,955 |
Net Assets | 100.0 | 338,172,960 |
Notes to DWS Blue Chip VIP Portfolio of Investments
+ The cost for federal income tax purposes was $309,324,185. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $28,672,820. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $31,215,232 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,542,412.
* Non-income producing security.
** Annualized yield at time of purchase; not a coupon rate.
(a) At December 31, 2005, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(b) Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
REIT: Real Estate Investment Trust
At December 31, 2005, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Depreciation ($) |
S&P 500 Index | 3/16/2006 | 17 | 5,380,123 | 5,332,900 | (47,223) |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $302,845,537) | $ 333,154,919 |
Investment in Cash Management QP Trust (cost $4,842,086) | 4,842,086 |
Total investments in securities, at value (cost $307,687,623) | 337,997,005 |
Cash | 15,678 |
Dividends receivable | 477,042 |
Interest receivable | 16,415 |
Receivable for Portfolio shares sold | 141 |
Receivable for investments sold | 29,619,583 |
Other assets | 10,677 |
Total assets | 368,136,541 |
Liabilities | |
Payable for investments purchased | 29,335,604 |
Payable for Portfolio shares redeemed | 333,483 |
Payable for daily variation margin on open futures contracts | 22,525 |
Accrued management fee | 187,605 |
Other accrued expenses and payables | 84,364 |
Total liabilities | 29,963,581 |
Net assets, at value | $ 338,172,960 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 2,849,527 |
Net unrealized appreciation (depreciation) on: Investments | 30,309,382 |
Futures | (47,223) |
Accumulated net realized gain (loss) | 16,326,100 |
Paid-in capital | 288,735,174 |
Net assets, at value | $ 338,172,960 |
Class A Net Asset Value, offering and redemption price per share ($293,892,981 ÷ 19,752,422 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.88 |
Class B Net Asset Value, offering and redemption price per share ($44,279,979 ÷ 2,986,497 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.83 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends | $ 5,218,731 |
Interest — Cash Management QP Trust | 222,955 |
Interest | 21,908 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 75,791 |
Total Income | 5,539,385 |
Expenses: Management fee | 2,118,362 |
Custodian fees | 20,537 |
Distribution service fees (Class B) | 101,201 |
Record keeping fees (Class B) | 58,190 |
Auditing | 46,182 |
Legal | 13,535 |
Trustees' fees and expenses | 7,945 |
Reports to shareholders | 49,125 |
Other | 21,581 |
Total expenses before expense reductions | 2,436,658 |
Expense reductions | (4,861) |
Total expenses after expense reductions | 2,431,797 |
Net investment income (loss) | 3,107,588 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 34,680,553 |
Futures | 216,233 |
| 34,896,786 |
Net unrealized appreciation (depreciation) during the period on: Investments | (5,949,656) |
Futures | (275,526) |
| (6,225,182) |
Net gain (loss) on investment transactions | 28,671,604 |
Net increase (decrease) in net assets resulting from operations | $ 31,779,192 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 3,107,588 | $ 2,928,100 |
Net realized gain (loss) on investment transactions | 34,896,786 | 38,719,019 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (6,225,182) | 1,111,435 |
Net increase (decrease) in net assets resulting from operations | 31,779,192 | 42,758,554 |
Distributions to shareholders from: Net investment income: Class A | (2,673,957) | (1,626,701) |
Class B | (231,257) | (56,503) |
Portfolio share transactions: Class A Proceeds from shares sold | 25,386,809 | 28,844,570 |
Reinvestment of distributions | 2,673,957 | 1,626,701 |
Cost of shares redeemed | (42,221,426) | (26,173,350) |
Net increase (decrease) in net assets from Class A share transactions | (14,160,660) | 4,297,921 |
Class B Proceeds from shares sold | 13,487,197 | 16,893,828 |
Reinvestment of distributions | 231,257 | 56,503 |
Cost of shares redeemed | (9,951,414) | (1,310,947) |
Net increase (decrease) in net assets from Class B share transactions | 3,767,040 | 15,639,384 |
Increase (decrease) in net assets | 18,480,358 | 61,012,655 |
Net assets at beginning of period | 319,692,602 | 258,679,947 |
Net assets at end of period (including undistributed net investment income of $2,849,527 and $2,788,284, respectively) | $ 338,172,960 | $ 319,692,602 |
Other Information | ||
Class A Shares outstanding at beginning of period | 20,734,323 | 20,421,127 |
Shares sold | 1,864,296 | 2,286,747 |
Shares issued to shareholders in reinvestment of distributions | 198,218 | 132,360 |
Shares redeemed | (3,044,415) | (2,105,911) |
Net increase (decrease) in Class A shares | (981,901) | 313,196 |
Shares outstanding at end of period | 19,752,422 | 20,734,323 |
Class B Shares outstanding at beginning of period | 2,700,912 | 1,427,149 |
Shares sold | 979,006 | 1,373,668 |
Shares issued to shareholders in reinvestment of distributions | 17,156 | 4,597 |
Shares redeemed | (710,577) | (104,502) |
Net increase (decrease) in Class B shares | 285,585 | 1,273,763 |
Shares outstanding at end of period | 2,986,497 | 2,700,912 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 13.65 | $ 11.84 | $ 9.37 | $ 12.07 | $ 14.41 |
Income (loss) from investment operations: Net investment income (loss)a | .14 | .13 | .08 | .07 | .05 |
Net realized and unrealized gain (loss) on investment transactions | 1.22 | 1.76 | 2.45 | (2.73) | (2.33) |
Total from investment operations | 1.36 | 1.89 | 2.53 | (2.66) | (2.28) |
Less distributions from: Net investment income | (.13) | (.08) | (.06) | (.04) | (.06) |
Net asset value, end of period | $ 14.88 | $ 13.65 | $ 11.84 | $ 9.37 | $ 12.07 |
Total Return (%) | 10.06 | 16.04 | 27.25 | (22.11) | (15.81) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 294 | 283 | 242 | 174 | 240 |
Ratio of expenses (%) | .70 | .70 | .71 | .69 | .69 |
Ratio of net investment income (%) | 1.00 | 1.08 | .82 | .65 | .42 |
Portfolio turnover rate (%) | 288 | 249 | 182 | 195 | 118 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 13.60 | $ 11.80 | $ 9.35 | $ 10.28 |
Income (loss) from investment operations: Net investment income (loss)b | .09 | .09 | .04 | .03 |
Net realized and unrealized gain (loss) on investment transactions | 1.22 | 1.74 | 2.45 | (.96) |
Total from investment operations | 1.31 | 1.83 | 2.49 | (.93) |
Less distributions from: Net investment income | (.08) | (.03) | (.04) | — |
Net asset value, end of period | $ 14.83 | $ 13.60 | $ 11.80 | $ 9.35 |
Total Return (%) | 9.68 | 15.55 | 26.76 | (9.05)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 44 | 37 | 17 | .4 |
Ratio of expenses (%) | 1.09 | 1.08 | 1.10 | .94* |
Ratio of net investment income (%) | .61 | .70 | .43 | .61* |
Portfolio turnover rate (%) | 288 | 249 | 182 | 195 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Conservative Allocation VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Diversification does not eliminate risk. The underlying portfolios invest in individual equity and bond funds whose yields and market values fluctuate, so that your investment may be worth more or less that its original cost. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. 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 Portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Conservative Allocation VIP from 8/16/2004 to 12/31/2005 | ||
[] DWS Conservative Allocation VIP — Class B [] Lehman Brothers Aggregate Bond Index | The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market value-weighted measure of treasury issues, corporate bond issues and mortgage securities. Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | |||
DWS Conservative Allocation VIP | 1-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,438 | $11,126 |
Average annual total return | 4.38% | 8.09% | |
Lehman Brothers Aggregate Bond Index | Growth of $10,000 | $10,243 | $10,369 |
Average annual total return | 2.43% | 2.75% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns begin August 31, 2004.
Information About Your Portfolio's Expenses
DWS Conservative Allocation VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In addition to the ongoing expenses which the Portfolio bears directly, the Portfolio's shareholders indirectly bear the expense of the Underlying DWS Portfolios in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying DWS Portfolios is based on its allocation of Underlying DWS Portfolios. In the most recent six-month period, the portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,031.60 |
Expenses Paid per $1,000* |
| $ 3.84 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,021.42 |
Expenses Paid per $1,000* |
| $ 3.82 |
Direct Portfolio Expenses and Estimated Indirect Underlying DWS Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,031.60 |
Expenses Paid per $1,000** |
| $ 7.22 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,018.10 |
Expenses Paid per $1,000** |
| $ 7.17 |
* Expenses are equal to the Portfolio's annualized expense ratio for the 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.
** Expenses are equal to the Portfolio's annualized expense ratio for the share class plus the estimated indirect expense from investing in underlying portfolios in which the Portfolio invests, 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 B |
Direct Portfolio Expense Ratio |
| .75% |
Estimated Indirect Expenses of Underlying DWS Portfolios |
| .66% |
Estimated Net Annual Portfolio and Underlying DWS Portfolios Expenses |
| 1.41% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Conservative Allocation VIP
The US economy posted positive growth for all four quarters of 2005, with concerns about inflation and the sustainability of the economic expansion seeming to abate as the year progressed. All major asset classes — equities, bonds and cash — had positive returns for the year, and returns of the various asset classes were generally close to one another.
For the 12 months ended December 31, 2005, DWS Conservative Allocation VIP had a return of 4.38% (Class B shares, unadjusted for contract charges). Since this Portfolio invests in underlying portfolios from a broad array of investment styles, performance is analyzed by comparing the Portfolio's return with the returns of indices that represent the major asset classes. As anticipated, since this Portfolio invests in a blend of equity and bond securities, its return was above that of the major bond indices but below that of the equity indices. The portfolio slightly underperformed the average return of its Lipper Flexible Portfolio Funds category peers — most of which have a higher percentage of equities than DWS Conservative Allocation VIP portfolio.
The portfolio's allocation between stocks and bonds remained close to its target of 40% equity and 60% fixed income during 2005, but with equities overweighted throughout the year. This overweight was positive for returns, as equities outperformed bonds. An especially positive factor in performance was an overweight in international equities, as foreign markets were stronger than the US market. Decisions regarding cash position had an important effect on performance of this portfolio. In June 2005, the target cash position was increased to 15%, with a corresponding reduction in the target position in bonds. (Cash and bonds together make up the 60% target for fixed-income securities in this portfolio.) During the first half of the year, the cash position was maintained below the target. Beginning in July, the cash position was moved above the new higher target. Both of these decisions were positive for performance, as rising short-term interest rates pushed the return on cash-equivalent securities up.
Within the fixed-income portion of the portfolio, performance of the high-yield portion was excellent, with returns significantly above the high-yield benchmark, the Credit Suisse First Boston High Yield Index. However, underperformance of the much larger investment-grade bond portion resulted in net underperformance in fixed income. In the equity portion of the portfolio, a slight bias toward value-oriented holdings established in July detracted from performance. Among underlying funds, the small-cap and growth holdings achieved the best results relative to the equity benchmarks, the Russell 1000 and Russell 2000 indexes.
Inna Okounkova Robert Wang
Co-Managers, Deutsche Investment Management Americas Inc.
All performance shown is historical, assumes reinvestment of all dividends 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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Diversification does not eliminate risk. The underlying portfolios invest in individual equity and bond funds whose yields and market values fluctuate, so that your investment may be worth more or less that its original cost. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. 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 Portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its risk profile.
The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
The Russell 2000 Index is an unmanaged capitalization-weighted measure of approximately 2,000 of the smallest companies in the Russell 3000 Index.
Credit Suisse (CS) First Boston High Yield Index is an unmanaged, unleveraged, trader-priced portfolio constructed to mirror the global high-yield debt market.
The Lipper Flexible Portfolio is a category that allocates its investments across various asset classes, including domestic common stocks, bonds, and money market instruments with a focus on total return.
Equities are represented by the Russell 1000 Index, which is a price-only index of the 1,000 largest capitalized companies domiciled in the United States. Bonds are represented by the Lehman Brothers Aggregate Bond Index which measures domestic taxable investment-grade bonds. Cash is represented by the rate of return of 3-month Treasury bills.
Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index or Lipper category.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Conservative Allocation VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Equity Funds | 43% | 42% |
Fixed Income Funds | 38% | 56% |
Cash Equivalents | 19% | 2% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 48. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Conservative Allocation VIP
|
| Value ($) |
|
| |
Equity Funds 43.0% | ||
DWS Blue Chip VIP "A" | 152,244 | 2,265,394 |
DWS Capital Growth VIP "A" | 58,867 | 994,854 |
DWS Davis Venture Value VIP "A" | 93,980 | 1,173,815 |
DWS Dreman High Return Equity VIP "A" | 72,767 | 975,806 |
DWS Dreman Small Cap Value VIP "A" | 70,295 | 1,404,494 |
DWS Global Opportunities VIP "A" | 1,679 | 25,189 |
DWS Growth and Income VIP "A" | 382,184 | 3,714,831 |
DWS International Select Equity VIP "A" | 9,107 | 120,665 |
DWS International VIP "A" | 100,267 | 1,087,894 |
DWS Janus Growth Opportunities VIP "A" | 169,822 | 1,419,708 |
DWS Large Cap Value VIP "A" | 173,652 | 2,745,432 |
DWS MFS Strategic Value VIP "A" | 114,693 | 1,228,376 |
DWS Mid Cap Growth VIP "A" | 25,293 | 286,312 |
DWS RREEF Real Estate Securities VIP "A" | 40,655 | 674,055 |
DWS Small Cap Growth VIP "A" | 68,335 | 921,159 |
DWS Templeton Foreign Value VIP "A" | 68,563 | 783,670 |
Total Equity Funds (Cost $18,648,679) | 19,821,654 |
|
| Value ($) |
|
| |
Fixed Income Funds 37.6% | ||
DWS Core Fixed Income VIP "A" | 1,323,908 | 15,635,352 |
DWS Government & Agency Securities VIP "A" | 2,782 | 34,111 |
DWS High Income VIP "A" | 160,437 | 1,320,395 |
DWS Strategic Income VIP "A" | 28,500 | 327,745 |
Total Fixed Income Funds (Cost $17,388,324) | 17,317,603 | |
| ||
Cash Equivalents 18.2% | ||
Cash Management QP Trust, 4.26% (a) (Cost $8,389,113) | 8,389,113 | 8,389,113 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $44,426,116)+ | 98.8 | 45,528,370 |
Other Assets and Liabilities, Net | 1.2 | 543,212 |
Net Assets | 100.0 | 46,071,582 |
Notes to DWS Conservative Allocation VIP Portfolio of Investments
+ The cost for federal income tax purposes was $44,455,253. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $1,073,117. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $1,227,505 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $154,388.
(a) 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.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $36,037,003) | $ 37,139,257 |
Investment in Cash Management QP Trust (cost $8,389,113) | 8,389,113 |
Total investments in securities, at value (cost $44,426,116) | 45,528,370 |
Interest receivable | 29,302 |
Receivable for Portfolio shares sold | 559,108 |
Other assets | 931 |
Total assets | 46,117,711 |
Liabilities | |
Payable for Portfolio shares redeemed | 6,619 |
Accrued management fee | 1,481 |
Other accrued expenses and payables | 38,029 |
Total liabilities | 46,129 |
Net assets, at value | $ 46,071,582 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 595,467 |
Net unrealized appreciation (depreciation) on investments | 1,102,254 |
Accumulated net realized gain (loss) | 236,149 |
Paid-in capital | 44,137,712 |
Net assets, at value | $ 46,071,582 |
Class B Net Asset Value, offering and redemption price per share ($46,071,582 ÷ 4,149,791 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.10 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Income distributions from Underlying Affiliated Portfolios | $ 566,284 |
Interest — Cash Management QP Trust | 145,202 |
Total Income | 711,486 |
Expenses: Management fee | 43,018 |
Custodian and accounting fees | 68,373 |
Distribution service fees (Class B) | 71,696 |
Record keeping fees (Class B) | 44,325 |
Auditing | 21,315 |
Legal | 13,549 |
Trustees' fees and expenses | 511 |
Reports to shareholders | 6,081 |
Offering costs | 281 |
Other | 743 |
Total expenses before expense reductions | 269,892 |
Expense reductions | (54,266) |
Total expenses after expense reductions | 215,626 |
Net investment income (loss) | 495,860 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 103,592 |
Capital gain distributions from Underlying Affiliated Portfolios | 241,064 |
| 344,656 |
Net unrealized appreciation (depreciation) during the period on investments | 667,693 |
Net gain (loss) on investment transactions | 1,012,349 |
Net increase (decrease) in net assets resulting from operations | $ 1,508,209 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Year Ended December 31, 2005 | Period Ended December 31, 2004a |
Operations: Net investment income (loss) | $ 495,860 | $ (17,219) |
Net realized gain (loss) on investment transactions | 344,656 | 49,859 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 667,693 | 434,561 |
Net increase (decrease) in net assets resulting from operations | 1,508,209 | 467,201 |
Distributions to shareholders from: Net realized gains: Class B | (50,006) | — |
Portfolio share transactions: Class B Proceeds from shares sold | 34,270,431 | 13,456,607 |
Reinvestment of distributions | 50,006 | — |
Cost of shares redeemed | (3,329,092) | (301,774) |
Net increase (decrease) in net assets from Class B share transactions | 30,991,345 | 13,154,833 |
Increase (decrease) in net assets | 32,449,548 | 13,622,034 |
Net assets at beginning of period | 13,622,034 | — |
Net assets at end of period (including undistributed net investment income of $595,467 and $0, respectively) | $ 46,071,582 | $ 13,622,034 |
Other Information | ||
Class B Shares outstanding at beginning of period | 1,277,644 | — |
Shares sold | 3,174,980 | 1,306,747 |
Shares issued to shareholders in reinvestment of distributions | 4,753 | — |
Shares redeemed | (307,586) | (29,103) |
Net increase (decrease) in Class B shares | 2,872,147 | 1,277,644 |
Shares outstanding at end of period | 4,149,791 | 1,277,644 |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.66 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .19 | (.03) |
Net realized and unrealized gain (loss) on investment transactions | .28 | .69 |
Total from investment operations | .47 | .66 |
Less distributions from: Net realized gains on investment transactions | (.03) | — |
Net asset value, end of period | $ 11.10 | $ 10.66 |
Total Return (%)c,d | 4.38 | 6.60** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 46 | 14 |
Ratio of expenses before expense reductions (%)e | .94 | 2.96* |
Ratio of expenses after expense reductions (%)e | .75 | .75* |
Ratio of net investment income (%) | 1.73 | (.67)* |
Portfolio turnover rate (%) | 27 | 18* |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not maintained some Underlying Portfolios' expenses. e The Portfolio invests in other DWS Portfolios and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios in which the Portfolio is invested. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Core Fixed Income VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Investments by the Portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. This Portfolio 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 Portfolio, can decline and the investor can lose principal value. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation and changes in political/economic conditions and market risks. All of these factors may result in greater share price volatility. Please see this Portfolio's prospectus for specific details regarding its investments and risk profile.
A Treasury's guarantee relates only to the prompt payment of principal and interest and does not remove market risks if the investment is sold prior to maturity.
Growth of an Assumed $10,000 Investment in DWS Core Fixed Income VIP from 5/1/1996 to 12/31/2005 | ||
[] DWS Core Fixed Income VIP — Class A [] Lehman Brothers Aggregate Bond Index | The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Core Fixed Income VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,225 | $11,236 | $12,830 | $16,832 |
Average annual total return | 2.25% | 3.96% | 5.11% | 5.54% | |
Lehman Brothers Aggregate Bond Index | Growth of $10,000 | $10,243 | $11,126 | $13,303 | $18,622 |
Average annual total return | 2.43% | 3.62% | 5.87% | 6.64% | |
DWS Core Fixed Income VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,185 | $11,108 | $11,694 |
Average annual total return |
| 1.85% | 3.56% | 4.57% | |
Lehman Brothers Aggregate Bond Index | Growth of $10,000 |
| $10,243 | $11,126 | $11,819 |
Average annual total return |
| 2.43% | 3.62% | 4.89% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1996. Index returns begins April 30, 1996. Total returns would have been lower for the Life of Portfolio period for Class A shares if the Portfolio's expenses were not maintained.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Core Fixed Income VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 995.80 |
| $ 993.30 |
|
Expenses Paid per $1,000* | $ 3.42 |
| $ 5.53 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.78 |
| $ 1,019.66 |
|
Expenses Paid per $1,000* | $ 3.47 |
| $ 5.60 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Core Fixed Income VIP | .68% |
| 1.10% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2005
DWS Core Fixed Income VIP
Despite several rounds of bond market speculation to the contrary, the Federal Open Market Committee (the Fed) has remained surprisingly consistent in their tightening regimen, raising rates 25 basis points at every meeting in 2005. The Fed target rate finished the year 2.00% higher at 4.25%. The Treasury market, for its part, has been less consistent with periods of rate volatility. Still, the flattening yield curve trend continued and intensified in 2005, even ending the year slightly inverted as measured by the 2- to 10-year Treasuries (-2 basis points). Against this backdrop, the portfolio returned 2.25% (Class A shares, unadjusted for contract charges) for the year, compared with the 2.43% return of its benchmark, the Lehman Brothers Aggregate Bond Index.
Spread sector performance for the year was mixed. Credit, after outperforming treasuries every year since 2002, reversed course and underperformed by 85 basis points due largely to the meltdown in the Auto sector. Our underweight strategy in autos, therefore, benefited performance, as did our holdings in insurance and utilities. Mortgage-backed securities also underperformed comparable Treasuries. On balance, our mortgage-backed securities holdings detracted from returns, although our emphasis on more structured collateralized mortgae obligations, which are less prepayment sensitive than the pass-throughs that comprise the index, fared better as volatility increased. The other high quality sectors, asset-backed securities and collateralized mortgage-backed securities, delivered the best performance for the year, and our overweight to these sectors aided returns.
Gary W. Bartlett, CFA J. Christopher Gagnier Timothy C. Vile, CFA
Warren S. Davis, III William T. Lissenden
Thomas J. Flaherty Daniel R. Taylor, CFA
Portfolio Managers, Aberdeen Asset Management Inc., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Investments by the Portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. This Portfolio 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 Portfolio, can decline and the investor can lose principal value. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation and changes in political/economic conditions and market risks. All of these factors may result in greater share price volatility. Please see this Portfolio's prospectus for specific details regarding its investments and risk profile.
A Treasury's guarantee relates only to the prompt payment of principal and interest and does not remove market risks if the investment is sold prior to maturity.
The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged, market-value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Yield, or coupon rate, is simply the interest paid by a bond at the time it matures (is paid back to the purchaser). A bond with a 10% coupon or interest rate yields 10% of its principal when it matures.
The yield curve is a graph with a left-to-right line that shows how high or low yields are, from the shortest to the longest maturities. Typically (and when the yield curve is characterized as "steep" this is especially true), the line rises from left to right as investors who are willing to tie up their money for a longer period of time are rewarded with higher yields.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Core Fixed Income VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Collateralized Mortgage Obligations | 21% | 24% |
Commercial and Non-Agency Mortgage Backed Securities | 18% | 11% |
Corporate Bonds | 15% | 16% |
US Treasury Obligations | 15% | 17% |
US Government Agency Sponsored Pass-Throughs | 9% | 7% |
Asset Backed | 7% | 8% |
Foreign Bonds — US$ Denominated | 5% | 8% |
Municipal Bonds and Notes | 5% | 5% |
Cash Equivalents | 5% | 4% |
| 100% | 100% |
Corporate and Foreign Bonds Diversification | 12/31/05 | 12/31/04 |
|
|
|
Financials | 38% | 45% |
Consumer Discretionary | 17% | 6% |
Utilities | 13% | 18% |
Telecommunication Services | 9% | 8% |
Materials | 8% | 4% |
Energy | 7% | 11% |
Industrials | 6% | 1% |
Health Care | 2% | 7% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
US Government and Agencies | 45% | 49% |
AAA* | 32% | 26% |
AA | 2% | 3% |
A | 7% | 11% |
BBB | 12% | 11% |
BB | 2% | — |
| 100% | 100% |
* Includes cash equivalents
Effective Maturity (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Under 1 year | 10% | 9% |
1-4.99 years | 34% | 46% |
5-9.99 years | 43% | 25% |
10-14.99 years | 4% | 10% |
15 years or greater | 9% | 10% |
| 100% | 100% |
Asset allocation, corporate and foreign bonds diversification, quality and effective maturity are subject to change.
Weighted average effective maturity: 5.4 years and 6.7 years, respectively.
The quality ratings represent the lower of Moody's Investors Service, 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 Portfolio's quality does not remove market risk.
For more complete details about the Portfolio's investment portfolio, see page 56. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Core Fixed Income VIP
| Principal Amount ($) | Value ($) |
|
| |
Corporate Bonds 15.6% | ||
Consumer Discretionary 3.5% | ||
Auburn Hills Trust, 12.375%, 5/1/2020 | 161,001 | 239,397 |
Comcast Cable Communications Holdings, Inc., 9.455%, 11/15/2022 | 110,000 | 144,122 |
Comcast MO of Delaware, Inc., 9.0%, 9/1/2008 | 490,000 | 535,357 |
D.R. Horton, Inc., 5.375%, 6/15/2012 | 2,091,000 | 2,021,265 |
DaimlerChrysler NA Holding Corp.: |
|
|
4.75%, 1/15/2008 | 892,000 | 883,862 |
Series E, 4.78%*, 10/31/2008 (a) | 643,000 | 643,359 |
Harrah's Operating Co., Inc., 5.625%, 6/1/2015 | 1,752,000 | 1,721,203 |
Mandalay Resort Group, 6.5%, 7/31/2009 (a) | 202,000 | 204,273 |
MGM MIRAGE: |
|
|
6.0%, 10/1/2009 | 395,000 | 392,531 |
6.625%, 7/15/2015 (a) | 130,000 | 129,675 |
News America, Inc., 144A, 6.4%, 12/15/2035 | 770,000 | 776,111 |
TCI Communications, Inc., 8.75%, 8/1/2015 | 848,000 | 1,027,517 |
Tele-Communications, Inc.: |
|
|
9.875%, 6/15/2022 | 250,000 | 339,430 |
10.125%, 4/15/2022 | 363,000 | 496,615 |
Time Warner, Inc.: |
|
|
6.625%, 5/15/2029 | 510,000 | 509,283 |
7.625%, 4/15/2031 | 1,705,000 | 1,898,772 |
11,962,772 | ||
Energy 1.3% | ||
Chesapeake Energy Corp.: |
|
|
6.375%, 6/15/2015 | 362,000 | 362,000 |
6.625%, 1/15/2016 | 226,000 | 228,825 |
Enterprise Products Operating LP: |
|
|
Series B, 5.0%, 3/1/2015 (a) | 517,000 | 492,485 |
7.5%, 2/1/2011 | 580,000 | 630,996 |
Sempra Energy, 4.621%, 5/17/2007 | 1,510,000 | 1,499,299 |
Tri-State Generation & Transmission Association, 144A, 6.04%, 1/31/2018 | 1,190,000 | 1,225,212 |
4,438,817 | ||
Financials 5.7% | ||
American General Finance Corp.: |
|
|
Series H, 4.0%, 3/15/2011 | 1,417,000 | 1,340,486 |
Series I, 4.875%, 5/15/2010 | 735,000 | 728,687 |
American International Group, Inc., 144A, 5.05%, 10/1/2015 | 970,000 | 951,987 |
ASIF Global Finance XVIII, 144A, 3.85%, 11/26/2007 | 539,000 | 528,591 |
Duke Capital LLC, 4.302%, 5/18/2006 | 1,204,000 | 1,201,135 |
Erac USA Finance Co.: |
|
|
144A, 5.9%, 11/15/2015 | 330,000 | 335,676 |
144A, 8.0%, 1/15/2011 | 1,346,000 | 1,503,801 |
| Principal Amount ($) | Value ($) |
|
| |
ERP Operating LP, 6.95%, 3/2/2011 | 432,000 | 463,661 |
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 940,000 | 1,140,951 |
Ford Motor Credit Co.: |
|
|
6.5%, 1/25/2007 | 1,041,000 | 1,007,136 |
6.875%, 2/1/2006 | 2,860,000 | 2,853,851 |
General Motors Acceptance Corp.: |
|
|
6.125%, 9/15/2006 (a) | 238,000 | 231,183 |
6.125%, 8/28/2007 | 785,000 | 727,677 |
6.15%, 4/5/2007 | 190,000 | 179,465 |
HSBC Bank USA: |
|
|
5.625%, 8/15/2035 | 780,000 | 762,901 |
5.875%, 11/1/2034 | 100,000 | 100,894 |
HSBC Finance Corp., 5.0%, 6/30/2015 | 330,000 | 320,897 |
JPMorgan Chase Capital XV, 5.875%, 3/15/2035 | 284,000 | 282,362 |
JPMorgan Chase XVII, 5.85%, 8/1/2035 (a) | 375,000 | 371,026 |
Merrill Lynch & Co., Inc., Series C, 4.79%, 8/4/2010 | 827,000 | 817,698 |
PLC Trust, Series 2003-1, 144A, 2.709%, 3/31/2006 | 250,215 | 249,296 |
Reinsurance Group of America, Inc., 6.75%, 12/15/2065 | 790,000 | 797,010 |
The Goldman Sachs Group, Inc., 4.75%, 7/15/2013 | 384,000 | 372,468 |
ZFS Finance USA Trust I: 144A, 6.15%, 12/15/2065 (a) | 1,000,000 | 1,007,268 |
144A, 6.45%, 12/15/2065 | 1,000,000 | 1,013,900 |
19,290,007 | ||
Health Care 0.5% | ||
Health Care Service Corp., 144A, 7.75%, 6/15/2011 | 1,424,000 | 1,593,812 |
Industrials 0.3% | ||
BAE System 2001 Asset Trust, "B", Series 2001, 144A, 7.156%, 12/15/2011 | 259,064 | 271,449 |
K. Hovnanian Enterprises, Inc., 6.25%, 1/15/2015 | 635,000 | 597,603 |
Standard Pacific Corp., 6.5%, 8/15/2010 | 255,000 | 243,206 |
1,112,258 | ||
Materials 0.6% | ||
Georgia-Pacific Corp., 8.875%, 5/15/2031 | 952,000 | 954,380 |
Newmont Mining Corp., 5.875%, 4/1/2035 | 755,000 | 745,051 |
Weyerhaeuser Co.: |
|
|
7.125%, 7/15/2023 (a) | 95,000 | 100,438 |
7.375%, 3/15/2032 | 66,000 | 73,373 |
1,873,242 | ||
Telecommunication Services 1.0% | ||
Anixter International, Inc., 5.95%, 3/1/2015 | 306,000 | 276,908 |
Bell Atlantic New Jersey, Inc., Series A, 5.875%, 1/17/2012 | 877,000 | 884,898 |
| Principal Amount ($) | Value ($) |
|
| |
SBC Communications, Inc., 5.875%, 2/1/2012 | 1,333,000 | 1,370,482 |
Verizon Global Funding Corp., 7.75%, 12/1/2030 | 796,000 | 946,171 |
3,478,459 | ||
Utilities 2.7% | ||
Centerior Energy Corp., Series B, 7.13%, 7/1/2007 | 1,490,000 | 1,536,925 |
Consumers Energy Co.: |
|
|
Series F, 4.0%, 5/15/2010 | 1,655,000 | 1,571,677 |
5.0%, 2/15/2012 | 1,160,000 | 1,134,756 |
Entergy Louisiana, Inc., 6.3%, 9/1/2035 | 360,000 | 352,437 |
Pedernales Electric Cooperative, Series 02-A, 144A, 6.202%, 11/15/2032 | 1,715,000 | 1,882,281 |
PSI Energy, Inc., 6.12%, 10/15/2035 | 830,000 | 848,781 |
TXU Energy Co., 7.0%, 3/15/2013 | 585,000 | 623,414 |
Xcel Energy, Inc., 7.0%, 12/1/2010 | 1,240,000 | 1,334,528 |
9,284,799 | ||
Total Corporate Bonds (Cost $53,793,556) | 53,034,166 | |
| ||
Foreign Bonds — US$ Denominated 5.5% | ||
Energy 0.2% | ||
Petro-Canada, 5.95%, 5/15/2035 | 680,000 | 689,811 |
Financials 2.2% | ||
BNP Paribas SA, 144A, 5.186%, 6/29/2049 | 300,000 | 291,040 |
DBS Capital Funding Corp., 144A, 7.657%, 3/15/2049 | 1,330,000 | 1,471,581 |
Mantis Reef Ltd., 144A, 4.692%, 11/14/2008 | 2,120,000 | 2,082,959 |
Mizuho Financial Group, (Cayman), 8.375%, 12/29/2049 | 2,670,000 | 2,892,945 |
Resona Bank Ltd., 144A, 5.85%, 9/29/2049 | 816,000 | 812,552 |
7,551,077 | ||
Industrials 1.0% | ||
Tyco International Group SA: |
|
|
6.75%, 2/15/2011 | 1,900,000 | 1,997,639 |
6.875%, 1/15/2029 | 916,000 | 998,387 |
7.0%, 6/15/2028 | 356,000 | 391,627 |
3,387,653 | ||
Materials 1.1% | ||
Alcan, Inc., 5.75%, 6/1/2035 | 74,000 | 72,051 |
Celulosa Arauco y Constitucion SA, 5.625%, 4/20/2015 | 1,295,000 | 1,285,552 |
Sociedad Concesionaria Autopista Central, 144A, 6.223%, 12/15/2026 | 1,915,000 | 2,010,424 |
Vale Overseas Ltd., 8.25%, 1/17/2034 | 295,000 | 339,619 |
3,707,646 | ||
Sovereign Bonds 0.0% | ||
United Mexican States, 8.375%, 1/14/2011 | 65,000 | 74,100 |
Telecommunication Services 1.0% | ||
British Telecommunications PLC, 8.875%, 12/15/2030 | 1,065,000 | 1,424,908 |
| Principal Amount ($) | Value ($) |
|
| |
Telecom Italia Capital: |
|
|
4.0%, 1/15/2010 | 440,000 | 419,077 |
4.95%, 9/30/2014 | 685,000 | 654,236 |
5.25%, 11/15/2013 | 850,000 | 834,083 |
3,332,304 | ||
Total Foreign Bonds — US$ Denominated (Cost $18,664,154) | 18,742,591 | |
| ||
Asset Backed 7.5% | ||
Automobile Receivables 0.9% | ||
MMCA Automobile Trust: |
|
|
"A4", Series 2002-4, 3.05%, 11/16/2009 | 617,100 | 611,476 |
"A4", Series 2002-2, 4.3%, 3/15/2010 | 784,011 | 781,715 |
"B", Series 2002-2, 4.67%, 3/15/2010 | 486,668 | 480,205 |
"B", Series 2002-1, 5.37%, 1/15/2010 | 438,264 | 437,098 |
Onyx Acceptance Owner Trust, "A3", Series 2003-D, 2.4%, 12/15/2007 | 604,024 | 602,429 |
2,912,923 | ||
Home Equity Loans 6.6% | ||
Aegis Asset Backed Securities Trust: |
|
|
"N1", Series 2005-5N, 144A, 4.5%, 12/25/2023 | 1,407,099 | 1,395,666 |
"N1", Series 2005-3N, 144A, 4.75%, 8/25/2035 | 915,743 | 910,889 |
Countrywide Asset-Backed Certificates: |
|
|
"AF2", Series 2005-7, 4.367%, 11/25/2035 | 2,340,000 | 2,303,891 |
"N1", Series 2004-2N, 144A, 5.0%, 2/25/2035 | 159,196 | 158,405 |
Credit-Based Asset Servicing and Securities, "A3", Series 2004-CB4, 4.632%, 5/25/2035 | 1,512,718 | 1,505,617 |
Encore Credit Receivables NIM Trust, "NOTE", Series 2005-4, 144A, 4.5%, 1/25/2036 | 1,362,184 | 1,336,643 |
JPMorgan Mortgage Acquisition Corp., "A2F1", Series 2005-FRE1, 5.375%, 10/25/2035 | 1,562,870 | 1,561,458 |
Master Asset Backed Securities Trust, "A1B", Series 2005-AB1, 5.143%, 11/25/2035 | 2,277,609 | 2,272,597 |
Merrill Lynch Mortgage Investors, Inc., "A1A", Series 2005-NCB, 5.451%, 7/25/2036 | 1,531,429 | 1,530,737 |
Novastar NIM Trust, "NOTE", Series 2005-N1, 144A, 4.777%, 10/26/2035 | 876,383 | 873,553 |
Park Place Securities NIM Trust, "A", Series 2005-WCW1, 144A, 4.25%, 9/25/2035 | 1,106,127 | 1,100,596 |
Renaissance Home Equity Loan Trust, "AF6", Series 2005-2, 4.781%, 8/25/2035 | 835,000 | 800,874 |
Renaissance NIM Trust, "A", Series 2004-A, 144A, 4.45%, 6/25/2034 | 8,670 | 8,654 |
Residential Asset Securities Corp., "AI6", Series 2000-KS1, 7.905%, 2/25/2031 | 1,215,405 | 1,220,986 |
| Principal Amount ($) | Value ($) |
|
| |
Securitized Asset Backed NIM Trust, "NIM", Series 2005-FR4, 144A, 6.0%, 1/25/2036 | 2,520,847 | 2,519,271 |
Terwin Mortgage Trust, "AF2", Series 2005-14HE, 4.85%, 8/25/2036 | 3,094,000 | 3,064,027 |
22,563,864 | ||
Total Asset Backed (Cost $25,694,021) | 25,476,787 | |
| ||
| Shares | Value ($) |
|
| |
Preferred Stocks 0.2% | ||
Farm Credit Bank of Texas, Series 1 | 325,000 | 356,457 |
Axis Capital Holdings Ltd., Series B, 7.5% | 3,300 | 343,406 |
Total Preferred Stocks (Cost $682,657) | 699,863 | |
| ||
| Principal Amount ($) | Value ($) |
|
| |
US Government Agency Sponsored Pass-Throughs 9.4% | ||
Federal Home Loan Mortgage Corp.: |
|
|
4.0%, 5/1/2019 | 2,274,382 | 2,174,167 |
5.0%, 3/1/2034 (f) | 3,080,000 | 2,980,861 |
6.0%, with various maturities from 12/1/2025 until 12/1/2034 | 3,103,891 | 3,145,732 |
Federal National Mortgage Association: |
|
|
4.5%, with various maturities from 7/1/2018 until 10/1/2033 (f) | 4,327,077 | 4,112,537 |
5.0%, with various maturities from 4/1/2025 until 2/1/2034 (f) | 3,663,531 | 3,578,072 |
5.5%, with various maturities from 7/1/2024 until 1/1/2025 (f) | 5,440,642 | 5,433,420 |
6.31%, 6/1/2008 | 1,500,000 | 1,530,207 |
6.5%, with various maturities from 3/1/2017 until 11/1/2035 | 3,491,126 | 3,582,023 |
7.0%, with various maturities from 11/1/2035 until 12/1/2035 | 4,052,464 | 4,228,071 |
7.13%, 1/1/2012 | 1,105,835 | 1,118,176 |
8.0%, 9/1/2015 | 48,515 | 51,809 |
Total US Government Agency Sponsored Pass-Throughs (Cost $32,300,935) | 31,935,075 | |
| ||
Commercial and Non-Agency Mortgage-Backed Securities 18.0% | ||
Adjustable Rate Mortgage Trust, "3A31", Series 2005-10, 5.437%*, 1/25/2036 | 1,265,000 | 1,256,708 |
Banc of America Commercial Mortgage, Inc., "AJ", Series 2005-1, 5.0%*, 11/10/2042 | 2,270,000 | 2,263,117 |
Bear Stearns Adjustable Rate Mortgage Trust, "2A3", Series 2005-4, 4.45%*, 8/25/2035 | 1,185,000 | 1,150,841 |
Citicorp Mortgage Securities, Inc.: |
|
|
"A4", Series 2003-3, 5.5%, 3/25/2033 | 752,479 | 751,619 |
| Principal Amount ($) | Value ($) |
|
| |
"1A1", Series 2004-8, 5.5%, 10/25/2034 | 1,326,269 | 1,325,064 |
Citigroup Mortgage Loan Trust, Inc.: |
|
|
"1A2", Series 2004-NCM-1, 6.5%, 7/25/2034 | 1,123,899 | 1,149,187 |
"1CB2", Series 2004-NCM2, 6.75%, 8/25/2034 | 1,433,796 | 1,476,362 |
Countrywide Alternative Loan Trust: |
|
|
"A2", Series 2003-6T2, 5.0%, 6/25/2033 | 1,132,397 | 1,128,672 |
"A2", Series 2003-21T1, 5.25%, 12/25/2033 | 1,636,441 | 1,631,688 |
"A6", Series 2004-14T2, 5.5%, 8/25/2034 | 1,667,677 | 1,665,983 |
"7A1", Series 2004-J2, 6.0%, 12/25/2033 | 447,182 | 446,483 |
"1A1", Series 2004-J1, 6.0%, 2/25/2034 | 311,108 | 311,836 |
First Union-Lehman Brothers Commercial Mortgage, "A3", Series 1997-C1, 7.38%, 4/18/2029 | 1,031,239 | 1,047,701 |
GMAC Commercial Mortgage Securities, Inc., "A3", Series 1997-C1, 6.869%, 7/15/2029 | 451,643 | 461,647 |
Greenwich Capital Commercial Funding Corp.: |
|
|
"AJ", Series 2005-GG3, 4.859%, 8/10/2042 | 845,000 | 818,956 |
"B", Series 2005-GG3, 4.894%, 8/10/2042 | 1,410,000 | 1,364,817 |
"AM", Series 2005-GG5, 5.277%, 4/10/2037 | 1,680,000 | 1,688,895 |
GS Mortgage Securities Corp. II, "C", Series 1998-C1, 6.91%, 10/18/2030 | 1,260,000 | 1,313,896 |
JP Morgan Mortgage Trust, "2A1", Series 2005-A8, 4.969%, 11/25/2035 | 1,482,924 | 1,471,840 |
LB-UBS Commercial Mortgage Trust, "AJ", Series 2005-C3, 4.843%, 7/15/2040 | 3,095,000 | 2,986,402 |
Master Alternative Loans Trust: |
|
|
"5A1", Series 2005-1, 5.5%, 1/25/2020 | 703,659 | 704,918 |
"3A1", Series 2004-5, 6.5%, 6/25/2034 | 61,023 | 62,091 |
"5A1", Series 2005-2, 6.5%, 12/25/2034 | 306,680 | 309,196 |
"8A1", Series 2004-3, 7.0%, 4/25/2034 | 199,743 | 201,452 |
Master Asset Securitization Trust: |
|
|
"8A1", Series 2003-6, 5.5%, 7/25/2033 | 782,165 | 768,966 |
"2A7", Series 2003-9, 5.5%, 10/25/2033 | 1,313,800 | 1,299,812 |
Merrill Lynch Mortgage Trust: |
|
|
"AM", Series 2005-MCP1, 4.805%, 6/12/2043 | 1,715,000 | 1,662,696 |
"D" Series 2005-CKI1, 5.245%, 11/12/2037 | 360,000 | 355,466 |
Residential Accredit Loans, Inc., "CB", Series 2004-QS2, 5.75%, 2/25/2034 | 1,016,699 | 1,010,028 |
Residential Asset Securitization Trust, "A1", Series 2003-A11, 4.25%, 11/25/2033 | 85,440 | 85,188 |
| Principal Amount ($) | Value ($) |
|
| |
Structured Adjustable Rate Mortgage Loan Trust: |
|
|
"6A3", Series 2005-21, 5.4%, 11/25/2035 | 1,485,000 | 1,475,266 |
"1A1", Series 2005-18, 5.725%*, 9/25/2035 | 1,493,367 | 1,495,555 |
Structured Asset Securities Corp., "4A1", Series 2005-6, 5.0%, 5/25/2035 | 876,118 | 844,906 |
Wachovia Bank Commercial Mortgage Trust, "AJ", Series 2005-C20, 5.124%*, 7/15/2042 | 3,135,000 | 3,111,120 |
Washington Mutual: |
|
|
"A6", Series 2004-AR4, 3.804%*, 6/25/2034 | 1,695,000 | 1,628,600 |
"A6", Series 2003-AR11, 3.985%, 10/25/2033 | 1,540,000 | 1,495,446 |
"A7, Series 2004-AR9, 4.181%*, 8/25/2034 | 1,393,000 | 1,364,374 |
"2A1", Series 2002-S8, 4.5%, 1/25/2018 | 433,365 | 430,769 |
"1A6", Series 2005-AR12, 4.844%*, 10/25/2035 | 3,125,000 | 3,074,809 |
"1A1", Series 2005-AR14, 5.082%*, 12/25/2035 | 1,542,410 | 1,532,792 |
"1A3", Series 2005-AR16, 5.132%, 12/25/2035 | 1,660,000 | 1,638,587 |
"4A", Series 2004-CB2, 6.5%, 8/25/2034 | 220,535 | 225,497 |
Wells Fargo Mortgage Backed Securities Trust: |
|
|
"2A17", Series 2005-AR10, 3.5%*, 6/25/2035 | 385,000 | 370,559 |
"A6", Series 2004-N, 4.0%, 8/25/2034 | 2,350,000 | 2,273,913 |
"2A14", Series 2005-AR10, 4.11%*, 6/25/2035 | 2,350,000 | 2,284,189 |
"2A15", Series 2005-AR10, 4.11%*, 6/25/2035 | 3,155,000 | 3,066,646 |
"1A6", Series 2003-1, 4.5%, 2/25/2018 | 302,247 | 300,590 |
"4A2", Series 2005-AR16, 4.993%, 10/25/2035 | 2,385,000 | 2,352,962 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $62,070,164) | 61,138,107 | |
| ||
Collateralized Mortgage Obligations 20.9% | ||
Fannie Mae Whole Loan: |
|
|
"2A3", Series 2003-W3, 4.16%, 6/25/2042 | 605,409 | 601,847 |
"1A3", Series 2003-W18, 4.732%, 8/25/2043 | 330,528 | 329,550 |
"A2", Series 2004-W4, 5.0%, 6/25/2034 | 2,115,000 | 2,107,274 |
"1A1", Series 2004-W15, 6.0%, 8/25/2044 | 1,649,045 | 1,666,488 |
Federal Home Loan Mortgage Corp.: |
|
|
"XG", Series 2737, 4.0%, 11/15/2022 | 1,050,000 | 1,030,410 |
"NB", Series 2750, 4.0%, 12/15/2022 | 2,839,000 | 2,783,549 |
"KB", Series 2552, 4.25%, 6/15/2027 | 1,220,640 | 1,211,237 |
"LC", Series 2682, 4.5%, 7/15/2032 | 805,000 | 761,759 |
"PE", Series 2727, 4.5%, 7/15/2032 | 2,395,000 | 2,259,214 |
| Principal Amount ($) | Value ($) |
|
| |
"NP", Series 2802, 4.5%, 1/15/2033 | 1,770,000 | 1,664,287 |
"HG", Series 2543, 4.75%, 9/15/2028 | 988,294 | 983,812 |
"OL", Series 2840, 5.0%, 11/15/2022 | 2,335,000 | 2,329,242 |
"PE", Series 2721, 5.0%, 1/15/2023 | 135,000 | 129,562 |
"PQ", Series 2844, 5.0%, 5/15/2023 | 1,616,000 | 1,616,794 |
"BU", Series 2911, 5.0%, 9/15/2023 | 2,403,000 | 2,394,410 |
"EW", Series 2545, 5.0%, 3/15/2029 | 1,442,593 | 1,438,683 |
"BG", Series 2640, 5.0%, 2/15/2032 | 2,060,000 | 2,006,590 |
"PD", Series 2844, 5.0%, 12/15/2032 | 2,765,000 | 2,664,769 |
"EG", Series 2836, 5.0%, 12/15/2032 | 2,770,000 | 2,669,166 |
"PD", Series 2783, 5.0%, 1/15/2033 | 1,283,000 | 1,239,752 |
"TE", Series 2780, 5.0%, 1/15/2033 | 1,785,000 | 1,724,486 |
"NE", Series 2802, 5.0%, 2/15/2033 | 2,640,000 | 2,550,366 |
"OE", Series 2840, 5.0%, 2/15/2033 | 2,780,000 | 2,676,838 |
"PD", Series 2890, 5.0%, 3/15/2033 | 1,485,000 | 1,428,619 |
"OG", Series 2889, 5.0%, 5/15/2033 | 1,770,000 | 1,708,492 |
"PE", Series 2898, 5.0%, 5/15/2033 | 860,000 | 827,248 |
"XD", Series 2941, 5.0%, 5/15/2033 | 1,055,000 | 1,013,764 |
"PE", Series 2864, 5.0%, 6/15/2033 | 2,275,000 | 2,199,016 |
"UE", Series 2911, 5.0%, 6/15/2033 | 3,055,000 | 2,936,762 |
"BG", Series 2869, 5.0%, 7/15/2033 | 335,000 | 322,429 |
"KD", Series 2915, 5.0%, 9/15/2033 | 1,341,000 | 1,289,735 |
"NE", Series 2921, 5.0%, 9/15/2033 | 2,275,000 | 2,187,600 |
"QE", Series 2991, 5.0%, 8/15/2034 | 2,530,000 | 2,429,416 |
"PE", Series 2378, 5.5%, 11/15/2016 | 1,765,000 | 1,790,398 |
"CH", Series 2390, 5.5%, 12/15/2016 | 440,000 | 444,561 |
"PE", Series 2512, 5.5%, 2/15/2022 | 45,000 | 45,813 |
"YA", Series 2841, 5.5%, 7/15/2027 | 2,405,715 | 2,420,404 |
"BD", Series 2453, 6.0%, 5/15/2017 | 872,475 | 894,037 |
"Z", Series 2173, 6.5%, 7/15/2029 | 288,809 | 298,690 |
Federal National Mortgage Association: |
|
|
"WB", Series 2003-106, 4.5%, 10/25/2015 | 1,735,000 | 1,719,908 |
"NE", Series 2004-52, 4.5%, 7/25/2033 | 1,282,000 | 1,202,326 |
"PE", Series 2005-44, 5.0%, 7/25/2033 | 650,000 | 623,612 |
"QD", Series 2005-29, 5.0%, 8/25/2033 | 435,000 | 417,400 |
| Principal Amount ($) | Value ($) |
|
| |
"HE", Series 2005-22, 5.0%, 10/25/2033 | 1,540,000 | 1,478,004 |
"ND", Series 3036, 5.0%, 5/15/2034 | 1,645,000 | 1,579,680 |
"PG", Series 2002-3, 5.5%, 2/25/2017 | 500,000 | 507,766 |
"QC", Series 2002-11, 5.5%, 3/25/2017 | 640,000 | 649,342 |
"MC", Series 2002-56, 5.5%, 9/25/2017 | 713,781 | 721,257 |
"VD", Series 2002-56, 6.0%, 4/25/2020 | 103,039 | 103,451 |
"PM", Series 2001-60, 6.0%, 3/25/2030 | 89,844 | 89,940 |
"A2", Series 1998-M6, 6.32%, 8/15/2008 | 755,090 | 774,990 |
"HM", Series 2002-36, 6.5%, 12/25/2029 | 35,829 | 35,875 |
Total Collateralized Mortgage Obligations (Cost $72,271,041) | 70,980,620 | |
| ||
Municipal Bonds and Notes 4.9% | ||
Brockton, MA, General Obligation, Economic Development, Series A, 6.45%, 5/1/2017 (b) | 1,530,000 | 1,662,299 |
California, Statewide Communities Development Authority Revenue, Series A-1, 4.0%, 11/15/2006 (b) | 1,515,000 | 1,503,092 |
Illinois, Higher Education Revenue, 7.05%, 7/1/2009 (b) | 1,410,000 | 1,509,067 |
Jersey City, NJ, Municipal Utilities Authority, Water Revenue, 4.55%, 5/15/2012 (b) | 1,000,000 | 978,790 |
Jicarilla, NM, Sales & Tax Special Revenue, Apache Nation Revenue, 144A, 5.2%, 12/1/2013 | 945,000 | 948,733 |
Los Angeles, CA, Community Redevelopment Agency, Financing Authority Revenue, Bunker Hill Project, 5.83%, 12/1/2017 (b) | 2,500,000 | 2,612,050 |
New York, General Obligation, Environmental Facilities Corp., 4.95%, 1/1/2013 (b) | 1,500,000 | 1,502,190 |
| Principal Amount ($) | Value ($) |
|
| |
Oklahoma City, OK, Airport Revenue, 5.2%, 10/1/2012 (b) | 1,430,000 | 1,443,084 |
Oregon, School Boards Association, Pension Deferred Interest, Series A, Zero Coupon, 6/30/2017 (b) | 3,830,000 | 2,140,242 |
Portland, OR, River District, Urban Renewal & Redevelopment, Series B, 3.35%, 6/15/2010 (b) | 1,550,000 | 1,462,208 |
Trenton, NJ, School District General Obligation, 4.3%, 4/1/2011 (b) | 1,040,000 | 1,010,173 |
Total Municipal Bonds and Notes (Cost $16,539,393) | 16,771,928 | |
| ||
US Treasury Obligations 14.8% | ||
US Treasury Bond, 6.0%, 2/15/2026 (a) | 8,624,000 | 10,169,585 |
US Treasury Notes: |
|
|
3.375%, 2/15/2008 (a) | 9,543,000 | 9,346,548 |
4.75%, 5/15/2014 (a) | 8,400,000 | 8,604,422 |
5.0%, 8/15/2011 (a) | 21,442,000 | 22,131,317 |
Total US Treasury Obligations (Cost $50,678,932) | 50,251,872 | |
| ||
|
| Value ($) |
|
| |
Securities Lending Collateral 16.1% | ||
Daily Assets Fund Institutional, 4.28%(c) (d) (Cost $54,947,630) | 54,947,630 | 54,947,630 |
| ||
Cash Equivalents 4.7% | ||
Cash Management QP Trust, 4.26%(e) (Cost $16,123,788) | 16,123,788 | 16,123,788 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $403,766,271)+ | 117.6 | 400,102,427 |
Other Assets and Liabilities, Net | (17.6) | (59,835,567) |
Net Assets | 100.0 | 340,266,860 |
Notes to DWS Core Fixed Income VIP Portfolio of Investments
* 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 December 31, 2005.
+ The cost for federal income tax purposes was $403,930,558. At December 31, 2005, net unrealized depreciation for all securities based on tax cost was $3,828,131. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $1,441,908 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $5,270,039.
(a) All or a portion of these securities were on loan (See Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $53,856,661 which is 15.8% of net assets.
(b) Bond is insured by one of these companies:
Insurance Coverage | As a % of Total Investment Portfolio |
Ambac Financial Group | 1.1% |
Financial Guaranty Insurance Co. | 1.6% |
Financial Security Assurance Inc. | 1.0% |
MBIA Corp. | 0.2% |
(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.
(f) Mortgage dollar rolls included.
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.
Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. issues which have similar coupon rates have been aggregated for presentation purposes in the investment portfolio.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $332,694,853) — including $53,856,661 of securities loaned | $ 329,031,009 |
Investment in Daily Assets Fund Institutional (cost $54,947,630)* | 54,947,630 |
Investment in Cash Management QP Trust (cost $16,123,788) | 16,123,788 |
Total investments in securities, at value (cost $403,766,271) | 400,102,427 |
Cash | 290,090 |
Interest receivable | 2,770,029 |
Receivable for Portfolio shares sold | 303,562 |
Other assets | 10,098 |
Total assets | 403,476,206 |
Liabilities | |
Payable for investments purchased | 4,278,129 |
Payable upon return of securities loaned | 54,947,630 |
Payable for investments purchased — mortgage dollar rolls | 3,622,889 |
Deferred mortgage dollar roll income | 903 |
Accrued management fee | 167,653 |
Payable for Portfolio shares redeemed | 41,002 |
Other accrued expenses and payables | 151,140 |
Total liabilities | 63,209,346 |
Net assets, at value | $ 340,266,860 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 11,525,027 |
Net unrealized appreciation (depreciation) on investments | (3,663,844) |
Accumulated net realized gain (loss) | (402,744) |
Paid-in capital | 332,808,421 |
Net assets, at value | $ 340,266,860 |
Class A Net Asset Value, offering and redemption price per share ($251,626,427 ÷ 21,303,867 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.81 |
Class B Net Asset Value, offering and redemption price per share ($88,640,433 ÷ 7,523,292 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.78 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Interest | $ 14,029,550 |
Mortgage dollar roll income | 46,816 |
Interest — Cash Management QP Trust | 357,029 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 92,963 |
Total Income | 14,526,358 |
Expenses: Management fee | 1,883,098 |
Custodian fees | 21,344 |
Distribution service fees (Class B) | 220,712 |
Record keeping fees (Class B) | 131,719 |
Auditing | 44,824 |
Legal | 13,813 |
Trustees' fees and expenses | 16,581 |
Reports to shareholders | 70,805 |
Other | 49,371 |
Total expenses before expense reductions | 2,452,267 |
Expense reductions | (5,905) |
Total expenses after expense reductions | 2,446,362 |
Net investment income | 12,079,996 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | (353,676) |
Net unrealized appreciation (depreciation) during the period on investments | (5,057,842) |
Net gain (loss) on investment transactions | (5,411,518) |
Net increase (decrease) in net assets resulting from operations | $ 6,668,478 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income | $ 12,079,996 | $ 9,852,018 |
Net realized gain (loss) on investment transactions | (353,676) | 2,613,421 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (5,057,842) | (740,835) |
Net increase (decrease) in net assets resulting from operations | 6,668,478 | 11,724,604 |
Distributions to shareholders from: Net investment income: Class A | (7,365,945) | (6,899,791) |
Class B | (2,666,763) | (1,766,032) |
Net realized gains: Class A | (1,950,232) | (3,369,665) |
Class B | (794,464) | (976,642) |
Portfolio share transactions: Class A Proceeds from shares sold | 81,598,580 | 43,408,606 |
Reinvestment of distributions | 9,316,177 | 10,269,456 |
Cost of shares redeemed | (45,087,748) | (42,555,105) |
Net increase (decrease) in net assets from Class A share transactions | 45,827,009 | 11,122,957 |
Class B Proceeds from shares sold | 9,590,439 | 46,084,279 |
Reinvestment of distributions | 3,461,227 | 2,742,674 |
Cost of shares redeemed | (10,890,122) | (6,180,393) |
Net increase (decrease) in net assets from Class B share transactions | 2,161,544 | 42,646,560 |
Increase (decrease) in net assets | 41,879,627 | 52,481,991 |
Net assets at beginning of period | 298,387,233 | 245,905,242 |
Net assets at end of period (including undistributed net investment income of $11,525,027 and $9,524,556, respectively) | $ 340,266,860 | $ 298,387,233 |
Other Information | ||
Class A Shares outstanding at beginning of period | 17,397,738 | 16,493,825 |
Shares sold | 6,905,327 | 3,610,180 |
Shares issued to shareholders in reinvestment of distributions | 808,696 | 865,161 |
Shares redeemed | (3,807,894) | (3,571,428) |
Net increase (decrease) in Class A shares | 3,906,129 | 903,913 |
Shares outstanding at end of period | 21,303,867 | 17,397,738 |
Class B Shares outstanding at beginning of period | 7,335,272 | 3,731,351 |
Shares sold | 808,980 | 3,887,722 |
Shares issued to shareholders in reinvestment of distributions | 300,193 | 230,865 |
Shares redeemed | (921,153) | (514,666) |
Net increase (decrease) in Class B shares | 188,020 | 3,603,921 |
Shares outstanding at end of period | 7,523,292 | 7,335,272 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.07 | $ 12.16 | $ 11.98 | $ 11.48 | $ 11.45 |
Income (loss) from investment operations: Net investment incomeb | .47 | .50 | .45 | .53 | .62 |
Net realized and unrealized gain (loss) on investment transactions | (.21) | .05 | .14 | .37 | .01 |
Total from investment operations | .26 | .55 | .59 | .90 | .63 |
Less distributions from: Net investment income | (.41) | (.43) | (.41) | (.40) | (.60) |
Net realized gain on investment transactions | (.11) | (.21) | — | — | — |
Total distributions | (.52) | (.64) | (.41) | (.40) | (.60) |
Net asset value, end of period | $ 11.81 | $ 12.07 | $ 12.16 | $ 11.98 | $ 11.48 |
Total Return (%) | 2.25 | 4.53 | 5.13 | 8.01 | 5.71 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 252 | 210 | 201 | 216 | 134 |
Ratio of expenses (%) | .67 | .66 | .66 | .65 | .64 |
Ratio of net investment income (%) | 3.96 | 4.18 | 3.75 | 4.57 | 5.46 |
Portfolio turnover rate (%) | 164c | 185c | 229c | 267 | 176 |
a As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. b Based on average shares outstanding during the period. c The portfolio turnover rate including mortgage dollar roll transactions was 176%, 204% and 265% for the years ended December 31, 2005, December 31, 2004, and December 31, 2003, respectively. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.04 | $ 12.13 | $ 11.96 | $ 11.36 |
Income (loss) from investment operations: Net investment incomeb | .42 | .45 | .40 | .27 |
Net realized and unrealized gain (loss) on investment transactions | (.21) | .05 | .15 | .33 |
Total from investment operations | .21 | .50 | .55 | .60 |
Less distributions from: Net investment income | (.36) | (.38) | (.38) | — |
Net realized gain on investment transactions | (.11) | (.21) | — | — |
Total distributions | (.47) | (.59) | (.38) | — |
Net asset value, end of period | $ 11.78 | $ 12.04 | $ 12.13 | $ 11.96 |
Total Return (%) | 1.85 | 4.10 | 4.76 | 5.28** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 89 | 88 | 45 | 2 |
Ratio of expenses (%) | 1.07 | 1.03 | 1.05 | .92* |
Ratio of net investment income (%) | 3.56 | 3.81 | 3.36 | 4.69* |
Portfolio turnover rate (%) | 164c | 185c | 229c | 267 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c The portfolio turnover rate including mortgage dollar roll transactions was 176%, 204% and 265% for the years ended December 31, 2005, December 31, 2004, and December 31, 2003, respectively. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Davis Venture Value VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market and equity risks, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Davis Venture Value VIP from 5/1/2001 to 12/31/2005 | ||
[] DWS Davis Venture Value VIP — Class A [] Russell 1000 Value Index | Russell 1000 Value Index is an unmanaged index, which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | ||||
DWS Davis Venture Value VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,964 | $15,919 | $12,735 |
Average annual total return | 9.64% | 16.76% | 5.32% | |
Russell 1000 Value Index | Growth of $10,000 | $10,705 | $16,216 | $13,095 |
Average annual total return | 7.05% | 17.49% | 5.95% | |
DWS Davis Venture Value VIP | 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 | $10,923 | $15,750 | $14,752 |
Average annual total return | 9.23% | 16.35% | 11.75% | |
Russell 1000 Value Index | Growth of $10,000 | $10,705 | $16,216 | $14,386 |
Average annual total return | 7.05% | 17.49% | 10.95% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2001. Index returns begin April 30, 2001.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Davis Venture Value VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,082.30 |
| $ 1,080.60 |
|
Expenses Paid per $1,000* | $ 4.88 |
| $ 6.87 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.52 |
| $ 1,018.60 |
|
Expenses Paid per $1,000* | $ 4.74 |
| $ 6.67 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Davis Venture Value VIP | .93% |
| 1.31% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Davis Venture Value VIP
DWS Davis Venture Value VIP returned 9.64% (Class A shares, unadjusted for contract charges) for the year ended December 31, 2005, compared with 7.05% for the Portfolio's benchmark, the Russell 1000 Value Index.
Energy companies were the most important contributors to the Portfolio's performance over the year. All of the Portfolio's energy company holdings performed well, with EOG Resources, Inc., Devon Energy Corp. and ConocoPhillips all among the top five contributors.
Insurance companies — the Portfolio's largest industry group holdings — were the second most important contributors to the Portfolio's performance. Progressive Corp. was among the Portfolio's top five contributors to performance.
Other positive contributions to the Portfolio's performance were the Portfolio's significant investments in both diversified financial companies and consumer staple companies. Altria Group, Inc., a tobacco company, ranked among the Portfolio's top five contributors to performance. Avon Products, Inc. (initially purchased in June 2005), a consumer staples company, ranked among the top five detractors from performance.
Detracting from the Portfolio's performance were holdings in both the consumer discretionary sector and the industrial sector. Comcast Corp. Special "A", a consumer discretionary company, and Tyco International Ltd., an industrial company, were among the top five detractors from performance.
The Portfolio had approximately 9% of its portfolio invested in foreign companies at December 31, 2005 — but those foreign holdings underperformed the Portfolio's secondary benchmark (the S&P 500 Index) over the year.
Christopher C. Davis
Kenneth Charles Feinberg
Co-Managers
Davis Selected Advisers, L.P., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the dame underlying portfolio, their performance will differ.
Risk Considerations
The Portfolio is subject to stock market and equity risks, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Russell 1000 Value Index is an unmanaged index that consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values.
The Standard & Poor's 500 (S&P 500) Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Standard & Poor's (S&P) Financial Index is an unmanaged index that gauges the performance of financial companies within the S&P 500 Index.
Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
In this report Davis Selected Advisers makes candid statements and observations regarding economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. All investments involve some degree of risk, and there can be no assurance that the investment strategies will be successful. Market values will vary so that an investor may experience a gain or a loss.
Portfolio Summary
DWS Davis Venture Value VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 99% | 94% |
Cash Equivalents | 1% | 6% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 45% | 50% |
Consumer Staples | 15% | 12% |
Energy | 11% | 9% |
Industrials | 8% | 9% |
Consumer Discretionary | 8% | 7% |
Health Care | 4% | 4% |
Materials | 4% | 5% |
Information Technology | 4% | 3% |
Telecommunication Services | 1% | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 72. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Davis Venture Value VIP
|
| Value ($) |
|
| |
Common Stocks 99.1% | ||
Consumer Discretionary 7.7% | ||
Automobiles 1.4% | ||
Harley-Davidson, Inc. (a) | 103,100 | 5,308,619 |
Diversified Consumer Services 1.5% | ||
H&R Block, Inc. | 232,000 | 5,695,600 |
Household Durables 0.2% | ||
Hunter Douglas NV | 11,263 | 613,109 |
Internet & Catalog Retail 0.4% | ||
Expedia, Inc.* (a) | 33,899 | 812,220 |
IAC/InterActiveCorp.* (a) | 33,899 | 959,681 |
| 1,771,901 | |
Media 4.2% | ||
Comcast Corp. Special "A"* | 383,200 | 9,844,408 |
Gannett Co., Inc. | 19,600 | 1,187,172 |
Lagardere S.C.A. | 54,700 | 4,209,356 |
WPP Group PLC ADR (a) | 18,200 | 982,800 |
| 16,223,736 | |
Consumer Staples 14.9% | ||
Beverages 2.0% | ||
Diageo PLC (ADR) (a) | 83,300 | 4,856,390 |
Heineken Holding NV | 98,200 | 2,885,548 |
| 7,741,938 | |
Food & Staples Retailing 6.1% | ||
Costco Wholesale Corp. | 329,300 | 16,290,471 |
Wal-Mart Stores, Inc. | 157,300 | 7,361,640 |
| 23,652,111 | |
Food Products 0.8% | ||
The Hershey Co. | 52,800 | 2,917,200 |
Personal Products 0.8% | ||
Avon Products, Inc. | 109,800 | 3,134,790 |
Tobacco 5.2% | ||
Altria Group, Inc. | 270,600 | 20,219,232 |
Energy 10.5% | ||
Energy Equipment & Services 1.0% | ||
Transocean, Inc.* | 53,600 | 3,735,384 |
Oil, Gas & Consumable Fuels 9.5% | ||
ConocoPhillips | 170,720 | 9,932,490 |
Devon Energy Corp. | 150,600 | 9,418,524 |
EOG Resources, Inc. | 128,600 | 9,435,382 |
Occidental Petroleum Corp. | 102,800 | 8,211,664 |
| 36,998,060 | |
Financials 44.7% | ||
Banks 10.6% | ||
Commerce Bancorp, Inc. (a) | 53,100 | 1,827,171 |
Fifth Third Bancorp. | 74,900 | 2,825,228 |
Golden West Financial Corp. | 190,400 | 12,566,400 |
HSBC Holdings PLC | 743,041 | 11,927,499 |
Lloyds TSB Group PLC (ADR) (a) | 75,900 | 2,565,420 |
Wells Fargo & Co. | 149,600 | 9,399,368 |
| 41,111,086 | |
|
| Value ($) |
|
| |
Capital Markets 1.9% | ||
Ameriprise Financial, Inc. | 97,120 | 3,981,920 |
Morgan Stanley | 43,500 | 2,468,190 |
State Street Corp. | 13,400 | 742,896 |
| 7,193,006 | |
Consumer Finance 4.9% | ||
American Express Co. | 366,600 | 18,865,236 |
Diversified Financial Services 7.8% | ||
Citigroup, Inc. | 190,400 | 9,240,112 |
JPMorgan Chase & Co. | 384,384 | 15,256,201 |
Moody's Corp. | 96,400 | 5,920,888 |
| 30,417,201 | |
Insurance 17.8% | ||
American International Group, Inc. | 280,400 | 19,131,692 |
Aon Corp. | 98,800 | 3,551,860 |
Berkshire Hathaway, Inc. "B"* | 5,005 | 14,692,178 |
Chubb Corp. | 11,700 | 1,142,505 |
Loews Corp. | 89,100 | 8,451,135 |
Markel Corp.* (a) | 900 | 285,345 |
Marsh & McLennan Companies, Inc. | 93,300 | 2,963,208 |
Principal Financial Group, Inc. | 26,800 | 1,271,124 |
Progressive Corp. | 104,000 | 12,145,120 |
Sun Life Financial, Inc. | 16,200 | 650,106 |
Transatlantic Holdings, Inc. (a) | 72,237 | 4,854,326 |
| 69,138,599 | |
Real Estate 1.7% | ||
CenterPoint Properties Trust (REIT) | 131,600 | 6,511,568 |
Health Care 4.4% | ||
Health Care Providers & Services | ||
Cardinal Health, Inc. | 68,500 | 4,709,375 |
Caremark Rx, Inc.* | 91,800 | 4,754,322 |
HCA, Inc. | 149,400 | 7,544,700 |
| 17,008,397 | |
Industrials 8.2% | ||
Air Freight & Logistics 0.6% | ||
United Parcel Service, Inc. "B" | 30,200 | 2,269,530 |
Commercial Services & Supplies 3.0% | ||
China Merchants Holdings International Co., Ltd | 648,000 | 1,404,036 |
Cosco Pacific Ltd. | 554,000 | 1,007,448 |
D&B Corp.* | 49,900 | 3,341,304 |
Iron Mountain, Inc.* (a) | 144,700 | 6,109,234 |
| 11,862,022 | |
Industrial Conglomerates 4.4% | ||
Tyco International Ltd. | 588,262 | 16,977,241 |
Road & Rail 0.2% | ||
Kuehne & Nagel International AG (Registered) | 2,764 | 779,317 |
Information Technology 3.8% | ||
Communications Equipment 0.3% | ||
Nokia Oyj (ADR) | 53,600 | 980,880 |
|
| Value ($) |
|
| |
Computers & Peripherals 2.2% | ||
Dell, Inc.* | 118,100 | 3,541,819 |
Hewlett-Packard Co. | 82,700 | 2,367,701 |
Lexmark International, Inc. "A"* (a) | 60,200 | 2,698,766 |
| 8,608,286 | |
Software 1.3% | ||
Microsoft Corp. | 192,500 | 5,033,875 |
Materials 3.9% | ||
Construction Materials 1.6% | ||
Martin Marietta Materials, Inc. | 42,500 | 3,260,600 |
Vulcan Materials Co. | 44,400 | 3,008,100 |
| 6,268,700 | |
Containers & Packaging 2.3% | ||
Sealed Air Corp.* (a) | 159,600 | 8,964,732 |
Telecommunication Services 1.0% | ||
Diversified Telecommunication Services 0.7% | ||
NTL, Inc.* (a) | 13,200 | 898,656 |
Telewest Global, Inc.* (a) | 66,900 | 1,593,558 |
| 2,492,214 | |
|
| Value ($) |
|
| |
Wireless Telecommunication Services 0.3% | ||
SK Telecom Co., Ltd. (ADR) (a) | 62,200 | 1,262,038 |
Total Common Stocks (Cost $288,225,236) | 383,755,608 | |
| ||
Securities Lending Collateral 4.6% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $17,878,804) | 17,878,804 | 17,878,804 |
| ||
Cash Equivalents 0.8% | ||
Cash Management QP Trust, 4.26% (d) (Cost $3,223,464) | 3,223,464 | 3,223,464 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $309,327,504)+ | 104.5 | 404,857,876 |
Other Assets and Liabilities, Net | (4.5) | (17,415,132) |
Net Assets | 100.0 | 387,442,744 |
Notes to DWS Davis Venture Value VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $309,718,350. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $95,139,526. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $101,184,936 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $6,045,410.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $17,442,457 which is 4.5% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
REIT: Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $288,225,236) — including $17,442,457 of securities loaned | $ 383,755,608 |
Investment in Daily Assets Fund Institutional (cost $17,878,804)* | 17,878,804 |
Investment in Cash Management QP Trust (cost $3,223,464) | 3,223,464 |
Total investments in securities, at value (cost $309,327,504) | 404,857,876 |
Cash | 10,000 |
Foreign currency, at value (cost $520,407) | 509,372 |
Receivable for investments sold | 49,630 |
Dividends receivable | 591,897 |
Interest receivable | 18,116 |
Foreign taxes recoverable | 4,555 |
Other assets | 10,045 |
Total assets | 406,051,491 |
Liabilities | |
Payable for Portfolio shares redeemed | 402,894 |
Payable upon return of securities loaned | 17,878,804 |
Accrued management fee | 219,047 |
Other accrued expenses and payables | 108,002 |
Total liabilities | 18,608,747 |
Net assets, at value | $ 387,442,744 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 2,254,802 |
Net unrealized appreciation (depreciation) on: Investments | 95,530,372 |
Foreign currency related transactions | (11,544) |
Accumulated net realized gain (loss) | (6,442,086) |
Paid-in capital | 296,111,200 |
Net assets, at value | $ 387,442,744 |
Class A Net Asset Value, offering and redemption price per share ($309,354,882 ÷ 24,763,248 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.49 |
Class B Net Asset Value, offering and redemption price per share ($78,087,862 ÷ 6,263,092 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.47 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $129,826) | $ 5,899,111 |
Interest — Cash Management QP Trust | 251,330 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 38,041 |
Total Income | 6,188,482 |
Expenses: Management fee | 3,353,292 |
Custodian and accounting fees | 116,627 |
Distribution service fees (Class B) | 177,310 |
Record keeping fees (Class B) | 97,746 |
Auditing | 46,948 |
Legal | 15,169 |
Trustees' fees and expenses | 15,117 |
Reports to shareholders | 56,009 |
Other | 24,117 |
Total expenses before expense reductions | 3,902,335 |
Expense reductions | (199,632) |
Total expenses after expense reductions | 3,702,703 |
Net investment income (loss) | 2,485,779 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 1,835,229 |
Foreign currency related transactions | (14,089) |
Net increase from payments by affiliates and net gains (losses) realized on the disposal of investments in violation of restrictions | — |
| 1,821,140 |
Net unrealized appreciation (depreciation) during the period on: Investments | 29,230,931 |
Foreign currency related transactions | (22,344) |
| 29,208,587 |
Net gain (loss) on investment transactions | 31,029,727 |
Net increase (decrease) in net assets resulting from operations | $ 33,515,506 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 2,485,779 | $ 1,954,893 |
Net realized gain (loss) on investment transactions | 1,821,140 | (1,157,982) |
Net unrealized appreciation (depreciation) during the period on investment transactions | 29,208,587 | 32,686,703 |
Net increase (decrease) in net assets resulting from operations | 33,515,506 | 33,483,614 |
Distributions to shareholders from: Net investment income: Class A | (2,091,774) | (1,002,743) |
Class B | (260,311) | (15,708) |
Portfolio share transactions: Class A Proceeds from shares sold | 36,365,583 | 39,970,621 |
Reinvestment of distributions | 2,091,774 | 1,002,743 |
Cost of shares redeemed | (22,500,564) | (19,163,185) |
Net increase (decrease) in net assets from Class A share transactions | 15,956,793 | 21,810,179 |
Class B Proceeds from shares sold | 11,711,444 | 32,936,634 |
Reinvestment of distributions | 260,311 | 15,708 |
Cost of shares redeemed | (6,187,073) | (2,151,840) |
Net increase (decrease) in net assets from Class B share transactions | 5,784,682 | 30,800,502 |
Increase (decrease) in net assets | 52,904,896 | 85,075,844 |
Net assets at beginning of period | 334,537,848 | 249,462,004 |
Net assets at end of period (including undistributed net investment lncome of $2,254,802 and $1,834,272, respectively) | $ 387,442,744 | $ 334,537,848 |
Other Information | ||
Class A Shares outstanding at beginning of period | 23,386,408 | 21,351,155 |
Shares sold | 3,107,848 | 3,746,952 |
Shares issued to shareholders in reinvestment of distributions | 184,135 | 93,978 |
Shares redeemed | (1,915,143) | (1,805,677) |
Net increase (decrease) in Class A shares | 1,376,840 | 2,035,253 |
Shares outstanding at end of period | 24,763,248 | 23,386,408 |
Class B Shares outstanding at beginning of period | 5,765,180 | 2,848,268 |
Shares sold | 1,002,803 | 3,116,302 |
Shares issued to shareholders in reinvestment of distributions | 22,895 | 1,471 |
Shares redeemed | (527,786) | (200,861) |
Net increase (decrease) in Class B shares | 497,912 | 2,916,912 |
Shares outstanding at end of period | 6,263,092 | 5,765,180 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.48 | $ 10.31 | $ 7.99 | $ 9.50 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .09 | .08 | .06 | .05 | .03 |
Net realized and unrealized gain (loss) on investment transactions | 1.01 | 1.14 | 2.31 | (1.55) | (.53) |
Total from investment operations | 1.10 | 1.22 | 2.37 | (1.50) | (.50) |
Less distributions from: Net investment income | (.09) | (.05) | (.05) | (.01) | — |
Net asset value, end of period | $ 12.49 | $ 11.48 | $ 10.31 | $ 7.99 | $ 9.50 |
Total Return (%) | 9.64c | 11.83 | 29.84 | (15.79) | (5.00)** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 309 | 268 | 220 | 160 | 109 |
Ratio of expenses before expense reductions (%) | 1.02 | 1.05 | 1.01 | 1.02 | 1.09* |
Ratio of expenses after expense reductions (%) | .96 | 1.05 | 1.01 | 1.02 | 1.09* |
Ratio of net investment income (%) | .78 | .74 | .62 | .62 | .48* |
Portfolio turnover rate (%) | 8 | 3 | 7 | 22 | 15* |
a For the period from May 1, 2001 (commencement of operations) to December 31, 2001. b Based on average shares outstanding during the period. c Reimbursement of $621 due to disposal of investments in violation of restrictions had no effect on total return. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 11.46 | $ 10.29 | $ 7.98 | $ 8.52 |
Income (loss) from investment operations: Net investment income (loss)b | .04 | .04 | .02 | .04 |
Net realized and unrealized gain (loss) on investment transactions | 1.01 | 1.13 | 2.32 | (.58) |
Total from investment operations | 1.05 | 1.17 | 2.34 | (.54) |
Less distributions from: Net investment income | (.04) | .00*** | (.03) | — |
Net asset value, end of period | $ 12.47 | $ 11.46 | $ 10.29 | $ 7.98 |
Total Return (%) | 9.23c | 11.42 | 29.42 | (6.34)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 78 | 66 | 29 | .8 |
Ratio of expenses before expense reductions (%) | 1.41 | 1.44 | 1.40 | 1.27* |
Ratio of expenses after expense reductions (%) | 1.34 | 1.44 | 1.40 | 1.27* |
Ratio of net investment income (%) | .40 | .36 | .23 | 1.06* |
Portfolio turnover rate (%) | 8 | 3 | 7 | 22 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Reimbursement of $621 due to disposal of investments in violation of restrictions had no effect on total return. * Annualized ** Not annualized *** Amount is less than $.005. |
Performance Summary December 31, 2005
DWS Dreman Financial Services VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk. It may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Additionally, this Portfolio is non-diversified and can take larger positions in fewer companies, increasing its overall potential risk. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS Dreman Financial Services VIP from 5/4/1998 to 12/31/2005 | ||
[] DWS Dreman Financial Services VIP — Class A [] S&P 500 Index [] S&P Financial Index | The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Standard & Poor's (S&P) Financial Index is an unmanaged index that gauges the performance of financial companies within the S&P 500 Index Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
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Comparative Results | |||||
DWS Dreman Financial Services VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $9,993 | $14,341 | $12,483 | $14,725 |
Average annual total return | -.07% | 12.77% | 4.54% | 5.18% | |
S&P 500 Index | Growth of $10,000 | $10,491 | $14,970 | $10,275 | $12,629 |
Average annual total return | 4.91% | 14.39% | .54% | 3.09% | |
S&P Financial Index | Growth of $10,000 | $10,647 | $15,471 | $12,024 | $15,354 |
Average annual total return | 6.47% | 15.66% | 3.76% | 5.75% | |
DWS Dreman Financial Services VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $9,954 | $14,176 | $13,116 |
Average annual total return |
| -.46% | 12.34% | 8.06% | |
S&P 500 Index | Growth of $10,000 |
| $10,491 | $14,970 | $13,428 |
Average annual total return |
| 4.91% | 14.39% | 8.79% | |
S&P Financial Index | Growth of $10,000 |
| $10,647 | $15,471 | $13,792 |
Average annual total return |
| 6.47% | 15.66% | 9.62% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 4, 1998. Index returns begin April 30, 1998.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Dreman Financial Services VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,047.10 |
| $ 1,044.80 |
|
Expenses Paid per $1,000* | $ 4.70 |
| $ 6.85 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.62 |
| $ 1,018.50 |
|
Expenses Paid per $1,000* | $ 4.63 |
| $ 6.77 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Dreman Financial Services VIP | .91% |
| 1.33% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Dreman Financial Services VIP
The equity market, as measured by the S&P 500 Index, had a return of 4.91% for 2005. Eight of the 10 industry sectors within the S&P 500 had positive returns for the year. Within the index, energy was the strongest sector, returning 31.35%; the financials sector, as represented by the S&P Financial Index, had a return of 6.47%. DWS Dreman Financial Services VIP finished the year almost exactly where it began, with a return of -0.07% (Class A shares, unadjusted for contract charges).
The Portfolio's performance was disappointing mainly because of negative events specific to two of the largest holdings, Freddie Mac and Fannie Mae. These two companies, which are government-sponsored enterprises that operate mainly in the residential mortgage business, have been the subject of negative publicity because accounting irregularities have required them to restate earnings. We believe that their growth models are still credible, and we continue to hold significant positions in the stocks.
Another large holding, American International Group, Inc., hurt performance early in the year because of an accounting scandal, but it has since recovered, confirming our thesis that this leading international insurance and financial services firm has good prospects for long-term profitable growth.
Holdings that contributed to performance include Chubb Corp., a leading insurance firm; Franklin Resources, Inc., a global investment management firm; Prudential Financial Inc., a diversified financial services firm; National Bank of Canada; and investment banks Lehman Brothers Holdings, Inc. and The Goldman Sachs Group, Inc.
The Portfolio's investment policy makes it possible to invest up to 20% of the fund's assets outside the financial services sector. This enables us to take advantage of attractive investment opportunities in other sectors, while achieving additional diversification. We believe the combination of growing world demand for energy and a lack of investment in new energy resources over the last 20 years creates a major long-term opportunity. Therefore by the end of the period, we had invested 9% of the Portfolio in energy stocks.
David N. Dreman F. James Hutchinson
Lead Manager Portfolio Manager
Dreman Value Management, L.L.C., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk. It may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Additionally, this Portfolio is nondiversified and can take larger positions in fewer companies, increasing its overall potential risk. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Standard & Poor's (S&P) 500 Index is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Standard & Poor's (S&P) Financial Index is an unmanaged index that gauges the performance of financial companies within the S&P 500 Index. Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Dreman Financial Services VIP
Asset Allocation (Excludes Securities Lending Collateral and Cash Equivalents) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Energy | 9% | — |
Consumer Staples | 3% | — |
Financials: |
|
|
Banks | 38% | 45% |
Diversified Financial Services | 22% | 28% |
Capital Markets | 13% | 9% |
Insurance | 12% | 13% |
Consumer Finance | 2% | 5% |
Real Estate | 1% | — |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 81. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Dreman Financial Services VIP
|
| Value ($) |
|
| |
Common Stocks 100.0% | ||
Consumer Staples 3.1% | ||
Tobacco | ||
Altria Group, Inc. | 57,100 | 4,266,512 |
Energy 9.4% | ||
Oil, Gas & Consumable Fuels | ||
Anadarko Petroleum Corp. | 7,100 | 672,725 |
Apache Corp. | 9,100 | 623,532 |
Burlington Resources, Inc. | 9,100 | 784,420 |
ConocoPhillips | 79,700 | 4,636,946 |
Devon Energy Corp. | 10,600 | 662,924 |
EnCana Corp. | 25,800 | 1,165,128 |
Occidental Petroleum Corp. | 16,400 | 1,310,032 |
Tesoro Corp. | 22,400 | 1,378,720 |
Valero Energy Corp. | 32,800 | 1,692,480 |
12,926,907 | ||
Financials 87.5% | ||
Banks 37.4% | ||
Bank of America Corp. | 203,920 | 9,410,908 |
Fifth Third Bancorp. | 44,100 | 1,663,452 |
Hudson City Bancorp., Inc. | 35,100 | 425,412 |
Independence Community Bank Corp. | 13,100 | 520,463 |
KeyCorp | 138,855 | 4,572,495 |
Marshall & Ilsley Corp. | 44,500 | 1,915,280 |
Mercantile Bankshares Corp. | 11,400 | 643,416 |
National Bank of Canada | 81,350 | 4,221,284 |
National City Corp. | 68,331 | 2,293,872 |
PNC Financial Services Group, Inc. | 47,340 | 2,927,032 |
Regions Financial Corp. | 59,072 | 2,017,900 |
Sovereign Bancorp, Inc. | 89,775 | 1,940,936 |
US Bancorp. | 140,320 | 4,194,165 |
Wachovia Corp. | 63,340 | 3,348,152 |
Washington Mutual, Inc. | 209,832 | 9,127,692 |
Wells Fargo & Co. | 36,410 | 2,287,640 |
51,510,099 | ||
Capital Markets 12.8% | ||
Ameriprise Financial, Inc. | 13,890 | 569,490 |
Bear Stearns Companies, Inc. | 17,140 | 1,980,184 |
Franklin Resources, Inc. | 17,210 | 1,617,912 |
Lehman Brothers Holdings, Inc. | 17,200 | 2,204,524 |
|
| Value ($) |
|
| |
Mellon Financial Corp. | 95,300 | 3,264,025 |
Morgan Stanley | 98,480 | 5,587,756 |
The Goldman Sachs Group, Inc. | 19,400 | 2,477,574 |
17,701,465 | ||
Consumer Finance 2.4% | ||
American Express Co. | 63,950 | 3,290,867 |
Diversified Financial Services 22.3% | ||
CIT Group, Inc. | 50,590 | 2,619,550 |
Citigroup, Inc. | 101,300 | 4,916,089 |
Fannie Mae | 167,480 | 8,174,699 |
Freddie Mac | 130,005 | 8,495,827 |
JPMorgan Chase & Co. | 122,124 | 4,847,101 |
The PMI Group, Inc. | 39,300 | 1,614,051 |
30,667,317 | ||
Insurance 11.8% | ||
Allstate Corp. | 29,495 | 1,594,795 |
American International Group, Inc. | 172,573 | 11,774,656 |
Chubb Corp. | 18,630 | 1,819,219 |
Prudential Financial, Inc. | 14,690 | 1,075,161 |
16,263,831 | ||
Real Estate 0.8% | ||
NovaStar Financial, Inc. (REIT) (a) | 39,500 | 1,110,344 |
Total Common Stocks (Cost $107,620,603) | 137,737,342 | |
| ||
Securities Lending Collateral 0.7% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $1,020,625) | 1,020,625 | 1,020,625 |
| ||
Cash Equivalents 0.1% | ||
Cash Management QP Trust, 4.26% (d) (Cost $148,666) | 148,666 | 148,666 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $108,789,894)+ | 100.8 | 138,906,633 |
Other Assets and Liabilities, Net | (0.8) | (1,089,105) |
Net Assets | 100.0 | 137,817,528 |
Notes to DWS Dreman Financial Services VIP Portfolio of Investments
+ The cost for federal income tax purposes was $110,050,124. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $28,856,509. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $33,097,241 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $4,240,732.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $997,905 which is 0.7% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
REIT: Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $107,620,603) — including $997,905 of securities loaned | $ 137,737,342 |
Investment in Daily Assets Fund Institutional (cost $1,020,625)* | 1,020,625 |
Investment in Cash Management QP Trust (cost $ 148,666) | 148,666 |
Total investments in securities, at value (cost $108,789,894) | 138,906,633 |
Cash | 26,450 |
Dividends receivable | 221,276 |
Interest receivable | 9,427 |
Other assets | 4,233 |
Total assets | 139,168,019 |
Liabilities | |
Payable for Portfolio shares redeemed | 168,753 |
Payable upon return of securities loaned | 1,020,625 |
Accrued management fee | 86,637 |
Other accrued expenses and payables | 74,476 |
Total liabilities | 1,350,491 |
Net assets, at value | $ 137,817,528 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 2,884,898 |
Net unrealized appreciation (depreciation) on: Investments | 30,116,739 |
Foreign currency related transactions | 71 |
Accumulated net realized gain (loss) | 186,463 |
Paid-in capital | 104,629,357 |
Net assets, at value | $ 137,817,528 |
Class A Net Asset Value, offering and redemption price per share ($120,027,544 ÷ 9,007,093 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.33 |
Class B Net Asset Value, offering and redemption price per share ($17,789,984 ÷ 1,337,909 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.30 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $23,565) | $ 4,139,850 |
Interest — Cash Management QP Trust | 3,390 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 151,200 |
Total Income | 4,294,440 |
Expenses: Management fee | 1,076,058 |
Custodian and accounting fees | 95,589 |
Distribution service fees (Class B) | 42,361 |
Record keeping fees (Class B) | 25,055 |
Auditing | 44,166 |
Legal | 6,859 |
Trustees' fees and expenses | 6,302 |
Reports to shareholders | 34,133 |
Other | 20,307 |
Total expenses before expense reductions | 1,350,830 |
Expense reductions | (2,712) |
Total expenses after expense reductions | 1,348,118 |
Net investment income (loss) | 2,946,322 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 6,474,234 |
Foreign currency related transactions | (1,602) |
| 6,472,632 |
Net unrealized appreciation (depreciation) during the period on: Investments | (10,649,526) |
Foreign currency related transactions | (1,487) |
| (10,651,013) |
Net gain (loss) on investment transactions | (4,178,381) |
Net increase (decrease) in net assets resulting from operations | $ (1,232,059) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 2,946,322 | $ 2,737,075 |
Net realized gain (loss) on investment transactions | 6,472,632 | 1,313,816 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (10,651,013) | 13,545,556 |
Net increase (decrease) in net assets resulting from operations | (1,232,059) | 17,596,447 |
Distributions to shareholders from: Net investment income: Class A | (2,459,642) | (2,233,509) |
Class B | (250,229) | (138,571) |
Portfolio share transactions: Class A Proceeds from shares sold | 4,078,683 | 9,238,024 |
Reinvestment of distributions | 2,459,642 | 2,233,509 |
Cost of shares redeemed | (27,606,524) | (23,157,778) |
Net increase (decrease) in net assets from Class A share transactions | (21,068,199) | (11,686,245) |
Class B Proceeds from shares sold | 2,781,906 | 7,389,810 |
Reinvestment of distributions | 250,229 | 138,571 |
Cost of shares redeemed | (2,350,850) | (1,105,504) |
Net increase (decrease) in net assets from Class B share transactions | 681,285 | 6,422,877 |
Increase (decrease) in net assets | (24,328,844) | 9,960,999 |
Net assets at beginning of period | 162,146,372 | 152,185,373 |
Net assets at end of period (including undistributed net investment income of $2,884,898 and $2,663,849, respectively) | $ 137,817,528 | $ 162,146,372 |
Other Information | ||
Class A Shares outstanding at beginning of period | 10,645,952 | 11,569,224 |
Shares sold | 319,846 | 730,584 |
Shares issued to shareholders in reinvestment of distributions | 200,133 | 176,982 |
Shares redeemed | (2,158,838) | (1,830,838) |
Net increase (decrease) in Class A shares | (1,638,859) | (923,272) |
Shares outstanding at end of period | 9,007,093 | 10,645,952 |
Class B Shares outstanding at beginning of period | 1,281,273 | 771,080 |
Shares sold | 220,209 | 586,845 |
Shares issued to shareholders in reinvestment of distributions | 20,344 | 10,971 |
Shares redeemed | (183,917) | (87,623) |
Net increase (decrease) in Class B shares | 56,636 | 510,193 |
Shares outstanding at end of period | 1,337,909 | 1,281,273 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 13.60 | $ 12.33 | $ 9.79 | $ 10.78 | $ 11.53 |
Income (loss) from investment operations: Net investment income (loss)a | .27 | .23 | .20 | .15 | .14 |
Net realized and unrealized gain (loss) on investment transactions | (.30) | 1.23 | 2.50 | (1.06) | (.71) |
Total from investment operations | (.03) | 1.46 | 2.70 | (.91) | (.57) |
Less distributions from: Net investment income | (.24) | (.20) | (.16) | (.08) | (.13) |
Net realized gain on investment transactions | — | — | — | — | (.05) |
Total distributions | (.24) | (.20) | (.16) | (.08) | (.18) |
Net asset value, end of period | $ 13.33 | $ 13.60 | $ 12.33 | $ 9.79 | $ 10.78 |
Total Return (%) | (.07) | 12.00 | 28.13 | (8.51) | (4.86) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 120 | 145 | 143 | 120 | 117 |
Ratio of expenses | .89 | .84 | .86 | .83 | .86 |
Ratio of net investment income (%) | 2.10 | 1.79 | 1.84 | 1.44 | 1.31 |
Portfolio turnover rate (%) | 27 | 8 | 7 | 13 | 22 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 13.57 | $ 12.31 | $ 9.78 | $ 10.57 |
Income (loss) from investment operations: Net investment income (loss)b | .21 | .18 | .14 | .06 |
Net realized and unrealized gain (loss) on investment transactions | (.29) | 1.22 | 2.53 | (.85) |
Total from investment operations | (.08) | 1.40 | 2.67 | (.79) |
Less distributions from: Net investment income | (.19) | (.14) | (.14) | — |
Net asset value, end of period | $ 13.30 | $ 13.57 | $ 12.31 | $ 9.78 |
Total Return (%) | (.46) | 11.50 | 27.73 | (7.47)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 18 | 17 | 9 | .4 |
Ratio of expenses (%) | 1.29 | 1.22 | 1.25 | 1.08* |
Ratio of net investment income (%) | 1.70 | 1.41 | 1.45 | 1.33* |
Portfolio turnover rate (%) | 27 | 8 | 7 | 13 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Dreman High Return Equity VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS Dreman High Return Equity VIP from 5/4/1998 to 12/31/2005 | ||
[] DWS Dreman High Return Equity VIP — Class A [] S&P 500 Index | The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
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Comparative Results | |||||
DWS Dreman High Return Equity VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,792 | $16,238 | $13,535 | $16,142 |
Average annual total return | 7.92% | 17.54% | 6.24% | 6.45% | |
S&P 500 Index | Growth of $10,000 | $10,491 | $14,970 | $10,275 | $12,629 |
Average annual total return | 4.91% | 14.39% | .54% | 3.09% | |
DWS Dreman High Return Equity VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,751 | $16,063 | $14,686 |
Average annual total return |
| 7.51% | 17.11% | 11.61% | |
S&P 500 Index | Growth of $10,000 |
| $10,491 | $14,970 | $13,428 |
Average annual total return |
| 4.91% | 14.39% | 8.79% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 4, 1998. Index returns begin April 30, 1998.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Dreman High Return Equity VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,053.40 |
| $ 1,051.00 |
|
Expenses Paid per $1,000* | $ 4.04 |
| $ 6.15 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.27 |
| $ 1,019.21 |
|
Expenses Paid per $1,000* | $ 3.97 |
| $ 6.06 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Dreman High Return Equity VIP | .78% |
| 1.19% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Dreman High Return Equity VIP
Almost all measures of economic activity moved upward during 2005. Gross domestic product has increased at a rate of more than 3% for nearly three years. Employment, home ownership and consumer net worth increased, and consumer spending remained relatively strong, despite the effect of rising energy prices on consumer sentiment. Business trends were also positive during the year, with gains in corporate profits, business investment, manufacturing activity and productivity. Expressing concern about inflation, the US Federal Reserve Board (the Fed) continued to raise the federal funds rate1 during the year.
The equity market, as measured by the S&P 500 Index, had a return of 4.91% for the year ending December 31, 2005. The Portfolio, which returned 7.92% (Class A shares, unadjusted for contract charges) for the annual period, significantly outperformed its benchmark, the S&P 500 Index.
The most significant positive factor was a major overweight in energy stocks, as energy was by far the best-performing sector. Within the energy group, the top contributor to performance was Burlington Resources, Inc. Other energy stocks that performed especially well were Transocean, Inc.; Devon Energy Corp., EnCana Corp. and Kerr-McGee Corp. Also positive was our major overweight position in the tobacco industry. Tobacco holdings including Altria Group, Inc. and Reynolds American, Inc., performed especially well as recent court rulings indicated that settlements of pending litigation may be more favorable than had been anticipated.
Performance was hurt by an overweight in financials relative to the benchmark. Two large holdings, Freddie Mac and Fannie Mae, performed poorly because of accounting irregularities that required earnings restatements. We consider the market's negative reaction to the issues facing these companies to be excessive, and we have maintained these positions.
We believe the Portfolio is positioned appropriately for a time of uncertainty in the economy and markets. We have confidence in our time-tested investing philosophy of seeking companies that are financially sound and that have solid growth prospects but have fallen out of favor with the investing public.
David N. Dreman
F. James Hutchinson
Co-Managers
Dreman Value Management L.L.C., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The Portfolio may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
The Standard & Poor's 500 (S&P 500) Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect fees or expenses. It is not possible to invest directly into an index.
1 Federal funds rate — the overnight rate charged by banks when they borrow money from each other. Set by the Federal Open Market Committee (FOMC), the fed funds rate is the most sensitive — and closely watched — indicator concerning the direction of short-term interest rates. The FOMC is a key committee within the US Federal Reserve System, and meets every six weeks to review Fed policy on short-term rates. Based on current Fed policy, the FOMC may choose to raise or lower the fed funds rate to either add liquidity to the economy or remove it.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Dreman High Return Equity VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 94% | 92% |
Cash Equivalents | 6% | 8% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 29% | 34% |
Energy | 21% | 14% |
Consumer Staples | 19% | 21% |
Health Care | 17% | 17% |
Consumer Discretionary | 6% | 8% |
Industrials | 5% | 3% |
Information Technology | 3% | 3% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 89. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Dreman High Return Equity VIP
|
| Value ($) |
|
| |
Common Stocks 93.6% | ||
Consumer Discretionary 5.8% | ||
Automobiles 0.3% | ||
Ford Motor Co. | 345,000 | 2,663,400 |
Multiline Retail 0.9% | ||
Federated Department Stores, Inc. | 129,505 | 8,590,066 |
Specialty Retail 4.6% | ||
Borders Group, Inc. | 712,900 | 15,448,543 |
Home Depot, Inc. | 388,455 | 15,724,659 |
Staples, Inc. | 501,247 | 11,383,319 |
| 42,556,521 | |
Consumer Staples 17.4% | ||
Food & Staples Retailing 0.6% | ||
Safeway, Inc. | 232,650 | 5,504,499 |
Tobacco 16.8% | ||
Altria Group, Inc. | 1,121,820 | 83,822,391 |
Imperial Tobacco Group PLC (ADR) | 95,145 | 5,755,321 |
Reynolds American, Inc. (a) | 214,773 | 20,474,310 |
Universal Corp. | 266,570 | 11,558,475 |
UST, Inc. | 816,640 | 33,343,411 |
| 154,953,908 | |
Energy 19.3% | ||
Energy Equipment & Services 0.2% | ||
Transocean, Inc.* | 22,400 | 1,561,056 |
Oil, Gas & Consumable Fuels 19.1% | ||
Anadarko Petroleum Corp. | 47,500 | 4,500,625 |
Apache Corp. | 147,100 | 10,079,292 |
Burlington Resources, Inc. | 163,500 | 14,093,700 |
Chevron Corp. | 562,860 | 31,953,562 |
ConocoPhillips | 995,046 | 57,891,776 |
Devon Energy Corp. | 514,600 | 32,183,084 |
El Paso Corp. | 846,510 | 10,293,562 |
EnCana Corp. | 66,200 | 2,989,592 |
Kerr-McGee Corp. | 2,928 | 266,038 |
Occidental Petroleum Corp. | 148,700 | 11,878,156 |
| 176,129,387 | |
Financials 27.1% | ||
Banks 7.6% | ||
Bank of America Corp. | 521,636 | 24,073,501 |
KeyCorp | 294,000 | 9,681,420 |
PNC Financial Services Group, Inc. | 169,300 | 10,467,819 |
Sovereign Bancorp, Inc. | 493,600 | 10,671,632 |
US Bancorp. | 265,700 | 7,941,773 |
Wachovia Corp. | 140,000 | 7,400,400 |
| 70,236,545 | |
Capital Markets 0.0% | ||
Piper Jaffray Companies, Inc.* | 1,071 | 43,268 |
Diversified Financial Services 16.7% | ||
CIT Group, Inc. | 89,100 | 4,613,598 |
Citigroup, Inc. | 134,600 | 6,532,138 |
|
| Value ($) |
|
| |
Fannie Mae | 894,873 | 43,678,751 |
Freddie Mac | 853,641 | 55,785,440 |
JPMorgan Chase & Co. | 132,864 | 5,273,372 |
Washington Mutual, Inc. | 854,175 | 37,156,613 |
| 153,039,912 | |
Insurance 2.8% | ||
American International Group, Inc. | 331,300 | 22,604,599 |
The St. Paul Travelers Companies, Inc. | 70,605 | 3,153,925 |
| 25,758,524 | |
Health Care 16.5% | ||
Health Care Equipment & Supplies 1.4% | ||
Becton, Dickinson & Co. | 111,555 | 6,702,224 |
Fisher Scientific International, Inc.* | 102,100 | 6,315,906 |
| 13,018,130 | |
Health Care Providers & Services 8.1% | ||
Cardinal Health, Inc. | 119,400 | 8,208,750 |
HCA, Inc. | 296,200 | 14,958,100 |
Laboratory Corp. of America Holdings* | 343,075 | 18,474,589 |
Medco Health Solutions, Inc.* | 316,434 | 17,657,017 |
Quest Diagnostics, Inc. | 291,100 | 14,985,828 |
| 74,284,284 | |
Pharmaceuticals 7.0% | ||
Bristol-Myers Squibb Co. | 743,460 | 17,084,711 |
Merck & Co., Inc. | 525,195 | 16,706,453 |
Pfizer, Inc. | 931,930 | 21,732,608 |
Wyeth | 193,675 | 8,922,607 |
| 64,446,379 | |
Industrials 4.7% | ||
Air Freight & Logistics 0.5% | ||
FedEx Corp. | 45,000 | 4,652,550 |
Industrial Conglomerates 3.2% | ||
3M Co. | 125,200 | 9,703,000 |
General Electric Co. | 209,350 | 7,337,718 |
Tyco International Ltd. | 415,005 | 11,977,044 |
| 29,017,762 | |
Machinery 1.0% | ||
PACCAR, Inc. | 138,700 | 9,602,201 |
Information Technology 2.8% | ||
IT Consulting & Services | ||
Electronic Data Systems Corp. | 1,059,440 | 25,468,938 |
Utilities 0.0% | ||
Multi-Utilities | ||
NiSource, Inc. | 5,303 | 110,621 |
Total Common Stocks (Cost $668,478,882) | 861,637,951 | |
| ||
Securities Lending Collateral 1.0% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $9,612,900) | 9,612,900 | 9,612,900 |
|
| Value ($) |
|
| |
Cash Equivalents 6.0% | ||
Cash Management QP Trust, 4.26% (d) (Cost $55,136,790) | 55,136,790 | 55,136,790 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $733,228,572)+ | 100.6 | 926,387,641 |
Other Assets and Liabilities, Net | (0.6) | (5,770,147) |
Net Assets | 100.0 | 920,617,494 |
Notes to DWS Dreman High Return Equity VIP Portfolio of Investments
+ The cost for federal income tax purposes was $734,465,757. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $191,921,884. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $246,714,121 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $54,792,237.
* Non-income producing security.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $9,437,670 which is 1.0% of net assets.
(b) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending.
(d) Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
ADR: American Depositary Receipt
At December 31, 2005, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Net Unrealized Depreciation ($) |
S&P 500 Index | 3/16/2006 | 102 | 32,492,714 | 31,997,400 | (495,314) |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $668,478,882) — including $9,437,670 of securities loaned | $ 861,637,951 |
Investment in Daily Assets Fund Institutional (cost $9,612,900)* | 9,612,900 |
Investment in Cash Management QP Trust (cost $55,136,790) | 55,136,790 |
Total investments in securities, at value (cost $733,228,572) | 926,387,641 |
Cash | 10,000 |
Margin deposit | 3,000,000 |
Dividends receivable | 2,087,726 |
Interest receivable | 193,720 |
Receivable for Portfolio shares sold | 45,224 |
Other assets | 28,556 |
Total assets | 931,752,867 |
Liabilities | |
Payable for Portfolio shares redeemed | 615,085 |
Payable upon return of securities loaned | 9,612,900 |
Payable for daily variation margin on open futures contracts | 135,150 |
Accrued management fee | 555,288 |
Other accrued expenses and payables | 216,950 |
Total liabilities | 11,135,373 |
Net assets, at value | $ 920,617,494 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 15,440,258 |
Net unrealized appreciation (depreciation) on: Investments | 193,159,069 |
Futures | (495,314) |
Accumulated net realized gain (loss) | (7,359,180) |
Paid-in capital | 719,872,661 |
Net assets, at value | $ 920,617,494 |
Class A Net Asset Value, offering and redemption price per share ($785,304,208 ÷ 58,564,793 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.41 |
Class B Net Asset Value, offering and redemption price per share ($135,313,286 ÷ 10,109,241 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.39 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $22,931) | $ 21,189,452 |
Interest — Cash Management QP Trust | 2,015,802 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 17,505 |
Total Income | 23,222,759 |
Expenses: Management fee | 6,460,811 |
Custodian and accounting fees | 132,062 |
Distribution service fees (Class B) | 312,165 |
Record keeping fees (Class B) | 177,001 |
Auditing | 46,008 |
Legal | 17,646 |
Trustees' fees and expenses | 42,080 |
Reports to shareholders | 153,623 |
Other | 42,087 |
Total expenses before expense reductions | 7,383,483 |
Expense reductions | (10,907) |
Total expenses after expense reductions | 7,372,576 |
Net investment income (loss) | 15,850,183 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 13,081,559 |
Futures | 909,310 |
| 13,990,869 |
Net unrealized appreciation (depreciation) during the period on: Investments | 39,170,908 |
Futures | (1,298,451) |
| 37,872,457 |
Net gain (loss) on investment transactions | 51,863,326 |
Net increase (decrease) in net assets resulting from operations | $ 67,713,509 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 15,850,183 | $ 14,881,437 |
Net realized gain (loss) on investment transactions | 13,990,869 | 11,147,529 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 37,872,457 | 78,862,493 |
Net increase (decrease) in net assets resulting from operations | 67,713,509 | 104,891,459 |
Distributions to shareholders from: Net investment income: Class A | (13,347,076) | (11,297,007) |
Class B | (1,660,448) | (1,021,598) |
Portfolio share transactions: Class A Proceeds from shares sold | 39,914,209 | 38,718,500 |
Reinvestment of distributions | 13,347,076 | 11,297,007 |
Cost of shares redeemed | (60,039,081) | (55,620,546) |
Net increase (decrease) in net assets from Class A share transactions | (6,777,796) | (5,605,039) |
Class B Proceeds from shares sold | 18,573,514 | 42,816,407 |
Reinvestment of distributions | 1,660,448 | 1,021,598 |
Cost of shares redeemed | (9,785,758) | (4,506,330) |
Net increase (decrease) in net assets from Class B share transactions | 10,448,204 | 39,331,675 |
Increase (decrease) in net assets | 56,376,393 | 126,299,490 |
Net assets at beginning of period | 864,241,101 | 737,941,611 |
Net assets at end of period (including undistributed net investment income of $15,440,258 and $14,597,599, respectively) | $ 920,617,494 | $ 864,241,101 |
Other Information | ||
Class A Shares outstanding at beginning of period | 59,052,129 | 59,527,655 |
Shares sold | 3,118,474 | 3,370,933 |
Shares issued to shareholders in reinvestment of distributions | 1,067,766 | 1,011,370 |
Shares redeemed | (4,673,576) | (4,857,829) |
Net increase (decrease) in Class A shares | (487,336) | (475,526) |
Shares outstanding at end of period | 58,564,793 | 59,052,129 |
Class B Shares outstanding at beginning of period | 9,286,484 | 5,819,055 |
Shares sold | 1,454,485 | 3,763,080 |
Shares issued to shareholders in reinvestment of distributions | 132,624 | 91,377 |
Shares redeemed | (764,352) | (387,028) |
Net increase (decrease) in Class B shares | 822,757 | 3,467,429 |
Shares outstanding at end of period | 10,109,241 | 9,286,484 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.65 | $ 11.29 | $ 8.76 | $ 10.81 | $ 10.77 |
Income (loss) from investment operations: Net investment income (loss)a | .24 | .23 | .20 | .21 | .19 |
Net realized and unrealized gain (loss) on investment transactions | .75 | 1.32 | 2.53 | (2.13) | (.01) |
Total from investment operations | .99 | 1.55 | 2.73 | (1.92) | .18 |
Less distributions from: Net investment income | (.23) | (.19) | (.20) | (.09) | (.14) |
Net realized gain on investment transactions | — | — | — | (.04) | — |
Total distributions | (.23) | (.19) | (.20) | (.13) | (.14) |
Net asset value, end of period | $ 13.41 | $ 12.65 | $ 11.29 | $ 8.76 | $ 10.81 |
Total Return (%) | 7.92 | 13.95 | 32.04 | (18.03) | 1.69 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 785 | 747 | 672 | 510 | 443 |
Ratio of expenses (%) | .78 | .78 | .79 | .79 | .82 |
Ratio of net investment income (%) | 1.84 | 1.96 | 2.14 | 2.21 | 1.78 |
Portfolio turnover rate (%) | 10 | 9 | 18 | 17 | 16 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.63 | $ 11.27 | $ 8.75 | $ 9.57 |
Income (loss) from investment operations: Net investment income (loss)b | .19 | .18 | .16 | .18 |
Net realized and unrealized gain (loss) on investment transactions | .75 | 1.33 | 2.53 | (1.00) |
Total from investment operations | .94 | 1.51 | 2.69 | (.82) |
Less distributions from: Net investment income | (.18) | (.15) | (.17) | — |
Net asset value, end of period | $ 13.39 | $ 12.63 | $ 11.27 | $ 8.75 |
Total Return (%) | 7.51 | 13.53 | 31.60 | (8.57)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 135 | 117 | 66 | 2 |
Ratio of expenses (%) | 1.17 | 1.16 | 1.18 | 1.05* |
Ratio of net investment income (%) | 1.45 | 1.58 | 1.75 | 4.30* |
Portfolio turnover rate (%) | 10 | 9 | 18 | 17 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Dreman Small Cap Value VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk. Stocks of small companies involve greater risk than securities of larger, more-established companies, as they often have limited product lines, markets or financial resources and may be exposed to more erratic and abrupt market movements. The Portfolio may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political, or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS Dreman Small Cap Value VIP from 5/1/1996 to 12/31/2005 | ||
[] DWS Dreman Small Cap Value VIP — Class A [] Russell 2000 Value Index | The Russell 2000 Value Index is an unmanaged index which measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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| |
Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Dreman Small Cap Value VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,025 | $19,750 | $20,584 | $24,229 |
Average annual total return | 10.25% | 25.47% | 15.53% | 9.59% | |
Russell 2000 Value Index | Growth of $10,000 | $10,471 | $18,692 | $18,878 | $31,871 |
Average annual total return | 4.71% | 23.18% | 13.55% | 12.74% | |
DWS Dreman Small Cap Value VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,978 | $19,519 | $16,407 |
Average annual total return |
| 9.78% | 24.97% | 15.20% | |
Russell 2000 Value Index | Growth of $10,000 |
| $10,471 | $18,692 | $15,436 |
Average annual total return |
| 4.71% | 23.18% | 13.21% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1996. Index returns begin April 30, 1996.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Dreman Small Cap Value VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,070.70 |
| $ 1,068.60 |
|
Expenses Paid per $1,000* | $ 4.18 |
| $ 6.36 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.17 |
| $ 1,019.06 |
|
Expenses Paid per $1,000* | $ 4.08 |
| $ 6.21 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Dreman Small Cap Value VIP | .80% |
| 1.22% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2005
DWS Dreman Small Cap Value VIP
Almost all measures of economic activity moved upward during 2005, although growth began to slow in the fourth quarter. Expressing concern about inflation, the US Federal Reserve Board (the Fed) continued to raise the federal funds rate1 during the year.
The Portfolio (Class A shares, unadjusted for contract charges) had a return of 10.25%, substantially outperforming its benchmark, the Russell 2000 Value Index, which returned 4.71%.
The decision that contributed most to performance was a significant overweight position in energy stocks, which benefited from rising oil prices. Energy holdings that performed especially well were Matrix Service Co., Grant Prideco Inc. and ATP Oil & Gas Corp. Additionally, the Portfolio's performance relative to the Russell 2000 Value Index benefited from a restructuring during 2005 that reduced the energy weight in the Index, making our Portfolio comparatively more overweight in energy.
Performance benefited also from an overweight relative to our benchmark in materials. Our largest holding in this sector was also the best performing: Aleris International, Inc., an aluminum company that should benefit from growth of world economics.
Several holdings in the financial sector detracted from performance, most notably NovaStar Financial Inc., a real estate investment trust that invests in subprime mortgages. We continue to hold this stock, which we consider underpriced.
The small-cap market can be volatile, and this is especially true when there is so much uncertainty about interest rates, inflation and the direction of the economy. Based on our contrarian investment philosophy, we welcome opportunities to buy stocks of good companies with solid growth prospects at prices below what we see as their intrinsic value.
David N. Dreman
Nelson Woodard
Co-Managers
Dreman Value Management, L.L.C., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk. Stocks of small companies involve greater risk than securities of larger, more-established companies, as they often have limited product lines, markets or financial resources and may be exposed to more erratic and abrupt market movements. The Portfolio may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political, or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
The Russell 2000 Value Index is an unmanaged index that consists of those stocks in the Russell 2000 Index with lower price-to-book ratios and lower forecasted growth values.
Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
1 Federal funds rate — the overnight rate charged by banks when they borrow money from each other. Set by the Federal Open Market Committee (FOMC), the fed funds rate is the most sensitive — and closely watched — indicator concerning the direction of short-term interest rates. The FOMC is a key committee within the US Federal Reserve System, and meets every six weeks to review Fed policy on short-term rates. Based on current Fed policy, the FOMC may choose to raise or lower the fed funds rate to either add liquidity to the economy or remove it.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Dreman Small Cap Value VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 96% | 95% |
Cash Equivalents | 2% | 3% |
Corporate Bonds | 1% | 1% |
Closed-End Investment Company | 1% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Industrials | 25% | 21% |
Financials | 20% | 28% |
Energy | 16% | 7% |
Health Care | 9% | 10% |
Materials | 8% | 10% |
Information Technology | 8% | 5% |
Utilities | 8% | 8% |
Consumer Discretionary | 3% | 6% |
Consumer Staples | 3% | 5% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 98. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Dreman Small Cap Value VIP
|
| Value ($) |
|
| |
Common Stocks 94.7% | ||
Consumer Discretionary 2.5% | ||
Hotels Restaurants & Leisure 0.3% | ||
Alliance Gaming Corp.* | 147,900 | 1,925,658 |
Leisure Equipment & Products 0.4% | ||
Lakes Entertainment, Inc.* | 308,700 | 2,052,855 |
Specialty Retail 0.5% | ||
Mettler-Toledo International, Inc.* | 55,400 | 3,058,080 |
Textiles, Apparel & Luxury Goods 1.3% | ||
Phillips-Van Heusen Corp. | 110,200 | 3,570,480 |
Wolverine World Wide, Inc. | 178,950 | 4,019,217 |
| 7,589,697 | |
Consumer Staples 2.5% | ||
Food & Staples Retailing 0.0% | ||
Centerplate, Inc. (IDS) | 20,700 | 268,686 |
Food Products 1.9% | ||
Chiquita Brands International, Inc. | 218,100 | 4,364,181 |
Ralcorp Holdings, Inc.* | 160,200 | 6,393,582 |
| 10,757,763 | |
Tobacco 0.6% | ||
Universal Corp. | 34,200 | 1,482,912 |
Vector Group Ltd. | 101,154 | 1,837,968 |
| 3,320,880 | |
Energy 15.5% | ||
Energy Equipment & Services 7.3% | ||
Atwood Oceanics, Inc.* | 15,500 | 1,209,465 |
Cal Dive International, Inc.* | 98,900 | 3,549,521 |
Grant Prideco, Inc.* | 178,400 | 7,871,008 |
Grey Wolf, Inc.* | 445,200 | 3,441,396 |
Holly Corp. | 45,300 | 2,666,811 |
Matrix Service Co.* | 159,200 | 1,566,528 |
NS Group, Inc.* | 24,800 | 1,036,888 |
Offshore Logistics, Inc.* | 53,500 | 1,562,200 |
Oil States International, Inc.* | 123,000 | 3,896,640 |
Patterson-UTI Energy, Inc. | 159,400 | 5,252,230 |
RPC, Inc. | 118,350 | 3,117,339 |
Superior Energy Services, Inc.* | 209,300 | 4,405,765 |
Tidewater, Inc. | 60,600 | 2,694,276 |
| 42,270,067 | |
Oil, Gas & Consumable Fuels 8.2% | ||
ATP Oil & Gas Corp.* | 88,500 | 3,275,385 |
Bronco Drilling Co., Inc.* | 45,800 | 1,053,858 |
Carrizo Oil & Gas, Inc.* | 150,700 | 3,723,797 |
CNX Gas Corp. 144A* | 111,900 | 2,474,445 |
Compton Petroleum Corp.* | 271,300 | 3,990,907 |
Delta Petroleum Corp.* | 111,600 | 2,429,532 |
Denbury Resources, Inc.* | 80,200 | 1,826,956 |
Global Industries Ltd.* | 247,700 | 2,811,395 |
Parallel Petroleum Corp.* | 117,400 | 1,996,974 |
Petrohawk Energy Corp.* | 485,500 | 6,418,310 |
PetroQuest Energy, Inc.* | 346,500 | 2,869,020 |
Pioneer Drilling Co.* | 273,100 | 4,896,683 |
Quest Resource Corp.* | 140,100 | 1,849,320 |
Range Resources Corp. | 187,600 | 4,941,384 |
|
| Value ($) |
|
| |
Rosetta Resources, Inc. 144A* | 130,700 | 2,352,600 |
| 46,910,566 | |
Financials 18.6% | ||
Banks 3.2% | ||
AmericanWest Bancorp.* | 26,200 | 619,106 |
BankAtlantic Bancorp., Inc. "A" | 91,000 | 1,274,000 |
Centennial Bank Holdings, Inc.* | 400,000 | 4,948,000 |
International Bancshares Corp. | 58,625 | 1,721,230 |
NewAlliance Bancshares, Inc. | 255,200 | 3,710,608 |
PFF Bancorp., Inc. | 81,500 | 2,487,380 |
Provident Bankshares Corp. | 49,350 | 1,666,549 |
Sterling Financial Corp. | 73,773 | 1,842,850 |
| 18,269,723 | |
Diversified Financial Services 1.4% | ||
CBRE Realty Finance, Inc. 144A | 200,000 | 3,000,000 |
CMET Finance Holdings, Inc.* | 7,200 | 194,400 |
Commercial Capital Bancorp., Inc. | 129,200 | 2,211,904 |
Hercules Technology Growth Capital, Inc. | 83,000 | 995,170 |
NGP Capital Resources Co. | 32,575 | 427,710 |
Prospect Energy Corp. | 80,256 | 1,217,475 |
| 8,046,659 | |
Insurance 6.5% | ||
Amerisafe, Inc.* | 225,500 | 2,273,040 |
Arch Capital Group Ltd.* | 82,200 | 4,500,450 |
Aspen Insurance Holdings Ltd. | 216,800 | 5,131,656 |
Endurance Specialty Holdings Ltd. | 93,600 | 3,355,560 |
Meadowbrook Insurance Group, Inc.* | 336,000 | 1,962,240 |
Odyssey Re Holdings Corp. | 120,600 | 3,024,648 |
ProCentury Corp. | 192,800 | 2,072,600 |
Quanta Capital Holdings Ltd.* | 312,500 | 1,593,750 |
Selective Insurance Group, Inc. | 131,200 | 6,966,720 |
Specialty Underwriters' Alliance, Inc.* | 200,100 | 1,232,616 |
Tower Group, Inc. | 250,700 | 5,510,386 |
| 37,623,666 | |
Real Estate 7.5% | ||
Capital Lease Funding, Inc. (REIT) | 224,100 | 2,359,773 |
Fieldstone Investment Corp. (REIT) | 217,300 | 2,577,178 |
Jer Investors Trust, Inc. (REIT)* | 45,800 | 776,310 |
KKR Financial Corp. (REIT) | 491,150 | 11,782,689 |
Newcastle Investment Corp. (REIT) | 221,300 | 5,499,305 |
NovaStar Financial, Inc. (REIT) | 507,500 | 14,265,825 |
Thomas Properties Group, Inc. (REIT) | 229,100 | 2,866,041 |
Vintage Wine Trust, Inc. (REIT) 144A | 280,700 | 2,807,000 |
| 42,934,121 | |
Health Care 8.6% | ||
Biotechnology 1.6% | ||
Charles River Laboratories International, Inc.* | 143,300 | 6,071,621 |
Serologicals Corp.* | 165,300 | 3,263,022 |
| 9,334,643 | |
|
| Value ($) |
|
| |
Health Care Equipment & Supplies 1.7% | ||
Kinetic Concepts, Inc.* | 113,800 | 4,524,688 |
Millipore Corp.* | 35,200 | 2,324,608 |
PerkinElmer, Inc. | 108,400 | 2,553,904 |
The Cooper Companies, Inc. | 13,100 | 672,030 |
| 10,075,230 | |
Health Care Providers & Services 4.3% | ||
Allied Healthcare International, Inc.* | 439,000 | 2,695,460 |
Hanger Orthopedic Group, Inc.* | 263,100 | 1,502,301 |
Kindred Healthcare, Inc.* | 54,200 | 1,396,192 |
LifePoint Hospitals, Inc.* | 36,368 | 1,363,800 |
Medco Health Solutions, Inc.* | 45,718 | 2,551,064 |
Odyssey HealthCare, Inc.* | 255,200 | 4,756,928 |
Option Care, Inc. | 208,400 | 2,784,224 |
Pediatrix Medical Group, Inc.* | 46,700 | 4,136,219 |
Triad Hospitals, Inc.* | 84,500 | 3,314,935 |
| 24,501,123 | |
Pharmaceuticals 1.0% | ||
Par Pharmaceutical Companies, Inc.* | 140,900 | 4,415,806 |
Perrigo Co. | 90,000 | 1,341,900 |
| 5,757,706 | |
Industrials 24.0% | ||
Aerospace & Defense 4.1% | ||
Applied Signal Technology, Inc. | 94,723 | 2,150,212 |
ARGON ST, Inc.* | 78,100 | 2,419,538 |
CAE, Inc. | 628,800 | 4,602,816 |
DRS Technologies, Inc. | 87,300 | 4,488,966 |
EDO Corp. | 150,500 | 4,072,530 |
Herley Industries, Inc.* | 141,800 | 2,341,118 |
K&F Industries Holdings, Inc.* | 112,700 | 1,731,072 |
Triumph Group, Inc.* | 49,700 | 1,819,517 |
| 23,625,769 | |
Building Products 0.7% | ||
Levitt Corp. "A" | 99,000 | 2,251,260 |
NCI Building Systems, Inc.* | 44,900 | 1,907,352 |
| 4,158,612 | |
Commercial Services & Supplies 2.7% | ||
Clean Harbors, Inc.* | 67,000 | 1,930,270 |
Covanta Holding Corp.* | 269,400 | 4,057,164 |
Duratek, Inc.* | 324,100 | 4,838,813 |
Nobel Learning Communities, Inc. | 121,300 | 1,145,072 |
WCA Waste Corp.* | 469,700 | 3,710,630 |
| 15,681,949 | |
Construction & Engineering 6.2% | ||
EMCOR Group, Inc.* | 105,300 | 7,110,909 |
Foster Wheeler Ltd.* | 181,950 | 6,692,121 |
Granite Construction, Inc. | 76,300 | 2,739,933 |
Perini Corp.* | 62,700 | 1,514,205 |
URS Corp.* | 187,800 | 7,063,158 |
Walter Industries, Inc. | 111,900 | 5,563,668 |
Washington Group International, Inc.* | 92,200 | 4,883,834 |
| 35,567,828 | |
Electrical Equipment 2.7% | ||
General Cable Corp.* | 534,600 | 10,531,620 |
Genlyte Group, Inc.* | 52,000 | 2,785,640 |
|
| Value ($) |
|
| |
Thomas & Betts Corp.* | 45,900 | 1,925,964 |
| 15,243,224 | |
Industrial Conglomerates 0.2% | ||
ESCO Technologies, Inc.* | 24,200 | 1,076,658 |
Machinery 3.8% | ||
Harsco Corp. | 75,400 | 5,090,254 |
Oshkosh Truck Corp. | 75,800 | 3,379,922 |
Terex Corp.* | 107,800 | 6,403,320 |
Valmont Industries | 98,700 | 3,302,502 |
Watts Water Technologies, Inc. "A" | 115,900 | 3,510,611 |
| 21,686,609 | |
Marine 0.9% | ||
GulfMark Offshore, Inc.* | 81,000 | 2,399,220 |
Hornbeck Offshore Services, Inc.* | 84,500 | 2,763,150 |
| 5,162,370 | |
Road & Rail 1.6% | ||
Genesee & Wyoming, Inc.* | 130,350 | 4,894,643 |
Laidlaw International, Inc. | 174,900 | 4,062,927 |
| 8,957,570 | |
Trading Companies & Distributors 1.1% | ||
Aviall, Inc.* | 59,000 | 1,699,200 |
WESCO International, Inc.* | 114,700 | 4,901,131 |
| 6,600,331 | |
Information Technology 7.5% | ||
Computers & Peripherals 0.9% | ||
Komag, Inc.* | 154,500 | 5,354,970 |
Electronic Equipment & Instruments 3.5% | ||
Aeroflex, Inc.* | 400,900 | 4,309,675 |
Anixter International, Inc. | 165,100 | 6,458,712 |
Plexus Corp.* | 238,700 | 5,428,038 |
Scansource, Inc.* | 73,300 | 4,008,044 |
| 20,204,469 | |
IT Consulting & Services 1.1% | ||
CACI International, Inc. "A"* | 47,600 | 2,731,288 |
Covansys Corp.* | 245,900 | 3,346,699 |
| 6,077,987 | |
Semiconductors & Semiconductor Equipment 0.5% | ||
MKS Instruments, Inc.* | 90,600 | 1,620,834 |
OmniVision Technologies, Inc.* | 73,400 | 1,465,064 |
| 3,085,898 | |
Software 1.5% | ||
InPhonic, Inc.* | 375,900 | 3,266,571 |
Sonic Solutions* | 220,500 | 3,331,755 |
TIBCO Software, Inc.* | 255,400 | 1,907,838 |
| 8,506,164 | |
Materials 8.1% | ||
Chemicals 0.5% | ||
Georgia Gulf Corp. | 48,400 | 1,472,328 |
NOVA Chemicals Corp. | 39,400 | 1,315,960 |
| 2,788,288 | |
Construction Materials 1.2% | ||
Florida Rock Industries, Inc. | 95,242 | 4,672,573 |
Headwaters, Inc.* | 55,000 | 1,949,200 |
| 6,621,773 | |
|
| Value ($) |
|
| |
Metals & Mining 6.4% | ||
Aleris International, Inc.* | 169,100 | 5,451,784 |
Goldcorp, Inc. | 110,550 | 2,463,054 |
Metal Management, Inc. | 76,300 | 1,774,738 |
Northwest Pipe Co.* | 115,400 | 3,092,720 |
Oregon Steel Mills, Inc.* | 325,400 | 9,573,268 |
Pan American Silver Corp.* | 202,500 | 3,813,075 |
RTI International Metals, Inc.* | 193,900 | 7,358,505 |
Uranium Resources, Inc.* | 1,921,700 | 1,268,322 |
Worthington Industries, Inc. | 118,700 | 2,280,227 |
| 37,075,693 | |
Telecommunication Services 0.2% | ||
Diversified Telecommunication Services | ||
Alaska Communications Systems Group, Inc. | 133,400 | 1,355,344 |
Utilities 7.2% | ||
Electric Utilities 1.5% | ||
Allegheny Energy, Inc.* | 181,700 | 5,750,805 |
Sierra Pacific Resources* | 229,300 | 2,990,072 |
| 8,740,877 | |
Gas Utilities 2.3% | ||
ONEOK, Inc. | 128,200 | 3,413,966 |
Southern Union Co.* | 417,375 | 9,862,571 |
| 13,276,537 | |
Independent Power Producers & Energy Traders 1.1% | ||
Dynegy, Inc. "A"* | 1,244,900 | 6,025,316 |
Multi-Utilities 2.3% | ||
CMS Energy Corp.* | 106,200 | 1,540,962 |
Ormat Technologies, Inc. | 213,800 | 5,588,732 |
TECO Energy, Inc. | 172,000 | 2,954,960 |
WPS Resources Corp. | 54,700 | 3,025,457 |
| 13,110,111 | |
Total Common Stocks (Cost $424,198,462) | 544,681,470 |
| Principal Amount ($) | Value ($) |
|
| |
Corporate Bonds 1.3% | ||
Utilities | ||
Mirant Corp., 144A, 7.9%, 7/15/2009* (Cost $3,522,500) | 6,000,000 | 7,560,000 |
|
| Value ($) |
|
| |
Closed End Investment Company 0.6% | ||
Tortoise Energy Infrastructure Corp. (Cost $3,297,205) | 132,100 | 3,570,663 |
| ||
Exchange Traded Funds 0.1% | ||
PowerShares Lux Nanotech Portfolio (Cost $289,198) | 18,200 | 298,480 |
| ||
Cash Equivalents 1.9% | ||
Cash Management QP Trust, 4.26% (a) (Cost $11,160,666) | 11,160,666 | 11,160,666 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $442,468,031)+ | 98.6 | 567,271,279 |
Other Assets and Liabilities, Net | 1.4 | 8,052,007 |
Net Assets | 100.0 | 575,323,286 |
Notes to DWS Dreman Small Cap Value VIP Portfolio of Investments
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or the interest or has filed for bankruptcy. The following table represents bonds that are in default:
Security | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Mirant Corp. | 7.9% | 7/15/2009 | 6,000,000 | USD | 3,522,500 | 7,560,000 |
+ The cost for federal income tax purposes was $442,359,125. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $124,912,154. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $141,555,434 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $16,643,280.
(a) 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.
IDS: Income Deposit Security
REIT: Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $431,307,365) | $ 556,110,613 |
Investment in Cash Management QP Trust (cost $11,160,666) | 11,160,666 |
Total investments in securities, at value (cost $442,468,031) | 567,271,279 |
Cash | 5,254 |
Receivable for investments sold | 9,074,553 |
Dividends receivable | 1,158,901 |
Interest receivable | 45,633 |
Receivable for Portfolio shares sold | 57,536 |
Other assets | 18,218 |
Total assets | 577,631,374 |
Liabilities | |
Payable for investments purchased | 902,025 |
Payable for Portfolio shares redeemed | 892,732 |
Accrued management fee | 359,425 |
Other accrued expenses and payables | 153,906 |
Total liabilities | 2,308,088 |
Net assets, at value | $ 575,323,286 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 4,399,454 |
Net unrealized appreciation (depreciation) on: Investments | 124,803,248 |
Foreign currency related transactions | (42) |
Accumulated net realized gain (loss) | 48,528,735 |
Paid-in capital | 397,591,891 |
Net assets, at value | $ 575,323,286 |
Class A Net Asset Value, offering and redemption price per share ($492,551,412 ÷ 24,658,095 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.98 |
Class B Net Asset Value, offering and redemption price per share ($82,771,874 ÷ 4,153,458 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.93 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $16,836) | $ 8,938,438 |
Interest — Cash Management QP Trust | 603,541 |
Total Income | 9,541,979 |
Expenses: Management fee | 4,088,038 |
Custodian fees | 27,349 |
Distribution service fees (Class B) | 189,044 |
Record keeping fees (Class B) | 109,304 |
Auditing | 45,604 |
Legal | 18,696 |
Trustees' fees and expenses | 24,273 |
Reports to shareholders | 110,024 |
Other | 31,290 |
Total expenses before expense reductions | 4,643,622 |
Expense reductions | (8,754) |
Total expenses after expense reductions | 4,634,868 |
Net investment income (loss) | 4,907,111 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 48,534,540 |
Foreign currency related transactions | 231 |
| 48,534,771 |
Net unrealized appreciation (depreciation) during the period on: Investments | 198,766 |
Foreign currency related transactions | 26 |
| 198,792 |
Net gain (loss) on investment transactions | 48,733,563 |
Net increase (decrease) in net assets resulting from operations | $ 53,640,674 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 4,907,111 | $ 4,034,360 |
Net realized gain (loss) on investment transactions | 48,534,771 | 63,112,019 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 198,792 | 38,864,967 |
Net increase (decrease) in net assets resulting from operations | 53,640,674 | 106,011,346 |
Distributions to shareholders from: Net investment income: Class A | (3,388,867) | (3,405,170) |
Class B | (268,871) | (212,277) |
Distributions to shareholders from: Net realized gains: Class A | (41,035,260) | — |
Class B | (6,476,182) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 48,442,270 | 64,900,813 |
Reinvestment of distributions | 44,424,127 | 3,405,170 |
Cost of shares redeemed | (69,095,690) | (45,290,684) |
Net increase (decrease) in net assets from Class A share transactions | 23,770,707 | 23,015,299 |
Class B Proceeds from shares sold | 12,290,754 | 29,315,151 |
Reinvestment of distributions | 6,745,052 | 212,277 |
Cost of shares redeemed | (7,563,486) | (3,011,503) |
Net increase (decrease) in net assets from Class B share transactions | 11,472,320 | 26,515,925 |
Increase (decrease) in net assets | 37,714,521 | 151,925,123 |
Net assets at beginning of period | 537,608,765 | 385,683,642 |
Net assets at end of period (including undistributed net investment income of $4,399,454 and $3,681,177, respectively) | $ 575,323,286 | $ 537,608,765 |
Other Information | ||
Class A Shares outstanding at beginning of period | 23,288,245 | 22,038,819 |
Shares sold | 2,554,460 | 3,660,918 |
Shares issued to shareholders in reinvestment of distributions | 2,463,900 | 197,059 |
Shares redeemed | (3,648,510) | (2,608,551) |
Net increase (decrease) in Class A shares | 1,369,850 | 1,249,426 |
Shares outstanding at end of period | 24,658,095 | 23,288,245 |
Class B Shares outstanding at beginning of period | 3,531,644 | 1,977,912 |
Shares sold | 641,746 | 1,706,542 |
Shares issued to shareholders in reinvestment of distributions | 373,894 | 12,277 |
Shares redeemed | (393,826) | (165,087) |
Net increase (decrease) in Class B shares | 621,814 | 1,553,732 |
Shares outstanding at end of period | 4,153,458 | 3,531,644 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 20.05 | $ 16.06 | $ 11.66 | $ 13.21 | $ 11.23 |
Income (loss) from investment operations: Net investment income (loss)a | .19 | .17 | .19 | .17 | .09 |
Net realized and unrealized gain (loss) on investment transactions | 1.67 | 3.98 | 4.55 | (1.67) | 1.89 |
Total from investment operations | 1.86 | 4.15 | 4.74 | (1.50) | 1.98 |
Less distributions from: Net investment income | (.15) | (.16) | (.15) | (.05) | — |
Net realized gain on investment transactions | (1.78) | — | (.19) | — | — |
Total distributions | (1.93) | (.16) | (.34) | (.05) | — |
Net asset value, end of period | $ 19.98 | $ 20.05 | $ 16.06 | $ 11.66 | $ 13.21 |
Total Return (%) | 10.25 | 26.03 | 42.15 | (11.43) | 17.63 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 493 | 467 | 354 | 250 | 194 |
Ratio of expenses (%) | .79 | .79 | .80 | .81 | .79 |
Ratio of net investment income (%) | .96 | .96 | 1.46 | 1.28 | .77 |
Portfolio turnover rate (%) | 61 | 73 | 71 | 86 | 57 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 20.01 | $ 16.03 | $ 11.65 | $ 13.86 |
Income (loss) from investment operations: Net investment income (loss)b | .11 | .10 | .13 | .17 |
Net realized and unrealized gain (loss) on investment transactions | 1.66 | 3.97 | 4.56 | (2.38) |
Total from investment operations | 1.77 | 4.07 | 4.69 | (2.21) |
Less distributions from: Net investment income | (.07) | (.09) | (.12) | — |
Net realized gain on investment transactions | (1.78) | — | (.19) | — |
Total distributions | (1.85) | (.09) | (.31) | — |
Net asset value, end of period | $ 19.93 | $ 20.01 | $ 16.03 | $ 11.65 |
Total Return (%) | 9.78 | 25.52 | 41.65 | (15.95)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 83 | 71 | 32 | 1 |
Ratio of expenses (%) | 1.19 | 1.16 | 1.19 | 1.06* |
Ratio of net investment income (%) | .56 | .59 | 1.07 | 3.01* |
Portfolio turnover rate (%) | 61 | 73 | 71 | 86 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Global Thematic VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk, meaning stocks in the portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. Investors should not expect that such favorable returns can be consistently achieved. A Portfolio's performance, especially for very short time periods, should not be the sole factor in making your investment decision.
Growth of an Assumed $10,000 Investment in DWS Global Thematic VIP from 5/5/1998 to 12/31/2005 | ||
[] DWS Global Thematic VIP — Class A [] MSCI World Index | The Morgan Stanley Capital International (MSCI) World Index is an unmanaged capitalization weighted measure of global stock markets including the US, Canada, Europe, Australia and the Far East. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Global Thematic VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $12,294 | $18,220 | $12,972 | $15,549 |
Average annual total return | 22.94% | 22.14% | 5.34% | 5.94% | |
MSCI World Index | Growth of $10,000 | $10,949 | $16,719 | $11,141 | $13,018 |
Average annual total return | 9.49% | 18.69% | 2.18% | 3.50% | |
DWS Global Thematic VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $12,250 | $18,062 | $16,211 |
Average annual total return |
| 22.50% | 21.78% | 14.81% | |
MSCI World Index | Growth of $10,000 |
| $10,949 | $16,719 | $14,689 |
Average annual total return |
| 9.49% | 18.69% | 11.61% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 5, 1998. Index returns begin April 30, 1998.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Global Thematic VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,196.40 |
| $ 1,193.50 |
|
Expenses Paid per $1,000* | $ 6.53 |
| $ 8.68 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,019.16 |
| $ 1,017.29 |
|
Expenses Paid per $1,000* | $ 6.01 |
| $ 7.98 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Global Thematic VIP | 1.18% |
| 1.57% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Global Thematic VIP
The Portfolio's 22.94% return (Class A shares, unadjusted for contract charges) outpaced both the 9.49% gain of the MSCI World Index and the 11.54% return of funds in Lipper's Global Core category. DWS Global Thematic VIP ranked first among the 31 funds in its peer group in 2005. The Portfolio ranked 16 of 51 funds in the category for the three-year period ended December 31, 2005 and three of 22 funds in the category for the five-year period ended December 31, 2005. We believe this is a validation of our approach, which invests in fundamentally sound companies that we believe will benefit from longer-term themes in the world economy.
The top performing theme in 2005 was ultimate subcontractors, where most holdings are leveraged to oil and gas. Here, the strongest performers were the Russian oil companies LUKOIL (ADR) and OAO Gazprom (ADR) (REG S). Supply chain dominance, a theme incorporating companies that are becoming the leading partners for both suppliers and customers within their respective industries, made the second-largest contribution to performance. In terms of countries, we generated the best performance in the US, where a top contributor was the agro/biotech firm Monsanto Co., and in Japan, where our holdings in financials and real estate companies were boosted by investors' hope for an end to deflation. Aside from energy, the sector in which our stock selection was strongest was financials, where Commerzbank AG (Germany) and Capitalia SpA (Italy) both benefited from restructuring initiatives. Notable detractors included William Morrison Supermarkets PLC and MFI Furniture Group PLC.
Instead of focusing on economic cycles and/or the direction of the financial markets, which we do not believe can be accurately predicted, we will continue attempting to identify the large inefficiencies and changes affecting the world economy.
Oliver Kratz
Lead Portfolio Manager
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Morgan Stanley Capital International (MSCI) World Index is an unmanaged, capitalization-weighted measure of global stock markets around the world, including North America, Europe, Australia and the Far East. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
The Lipper Global Core category includes funds that, by portfolio practice, invest at least 75% of their equity assets in companies both inside and outside of the U.S. with market capitalizations (on a three-year weighted basis) greater than the 500th-largest company in the S&P/Citigroup World Broad Market Index. Large-cap core funds typically have an average price-to-cash flow sets in ratio, price-to-book ratio, and three-year sales-per-share growth value compared to the S&P/Citigroup World BMI. It is not possible to invest directly into a Lipper category.
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on the Portfolio's total return unadjusted for contract charges with distributions reinvested. If contract charges had been included, results might have been less favorable. Rankings are for Class A shares; other share classes may vary.
Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the category indicated.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Global Thematic VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 91% | 89% |
Cash Equivalents | 5% | 8% |
Preferred Stocks | 2% | 1% |
Exchange Traded Funds | 2% | 2% |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 28% | 21% |
Energy | 12% | 13% |
Materials | 11% | 16% |
Information Technology | 10% | 11% |
Industrials | 9% | 12% |
Health Care | 9% | 9% |
Consumer Staples | 8% | 3% |
Consumer Discretionary | 7% | 6% |
Telecommunication Services | 4% | 2% |
Utilities | 2% | 7% |
| 100% | 100% |
Geographical Diversification (As a % of Common and Preferred Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Continental Europe | 27% | 30% |
United States | 22% | 28% |
Asia (excluding Japan) | 21% | 13% |
Japan | 9% | 11% |
United Kingdom | 7% | 7% |
Latin America | 4% | 3% |
Canada | 3% | 6% |
Africa | 2% | 2% |
Middle East | 2% | — |
Bermuda | 2% | — |
Australia | 1% | — |
| 100% | 100% |
Asset allocation, sector diversification and geographical diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 109. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Global Thematic VIP
|
| Value ($) |
|
| |
Common Stocks 91.2% | ||
Australia 0.6% | ||
Macquarie Airports (Cost $699,143) | 276,100 | 641,636 |
Austria 0.4% | ||
Erste Bank der Oesterreichischen Sparkassen AG (Cost $292,505) | 6,600 | 366,260 |
Bermuda 1.7% | ||
Credicorp Ltd. | 26,800 | 610,772 |
Tyco International Ltd. | 40,850 | 1,178,931 |
(Cost $1,863,011) | 1,789,703 | |
Brazil 0.6% | ||
Natura Cosmeticos SA | 2,800 | 123,314 |
Tractebel Energia SA | 25,400 | 163,482 |
Votorantim Celulose e Papel SA (ADR) (a) | 30,800 | 378,532 |
(Cost $637,749) | 665,328 | |
Canada 3.0% | ||
Canadian National Railway Co. | 17,200 | 1,378,130 |
EnCana Corp. | 16,550 | 748,306 |
Goldcorp, Inc. | 28,250 | 629,425 |
Meridian Gold, Inc.* | 15,700 | 344,132 |
(Cost $1,071,727) | 3,099,993 | |
China 2.1% | ||
China Construction Bank "H"* | 1,064,000 | 367,079 |
China Petroleum & Chemical Corp. "H" | 3,240,000 | 1,598,344 |
China Shenhua Energy Co., Ltd. "H"* | 234,000 | 256,524 |
(Cost $1,844,280) | 2,221,947 | |
Finland 1.7% | ||
Neste Oil Oyj* | 18,000 | 508,888 |
Nokia Oyj (ADR) | 17,500 | 320,250 |
Nokian Renkaat Oyj | 73,000 | 920,423 |
(Cost $1,785,529) | 1,749,561 | |
France 4.0% | ||
Carrefour SA | 8,577 | 401,907 |
Credit Agricole SA | 20,468 | 644,815 |
Societe Generale | 5,822 | 716,148 |
Total SA | 9,719 | 2,441,642 |
(Cost $3,274,342) | 4,204,512 | |
Germany 5.9% | ||
Bayer AG | 31,609 | 1,320,619 |
Bayerische Motoren Werke AG | 10,560 | 463,198 |
Commerzbank AG | 63,087 | 1,943,400 |
E.ON AG | 7,949 | 822,412 |
Schering AG | 12,500 | 837,609 |
Stada Arzneimittel AG | 23,459 | 767,926 |
(Cost $4,605,107) | 6,155,164 | |
Hong Kong 2.9% | ||
China Mobile (Hong Kong) Ltd. | 137,600 | 650,409 |
Fountain Set (Holdings) Ltd. | 996,000 | 459,229 |
Global Bio-chem Technology Group Co., Ltd. | 1,264,000 | 554,268 |
|
| Value ($) |
|
| |
Hutchison Whampoa Ltd. | 106,000 | 1,010,285 |
The Link (REIT)* | 184,000 | 348,842 |
(Cost $2,582,132) | 3,023,033 | |
India 1.0% | ||
Infosys Technologies Ltd. | 13,100 | 871,975 |
Ranbaxy Laboratories Ltd. (GDR) | 22,850 | 182,571 |
(Cost $855,648) | 1,054,546 | |
Indonesia 0.4% | ||
PT Telekomunikasi Indonesia (ADR) (Cost $345,762) | 18,000 | 429,480 |
Israel 1.5% | ||
Check Point Software Technologies Ltd.* | 36,400 | 731,640 |
Teva Pharmaceutical Industries Ltd. (ADR) | 19,500 | 838,695 |
(Cost $1,398,129) | 1,570,335 | |
Italy 2.1% | ||
Assicurazioni Generali SpA | 16,000 | 559,180 |
Capitalia SpA | 277,700 | 1,607,680 |
(Cost $1,674,194) | 2,166,860 | |
Japan 8.5% | ||
FANUC Ltd. | 15,800 | 1,341,061 |
Komatsu Ltd. | 56,000 | 926,409 |
Mitsubishi Estate Co., Ltd. | 54,000 | 1,121,804 |
Mitsui Fudosan Co., Ltd. | 61,000 | 1,238,776 |
Mizuho Financial Group, Inc. | 186 | 1,476,203 |
Nomura Holdings, Inc. | 73,000 | 1,398,906 |
Shinsei Bank Ltd. | 245,000 | 1,416,797 |
(Cost $5,359,438) | 8,919,956 | |
Korea 5.7% | ||
Daewoo Shipbuilding & Marine Engineering Co., Ltd. | 29,500 | 797,437 |
LG.Philips LCD Co., Ltd. (ADR)* (a) | 23,600 | 506,456 |
POSCO (ADR) (a) | 31,900 | 1,579,369 |
Samsung Electronics Co., Ltd. | 2,520 | 1,623,277 |
SK Corp. | 28,010 | 1,441,158 |
(Cost $5,057,079) | 5,947,697 | |
Luxembourg 1.0% | ||
Tenaris SA (ADR) (Cost $1,061,026) | 9,450 | 1,082,025 |
Malaysia 0.9% | ||
AMMB Holdings Bhd. | 420,000 | 263,368 |
Resorts World Bhd. | 154,700 | 458,431 |
RHB Capital Bhd. | 435,100 | 254,418 |
(Cost $973,443) | 976,217 | |
Mexico 2.5% | ||
Fomento Economico Mexicano SA de CV (ADR) | 26,250 | 1,903,388 |
Grupo Televisa SA (ADR) | 8,450 | 680,225 |
(Cost $1,992,957) | 2,583,613 | |
Netherlands 0.5% | ||
ABN AMRO Holding NV (Cost $492,814) | 19,734 | 516,090 |
|
| Value ($) |
|
| |
Peru 0.5% | ||
Compania de Minas Buenaventura SA (ADR) (Cost $260,220) | 19,800 | 560,340 |
Russia 3.0% | ||
LUKOIL (ADR) | 14,900 | 879,100 |
Mobile TeleSystems (ADR) | 9,350 | 327,250 |
Novolipetsk Steel (GDR) 144A* | 31,600 | 451,880 |
OAO Gazprom (ADR) (REG S) (a) | 10,200 | 731,340 |
OAO Vimpel-Communications (ADR)* | 8,450 | 373,743 |
Pyaterochka Holding NV (GDR) 144A* | 33,100 | 478,295 |
(Cost $2,387,804) | 3,241,608 | |
Singapore 0.9% | ||
DBS Group Holdings Ltd. | 66,000 | 654,978 |
Singapore TeleCommunications Ltd. | 160,060 | 251,260 |
(Cost $679,538) | 906,238 | |
South Africa 2.2% | ||
Barloworld Ltd. | 11,700 | 204,378 |
Gold Fields Ltd. | 43,500 | 768,597 |
Lewis Group Ltd. | 111,100 | 824,186 |
Sappi Ltd. | 44,300 | 507,656 |
(Cost $1,908,210) | 2,304,817 | |
Sweden 1.0% | ||
Skandinaviska Enskilda Banken AB "A" (Cost $784,848) | 51,800 | 1,066,058 |
Switzerland 3.4% | ||
ABB Ltd.* | 97,779 | 948,733 |
Credit Suisse Group (Registered) | 12,004 | 612,053 |
Julius Baer Holding Ltd. (Registered) | 16,027 | 1,135,508 |
Novartis AG (Registered) | 15,337 | 805,920 |
(Cost $2,676,145) | 3,502,214 | |
Taiwan 4.0% | ||
AU Optronics Corp. (ADR)* | 36,450 | 547,115 |
Chunghwa Telecom Co., Ltd. (ADR) | 39,900 | 732,165 |
Mega Financial Holding Co., Ltd. | 967,000 | 628,926 |
Quanta Computer, Inc. | 289,087 | 405,980 |
SinoPac Financial Holdings Co., Ltd. | 628,000 | 303,225 |
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) | 102,200 | 1,012,802 |
Yuanta Core Pacific Securities Co. | 752,000 | 523,455 |
(Cost $3,882,422) | 4,153,668 | |
Thailand 1.6% | ||
Bangkok Bank PCL (Foreign Registered) | 223,600 | 626,789 |
Kasikornbank PCL (Foreign Registered) | 149,500 | 273,309 |
Krung Thai Bank PCL (Foreign Registered) | 1,432,700 | 384,149 |
PTT Chemical PCL (Foreign Registered)* | 190,650 | 376,421 |
(Cost $1,586,076) | 1,660,668 | |
Turkey 0.3% | ||
Turkcell Iletisim Hizmetleri AS (ADR) (Cost $263,005) | 19,050 | 292,608 |
|
| Value ($) |
|
| |
United Kingdom 7.1% | ||
Anglo American PLC | 18,055 | 614,750 |
GlaxoSmithKline PLC | 59,204 | 1,496,331 |
MFI Furniture Group PLC | 195,336 | 268,861 |
National Grid PLC | 84,397 | 825,491 |
Royal Bank of Scotland Group PLC | 63,364 | 1,913,263 |
Vodafone Group PLC | 298,235 | 643,958 |
William Morrison Supermarkets PLC | 390,755 | 1,300,890 |
Woolworths Group PLC | 563,994 | 376,011 |
(Cost $7,065,791) | 7,439,555 | |
United States 20.2% | ||
AFLAC, Inc. | 19,900 | 923,758 |
Avocent Corp.* | 13,550 | 368,425 |
Bunge Ltd. | 30,050 | 1,701,130 |
Caremark Rx, Inc.* | 13,650 | 706,934 |
Caterpillar, Inc. | 12,050 | 696,129 |
Cisco Systems, Inc.* | 91,000 | 1,557,920 |
Citigroup, Inc. | 19,643 | 953,275 |
Coca-Cola Co. | 28,100 | 1,132,711 |
E.I. du Pont de Nemours & Co. | 17,500 | 743,750 |
ExxonMobil Corp. | 29,500 | 1,657,015 |
General Mills, Inc. | 16,150 | 796,518 |
Johnson & Johnson | 12,725 | 764,772 |
Monsanto Co. | 10,850 | 841,200 |
Newmont Mining Corp. | 19,800 | 1,057,320 |
Oracle Corp.* | 145,000 | 1,770,450 |
Pfizer, Inc. | 65,100 | 1,518,132 |
Schlumberger Ltd. | 8,475 | 823,346 |
Symantec Corp.* | 43,150 | 755,125 |
The Goldman Sachs Group, Inc. | 11,375 | 1,452,701 |
Wyeth | 19,800 | 912,256 |
(Cost $19,001,211) | 21,132,867 | |
Total Common Stocks (Cost $78,361,285) | 95,424,597 | |
| ||
Preferred Stock 2.0% | ||
Germany | ||
Henkel KGaA | 9,126 | 918,363 |
Porsche AG | 1,714 | 1,231,666 |
Total Preferred Stock (Cost $2,040,864) | 2,150,029 | |
| ||
Exchange Traded Funds 1.9% | ||
iShares MSCI Malaysia Index Fund | 82,500 | 562,650 |
iShares Nasdaq Biotechnology Index Fund* (a) | 17,900 | 1,382,596 |
Total Exchange Traded Funds (Cost $1,831,229) | 1,945,246 | |
| ||
Securities Lending Collateral 3.8% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $3,962,725) | 3,962,725 | 3,962,725 |
| ||
|
| Value ($) |
|
| |
Cash Equivalents 4.8% | ||
Cash Management QP Trust, 4.26% (d) (Cost $4,980,633) | 4,980,633 | 4,980,633 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $91,176,736)+ | 103.7 | 108,463,230 |
Other Assets and Liabilities, Net | (3.7) | (3,816,858) |
Net Assets | 100.0 | 104,646,372 |
Notes to DWS Global Thematic VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $91,390,913. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $17,072,317. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $18,829,552 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,757,235.
(a) All or a portion of these securities were on loan (See Note to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $3,866,071 which is 3.7% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
REIT: Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $82,233,378) — including $3,866,071 of securities loaned | $ 99,519,872 |
Investment in Daily Assets Fund Institutional (cost $3,962,725)* | 3,962,725 |
Investment in Cash Management QP Trust (cost $4,980,633) | 4,980,633 |
Total investments in securities, at value (cost $91,176,736) | 108,463,230 |
Cash | 224,412 |
Foreign currency, at value (cost $104,408) | 106,572 |
Dividends receivable | 202,092 |
Interest receivable | 21,221 |
Receivable for Portfolio shares sold | 589,533 |
Foreign taxes recoverable | 10,401 |
Other assets | 2,933 |
Total assets | 109,620,394 |
Liabilities | |
Payable for investments purchased | 843,660 |
Payable upon return of securities loaned | 3,962,725 |
Payable for Portfolio shares redeemed | 9,229 |
Deferred foreign taxes payable | 43,128 |
Accrued management fee | 15,478 |
Other accrued expenses and payables | 99,802 |
Total liabilities | 4,974,022 |
Net assets, at value | $ 104,646,372 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 558,067 |
Net unrealized appreciation (depreciation) on: Investments (net of foreign taxes of $43,128) | 17,243,366 |
Foreign currency related transactions | 1,125 |
Accumulated net realized gain (loss) | 8,556,682 |
Paid-in capital | 78,287,132 |
Net assets, at value | $ 104,646,372 |
Class A Net Asset Value, offering and redemption price per share ($85,020,570 ÷ 5,887,898 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.44 |
Class B Net Asset Value, offering and redemption price per share ($19,625,802 ÷ 1,359,840 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.43 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $184,458) | $ 1,716,494 |
Interest | 1,366 |
Interest — Cash Management QP Trust | 130,598 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 55,555 |
Total Income | 1,904,013 |
Expenses: Management fee | 841,064 |
Custodian and accounting fees | 241,989 |
Distribution service fees (Class B) | 38,339 |
Record keeping fees (Class B) | 20,082 |
Auditing | 56,174 |
Legal | 12,526 |
Trustees' fees and expenses | 3,878 |
Reports to shareholders | 17,393 |
Other | 16,401 |
Total expenses before expense reductions | 1,247,846 |
Expense reductions | (116,133) |
Total expenses after expense reductions | 1,131,713 |
Net investment income (loss) | 772,300 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments (net of foreign taxes of $43,629) | 13,370,409 |
Foreign currency related transactions | (128,301) |
| 13,242,108 |
Net unrealized appreciation (depreciation) during the period on: Investments (net of deferred foreign taxes of $43,128) | 4,302,278 |
Foreign currency related transactions | (5,308) |
| 4,296,970 |
Net gain (loss) on investment transactions | 17,539,078 |
Net increase (decrease) in net assets resulting from operations | $ 18,311,378 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 772,300 | $ 204,775 |
Net realized gain (loss) on investment transactions | 13,242,108 | 5,240,327 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 4,296,970 | 3,765,688 |
Net increase (decrease) in net assets resulting from operations | 18,311,378 | 9,210,790 |
Distributions to shareholders from: Net investment income: Class A | (188,888) | (686,309) |
Class B | — | (57,902) |
Portfolio share transactions: Class A Proceeds from shares sold | 15,806,082 | 10,246,696 |
Reinvestment of distributions | 188,888 | 686,309 |
Cost of shares redeemed | (8,739,580) | (9,557,336) |
Net increase (decrease) in net assets from Class A share transactions | 7,255,390 | 1,375,669 |
Class B Proceeds from shares sold | 5,152,763 | 5,449,125 |
Reinvestment of distributions | — | 57,902 |
Cost of shares redeemed | (1,457,434) | (572,691) |
Net increase (decrease) in net assets from Class B share transactions | 3,695,329 | 4,934,336 |
Increase (decrease) in net assets | 29,073,209 | 14,776,584 |
Net assets at beginning of period | 75,573,163 | 60,796,579 |
Net assets at end of period (including undistributed net investment income of $558,067 and $102,166, respectively) | $ 104,646,372 | $ 75,573,163 |
Other Information | ||
Class A Shares outstanding at beginning of period | 5,350,985 | 5,262,148 |
Shares sold | 1,229,117 | 941,848 |
Shares issued to shareholders in reinvestment of distributions | 15,980 | 64,503 |
Shares redeemed | (708,184) | (917,514) |
Net increase (decrease) in Class A shares | 536,913 | 88,837 |
Shares outstanding at end of period | 5,887,898 | 5,350,985 |
Class B Shares outstanding at beginning of period | 1,064,827 | 588,861 |
Shares sold | 406,987 | 522,896 |
Shares issued to shareholders in reinvestment of distributions | — | 5,427 |
Shares redeemed | (111,974) | (52,357) |
Net increase (decrease) in Class B shares | 295,013 | 475,966 |
Shares outstanding at end of period | 1,359,840 | 1,064,827 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.78 | $ 10.39 | $ 8.08 | $ 9.64 | $ 11.81 |
Income (loss) from investment operations: Net investment income (loss)a | .12 | .04 | .09 | .07 | .08 |
Net realized and unrealized gain (loss) on investment transactions | 2.58 | 1.48 | 2.25 | (1.57) | (1.90) |
Total from investment operations | 2.70 | 1.52 | 2.34 | (1.50) | (1.82) |
Less distributions from: Net investment income | (.04) | (.13) | (.03) | (.06) | — |
Net realized gain on investment transactions | — | — | — | — | (.35) |
Total distributions | (.04) | (.13) | (.03) | (.06) | (.35) |
Net asset value, end of period | $ 14.44 | $ 11.78 | $ 10.39 | $ 8.08 | $ 9.64 |
Total Return (%) | 22.94b | 14.76 | 29.13b | (15.77) | (15.48) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 85 | 63 | 55 | 43 | 44 |
Ratio of expenses before expense reductions (%) | 1.41 | 1.44 | 1.48 | 1.32 | 1.24 |
Ratio of expenses after expense reductions (%) | 1.28 | 1.43 | 1.17 | 1.32 | 1.24 |
Ratio of net investment income (%) | .98 | .38 | 1.02 | .79 | .76 |
Portfolio turnover rate (%) | 95 | 81 | 65 | 41 | 52 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 11.78 | $ 10.38 | $ 8.06 | $ 8.98 |
Income (loss) from investment operations: Net investment income (loss)b | .07 | .00d | .04 | .02 |
Net realized and unrealized gain (loss) on investment transactions | 2.58 | 1.48 | 2.29 | (.94) |
Total from investment operations | 2.65 | 1.48 | 2.33 | (.92) |
Less distributions from: Net investment income | — | (.08) | (.01) | — |
Net asset value, end of period | $ 14.43 | $ 11.78 | $ 10.38 | $ 8.06 |
Total Return (%) | 22.50c | 14.33 | 28.96c | (10.24)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 20 | 13 | 6 | .2 |
Ratio of expenses before expense reductions (%) | 1.79 | 1.84 | 1.87 | 1.60* |
Ratio of expenses after expense reductions (%) | 1.65 | 1.83 | 1.64 | 1.60* |
Ratio of net investment income (%) | .61 | .02 | .55 | .49* |
Portfolio turnover rate (%) | 95 | 81 | 65 | 41 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Amount is less than $.005 per share. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Government & Agency Securities VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The government guarantee relates only to the prompt payment of principal and interest and does not remove market risks. Additionally, yields will fluctuate in response to changing interest rates and may be affected by the prepayment of mortgage-backed securities. 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 portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS Government & Agency Securities VIP | ||
[] DWS Government & Agency Securities VIP — Class A [] Lehman Brothers GNMA Index | The Lehman Brothers GNMA Index is an unmanaged market-value-weighted measure of all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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| |
Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Government & Agency Securities VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,257 | $10,882 | $12,639 | $16,883 |
Average annual total return | 2.57% | 2.86% | 4.80% | 5.38% | |
Lehman Brothers GNMA Index | Growth of $10,000 | $10,321 | $11,077 | $13,029 | $18,237 |
Average annual total return | 3.21% | 3.47% | 5.43% | 6.19% | |
DWS Government & Agency Securities VIP |
| 1-Year | 3-Year | Life of Class* | |
Class B | Growth of $10,000 |
| $10,224 | $10,761 | $11,161 |
Average annual total return |
| 2.24% | 2.47% | 3.19% | |
Lehman Brothers GNMA Index | Growth of $10,000 |
| $10,321 | $11,077 | $11,538 |
Average annual total return |
| 3.21% | 3.47% | 4.17% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Government & Agency Securities VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,007.40 |
| $ 1,005.80 |
|
Expenses Paid per $1,000* | $ 3.29 |
| $ 5.21 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.93 |
| $ 1,020.01 |
|
Expenses Paid per $1,000* | $ 3.31 |
| $ 5.24 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Government & Agency Securities VIP | .65% |
| 1.03% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Government & Agency Securities VIP
The annual period was characterized by solid economic growth accompanied by generally contained increases in inflation. While oil hovered in the $60 per barrel range for much of the year, the market has not generally viewed high energy price levels as a cause for alarm with respect to the inflation outlook. Open markets and excess capacity continue to put downward pressure on prices, and the so-called core inflation rate (which excludes energy and food) has been subdued. This environment permitted the US Federal Reserve Board (the Fed) to maintain its policy of increasing short-term rates in a measured fashion. Despite the rise in short-term interest rates, longer-term rates were relatively stable over the period, as the financial markets displayed confidence that the Fed was pursuing a policy that would continue to curtail potential inflationary pressures. This period of mixed economic signals and stable long-term interest rates resulted in modest positive returns for mortgage-backed securities.
For the 12-month period ended December 31, 2005, the portfolio provided a total return of 2.57% (Class A shares, unadjusted for contract charges), compared with the 3.21% return of its benchmark, the Lehman Brothers GNMA Index.
During the early part of the period, we paid particular attention to identifying mortgages that we expected to maintain their yield in a wide variety of interest rate scenarios. These included lower-coupon mortgages as well as pools with smaller loan sizes or specific geographic profiles that have proven to be less sensitive to early redemptions, or prepayments, by home owners. As the year progressed, in anticipation of a stable interest rate environment and reduced prepayment risk, we emphasized higher-coupon mortgages and 30-year mortgages over 15-year instruments because of their yield advantage. This worked well for the portfolio, although in retrospect we would have benefited from even greater exposure to GNMAs versus conventional mortgages. Going forward, we will be monitoring the interest-rate environment closely as we seek to maintain an attractive dividend for investors.
William Chepolis, CFA
Lead Portfolio Manager
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The government guarantee relates only to the prompt payment of principal and interest and does not remove market risks. Additionally, yields will fluctuate in response to changing interest rates and may be affected by the prepayment of mortgage-backed securities. 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. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Lehman Brothers GNMA Index is an unmanaged, market-value-weighted measure of all fixed-rate securities backed by mortgage pools of the Government National Mortgage Association. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Government & Agency Securities VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Agencies Backed by the Full Faith and Credit of the US Government (GNMA) | 58% | 57% |
Agencies Not Backed by the Full Faith and Credit of the US Government (FNMA, FHLMC) | 32% | 21% |
US Treasury Obligations | 5% | 4% |
Cash Equivalents | 5% | 18% |
| 100% | 100% |
Quality* | 12/31/05 | 12/31/04 |
|
|
|
AAA | 100% | 100% |
* Includes cash equivalents
Interest Rate Sensitivity | 12/31/05 | 12/31/04 |
|
|
|
Average Maturity | 5.9 years | 4.6 years |
Average Duration | 4.0 years | 2.6 years |
Asset allocation, quality and interest rate sensitivity are subject to change.
The quality ratings represent the lower of Moody's Investors Service, 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 Portfolio's quality does not remove market risk.
For more complete details about the Portfolio's investment portfolio, see page 119. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Government & Agency Securities VIP
| Principal Amount ($) | Value ($) |
|
| |
Agencies Backed by the Full Faith Credit of the US Government 55.8% | ||
Government National Mortgage Association: |
|
|
5.0%, with various maturities from 4/20/2033 until 2/15/2035 (c) | 21,205,940 | 20,931,174 |
5.5%, with various maturities from 12/15/2032 until 11/15/2035 (c) (d) | 75,936,285 | 76,373,605 |
6.0%, with various maturities from 12/20/2031 until 6/15/2035 (c) (d) | 35,820,080 | 36,656,851 |
6.5%, with various maturities from 3/15/2014 until 3/20/2035 (c) | 18,465,157 | 19,214,890 |
7.0%, with various maturities from 6/20/2017 until 10/15/2032 | 4,083,283 | 4,279,816 |
7.5%, with various maturities from 4/15/2026 until 7/15/2032 | 3,169,173 | 3,333,248 |
8.0%, with various maturities from 12/15/2026 until 11/15/2031 | 997,251 | 1,067,829 |
8.5%, with various maturities from 5/15/2016 until 12/15/2030 | 150,866 | 163,080 |
9.5%, with various maturities from 6/15/2013 until 12/15/2022 | 69,057 | 75,978 |
10.0%, with various maturities from 2/15/2016 until 3/15/2016 | 25,131 | 27,959 |
Total Agencies Backed by the Full Faith Credit of the US Government (Cost $163,329,106) | 162,124,430 | |
| ||
Agencies Not Backed by the Full Faith Credit of the US Government 30.2% | ||
Federal Home Loan Bank, 4.375%, 9/17/2010 | 23,000,000 | 22,642,741 |
Federal Home Loan Mortgage Corp.: |
|
|
4.5%, 5/1/2019 | 73,018 | 71,162 |
4.625%*, 2/1/2035 | 864,003 | 851,596 |
5.0%, with various maturities from 9/1/2033 until 8/1/2035 | 11,162,796 | 10,817,629 |
5.5%, with various maturities from 2/1/2017 until 11/1/2033 (c) | 6,071,426 | 6,015,682 |
6.5%, 9/1/2032 (c) | 227,301 | 233,353 |
7.0%, with various maturities from 5/1/2029 until 8/1/2035 | 6,001,110 | 6,241,129 |
7.5%, with various maturities from 1/1/2027 until 5/1/2032 | 271,373 | 285,163 |
8.0%, 11/1/2030 | 5,161 | 5,504 |
8.5%, 7/1/2030 | 5,137 | 5,558 |
| Principal Amount ($) | Value ($) |
|
| |
Federal National Mortgage Association: |
|
|
4.538%*, 1/1/2035 | 1,492,867 | 1,469,562 |
4.554%*, 2/1/2035 | 2,194,150 | 2,167,941 |
4.62%*, 1/1/2035 | 1,784,496 | 1,770,106 |
4.674%*, 2/1/2035 | 1,387,959 | 1,378,168 |
4.742%*, 5/1/2035 | 2,215,750 | 2,191,039 |
5.0%, with various maturities from 4/1/2020 until 10/1/2033 | 3,868,439 | 3,813,530 |
5.5%, with various maturities from 1/1/2033 until 6/1/2035 | 12,743,900 | 12,633,667 |
6.0%, 9/1/2035 | 7,217,661 | 7,285,327 |
6.5%, with various maturities from 9/1/2030 until 6/1/2035 | 4,269,523 | 4,385,156 |
7.0%, with various maturities from 9/1/2013 until 7/1/2034 | 996,811 | 1,039,999 |
7.5%, with various maturities from 9/1/2028 until 3/1/2032 | 2,194,309 | 2,300,062 |
8.0%, 12/1/2024 | 19,220 | 20,542 |
Total Agencies Not Backed by the Full Faith Credit of the US Government (Cost $88,596,618) | 87,624,616 | |
| ||
US Treasury Obligations 5.2% | ||
US Treasury Bills, 3.75%**, 1/19/2006 (a) | 165,000 | 164,691 |
US Treasury Notes: |
|
|
4.0%, 8/31/2007 | 3,000,000 | 2,980,077 |
4.375%, 11/15/2008 | 6,000,000 | 6,000,936 |
4.5%, 11/15/2015 | 6,000,000 | 6,049,218 |
Total US Treasury Obligations (Cost $15,208,396) | 15,194,922 | |
| ||
Collateralized Mortgage Obligations 11.3% | ||
Federal Home Loan Mortgage Corp.: |
|
|
"PO", Series 228, Principal Only, 0.99%, 2/1/2035 | 2,249,016 | 1,780,008 |
"ZC", Series 2972, 4.5%, 5/15/2020 | 492,542 | 489,914 |
"PF", Series 2962, 4.619%*, 3/15/2035 | 4,157,994 | 4,149,487 |
"IO", Series 228, Interest Only, 6.0%***, 2/1/2035 | 2,249,016 | 496,365 |
Federal National Mortgage Association: |
|
|
"L0", Series 2005-50, Principal Only, Zero Coupon, 6/25/2035 | 1,614,347 | 1,383,061 |
"IN", Series 2003-84, Interest Only, 4.5%***, 4/25/2013 | 3,244,876 | 178,685 |
"PF", Series 2005-59, 4.629%*, 5/25/2035 | 3,079,011 | 3,076,739 |
| Principal Amount ($) | Value ($) |
|
| |
Government National Mortgage Association: |
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"DA", Series 2005-45, 4.55%*, 6/16/2035 | 9,476,008 | 9,454,855 |
"FB", Series 2005-43, 4.57%*, 2/17/2032 | 4,215,625 | 4,178,583 |
"FA", Series 2005-18, 4.57%*, 10/20/2032 | 3,000,000 | 2,996,702 |
"FH", Series 1999-18, 4.62%*, 5/16/2029 | 2,422,481 | 2,429,488 |
"FB", Series 2001-28, 4.87%*, 6/16/2031 | 1,349,273 | 1,361,886 |
"IB", Series 2003-86, Interest Only, 5.0%***, 1/20/2029 | 4,550,000 | 755,785 |
Total Collateralized Mortgage Obligations (Cost $32,855,454) | 32,731,558 | |
|
| Value ($) |
|
| |
Cash Equivalents 5.3% | ||
Cash Management QP Trust, 4.26% (b) (Cost $15,412,261) | 15,412,261 | 15,412,261 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $315,401,835)+ | 107.8 | 313,087,787 |
Other Assets and Liabilities, Net | (7.8) | (22,688,138) |
Net Assets | 100.0 | 290,399,649 |
Notes to DWS Government & Agency Securities VIP Portfolio of Investments
* 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 December 31, 2005.
** Annualized yield at time of purchase; not a coupon rate.
*** These securities are shown at their current rate as of December 31, 2005.
+ The cost for federal income tax purposes was $315,433,634. At December 31, 2005, net unrealized depreciation for all securities based on tax cost was $2,345,847. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $616,612 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,962,459.
(a) At December 31, 2005, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(b) Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Mortgage dollar rolls included.
(d) When-issued or forward delivery pools included.
Interest Only: Interest Only (IO) bonds represent the "interest only" portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.
Principal Only: Principal Only (PO) bonds represent the "principal only" portion of payments on a pool of underlying mortgages or mortgage-backed securities.
At December 31, 2005, open futures contracts purchased were as follows:
Futures | Expiration | Contracts | Aggregate Face Value ($) | Market Value ($) | Net Unrealized Appreciation ($) |
10 Year US Treasury Note | 3/22/2006 | 121 | 13,096,717 | 13,238,156 | 141,439 |
At December 31, 2005, open futures contracts sold were as follows:
Futures | Expiration | Contracts | Aggregate Face Value ($) | Market Value ($) | Net Unrealized Depreciation ($) |
2 Year US Treasury Note | 3/31/2006 | 30 | 6,153,649 | 6,155,625 | (1,976) |
10 Year Interest Rate Swap | 3/13/2006 | 86 | 9,220,793 | 9,301,438 | (80,645) |
Total net unrealized depreciation | (82,621) |
Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal National Mortgage Association, Government National Mortgage Association and Federal Home Loan Mortgage Corp. issues which have similar coupon rates have been aggregated for presentation purposes in this investment portfolio.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments Investments in securities, at value (cost $299,989,574) | $ 297,675,526 |
Investments in Cash Management QP Trust, (cost $15,412,261) | 15,412,261 |
Total investments in securities at value, cost ($315,401,835) | 313,087,787 |
Receivable for investments sold | 42,445,941 |
Interest receivable | 1,643,842 |
Receivable for Portfolio shares sold | 185,467 |
Other assets | 7,983 |
Total assets | 357,371,020 |
Liabilities | |
Payable for investments purchased | 29,088,756 |
Payable for when issued and forward delivery securities | 11,104,750 |
Payable for investments purchased — mortgage dollar rolls | 26,330,493 |
Deferred mortgage dollar roll income | 17,843 |
Payable for Portfolio shares redeemed | 140,029 |
Payable for daily variation margin on open futures contracts | 5,016 |
Accrued management fee | 139,179 |
Other accrued expenses and payables | 145,305 |
Total liabilities | 66,971,371 |
Net assets, at value | $ 290,399,649 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 10,160,924 |
Net unrealized appreciation (depreciation) on: Investments | (2,314,048) |
Futures | 58,818 |
Accumulated net realized gain (loss) | (116,321) |
Paid-in capital | 282,610,276 |
Net assets, at value | $ 290,399,649 |
Class A Net Asset Value, offering and redemption price per share ($243,450,554 ÷ 19,851,802 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.26 |
Class B Net Asset Value, offering and redemption price per share ($46,949,095 ÷ 3,838,802 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.23 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Interest | $ 13,283,012 |
Interest — Cash Management QP Trust | 718,047 |
Mortgage dollar roll income | 950,158 |
Total Income | 14,951,217 |
Expenses: Management fee | 1,713,621 |
Custodian fees | 21,736 |
Distribution service fees (Class B) | 120,593 |
Record keeping fees (Class B) | 63,716 |
Auditing | 59,225 |
Legal | 13,858 |
Trustees' fees and expenses | 14,404 |
Reports to shareholders | 100,187 |
Other | 54,408 |
Total expenses before expense reductions | 2,161,748 |
Expense reductions | (4,771) |
Total expenses after expense reductions | 2,156,977 |
Net investment income (loss) | 12,794,240 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | (579,280) |
Futures | (206,932) |
Net increase from payments by affiliates and net gains (looses) realized on the disposal of investments in violation of restrictions. | — |
| (786,212) |
Net unrealized appreciation (depreciation) during the period on: Investments | (4,362,726) |
Futures | 38,486 |
| (4,324,240) |
Net gain (loss) on investment transactions | (5,110,452) |
Net increase (decrease) in net assets resulting from operations | $ 7,683,788 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 12,794,240 | $ 12,286,972 |
Net realized gain (loss) on investment transactions | (786,212) | 1,566,054 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (4,324,240) | (1,060,975) |
Net increase (decrease) in net assets resulting from operations | 7,683,788 | 12,792,051 |
Distributions to shareholders from: Net investment income: Class A | (10,824,223) | (8,701,916) |
Class B | (1,736,774) | (986,391) |
Net realized gains: Class A | (2,099,899) | (2,734,888) |
Class B | (374,454) | (359,519) |
Portfolio share transactions: Class A Proceeds from shares sold | 24,046,411 | 20,190,555 |
Reinvestment of distributions | 12,924,122 | 11,436,803 |
Cost of shares redeemed | (67,354,142) | (97,935,807) |
Net increase (decrease) in net assets from Class A share transactions | (30,383,609) | (66,308,449) |
Class B Proceeds from shares sold | 3,998,526 | 23,191,368 |
Reinvestment of distributions | 2,111,228 | 1,345,911 |
Cost of shares redeemed | (7,544,629) | (13,460,654) |
Net increase (decrease) in net assets from Class B share transactions | (1,434,875) | 11,076,625 |
Increase (decrease) in net assets | (39,170,046) | (55,222,487) |
Net assets at beginning of period | 329,569,695 | 384,792,182 |
Net assets at end of period (including undistributed net investment income of $10,160,924 and $10,896,663, respectively) | $ 290,399,649 | $ 329,569,695 |
Other Information | ||
Class A Shares outstanding at beginning of period | 22,309,252 | 27,631,433 |
Shares sold | 1,970,071 | 1,635,527 |
Shares issued to shareholders in reinvestment of distributions | 1,082,422 | 932,855 |
Shares redeemed | (5,509,943) | (7,890,563) |
Net increase (decrease) in Class A shares | (2,457,450) | (5,322,181) |
Shares outstanding at end of period | 19,851,802 | 22,309,252 |
Class B Shares outstanding at beginning of period | 3,952,379 | 3,055,787 |
Shares sold | 326,302 | 1,876,522 |
Shares issued to shareholders in reinvestment of distributions | 176,820 | 109,781 |
Shares redeemed | (616,699) | (1,089,711) |
Net increase (decrease) in Class B shares | (113,577) | 896,592 |
Shares outstanding at end of period | 3,838,802 | 3,952,379 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.55 | $ 12.54 | $ 12.84 | $ 12.32 | $ 11.96 |
Income (loss) from investment operations: Net investment incomeb | .51 | .44 | .31 | .62 | .61 |
Net realized and unrealized gain (loss) on investment transactions | (.20) | .03 | (.04) | .35 | .25 |
Total from investment operations | .31 | .47 | .27 | .97 | .86 |
Less distributions from: Net investment income | (.50) | (.35) | (.35) | (.45) | (.50) |
Net realized gain on investment transactions | (.10) | (.11) | (.22) | — | — |
Total distributions | (.60) | (.46) | (.57) | (.45) | (.50) |
Net asset value, end of period | $ 12.26 | $ 12.55 | $ 12.54 | $ 12.84 | $ 12.32 |
Total Return (%) | 2.57e | 3.75d | 2.26 | 8.05 | 7.48 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 243 | 280 | 347 | 551 | 305 |
Ratio of expenses (%) | .63 | .61 | .61 | .59 | .60 |
Ratio of net investment income (%) | 4.17 | 3.59 | 2.50 | 4.96 | 5.06 |
Portfolio turnover rate (%) | 191c | 226c | 511c | 534c | 334 |
a As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. b Based on average shares outstanding during the period. c The portfolio turnover rate including mortgage dollar roll transactions was 325%, 391%, 536% and 651% for the periods ended December 31, 2005, December 31, 2004, December 31, 2003 and December 31, 2002, respectively. d Reimbursement of $2,420 due to disposal of investments in violation of restrictions had no effect on total return. e Reimbursement of $234 due to disposal of investments in violation of restrictions had no effect on total return. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.52 | $ 12.51 | $ 12.82 | $ 12.36 |
Income (loss) from investment operations: Net investment incomeb | .47 | .40 | .27 | .31 |
Net realized and unrealized gain (loss) on investment transactions | (.21) | .02 | (.04) | .15 |
Total from investment operations | .26 | .42 | .23 | .46 |
Less distributions from: Net investment income | (.45) | (.30) | (.32) | — |
Net realized gain on investment transactions | (.10) | (.11) | (.22) | — |
Total distributions | (.55) | (.41) | (.54) | — |
Net asset value, end of period | $ 12.23 | $ 12.52 | $ 12.51 | $ 12.82 |
Total Return (%) | 2.24e | 3.36d | 1.83 | 3.72** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 47 | 49 | 38 | 3 |
Ratio of expenses (%) | 1.02 | 1.00 | .98 | .84* |
Ratio of net investment income (%) | 3.78 | 3.21 | 2.13 | 4.95* |
Portfolio turnover rate (%) | 191c | 226c | 511c | 534c |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c The portfolio turnover rate including mortgage dollar roll transactions was 325%, 391%, 536% and 651% for the periods ended December 30, 2005, December 31, 2004, December 31, 2003 and December 31, 2002, respectively. d Reimbursement of $2,420 due to disposal of investments in violation of restrictions had no effect on total return. e Reimbursement of $234 due to disposal of investments in violation of restrictions had no effect on total return. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Growth Allocation VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Diversification does not eliminate risk. The underlying portfolios invest in individual equity and bond funds whose yields and market values fluctuate, so that your investment may be worth more or less than its original cost. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. 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 Portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Growth Allocation VIP from 8/16/2004 to 12/31/2005 | ||
[] DWS Growth Allocation VIP — Class B [] Russell 1000 Index | The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | |||
DWS Growth Allocation VIP | 1-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,602 | $11,694 |
Average annual total return | 6.02% | 12.08% | |
Russell 1000 Index | Growth of $10,000 | $10,627 | $11,815 |
Average annual total return | 6.27% | 13.33% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns begin August 31, 2004.
Information About Your Portfolio's Expenses
DWS Growth Allocation VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In addition to the ongoing expenses which the Portfolio bears directly, the Portfolio's shareholders indirectly bear the expense of the Underlying DWS Portfolios in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying DWS Portfolios is based on its allocation of Underlying DWS Portfolios. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,056.10 |
Expenses Paid per $1,000* |
| $ 3.01 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,022.28 |
Expenses Paid per $1,000* |
| $ 2.96 |
Direct Portfolio Expenses and Estimated Indirect Underlying DWS Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,056.10 |
Expenses Paid per $1,000** |
| $ 6.58 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,018.80 |
Expenses Paid per $1,000** |
| $ 6.46 |
* Expenses are equal to the Portfolio's annualized expense ratio for the 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.
** Expenses are equal to the Portfolio's annualized expense ratio for the share class plus the estimated indirect expense from investing in underlying portfolios in which the Portfolio invests, 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 B |
Direct Portfolio Expense Ratio |
| .58% |
Estimated Indirect Expenses of Underlying DWS Portfolios |
| .69% |
Estimated Net Annual Portfolio and Underlying DWS Portfolios Expenses |
| 1.27% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Growth Allocation VIP
The US economy posted positive growth for all four quarters of 2005, with concerns about inflation and the sustainability of the economic expansion seeming to abate as the year progressed. All major asset classes — equities, bonds and cash — had positive returns for the year, and returns of the various asset classes were generally close to one another.
For the 12 months ended December 31, 2005, DWS Growth Allocation VIP had a return of 6.02% (Class B shares, unadjusted for contract charges). Since this Portfolio invests in underlying portfolios from a broad array of investment styles, performance is analyzed by comparing the Portfolio's return with the returns of indices that represent the major asset classes. As anticipated, since this Portfolio invests in a blend of equity and bond securities, its return was above that of the major bond indices but below that of the equity indices. This Portfolio outperformed its Lipper peer group of Lipper Flexible Portfolio Funds category, which had an average return of 4.88%. The Portfolio's strategic allocation of 75% equity and 25% fixed income contributed to performance relative to the peer group because the allocation for funds in the group averages 60% equities and 40% bonds.
The Portfolio's allocation between stocks and bonds remained close to its target of 75% equity and 25% fixed income during 2005, but with equities above 75% in 11 months of the year. This overweight was positive for returns, as equities outperformed bonds. An especially positive factor in performance was an overweight in international equities through most of the year, as foreign markets were stronger than the US market; however, a reduction in the international position late in the year detracted from performance.
In the equity portion of the Portfolio, a slight bias toward value-oriented holdings established in July detracted from performance. Among underlying equity funds, large-cap funds contributed to positive relative performance, with seven of the 10 funds achieving performance above the Russell 1000 Index. Several of the growth-oriented funds that were overweight in energy, a sector that was strong during 2005, performed particularly well. The two small-cap portfolios did well, so that small cap made a net contribution to overall performance, even though small-cap stocks as a category underperformed large-cap stocks.
Within the fixed-income portion of the Portfolio (which comprises cash equivalents and bonds), performance of the high-yield portion was excellent, with returns significantly above the high-yield benchmark, the Credit Suisse First Boston High Yield Index. However, since this is a small position that was underweighted, the strong performance did not offset underperformance of the much larger investment-grade bond portion.
Inna Okounkova Robert Wang
Co-Managers, Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Diversification does not eliminate risk. The underlying portfolios invest in individual equity and bond funds whose yields and market values fluctuate, so that your investment may be worth more or less than its original cost. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. 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 Portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its risk profile.
Credit Suisse (CS) First Boston High Yield Index is an unmanaged, unleveraged, trader-priced portfolio constructed to mirror the global high-yield debt market.
The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
The Lipper Flexible Portfolio is a category that allocates its investments across various asset classes, including domestic common stocks, bonds, and money market instruments with a focus on total return.
Equities are represented by the Russell 1000 Index, which is a price-only index of the 1,000 largest capitalized companies domiciled in the United States. Bonds are represented by the Lehman Brothers Aggregate Bond Index which measures domestic taxable investment-grade bonds. Cash is represented by the rate of return of 3-month Treasury bills.
Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index or Lipper category.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Growth Allocation VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
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Equity Funds | 75% | 73% |
Fixed Income Funds | 14% | 25% |
Cash Equivalents | 11% | 2% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 129. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Growth Allocation VIP
| Shares | Value ($) |
|
| |
Equity Funds 75.4% | ||
DWS Blue Chip VIP "A" | 1,078,695 | 16,050,984 |
DWS Capital Growth VIP "A" | 496,327 | 8,387,928 |
DWS Davis Venture Value VIP "A" | 793,087 | 9,905,657 |
DWS Dreman High Return Equity VIP "A" | 501,178 | 6,720,793 |
DWS Dreman Small Cap Value VIP "A" | 476,879 | 9,528,045 |
DWS Global Opportunities VIP "A" | 5,137 | 77,052 |
DWS Growth and Income VIP "A" | 3,041,589 | 29,564,249 |
DWS International Select Equity VIP "A" | 72,040 | 954,524 |
DWS International VIP "A" | 795,861 | 8,635,091 |
DWS Janus Growth Opportunities VIP "A" | 1,243,548 | 10,396,065 |
DWS Large Cap Value VIP "A" | 1,200,895 | 18,986,151 |
DWS MFS Strategic Value VIP "A" | 995,701 | 10,663,963 |
DWS Mid Cap Growth VIP "A" | 103,545 | 1,172,134 |
DWS RREEF Real Estate Securities VIP "A" | 308,398 | 5,113,241 |
DWS Small Cap Growth VIP "A" | 480,953 | 6,483,241 |
DWS Templeton Foreign Value VIP "A" | 537,340 | 6,141,803 |
Total Equity Funds (Cost $140,987,890) | 148,780,921 | |
| Shares | Value ($) |
|
| |
Fixed Income Funds 13.3% | ||
DWS Core Fixed Income VIP "A" | 1,882,349 | 22,230,543 |
DWS Government & Agency Securities VIP "A" | 110,080 | 1,349,577 |
DWS High Income VIP "A" | 159,386 | 1,311,744 |
DWS Strategic Income VIP "A" | 113,998 | 1,310,977 |
Total Fixed Income Funds (Cost $26,181,725) | 26,202,841 | |
| ||
Cash Equivalents 11.1% | ||
Cash Management QP Trust, 4.26% (a) (Cost $22,024,443) | 22,024,442 | 22,024,443 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $189,194,058)+ | 99.8 | 197,008,205 |
Other Assets and Liabilities, Net | 0.2 | 373,899 |
Net Assets | 100.0 | 197,382,104 |
Notes to DWS Growth Allocation VIP Portfolio of Investments
+ The cost for federal income tax purposes was $189,304,861. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $7,703,344. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $8,420,913 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $717,569.
(a) 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.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $167,169,615) | $ 174,983,762 |
Investment in Cash Management QP Trust (cost $22,024,443) | 22,024,443 |
Total investments in securities, at value (cost $189,194,058) | 197,008,205 |
Interest receivable | 74,953 |
Receivable for Portfolio shares sold | 441,076 |
Other assets | 3,836 |
Total assets | 197,528,070 |
Liabilities | |
Payable for Portfolio shares redeemed | 11,247 |
Accrued management fee | 16,706 |
Other accrued expenses and payables | 118,013 |
Total liabilities | 145,966 |
Net assets, at value | $ 197,382,104 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 1,575,496 |
Net unrealized appreciation (depreciation) on investments | 7,814,147 |
Accumulated net realized gain (loss) | 1,522,296 |
Paid-in capital | 186,470,165 |
Net assets, at value | $ 197,382,104 |
Class B Net Asset Value, offering and redemption price per share ($197,382,104 ÷ 16,920,311 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.67 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Income distribution from Underlying | $ 1,402,778 |
Interest — Cash Management QP Trust | 388,363 |
Total Income | 1,791,141 |
Expenses: Management fee | 166,261 |
Custodian and accounting fees | 69,372 |
Distribution service fees (Class B) | 277,101 |
Record keeping fees (Class B) | 155,419 |
Auditing | 17,967 |
Legal | 15,122 |
Trustees' fees and expenses | 3,029 |
Reports to shareholders | 12,395 |
Offering costs | 587 |
Other | 2,062 |
Total expenses before expense reductions | 719,315 |
Expense reductions | (55,420) |
Total expenses after expense reductions | 663,895 |
Net investment income (loss) | 1,127,246 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 815,491 |
Capital gain distributions from Underlying Affiliated Portfolios | 1,163,175 |
| 1,978,666 |
Net unrealized appreciation (depreciation) during the period on investments | 5,737,112 |
Net gain (loss) on investment transactions | 7,715,778 |
Net increase (decrease) in net assets resulting from operations | $ 8,843,024 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Year Ended December 31, 2005 | Period Ended December 31, 2004a |
Operations: Net investment income (loss) | $ 1,127,246 | $ (51,234) |
Net realized gain (loss) on investment transactions | 1,978,666 | 143,332 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 5,737,112 | 2,077,035 |
Net increase (decrease) in net assets resulting from operations | 8,843,024 | 2,169,133 |
Distributions to shareholders from: Net realized gains: Class B | (144,613) | — |
Portfolio share transactions: Class B Proceeds from shares sold | 143,559,919 | 45,093,561 |
Reinvestment of distributions | 144,613 | — |
Cost of shares redeemed | (2,017,170) | (266,363) |
Net increase (decrease) in net assets from Class B share transactions | 141,687,362 | 44,827,198 |
Increase (decrease) in net assets | 150,385,773 | 46,996,331 |
Net assets at beginning of period | 46,996,331 | — |
Net assets at end of period (including undistributed net investment income of $1,575,496 and $0, respectively) | $ 197,382,104 | $ 46,996,331 |
Other Information | ||
Class B Shares outstanding at beginning of period | 4,262,187 | — |
Shares sold | 12,825,648 | 4,287,740 |
Shares issued to shareholders in reinvestment of distributions | 13,341 | — |
Shares redeemed | (180,865) | (25,553) |
Net increase (decrease) in Class B shares | 12,658,124 | 4,262,187 |
Shares outstanding at end of period | 16,920,311 | 4,262,187 |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 11.03 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .11 | (.03) |
Net realized and unrealized gain (loss) on investment transactions | .55 | 1.06 |
Total from investment operations | .66 | 1.03 |
Less distributions from: Net realized gain on investment transactions | (.02) | — |
Net asset value, end of period | $ 11.67 | $ 11.03 |
Total Return (%)c,d | 6.02 | 10.30** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 197 | 47 |
Ratio of expenses before expense reductions (%)e | .65 | 1.38* |
Ratio of expenses after expense reductions (%)e | .60 | 0.75* |
Ratio of net investment income (%) | 1.01 | (0.69)* |
Portfolio turnover rate (%) | 20 | 15* |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not maintained some Underlying Portfolios' expenses. e The Portfolio invests in other DWS Portfolios and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios in which the Portfolio is invested. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS High Income VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. Additionally, the Portfolio may invest in lower-quality and nonrated securities which present greater risk of loss of principal and interest than higher-quality securities. All of these factors may result in greater share price volatility. 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. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS High Income VIP | ||
[] DWS High Income VIP — Class A [] Credit Suisse High Yield Index [] Citigroup Long-Term High Yield Bond Index | The Credit Suisse High Yield Index (CSFB) is an unmanaged index that is market- Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS High Income VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,389 | $14,554 | $14,891 | $17,941 |
Average annual total return | 3.89% | 13.32% | 8.29% | 6.02% | |
Credit Suisse High Yield Index | Growth of $10,000 | $10,226 | $14,647 | $15,978 | $19,920 |
Average annual total return | 2.26% | 13.57% | 9.83% | 7.13% | |
Citigroup Long-Term High Yield Bond Index | Growth of $10,000 | $10,223 | $16,370 | $19,382 | $27,730 |
Average annual total return | 2.23% | 17.86% | 14.15% | 10.74% | |
DWS High Income VIP |
| 1-Year | 3-Year | Life of Class* | |
Class B | Growth of $10,000 |
| $10,341 | $14,389 | $14,748 |
Average annual total return |
| 3.41% | 12.89% | 11.74% | |
Credit Suisse High Yield Index | Growth of $10,000 |
| $10,226 | $14,647 | $15,078 |
Average annual total return |
| 2.26% | 13.57% | 12.42% | |
Citigroup Long-Term High Yield Bond Index | Growth of $10,000 |
| $10,223 | $16,370 | $17,902 |
Average annual total return |
| 2.23% | 17.86% | 18.06% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS High Income VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,030.00 |
| $ 1,026.20 |
|
Expenses Paid per $1,000* | $ 3.74 |
| $ 5.82 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.53 |
| $ 1,019.46 |
|
Expenses Paid per $1,000* | $ 3.72 |
| $ 5.80 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS High Income VIP | .73% |
| 1.14% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2005
DWS High Income VIP
High-yield was one of the best-performing areas within the bond market in 2005. Despite concerns about rising interest rates, higher commodity prices and the impact of the Gulf Coast hurricanes, the market's solid fundamental underpinnings remained in place. Helped by low interest rates and the strength of the US economy, high-yield companies generally maintained sound financial positions. Probably the best indication of solid fundamentals in the high yield market was the continuation of low defaults — at year-end Moody's 12-month rolling default rate stood at 1.80%, lower than at the close of 2004.
The portfolio's Class A shares produced a return of 3.89% in 2005 (Class A shares unadjusted for contract charges). We remained focused on adding value by doing fundamental research rather than making broad predictions about sector performance or interest rates. Overweight positions in General Motors Acceptance Corporation and emerging market bonds were positive contributors to return. An underweight in Adelphia Communications (not in the portfolio at the end of the reporting period) also helped, as did an overweight in middle-tier securities. However, overweight positions in Tembec Industries Inc. and GEO Specialty Chemicals detracted from results.
The robust economy continues to translate into sound fundamentals for the high-yield market. Still, we believe the low default environment the high-yield market currently enjoys will not last forever, meaning that good security selection is paramount at this point in the cycle.
Andrew P. Cestone
Lead Manager
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. Additionally, the Portfolio may invest in lower-quality and nonrated securities which present greater risk of loss of principal and interest than higher-quality securities. All of these factors may result in greater share price volatility. 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. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The quality ratings represent the lower of Moody's Investors Service, 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 Portfolio's credit quality does not remove market risk.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS High Income VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Corporate Bonds | 80% | 74% |
Foreign Bonds — US$ Denominated | 13% | 20% |
Cash Equivalents | 2% | 2% |
Foreign Bonds — Non US$ Denominated | 1% | 2% |
Asset Backed | 1% | 1% |
Convertible Bonds | 1% | 1% |
Loan Participations | 1% | — |
Stocks | 1% | — |
| 100% | 100% |
Corporate and Foreign Bond Sector Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Consumer Discretionary | 24% | 24% |
Financials | 15% | 9% |
Industrials | 14% | 14% |
Materials | 14% | 16% |
Telecommunication Services | 9% | 14% |
Energy | 8% | 7% |
Utilities | 6% | 5% |
Information Technology | 3% | 2% |
Consumer Staples | 3% | 4% |
Health Care | 3% | 3% |
Sovereign Bonds | 1% | 2% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 6. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS High Income VIP
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 79.1% | ||
Consumer Discretionary 20.4% | ||
155 East Tropicana LLC, 8.75%, 4/1/2012 (b) | 855,000 | 822,937 |
Adesa, Inc., 7.625%, 6/15/2012 | 325,000 | 323,375 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 1,310,000 | 1,034,900 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 (b) | 1,635,000 | 1,479,675 |
AutoNation, Inc., 9.0%, 8/1/2008 | 940,000 | 1,009,325 |
Aztar Corp., 7.875%, 6/15/2014 (b) | 2,115,000 | 2,215,462 |
Cablevision Systems Corp., Series B, 8.716%**, 4/1/2009 | 390,000 | 393,900 |
Caesars Entertainment, Inc.: |
|
|
8.875%, 9/15/2008 | 485,000 | 524,406 |
9.375%, 2/15/2007 | 580,000 | 603,925 |
Charter Communications Holdings LLC: |
|
|
9.625%, 11/15/2009 | 500,000 | 370,000 |
10.25%, 9/15/2010 (b) | 3,210,000 | 3,193,950 |
144A, 11.0%, 10/1/2015 | 3,337,000 | 2,803,080 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 (b) | 1,575,000 | 1,197,000 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 535,000 | 533,663 |
7.875%, 12/15/2007 | 1,869,000 | 1,901,707 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 4,832,000 | 5,653,440 |
Dura Operating Corp., Series B, 8.625%, 4/15/2012 (b) | 1,480,000 | 1,221,000 |
EchoStar DBS Corp., 6.625%, 10/1/2014 | 520,000 | 498,550 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 920,000 | 972,900 |
Ford Motor Co., 7.45%, 7/16/2031 (b) | 240,000 | 163,200 |
General Motors Corp., 8.25%, 7/15/2023 (b) | 230,000 | 147,775 |
Goodyear Tire & Rubber Co.: |
|
|
144A, 9.0%, 7/1/2015 | 50,000 | 49,250 |
11.25%, 3/1/2011 | 2,075,000 | 2,324,000 |
Gregg Appliances, Inc., 9.0%, 2/1/2013 | 385,000 | 348,425 |
GSC Holdings Corp., 144A, 8.0%, 10/1/2012 (b) | 1,670,000 | 1,569,800 |
Hertz Corp., 144A, 8.875%, 1/1/2014 (b) | 1,885,000 | 1,920,344 |
ITT Corp., 7.375%, 11/15/2015 | 500,000 | 542,500 |
Jacobs Entertainment, Inc., 11.875%, 2/1/2009 | 3,605,000 | 3,825,806 |
Levi Strauss & Co.: |
|
|
8.804%**, 4/1/2012 | 820,000 | 826,150 |
12.25%, 12/15/2012 | 175,000 | 195,125 |
Liberty Media Corp.: |
|
|
5.7%, 5/15/2013 (b) | 50,000 | 46,588 |
7.875%, 7/15/2009 (b) | 45,000 | 47,417 |
8.5%, 7/15/2029 (b) | 205,000 | 203,017 |
Mandalay Resort Group, Series B, 10.25%, 8/1/2007 | 390,000 | 415,838 |
Mediacom Broadband LLC, 144A, 8.5%, 10/15/2015 | 605,000 | 560,381 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Mediacom LLC, 9.5%, 1/15/2013 (b) | 295,000 | 287,994 |
MGM MIRAGE: |
|
|
8.375%, 2/1/2011 (b) | 1,675,000 | 1,792,250 |
9.75%, 6/1/2007 | 950,000 | 1,001,062 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 600,000 | 640,500 |
NCL Corp., 10.625%, 7/15/2014 | 755,000 | 779,538 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 1,840,000 | 1,306,400 |
Paxson Communications Corp., Step-up Coupon, 0% to 1/15/2006, 12.25% to 1/15/2009 (b) | 210,000 | 222,338 |
Petro Stopping Centers, 9.0%, 2/15/2012 (b) | 1,161,000 | 1,166,805 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 (b) | 1,710,000 | 1,821,150 |
Premier Entertainment Biloxi LLC/Finance, 10.75%, 2/1/2012 | 1,788,000 | 1,725,420 |
PRIMEDIA, Inc.: |
|
|
8.875%, 5/15/2011 | 630,000 | 581,175 |
9.715%**, 5/15/2010 (b) | 1,915,000 | 1,840,794 |
Renaissance Media Group LLC, 10.0%, 4/15/2008 | 955,000 | 956,194 |
Resorts International Hotel & Casino, Inc., 11.5%, 3/15/2009 | 2,145,000 | 2,375,587 |
Schuler Homes, Inc., 10.5%, 7/15/2011 (b) | 1,455,000 | 1,564,125 |
SGS International, Inc., 144A, 12.0%, 12/15/2013 | 500,000 | 500,822 |
Simmons Bedding Co.: |
|
|
144A, Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 (b) | 2,100,000 | 1,134,000 |
7.875%, 1/15/2014 (b) | 450,000 | 416,250 |
Sinclair Broadcast Group, Inc.: |
|
|
8.0%, 3/15/2012 | 143,000 | 147,290 |
8.75%, 12/15/2011 | 3,135,000 | 3,299,587 |
Sirius Satellite Radio, Inc., 144A, 9.625%, 8/1/2013 (b) | 2,150,000 | 2,117,750 |
Toys "R" Us, Inc.: |
|
|
6.875%, 8/1/2006 | 245,000 | 243,775 |
7.375%, 10/15/2018 | 921,000 | 663,120 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 (b) | 3,765,000 | 3,670,875 |
TRW Automotive, Inc.: |
|
|
11.0%, 2/15/2013 (b) | 2,440,000 | 2,738,900 |
11.75%, 2/15/2013 EUR | 380,000 | 519,614 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 1,370,000 | 1,441,925 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 395,000 | 414,256 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14.0% to 12/31/2009 | 2,501,934 | 2,664,560 |
Young Broadcasting, Inc.: |
|
|
8.75%, 1/15/2014 (b) | 3,375,000 | 2,974,219 |
10.0%, 3/1/2011 (b) | 425,000 | 397,906 |
| 81,344,992 | |
| Principal Amount ($)(a) | Value ($) |
|
| |
Consumer Staples 2.7% | ||
Alliance One International, Inc., 144A, 11.0%, 5/15/2012 | 1,345,000 | 1,183,600 |
Birds Eye Foods, Inc., 11.875%, 11/1/2008 | 578,000 | 589,560 |
Del Laboratories, Inc., 8.0%, 2/1/2012 (b) | 600,000 | 474,000 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 190,000 | 194,938 |
9.0%, 4/15/2031 | 540,000 | 634,834 |
GNC Corp., 8.5%, 12/1/2010 | 160,000 | 137,600 |
Harry & David Holdings, Inc., 9.41%**, 3/1/2012 | 390,000 | 392,925 |
North Atlantic Trading Co., 9.25%, 3/1/2012 | 4,095,000 | 2,702,700 |
Swift & Co.: |
|
|
10.125%, 10/1/2009 | 685,000 | 707,263 |
12.5%, 1/1/2010 | 1,295,000 | 1,362,987 |
Viskase Co., Inc., 11.5%, 6/15/2011 | 2,380,000 | 2,534,700 |
| 10,915,107 | |
Energy 6.4% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 2,045,000 | 2,085,900 |
Chaparral Energy, Inc., 144A, 8.5%, 12/1/2015 (b) | 1,310,000 | 1,355,850 |
Chesapeake Energy Corp.: |
|
|
6.5%, 8/15/2017 | 590,000 | 592,950 |
6.875%, 1/15/2016 | 1,350,000 | 1,383,750 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 (b) | 390,000 | 384,150 |
7.125%, 5/15/2018 (b) | 655,000 | 582,950 |
7.625%, 10/15/2026 | 435,000 | 387,150 |
8.75%, 2/15/2012 (b) | 185,000 | 199,800 |
144A, 9.875%, 7/15/2010 | 2,805,000 | 3,074,981 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 955,000 | 990,812 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 390,000 | 397,800 |
Mission Resources Corp., 9.875%, 4/1/2011 | 90,000 | 94,500 |
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007 | 1,595,000 | 1,595,000 |
NGC Corp. Capital Trust I, Series B, 8.316%, 6/1/2027 (b) | 1,595,000 | 1,411,575 |
Sonat, Inc., 7.0%, 2/1/2018 | 195,000 | 185,250 |
Southern Natural Gas, 8.875%, 3/15/2010 | 1,615,000 | 1,725,975 |
Stone Energy Corp.: |
|
|
6.75%, 12/15/2014 (b) | 2,500,000 | 2,368,750 |
8.25%, 12/15/2011 | 1,290,000 | 1,331,925 |
Transmeridian Exploration, Inc., 12.0%**, 12/15/2010 | 455,000 | 527,800 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 (b) | 3,300,000 | 3,597,000 |
8.75%, 3/15/2032 | 1,115,000 | 1,293,400 |
| 25,567,268 | |
Financials 12.8% | ||
Alamosa Delaware, Inc.: |
|
|
8.5%, 1/31/2012 | 200,000 | 216,250 |
11.0%, 7/31/2010 | 640,000 | 721,600 |
12.0%, 7/31/2009 | 668,000 | 730,625 |
AmeriCredit Corp., 9.25%, 5/1/2009 | 3,385,000 | 3,562,712 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Ashton Woods USA LLC, 144A, 9.5%, 10/1/2015 | 1,430,000 | 1,288,788 |
Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028 | 385,000 | 233,874 |
E*TRADE Financial Corp.: |
|
|
144A, 7.375%, 9/15/2013 (b) | 1,355,000 | 1,371,937 |
7.875%, 12/1/2015 | 1,165,000 | 1,202,863 |
8.0%, 6/15/2011 | 665,000 | 691,600 |
Exopack Holding Corp., 9.59%, 11/16/2006 | 3,250,000 | 3,250,000 |
Ford Motor Credit Co.: |
|
|
6.5%, 1/25/2007 | 610,000 | 590,157 |
7.25%, 10/25/2011 | 4,820,000 | 4,163,786 |
7.375%, 10/28/2009 | 4,330,000 | 3,840,216 |
General Motors Acceptance Corp.: |
|
|
5.22%**, 3/20/2007 | 635,000 | 599,792 |
6.875%, 9/15/2011 | 2,180,000 | 1,988,040 |
8.0%, 11/1/2031 (b) | 13,543,000 | 12,972,582 |
H&E Equipment/Finance, 11.125%, 6/15/2012 | 1,525,000 | 1,685,125 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 (b) | 1,720,000 | 1,771,600 |
PXRE Capital Trust I, 8.85%, 2/1/2027 | 1,090,000 | 1,070,925 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 | 1,605,000 | 1,809,637 |
Radnor Holdings Corp., 11.0%, 3/15/2010 | 1,260,000 | 1,020,600 |
Stripes Acquisition LLC, 144A, 10.625%, 12/15/2013 | 490,000 | 497,350 |
TIG Capital Holdings Trust, 144A, 8.597%, 1/15/2027 | 1,530,000 | 1,216,350 |
Triad Acquisition Corp., 144A, 11.125%, 5/1/2013 | 910,000 | 900,900 |
UGS Corp., 10.0%, 6/1/2012 | 1,215,000 | 1,324,350 |
Universal City Development, 11.75%, 4/1/2010 | 2,095,000 | 2,349,019 |
| 51,070,678 | |
Health Care 2.0% | ||
Accellent, Inc., 144A, 10.5%, 12/1/2013 | 1,245,000 | 1,276,125 |
Eszopiclone Royalty Subordinated LLC, 12.0%, 3/15/2014 | 450,000 | 450,000 |
HEALTHSOUTH Corp., 10.75%, 10/1/2008 (b) | 2,700,000 | 2,700,000 |
InSight Health Services Corp.: |
|
|
144A, 9.174%**, 11/1/2011 | 340,000 | 328,950 |
Series B, 9.875%, 11/1/2011 (b) | 458,000 | 345,790 |
Tenet Healthcare Corp., 144A, 9.25%, 2/1/2015 | 2,860,000 | 2,838,550 |
| 7,939,415 | |
Industrials 11.2% | ||
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 2,228,000 | 2,289,270 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 1,404,000 | 1,353,516 |
Allied Waste North America, Inc.: |
|
|
Series B, 5.75%, 2/15/2011 (b) | 735,000 | 696,413 |
Series B, 9.25%, 9/1/2012 | 1,750,000 | 1,894,375 |
American Color Graphics, 10.0%, 6/15/2010 | 1,340,000 | 936,325 |
Avondale Mills, Inc., 144A, 11.065%**, 7/1/2012 | 650,000 | 630,500 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Beazer Homes USA, Inc.: |
|
|
6.875%, 7/15/2015 (b) | 85,000 | 81,494 |
8.375%, 4/15/2012 | 1,110,000 | 1,154,400 |
8.625%, 5/15/2011 | 1,225,000 | 1,280,125 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 1,910,000 | 1,690,350 |
9.25%, 5/1/2021 | 430,000 | 442,900 |
Case New Holland, Inc., 9.25%, 8/1/2011 | 2,270,000 | 2,428,900 |
Cenveo Corp., 7.875%, 12/1/2013 (b) | 1,117,000 | 1,077,905 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 (b) | 1,750,000 | 1,540,000 |
Columbus McKinnon Corp., 10.0%, 8/1/2010 | 648,000 | 717,660 |
Compression Polymers Corp.: |
|
|
144A, 10.46%**, 7/1/2012 | 485,000 | 475,300 |
144A, 10.5%, 7/1/2013 | 1,575,000 | 1,527,750 |
Congoleum Corp., 8.625%, 8/1/2008* | 1,200,000 | 1,195,500 |
Cornell Companies, Inc., 10.75%, 7/1/2012 | 650,000 | 672,750 |
Dana Corp., 7.0%, 3/1/2029 (b) | 1,603,000 | 1,150,153 |
DRS Technologies, Inc., 6.875%, 11/1/2013 | 305,000 | 291,656 |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 2,730,000 | 2,907,450 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 | 1,320,000 | 1,224,730 |
8.875%, 4/1/2012 | 1,705,000 | 1,771,688 |
Kansas City Southern, 9.5%, 10/1/2008 | 2,725,000 | 2,949,812 |
Kinetek, Inc., Series D, 10.75%, 11/15/2006 | 2,190,000 | 2,102,400 |
Millennium America, Inc., 9.25%, 6/15/2008 | 2,330,000 | 2,513,488 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 1,050,000 | 1,176,000 |
Securus Technologies, Inc., 11.0%, 9/1/2011 (b) | 855,000 | 726,750 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 1,375,000 | 1,285,625 |
Technical Olympic USA, Inc.: |
|
|
7.5%, 3/15/2011 (b) | 560,000 | 499,100 |
10.375%, 7/1/2012 | 1,175,000 | 1,155,906 |
The Brickman Group Ltd., Series B, 11.75%, 12/15/2009 | 870,000 | 963,525 |
United Rentals North America, Inc., 7.0%, 2/15/2014 (b) | 1,290,000 | 1,206,150 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 810,000 | 834,300 |
| 44,844,166 | |
Information Technology 2.8% | ||
Activant Solutions, Inc.: |
|
|
144A, 10.054%**, 4/1/2010 | 55,000 | 56,719 |
10.5%, 6/15/2011 | 1,017,000 | 1,113,615 |
144A, 10.53%, 4/1/2010 | 150,000 | 154,687 |
Echelon Operating Co., 8.375%, 3/15/2010 | 934,000 | 863,950 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 200,000 | 194,000 |
144A, 6.375%, 10/15/2015 | 540,000 | 538,650 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 (b) | 2,540,000 | 2,178,050 |
Sanmina-SCI Corp.: |
|
|
6.75%, 3/1/2013 (b) | 1,615,000 | 1,536,269 |
| Principal Amount ($)(a) | Value ($) |
|
| |
10.375%, 1/15/2010 | 2,263,000 | 2,500,615 |
SS&C Technologies, Inc., 144A, 11.75%, 12/1/2013 | 365,000 | 374,125 |
SunGard Data Systems, Inc., 144A, 10.25%, 8/15/2015 | 1,590,000 | 1,590,000 |
| 11,100,680 | |
Materials 9.3% | ||
ARCO Chemical Co., 9.8%, 2/1/2020 | 3,665,000 | 4,113,962 |
Associated Materials, Inc.: |
|
|
Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 (b) | 1,615,000 | 791,350 |
9.75%, 4/15/2012 | 535,000 | 516,275 |
Caraustar Industries, Inc., 9.875%, 4/1/2011 (b) | 2,390,000 | 2,437,800 |
Constar International, Inc., 11.0%, 12/1/2012 (b) | 365,000 | 266,450 |
Dayton Superior Corp.: |
|
|
10.75%, 9/15/2008 | 930,000 | 897,450 |
13.0%, 6/15/2009 (b) | 1,545,000 | 1,166,475 |
GEO Specialty Chemicals, Inc., 12.565%**, 12/31/2009 | 2,744,000 | 2,277,520 |
Georgia-Pacific Corp.: |
|
|
8.0%, 1/15/2024 (b) | 2,290,000 | 2,186,950 |
8.875%, 5/15/2031 | 250,000 | 250,625 |
Huntsman LLC, 11.625%, 10/15/2010 | 1,992,000 | 2,268,390 |
IMC Global, Inc., 10.875%, 8/1/2013 | 2,450,000 | 2,814,437 |
International Steel Group, Inc., 6.5%, 4/15/2014 | 770,000 | 770,000 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 590,000 | 599,588 |
144A, 6.875%, 12/15/2013 | 490,000 | 494,288 |
MMI Products, Inc., Series B, 11.25%, 4/15/2007 | 2,075,000 | 1,950,500 |
Neenah Foundry Co.: |
|
|
144A, 11.0%, 9/30/2010 | 2,432,000 | 2,663,040 |
144A, 13.0%, 9/30/2013 | 1,102,460 | 1,124,509 |
NewPage Corp., 10.5%**, 5/1/2012 | 1,105,000 | 1,093,950 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 2,415,000 | 2,517,637 |
Oregon Steel Mills, Inc., 10.0%, 7/15/2009 | 645,000 | 690,150 |
Oxford Automotive, Inc., 144A, 12.0%, 10/15/2010* | 1,994,974 | 179,548 |
Pliant Corp., 11.625%, 6/15/2009 (PIK)* | 11 | 12 |
Portola Packaging, Inc., 8.25%, 2/1/2012 (b) | 705,000 | 518,175 |
Rockwood Specialties Group, Inc., 10.625%, 5/15/2011 | 300,000 | 328,875 |
TriMas Corp., 9.875%, 6/15/2012 | 2,291,000 | 1,890,075 |
UAP Holding Corp., Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012 | 505,000 | 437,456 |
United States Steel Corp., 9.75%, 5/15/2010 | 1,579,000 | 1,717,163 |
| 36,962,650 | |
Telecommunication Services 5.6% | ||
AirGate PCS, Inc., 7.9%**, 10/15/2011 | 810,000 | 836,325 |
| Principal Amount ($)(a) | Value ($) |
|
| |
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 535,000 | 580,475 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 (b) | 1,390,000 | 1,445,600 |
8.375%, 1/15/2014 (b) | 1,410,000 | 1,387,087 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 735,000 | 733,162 |
Insight Midwest LP, 9.75%, 10/1/2009 | 615,000 | 633,450 |
LCI International, Inc., 7.25%, 6/15/2007 | 1,370,000 | 1,376,850 |
Level 3 Financing, Inc., 10.75%, 10/15/2011 | 255,000 | 226,313 |
MCI, Inc., 8.735%, 5/1/2014 | 3,645,000 | 4,032,281 |
Nextel Communications, Inc., Series D, 7.375%, 8/1/2015 | 5,225,000 | 5,514,037 |
Nextel Partners, Inc., 8.125%, 7/1/2011 | 965,000 | 1,031,344 |
Qwest Corp.: |
|
|
7.25%, 9/15/2025 | 985,000 | 980,075 |
144A, 7.741%**, 6/15/2013 | 405,000 | 436,894 |
Rural Cellular Corp.: |
|
|
9.75%, 1/15/2010 | 180,000 | 181,800 |
9.875%, 2/1/2010 (b) | 180,000 | 189,900 |
144A, 10.041%**, 11/1/2012 | 180,000 | 181,350 |
SBA Telecom, Inc., Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011 | 642,000 | 595,455 |
Telex Communications Holdings, Inc., 11.5%, 10/15/2008 | 95,000 | 101,175 |
Triton PCS, Inc., 8.5%, 6/1/2013 | 155,000 | 144,150 |
Ubiquitel Operating Co., 9.875%, 3/1/2011 | 585,000 | 647,887 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 990,000 | 1,113,750 |
| 22,369,360 | |
Utilities 5.9% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 3,050,000 | 3,320,687 |
Allegheny Energy Supply Co. LLC, 144A, 8.25%, 4/15/2012 | 3,250,000 | 3,664,375 |
CMS Energy Corp.: |
|
|
8.5%, 4/15/2011 (b) | 1,505,000 | 1,638,569 |
9.875%, 10/15/2007 | 1,960,000 | 2,097,200 |
DPL, Inc., 6.875%, 9/1/2011 | 547,000 | 576,401 |
Mirant North America LLC, 144A, 7.375%, 12/31/2013 | 395,000 | 399,444 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 3,835,000 | 4,448,600 |
NorthWestern Corp., 5.875%, 11/1/2014 | 345,000 | 345,649 |
NRG Energy, Inc., 8.0%, 12/15/2013 | 2,315,000 | 2,581,225 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 4,000,000 | 4,400,000 |
| 23,472,150 | |
Total Corporate Bonds (Cost $324,073,173) | 315,586,466 | |
| ||
Foreign Bonds — US$ Denominated 12.8% | ||
Consumer Discretionary 2.0% | ||
Cablemas SA de CV, 144A, 9.375%, 11/15/2015 | 195,000 | 199,875 |
| Principal Amount ($)(a) | Value ($) |
|
| |
IESY Repository GmbH, 144A, 10.375%, 2/15/2015 | 335,000 | 348,400 |
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 2,455,000 | 2,688,225 |
Kabel Deutschland GmbH, 144A, 10.625%, 7/1/2014 | 1,470,000 | 1,547,175 |
Shaw Communications, Inc., 8.25%, 4/11/2010 | 1,010,000 | 1,084,487 |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 1,757,000 | 1,440,740 |
Vitro SA de CV, Series A, 144A, 12.75%, 11/1/2013 (b) | 740,000 | 699,300 |
| 8,008,202 | |
Energy 0.8% | ||
Gaz Capital SA, 144A, 8.625%, 4/28/2034 | 180,000 | 227,700 |
OAO Gazprom, 144A, 9.625%, 3/1/2013 (b) | 1,815,000 | 2,189,344 |
Secunda International Ltd., 12.15%**, 9/1/2012 | 698,000 | 732,900 |
| 3,149,944 | |
Financials 1.3% | ||
Conproca SA de CV, 12.0%, 6/16/2010 | 1,050,000 | 1,249,500 |
Doral Financial Corp., 5.004%**, 7/20/2007 | 2,335,000 | 2,269,723 |
Galaxy Entertainment Finance Co., Ltd., 144A, 9.875%, 12/15/2012 | 165,000 | 167,475 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 666,000 | 459,540 |
Telecom Personal SA, 10.0%, 10/15/2011 | 1,000,000 | 998,750 |
| 5,144,988 | |
Health Care 0.3% | ||
Biovail Corp., 7.875%, 4/1/2010 (b) | 1,330,000 | 1,378,213 |
Industrials 2.0% | ||
Grupo Transportacion Ferroviaria Mexicana SA de CV: |
|
|
144A, 9.375%, 5/1/2012 | 765,000 | 837,675 |
10.25%, 6/15/2007 (b) | 2,835,000 | 2,990,925 |
12.5%, 6/15/2012 | 891,000 | 1,015,740 |
J. Ray McDermott SA, 144A, 11.5%, 12/15/2013 | 1,450,000 | 1,711,000 |
LeGrand SA, 8.5%, 2/15/2025 | 750,000 | 901,875 |
Stena AB, 9.625%, 12/1/2012 | 565,000 | 613,731 |
Supercanal Holding SA, (REG S), 11.5%, 5/15/2005* | 100,000 | 15,000 |
| 8,085,946 | |
Materials 3.6% | ||
Cascades, Inc., 7.25%, 2/15/2013 (b) | 2,760,000 | 2,511,600 |
ISPAT Inland ULC, 9.75%, 4/1/2014 | 1,555,000 | 1,761,037 |
Novelis, Inc., 144A, 7.5%, 2/15/2015 | 2,845,000 | 2,652,962 |
Rhodia SA, 8.875%, 6/1/2011 | 2,185,000 | 2,239,625 |
Sino-Forest Corp., 144A, 9.125%, 8/17/2011 | 35,000 | 37,538 |
Tembec Industries, Inc.: |
|
|
8.5%, 2/1/2011 | 6,490,000 | 3,601,950 |
8.625%, 6/30/2009 | 2,970,000 | 1,692,900 |
| 14,497,612 | |
| Principal Amount ($)(a) | Value ($) |
|
| |
Sovereign Bonds 0.4% | ||
Federative Republic of Brazil, 8.875%, 10/14/2019 (b) | 340,000 | 380,970 |
Republic of Argentina: |
|
|
Zero Coupon, 12/15/2035 | 2,769,758 | 144,028 |
8.28%, 12/31/2033 (PIK) (b) | 995,063 | 828,390 |
Republic of Venezuela, 10.75%, 9/19/2013 | 25,000 | 30,750 |
| 1,384,138 | |
Telecommunication Services 2.4% | ||
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 (b) | 1,170,000 | 1,190,475 |
Embratel, Series B, 11.0%, 12/15/2008 | 572,000 | 647,790 |
Global Crossing UK Finance, 10.75%, 12/15/2014 (b) | 965,000 | 887,800 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* | 285,000 | 229,425 |
Intelsat Bermuda Ltd., 144A, 8.695%**, 1/15/2012 | 600,000 | 609,750 |
Intelsat Ltd., 5.25%, 11/1/2008 | 950,000 | 865,687 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 495,000 | 511,088 |
Mobifon Holdings BV, 12.5%, 7/31/2010 | 2,100,000 | 2,436,000 |
Nortel Networks Ltd., 6.125%, 2/15/2006 (b) | 2,050,000 | 2,050,000 |
| 9,428,015 | |
Total Foreign Bonds — US$ Denominated (Cost $53,549,667) | 51,077,058 | |
| ||
Foreign Bonds — Non US$ Denominated 1.1% | ||
Consumer Discretionary 0.3% | ||
IESY Repository GmbH, 144A, 8.75%, 2/15/2015 EUR | 1,020,000 | 1,192,483 |
Consumer Staples 0.1% | ||
Fage Dairy Industry SA, 144A, 7.5%, 1/15/2015 EUR | 585,000 | 600,815 |
Industrials 0.2% | ||
Grohe Holdings GmbH, 144A, 8.625%, 10/1/2014 EUR | 720,000 | 790,608 |
Sovereign Bonds 0.5% | ||
Republic of Argentina: |
|
|
Zero Coupon, 12/15/2035 EUR | 4,787,937 | 274,919 |
7.82%, 12/31/2033 (PIK) EUR | 1,714,060 | 1,694,445 |
| 1,969,364 | |
Total Foreign Bonds — Non US$ Denominated (Cost $4,645,067) | 4,553,270 | |
| ||
Asset Backed 0.6% | ||
Golden Tree High Yield Opportunities LP, "D1", Series 1, 13.054%, 10/31/2007 (Cost $2,500,000) | 2,500,000 | 2,560,000 |
| ||
| Principal Amount ($)(a) | Value ($) |
|
| |
Convertible Bond 0.6% | ||
Consumer Discretionary | ||
HIH Capital Ltd.: |
|
|
144A, Series DOM, 7.5%, 9/25/2006 | 1,620,000 | 1,603,800 |
144A, Series EURO, 7.5%, 9/25/2006 | 830,000 | 821,700 |
Total Convertible Bond (Cost $2,426,053) | 2,425,500 |
|
| Value ($) |
|
| |
Preferred Stocks 0.3% | ||
Paxson Communications Corp., 14.25% (PIK) (b) (Cost $1,318,018) | 135 | 1,178,919 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Loan Participations 0.7% | ||
Alliance Mortgage Cycle Loan, LIBOR plus 7.25, 12.25%**, 6/4/2010 | 737,500 | 737,500 |
Ineos Group Holdings PLC, LIBOR plus 5.15, 10.0%**, 12/16/2006 | 2,000,000 | 2,000,000 |
Total Loan Participations (Cost $2,737,500) | 2,737,500 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Dayton Superior Corp. 144A* | 95 | 0 |
DeCrane Aircraft Holdings, Inc. 144A* | 1,350 | 0 |
TravelCenters of America, Inc.* | 345 | 43 |
Total Warrants (Cost $1,409) | 43 |
|
| Value ($) |
|
| |
Other Investments 0.5% | ||
Hercules, Inc., (Bond Unit) | 1,415,000 | 1,061,250 |
IdleAire Technologies Corp. (Bond Unit), 144A | 1,355,000 | 993,500 |
SpinCycle, Inc., (Common Stock Unit)* | 9,913 | 10,904 |
SpinCycle, Inc., "F" (Common Stock Unit)* | 69 | 76 |
Total Other Investments (Cost $2,215,582) | 2,065,730 |
|
| Value ($) |
|
| |
Common Stocks 0.1% | ||
Catalina Restaurant Group, Inc.* | 3,870 | 1,935 |
GEO Specialty Chemicals, Inc.* | 24,225 | 30,281 |
GEO Specialty Chemicals, Inc., 144A* | 2,206 | 2,758 |
IMPSAT Fiber Networks, Inc.* (b) | 24,432 | 168,824 |
Intermet Corp.* | 9,137 | 106,274 |
Total Common Stocks (Cost $1,973,968) | 310,072 | |
| ||
|
| Value ($) |
|
| |
Convertible Preferred Stocks 0.1% | ||
Consumer Discretionary | ||
Paxson Communications Corp. 144A, 9.75%, (PIK) (Cost $207,250) | 30 | 207,750 |
| ||
Securities Lending Collateral 15.5% | ||
Daily Assets Fund Institutional, 4.28% (c) (d) (Cost $61,812,770) | 61,812,770 | 61,812,770 |
| ||
|
| Value ($) |
|
| |
Cash Equivalents 2.4% | ||
Cash Management QP Trust, 4.26% (e) (Cost $9,669,112) | 9,669,112 | 9,669,112 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $467,129,569)+ | 113.8 | 454,184,190 |
Other Assets and Liabilities, Net | (13.8) | (54,946,905) |
Net Assets | 100.0 | 399,237,285 |
Notes to DWS High Income VIP Portfolio of Investments
+ The cost for federal income tax purposes was $467,275,847. At December 31, 2005, net unrealized depreciation for all securities based on tax cost was $13,091,657. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $3,771,232 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $16,862,889.
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or the interest or has filed for bankruptcy. The following table represents bonds that are in default:
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 1,200,000 | USD | 1,075,002 | 1,195,500 |
Grupo Iusacell SA de CV, Series B | 10.0% | 7/15/2004 | 285,000 | USD | 182,087 | 229,425 |
Oxford Automotive, Inc. | 12.0% | 10/15/2010 | 1,994,974 | USD | 1,495,951 | 179,548 |
Pliant Corp. | 11.625% | 6/15/2009 | 11 | USD | 11 | 12 |
Supercanal Holding SA (Reg S) | 11.5% | 5/15/2005 | 100,000 | USD | 10,000 | 15,000 |
|
|
|
|
| 2,763,051 | 1,619,485 |
** 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 December 31, 2005.
(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 December 31, 2005 amounted to $60,482,960 which is 15.2% 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.
LIBOR: Represents the London InterBank Offered Rate.
PIK: Denotes that all or a portion of the income is paid in-kind.
Currency Abbreviation |
EUR Euro
|
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $395,647,687) — including $60,482,960 of securities loaned | $ 382,702,308 |
Investment in Daily Assets Fund Institutional (cost $61,812,770)* | 61,812,770 |
Investment in Cash Management QP Trust (cost $9,669,112) | 9,669,112 |
Total investments in securities, at value (cost $467,129,569) | 454,184,190 |
Cash | 939,625 |
Foreign currency, at value (cost $1,182,564) | 1,184,841 |
Receivable for investments sold | 95,391 |
Interest receivable | 8,710,791 |
Receivable for Portfolio shares sold | 1,828 |
Unrealized appreciation on forward foreign currency exchange contracts | 6,698 |
Due from Advisor | 27,576 |
Other assets | 10,305 |
Total assets | 465,161,245 |
Liabilities | |
Payable for investments purchased | 3,446,710 |
Payable for Portfolio shares redeemed | 215,705 |
Payable upon return of securities loaned | 61,812,770 |
Unrealized depreciation on forward foreign currency exchange contracts | 53,306 |
Accrued management fee | 204,429 |
Other accrued expenses and payables | 191,040 |
Total liabilities | 65,923,960 |
Net assets, at value | $ 399,237,285 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 29,781,622 |
Net unrealized appreciation (depreciation) on: Investments | (12,945,379) |
Foreign currency related transactions | (45,143) |
Accumulated net realized gain (loss) | (112,190,764) |
Paid-in capital | 494,636,949 |
Net assets, at value | $ 399,237,285 |
Class A Net Asset Value, offering and redemption price per share ($343,577,831 ÷ 41,769,600 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 8.23 |
Class B Net Asset Value, offering and redemption price per share ($55,659,454 ÷ 6,770,189 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 8.22 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $114) | $ 311,021 |
Interest | 36,013,635 |
Interest — Cash Management QP Trust | 286,898 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 312,938 |
Total Income | 36,924,492 |
Expenses: Management fee | 2,468,117 |
Custodian fees | 46,276 |
Distribution service fees (Class B) | 139,382 |
Record keeping fees (Class B) | 80,344 |
Auditing | 58,150 |
Legal | 15,503 |
Trustees' fees and expenses | 18,805 |
Reports to shareholders | 113,372 |
Other | 194,008 |
Total expenses before expense reductions | 3,133,957 |
Expense reductions | (11,015) |
Total expenses after expense reductions | 3,122,942 |
Net investment income | 33,801,550 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 1,001,061 |
Foreign currency related transactions | 280,032 |
| 1,281,093 |
Net unrealized appreciation (depreciation) during the period on: Investments | (20,276,002) |
Foreign currency related transactions | 822,389 |
| (19,453,613) |
Net gain (loss) on investment transactions | (18,172,520) |
Net increase (decrease) in net assets resulting from operations | $ 15,629,030 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income | $ 33,801,550 | $ 34,238,642 |
Net realized gain (loss) on investment transactions | 1,281,093 | 9,470,236 |
Net unrealized appreciation (depreciation) on investment transactions during the period | (19,453,613) | 5,291,376 |
Net increase (decrease) in net assets resulting from operations | 15,629,030 | 49,000,254 |
Distributions to shareholders from: Net investment income: Class A | (33,565,659) | (29,352,659) |
Class B | (5,270,980) | (3,056,845) |
Portfolio share transactions: Class A Proceeds from shares sold | 75,871,095 | 56,878,387 |
Reinvestment of distributions | 33,565,659 | 29,352,659 |
Cost of shares redeemed | (139,459,552) | (119,443,412) |
Net increase (decrease) in net assets from Class A share transactions | (30,022,798) | (33,212,366) |
Class B Proceeds from shares sold | 14,544,739 | 37,277,037 |
Reinvestment of distributions | 5,270,980 | 3,056,845 |
Cost of shares redeemed | (17,547,469) | (23,434,006) |
Net increase (decrease) in net assets from Class B share transactions | 2,268,250 | 16,899,876 |
Increase (decrease) in net assets | (50,962,157) | 278,260 |
Net assets at beginning of period | 450,199,442 | 449,921,182 |
Net assets at end of period (including undistributed net investment income of $29,781,622 and $34,372,843, respectively) | $ 399,237,285 | $ 450,199,442 |
Other Information | ||
Class A Shares outstanding at beginning of period | 44,826,321 | 48,977,744 |
Shares sold | 9,379,235 | 6,841,589 |
Shares issued to shareholders in reinvestment of distributions | 4,275,880 | 3,696,808 |
Shares redeemed | (16,711,836) | (14,689,820) |
Net increase (decrease) in Class A shares | (3,056,721) | (4,151,423) |
Shares outstanding at end of period | 41,769,600 | 44,826,321 |
Class B Shares outstanding at beginning of period | 6,474,194 | 4,421,727 |
Shares sold | 1,758,405 | 4,504,371 |
Shares issued to shareholders in reinvestment of distributions | 669,756 | 384,026 |
Shares redeemed | (2,132,166) | (2,835,930) |
Net increase (decrease) in Class B shares | 295,995 | 2,052,467 |
Shares outstanding at end of period | 6,770,189 | 6,474,194 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 8.78 | $ 8.43 | $ 7.40 | $ 8.13 | $ 9.16 |
Income (loss) from investment operations: Net investment incomeb | .68 | .67 | .67 | .75 | .84 |
Net realized and unrealized gain (loss) on investment transactions | (.38) | .31 | 1.03 | (.74) | (.59) |
Total from investment operations | .30 | .98 | 1.70 | .01 | .25 |
Less distributions from: Net investment income | (.85) | (.63) | (.67) | (.74) | (1.28) |
Net asset value, end of period | $ 8.23 | $ 8.78 | $ 8.43 | $ 7.40 | $ 8.13 |
Total Return (%) | 3.89 | 12.42 | 24.62 | (.30) | 2.63 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 344 | 393 | 413 | 329 | 335 |
Ratio of expenses (%) | .70 | .66 | .67 | .66 | .70 |
Ratio of net investment income (%) | 8.27 | 8.11 | 8.62 | 10.07 | 9.89 |
Portfolio turnover rate (%) | 100 | 162 | 165 | 138 | 77 |
a As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. b Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 8.77 | $ 8.41 | $ 7.39 | $ 7.21 |
Income (loss) from investment operations: Net investment incomeb | .65 | .64 | .64 | .31 |
Net realized and unrealized gain (loss) on investment transactions | (.39) | .32 | 1.03 | (.13) |
Total from investment operations | .26 | .96 | 1.67 | .18 |
Less distributions from: Net investment income | (.81) | (.60) | (.65) | — |
Net asset value, end of period | $ 8.22 | $ 8.77 | $ 8.41 | $ 7.39 |
Total Return (%) | 3.41 | 12.08 | 24.14 | 2.50** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 56 | 57 | 37 | 1 |
Ratio of expenses (%) | 1.10 | 1.06 | 1.06 | .92* |
Ratio of net investment income (%) | 7.87 | 7.71 | 8.23 | 8.78* |
Portfolio turnover rate (%) | 100 | 162 | 165 | 138 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Income Allocation VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Diversification does not eliminate risk. The underlying portfolios invest in individual equity and bond funds whose yields and market values fluctuate, so that your investment may be worth more or less than its original cost. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. 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 Portfolio, can decline and the investor can lose principal value. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. Please read this Portfolio's prospectus for specific details regarding its risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Income Allocation VIP from 8/16/2004 to 12/31/2005 | ||
[] DWS Income Allocation VIP — Class B [] Lehman Brothers Aggregate Bond Index | The Lehman Brothers Aggregate Bond (LBAB) Index is an unmanaged market value-weighted measure of treasury issues, corporate bond issues and mortgage securities. Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | |||
DWS Income Allocation VIP | 1-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,353 | $10,860 |
Average annual total return | 3.53% | 6.20% | |
Lehman Brothers Aggregate Bond Index | Growth of $10,000 | $10,243 | $10,369 |
Average annual total return | 2.43% | 2.75% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns begin August 31, 2004.
Information About Your Portfolio's Expenses
DWS Income Allocation VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In addition to the ongoing expenses which the Portfolio bears directly, the Portfolio's shareholders indirectly bear the expense of the Underlying DWS Portfolios in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying DWS Portfolios is based on its allocation of Underlying DWS Portfolios. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,018.80 |
Expenses Paid per $1,000* |
| $ 3.82 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,021.42 |
Expenses Paid per $1,000* |
| $ 3.82 |
Direct Portfolio Expenses and Estimated Indirect Underlying DWS Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,018.80 |
Expenses Paid per $1,000** |
| $ 6.72 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,018.55 |
Expenses Paid per $1,000** |
| $ 6.72 |
* Expenses are equal to the Portfolio's annualized expense ratio for the 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.
** Expenses are equal to the Portfolio's annualized expense ratio for the share class plus the estimated indirect expense from investing in underlying portfolios in which the Portfolio invests, 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 B |
Direct Portfolio Expense Ratio |
| 0.75% |
Estimated Indirect Expenses of Underlying DWS Portfolios |
| 0.57% |
Estimated Net Annual Portfolio and Underlying DWS Portfolios Expenses |
| 1.32% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Income Allocation VIP
The US economy posted positive growth for all four quarters of 2005, with concerns about inflation and the sustainability of the economic expansion seeming to abate as the year progressed. All major asset classes — equities, bonds and cash — had positive returns for the year, and returns of the various asset classes were generally close to one another.
For the 12 months ended December 31, 2005, DWS Income Allocation VIP had a return of 3.53% (Class B shares, unadjusted for contract charges). Since this Portfolio invests in underlying portfolios from a broad array of investment styles, performance is analyzed by comparing the Portfolio's return with the returns of indices that represent the major asset classes. As anticipated, since this Portfolio invests in a blend of equity and bond securities, its return was above that of its major bond indices but below that of the equity indices. The Portfolio slightly underperformed the average return of its Lipper Flexible Portfolio Funds category peers — most of which have a higher percentage of equities than DWS Income Allocation VIP portfolio.
The Portfolio's allocation between stocks and bonds remained close to its target of 25% equity and 75% fixed income during 2005, but with equities overweighted throughout the year. This overweight was positive for returns, as equities outperformed bonds. An especially positive factor in performance was an overweight in international equities, as foreign markets were stronger than the US market. Decisions regarding cash position had an important effect on performance of this income-oriented Portfolio for the year. In June 2005, the target cash position was increased to 15%, with a corresponding reduction in the target position in bonds. (Cash and bonds together make up the 75% target for fixed-income securities in this Portfolio.) During the first half of the year, the cash position was maintained below the target. Beginning in July, the cash position was moved above the new higher target. Both of these decisions were positive for performance, as rising short-term interest rates pushed the return on cash-equivalent securities up.
Within the predominant fixed-income portion of the Portfolio, performance of the high-yield portion was excellent, but underperformance of the much larger investment-grade bond portion resulted in net underperformance in fixed-income. In the equity portion of the Portfolio, a slight bias toward value-oriented holdings established in July detracted from performance. Among underlying funds, the small-cap and growth holdings achieved the best results relative to the equity benchmarks, the Russell 1000 and Russell 2000 Indexes.
Inna Okounkova Robert Wang
Co-Managers, Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Diversification does not eliminate risk. The underlying portfolios invest in individual equity and bond funds whose yields and market values fluctuate, so that your investment may be worth more or less than its original cost. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. 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 Portfolio, can decline and the investor can lose principal value. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. Please read this Portfolio's prospectus for specific details regarding its risk profile.
The Lipper Flexible Portfolio is a category that allocates its investments across various asset classes, including domestic common stocks, bonds, and money market instruments with a focus on total return.
The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
The Russell 2000 Index is an unmanaged capitalization-weighted measure of approximately 2,000 of the smallest companies in the Russell 3000 Index.
Equities are represented by the Russell 1000 Index, which is a price-only index of the 1,000 largest capitalized companies domiciled in the United States. Bonds are represented by the Lehman Brothers Aggregate Bond Index which measures domestic taxable investment-grade bonds. Cash is represented by the rate of return of 3-month Treasury bills.
Index returns assume reinvestment of all dividends and do not reflect fees or expenses. It is not possible to invest directly into an index or Lipper category.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Income Allocation VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Fixed Income Funds | 56% | 72% |
Equity Funds | 25% | 25% |
Cash Equivalents | 19% | 3% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 21. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Income Allocation VIP
|
| Value ($) |
|
| |
Equity Funds 24.6% | ||
DWS Blue Chip VIP "A" | 23,280 | 346,408 |
DWS Capital Growth VIP "A" | 5,401 | 91,274 |
DWS Davis Venture Value VIP "A" | 14,483 | 180,893 |
DWS Dreman High Return Equity VIP "A" | 15,459 | 207,309 |
DWS Dreman Small Cap Value VIP "A" | 11,262 | 225,011 |
DWS Global Opportunities VIP "A" | 186 | 2,794 |
DWS Growth and Income VIP "A" | 58,515 | 568,764 |
DWS International Select Equity VIP "A" | 1,475 | 19,546 |
DWS International VIP "A" | 15,698 | 170,319 |
DWS Janus Growth Opportunities VIP "A" | 31,878 | 266,503 |
DWS Large Cap Value VIP "A" | 27,062 | 427,853 |
DWS MFS Strategic Value VIP "A" | 11,367 | 121,740 |
DWS Mid Cap Growth VIP "A" | 5,258 | 59,517 |
DWS RREEF Real Estate Securities VIP "A" | 5,212 | 86,423 |
DWS Small Cap Growth VIP "A" | 10,772 | 145,200 |
DWS Templeton Foreign Value VIP "A" | 10,405 | 118,935 |
Total Equity Funds (Cost $2,852,508) | 3,038,489 | |
|
| Value ($) |
|
| |
Fixed Income Funds 55.9% | ||
DWS Core Fixed Income VIP "A" | 533,039 | 6,295,190 |
DWS Government & Agency Securities VIP "A" | 481 | 5,897 |
DWS High Income VIP "A" | 55,776 | 459,036 |
DWS Strategic Income VIP "A" | 9,984 | 114,816 |
Total Fixed Income Funds (Cost $6,906,348) | 6,874,939 | |
| ||
Cash Equivalents 19.6% | ||
Cash Management QP Trust, 4.26% (a) (Cost $2,404,189) | 2,404,189 | 2,404,189 |
|
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $12,163,045)+ | 100.1 | 12,317,617 |
Other Assets and Liabilities, Net | (0.1) | (24,198) |
Net Assets | 100.0 | 12,293,419 |
Notes to DWS Income Allocation VIP Portfolio of Investments
+ The cost for federal income tax purposes was $12,194,529. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $123,088. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $190,239 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $67,151.
(a) 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.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $9,758,856) | $ 9,913,428 |
Investment in Cash Management QP Trust (cost $2,404,189) | 2,404,189 |
Total investments in securities, at value (cost $12,163,045) | 12,317,617 |
Interest receivable | 7,716 |
Other assets | 280 |
Total assets | 12,325,613 |
Liabilities | |
Payable for Portfolio shares redeemed | 2,236 |
Other accrued expenses and payables | 29,958 |
Total liabilities | 32,194 |
Net assets, at value | $ 12,293,419 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 236,972 |
Net unrealized appreciation (depreciation) on investments | 154,572 |
Accumulated net realized gain (loss) | 18,754 |
Paid-in capital | 11,883,121 |
Net assets, at value | $ 12,293,419 |
Class B Net Asset Value, offering and redemption price per share ($12,293,419 ÷ 1,133,437 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.85 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Income distributions from Underlying Affiliated Portfolios | $ 201,733 |
Interest — Cash Management QP Trust | 41,317 |
Total Income | 243,050 |
Expenses: Management fee | 13,116 |
Custodian and accounting fees | 51,850 |
Distribution service fees (Class B) | 21,861 |
Record keeping fees (Class B) | 11,265 |
Auditing | 17,679 |
Legal | 13,832 |
Trustees' fees and expenses | 61 |
Reports to shareholders | 2,965 |
Offering costs | 587 |
Other | 702 |
Total expenses before expense reductions | 133,918 |
Expense reductions | (68,244) |
Total expenses after expense reductions | 65,674 |
Net investment income (loss) | 177,376 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gains (loss) from investments | 20,522 |
Capital gain distributions from Underlying Affiliated Portfolios | 59,010 |
| 79,532 |
Net unrealized appreciation (depreciation) during the period on investments | 127,168 |
Net gain (loss) on investment transactions | 206,700 |
Net increase (decrease) in net assets resulting from operations | $ 384,076 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Year Ended December 31, 2005 | Period Ended December 31, 2004a |
Operations: Net investment income (loss) | $ 177,376 | $ (1,559) |
Net realized gain (loss) on investment transactions | 79,532 | 4,596 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 127,168 | 27,404 |
Net increase (decrease) in net assets resulting from operations | 384,076 | 30,441 |
Distributions to shareholders from: Net realized gain: Class B | (6,405) | — |
Portfolio share transactions: Class B Proceeds from shares sold | 12,600,777 | 1,899,687 |
Reinvestment of distributions | 6,405 | — |
Cost of shares redeemed | (2,552,118) | (69,444) |
Net increase (decrease) in net assets from Class B share transactions | 10,055,064 | 1,830,243 |
Increase (decrease) in net assets | 10,432,735 | 1,860,684 |
Net assets at beginning of period | 1,860,684 | — |
Net assets at end of period (including undistributed net investment income of $236,972 and $0, respectively) | $ 12,293,419 | $ 1,860,684 |
Other Information | ||
Class B Shares outstanding at beginning of period | 177,411 | — |
Shares sold | 1,194,054 | 184,103 |
Shares issued to shareholders in reinvestment of distributions | 615 | — |
Shares redeemed | (238,643) | (6,692) |
Net increase (decrease) in Class B shares | 956,026 | 177,411 |
Shares outstanding at end of period | 1,133,437 | 177,411 |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.49 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .21 | (.02) |
Net realized and unrealized gain (loss) on investment transactions | .16 | .51 |
Total from investment operations | .37 | .49 |
Less distributions from: Net realized gains on investment transactions | (.01) | — |
Net asset value, end of period | $ 10.85 | $ 10.49 |
Total Return (%)c,d | 3.53 | 4.90** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 12 | 2 |
Ratio of expenses before expense reductions (%)e | 1.53 | 21.20* |
Ratio of expenses after expense reductions (%)e | .75 | .75* |
Ratio of net investment income (%) | 2.03 | (.63)* |
Portfolio turnover rate (%) | 46 | 37* |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have lower if the Advisor had not maintained some Underlying Portfolios' expenses. e The Portfolio invests in other DWS Portfolios and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios in which the Portfolio is invested. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS International Select Equity VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Growth of an Assumed $10,000 Investment in DWS International Select Equity VIP | ||
[] DWS International Select Equity VIP — Class A [] MSCI EAFE + EM Index | The MSCI EAFE + EM Index (Morgan Stanley Capital International Europe, Australasia, Far East + Emerging Markets Index) is an unmanaged index generally accepted as a benchmark for major overseas markets plus emerging markets. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS International Select Equity VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $11,451 | $17,579 | $11,494 | $18,682 |
Average annual total return | 14.51% | 20.69% | 2.82% | 6.45% | |
MSCI EAFE + EM Index | Growth of $10,000 | $11,641 | $19,863 | $13,635 | $18,560 |
Average annual total return | 16.41% | 25.70% | 6.40% | 6.38% | |
DWS International Select Equity VIP |
| 1-Year | 3-Year | Life of Class* | |
Class B | Growth of $10,000 |
| $11,400 | $17,385 | $15,372 |
Average annual total return |
| 14.00% | 20.24% | 13.07% | |
MSCI EAFE + EM Index | Growth of $10,000 |
| $11,641 | $19,863 | $17,097 |
Average annual total return |
| 16.41% | 25.70% | 16.56% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS International Select Equity VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,156.20 |
| $ 1,153.70 |
|
Expenses Paid per $1,000* | $ 4.73 |
| $ 6.89 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.82 |
| $ 1,018.80 |
|
Expenses Paid per $1,000* | $ 4.43 |
| $ 6.46 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS International Select Equity VIP | .87% |
| 1.27% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS International Select Equity VIP
International equities delivered strong performance in 2005 relative to most other asset classes. The MSCI EAFE Index returned 13.54% in US dollar terms and was even stronger in local currency terms with a gain of 29.00%. All developed regions reported positive returns, with Japan producing the largest gain of the countries in the MSCI EAFE Index. The Class A shares of the portfolio returned 14.51% (unadjusted for sales charges), compared to its benchmark, the MSCI EAFE + EMF Index, which returned 16.41%.
The portfolio's return was bolstered by outperformance in seven of 10 market sectors. The most notable contributors came from our stock selection in the information technology (IT) and energy sectors. In IT, the worst-performing sector in the benchmark, the portfolio's holdings delivered an aggregate return more than double that of the stocks in the benchmark. Here, Samsung Electronics Co., Ltd. and Indra Sistemas (not held in the portfolio as of December 31, 2005) produced robust results on the strength of better-than-expected earnings. Within energy, key holdings including Petroleo Brasileiro SA, Total SA and ENI SpA benefited from the rising price of oil. Additionally, the portfolio's holdings in Japanese financials such as Mizuho Financial Group Inc., Mitsui Fudosan Co., Ltd. and Credit Saison Co., Ltd. were lifted by Japan's economic recovery. On the negative side, our stock picks in the consumer discretionary sector underperformed. The largest detractor was Nokian Renkaat Oyj, a Finnish manufacturer of winter tires.
Looking ahead, management believes investors will increasingly reward those companies that can command higher prices for their products and services based on their brand, technological capability, market position or cost advantage, as well as those which have the ability to grow amid a potentially slower global macroeconomic environment.
Matthias Knerr, CFA
Manager
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The MSCI EAFE + EM Index (Morgan Stanley Capital International Europe, Australasia, Far East + Emerging Markets Index) is an unmanaged index generally accepted as a benchmark for major overseas markets plus emerging markets. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates.
The Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index is an unmanaged, capitalization-weighted index that tracks international stock performance in the 21 developed markets of Europe , Australasia and the Far East. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates.
Index returns assume reinvestment of dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS International Select Equity VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 99% | 99% |
Preferred Stocks | 1% | — |
Cash Equivalents | — | 1% |
| 100% | 100% |
Geographical Diversification (As a % of Common and Preferred Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Continental Europe | 48% | 51% |
Japan | 23% | 19% |
United Kingdom | 17% | 18% |
Asia (excluding Japan) | 6% | 12% |
Australia | 3% | — |
Latin America | 3% | — |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 30% | 27% |
Consumer Discretionary | 17% | 14% |
Energy | 11% | 10% |
Industrials | 10% | 13% |
Health Care | 9% | 8% |
Materials | 8% | 5% |
Information Technology | 6% | 8% |
Consumer Staples | 6% | 4% |
Utilities | 2% | 3% |
Telecommunications Services | 1% | 8% |
| 100% | 100% |
Asset allocation, geographical diversification and sector diversifications are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 29. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS International Select Equity VIP
|
| Value ($) |
|
| |
Common Stocks 98.5% | ||
Australia 2.6% | ||
Australia and New Zealand Banking Group Ltd. | 194,000 | 3,406,203 |
Macquarie Bank Ltd. | 67,700 | 3,382,345 |
(Cost $6,007,577) | 6,788,548 | |
Brazil 1.5% | ||
Petroleo Brasileiro SA (ADR) (Cost $2,430,879) | 53,800 | 3,834,326 |
Denmark 1.0% | ||
A P Moller — Maersk AS (Cost $2,416,836) | 254 | 2,627,864 |
Finland 5.0% | ||
Fortum Oyj | 211,000 | 3,956,878 |
Neste Oil Oyj* | 81,250 | 2,297,062 |
Nokia Oyj | 139,500 | 2,551,630 |
Nokian Renkaat Oyj | 322,400 | 4,064,991 |
(Cost $12,414,009) | 12,870,561 | |
France 11.8% | ||
BNP Paribas SA | 85,762 | 6,939,823 |
Pernod Ricard SA | 30,169 | 5,264,697 |
Schneider Electric SA | 63,131 | 5,631,718 |
Total SA | 33,088 | 8,312,485 |
Vivendi Universal SA | 136,867 | 4,287,495 |
(Cost $25,341,891) | 30,436,218 | |
Germany 13.0% | ||
Adidas-Salomon AG | 27,867 | 5,278,678 |
Allianz AG (Registered) | 38,662 | 5,856,062 |
Bayer AG | 135,912 | 5,678,380 |
Commerzbank AG | 168,803 | 5,199,989 |
E.ON AG | 52,732 | 5,455,706 |
Hypo Real Estate Holding AG | 115,744 | 6,026,549 |
(Cost $24,907,175) | 33,495,364 | |
Hong Kong 1.2% | ||
Esprit Holdings Ltd. (Cost $3,151,995) | 454,046 | 3,226,601 |
India 1.1% | ||
ICICI Bank Ltd. (ADR) (Cost $2,470,907) | 97,800 | 2,816,640 |
Ireland 3.0% | ||
Anglo Irish Bank Corp. PLC | 255,700 | 3,880,911 |
CRH PLC | 135,558 | 3,988,105 |
(Cost $5,294,132) | 7,869,016 | |
Italy 6.2% | ||
Banca Intesa SpA | 1,164,800 | 6,171,055 |
Eni SpA | 262,760 | 7,288,640 |
Safilo SpA* | 448,700 | 2,571,085 |
(Cost $12,084,226) | 16,030,780 | |
|
| Value ($) |
|
| |
Japan 22.6% | ||
AEON Co., Ltd. | 245,000 | 6,232,247 |
Canon, Inc. | 107,800 | 6,307,033 |
Credit Saison Co., Ltd. | 78,800 | 3,935,490 |
Daito Trust Construction Co., Ltd. | 99,000 | 5,120,617 |
Mitsubishi Corp. | 368,000 | 8,144,147 |
Mitsubishi UFJ Financial Group, Inc. | 396 | 5,372,451 |
Mitsui Fudosan Co., Ltd. | 341,000 | 6,924,959 |
Mizuho Financial Group, Inc. | 546 | 4,333,370 |
Sega Sammy Holdings, Inc. | 156,000 | 5,224,912 |
Toyota Motor Corp. | 128,300 | 6,657,871 |
(Cost $40,446,633) | 58,253,097 | |
Korea 3.5% | ||
POSCO (ADR) (a) | 48,700 | 2,411,137 |
Samsung Electronics Co., Ltd. (GDR), 144A | 19,990 | 6,586,705 |
(Cost $6,034,078) | 8,997,842 | |
Mexico 1.8% | ||
Fomento Economico Mexicano SA de CV (ADR) (Cost $4,289,151) | 63,300 | 4,589,883 |
Russia 1.9% | ||
Novolipetsk Steel (GDR) 144A* | 167,100 | 2,389,530 |
OAO Gazprom (ADR) (REG S) | 36,000 | 2,581,200 |
(Cost $4,920,911) | 4,970,730 | |
Switzerland 5.3% | ||
Credit Suisse Group (Registered) | 122,977 | 6,270,278 |
Roche Holding AG (Genusschein) | 48,919 | 7,345,017 |
(Cost $8,498,569) | 13,615,295 | |
United Kingdom 17.0% | ||
AstraZeneca PLC | 54,967 | 2,675,408 |
GlaxoSmithKline PLC | 342,654 | 8,660,293 |
Imperial Tobacco Group PLC | 149,930 | 4,480,674 |
Informa PLC | 355,789 | 2,655,137 |
Punch Taverns PLC | 325,498 | 4,754,567 |
Rio Tinto PLC | 105,722 | 4,829,308 |
Royal Bank of Scotland Group PLC | 249,448 | 7,532,031 |
Smiths Group PLC | 267,992 | 4,822,902 |
Vodafone Group PLC | 1,618,432 | 3,494,565 |
(Cost $38,115,931) | 43,904,885 | |
Total Common Stocks (Cost $198,824,900) | 254,327,650 | |
| ||
Preferred Stocks 1.1% | ||
Germany | ||
Fresenius Medical Care AG (Cost $2,578,202) | 31,400 | 2,931,206 |
| ||
Securities Lending Collateral 0.7% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $1,828,178) | 1,828,178 | 1,828,178 |
| ||
|
| Value ($) |
|
| |
Cash Equivalents 0.3% | ||
Cash Management QP Trust 4.26% (d) (Cost $618,079) | 618,079 | 618,079 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $203,849,359)+ | 100.6 | 259,705,113 |
Other Assets and Liabilities, Net | (0.6) | (1,478,080) |
Net Assets | 100.0 | 258,227,033 |
Notes to DWS International Select Equity VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $208,792,097. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $50,913,016. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $52,367,150 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,454,134.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $1,775,330 which is 0.7% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $201,403,102) — including $1,775,330 of securities loaned | $ 257,258,856 |
Investment in Daily Assets Fund Institutional (cost $1,828,178)* | 1,828,178 |
Investment in Cash Management QP Trust (cost $618,079) | 618,079 |
Total investments in securities, at value (cost $203,849,359) | 259,705,113 |
Cash | 481 |
Foreign currency, at value (cost $36,862) | 36,874 |
Receivable for investments sold | 421,699 |
Dividends receivable | 460,532 |
Interest receivable | 9,236 |
Receivable for Portfolio shares sold | 15,060 |
Foreign taxes recoverable | 124,836 |
Other assets | 8,157 |
Total assets | 260,781,988 |
Liabilities | |
Payable for investments purchased | 36,547 |
Payable for Portfolio shares redeemed | 374,959 |
Payable upon return of securities loaned | 1,828,178 |
Accrued management fee | 178,477 |
Other accrued expenses and payables | 136,794 |
Total liabilities | 2,554,955 |
Net assets, at value | $ 258,227,033 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 1,038,108 |
Net unrealized appreciation (depreciation) on: Investments | 55,855,754 |
Foreign currency related transactions | 6,452 |
Accumulated net realized gain (loss) | (22,678,316) |
Paid-in capital | 224,005,035 |
Net assets, at value | $ 258,227,033 |
Class A Net Asset Value, offering and redemption price per share ($195,805,580 ÷ 14,778,650 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.25 |
Class B Net Asset Value, offering and redemption price per share ($62,421,453 ÷ 4,725,198 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.21 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $733,522) | $ 5,641,648 |
Interest | 42,592 |
Interest — Cash Management QP Trust | 46,128 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 176,291 |
Total Income | 5,906,659 |
Expenses: Management fee | 1,801,345 |
Custodian fees | 137,190 |
Distribution service fees (Class B) | 133,737 |
Record keeping fees (Class B) | 72,388 |
Auditing | 59,184 |
Legal | 10,300 |
Trustees' fees and expenses | 8,701 |
Reports to shareholders | 55,856 |
Other | 22,574 |
Total expenses before expense reductions | 2,301,275 |
Expense reductions | (3,755) |
Total expenses after expense reductions | 2,297,520 |
Net investment income (loss) | 3,609,139 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 26,993,086 |
Foreign currency related transactions | (521,069) |
| 26,472,017 |
Net unrealized appreciation (depreciation) during the period on: Investments | 3,494,086 |
Foreign currency related transactions | (197,122) |
| 3,296,964 |
Net gain (loss) on investment transactions | 29,768,981 |
Net increase (decrease) in net assets resulting from operations | $ 33,378,120 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 3,609,139 | $ 2,816,586 |
Net realized gain (loss) on investment transactions | 26,472,017 | 10,653,908 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 3,296,964 | 20,514,926 |
Net increase (decrease) in net assets resulting from operations | 33,378,120 | 33,985,420 |
Distributions to shareholders from: Net investment income: Class A | (5,238,343) | (1,616,136) |
Class B | (1,218,036) | (162,336) |
Portfolio share transactions: Class A Proceeds from shares sold | 24,909,113 | 40,441,379 |
Reinvestment of distributions | 5,238,343 | 1,616,136 |
Cost of shares redeemed | (38,838,821) | (30,593,940) |
Net increase (decrease) in net assets from Class A share transactions | (8,691,365) | 11,463,575 |
Class B Proceeds from shares sold | 13,931,982 | 25,663,873 |
Reinvestment of distributions | 1,218,036 | 162,336 |
Cost of shares redeemed | (5,723,561) | (3,432,245) |
Net increase (decrease) in net assets from Class B share transactions | 9,426,457 | 22,393,964 |
Increase (decrease) in net assets | 27,656,833 | 66,064,487 |
Net assets at beginning of period | 230,570,200 | 164,505,713 |
Net assets at end of period (including undistributed net investment income of $1,038,108 and $3,173,342, respectively) | $ 258,227,033 | $ 230,570,200 |
Other Information | ||
Class A Shares outstanding at beginning of period | 15,442,740 | 14,404,846 |
Shares sold | 2,084,048 | 3,811,740 |
Shares issued to shareholders in reinvestment of distributions | 457,897 | 154,506 |
Shares redeemed | (3,206,035) | (2,928,352) |
Net increase (decrease) in Class A shares | (664,090) | 1,037,894 |
Shares outstanding at end of period | 14,778,650 | 15,442,740 |
Class B Shares outstanding at beginning of period | 3,923,204 | 1,760,419 |
Shares sold | 1,162,087 | 2,466,794 |
Shares issued to shareholders in reinvestment of distributions | 106,471 | 15,520 |
Shares redeemed | (466,564) | (319,529) |
Net increase (decrease) in Class B shares | 801,994 | 2,162,785 |
Shares outstanding at end of period | 4,725,198 | 3,923,204 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.91 | $ 10.18 | $ 7.96 | $ 9.24 | $ 14.73 |
Income (loss) from investment operations: Net investment income (loss)a | .20 | .17 | .10 | .12 | .05 |
Net realized and unrealized gain (loss) on investment transactions | 1.48 | 1.67 | 2.23 | (1.36) | (3.46) |
Total from investment operations | 1.68 | 1.84 | 2.33 | (1.24) | (3.41) |
Less distributions from: Net investment income | (.34) | (.11) | (.11) | (.04) | (.10) |
Net realized gain on investment transactions | — | — | — | — | (1.98) |
Total distributions | (.34) | (.11) | (.11) | (.04) | (2.08) |
Net asset value, end of period | $ 13.25 | $ 11.91 | $ 10.18 | $ 7.96 | $ 9.24 |
Total Return (%) | 14.51 | 18.25 | 29.83 | (13.48) | (24.43) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 196 | 184 | 147 | 120 | 121 |
Ratio of expenses (%) | .87 | .89 | .94 | .85 | .92 |
Ratio of net investment income (%) | 1.59 | 1.58 | 1.17 | 1.46 | .44 |
Portfolio turnover rate (%) | 93 | 88 | 139 | 190 | 145 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 11.88 | $ 10.15 | $ 7.94 | $ 8.98 |
Income (loss) from investment operations: Net investment income (loss)b | .15 | .13 | .06 | .02 |
Net realized and unrealized gain (loss) on investment transactions | 1.47 | 1.67 | 2.24 | (1.06) |
Total from investment operations | 1.62 | 1.80 | 2.30 | (1.04) |
Less distributions from: Net investment income | (.29) | (.07) | (.09) | — |
Net asset value, end of period | $ 13.21 | $ 11.88 | $ 10.15 | $ 7.94 |
Total Return (%) | 14.00 | 17.84 | 29.42 | (11.58)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 62 | 47 | 18 | .4 |
Ratio of expenses (%) | 1.26 | 1.28 | 1.33 | 1.11* |
Ratio of net investment income (%) | 1.20 | 1.19 | .78 | .54* |
Portfolio turnover rate (%) | 93 | 88 | 139 | 190 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Janus Growth & Income VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The Portfolio also 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 Portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods for Class B shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns for Class B shares would have been lower.
Growth of an Assumed $10,000 Investment in DWS Janus Growth & Income VIP from 10/29/1999 to 12/31/2005 | ||
[] DWS Janus Growth & Income VIP — Class A [] Russell 1000 Growth Index | The Russell 1000 Growth Index is an unmanaged index composed of common stocks of larger US companies with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
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Comparative Results | |||||
DWS Janus Growth & Income VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,211 | $15,548 | $10,880 | $11,357 |
Average annual total return | 12.11% | 15.85% | 1.70% | 2.08% | |
Russell 1000 Growth Index | Growth of $10,000 | $10,526 | $14,518 | $8,332 | $7,521 |
Average annual total return | 5.26% | 13.23% | -3.58% | -4.52% | |
DWS Janus Growth & Income VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $11,171 | $15,381 | $13,854 |
Average annual total return |
| 11.71% | 15.43% | 9.76% | |
Russell 1000 Growth Index | Growth of $10,000 |
| $10,526 | $14,518 | $13,216 |
Average annual total return |
| 5.26% | 13.23% | 8.29% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations October 29, 1999. Index returns begin October 31, 1999. Total returns would have been lower for the Life of Portfolio period for Class A shares if the Portfolio's expenses were not maintained.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Janus Growth & Income VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses for Class B shares, had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,106.10 |
| $ 1,104.70 |
|
Expenses Paid per $1,000* | $ 4.57 |
| $ 6.58 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.87 |
| $ 1,018.95 |
|
Expenses Paid per $1,000* | $ 4.38 |
| $ 6.31 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Janus Growth & Income VIP | .86% |
| 1.24% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Janus Growth & Income VIP
For the 12 months ended December 31, 2005, Class A shares of DWS Janus Growth & Income VIP returned 12.11% (Class A shares, unadjusted for contract charges). That exceeded the 5.26% return of the Portfolio's primary benchmark, the Russell 1000 Growth Index.
The largest contributors to performance were Advanced Micro Devices, Inc., Suncor Energy, Inc., UnitedHealth Group, Inc., Samsung Electronics Co., Ltd. and EnCana Corp. These five positions alone contributed more than half of the Portfolio's total positive return over 2005.
The largest detractors from performance were Tyco International, Ltd., Four Seasons Hotels, Ltd., British Sky Broadcasting Group PLC, Ltd, PETsMART, Inc. and Comcast Corp. Special "A." Tyco International, in particular, stood out. In 2004, it was the single largest positive contributor to performance; in 2005, it was the single largest detractor. Although the stock's return over the past year was a relatively modest -18.17% decline, our large position in it led to its affect on the Portfolio.
We would like to note that the top five performers gained more than the top five detractors lost by almost three to one. We view this as encouraging evidence that our best investment ideas were appropriately weighted near the top of the Portfolio.
Looking ahead, we believe that the Portfolio's relative success or failure will depend on three factors: (1) an overweight position in technology, with a shift from semiconductors to enterprise software; (2) an overweight position in energy; and (3) an underweight position in healthcare services.1
Minyoung Sohn
Portfolio Manager, Janus Capital Management LLC, Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Risk Considerations
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The Portfolio also 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 Portfolio, can decline and the investor can lose principal value. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Russell 1000 Growth Index is an unmanaged index composed of common stocks of larger US companies with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
1 "Overweight" means the Portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the Portfolio holds a lower weighting.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Janus Growth & Income VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 89% | 95% |
Convertible Preferred Stocks | 6% | — |
Cash Equivalents | 3% | 2% |
Preferred Stocks | 2% | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Information Technology | 28% | 24% |
Energy | 18% | 9% |
Health Care | 15% | 15% |
Financials | 13% | 12% |
Consumer Discretionary | 11% | 18% |
Industrials | 8% | 14% |
Consumer Staples | 7% | 8% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 38. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Janus Growth & Income VIP
|
| Value ($) |
|
| |
Common Stocks 88.2% | ||
Consumer Discretionary 10.2% | ||
Hotels Restaurants & Leisure 1.8% | ||
Four Seasons Hotels Ltd. (a) | 32,680 | 1,625,830 |
Harrah's Entertainment, Inc. | 33,685 | 2,401,404 |
4,027,234 | ||
Household Durables 1.2% | ||
Harman International Industries, Inc. | 14,615 | 1,430,078 |
NVR, Inc.* (a) | 1,785 | 1,253,070 |
2,683,148 | ||
Leisure Equipment & Products 1.0% | ||
Marvel Entertainment, Inc.* (a) | 141,887 | 2,324,109 |
Media 4.1% | ||
British Sky Broadcasting Group PLC | 444,341 | 3,795,689 |
CCE Spinco, Inc.* | 13,646 | 178,766 |
Clear Channel Communications, Inc. | 109,170 | 3,433,396 |
Comcast Corp. Special "A"* | 75,625 | 1,942,806 |
9,350,657 | ||
Specialty Retail 2.1% | ||
Best Buy Co., Inc. | 30,030 | 1,305,704 |
PETsMART, Inc. | 89,260 | 2,290,412 |
Tiffany & Co. | 33,520 | 1,283,481 |
4,879,597 | ||
Consumer Staples 7.0% | ||
Beverages 2.2% | ||
PepsiCo, Inc. | 84,067 | 4,966,678 |
Food Products 1.3% | ||
Dean Foods Co.* | 80,550 | 3,033,513 |
Household Products 2.3% | ||
Procter & Gamble Co. | 90,710 | 5,250,295 |
Tobacco 1.2% | ||
Altria Group, Inc. | 35,300 | 2,637,616 |
Energy 16.3% | ||
Energy Equipment & Services 1.1% | ||
Halliburton Co. | 38,330 | 2,374,927 |
Oil, Gas & Consumable Fuels 15.2% | ||
Amerada Hess Corp. | 23,055 | 2,923,835 |
Apache Corp. | 20,495 | 1,404,317 |
EnCana Corp. | 120,273 | 5,431,529 |
EOG Resources, Inc. | 22,200 | 1,628,814 |
ExxonMobil Corp. | 157,250 | 8,832,733 |
Kinder Morgan, Inc. | 27,420 | 2,521,269 |
Petro-Canada | 82,744 | 3,320,579 |
Suncor Energy, Inc. | 135,203 | 8,527,751 |
34,590,827 | ||
Financials 6.7% | ||
Banks 1.3% | ||
US Bancorp. | 103,887 | 3,105,182 |
|
| Value ($) |
|
| |
Diversified Financial Services 5.4% | ||
Citigroup, Inc. | 159,708 | 7,750,629 |
JPMorgan Chase & Co. | 112,325 | 4,458,180 |
12,208,809 | ||
Health Care 14.2% | ||
Biotechnology 0.9% | ||
Neurocrine Biosciences, Inc.* (a) | 32,180 | 2,018,651 |
Health Care Equipment & Supplies 0.3% | ||
Align Technology, Inc.* (a) | 120,340 | 778,600 |
Health Care Providers & Services 7.5% | ||
Aetna, Inc. | 57,570 | 5,429,427 |
Caremark Rx, Inc.* | 58,080 | 3,007,963 |
UnitedHealth Group, Inc. | 138,580 | 8,611,361 |
17,048,751 | ||
Pharmaceuticals 5.5% | ||
Eli Lilly & Co. | 34,890 | 1,974,425 |
MGI Pharma, Inc.* (a) | 50,210 | 861,604 |
Roche Holding AG (Genusschein) | 40,806 | 6,126,878 |
Sanofi-Aventis (a) | 40,103 | 3,513,367 |
12,476,274 | ||
Industrials 8.0% | ||
Aerospace & Defense 0.9% | ||
Honeywell International, Inc. | 55,540 | 2,068,865 |
Electrical Equipment 1.4% | ||
Rockwell Automation, Inc. | 52,660 | 3,115,366 |
Industrial Conglomerates 4.5% | ||
General Electric Co. | 135,415 | 4,746,296 |
Smiths Group PLC | 127,661 | 2,297,444 |
Tyco International Ltd. | 114,440 | 3,302,738 |
10,346,478 | ||
Road & Rail 1.2% | ||
Canadian National Railway Co. | 33,677 | 2,693,823 |
Information Technology 25.8% | ||
Communications Equipment 2.2% | ||
Cisco Systems, Inc.* | 163,430 | 2,797,921 |
Nokia Oyj (ADR) | 119,320 | 2,183,556 |
4,981,477 | ||
Computers & Peripherals 2.0% | ||
EMC Corp.* | 70,710 | 963,070 |
Hewlett-Packard Co. | 122,180 | 3,498,014 |
4,461,084 | ||
Electronic Equipment & Instruments 3.6% | ||
Samsung Electronics Co., Ltd. (GDR), 144A | 25,065 | 8,258,917 |
Internet Software & Services 2.3% | ||
Yahoo!, Inc.* | 132,345 | 5,185,277 |
Semiconductors & Semiconductor Equipment 9.7% | ||
Advanced Micro Devices, Inc.* | 421,735 | 12,905,091 |
Linear Technology Corp. | 60,040 | 2,165,643 |
Maxim Integrated Products, Inc. | 60,475 | 2,191,614 |
|
| Value ($) |
|
| |
NVIDIA Corp.* | 30,167 | 1,102,906 |
Spansion, Inc. "A"* | 71,810 | 999,595 |
Texas Instruments, Inc. | 82,430 | 2,643,530 |
22,008,379 | ||
Software 6.0% | ||
Electronic Arts, Inc.* | 70,480 | 3,686,809 |
Microsoft Corp. | 219,170 | 5,731,295 |
Oracle Corp.* | 350,490 | 4,279,484 |
13,697,588 | ||
Total Common Stocks (Cost $145,635,266) | 200,572,122 | |
| ||
Preferred Stocks 2.2% | ||
Financials 1.3% | ||
Diversified Financial Services | ||
Merrill Lynch & Co., Inc. Series ECA, 144A, 20.0% | 20,845 | 1,006,501 |
Merrill Lynch & Co., Inc. Series VLO, 144A, 19.04% | 16,795 | 1,812,516 |
2,819,017 | ||
Information Technology 0.9% | ||
Semiconductors & Semiconductor Equipment | ||
Samsung Electronics Co., Ltd. | 4,350 | 2,098,502 |
Total Preferred Stocks (Cost $4,282,907) | 4,917,519 | |
| ||
Convertible Preferred Stocks 5.9% | ||
Energy 1.0% | ||
Amerada Hess Corp., 7.00% | 20,700 | 2,237,256 |
|
| Value ($) |
|
| |
Financials 4.9% | ||
Lehman Brothers Holdings, Inc., 18.55% | 11,905 | 1,754,202 |
Lehman Brothers Holdings, Inc., 24.25% | 94,161 | 1,729,737 |
Morgan Stanley, 7.25% | 17,785 | 941,182 |
Morgan Stanley, 14.0%, 144A | 124,620 | 854,893 |
The Goldman Sachs Group, Inc., 8.50% | 13,885 | 1,763,367 |
The Goldman Sachs Group, Inc., Series B, 9.65% | 6,865 | 731,775 |
The Goldman Sachs Group, Inc., 9.0% | 13,770 | 1,518,432 |
The Goldman Sachs Group, Inc., Series B, 10.6% | 20,465 | 969,243 |
XL Capital Ltd., 6.50% | 43,500 | 971,790 |
11,234,621 | ||
Total Convertible Preferred Stocks (Cost $12,049,504) | 13,471,877 | |
| ||
Securities Lending Collateral 4.7% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $10,615,908) | 10,615,908 | 10,615,908 |
| ||
Cash Equivalents 3.3% | ||
Cash Management QP Trust, 4.26% (d) (Cost $7,451,616) | 7,451,616 | 7,451,616 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $180,035,201)+ | 104.3 | 237,029,042 |
Other Assets and Liabilities, Net | (4.3) | (9,726,314) |
Net Assets | 100.0 | 227,302,728 |
Notes to DWS Janus Growth & Income VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $181,443,132. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $55,585,910. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $60,613,860 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $5,027,950.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $10,118,419 which is 4.4% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $161,967,677) — including $10,118,419 of securities loaned | $ 218,961,518 |
Investments in Daily Asset Fund Institutional, (cost $10,615,908)* | 10,615,908 |
Investment in Cash Management QP Trust (cost $7,451,616) | 7,451,616 |
Total investments in securities, at value (cost $180,035,201) | 237,029,042 |
Cash | 25,207 |
Receivable for investments sold | 102,026 |
Dividends receivable | 246,101 |
Interest receivable | 18,747 |
Receivable for Portfolio shares sold | 629,501 |
Foreign taxes recoverable | 12,421 |
Net receivable on closed forward currency exchange contracts | 9,144 |
Unrealized appreciation on forward foreign currency exchange contracts | 127,880 |
Other assets | 7,008 |
Total assets | 238,207,077 |
Liabilities | |
Unrealized depreciation on forward foreign currency exchange contracts | 614 |
Payable for Portfolio shares redeemed | 57,148 |
Payable upon return of securities loaned | 10,615,908 |
Accrued management fee | 138,909 |
Other accrued expenses and payables | 91,770 |
Total liabilities | 10,904,349 |
Net assets, at value | $ 227,302,728 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 1,090,973 |
Net unrealized appreciation (depreciation) on: Investments | 56,993,841 |
Foreign currency related transactions | 135,024 |
Accumulated net realized gain (loss) | (41,970,993) |
Paid-in capital | 211,053,883 |
Net assets, at value | $ 227,302,728 |
Class A Net Asset Value, offering and redemption price per share ($194,987,493 ÷ 17,645,394 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.05 |
Class B Net Asset Value, offering and redemption price per share ($32,315,235 ÷ 2,946,169 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.97 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $66,895) | $ 2,743,446 |
Interest | 1,566 |
Interest — Cash Management QP Trust | 98,895 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 28,199 |
Total Income | 2,872,106 |
Expenses: Management fee | 1,712,762 |
Custodian and accounting fees | 87,825 |
Distribution service fees (Class B) | 70,642 |
Record keeping fees (Class B) | 42,280 |
Auditing | 45,361 |
Legal | 24,368 |
Trustees' fees and expenses | 8,295 |
Reports to shareholders | 42,166 |
Other | 19,633 |
Total expenses before expense reductions | 2,053,332 |
Expense reductions | (10,046) |
Total expenses after expense reductions | 2,043,286 |
Net investment income (loss) | 828,820 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 9,081,162 |
Foreign currency related transactions | 63,521 |
| 9,144,683 |
Net unrealized appreciation (depreciation) during the period on: Investments | 13,670,872 |
Foreign currency related transactions | 430,678 |
| 14,101,550 |
Net gain (loss) on investment transactions | 23,246,233 |
Net increase (decrease) in net assets resulting from operations | $ 24,075,053 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 828,820 | $ 601,236 |
Net realized gain (loss) on investment transactions | 9,144,683 | 8,796,510 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 14,101,550 | 12,728,179 |
Net increase (decrease) in net assets resulting from operations | 24,075,053 | 22,125,925 |
Distributions to shareholders from: Net investment income: Class A | (419,512) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 11,053,339 | 6,502,623 |
Reinvestment of distributions | 419,512 | — |
Cost of shares redeemed | (23,499,483) | (28,062,645) |
Net increase (decrease) in net assets from Class A share transactions | (12,026,632) | (21,560,022) |
Class B Proceeds from shares sold | 5,186,158 | 11,312,331 |
Cost of shares redeemed | (3,183,678) | (1,739,333) |
Net increase (decrease) in net assets from Class B share transactions | 2,002,480 | 9,572,998 |
Increase (decrease) in net assets | 13,631,389 | 10,138,901 |
Net assets at beginning of period | 213,671,339 | 203,532,438 |
Net assets at end of period (including undistributed net investment income of $1,090,973 and $618,144, respectively) | $ 227,302,728 | $ 213,671,339 |
Other Information | ||
Class A Shares outstanding at beginning of period | 18,888,001 | 21,296,089 |
Shares sold | 1,050,942 | 722,385 |
Shares issued to shareholders in reinvestment of distributions | 43,249 | — |
Shares redeemed | (2,336,798) | (3,130,473) |
Net increase (decrease) in Class A shares | (1,242,607) | (2,408,088) |
Shares outstanding at end of period | 17,645,394 | 18,888,001 |
Class B Shares outstanding at beginning of period | 2,758,937 | 1,676,008 |
Shares sold | 500,557 | 1,276,437 |
Shares redeemed | (313,325) | (193,508) |
Net increase (decrease) in Class B shares | 187,232 | 1,082,929 |
Shares outstanding at end of period | 2,946,169 | 2,758,937 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002*** | 2001a |
Selected Per Share Data | (Restated) |
| |||
Net asset value, beginning of period | $ 9.88 | $ 8.86 | $ 7.18 | $ 9.05 | $ 10.40 |
Income (loss) from investment operations: Net investment income (loss)b | .05 | .03 | .03 | .04 | .08 |
Net realized and unrealized gain (loss) on investment transactions | 1.14 | .99 | 1.71 | (1.86) | (1.36) |
Total from investment operations | 1.19 | 1.02 | 1.74 | (1.82) | (1.28) |
Less distributions from: Net investment income | (.02) | — | (.06) | (.05) | (.07) |
Net asset value, end of period | $ 11.05 | $ 9.88 | $ 8.86 | $ 7.18 | $ 9.05 |
Total Return (%) | 12.11 | 11.51 | 24.37 | (20.22) | (12.28) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 195 | 187 | 189 | 167 | 179 |
Ratio of expenses (%) | .92 | 1.06 | 1.07 | 1.04 | 1.05 |
Ratio of net investment income (loss) (%) | .45 | .34 | .40 | .54 | .90 |
Portfolio turnover rate (%) | 32 | 52 | 46 | 57 | 48 |
a As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. b Based on average shares outstanding during the period. *** Subsequent to December 31, 2002, these numbers have been restated to reflect an adjustment to the value of a security as of December 31, 2002. The effect of this adjustment for the year ended December 31, 2002 was to increase the net asset value per share by $0.03. The total return was also adjusted from -20.56% to -20.22% in accordance with this change. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a*** |
Selected Per Share Data | (Restated) | |||
Net asset value, beginning of period | $ 9.82 | $ 8.84 | $ 7.17 | $ 7.96 |
Income (loss) from investment operations: Net investment income (loss)b | .01 | (.01) | .00c | .02 |
Net realized and unrealized gain (loss) on investment transactions | 1.14 | .99 | 1.71 | (.81) |
Total from investment operations | 1.15 | .98 | 1.71 | (.79) |
Less distributions from: Net investment income | — | — | (.04) | — |
Net asset value, end of period | $ 10.97 | $ 9.82 | $ 8.84 | $ 7.17 |
Total Return (%) | 11.71d | 11.09 | 23.94 | (9.92)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 32 | 27 | 15 | .4 |
Ratio of expenses before expense reductions (%) | 1.32 | 1.44 | 1.47 | 1.29* |
Ratio of expenses after expense reductions (%) | 1.30 | 1.44 | 1.47 | 1.29* |
Ratio of net investment income (loss) (%) | .07 | (.04) | (.01) | .48* |
Portfolio turnover rate (%) | 32 | 52 | 46 | 57 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Amount is less than $.005 per share. d Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized *** Subsequent to December 31, 2002, these numbers have been restated to reflect an adjustment to the value of a security as of December 31, 2002. The effect of this adjustment for the year ended December 31, 2002 was to increase the net asset value per share by $0.03. The total return was also adjusted from -10.30% to -9.92% in accordance with this change. |
Performance Summary December 31, 2005
DWS Janus Growth Opportunities VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions.The Portfolio also 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 bonds and thus the value of the bond fund can decline and the investor can lose principal value. The Portfolio may at times have significant exposure to certain industry groups, which may react similarly to market developments (resulting in greater price volatility). The Portfolio also may have significant exposure to foreign markets (which include risks such as currency fluctuation and political uncertainty). Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for the 5-year and Life of Portfolio for Class A shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Janus Growth Opportunities VIP from 10/29/1999 to 12/31/2005 | ||
[] DWS Janus Growth Opportunities VIP — Class A [] Russell 1000 Growth Index | The Russell 1000 Growth Index is an unmanaged index composed of common stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Janus Growth Opportunities VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,767 | $15,362 | $8,133 | $8,388 |
Average annual total return | 7.67% | 15.39% | -4.05% | -2.81% | |
Russell 1000 Growth Index | Growth of $10,000 | $10,526 | $14,518 | $8.332 | $7,521 |
Average annual total return | 5.26% | 13.23% | -3.58% | -4.52% | |
DWS Janus Growth Opportunities VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,712 | $15,174 | $14,089 |
Average annual total return |
| 7.12% | 14.91% | 10.29% | |
Russell 1000 Growth Index | Growth of $10,000 |
| $10,526 | $14,518 | $13,216 |
Average annual total return |
| 5.26% | 13.23% | 8.29% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on October 29, 1999. Index returns begin on October 31, 1999.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Janus Growth Opportunities VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,082.90 |
| $ 1,081.00 |
|
Expenses Paid per $1,000* | $ 4.46 |
| $ 6.61 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.92 |
| $ 1,018.85 |
|
Expenses Paid per $1,000* | $ 4.33 |
| $ 6.41 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Janus Growth Opportunities VIP | .85% |
| 1.26% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Janus Growth Opportunities VIP
For the 12 months ended December 31, 2005, Class A shares (unadjusted for contract charges) of DWS Janus Growth Opportunities VIP returned 7.67%, compared to 5.26% for the portfolio's benchmark, the Russell 1000 Growth Index.
The portfolio's top contributors to performance during the period included healthcare, electronics and semiconductor stocks. UnitedHealth Group, Inc., an HMO operator and insurer, was our top contributor during the period. Other top performers included global communications leader Motorola, Inc. and chipmaker Texas Instruments, Inc.; we trimmed our positions in those stocks and booked profits as valuations climbed and risk/reward profiles diminished. Rio Tinto PLC, a diversified UK-based metals and minerals mining company, also performed well.
The portfolio's top detractors from performance during the period were holdings within the consumer discretionary sector. Some stocks in the consumer discretionary sector lagged when gasoline prices pushed past $3 a gallon following Hurricane Katrina. For example, fears that future vacation plans would be curtailed combined with increased fuel expenses weighed on cruise line operator Royal Caribbean Cruises, so we decided to sell our position in the stock (albeit at a profit). However, our largest detractor from performance during the period was Lexmark International, a computer printer manufacturer with minimal performance correlation to Hurricane Katrina. Many investors believed Lexmark would be negatively affected by Dell's potentially slashing prices to better compete with Hewlett Packard; this prompted us to liquidate our Lexmark position.
Going forward, we will continue to focus on companies that we believe can continue to post good growth rates — even in a slower economy — as well as companies offering a limited downside regardless of macroeconomic developments.
Marc Pinto
Portfolio Manager
Janus Capital Management LLC, Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividends and capital gain distribution, 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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions.The Portfolio also 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 bonds and thus the value of the bond fund can decline and the investor can lose principal value. The Portfolio may at times have significant exposure to certain industry groups, which may react similarly to market developments (resulting in greater price volatility). The Portfolio also may have significant exposure to foreign markets (which include risks such as currency fluctuation and political uncertainty). Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Russell 1000 Growth Index is an unmanaged index composed of common stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Janus Growth Opportunities VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 99% | 96% |
Cash Equivalents | 1% | 4% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Information Technology | 27% | 25% |
Health Care | 21% | 21% |
Consumer Discretionary | 19% | 20% |
Financials | 8% | 10% |
Industrials | 8% | 13% |
Energy | 7% | 5% |
Consumer Staples | 6% | 4% |
Materials | 2% | 2% |
Telecommunication Services | 2% | — |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 47. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Janus Growth Opportunities VIP
|
Shares | Value ($) |
|
| |
Common Stocks 98.6% | ||
Consumer Discretionary 18.9% | ||
Automobiles 1.8% | ||
Harley-Davidson, Inc. | 53,440 | 2,751,626 |
Diversified Consumer Services 1.3% | ||
Apollo Group, Inc. "A"* | 32,450 | 1,961,927 |
Hotels Restaurants & Leisure 2.3% | ||
Starbucks Corp.* | 120,550 | 3,617,705 |
Internet & Catalog Retail 3.3% | ||
Expedia, Inc.* | 96,625 | 2,315,135 |
IAC/InterActiveCorp.* | 98,550 | 2,789,950 |
5,105,085 | ||
Media 0.7% | ||
XM Satellite Radio Holdings, Inc. "A"* | 41,675 | 1,136,894 |
Specialty Retail 6.9% | ||
Home Depot, Inc. | 196,440 | 7,951,891 |
Staples, Inc. | 123,395 | 2,802,301 |
10,754,192 | ||
Textiles, Apparel & Luxury Goods 2.6% | ||
NIKE, Inc. "B" | 46,385 | 4,025,754 |
Consumer Staples 6.2% | ||
Beverages 3.4% | ||
PepsiCo, Inc. | 89,355 | 5,279,093 |
Household Products 2.8% | ||
Procter & Gamble Co. | 74,960 | 4,338,685 |
Energy 6.5% | ||
Energy Equipment & Services 1.3% | ||
Halliburton Co. | 32,540 | 2,016,178 |
Oil, Gas & Consumable Fuels 5.2% | ||
ExxonMobil Corp. | 60,495 | 3,398,004 |
Occidental Petroleum Corp. | 58,330 | 4,659,401 |
8,057,405 | ||
Financials 7.5% | ||
Capital Markets 1.2% | ||
Morgan Stanley | 33,710 | 1,912,705 |
Consumer Finance 3.9% | ||
American Express Co. | 117,540 | 6,048,609 |
Diversified Financial Services 2.4% | ||
Fannie Mae | 77,385 | 3,777,162 |
Health Care 20.7% | ||
Biotechnology 4.2% | ||
Amgen, Inc.* | 50,660 | 3,995,048 |
Genentech, Inc.* | 27,300 | 2,525,250 |
6,520,298 | ||
Health Care Equipment & Supplies 6.2% | ||
Biomet, Inc. | 53,540 | 1,957,958 |
Medtronic, Inc. | 133,030 | 7,658,537 |
9,616,495 | ||
Health Care Providers & Services 6.2% | ||
Caremark Rx, Inc.* | 51,280 | 2,655,791 |
|
Shares | Value ($) |
|
| |
UnitedHealth Group, Inc. | 111,890 | 6,952,845 |
9,608,636 | ||
Pharmaceuticals 4.1% | ||
Eli Lilly & Co. | 31,855 | 1,802,674 |
Sanofi-Aventis (ADR) | 102,470 | 4,498,433 |
6,301,107 | ||
Industrials 7.5% | ||
Air Freight & Logistics 1.4% | ||
FedEx Corp. | 20,685 | 2,138,622 |
Industrial Conglomerates 6.1% | ||
General Electric Co. | 268,165 | 9,399,183 |
Information Technology 27.2% | ||
Communications Equipment 6.3% | ||
Cisco Systems, Inc.* | 133,250 | 2,281,240 |
Motorola, Inc. | 197,715 | 4,466,382 |
QUALCOMM, Inc. | 69,175 | 2,980,059 |
9,727,681 | ||
Computers & Peripherals 5.1% | ||
Dell, Inc.* | 65,705 | 1,970,493 |
Research In Motion Ltd.* | 89,925 | 5,935,949 |
7,906,442 | ||
Electronic Equipment & Instruments 2.8% | ||
Samsung Electronics Co., Ltd. (GDR), 144A | 13,094 | 4,314,473 |
Internet Software & Services 4.5% | ||
Yahoo!, Inc.* | 180,045 | 7,054,163 |
Semiconductors & Semiconductor Equipment 4.2% | ||
Advanced Micro Devices, Inc.* | 108,475 | 3,319,335 |
Texas Instruments, Inc. | 101,795 | 3,264,566 |
6,583,901 | ||
Software 4.3% | ||
Microsoft Corp. | 172,440 | 4,509,306 |
SAP AG (ADR) | 46,280 | 2,085,840 |
6,595,146 | ||
Materials 2.5% | ||
Metals & Mining | ||
Rio Tinto PLC (ADR) | 21,085 | 3,854,127 |
Telecommunication Services 1.6% | ||
Wireless Telecommunication Services | ||
China Mobile (Hong Kong) Ltd. (ADR) (a) | 102,815 | 2,471,673 |
Total Common Stocks (Cost $124,879,602) | 152,874,967 | |
| ||
Securities Lending Collateral 1.0% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $1,494,900) | 1,494,900 | 1,494,900 |
| ||
Cash Equivalents 1.4% | ||
Cash Management QP Trust, 4.26% (d) (Cost $2,163,298) | 2,163,298 | 2,163,298 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $128,537,800)+ | 101.0 | 156,533,165 |
Other Assets and Liabilities, Net | (1.0) | (1,576,371) |
Net Assets | 100.0 | 154,956,794 |
Notes to DWS Janus Growth Opportunities VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $129,100,014. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $27,433,151. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $28,436,377 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,003,226.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $1,452,016 which is 0.9% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $124,879,602) — including $1,452,016 of securities loaned | $ 152,874,967 |
Investment in Daily Assets Fund Institutional (cost $1,494,900)* | 1,494,900 |
Investment in Cash Management QP Trust (cost $2,163,298) | 2,163,298 |
Total investments in securities, at value (cost $128,537,800) | 156,533,165 |
Dividends receivable | 163,090 |
Interest receivable | 13,661 |
Foreign taxes recoverable | 51 |
Other assets | 3,969 |
Total assets | 156,713,936 |
Liabilities | |
Payable for Portfolio shares redeemed | 91,962 |
Payable upon return of securities loaned | 1,494,900 |
Accrued management fee | 96,737 |
Other accrued expenses and payables | 73,543 |
Total liabilities | 1,757,142 |
Net assets, at value | $ 154,956,794 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 66,503 |
Net unrealized appreciation (depreciation) on investments | 27,995,365 |
Accumulated net realized gain (loss) | (85,228,798) |
Paid-in capital | 212,123,724 |
Net assets, at value | $ 154,956,794 |
Class A Net Asset Value, offering and redemption price per share ($144,116,012 ÷ 17,245,579 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 8.36 |
Class B Net Asset Value, offering and redemption price per share ($10,840,782 ÷ 1,310,790 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 8.27 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $20,719) | $ 1,320,699 |
Interest — Cash Management QP Trust | 181,005 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 13,009 |
Total Income | 1,514,713 |
Expenses: Management fee | 1,202,829 |
Custodian and accounting fees | 69,116 |
Distribution service fees (Class B) | 22,312 |
Record keeping fees (Class B) | 13,364 |
Auditing | 45,765 |
Legal | 13,572 |
Trustees' fees and expenses | 5,973 |
Reports to shareholders | 24,012 |
Total expenses before expense reductions | 1,396,943 |
Expense reductions | (2,858) |
Total expenses after expense reductions | 1,394,085 |
Net investment income (loss) | 120,628 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 9,044,548 |
Net unrealized appreciation (depreciation) during the period on investments | 2,157,957 |
Net gain (loss) on investment transactions | 11,202,505 |
Net increase (decrease) in net assets resulting from operations | $ 11,323,133 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 120,628 | $ 390,838 |
Net realized gain (loss) on investment transactions | 9,044,548 | 2,198,797 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 2,157,957 | 13,452,735 |
Net increase (decrease) in net assets resulting from operations | 11,323,133 | 16,042,370 |
Distributions to shareholders from: Net investment income: Class A | (444,341) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 21,843,431 | 2,971,778 |
Reinvestment of distributions | 444,341 | — |
Cost of shares redeemed | (20,249,635) | (18,214,445) |
Net increase (decrease) in net assets from Class A share transactions | 2,038,137 | (15,242,667) |
Class B Proceeds from shares sold | 5,338,867 | 2,248,669 |
Cost of shares redeemed | (3,553,140) | (382,089) |
Net increase (decrease) in net assets from Class B share transactions | 1,785,727 | 1,866,580 |
Increase (decrease) in net assets | 14,702,656 | 2,666,283 |
Net assets at beginning of period | 140,254,138 | 137,587,855 |
Net assets at end of period (including undistributed net investment income of $66,503 and $390,216, respectively) | $ 154,956,794 | $ 140,254,138 |
Other Information | ||
Class A Shares outstanding at beginning of period | 16,930,734 | 19,085,611 |
Shares sold | 2,847,686 | 413,736 |
Shares issued to shareholders in reinvestment of distributions | 59,088 | — |
Shares redeemed | (2,591,929) | (2,568,613) |
Net increase (decrease) in Class A shares | 314,845 | (2,154,877) |
Shares outstanding at end of period | 17,245,579 | 16,930,734 |
Class B Shares outstanding at beginning of period | 1,081,562 | 812,791 |
Shares sold | 672,131 | 322,383 |
Shares redeemed | (442,903) | (53,612) |
Net increase (decrease) in Class B shares | 229,228 | 268,771 |
Shares outstanding at end of period | 1,310,790 | 1,081,562 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 7.79 | $ 6.92 | $ 5.45 | $ 7.86 | $ 10.31 |
Income (loss) from investment operations: Net investment income (loss)a | .01 | .02 | (.01) | (.01) | (.03) |
Net realized and unrealized gain (loss) on investment transactions | .59 | .85 | 1.48 | (2.40) | (2.42) |
Total from investment operations | .60 | .87 | 1.47 | (2.41) | (2.45) |
Less distributions from: Net investment income | (.03) | — | — | — | — |
Net asset value, end of period | $ 8.36 | $ 7.79 | $ 6.92 | $ 5.45 | $ 7.86 |
Total Return (%) | 7.67 | 12.57 | 26.97 | (30.53) | (23.76) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 144 | 132 | 132 | 118 | 164 |
Ratio of expenses before expense reductions (%) | .92 | 1.06 | 1.07 | 1.01 | 1.11 |
Ratio of expenses after expense reductions (%) | .92 | 1.06 | 1.07 | 1.01 | 1.10 |
Ratio of net investment income (%) | .10 | .31 | (.17) | (.10) | (.31) |
Portfolio turnover rate (%) | 46 | 58 | 50 | 48 | 34 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 7.72 | $ 6.88 | $ 5.44 | $ 5.87 |
Income (loss) from investment operations: Net investment income (loss)b | (.02) | (.01) | (.04) | (.01) |
Net realized and unrealized gain (loss) on investment transactions | .57 | .85 | 1.48 | (.42) |
Total from investment operations | .55 | .84 | 1.44 | (.43) |
Net asset value, end of period | $ 8.27 | $ 7.72 | $ 6.88 | $ 5.44 |
Total Return (%) | 7.12 | 12.21 | 26.47 | (7.33)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 11 | 8 | 6 | .2 |
Ratio of expenses (%) | 1.31 | 1.45 | 1.46 | 1.29* |
Ratio of net investment income (%) | (.29) | (.08) | (.56) | (.49)* |
Portfolio turnover rate (%) | 46 | 58 | 50 | 48 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Large Cap Value VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market risk. It focuses its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Large Cap Value VIP from 5/1/1996 to 12/31/2005 | ||
[] DWS Large Cap Value VIP — Class A [] Russell 1000 Value Index | The Russell 1000 Value Index is an unmanaged index, which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Large Cap Value VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,197 | $14,882 | $12,888 | $24,523 |
Average annual total return | 1.97% | 14.17% | 5.21% | 9.73% | |
Russell 1000 Value Index | Growth of $10,000 | $10,705 | $16,216 | $12,933 | $26,634 |
Average annual total return | 7.05% | 17.49% | 5.28% | 10.67% | |
DWS Large Cap Value VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,158 | $14,723 | $12,947 |
Average annual total return |
| 1.58% | 13.76% | 7.66% | |
Russell 1000 Value Index | Growth of $10,000 |
| $10,705 | $16,216 | $14,386 |
Average annual total return |
| 7.05% | 17.49% | 10.95% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1996. Index returns begin April 30, 1996.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Large Cap Value VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,038.80 |
| $ 1,036.80 |
|
Expenses Paid per $1,000* | $ 4.11 |
| $ 6.26 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.17 |
| $ 1,019.06 |
|
Expenses Paid per $1,000* | $ 4.08 |
| $ 6.21 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Large Cap Value VIP | .80% |
| 1.22% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Large Cap Value VIP
Even with positive economic fundamentals in 2005, major US indices disappointed with low single digit returns. The return for the Portfolio's Class A shares unadjusted for contract charges was 1.97% and has been hurt by our philosophical commitment to large-cap, high-quality securities that exemplify our approach. In the fourth quarter, Portfolio results were better and it may be the beginning of the return to our historic pattern of results as our Portfolio fundamentals, valuations and risk/rewards indicate unrealized potential for our holdings.
While the Portfolio benefited from the strong performance of its energy holdings, our focus on large integrated oil firms which, in our view, were more attractive in lieu of oil service companies held back relative results. At the sector level, we gained an advantage over the benchmark by prudently underweighing the poor-performing telecommunications sector. The greatest sector contributor was telecommunications where we had an underweight in this poor performing group. We believe there are better opportunities available than the telecom group, which we feel tends have weak balance sheets and questionable long-term earnings growth.
In 2006, as widely reported in the media and accepted by the industry, US economic fundamentals are expected to exhibit continued growth including strong consumer spending, employment, S&P profits, low interest rates and inflation. Investors may continue to be cautious and influenced by headlines or speculation keeping volatility high.
Finally, the Portfolio continues to have strong fundamentals, superior quality, low P/E ratio, and high dividend yield and earnings growth. Our risk/reward profile continues to suggest better than market opportunities going forward. We are confident in our investment approach and the strength of our process and holdings. We believe that as in the past the historic consistency and strength of the approach will be rewarded as it has been over time. Patience and discipline which enables reversion to the mean to work are the keys to success long-term.
Thomas F. Sassi Steve Scrudato
Lead Manager Portfolio Manager
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The Portfolio is subject to stock market risk. It focuses its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Large Cap Value VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 95% | 99% |
Cash Equivalents | 5% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 25% | 31% |
Information Technology | 20% | 15% |
Energy | 16% | 7% |
Industrials | 9% | 11% |
Health Care | 7% | 11% |
Consumer Discretionary | 7% | 9% |
Consumer Staples | 6% | 7% |
Utilities | 4% | 1% |
Materials | 3% | 7% |
Telecommunication Services | 3% | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 56. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Large Cap Value VIP
|
| Value ($) |
|
| |
Common Stocks 95.1% | ||
Consumer Discretionary 6.3% | ||
Multiline Retail 1.9% | ||
Federated Department Stores, Inc. | 28,700 | 1,903,671 |
Kohl's Corp.* | 79,200 | 3,849,120 |
| 5,752,791 | |
Specialty Retail 4.4% | ||
Limited Brands, Inc. | 150,500 | 3,363,675 |
Lowe's Companies, Inc. | 60,800 | 4,052,928 |
TJX Companies, Inc. | 270,400 | 6,281,392 |
| 13,697,995 | |
Consumer Staples 5.6% | ||
Food Products 2.6% | ||
General Mills, Inc. | 90,500 | 4,463,460 |
Unilever NV (NY Shares) | 52,500 | 3,604,125 |
| 8,067,585 | |
Household Products 3.0% | ||
Colgate-Palmolive Co. | 91,900 | 5,040,715 |
Kimberly-Clark Corp. | 70,300 | 4,193,395 |
| 9,234,110 | |
Energy 14.8% | ||
Energy Equipment & Services 2.1% | ||
Baker Hughes, Inc. | 53,700 | 3,263,886 |
Halliburton Co. | 49,000 | 3,036,040 |
| 6,299,926 | |
Oil, Gas & Consumable Fuels 12.7% | ||
BP PLC (ADR) | 81,044 | 5,204,646 |
Chevron Corp. | 135,300 | 7,680,981 |
ConocoPhillips | 63,200 | 3,676,976 |
ExxonMobil Corp. | 214,700 | 12,059,699 |
Marathon Oil Corp. | 74,100 | 4,517,877 |
PetroChina Co., Ltd. (ADR) (a) | 17,300 | 1,417,908 |
Royal Dutch Shell PLC "A" (ADR) | 75,900 | 4,667,091 |
| 39,225,178 | |
Financials 23.9% | ||
Banks 11.8% | ||
AmSouth Bancorp. | 154,500 | 4,049,445 |
Bank of America Corp. | 205,426 | 9,480,410 |
PNC Financial Services Group, Inc. | 55,500 | 3,431,565 |
SunTrust Banks, Inc. | 32,300 | 2,350,148 |
US Bancorp. | 99,500 | 2,974,055 |
Wachovia Corp. | 136,000 | 7,188,960 |
Wells Fargo & Co. | 112,800 | 7,087,224 |
| 36,561,807 | |
Capital Markets 3.0% | ||
Bear Stearns Companies, Inc. | 27,300 | 3,153,969 |
Merrill Lynch & Co., Inc. | 42,200 | 2,858,206 |
Morgan Stanley | 58,700 | 3,330,638 |
| 9,342,813 | |
Diversified Financial Services 6.2% | ||
Citigroup, Inc. | 141,000 | 6,842,730 |
Freddie Mac | 59,700 | 3,901,395 |
|
| Value ($) |
|
| |
JPMorgan Chase & Co. | 207,800 | 8,247,582 |
| 18,991,707 | |
Insurance 2.9% | ||
AFLAC, Inc. | 66,500 | 3,086,930 |
American International Group, Inc. | 85,500 | 5,833,665 |
| 8,920,595 | |
Health Care 7.1% | ||
Health Care Equipment & Supplies 1.7% | ||
Baxter International, Inc. | 134,500 | 5,063,925 |
Pharmaceuticals 5.4% | ||
Abbott Laboratories | 172,300 | 6,793,789 |
Johnson & Johnson | 79,900 | 4,801,990 |
Mylan Laboratories, Inc. | 81,300 | 1,622,748 |
Wyeth | 75,400 | 3,473,678 |
| 16,692,205 | |
Industrials 8.8% | ||
Aerospace & Defense 2.9% | ||
Honeywell International, Inc. | 65,800 | 2,451,050 |
L-3 Communications Holdings, Inc. | 52,900 | 3,933,115 |
United Technologies Corp. | 44,800 | 2,504,768 |
| 8,888,933 | |
Air Freight & Logistics 1.2% | ||
FedEx Corp. | 36,900 | 3,815,091 |
Commercial Services & Supplies 0.5% | ||
Pitney Bowes, Inc. | 35,400 | 1,495,650 |
Industrial Conglomerates 1.7% | ||
General Electric Co. | 153,600 | 5,383,680 |
Machinery 2.5% | ||
Dover Corp. | 85,100 | 3,445,699 |
Ingersoll-Rand Co., Ltd. "A" | 105,400 | 4,254,998 |
| 7,700,697 | |
Information Technology 18.7% | ||
Communications Equipment 4.2% | ||
Cisco Systems, Inc.* | 380,900 | 6,521,008 |
Nokia Oyj (ADR) | 356,400 | 6,522,120 |
| 13,043,128 | |
Computers & Peripherals 3.6% | ||
Hewlett-Packard Co. | 193,197 | 5,531,230 |
International Business Machines Corp. | 67,600 | 5,556,720 |
| 11,087,950 | |
IT Consulting & Services 3.0% | ||
Automatic Data Processing, Inc. | 115,600 | 5,304,884 |
First Data Corp. | 92,000 | 3,956,920 |
| 9,261,804 | |
Semiconductors & Semiconductor Equipment 6.4% | ||
Applied Materials, Inc. | 380,100 | 6,818,994 |
Intel Corp. | 380,700 | 9,502,272 |
Texas Instruments, Inc. | 104,100 | 3,338,487 |
| 19,659,753 | |
Software 1.5% | ||
Microsoft Corp. | 182,000 | 4,759,300 |
|
| Value ($) |
|
| |
Materials 3.1% | ||
Chemicals 2.1% | ||
Air Products & Chemicals, Inc. | 38,600 | 2,284,734 |
E.I. du Pont de Nemours & Co. | 98,600 | 4,190,500 |
| 6,475,234 | |
Containers & Packaging 1.0% | ||
Sonoco Products Co. | 108,500 | 3,189,900 |
Telecommunication Services 2.9% | ||
Diversified Telecommunication Services | ||
AT&T, Inc. | 174,700 | 4,278,403 |
Verizon Communications, Inc. | 155,400 | 4,680,648 |
| 8,959,051 | |
Utilities 3.9% | ||
Electric Utilities | ||
FPL Group, Inc. | 77,100 | 3,204,276 |
Progress Energy, Inc. | 69,800 | 3,065,616 |
Southern Co. | 162,100 | 5,597,313 |
| 11,867,205 | |
Total Common Stocks (Cost $253,272,189) | 293,438,013 | |
|
| Value ($) |
|
| |
Securities Lending Collateral 0.3% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $837,500) | 837,500 | 837,500 |
| ||
Cash Equivalents 5.1% | ||
Cash Management QP Trust, 4.26% (d) (Cost $15,574,214) | 15,574,214 | 15,574,214 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $269,683,903)+ | 100.5 | 309,849,727 |
Other Assets and Liabilities, Net | (0.5) | (1,410,288) |
Net Assets | 100.0 | 308,439,439 |
* Non-income producing security.
+ The cost for federal income tax purposes was $271,423,513. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $38,426,214. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $40,528,084 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,101,870.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $819,600 which is 0.3% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $253,272,189) — including $819,600 of securities loaned | $ 293,438,013 |
Investment in Daily Assets Fund Institutional (cost $837,500)* | 837,500 |
Investment in Cash Management QP Trust (cost $15,574,214) | 15,574,214 |
Total investments in securities, at value (cost $269,683,903) | 309,849,727 |
Dividends receivable | 288,188 |
Interest receivable | 65,415 |
Receivable for Portfolio shares sold | 455,993 |
Foreign taxes recoverable | 5,246 |
Other assets | 9,748 |
Total assets | 310,674,317 |
Liabilities | |
Payable for Portfolio shares redeemed | 307,695 |
Payable for investments purchased | 799,024 |
Payable upon return of securities loaned | 837,500 |
Accrued management fee | 194,799 |
Other accrued expenses and payables | 95,860 |
Total liabilities | 2,234,878 |
Net assets, at value | $ 308,439,439 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 4,759,802 |
Net unrealized appreciation (depreciation) on investments | 40,165,824 |
Accumulated net realized gain (loss) | (15,524,916) |
Paid-in capital | 279,038,729 |
Net assets, at value | $ 308,439,439 |
Class A Net Asset Value, offering and redemption price per share ($267,956,008 ÷ 16,949,748 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 15.81 |
Class B Net Asset Value, offering and redemption price per share ($40,483,431 ÷ 2,564,460 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 15.79 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $96,906) | $ 7,036,089 |
Interest — Cash Management QP Trust | 437,331 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 31,589 |
Total Income | 7,505,009 |
Expenses: Management fee | 2,307,055 |
Custodian fees | 15,679 |
Distribution service fees (Class B) | 100,801 |
Record keeping fees (Class B) | 61,577 |
Auditing | 43,852 |
Legal | 13,101 |
Trustees' fees and expenses | 13,203 |
Reports to shareholders | 61,778 |
Other | 14,777 |
Total expenses before expense reductions | 2,631,823 |
Expense reductions | (17,741) |
Total expenses after expense reductions | 2,614,082 |
Net investment income (loss) | 4,890,927 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 11,041,062 |
Net unrealized appreciation (depreciation) during the period on investments | (10,143,924) |
Net gain (loss) on investment transactions | 897,138 |
Net increase (decrease) in net assets resulting from operations | $ 5,788,065 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 4,890,927 | $ 5,323,805 |
Net realized gain (loss) on investment transactions | 11,041,062 | 13,617,082 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (10,143,924) | 9,876,005 |
Net increase (decrease) in net assets resulting from operations | 5,788,065 | 28,816,892 |
Distributions to shareholders from: Net investment income: Class A | (4,761,672) | (4,099,698) |
Class B | (575,737) | (305,336) |
Portfolio share transactions: Class A Proceeds from shares sold | 36,091,471 | 26,091,725 |
Reinvestment of distributions | 4,761,672 | 4,099,698 |
Cost of shares redeemed | (47,266,915) | (40,278,155) |
Net increase (decrease) in net assets from Class A share transactions | (6,413,772) | (10,086,732) |
Class B Proceeds from shares sold | 4,068,880 | 22,917,145 |
Reinvestment of distributions | 575,737 | 305,336 |
Cost of shares redeemed | (4,564,820) | (3,736,209) |
Net increase (decrease) in net assets from Class B share transactions | 79,797 | 19,486,272 |
Increase (decrease) in net assets | (5,883,319) | 33,811,398 |
Net assets at beginning of period | 314,322,758 | 280,511,360 |
Net assets at end of period (including undistributed net investment income of $4,759,802 and $5,206,284, respectively) | $ 308,439,439 | $ 314,322,758 |
Other Information | ||
Class A Shares outstanding at beginning of period | 17,350,180 | 18,033,776 |
Shares sold | 2,330,962 | 1,766,310 |
Shares issued to shareholders in reinvestment of distributions | 312,241 | 282,738 |
Shares redeemed | (3,043,635) | (2,732,644) |
Net increase (decrease) in Class A shares | (400,432) | (683,596) |
Shares outstanding at end of period | 16,949,748 | 17,350,180 |
Class B Shares outstanding at beginning of period | 2,560,016 | 1,221,656 |
Shares sold | 261,484 | 1,563,652 |
Shares issued to shareholders in reinvestment of distributions | 37,679 | 21,029 |
Shares redeemed | (294,719) | (246,321) |
Net increase (decrease) in Class B shares | 4,444 | 1,338,360 |
Shares outstanding at end of period | 2,564,460 | 2,560,016 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 15.79 | $ 14.57 | $ 11.24 | $ 13.40 | $ 13.40 |
Income (loss) from investment operations: Net investment income (loss)a | .26 | .27 | .24 | .23 | .23 |
Net realized and unrealized gain (loss) on investment transactions | .04 | 1.18 | 3.33 | (2.20) | .01 |
Total from investment operations | .30 | 1.45 | 3.57 | (1.97) | .24 |
Less distributions from: Net investment income | (.28) | (.23) | (.24) | (.19) | (.24) |
Net asset value, end of period | $ 15.81 | $ 15.79 | $ 14.57 | $ 11.24 | $ 13.40 |
Total Return (%) | 1.97b | 10.07 | 32.60 | (14.98) | 1.87 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 268 | 274 | 263 | 215 | 257 |
Ratio of expenses before expense reductions (%) | .80 | .80 | .80 | .79 | .79 |
Ratio of expenses after expense reductions (%) | .80 | .80 | .80 | .79 | .79 |
Ratio of net investment income (loss) (%) | 1.64 | 1.84 | 1.94 | 1.84 | 1.75 |
Portfolio turnover rate (%) | 64 | 40 | 58 | 84 | 72 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 15.77 | $ 14.55 | $ 11.23 | $ 12.77 |
Income (loss) from investment operations: Net investment income (loss)b | .19 | .22 | .18 | .15 |
Net realized and unrealized gain (loss) on investment transactions | .05 | 1.17 | 3.35 | (1.69) |
Total from investment operations | .24 | 1.39 | 3.53 | (1.54) |
Less distributions from: Net investment income | (.22) | (.17) | (.21) | — |
Net asset value, end of period | $ 15.79 | $ 15.77 | $ 14.55 | $ 11.23 |
Total Return (%) | 1.58c | 9.65 | 32.19 | (12.06)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 40 | 40 | 18 | .5 |
Ratio of expenses before expense reductions (%) | 1.21 | 1.18 | 1.19 | 1.04* |
Ratio of expenses after expense reductions (%) | 1.20 | 1.18 | 1.19 | 1.04* |
Ratio of net investment income (loss) %) | 1.24 | 1.46 | 1.55 | 2.74* |
Portfolio turnover rate (%) | 64 | 40 | 58 | 84** |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Mercury Large Cap Core VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market and equity risks, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Mercury Large Cap Core VIP from 11/15/2004 to 12/31/2005 | ||
[] DWS Mercury Large Cap Core VIP — Class A [] Russell 1000 Index | The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | |||
DWS Mercury Large Cap Core VIP | 1-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,320 | $11,762 |
Average annual total return | 13.20% | 15.55% | |
Russell 1000 Index | Growth of $10,000 | $10,627 | $11,011 |
Average annual total return | 6.27% | 9.30% | |
DWS Mercury Large Cap Core VIP | 1-Year | Life of Class* | |
Class B | Growth of $10,000 | $11,293 | $11,733 |
Average annual total return | 12.93% | 15.30% | |
Russell 1000 Index | Growth of $10,000 | $10,627 | $11,011 |
Average annual total return | 6.27% | 9.30% |
The growth of $10,000 is cumulative.
* The Portfolio and Class B commenced operations on November 15, 2004. Index returns begin November 30, 2004.
Information About Your Portfolio's Expenses
DWS Mercury Large Cap Core VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,087.00 |
| $ 1,085.20 |
|
Expenses Paid per $1,000* | $ 4.94 |
| $ 6.36 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.47 |
| $ 1,019.11 |
|
Expenses Paid per $1,000* | $ 4.79 |
| $ 6.16 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Mercury Large Cap Core VIP | .94% |
| 1.21% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Mercury Large Cap Core VIP
DWS Mercury Large Cap Core VIP gained 13.20% for the 12-month period ended December 31, 2005 (Class A shares unadjusted for contract charges), while its benchmark, the Russell 1000 Index, returned 6.27%.
The Portfolio's performance versus the benchmark benefited considerably from stock selection and an overweight1 in the energy sector. It also benefited from stock selection in the healthcare, consumer discretionary and financial sectors. However, stock selection in the information technology and consumer staples sectors, and an overweight in the consumer discretionary sector, detracted from relative return.
Four of the Portfolio's 10 largest holdings contributed notably to the comparative performance for the year: ConocoPhillips, Hewlett-Packard Co., UnitedHealth Group Inc. and Motorola Inc. Our positions in Dell, Inc. and Pfizer, Inc. had a negative impact on the performance versus the benchmark.
As 2006 begins, we believe there may be a moderate deceleration in US economic growth to an approximate annualized rate of 3% as the effect of a weakening consumer demand is partially offset by capital spending. We believe that the slowing of the economy may lead to an increase in earnings disappointments. However, while an increase in market volatility is likely, we believe that overall the risk of recession is slight.
In recent months, we have brought our positions in several sectors more closely in line with their benchmark weights. However, we currently maintain the Portfolio's overweight versus the benchmark in cyclical companies such as those in the information technology and energy sectors, the Portfolio's underweight versus the benchmark in the financial and consumer staples sectors.
Bob Doll, CFA, CPA
Lead Portfolio Manager
Tasos Bouloutas Brenda Sklar
Dan Hansen Gregory Brunk
Portfolio Managers
Fund Asset Management L.P. (doing business as Mercury Advisors), Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Portfolio returns during the period reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Risk Considerations
The Portfolio is subject to stock market and equity risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest US companies based on total market capitalization.
1 "Overweight" means the Portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the Portfolio holds a lower weighting.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Mercury Large Cap Core VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 99% | 99% |
Cash Equivalents | 1% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Information Technology | 25% | 24% |
Health Care | 20% | 12% |
Energy | 18% | 11% |
Financials | 12% | 12% |
Consumer Discretionary | 10% | 18% |
Industrials | 9% | 8% |
Materials | 2% | 8% |
Consumer Staples | 2% | 4% |
Utilities | 2% | 3% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 65. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Mercury Large Cap Core VIP
|
| Value ($) |
|
| |
Common Stocks 99.6% | ||
Consumer Discretionary 9.9% | ||
Auto Components 0.9% | ||
Goodyear Tire & Rubber Co.* | 2,650 | 46,057 |
Hotels Restaurants & Leisure 1.2% | ||
Darden Restaurants, Inc. | 1,550 | 60,264 |
Household Durables 0.7% | ||
Beazer Homes USA, Inc. | 190 | 13,840 |
NVR, Inc.* | 15 | 10,530 |
Ryland Group, Inc. | 135 | 9,737 |
| 34,107 | |
Leisure Equipment & Products 0.1% | ||
Hasbro, Inc. | 70 | 1,413 |
Multiline Retail 2.2% | ||
J.C. Penney Co., Inc. | 1,000 | 55,600 |
Nordstrom, Inc. | 1,435 | 53,669 |
| 109,269 | |
Specialty Retail 4.7% | ||
Advance Auto Parts, Inc.* | 740 | 32,160 |
American Eagle Outfitters, Inc. | 290 | 6,664 |
AutoNation, Inc.* | 690 | 14,994 |
Circuit City Stores, Inc. | 2,025 | 45,745 |
Office Depot, Inc.* | 1,285 | 40,349 |
Staples, Inc. | 1,960 | 44,511 |
Tiffany & Co. | 1,255 | 48,054 |
| 232,477 | |
Textiles, Apparel & Luxury Goods 0.1% | ||
Polo Ralph Lauren Corp. | 100 | 5,614 |
Consumer Staples 1.9% | ||
Food & Staples Retailing 0.9% | ||
Kroger Co.* | 2,275 | 42,952 |
Food Products 0.2% | ||
Pilgrim's Pride Corp. | 315 | 10,445 |
Household Products 0.5% | ||
Procter & Gamble Co. | 455 | 26,336 |
Tobacco 0.3% | ||
Altria Group, Inc. | 160 | 11,955 |
Energy 18.3% | ||
Energy Equipment & Services 0.5% | ||
Cooper Cameron Corp.* | 590 | 24,426 |
Oil, Gas & Consumable Fuels 17.8% | ||
Amerada Hess Corp. | 360 | 45,655 |
Anadarko Petroleum Corp. | 610 | 57,797 |
Apache Corp. | 700 | 47,964 |
Burlington Resources, Inc. | 830 | 71,546 |
Chevron Corp. | 125 | 7,096 |
ConocoPhillips | 1,390 | 80,870 |
Devon Energy Corp. | 1,000 | 62,540 |
ExxonMobil Corp. | 3,080 | 173,004 |
Kerr-McGee Corp. | 560 | 50,882 |
Marathon Oil Corp. | 935 | 57,007 |
Murphy Oil Corp. | 45 | 2,430 |
Newfield Exploration Co.* | 155 | 7,761 |
|
| Value ($) |
|
| |
Occidental Petroleum Corp. | 760 | 60,709 |
Pioneer Natural Resources Co. | 995 | 51,014 |
Sunoco, Inc. | 680 | 53,298 |
Tesoro Corp. | 895 | 55,087 |
| 884,660 | |
Financials 12.3% | ||
Banks 0.4% | ||
Bank of America Corp. | 465 | 21,459 |
Capital Markets 3.7% | ||
Charles Schwab Corp. | 2,730 | 40,049 |
Janus Capital Group, Inc. | 1,100 | 20,493 |
Lehman Brothers Holdings, Inc. | 490 | 62,803 |
The Goldman Sachs Group, Inc. | 460 | 58,747 |
| 182,092 | |
Diversified Financial Services 1.1% | ||
Citigroup, Inc. | 1,000 | 48,530 |
JPMorgan Chase & Co. | 120 | 4,763 |
| 53,293 | |
Insurance 7.1% | ||
American International Group, Inc. | 170 | 11,599 |
Aon Corp. | 1,250 | 44,937 |
MetLife, Inc. | 1,100 | 53,900 |
Progressive Corp. | 150 | 17,517 |
Prudential Financial, Inc. | 850 | 62,211 |
Safeco Corp. | 675 | 38,138 |
The St. Paul Travelers Companies, Inc. | 1,365 | 60,975 |
UnumProvident Corp. | 2,100 | 47,775 |
W.R. Berkley Corp. | 372 | 17,715 |
| 354,767 | |
Health Care 19.3% | ||
Biotechnology 2.8% | ||
Amgen, Inc.* | 1,125 | 88,717 |
Applera Corp. — Applied Biosystems Group | 1,025 | 27,224 |
Techne Corp.* | 430 | 24,145 |
| 140,086 | |
Health Care Equipment & Supplies 0.9% | ||
Becton, Dickinson & Co. | 710 | 42,657 |
Health Care Providers & Services 10.6% | ||
Aetna, Inc. | 645 | 60,830 |
AmerisourceBergen Corp. | 1,320 | 54,648 |
Caremark Rx, Inc.* | 1,115 | 57,746 |
CIGNA Corp. | 430 | 48,031 |
Express Scripts, Inc.* | 660 | 55,308 |
HCA, Inc. | 990 | 49,995 |
Humana, Inc.* | 1,110 | 60,306 |
McKesson Corp. | 1,135 | 58,555 |
UnitedHealth Group, Inc. | 1,270 | 78,918 |
| 524,337 | |
Pharmaceuticals 5.0% | ||
Allergan, Inc. | 545 | 58,838 |
Barr Pharmaceuticals, Inc.* | 880 | 54,815 |
Johnson & Johnson | 395 | 23,740 |
King Pharmaceuticals, Inc.* | 1,960 | 33,163 |
|
| Value ($) |
|
| |
Pfizer, Inc. | 3,435 | 80,104 |
| 250,660 | |
Industrials 9.1% | ||
Aerospace & Defense 2.1% | ||
Lockheed Martin Corp. | 930 | 59,176 |
Precision Castparts Corp. | 365 | 18,911 |
Raytheon Co. | 640 | 25,696 |
| 103,783 | |
Airlines 0.6% | ||
AMR Corp.* | 1,415 | 31,455 |
Commercial Services & Supplies 0.4% | ||
Corporate Executive Board Co. | 220 | 19,734 |
Electrical Equipment 0.8% | ||
Rockwell Automation, Inc. | 675 | 39,933 |
Industrial Conglomerates 1.9% | ||
General Electric Co. | 2,710 | 94,986 |
Machinery 2.1% | ||
Cummins, Inc. | 560 | 50,249 |
Joy Global, Inc. | 442 | 17,680 |
Terex Corp.* | 610 | 36,234 |
| 104,163 | |
Road & Rail 1.1% | ||
CSX Corp. | 1,085 | 55,085 |
Trading Companies & Distributors 0.1% | ||
MSC Industrial Direct Co. "A" | 85 | 3,419 |
Information Technology 25.1% | ||
Communications Equipment 1.7% | ||
Cisco Systems, Inc.* | 900 | 15,408 |
Motorola, Inc. | 3,055 | 69,012 |
| 84,420 | |
Computers & Peripherals 4.8% | ||
Dell, Inc.* | 2,150 | 64,479 |
Hewlett-Packard Co. | 2,725 | 78,017 |
International Business Machines Corp. | 65 | 5,343 |
NCR Corp.* | 1,100 | 37,334 |
Western Digital Corp.* | 2,745 | 51,084 |
| 236,257 | |
Electronic Equipment & Instruments 0.5% | ||
Jabil Circuit, Inc.* | 710 | 26,334 |
IT Consulting & Services 2.4% | ||
CheckFree Corp.* | 875 | 40,162 |
Computer Sciences Corp.* | 220 | 11,141 |
Fiserv, Inc.* | 1,000 | 43,270 |
Sabre Holdings Corp. | 1,055 | 25,436 |
| 120,009 | |
|
| Value ($) |
|
| |
Semiconductors & Semiconductor Equipment 7.5% | ||
Broadcom Corp. "A"* | 430 | 20,274 |
Intel Corp. | 3,480 | 86,861 |
Intersil Corp. "A" | 2,040 | 50,755 |
Lam Research Corp.* | 1,320 | 47,098 |
LSI Logic Corp.* | 5,110 | 40,880 |
Microchip Technology, Inc. | 100 | 3,215 |
NVIDIA Corp.* | 1,405 | 51,367 |
Texas Instruments, Inc. | 2,200 | 70,554 |
| 371,004 | |
Software 8.2% | ||
Autodesk, Inc. | 1,265 | 54,332 |
BEA Systems, Inc.* | 4,875 | 45,825 |
BMC Software, Inc.* | 1,860 | 38,112 |
Citrix Systems, Inc.* | 1,665 | 47,919 |
Compuware Corp.* | 1,830 | 16,415 |
Intuit, Inc.* | 1,000 | 53,300 |
McAfee, Inc.* | 1,740 | 47,206 |
Microsoft Corp. | 1,775 | 46,416 |
Red Hat, Inc.* | 2,130 | 58,021 |
| 407,546 | |
Materials 2.1% | ||
Chemicals 0.5% | ||
Eastman Chemical Co. | 445 | 22,957 |
Metals & Mining 1.5% | ||
Freeport-McMoRan Copper & Gold, Inc. "B" | 410 | 22,058 |
Nucor Corp. | 790 | 52,709 |
| 74,767 | |
Paper & Forest Products 0.1% | ||
MeadWestvaco Corp. | 185 | 5,186 |
Utilities 1.6% | ||
Electric Utilities 1.0% | ||
American Electric Power Co., Inc. | 175 | 6,491 |
Edison International | 1,040 | 45,354 |
| 51,845 | |
Multi-Utilities 0.6% | ||
CMS Energy Corp.* | 1,930 | 28,004 |
Total Common Stocks (Cost $4,485,764) | 4,940,213 | |
| ||
Cash Equivalents 1.1% | ||
Cash Management QP Trust, 4.26% (a) (Cost $56,737) | 56,737 | 56,737 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $4,542,501)+ | 100.7 | 4,996,950 |
Other Assets and Liabilities, Net | (0.7) | (34,946) |
Net Assets | 100.0 | 4,962,004 |
Notes to DWS Mercury Large Cap Core VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $4,544,205. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $452,745. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $530,565 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $77,820.
(a) 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.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $4,485,764) | $ 4,940,213 |
Investment in Cash Management QP Trust (cost $56,737) | 56,737 |
Total investments in securities, at value (cost $4,542,501) | 4,996,950 |
Dividends receivable | 3,512 |
Interest receivable | 155 |
Receivable for Portfolio shares sold | 4,774 |
Due from Advisor | 26,823 |
Other assets | 106 |
Total assets | 5,032,320 |
Liabilities | |
Payable for Portfolio shares redeemed | 1,118 |
Other accrued expenses and payables | 69,198 |
Total liabilities | 70,316 |
Net assets, at value | $ 4,962,004 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 8 |
Net unrealized appreciation (depreciation) on investments | 454,449 |
Accumulated net realized gain (loss) | (12,198) |
Paid-in capital | 4,519,745 |
Net assets, at value | $ 4,962,004 |
Class A Net Asset Value, offering and redemption price per share ($587,918 ÷ 50,351 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.68 |
Class B Net Asset Value, offering and redemption price per share ($4,374,086 ÷ 375,589 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.65 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends | $ 29,622 |
Interest — Cash Management QP Trust | 1,884 |
Total Income | 31,506 |
Expenses: Management fee | 26,156 |
Custodian and accounting fees | 123,185 |
Distribution service fees (Class B) | 5,900 |
Record keeping fees (Class B) | 1,954 |
Auditing | 24,982 |
Legal | 10,048 |
Trustees' fees and expenses | 68 |
Reports to shareholders | 3,582 |
Offering cost | 3,467 |
Other | 2,819 |
Total expenses before expense reductions | 202,161 |
Expense reductions | (168,447) |
Total expenses after expense reductions | 33,714 |
Net investment income (loss) | (2,208) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | (3,226) |
Net unrealized appreciation (depreciation) during the period on investments | 410,675 |
Net gain (loss) on investment transactions | 407,449 |
Net increase (decrease) in net assets resulting from operations | $ 405,241 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Year Ended December 31, 2005 | Period Ended December 31, 2004a |
Operations: Net investment income (loss) | $ (2,208) | $ 1,239 |
Net realized gain (loss) on investment transactions | (3,226) | 6,729 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 410,675 | 43,774 |
Net increase (decrease) in net assets resulting from operations | 405,241 | 51,742 |
Distributions to shareholders from: Net investment income: Class A | (725) | — |
Class B | (1,862) | — |
Net realized gains: Class A | (3,034) | — |
Class B | (11,251) | — |
Portfolio share transactions: Class A Proceeds from shares sold | — | 499,964 |
Reinvestment of distributions | 3,759 | — |
Net increase (decrease) in net assets from Class A share transactions | 3,759 | 499,964 |
Class B Proceeds from shares sold | 3,088,383 | 1,008,929 |
Reinvestment of distributions | 13,113 | — |
Cost of shares redeemed | (91,838) | (417) |
Net increase (decrease) in net assets from Class B share transactions | 3,009,658 | 1,008,512 |
Increase (decrease) in net assets | 3,401,786 | 1,508,476 |
Net assets at beginning of period | 1,560,218 | — |
Net assets at end of period (including undistributed net investment income of $8 and $2,481, respectively) | $ 4,962,004 | $ 1,560,218 |
Other Information | ||
Class A Shares outstanding at beginning of period | 50,000 | — |
Shares sold | — | 50,000 |
Shares issued to shareholders in reinvestment of distributions | 351 | — |
Net increase (decrease) in Class A shares | 351 | 50,000 |
Shares outstanding at end of period | 50,351 | 50,000 |
Class B Shares outstanding at beginning of period | 100,195 | — |
Shares sold | 282,413 | 100,236 |
Shares issued to shareholders in reinvestment of distributions | 1,195 | — |
Shares redeemed | (8,214) | (41) |
Net increase (decrease) in Class B shares | 275,394 | 100,195 |
Shares outstanding at end of period | 375,589 | 100,195 |
a For the period from November 15, 2004 (commencement of operations) to December 31, 2004.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.39 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .02 | .01 |
Net realized and unrealized gain (loss) on investment transactions | 1.36 | .38 |
Total from investment operations | 1.38 | .39 |
Less distributions from: Net investment income | (.02) | — |
Net realized gain on investment transactions | (.07) | — |
Total distributions | (.09) | — |
Net asset value, end of period | $ 11.68 | $ 10.39 |
Total Return (%)c | 13.20 | 3.90** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 1 | 1 |
Ratio of expenses before expense reductions (%) | 6.67 | 22.15* |
Ratio of expenses after expense reductions (%) | .97 | 1.12* |
Ratio of net investment income (%) | .11 | .79* |
Portfolio turnover rate (%) | 78 | 104* |
a For the period from November 15, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.39 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | (.01) | .01 |
Net realized and unrealized gain (loss) on investment transactions | 1.36 | .38 |
Total from investment operations | 1.35 | .39 |
Less distributions from: Net investment income | (.02) | — |
Net realized gain on investment transactions | (.07) | — |
Total distributions | (.09) | — |
Net asset value, end of period | $ 11.65 | $ 10.39 |
Total Return (%)c | 12.93 | 3.90** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 4 | 1 |
Ratio of expenses before expense reductions (%) | 7.01 | 22.55* |
Ratio of expenses after expense reductions (%) | 1.20 | 1.11* |
Ratio of net investment income (%) | (.12) | .80* |
Portfolio turnover rate (%) | 78 | 104* |
a For the period from November 15, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS MFS Strategic Value VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market and equity risks, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS MFS Strategic Value VIP from 5/1/2002 to 12/31/2005 | ||
[] DWS MFS Strategic Value VIP — Class A [] Russell 1000 Value Index | Russell 1000 Value Index is an unmanaged index, which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | ||||
DWS MFS Strategic Value VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $9,982 | $14,905 | $12,103 |
Average annual total return | -.18% | 14.23% | 5.34% | |
Russell 1000 Value Index | Growth of $10,000 | $10,705 | $16,216 | $13,628 |
Average annual total return | 7.05% | 17.49% | 8.81% | |
DWS MFS Strategic Value VIP | 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 | $9,940 | $14,744 | $13,391 |
Average annual total return | -.60% | 13.82% | 8.70% | |
Russell 1000 Value Index | Growth of $10,000 | $10,705 | $16,216 | $14,386 |
Average annual total return | 7.05% | 17.49% | 10.95% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2002. Index returns begin April 30, 2002.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS MFS Strategic Value VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,012.00 |
| $ 1,010.00 |
|
Expenses Paid per $1,000* | $ 4.97 |
| $ 6.94 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.27 |
| $ 1,018.30 |
|
Expenses Paid per $1,000* | $ 4.99 |
| $ 6.97 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS MFS Strategic Value VIP | .98% |
| 1.37% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS MFS Strategic Value VIP
For the 12 months ended December 31, 2005, DWS MFS Strategic Value VIP returned -0.18% (Class A shares, unadjusted for contract charges). In comparison, the Portfolio's benchmark, the Russell 1000 Value Index, returned 7.05%.
Relative to the Portfolio's benchmark, the sectors that detracted most from the Portfolio's performance during the period were utilities and communications, technology, basic materials, and leisure. Stock selection held back relative results in all four sectors.
In utilities and communications, our positions in power producer Calpine1 (which is not a benchmark constituent) and telecommunications services provider Verizon Communications, Inc. detracted from relative performance.
In technology, although our overweight2 position contributed to relative performance, this was offset by stock selection within the sector. Our holdings of network security software company Symantec Corp. and global telecom equipment maker Nortel Networks Corp. (which is not a constituent of the benchmark) held back relative returns.
In basic materials, our holdings in newsprint maker Bowater, Inc. detracted from relative returns as the stock underperformed the benchmark.
Finally, in the leisure sector, advertising and marketing services company Interpublic Group1 and media giant Viacom, Inc. "B" were among the Portfolio's top detractors for the period.
Another holding that held back results during the period was Tenet Healthcare Corp., which is in the poorly performing health services sector. Manufacturing conglomerate Tyco International Ltd., and clothing retailer The Gap, Inc. (neither of which are benchmark constituents) also dampened investment results.
The top contributors to the Portfolio during the period were energy, autos and housing, and financial services. Stock selection in the energy sector helped boost relative results. Drilling rig operator GlobalSantaFe Corp., offshore drilling company Noble Corp., and oilfield services provider BJ Services Co. (none of which are benchmark constituents) were among the Portfolio's top contributors. Our holdings in oil and gas producer Devon Energy Corp. and oil and gas equipment manufacturer Cooper Cameron Corp. also contributed to relative returns. Finally, although positive relative contribution from the autos and housing and financial services sectors resulted primarily from superior stock selection, no individual stocks within either sector were among the Portfolio's top contributors.
Other investments that aided relative results included our overweight positions in software developer Compuware Corp., consumer electronics retailer Circuit City Stores, Inc., and cell phone manufacturer Nokia Oyj (which is not a benchmark constituent). Our avoidance of poor-performing pharmaceutical giant Pfizer1 and our underweight in General Electric1 also helped.
Kenneth J. Enright, CFA Alan T. Langsner
Portfolio Managers
Massachusetts Financial Services Company, Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Risk Considerations
The Portfolio is subject to stock market and equity risks, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Russell 1000 Value Index is an unmanaged index, which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values. Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
1 Security was not held in the Portfolio at the end of the period.
2 "Overweight" means the Portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the Portfolio holds a lower weighting.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS MFS Strategic Value VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 97% | 97% |
Cash Equivalents | 3% | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 23% | 21% |
Information Technology | 17% | 11% |
Consumer Discretionary | 17% | 14% |
Health Care | 10% | 14% |
Energy | 9% | 8% |
Telecommunication Services | 9% | 12% |
Industrials | 7% | 6% |
Materials | 5% | 8% |
Consumer Staples | 3% | 4% |
Utilities | — | 2% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 75. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS MFS Strategic Value VIP
| Shares | Value ($) |
|
| |
Common Stocks 97.8% | ||
Consumer Discretionary 16.3% | ||
Hotels Restaurants & Leisure 0.6% | ||
International Game Technology | 11,050 | 340,119 |
Leisure Equipment & Products 1.2% | ||
Mattel, Inc. | 47,780 | 755,879 |
Media 7.5% | ||
Knight Ridder, Inc. | 12,880 | 815,304 |
Viacom, Inc. "B"* | 62,735 | 2,045,161 |
Walt Disney Co. | 72,500 | 1,737,825 |
| 4,598,290 | |
Multiline Retail 1.9% | ||
Family Dollar Stores, Inc. | 46,430 | 1,151,000 |
Specialty Retail 5.1% | ||
Circuit City Stores, Inc. | 29,620 | 669,116 |
OfficeMax, Inc. | 36,470 | 924,879 |
The Gap, Inc. | 85,670 | 1,511,219 |
| 3,105,214 | |
Consumer Staples 3.1% | ||
Beverages 0.5% | ||
Molson Coors Brewing Co. "B" | 4,870 | 326,241 |
Food & Staples Retailing 1.6% | ||
Wal-Mart Stores, Inc. | 20,390 | 954,252 |
Personal Products 1.0% | ||
Estee Lauder Companies, Inc. "A" | 18,670 | 625,072 |
Energy 9.1% | ||
Energy Equipment & Services 6.7% | ||
BJ Services Co. | 19,640 | 720,199 |
Cooper Cameron Corp.* | 17,180 | 711,252 |
GlobalSantaFe Corp. | 29,880 | 1,438,722 |
Noble Corp. | 17,570 | 1,239,387 |
| 4,109,560 | |
Oil, Gas & Consumable Fuels 2.4% | ||
Devon Energy Corp. | 23,540 | 1,472,192 |
Financials 22.7% | ||
Banks 8.2% | ||
Bank of America Corp. | 52,968 | 2,444,473 |
PNC Financial Services Group, Inc. | 41,360 | 2,557,289 |
| 5,001,762 | |
Capital Markets 5.4% | ||
Mellon Financial Corp. | 60,310 | 2,065,618 |
Merrill Lynch & Co., Inc. | 18,340 | 1,242,168 |
| 3,307,786 | |
Diversified Financial Services 4.5% | ||
JPMorgan Chase & Co. | 68,940 | 2,736,229 |
Insurance 4.6% | ||
Allstate Corp. | 26,130 | 1,412,849 |
| Shares | Value ($) |
|
| |
Conseco, Inc.* | 61,290 | 1,420,089 |
| 2,832,938 | |
Health Care 10.1% | ||
Health Care Providers & Services 2.1% | ||
Tenet Healthcare Corp.* | 163,510 | 1,252,487 |
Pharmaceuticals 8.0% | ||
Merck & Co., Inc. | 77,070 | 2,451,597 |
Wyeth | 52,560 | 2,421,439 |
| 4,873,036 | |
Industrials 6.4% | ||
Building Products 2.9% | ||
Masco Corp. | 59,070 | 1,783,323 |
Industrial Conglomerates 3.5% | ||
Tyco International Ltd. | 73,250 | 2,113,995 |
Information Technology 16.7% | ||
Communications Equipment 6.0% | ||
Nokia Oyj (ADR) | 66,770 | 1,221,891 |
Nortel Networks Corp.* | 795,130 | 2,433,098 |
| 3,654,989 | |
Computers & Peripherals 2.2% | ||
Sun Microsystems, Inc.* | 327,160 | 1,370,800 |
Software 8.5% | ||
Compuware Corp.* | 148,550 | 1,332,494 |
Oracle Corp.* | 99,340 | 1,212,941 |
Symantec Corp.* | 152,260 | 2,664,550 |
| 5,209,985 | |
Materials 5.1% | ||
Containers & Packaging 3.6% | ||
Owens-Illinois, Inc.* | 103,830 | 2,184,583 |
Paper & Forest Products 1.5% | ||
Bowater, Inc. | 29,630 | 910,234 |
Telecommunication Services 8.3% | ||
Diversified Telecommunication Services 4.4% | ||
Verizon Communications, Inc. | 88,970 | 2,679,776 |
Wireless Telecommunication Services 3.9% | ||
Sprint Nextel Corp. | 102,980 | 2,405,613 |
Total Common Stocks (Cost $55,570,227) | 59,755,355 | |
| ||
Cash Equivalents 2.7% | ||
Cash Management QP Trust, 4.26% (a) (Cost $1,629,434) | 1,629,434 | 1,629,434 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $57,199,661)+ | 100.5 | 61,384,789 |
Other Assets and Liabilities, Net | (0.5) | (311,552) |
Net Assets | 100.0 | 61,073,237 |
Notes to DWS MFS Strategic Value VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $57,606,036. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $3,778,753. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $6,531,444 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $2,752,691.
(a) 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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $55,570,227) | $ 59,755,355 |
Investment in Cash Management QP Trust (cost $1,629,434) | 1,629,434 |
Total investments in securities, at value (cost $57,199,661) | 61,384,789 |
Cash | 10,000 |
Dividends receivable | 94,091 |
Interest receivable | 8,271 |
Receivable for Portfolio shares sold | 354,503 |
Due from Advisor | 12,389 |
Other assets | 1,614 |
Total assets | 61,865,657 |
Liabilities | |
Payable for investments purchased | 725,297 |
Payable for Portfolio shares redeemed | 1,462 |
Other accrued expenses and payables | 65,661 |
Total liabilities | 792,420 |
Net assets, at value | $ 61,073,237 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 222 |
Net unrealized appreciation (depreciation) on investments | 4,185,128 |
Accumulated net realized gain (loss) | (1,022,384) |
Paid-in capital | 57,910,271 |
Net assets, at value | $ 61,073,237 |
Class A Net Asset Value, offering and redemption price per share ($28,109,386 ÷ 2,624,466 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.71 |
Class B Net Asset Value, offering and redemption price per share ($32,963,851 ÷ 3,070,582 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.74 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $5,814) | $ 837,523 |
Interest — Cash Management QP Trust | 28,134 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 24,752 |
Total Income | 890,409 |
Expenses: Management fee | 474,497 |
Custodian and accounting fees | 85,073 |
Distribution service fees (Class B) | 82,714 |
Record keeping fees (Class B) | 48,429 |
Auditing | 37,508 |
Legal | 8,264 |
Trustees' fees and expenses | 1,568 |
Reports to shareholders | 13,060 |
Other | 6,107 |
Total expenses before expense reductions | 757,220 |
Expense reductions | (100,482) |
Total expenses after expense reductions | 656,738 |
Net investment income (loss) | 233,671 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 1,240,183 |
Net unrealized appreciation (depreciation) during the period on investments | (1,671,904) |
Net gain (loss) on investment transactions | (431,721) |
Net increase (decrease) in net assets resulting from operations | $ (198,050) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ 233,671 | $ 255,765 |
Net realized gain (loss) on investment transactions | 1,240,183 | 2,454,847 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (1,671,904) | 3,679,166 |
Net increase (decrease) in net assets resulting from operations | (198,050) | 6,389,778 |
Distributions to shareholders from: Net investment income: Class A | (253,570) | (35,768) |
Class B | (205,735) | (15,246) |
Net realized gains: Class A | (1,699,452) | (4,650) |
Class B | (2,844,831) | (10,656) |
Tax return of capital: Class A | (181,408) | — |
Class B | (283,355) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 16,760,892 | 7,917,703 |
Reinvestment of distributions | 2,134,430 | 40,418 |
Cost of shares redeemed | (3,925,053) | (1,562,312) |
Net increase (decrease) in net assets from Class A share transactions | 14,970,269 | 6,395,809 |
Class B Proceeds from shares sold | 3,634,423 | 18,488,884 |
Reinvestment of distributions | 3,333,921 | 25,902 |
Cost of shares redeemed | (4,465,113) | (1,646,414) |
Net increase (decrease) in net assets from Class B share transactions | 2,503,231 | 16,868,372 |
Increase (decrease) in net assets | 11,807,099 | 29,587,639 |
Net assets at beginning of period | 49,266,138 | 19,678,499 |
Net assets at end of period (including undistributed net investment income of $222 and $250,729, respectively) | $ 61,073,237 | $ 49,266,138 |
Other Information | ||
Class A Shares outstanding at beginning of period | 1,271,678 | 688,664 |
Shares sold | 1,496,713 | 725,099 |
Shares issued to shareholders in reinvestment of distributions | 197,394 | 3,864 |
Shares redeemed | (341,319) | (145,949) |
Net increase (decrease) in Class A shares | 1,352,788 | 583,014 |
Shares outstanding at end of period | 2,624,466 | 1,271,678 |
Class B Shares outstanding at beginning of period | 2,837,941 | 1,236,034 |
Shares sold | 320,047 | 1,749,677 |
Shares issued to shareholders in reinvestment of distributions | 306,318 | 2,474 |
Shares redeemed | (393,724) | (150,244) |
Net increase (decrease) in Class B shares | 232,641 | 1,601,907 |
Shares outstanding at end of period | 3,070,582 | 2,837,941 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.00 | $ 10.24 | $ 8.12 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .08 | .11 | .06 | .05 |
Net realized and unrealized gain (loss) on investment transactions | (.12) | 1.71 | 2.10 | (1.93) |
Total from investment operations | (.04) | 1.82 | 2.16 | (1.88) |
Less distributions from: Net investment income | (.16) | (.05) | (.04) | — |
Net realized gain on investment transactions | (.99) | (.01) | — | — |
Tax return of capital | (.10) | — | — | — |
Total distributions | (1.25) | (.06) | (.04) | — |
Net asset value, end of period | $ 10.71 | $ 12.00 | $ 10.24 | $ 8.12 |
Total Return (%)c | (.18) | 17.82 | 26.74 | (18.80)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 28 | 15 | 7 | 5 |
Ratio of expenses before expense reductions (%) | 1.25 | 1.42 | 1.93 | 2.71* |
Ratio of expenses after expense reductions (%) | 1.05 | 1.14 | 1.15 | 1.15* |
Ratio of net investment income (loss) (%) | .73 | 1.05 | .67 | .82* |
Portfolio turnover rate (%) | 59 | 54 | 40 | 7 |
a For the period from May 1, 2002 (commencement of operations) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 11.98 | $ 10.22 | $ 8.11 | $ 8.93 |
Income (loss) from investment operations: Net investment income (loss)b | .04 | .07 | .02 | .04 |
Net realized and unrealized gain (loss) on investment transactions | (.12) | 1.71 | 2.11 | (.86) |
Total from investment operations | (.08) | 1.78 | 2.13 | (.82) |
Less distributions from: Net investment income | (.07) | (.01) | (.02) | — |
Net realized gain on investment transactions | (.99) | (.01) | — | — |
Tax return of capital | (.10) | — | — | — |
Total distributions | (1.16) | (.02) | (.02) | — |
Net asset value, end of period | $ 10.74 | $ 11.98 | $ 10.22 | $ 8.11 |
Total Return (%)c | (.60) | 17.40 | 26.35 | (9.18)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 33 | 34 | 13 | .3 |
Ratio of expenses before expense reductions (%) | 1.65 | 1.79 | 2.32 | 2.96* |
Ratio of expenses after expense reductions (%) | 1.45 | 1.52 | 1.54 | 1.40* |
Ratio of net investment income (loss) (%) | .33 | .67 | .28 | .87* |
Portfolio turnover rate (%) | 59 | 54 | 40 | 7 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Mid Cap Growth VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk, meaning stocks in the portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile. In addition, this Portfolio is nondiversified and can take larger positions in fewer companies, increasing its overall potential risk.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Mid Cap Growth VIP from 5/1/1999 to 12/31/2005 | ||
[] DWS Mid Cap Growth VIP — Class A [] Russell 3000 Growth Index [] S&P 500 Index [] Russell Mid Cap Growth Index | The Russell 3000 Growth Index is an unmanaged, capitalization-weighted index containing the growth stocks in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Russell Midcap Growth Index is an unmanaged index that measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
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Comparative Results | |||||
DWS Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,504 | $16,034 | $8,698 | $11,564 |
Average annual total return | 15.04% | 17.04% | -2.75% | 2.21% | |
Russell 3000 Growth Index | Growth of $10,000 | $10,517 | $14,728 | $8,519 | $8,303 |
Average annual total return | 5.17% | 13.78% | -3.15% | -2.75% | |
S&P 500 Index | Growth of $10,000 | $10,491 | $14,970 | $10,275 | $10,367 |
Average annual total return | 4.91% | 14.39% | .54% | .54% | |
Russell Mid Cap Growth Index | Growth of $10,000 | $11,210 | $18,474 | $10,709 | $13,223 |
Average annual total return | 12.10% | 22.70% | 1.38% | 4.28% | |
DWS Mid Cap Growth VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $11,465 | $15,850 | $15,061 |
Average annual total return |
| 14.65% | 16.59% | 12.42% | |
Russell 3000 Growth Index | Growth of $10,000 |
| $10,517 | $14,728 | $13,340 |
Average annual total return |
| 5.17% | 13.78% | 8.58% | |
S&P 500 Index | Growth of $10,000 |
| $10,491 | $14,970 | $13,428 |
Average annual total return |
| 4.91% | 14.39% | 8.79% | |
Russell Mid Cap Growth Index | Growth of $10,000 |
| $11,210 | $18,474 | $16,702 |
Average annual total return |
| 12.10% | 22.70% | 15.78% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1999. Index returns begin April 30, 1999.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Mid Cap Growth VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,092.70 |
| $ 1,090.60 |
|
Expenses Paid per $1,000* | $ 5.01 |
| $ 6.90 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.42 |
| $ 1,018.60 |
|
Expenses Paid per $1,000* | $ 4.84 |
| $ 6.67 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Mid Cap Growth VIP | .95% |
| 1.31% |
|
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio of any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Mid Cap Growth VIP
For the 12-month period ended December 31, 2005, US the stock market was weighed down by concerns over rising interest rates and the possibility of a resurgence in inflation. On the plus side, the US economy appears to be somewhat stronger than what might be expected at this stage of an expansion. Gross domestic product has expanded for 16 consecutive quarters, beginning in the fourth quarter of 2001, and corporate profits are still increasing. Other positive signs in 2005 included increased business investment in capital projects and information technology. During the period, mid-cap stocks posted significantly higher returns than large-cap or small-cap stocks.
For its most recent fiscal year, the Portfolio returned 15.04% (Class A shares, unadjusted for contract charges), outperforming the 12.10% return of the Russell Midcap Growth Index.
During the 12-month period, stock selection within the financials and energy sectors boosted performance. In addition, our overweight in the health care area helped returns. Detractors from performance during the 12-month period included the Portfolio's underweight in materials compared with the benchmark and stock selection in the information technology sector.
Samuel A. Dedio
Robert S. Janis
Co-Lead Portfolio Managers
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. It is nondiversified and can take larger positions in fewer companies, increasing its overall potential risk. In addition, this Portfolio is nondiversified and can take larger positions in fewer companies, increasing its overall potential risk. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Russell Midcap Growth Index is an unmanaged index that measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth Index.
The Russell 3000 Growth Index is an unmanaged, capitalization-weighted index containing the growth stocks in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values.
Mid-cap stocks are represented by the Russell Midcap Growth Index as defined above. Large-cap stocks are measured by the Russell 1000 Index which measures the performance of the 1,000 largest companies in the Russell 3000 Index. Small-cap stocks are measured by the Russell 2000 Index which is an unmanaged capitalization-weighted measure of approximately 2,000 of the smallest companies in the Russell 3000 Index.
Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Mid Cap Growth VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 97% | 97% |
Cash Equivalents | 2% | 3% |
Exchange Traded Funds | 1% | — |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Health Care | 22% | 26% |
Consumer Discretionary | 22% | 17% |
Information Technology | 21% | 25% |
Energy | 11% | 2% |
Industrials | 10% | 5% |
Financials | 10% | 13% |
Consumer Staples | 3% | 5% |
Telecommunication Services | 1% | 2% |
Materials | — | 5% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 86. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Mid Cap Growth VIP
|
| Value ($) |
|
| |
Common Stocks 97.0% | ||
Consumer Discretionary 21.0% | ||
Hotels Restaurants & Leisure 6.4% | ||
P.F. Chang's China Bistro, Inc.* (a) | 28,270 | 1,403,040 |
Station Casinos, Inc. | 18,920 | 1,282,776 |
The Cheesecake Factory, Inc.* | 38,920 | 1,455,219 |
| 4,141,035 | |
Specialty Retail 6.1% | ||
Chico's FAS, Inc.* | 48,970 | 2,151,252 |
Urban Outfitters, Inc.* (a) | 68,900 | 1,743,859 |
| 3,895,111 | |
Textiles, Apparel & Luxury Goods 8.5% | ||
Coach, Inc.* | 56,600 | 1,887,044 |
Polo Ralph Lauren Corp. | 39,040 | 2,191,706 |
Quicksilver, Inc.* (a) | 97,860 | 1,354,382 |
| 5,433,132 | |
Consumer Staples 3.0% | ||
Food & Staples Retailing 0.9% | ||
Herbalife Ltd.* (a) | 18,200 | 591,864 |
Household Products 2.1% | ||
Jarden Corp.* (a) | 43,260 | 1,304,289 |
Energy 10.7% | ||
Energy Equipment & Services 4.6% | ||
BJ Services Co. | 24,450 | 896,581 |
Noble Corp. | 17,870 | 1,260,550 |
Rowan Companies, Inc. | 23,050 | 821,502 |
| 2,978,633 | |
Oil, Gas & Consumable Fuels 6.1% | ||
Peabody Energy Corp. | 24,320 | 2,004,455 |
Ultra Petroleum Corp.* | 33,630 | 1,876,554 |
| 3,881,009 | |
Financials 9.2% | ||
Capital Markets 4.8% | ||
E*TRADE Financial Corp.* | 86,010 | 1,794,168 |
Legg Mason, Inc. | 10,830 | 1,296,243 |
| 3,090,411 | |
Diversified Financial Services 4.4% | ||
Affiliated Managers Group, Inc.* (a) | 22,410 | 1,798,403 |
Nuveen Investments "A" | 23,900 | 1,018,618 |
| 2,817,021 | |
Health Care 21.6% | ||
Biotechnology 6.1% | ||
Celgene Corp.* | 26,690 | 1,729,512 |
Genzyme Corp.* | 17,840 | 1,262,715 |
Invitrogen Corp.* | 13,410 | 893,643 |
| 3,885,870 | |
Health Care Equipment & Supplies 3.7% | ||
C.R. Bard, Inc. | 18,040 | 1,189,197 |
Fisher Scientific International, Inc.* | 19,410 | 1,200,702 |
| 2,389,899 | |
|
| Value ($) |
|
| |
Health Care Providers & Services 11.8% | ||
AMERIGROUP Corp.* | 70,480 | 1,371,541 |
Community Health Systems, Inc.* | 33,510 | 1,284,773 |
Coventry Health Care, Inc.* | 28,180 | 1,605,133 |
DaVita, Inc.* | 26,760 | 1,355,126 |
Omnicare, Inc. | 33,550 | 1,919,731 |
| 7,536,304 | |
Industrials 10.1% | ||
Construction & Engineering 1.1% | ||
Chicago Bridge & Iron Co., NV (New York Shares) (a) | 28,260 | 712,435 |
Electrical Equipment 3.7% | ||
Molex, Inc. "A" | 39,490 | 971,059 |
Roper Industries, Inc. | 34,850 | 1,376,923 |
| 2,347,982 | |
Machinery 5.3% | ||
Joy Global, Inc. | 24,690 | 987,600 |
Oshkosh Truck Corp. | 30,580 | 1,363,562 |
Terex Corp.* | 17,940 | 1,065,636 |
| 3,416,798 | |
Information Technology 20.3% | ||
Communications Equipment 2.0% | ||
Andrew Corp.* (a) | 870 | 9,335 |
Comverse Technologies, Inc.* | 46,890 | 1,246,805 |
| 1,256,140 | |
Computers & Peripherals 1.4% | ||
NCR Corp.* | 26,720 | 906,877 |
Electronic Equipment & Instruments 1.8% | ||
Cogent, Inc.* | 51,300 | 1,163,484 |
Internet Software & Services 1.5% | ||
VeriSign, Inc.* | 44,770 | 981,358 |
IT Consulting & Services 1.0% | ||
Cognizant Technology Solutions Corp. "A"* | 12,650 | 636,927 |
Semiconductors & Semiconductor Equipment 3.8% | ||
Broadcom Corp. "A"* | 27,040 | 1,274,936 |
Linear Technology Corp. | 32,870 | 1,185,621 |
| 2,460,557 | |
Software 8.8% | ||
Activision, Inc.* | 88,743 | 1,219,329 |
Business Objects SA (ADR)* (a) | 36,430 | 1,472,136 |
NAVTEQ Corp.* | 29,900 | 1,311,713 |
Salesforce.com, Inc.* (a) | 50,750 | 1,626,538 |
| 5,629,716 | |
Telecommunication Services 1.1% | ||
Wireless Telecommunication Services | ||
NII Holdings, Inc.* | 15,860 | 692,765 |
Total Common Stocks (Cost $49,404,421) | 62,149,617 | |
| ||
Exchange Traded Funds 1.5% | ||
iShares Russell Midcap Growth Index Fund (Cost $940,746) | 10,200 | 958,392 |
|
| Value ($) |
|
| |
Securities Lending Collateral 16.5% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $10,569,018) | 10,569,018 | 10,569,018 |
| ||
Cash Equivalents 2.0% | ||
Cash Management QP Trust, 4.26% (d) (Cost $1,293,926) | 1,293,926 | 1,293,926 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $62,208,111)+ | 117.0 | 74,970,953 |
Other Assets and Liabilities, Net | (17.0) | (10,867,512) |
Net Assets | 100.0 | 64,103,441 |
Notes to DWS Mid Cap Growth VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $62,302,764. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $12,668,189. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $14,035,495 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,367,306.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $10,219,659 which is 15.9% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $50,345,167) — including $10,219,659 of securities loaned | $ 63,108,009 |
Investment in Daily Assets Fund Institutional (cost $10,569,018)* | 10,569,018 |
Investment in Cash Management QP Trust (cost $1,293,926) | 1,293,926 |
Total investments in securities, at value (cost $62,208,111) | 74,970,953 |
Receivable for investments sold | 265,389 |
Dividends receivable | 7,098 |
Interest receivable | 6,066 |
Other assets | 1,758 |
Total assets | 75,251,264 |
Liabilities | |
Payable for investments purchased | 391,707 |
Payable for Portfolio shares redeemed | 101,569 |
Payable upon return of securities loaned | 10,569,018 |
Accrued management fee | 15,246 |
Other accrued expenses and payables | 70,283 |
Total liabilities | 11,147,823 |
Net assets, at value | $ 64,103,441 |
Net Assets | |
Net assets consist of: Accumulated net investment loss | (4,048) |
Net unrealized appreciation (depreciation) on investments | 12,762,842 |
Accumulated net realized gain (loss) | (32,985,973) |
Paid-in capital | 84,330,620 |
Net assets, at value | $ 64,103,441 |
Class A Net Asset Value, offering and redemption price per share ($57,248,690 ÷ 5,056,911 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.32 |
Class B Net Asset Value, offering and redemption price per share ($6,854,751 ÷ 612,639 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.19 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $127) | $ 221,238 |
Interest — Cash Management QP Trust | 71,717 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 11,833 |
Total Income | 304,788 |
Expenses: Management fee | 453,434 |
Custodian and accounting fees | 71,985 |
Distribution service fees (Class B) | 15,682 |
Record keeping fees (Class B) | 9,109 |
Auditing | 41,776 |
Legal | 10,624 |
Trustees' fees and expenses | 4,499 |
Reports to shareholders | 19,814 |
Other | 6,634 |
Total expenses before expense reductions | 633,557 |
Expense reductions | (36,040) |
Total expenses after expense reductions | 597,517 |
Net investment income (loss) | (292,729) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 6,195,328 |
Net unrealized appreciation (depreciation) during the period on investments | 2,483,401 |
Net gain (loss) on investment transactions | 8,678,729 |
Net increase (decrease) in net assets resulting from operations | $ 8,386,000 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ (292,729) | $ (84,055) |
Net realized gain (loss) on investment transactions | 6,195,328 | 2,570,533 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 2,483,401 | (452,406) |
Net increase (decrease) in net assets resulting from operations | 8,386,000 | 2,034,072 |
Portfolio share transactions: Class A Proceeds from shares sold | 10,629,646 | 4,965,372 |
Cost of shares redeemed | (14,069,195) | (9,699,886) |
Net increase (decrease) in net assets from Class A share transactions | (3,439,549) | (4,734,514) |
Class B Proceeds from shares sold | 1,213,427 | 2,601,994 |
Cost of shares redeemed | (1,408,796) | (435,771) |
Net increase (decrease) in net assets from Class B share transactions | (195,369) | 2,166,223 |
Increase (decrease) in net assets | 4,751,082 | (534,219) |
Net assets at beginning of period | 59,352,359 | 59,886,578 |
Net assets at end of period (including accumulated net investment loss of $4,048 and $2,093, respectively) | $ 64,103,441 | $ 59,352,359 |
Other Information | ||
Class A Shares outstanding at beginning of period | 5,401,258 | 5,923,874 |
Shares sold | 1,010,050 | 534,758 |
Shares redeemed | (1,354,397) | (1,057,374) |
Net increase (decrease) in Class A shares | (344,347) | (522,616) |
Shares outstanding at end of period | 5,056,911 | 5,401,258 |
Class B Shares outstanding at beginning of period | 634,195 | 405,258 |
Shares sold | 115,791 | 277,046 |
Shares redeemed | (137,347) | (48,109) |
Net increase (decrease) in Class B shares | (21,556) | 228,937 |
Shares outstanding at end of period | 612,639 | 634,195 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 9.84 | $ 9.46 | $ 7.06 | $ 10.22 | $ 13.20 |
Income (loss) from investment operations: Net investment income (loss)a | (.05) | (.01) | (.05) | (.01) | .06 |
Net realized and unrealized gain (loss) on investment transactions | 1.53 | .39 | 2.45 | (3.11) | (2.92) |
Total from investment operations | 1.48 | .38 | 2.40 | (3.12) | (2.86) |
Less distributions from: Net investment income | — | — | — | (.04) | (.12) |
Net asset value, end of period | $ 11.32 | $ 9.84 | $ 9.46 | $ 7.06 | $ 10.22 |
Total Return (%) | 15.04b | 4.02b | 33.99b | (30.66) | (21.76) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 57 | 53 | 56 | 44 | 71 |
Ratio of expenses before expense reductions (%) | 1.01 | 1.02 | .98 | .81 | .86 |
Ratio of expenses after expense reductions (%) | .95 | .95 | .95 | .81 | .86 |
Ratio of net investment income (%) | (.45) | (.11) | (.57) | (.19) | .58 |
Portfolio turnover rate (%) | 104 | 103 | 91 | 71 | 42 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 9.76 | $ 9.42 | $ 7.06 | $ 7.43 |
Income (loss) from investment operations: Net investment income (loss)b | (.09) | (.05) | (.09) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | 1.52 | .39 | 2.45 | (.35) |
Total from investment operations | 1.43 | .34 | 2.36 | (.37) |
Net asset value, end of period | $ 11.19 | $ 9.76 | $ 9.42 | $ 7.06 |
Total Return (%) | 14.65c | 3.61c | 33.43c | (4.98)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 7 | 6 | 4 | .1 |
Ratio of expenses before expense reductions (%) | 1.40 | 1.41 | 1.37 | 1.06* |
Ratio of expenses after expense reductions (%) | 1.32 | 1.34 | 1.34 | 1.06* |
Ratio of net investment income (%) | (.82) | (.50) | (.96) | (.47)* |
Portfolio turnover rate (%) | 104 | 103 | 91 | 71 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Moderate Allocation VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Diversification does not eliminate risk. The underlying portfolios invest 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 portfolio, can decline and the investor can lose principal value. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. Derivatives may be more volatile and less liquid than traditional securities, and the Portfolio could suffer losses on its derivative positions. Please read this Portfolio's prospectus for specific details regarding its risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Moderate Allocation VIP from 8/16/2004 to 12/31/2005 | ||
[] DWS Moderate Allocation VIP — Class B [] Russell 1000 Index | The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which measures the performance of the 3,000 largest US companies based on total market capitalization. The Russell 1000 Index represents approximately 92% of the total market capitalization of the Russell 3000 Index. Index returns assume reinvested dividends and unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | |||
DWS Moderate Allocation VIP | 1-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,506 | $11,388 |
Average annual total return | 5.06% | 9.94% | |
Russell 1000 Index | Growth of $10,000 | $10,627 | $11,815 |
Average annual total return | 6.27% | 13.33% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns begin August 31, 2004.
Information About Your Portfolio's Expenses
DWS Moderate Allocation VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In addition to the ongoing expenses which the Portfolio bears directly, the Portfolio's shareholders indirectly bear the expense of the Underlying DWS Portfolios in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying DWS Portfolios is based on its allocation of Underlying DWS Portfolios. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,043.10 |
Expenses Paid per $1,000* |
| $ 3.04 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,022.23 |
Expenses Paid per $1,000* |
| $ 3.01 |
Direct Portfolio Expenses and Estimated Indirect Underlying DWS Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,043.10 |
Expenses Paid per $1,000** |
| $ 6.39 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/05 |
| $ 1,000.00 |
Ending Account Value 12/31/05 |
| $ 1,018.95 |
Expenses Paid per $1,000** |
| $ 6.31 |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
** Expenses are equal to the Portfolio's annualized expense ratio for each class plus the estimated indirect expense from investing in underlying portfolios in which the Portfolio invests, 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 B |
Direct Portfolio Expense Ratio |
| .59% |
Estimated Indirect Expenses of Underlying DWS Portfolios |
| .65% |
Estimated Net Annual Portfolio and Underlying DWS Portfolios Expenses |
| 1.24% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Moderate Allocation VIP
The US economy posted positive growth for all four quarters of 2005, with concerns about inflation and the sustainability of the economic expansion seeming to abate as the year progressed. All major asset classes — equities, bonds and cash — had positive returns for the year, and returns of the various asset classes were generally close to one another.
For the 12 months ended December 31, 2005, DWS Moderate Allocation VIP portfolio had a return of 5.06% (Class B shares, unadjusted for contract charges). As anticipated, since this Portfolio invests in a blend of equity and bond securities, its return was above that of its major bond benchmarks but below that of its equity benchmarks. This performance placed the Portfolio slightly ahead of its average peer in the Lipper Flexible Portfolio Funds category, which had an average return of 4.88%.
The Portfolio's allocation between stocks and bonds remained close to its target of 60% equity and 40% fixed income during 2005, but with equities above 60% in 11 months of the year. This overweight was positive for returns, as equities outperformed bonds. An especially positive factor in performance was an overweight in international equities through most of the year, as foreign markets were stronger than the US market; however, a reduction in the international position late in the year detracted.
In the equity portion of the Portfolio, a slight bias toward value-oriented holdings established in July detracted from performance. Among underlying equity portfolios, large-cap portfolios contributed to positive relative performance, with seven of the 10 portfolios achieving performance above that of the Russell 1000 Index. Several of the growth-oriented portfolios that were overweight in energy, a sector that was strong during 2005, performed particularly well. The two small-cap funds in the Portfolio outperformed their benchmarks, so that small cap holdings made a net contribution to overall performance, even though small-cap stocks as a category underperformed large-cap stocks.
Within the fixed-income portion of the Portfolio, performance of the high-yield portion was excellent, with returns significantly above the high-yield benchmark, the Credit Suisse High Yield Index. However, since this is a small position that was underweighted, the strong performance did not offset underperformance of the much larger investment-grade bond portion, so that the fixed-income position as a whole underperformed its benchmark.
Inna Okounkova Robert Wang
Co-Managers, Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Diversification does not eliminate risk. The underlying portfolios invest 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 investment, can decline and the investor can lose principal value. In addition, the underlying portfolios are subject to stock market risk, meaning stocks in the portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes, and market risks. Derivatives may be more volatile and less liquid than traditional securities, and the portfolio could suffer losses on its derivative positions. Please read this Portfolio's prospectus for specific details regarding its risk profile.
The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index.
Credit Suisse (CS) First Boston High Yield Index is an unmanaged, unleveraged, 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.
The Lipper Flexible Portfolio is a category that allocates its investments across various asset classes, including domestic common stocks, bonds, and money market insturments with a focus on total return.
Equities are represented by the Russell 1000 Index, which is a price-only index of the 1,000 largest capitalized companies domiciled in the United States. Bonds are represented by the Lehman Brothers Aggregate Bond Index which measures domestic taxable investment-grade bonds. Cash is represented by the rate of return of 3-month Treasury bills.
Index and category returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index or Lipper category.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Moderate Allocation VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Equity Funds | 60% | 58% |
Fixed Income Funds | 29% | 38% |
Cash Equivalents | 11% | 4% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 96. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Moderate Allocation VIP
|
| Value ($) |
|
| |
Equity Funds 59.5% | ||
DWS Blue Chip VIP "A" | 840,830 | 12,511,544 |
DWS Capital Growth VIP "A" | 337,469 | 5,703,230 |
DWS Davis Venture Value VIP "A" | 536,700 | 6,703,384 |
DWS Dreman High Return Equity VIP "A" | 350,496 | 4,700,158 |
DWS Dreman Small Cap Value VIP "A" | 371,736 | 7,427,278 |
DWS Global Opportunities VIP "A" | 5,445 | 81,671 |
DWS Growth and Income VIP "A" | 1,911,866 | 18,583,339 |
DWS International Select Equity VIP "A" | 40,472 | 536,254 |
DWS International VIP "A" | 436,857 | 4,739,902 |
DWS Janus Growth Opportunities VIP "A" | 942,397 | 7,878,440 |
DWS Large Cap Value VIP "A" | 883,489 | 13,967,956 |
DWS MFS Strategic Value VIP "A" | 623,059 | 6,672,962 |
DWS Mid Cap Growth VIP "A" | 77,142 | 873,249 |
DWS RREEF Real Estate Securities VIP "A" | 214,172 | 3,550,965 |
DWS Small Cap Growth VIP "A" | 337,202 | 4,545,478 |
DWS Templeton Foreign Value VIP "A" | 297,684 | 3,402,532 |
Total Equity Funds (Cost $96,148,648) | 101,878,342 | |
| ||
Fixed Income Funds 29.1% | ||
DWS Core Fixed Income VIP "A" | 3,599,831 | 42,513,999 |
DWS Government & Agency Securities VIP "A" | 246,429 | 3,021,225 |
DWS High Income VIP "A" | 415,441 | 3,419,079 |
DWS Strategic Income VIP "A" | 74,236 | 853,713 |
Total Fixed Income Funds (Cost $49,933,898) | 49,808,016 | |
| ||
Cash Equivalents 11.3% | ||
Cash Management QP Trust, 4.26% (a) (Cost $19,440,002) | 19,440,002 | 19,440,002 |
|
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $ 165,522,548)+ | 99.9 | 171,126,360 |
Other Assets and Liabilities, Net | 0.1 | 188,848 |
Net Assets | 100.0 | 171,315,208 |
Notes to DWS Moderate Allocation VIP Portfolio of Investments
+ The cost for federal income tax purposes was $165,567,138. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $5,559,222. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $6,083,940 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $524,718.
(a) 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.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $146,082,546) | $ 151,686,358 |
Investment in Cash Management QP Trust (cost $19,440,002) | 19,440,002 |
Total investments in securities, at value (cost $165,522,548) | 171,126,360 |
Interest receivable | 59,192 |
Receivable for Portfolio shares sold | 259,669 |
Other assets | 3,513 |
Total assets | 171,448,734 |
Liabilities | |
Payable for Portfolio shares redeemed | 12,988 |
Accrued management fee | 7,382 |
Other accrued expenses and payables | 113,156 |
Total liabilities | 133,526 |
Net assets, at value | $ 171,315,208 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 1,492,734 |
Net unrealized appreciation (depreciation) on investments | 5,603,812 |
Accumulated net realized gain (loss) | 1,155,890 |
Paid-in capital | 163,062,772 |
Net assets, at value | $ 171,315,208 |
Class B Net Asset Value, offering and redemption price per share ($171,315,208 ÷ 15,061,439 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.37 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Income distributions from Underlying Affiliated Portfolios | $ 1,438,898 |
Interest — Cash Management QP Trust | 315,569 |
Total Income | 1,754,467 |
Expenses: Management fee | 149,056 |
Custodian and accounting fees | 79,998 |
Distribution service fees (Class B) | 248,426 |
Record keeping fees (Class B) | 134,933 |
Auditing | 18,287 |
Legal | 14,616 |
Trustees' fees and expenses | 2,605 |
Reports to shareholders | 7,053 |
Offering costs | 587 |
Other | 1,900 |
Total expenses before expense reductions | 657,461 |
Expense reductions | (49,685) |
Total expenses after expense reductions | 607,776 |
Net investment income (loss) | 1,146,691 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 628,433 |
Capital gain distributions from Underlying Affiliated Portfolios | 886,546 |
| 1,514,979 |
Net unrealized appreciation (depreciation) during the period on investments | 4,147,334 |
Net gain (loss) on investment transactions | 5,662,313 |
Net increase (decrease) in net assets resulting from operations | $ 6,809,004 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Year Ended December 31, 2005 | Period Ended December 31, 2004a |
Operations: Net investment income (loss) | $ 1,146,691 | $ (42,492) |
Net realized gain (loss) on investment transactions | 1,514,979 | 99,609 |
Net unrealized appreciation (depreciation) during the period on investment transactions | 4,147,334 | 1,456,478 |
Net increase (decrease) in net assets resulting from operations | 6,809,004 | 1,513,595 |
Distributions to shareholders from: Net realized gains: Class B | (98,563) | — |
Portfolio share transactions: Class B Proceeds from shares sold | 129,422,492 | 37,742,213 |
Reinvestment of distributions | 98,563 | — |
Cost of shares redeemed | (3,450,269) | (721,827) |
Net increase (decrease) in net assets from Class B share transactions | 126,070,786 | 37,020,386 |
Increase (decrease) in net assets | 132,781,227 | 38,533,981 |
Net assets at beginning of period | 38,533,981 | — |
Net assets at end of period (including undistributed net investment income of $1,492,734 and $0, respectively) | $ 171,315,208 | $ 38,533,981 |
Other Information | ||
Class B Shares outstanding at beginning of period | 3,555,593 | — |
Shares sold | 11,805,548 | 3,624,260 |
Shares issued to shareholders in reinvestment of distributions | 9,229 | — |
Shares redeemed | (308,931) | (68,667) |
Net increase (decrease) in Class B shares | 11,505,846 | 3,555,593 |
Shares outstanding at end of period | 15,061,439 | 3,555,593 |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.84 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .12 | (.03) |
Net realized and unrealized gain (loss) on investment transactions | .43 | .87 |
Total from investment operations | .55 | .84 |
Less distributions from: Net realized gains | (.02) | — |
Net asset value, end of period | $ 11.37 | $ 10.84 |
Total Return (%)c,d | 5.06 | 8.40** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 171 | 39 |
Ratio of expenses before expense reductions (%)e | .66 | 1.53* |
Ratio of expenses after expense reductions (%)e | .61 | .75* |
Ratio of net investment income (%) | 1.15 | (.68)* |
Portfolio turnover rate (%) | 14 | 13* |
a For the period from August 16, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not maintained some Underlying Portfolio's expenses. e The Portfolio invests in other DWS Portfolios and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios in which the Portfolio is invested. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Money Market VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Risk Considerations
An investment in this Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. Please read this Portfolio's prospectus for specific details regarding its investment and risk profile.
Portfolio's Class A Shares Yield | 7-day current yield | 7-day compounded effective yield |
December 31, 2005 | 3.74% | 3.81% |
December 31, 2004 | 1.62% | 1.63% |
Portfolio's Class B Shares Yield | 7-day current yield | 7-day compounded effective yield |
December 31, 2005 | 3.38% | 3.43% |
December 31, 2004 | 1.24% | 1.25% |
Yields are historical, will fluctuate and do not guarantee future performance. The 7-day current yield refers to the income paid by the Portfolio over a 7-day period expressed as an annual percentage rate of the Portfolio's shares outstanding. The 7-day compounded effective yield is the annualized yield based on the most recent 7 days of interest earnings with all income reinvested.
Information About Your Portfolio's Expenses
DWS Money Market VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,016.50 |
| $ 1,014.60 |
|
Expenses Paid per $1,000* | $ 2.69 |
| $ 4.57 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,022.53 |
| $ 1,020.67 |
|
Expenses Paid per $1,000* | $ 2.70 |
| $ 4.58 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Money Market VIP | .53% |
| .90% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Money Market VIP
During the 12-month period ended December 31, 2005, the US Federal Reserve Board (the Fed) continued its recent policy of increasing short-term interest rates in an attempt to head off a resurgence in inflation. The federal funds rate1 was raised to 4.25% in eight quarter-percentage-point increments in 2005. At the end of December 2005, the one-year LIBOR rate, an industry standard for measuring one-year money market rates, was close to a four-year high, at 4.84%.
For the 12-month period ended December 31, 2005, the Portfolio provided a total return of 2.80% (Class A shares, unadjusted for contract charges). Please see page 100 for standardized performance as of December 31, 2005.
For the period, our strategy was to keep the Portfolio's average maturity relatively short in order to reduce risk, generally limiting our purchases to three-month-maturity issues and shorter. (Shorter-term securities are generally less risky than longer-term securities and are therefore potentially more attractive in a difficult environment.) From time to time, when the market offered more attractive yields at longer maturities, we added some longer-term issues. During the period, we maintained a target allocation of approximately 25% to 30% in floating-rate securities. Our decision to maintain this allocation helped performance during the period. There were no significant detractors from performance. Going forward, we will continue our insistence on the highest credit quality within the Portfolio and maintain our conservative investment strategies and standards.
A group of investment professionals is responsible for the day-to-day management of the Portfolio. These investment professionals have a broad range of experience managing money market funds.
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. The yield quotation more closely reflects the current earnings of the Portfolio than the total return quotation.
Risk Considerations
An investment in this Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio. Please read this Portfolio's prospectus for specific details regarding its investment and risk profile.
LIBOR, the London Interbank Offered Rate, is the most widely used benchmark or reference rate for short-term interest rates. LIBOR is the rate of interest at which banks borrow funds from other banks, in large volume, in the international market.
1 Federal funds rate — the overnight rate charged by banks when they borrow money from each other. Set by the Federal Open Market Committee (FOMC), the fed funds rate is the most sensitive — and closely watched — indicator concerning the direction of short-term interest rates. The FOMC is a key committee within the US Federal Reserve System, and meets every six weeks to review Fed policy on short-term rates. Based on current Fed policy, the FOMC may choose to raise or lower the fed funds rate to either add liquidity to the economy or remove it.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Money Market VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Commercial Paper | 32% | 41% |
Short Term Notes | 30% | 22% |
Certificates of Deposit and Bank Notes | 25% | 12% |
Repurchase Agreements | 7% | 8% |
Funding Agreement | 4% | 3% |
US Government Sponsored Agencies*** | 2% | 11% |
Promissory Notes | — | 3% |
| 100% | 100% |
*** Not backed by the full faith and credit of the US Government.
Weighted Average Maturity* |
|
|
|
|
|
DWS Variable Series II — DWS Money Market VIP | 35 days | 30 days |
First Tier Money Fund Average | 38 days | 36 days |
* The Portfolio is compared to its respective iMoneyNet category: Category includes only non-government retail funds that are not holding any second tier securities. Portfolio Holdings of First Tier funds include US Other Repos, Time Deposits, Domestic Bank Obligations, Foreign Bank Obligations, First Tier CP, Floating Rate Notes and Asset backed Commercial Paper.
Asset allocation and weighted average maturity are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 104. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th day of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Money Market VIP
| Principal Amount ($) | Value ($) |
|
| |
Certificates of Deposit and Bank Notes 25.2% | ||
Banco Bilbao Vizcaya Argentaria SA, 4.055%, 1/11/2006 | 14,000,000 | 13,998,762 |
Bank of Tokyo-Mitsubishi, 4.38%, 1/17/2006 | 15,000,000 | 15,000,000 |
Depfa Bank PLC, 3.22%, 2/6/2006 | 3,000,000 | 3,000,000 |
HBOS Treasury Services PLC, 3.8%, 7/10/2006 | 3,000,000 | 3,000,000 |
Norinchukin Bank: |
|
|
4.3%, 1/25/2006 | 6,000,000 | 6,000,000 |
4.3%, 1/31/2006 | 9,000,000 | 9,000,000 |
Societe Generale, 3.265%, 3/3/2006 | 3,000,000 | 3,000,000 |
Toronto Dominion Bank, 3.75%, 5/16/2006 | 3,000,000 | 2,999,891 |
UniCredito Italiano SpA, 3.8%, 6/15/2006 | 3,000,000 | 3,000,000 |
Wells Fargo Bank NA, 4.31%, 1/26/2006 | 15,000,000 | 15,000,000 |
Total Certificates of Deposit and Bank Notes (Cost $73,998,653) | 73,998,653 | |
| ||
Commercial Paper** 32.0% | ||
Abbey National PLC, 4.45%, 1/3/2006 | 14,000,000 | 13,996,539 |
Atlantis One Funding Corp., 3.93%, 3/1/2006 | 3,000,000 | 2,980,678 |
CIT Group, Inc., 4.21%, 2/8/2006 | 14,000,000 | 13,937,786 |
Giro Funding US Corp., 4.33%, 1/27/2006 | 12,000,000 | 11,962,473 |
Greyhawk Funding LLC, 4.205%, 2/1/2006 | 14,000,000 | 13,949,306 |
Lake Constance Funding LLC, 3.99%, 1/3/2006 | 12,000,000 | 11,997,340 |
Liberty Street Funding, 4.36%, 2/2/2006 | 8,000,000 | 7,968,996 |
Perry Global Funding LLC, Series A, 4.31%, 1/26/2006 | 14,000,000 | 13,958,097 |
Swedish National Housing Finance Corp., 3.925%, 3/2/2006 | 3,000,000 | 2,980,375 |
Total Commercial Paper (Cost $93,731,590) | 93,731,590 | |
| ||
US Government Sponsored Agencies*** 2.1% | ||
Federal National Mortgage Association: |
|
|
4.0%, 8/8/2006 | 3,000,000 | 3,000,000 |
4.03%, 7/21/2006 | 3,000,000 | 3,000,000 |
Total US Government Sponsored Agencies (Cost $6,000,000) | 6,000,000 | |
| Principal Amount ($) | Value ($) |
|
| |
Funding Agreement 4.1% | ||
New York Life Insurance Co., 4.57%*, 9/19/2006 (Cost $12,000,000) | 12,000,000 | 12,000,000 |
| ||
Short Term Notes* 30.0% | ||
American Express Credit Corp., 4.32%, 1/9/2007 | 6,000,000 | 5,999,349 |
American Honda Finance Corp., 4.461%, 6/22/2006 | 2,000,000 | 2,000,000 |
BNP Paribas, 144A, 4.349%, 1/26/2007 | 3,000,000 | 3,000,000 |
Canadian Imperial Bank of Commerce, 4.5%, 12/4/2006 | 6,000,000 | 6,003,836 |
Greenwich Capital Holdings, Inc., 4.33%, 6/20/2006 | 11,000,000 | 11,000,000 |
International Business Machines Corp., 144A, 4.329%, 3/8/2006 | 3,000,000 | 3,000,000 |
K2 (USA) LLC, 4.32%, 2/1/2006 | 16,000,000 | 16,000,665 |
Links Finance LLC, 4.325%, 5/22/2006 | 6,000,000 | 5,999,762 |
M&I Marshall & Ilsley Bank, 144A, 4.349%, 12/15/2006 | 4,000,000 | 4,000,000 |
Merrill Lynch & Co., Inc.: |
|
|
4.36%, 5/5/2006 | 3,000,000 | 3,000,820 |
4.547%, 3/17/2006 | 10,000,000 | 10,001,500 |
Skandinaviska Enskila Banken, 144A, 4.38%, 7/18/2006 | 3,000,000 | 3,000,000 |
Tango Finance Corp., 144A, 4.08%, 9/18/2006 | 15,000,000 | 14,999,715 |
Total Short Term Notes (Cost $88,005,647) | 88,005,647 | |
| ||
Repurchase Agreements 6.5% | ||
State Street Bank & Trust Co., 3.20%, dated 12/30/2005, to be repurchased at $190,068 on 1/3/2006 (a) | 190,000 | 190,000 |
The Goldman Sachs Co., Inc., 4.33%, dated 12/30/2005, to be repurchased at $19,009,141 on 1/3/2006 (b) | 19,000,000 | 19,000,000 |
Total Repurchase Agreements (Cost $19,190,000) | 19,190,000 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $292,925,890)+ | 99.9 | 292,925,890 |
Other Assets and Liabilities, Net | 0.1 | 287,145 |
Net Assets | 100.0 | 293,213,035 |
Notes to DWS Money Market VIP Portfolio of Investments
+ The cost for federal income tax purposes was $292,925,890.
* 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 December 31, 2005.
** Annualized yield at time of purchase; not a coupon rate.
*** Not backed by the full faith and credit of the US Government.
(a) Collateralized by $200,000 Federal Home Loan Mortgage Corp., Zero Coupon, maturing on 5/2/2006 with a value of $196,966.
(b) Collateralized by $19,379,990, Federal National Mortgage Association, with various coupon rates from 3.88-4.91%, and various maturity dates from 10/1/2034 to 10/1/2035 with a value of $19,380,000.
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.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at amortized cost (cost $273,735,890) | $ 273,735,890 |
Repurchase agreements, at amortized cost (cost $19,190,000) | 19,190,000 |
Total investments in securities, at amortized cost (cost $292,925,890) | 292,925,890 |
Cash | 235 |
Interest receivable | 957,625 |
Receivable for Portfolio shares sold | 324,766 |
Other assets | 8,798 |
Total assets | 294,217,314 |
Liabilities | |
Dividends payable | 472,726 |
Payable for Portfolio shares redeemed | 307,476 |
Accrued management fee | 114,865 |
Other accrued expenses and payables | 109,212 |
Total liabilities | 1,004,279 |
Net assets, at value | $ 293,213,035 |
Net Assets | |
Net assets consist of: Accumulated distributions in excess of net investment income | (40,899) |
Paid-in capital | 293,253,934 |
Net assets, at value | $ 293,213,035 |
Class A Net Asset Value, offering and redemption price per share ($234,968,082 ÷ 235,000,612 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 1.00 |
Class B Net Asset Value, offering and redemption price per share ($58,244,953 ÷ 58,249,841 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 1.00 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Interest | $ 10,304,352 |
Expenses: Management fee | 1,440,420 |
Custodian fees | 21,483 |
Distribution service fees (Class B) | 140,673 |
Record keeping fees (Class B) | 68,021 |
Auditing | 41,630 |
Legal | 12,884 |
Trustees' fee and expenses | 12,637 |
Reports to shareholders | 91,640 |
Other | 17,743 |
Total expenses, before expense reductions | 1,847,131 |
Expense reductions | (5,083) |
Total expenses, after expense reductions | 1,842,048 |
Net investment income (loss) | 8,462,304 |
Net realized gain (loss) on investment transactions | 1,179 |
Net increase (decrease) in net assets resulting from operations | $ 8,463,483 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income | $ 8,462,304 | $ 3,038,989 |
Net realized gain (loss) on investment transactions | 1,179 | 3,830 |
Net increase (decrease) in net assets resulting from operations | 8,463,483 | 3,042,819 |
Distributions to shareholders from: Net investment income: Class A | (7,099,842) | (2,746,531) |
Class B | (1,362,462) | (313,926) |
Portfolio share transactions: Class A Proceeds from shares sold | 227,608,429 | 220,350,001 |
Reinvestment of distributions | 6,884,287 | 2,679,083 |
Cost of shares redeemed | (240,799,854) | (308,224,544) |
Net increase (decrease) in net assets from Class A share transactions | (6,307,138) | (85,195,460) |
Class B Proceeds from shares sold | 83,177,262 | 69,563,948 |
Reinvestment of distributions | 1,303,053 | 295,489 |
Cost of shares redeemed | (78,947,805) | (83,569,264) |
Net increase (decrease) in net assets from Class B share transactions | 5,532,510 | (13,709,827) |
Increase (decrease) in net assets | (773,449) | (98,922,925) |
Net assets at beginning of period | 293,986,484 | 392,909,409 |
Net assets at end of period (including accumulated distributions in excess of net investment income of $40,899 and $42,078, respectively) | $ 293,213,035 | $ 293,986,484 |
Other Information | ||
Class A Shares outstanding at beginning of period | 241,307,750 | 326,503,210 |
Shares sold | 227,608,429 | 220,350,001 |
Shares issued to shareholders in reinvestment of distributions | 6,884,287 | 2,679,083 |
Shares redeemed | (240,799,854) | (308,224,544) |
Net increase (decrease) in Class A shares | (6,307,138) | (85,195,460) |
Shares outstanding at end of period | 235,000,612 | 241,307,750 |
Class B Shares outstanding at beginning of period | 52,717,331 | 66,427,158 |
Shares sold | 83,177,262 | 69,563,948 |
Shares issued to shareholders in reinvestment of distributions | 1,303,053 | 295,489 |
Shares redeemed | (78,947,805) | (83,569,264) |
Net increase (decrease) in Class B shares | 5,532,510 | (13,709,827) |
Shares outstanding at end of period | 58,249,841 | 52,717,331 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Income from investment operations: Net investment income | .028 | .009 | .007 | .013 | .037 |
Total from investment operations | .028 | .009 | .007 | .013 | .037 |
Less distributions from: Net investment income | (.028) | (.009) | (.007) | (.013) | (.037) |
Net asset value, end of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Total Return (%) | 2.80 | .91 | .72 | 1.35 | 3.75 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 235 | 241 | 326 | 570 | 671 |
Ratio of expenses (%) | .52 | .53 | .54 | .54 | .55 |
Ratio of net investment income (%) | 2.77 | .88 | .73 | 1.35 | 3.39 |
|
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Income from investment operations: Net investment income | .024 | .005 | .004 | .007 |
Total from investment operations | .024 | .005 | .004 | .007 |
Less distributions from: Net investment income | (.024) | (.005) | (.004) | (.007) |
Net asset value, end of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Total Return (%) | 2.42 | .52 | .42 | .67** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 58 | 53 | 66 | 3 |
Ratio of expenses before expense reductions (%) | .89 | .91 | .93 | .79* |
Ratio of expenses after expense reductions (%) | .89 | .91 | .92 | .64* |
Ratio of net investment income (%) | 2.40 | .50 | .35 | 1.11* |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Oak Strategic Equity VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The Portfolio may concentrate investments in specific sectors, which creates special risk considerations. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns for life of portfolio for Class A shares and for all periods shown for Class B shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Oak Strategic Equity VIP from 5/1/2001 to 12/31/2005 | ||
[] DWS Oak Strategic Equity VIP — Class A [] Russell 1000 Growth Index | The Russell 1000 Growth Index is an unmanaged index which consists of those stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | ||||
DWS Oak Strategic Equity VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $9,599 | $14,566 | $6,671 |
Average annual total return | -4.01% | 13.36% | -8.31% | |
Russell 1000 Growth Index | Growth of $10,000 | $10,526 | $14,518 | $9,350 |
Average annual total return | 5.26% | 13.23% | -1.43% | |
DWS Oak Strategic Equity VIP | 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 | $9,550 | $14,367 | $13,056 |
Average annual total return | -4.50% | 12.84% | 7.92% | |
Russell 1000 Growth Index | Growth of $10,000 | $10,526 | $14,518 | $13,216 |
Average annual total return | 5.26% | 13.23% | 8.29% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2001. Index returns begin April 30, 2001.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Oak Strategic Equity VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 portfolio limited these expenses for Class B shares; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,057.10 |
| $ 1,054.50 |
|
Expenses Paid per $1,000* | $ 5.50 |
| $ 7.35 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,019.86 |
| $ 1,018.05 |
|
Expenses Paid per $1,000* | $ 5.40 |
| $ 7.22 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Oak Strategic Equity VIP | 1.06% |
| 1.42% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Oak Strategic Equity VIP
DWS Oak Strategic Equity VIP returned -4.01% (Class A shares, unadjusted for contract charges) for the year ended December 31, 2005, compared with 5.26% by its benchmark, the Russell 1000 Growth Index.
Three-quarters of the Portfolio's underperformance was due to stock selection. The other one-quarter of underperformance was due to sector selection.
Stock selection within the information technology (IT) sector was particularly damaging. The Portfolio's holdings in Dell (not held in the Portfolio as of December 31, 2005) and Symantec Corp. hurt performance in this area the most. Stock selection within the consumer discretionary sector also detracted from performance, with eBay, Inc. falling 26% for the year.
Balancing underperformance, stock selection within the health care and financial sectors contributed to the Portfolio's performance. Affymetrix, Inc., Amgen, Inc., Teva Pharmaceutical Industries, Ltd. and Charles Schwab Corp. were all up more than 20%.
In regard to sector selection, the Portfolio's underweight in the energy sector and overweight1 in the IT sector were significant to performance. A strong rise in oil prices drove the Portfolio's benchmark higher (even though the benchmark has a weighting of only 2.57% in the energy sector); but it drove the Portfolio (which did not have an investment in the energy sector) 92 basis points lower. The energy and IT sectors often perform inversely, and the Portfolio's overweight in IT sector subtracted another 88 basis points. Balancing this, the Portfolio's underweight in the underperforming consumer areas boosted performance.
As we look at the economy, we continue to believe the trend is away from physical assets, such as commodities, and toward intellectual assets, such as technology and medicine. We believe this is confirmed by the backdrop of low interest rates and inflation, which tend to make hard assets less attractive. That said, with the underinvestment that has occurred in some of these areas, such as energy, there are going to be times when they outperform the knowledge-based sectors, as they did in 2005.
James D. Oelschlager
Portfolio Manager
Oak Associates, Ltd., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Risk Considerations
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The Portfolio may concentrate investments in specific sectors, which creates special risk considerations. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Russell 1000 Growth Index is an unmanaged index which consists of those stocks in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
1 "Overweight" means the Portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the Portfolio holds a lower weighting.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Oak Strategic Equity VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
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|
|
Common Stocks | 99% | 99% |
Cash Equivalents | 1% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Information Technology | 49% | 56% |
Health Care | 21% | 15% |
Consumer Discretionary | 12% | 9% |
Financials | 11% | 14% |
Industrials | 7% | 6% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 113. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Oak Strategic Equity VIP
|
| Value ($) |
|
| |
Common Stocks 99.1% | ||
Consumer Discretionary 11.7% | ||
Household Durables 2.0% | ||
Harman International Industries, Inc. | 15,000 | 1,467,750 |
Internet & Catalog Retail 9.7% | ||
Amazon.com, Inc.* | 62,000 | 2,923,300 |
eBay, Inc.* | 101,200 | 4,376,900 |
| 7,300,200 | |
Financials 10.8% | ||
Capital Markets 6.5% | ||
Charles Schwab Corp. | 335,400 | 4,920,318 |
Diversified Financial Services 4.3% | ||
Citigroup, Inc. | 65,800 | 3,193,274 |
Health Care 21.1% | ||
Biotechnology 8.6% | ||
Affymetrix, Inc.* (a) | 57,000 | 2,721,750 |
Amgen, Inc.* | 47,300 | 3,730,078 |
| 6,451,828 | |
Health Care Equipment & Supplies 4.8% | ||
Medtronic, Inc. | 63,000 | 3,626,910 |
Pharmaceuticals 7.7% | ||
Pfizer, Inc. | 96,200 | 2,243,384 |
Teva Pharmaceutical Industries Ltd. (ADR) | 83,000 | 3,569,830 |
| 5,813,214 | |
Industrials 7.3% | ||
Electrical Equipment 2.7% | ||
Rockwell Automation, Inc. | 34,000 | 2,011,440 |
Machinery 4.6% | ||
Caterpillar, Inc. | 59,800 | 3,454,646 |
Information Technology 48.2% | ||
Communications Equipment 14.5% | ||
Cisco Systems, Inc.* | 204,600 | 3,502,752 |
Juniper Networks, Inc.* | 134,900 | 3,008,270 |
QUALCOMM, Inc. | 101,500 | 4,372,620 |
| 10,883,642 | |
|
| Value ($) |
|
| |
Computers & Peripherals 2.5% | ||
Avid Technology, Inc.* (a) | 35,000 | 1,916,600 |
Electronic Equipment & Instruments 1.9% | ||
Symbol Technologies, Inc. | 113,600 | 1,456,352 |
Internet Software & Services 4.0% | ||
Google, Inc. "A"* | 7,200 | 2,986,992 |
IT Consulting & Services 4.5% | ||
Cognizant Technology Solutions Corp. "A"* | 67,500 | 3,398,625 |
Semiconductors & Semiconductor Equipment 13.0% | ||
Applied Materials, Inc. | 193,400 | 3,469,596 |
Linear Technology Corp. | 93,100 | 3,358,117 |
Maxim Integrated Products, Inc. | 80,950 | 2,933,628 |
| 9,761,341 | |
Software 7.8% | ||
Electronic Arts, Inc.* | 65,000 | 3,400,150 |
Symantec Corp.* | 141,000 | 2,467,500 |
| 5,867,650 | |
Total Common Stocks (Cost $67,105,407) | 74,510,782 | |
| ||
Securities Lending Collateral 5.4% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $4,093,342) | 4,093,342 | 4,093,342 |
| ||
Cash Equivalents 1.1% | ||
Cash Management QP Trust, 4.26% (d) (Cost $803,142) | 803,142 | 803,142 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $72,001,891)+ | 105.6 | 79,407,266 |
Other Assets and Liabilities, Net | (5.6) | (4,202,995) |
Net Assets | 100.0 | 75,204,271 |
Notes to DWS Oak Strategic Equity VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $72,010,417. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $7,396,849. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $11,331,216 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $3,934,367.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $4,029,642 which is 5.4% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $67,105,407) — including $4,029,642 of securities loaned | $ 74,510,782 |
Investment in Daily Assets Fund Institutional (cost $4,093,342)* | 4,093,342 |
Investment in Cash Management QP Trust (cost $803,142) | 803,142 |
Total investments in securities, at value (cost $72,001,891) | 79,407,266 |
Dividends receivable | 25,074 |
Interest receivable | 2,434 |
Receivable for Portfolio shares sold | 40,626 |
Other assets | 2,045 |
Total assets | 79,477,445 |
Liabilities | |
Payable for Portfolio shares redeemed | 54,018 |
Payable upon return of securities loaned | 4,093,342 |
Accrued management fee | 53,534 |
Other accrued expenses and payables | 72,280 |
Total liabilities | 4,273,174 |
Net assets, at value | $ 75,204,271 |
Net Assets | |
Net assets consist of: Accumulated distribution in excess of net investment income | (143) |
Net unrealized appreciation (depreciation) on investments | 7,405,375 |
Accumulated net realized gain (loss) | (9,744,999) |
Paid-in capital | 77,544,038 |
Net assets, at value | $ 75,204,271 |
Class A Net Asset Value, offering and redemption price per share ($54,725,040 ÷ 8,210,458 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 6.67 |
Class B Net Asset Value, offering and redemption price per share ($20,479,231 ÷ 3,110,602 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 6.58 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $1,435) | $ 573,804 |
Interest — Cash Management QP Trust | 16,185 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 4,067 |
Total Income | 594,056 |
Expenses: Management fee | 719,073 |
Custodian and accounting fees | 59,948 |
Distribution service fees (Class B) | 50,458 |
Record keeping fees (Class B) | 30,698 |
Auditing | 43,860 |
Legal | 14,817 |
Trustees' fees and expenses | 4,003 |
Reports to shareholders | 30,488 |
Other | 6,989 |
Total expenses before expense reductions | 960,334 |
Expense reductions | (9,552) |
Total expenses after expense reductions | 950,782 |
Net investment income (loss) | (356,726) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 1,188,803 |
Net unrealized appreciation (depreciation) during the period on investments | (4,994,935) |
Net gain (loss) on investment transactions | (3,806,132) |
Net increase (decrease) in net assets resulting from operations | $ (4,162,858) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ (356,726) | $ 9,115 |
Net realized gain (loss) on investment transactions | 1,188,803 | (429,310) |
Net unrealized appreciation (depreciation) during the period on investment transactions | (4,994,935) | 935,994 |
Net increase (decrease) in net assets resulting from operations | (4,162,858) | 515,799 |
Distributions to shareholders from: Net investment income: Class A | (9,542) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 2,962,547 | 11,773,909 |
Reinvestment of distributions | 9,542 | — |
Cost of shares redeemed | (15,883,679) | (16,798,283) |
Net increase (decrease) in net assets from Class A share transactions | (12,911,590) | (5,024,374) |
Class B Proceeds from shares sold | 3,152,311 | 12,325,908 |
Cost of shares redeemed | (3,375,229) | (1,539,908) |
Net increase (decrease) in net assets from Class B share transactions | (222,918) | 10,786,000 |
Increase (decrease) in net assets | (17,306,908) | 6,277,425 |
Net assets at beginning of period | 92,511,179 | 86,233,754 |
Net assets at end of period (including accumulated distribution in excess of net investment income and undistributed net investment income of $143 and $3,260, respectively) | $ 75,204,271 | $ 92,511,179 |
Other Information | ||
Class A Shares outstanding at beginning of period | 10,189,476 | 11,043,224 |
Shares sold | 457,824 | 1,718,999 |
Shares issued to shareholders in reinvestment of distributions | 1,534 | — |
Shares redeemed | (2,438,376) | (2,572,747) |
Net increase (decrease) in Class A shares | (1,979,018) | (853,748) |
Shares outstanding at end of period | 8,210,458 | 10,189,476 |
Class B Shares outstanding at beginning of period | 3,140,946 | 1,533,571 |
Shares sold | 492,232 | 1,851,499 |
Shares redeemed | (522,576) | (244,124) |
Net increase (decrease) in Class B shares | (30,344) | 1,607,375 |
Shares outstanding at end of period | 3,110,602 | 3,140,946 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 6.95 | $ 6.86 | $ 4.58 | $ 7.60 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | (.02) | .01 | (.03) | (.02) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | (.26) | .08 | 2.31 | (3.00) | (2.38) |
Total from investment operations | (.28) | .09 | 2.28 | (3.02) | (2.40) |
Less distributions from: Net investment income | .00d | — | — | — | — |
Net asset value, end of period | $ 6.67 | $ 6.95 | $ 6.86 | $ 4.58 | $ 7.60 |
Total Return (%) | (4.01) | 1.31 | 49.78 | (39.74) | (24.00)c** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 55 | 71 | 76 | 41 | 44 |
Ratio of expenses before expense reductions (%) | 1.10 | 1.10 | 1.13 | .96 | 1.44* |
Ratio of expenses after expense reductions (%) | 1.10 | 1.10 | 1.13 | .96 | 1.15* |
Ratio of net investment income (%) | (.35) | .08 | (.48) | (.30) | (.43)* |
Portfolio turnover rate (%) | 19 | 39 | 6 | 16 | 3* |
a For the period from May 1, 2001 (commencement of operations of Class A) to December 31, 2001. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Amount is less than $.005. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 6.89 | $ 6.83 | $ 4.58 | $ 5.04 |
Income (loss) from investment operations: Net investment income (loss)b | (.04) | (.02) | (.06) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | (.27) | .08 | 2.31 | (.44) |
Total from investment operations | (.31) | .06 | 2.25 | (.46) |
Net asset value, end of period | $ 6.58 | $ 6.89 | $ 6.83 | $ 4.58 |
Total Return (%) | (4.50)c | .88 | 49.13 | (9.13)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 20 | 22 | 10 | .4 |
Ratio of expenses before expense reductions (%) | 1.50 | 1.49 | 1.52 | 1.21* |
Ratio of expenses after expense reductions (%) | 1.46 | 1.49 | 1.52 | 1.21* |
Ratio of net investment income (%) | (.71) | (.20) | (.87) | (.68)* |
Portfolio turnover rate (%) | 19 | 39 | 6 | 16 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Salomon Aggressive Growth VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Stocks of medium-sized companies involve greater risk as they often have limited product lines, markets, or financial resources and may be sensitive to erratic and abrupt market movements more so than securities of larger, more-established companies. Additionally, the Portfolio may also focus its investments on certain industry sectors, thereby increasing its vulnerability to any single industry or regulatory development. All of these factors may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Salomon Aggressive Growth VIP from 5/1/2001 to 12/31/2005 | ||
[] DWS Salomon Aggressive Growth VIP — Class A [] Russell 3000 Growth Index+ [] Russell MidCap Growth Index | The Russell 3000 Growth Index+ is an unmanaged index that measures the performance of those Russell 3000 companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 3000 Growth Index. The Russell MidCap Growth Index is an unmanaged index that measures the performance of those Russell MidCap companies with higher price-to-book ratios and higher forecasted growth vales. The stocks are also members of the Russell 1000 Growth Index. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | ||||
DWS Salomon Aggressive Growth VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,354 | $17,237 | $10,480 |
Average annual total return | 13.54% | 19.90% | 1.01% | |
Russell 3000 Growth Index+ | Growth of $10,000 | $10,517 | $14,728 | $9,516 |
Average annual total return | 5.17% | 13.78% | -1.06% | |
Russell MidCap Growth Index | Growth of $10,000 | $11,210 | $18,474 | $12,252 |
Average annual total return | 12.10% | 22.70% | 4.45% | |
DWS Salomon Aggressive Growth VIP | 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 | $11,322 | $17,068 | $15,914 |
Average annual total return | 13.22% | 19.51% | 14.20% | |
Russell 3000 Growth Index+ | Growth of $10,000 | $10,517 | $14,728 | $13,340 |
Average annual total return | 5.17% | 13.78% | 8.58% | |
Russell MidCap Growth Index | Growth of $10,000 | $11,210 | $18,474 | $16,702 |
Average annual total return | 12.10% | 22.70% | 15.78% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2001. Index returns begin April 30, 2001.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
+ On August 1, 2005, the Russell 3000 Growth Index replaced the Russell MidCap Growth Index as the portfolio's benchmark index because the Advisor believes it is more appropriate to measure the portfolio's performance against the Russell 3000 Growth Index as it more accurately reflects the portfolio's new investment goal and strategy.
Information About Your Portfolio's Expenses
DWS Salomon Aggressive Growth VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,120.90 |
| $ 1,118.80 |
|
Expenses Paid per $1,000* | $ 5.51 |
| $ 7.58 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.01 |
| $ 1,018.05 |
|
Expenses Paid per $1,000* | $ 5.24 |
| $ 7.22 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Salomon Aggressive Growth VIP | 1.03% |
| 1.42% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Salomon Aggressive Growth VIP
Class A shares of DWS Salomon Aggressive Growth VIP1 returned 13.54% (unadjusted for contract charges) for the 12-month period ended December 31, 2005. In comparison, the benchmark Russell 3000 Growth Index returned 5.17% for the same period.
After trading in a limited range for most of the year, the broad stock market staged a rally in the fourth quarter of 2005. This helped produce both quarterly and annual gains for the equity market.
Energy sector stocks were clearly the biggest winners for the past year, buoyed by crude oil's temporary spike to over $70 per barrel in the wake of August's Hurricane Katrina. The Portfolio held an overweight position in energy for the period, with a focus on oil production services and equipment stocks that boosted performance.
Despite a relative underweight position in information technology (IT), the Portfolio's holdings in IT made a meaningful contribution to performance.
The Portfolio's overweight position in health care, with a concentration in biotechnology and biopharmaceuticals, along with a significant holding in the managed care industry, also helped performance.
While the Portfolio's financial sector holdings contributed to performance, holdings in the consumer discretionary sector, especially cable TV industry holdings, and industrials sector stocks detracted from performance for the period.
The Portfolio's top ten holdings as of December 31, 2005 were Lehman Brothers Holdings, Inc., UnitedHealth Group, Inc., Anadarko Petroleum Corp., Forest Laboratories, Inc., Weatherford International Ltd., Genzyme Corp., Amgen, Inc., Biogen Idec, Inc., Chiron Corp. and Tyco International Ltd. (Asset allocation is subject to change.)
Richard Freeman
Portfolio Manager
Salomon Brothers Asset Management, Inc., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distribution, and does not guarantee future results. Investment return and principal 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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract fees") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Stocks of medium-sized companies involve greater risk as they often have limited product lines, markets, or financial resources and may be sensitive to erratic and abrupt market movements more so than securities of larger, more-established companies. Additionally, the Portfolio may also focus its investments on certain industry sectors, thereby increasing its vulnerability to any single industry or regulatory development. All of these factors may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
1 Prior to August 1, 2005 the underlying Portfolio was called the SVS INVESCO Dynamic Growth Portfolio and was managed by another portfolio manager.
The Russell 3000 Growth Index is an unmanaged index that measures the performance of those Russell 3000 Index companies with higher price-to-book rations and higher forecasted growth values. Index returns assume reinvestment of dividends and, unlike portfolio returns, so not reflect any fees or expenses. It is not possible to invest directly in an index.
The Russell MidCap Growth Index is an unmanaged index that measures the performance of those Russell MidCap companies with higher price-to-book ratios and higher forecasted growth vales. The stocks are also members of the Russell 1000 Growth Index.
Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Salomon Aggressive Growth VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 92% | 94% |
Cash Equivalents | 6% | 5% |
Exchange Traded Funds | 2% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Health Care | 37% | 17% |
Information Technology | 16% | 22% |
Consumer Discretionary | 15% | 21% |
Energy | 13% | 6% |
Financials | 10% | 11% |
Industrials | 9% | 16% |
Telecommunication Services | — | 3% |
Materials | — | 3% |
Consumer Staples | — | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 6. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Salomon Aggressive Growth VIP
| Shares | Value ($) |
|
| |
Common Stocks 91.5% | ||
Consumer Discretionary 14.1% | ||
Media 13.7% | ||
Cablevision Systems Corp. (New York Group) "A"* | 39,000 | 915,330 |
Comcast Corp. "A"* | 6,000 | 155,760 |
Comcast Corp. (Special) "A"* | 67,000 | 1,721,230 |
Discovery Holding Co. "A"* | 8,000 | 121,200 |
Liberty Global, Inc. "A"* | 4,000 | 90,000 |
Liberty Global, Inc. "C"* | 4,100 | 86,920 |
Liberty Media Corp. "A"* | 102,000 | 802,740 |
Time Warner, Inc. | 84,500 | 1,473,680 |
Viacom, Inc. "B"* | 15,000 | 489,000 |
Walt Disney Co. | 31,500 | 755,055 |
6,610,915 | ||
Specialty Retail 0.4% | ||
Charming Shoppes, Inc.* | 13,800 | 182,160 |
Energy 11.9% | ||
Energy Equipment & Services 7.0% | ||
Grant Prideco, Inc.* | 26,400 | 1,164,768 |
Weatherford International Ltd.* | 61,000 | 2,208,200 |
3,372,968 | ||
Oil, Gas & Consumable Fuels 4.9% | ||
Anadarko Petroleum Corp. | 24,500 | 2,321,375 |
Financials 9.0% | ||
Capital Markets 8.5% | ||
Lehman Brothers Holdings, Inc. | 20,000 | 2,563,400 |
Merrill Lynch & Co., Inc. | 22,500 | 1,523,925 |
4,087,325 | ||
Diversified Financial Services 0.5% | ||
CIT Group, Inc. | 4,300 | 222,654 |
Health Care 34.3% | ||
Biotechnology 19.1% | ||
Amgen, Inc.* | 27,500 | 2,168,650 |
Biogen Idec, Inc.* | 45,500 | 2,062,515 |
Chiron Corp.* | 44,500 | 1,978,470 |
Genentech, Inc.* | 2,500 | 231,250 |
Genzyme Corp.* | 30,800 | 2,180,024 |
Millennium Pharmaceuticals, Inc.* | 30,900 | 299,730 |
Vertex Pharmaceuticals, Inc.* | 9,000 | 249,030 |
9,169,669 | ||
Health Care Equipment & Supplies 0.5% | ||
Biosite, Inc.* | 4,000 | 225,160 |
Health Care Providers & Services 5.2% | ||
UnitedHealth Group, Inc. | 40,000 | 2,485,600 |
Pharmaceuticals 9.5% | ||
Alkermes, Inc.* | 7,500 | 143,400 |
Forest Laboratories, Inc.* | 55,000 | 2,237,400 |
ImClone Systems, Inc.* | 20,000 | 684,800 |
Johnson & Johnson | 10,000 | 601,000 |
| Shares | Value ($) |
|
| |
King Pharmaceuticals, Inc.* | 25,000 | 423,000 |
Teva Pharmaceutical Industries Ltd. (ADR) | 4,000 | 172,040 |
Valeant Pharmaceuticals International | 17,000 | 307,360 |
4,569,000 | ||
Industrials 8.0% | ||
Aerospace & Defense 2.8% | ||
L-3 Communications Holdings, Inc. | 18,200 | 1,353,170 |
Industrial Conglomerates 4.0% | ||
Tyco International Ltd. | 67,000 | 1,933,620 |
Machinery 1.2% | ||
Pall Corp. | 21,500 | 577,490 |
Information Technology 14.2% | ||
Communications Equipment 2.7% | ||
C-COR, Inc.* | 15,000 | 72,900 |
Motorola, Inc. | 43,300 | 978,147 |
Nokia Oyj (ADR) | 14,000 | 256,200 |
1,307,247 | ||
Computers & Peripherals 3.3% | ||
Maxtor Corp.* | 62,500 | 433,750 |
SanDisk Corp.* | 18,000 | 1,130,760 |
1,564,510 | ||
Electronic Equipment & Instruments 0.0% | ||
Cogent, Inc.* | 126 | 2,858 |
Semiconductors & Semiconductor Equipment 7.2% | ||
Broadcom Corp. "A"* | 17,000 | 801,550 |
Cabot Microelectronics Corp.* | 5,000 | 146,650 |
Cirrus Logic, Inc.* | 15,000 | 100,200 |
Cree, Inc.* | 5,500 | 138,820 |
DSP Group, Inc.* | 6,000 | 150,360 |
Freescale Semiconductor, Inc. "B"* | 4,000 | 100,680 |
Intel Corp. | 18,500 | 461,760 |
Micron Technology, Inc.* | 93,000 | 1,237,830 |
RF Micro Devices, Inc.* | 19,000 | 102,790 |
Teradyne, Inc.* | 15,500 | 225,835 |
3,466,475 | ||
Software 1.0% | ||
Advent Software, Inc.* | 5,000 | 144,550 |
Autodesk, Inc. | 7,900 | 339,305 |
483,855 | ||
Total Common Stocks (Cost $41,163,214) | 43,936,051 | |
| ||
Exchange Traded Funds 2.0% | ||
Nasdaq-100 Index Tracking Stock (Cost $966,394) | 24,500 | 990,290 |
| ||
Cash Equivalents 6.1% | ||
Cash Management QP Trust, 4.26% (a) (Cost $2,913,689) | 2,913,689 | 2,913,689 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $45,043,297)+ | 99.6 | 47,840,030 |
Other Assets and Liabilities, Net | 0.4 | 186,212 |
Net Assets | 100.0 | 48,026,242 |
Notes to DWS Salomon Aggressive Growth VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $45,043,635. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $2,796,395. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $4,014,439 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,218,044.
(a) 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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $42,129,608) | $ 44,926,341 |
Investment in Cash Management QP Trust (cost $2,913,689) | 2,913,689 |
Total investments in securities, at value (cost $45,043,297) | 47,840,030 |
Cash | 10,000 |
Dividends receivable | 20,464 |
Interest receivable | 4,461 |
Receivable for Portfolio share sold | 219,176 |
Foreign taxes recoverable | 34 |
Due from Advisor | 13,256 |
Other assets | 1,348 |
Total assets | 48,108,769 |
Liabilities | |
Payable for investments purchased | 1,920 |
Accrued management fee | 4,372 |
Other accrued expenses and payables | 76,235 |
Total liabilities | 82,527 |
Net assets, at value | $ 48,026,242 |
Net Assets | |
Net assets consist of: Accumulated net investment (loss) | (96) |
Net unrealized appreciation (depreciation) on investments | 2,796,733 |
Accumulated net realized gain (loss) | 8,377,555 |
Paid-in capital | 36,852,050 |
Net assets, at value | $ 48,026,242 |
Class A Net Asset Value, offering and redemption price per share ($40,102,204 ÷ 3,827,569 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.48 |
Class B Net Asset Value, offering and redemption price per share ($7,924,038 ÷ 765,201 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.36 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $714) | $ 205,820 |
Interest | 1,950 |
Interest — Cash Management QP Trust | 69,308 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 3,336 |
Total Income | 280,414 |
Expenses: Management fee | 387,680 |
Custodian and accounting fees | 93,465 |
Distribution service fees (Class B) | 18,686 |
Record keeping fees (Class B) | 10,854 |
Auditing | 44,105 |
Legal | 61,450 |
Trustees' fees and expenses | 1,621 |
Reports to shareholders | 16,141 |
Other | 7,952 |
Total expenses before expense reductions | 641,954 |
Expense reductions | (121,031) |
Total expenses after expense reductions | 520,923 |
Net investment income (loss) | (240,509) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 11,411,158 |
Foreign currency related transactions | (3,917) |
| 11,407,241 |
Net unrealized appreciation (depreciation) during the period on: Investments | (5,770,378) |
Foreign currency related transactions | (40) |
| (5,770,418) |
Net gain (loss) on investment transactions | 5,636,823 |
Net increase (decrease) in net assets resulting from operations | $ 5,396,314 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ (240,509) | $ (298,559) |
Net realized gain (loss) on investment transactions | 11,407,241 | 4,643,201 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (5,770,418) | 85,672 |
Net increase (decrease) in net assets resulting from operations | 5,396,314 | 4,430,314 |
Portfolio share transactions: Class A Proceeds from shares sold | 6,159,388 | 4,190,288 |
Cost of shares redeemed | (5,441,650) | (7,454,938) |
Net increase (decrease) in net assets from Class A share transactions | 717,738 | (3,264,650) |
Class B Proceeds from shares sold | 1,219,223 | 3,116,161 |
Cost of shares redeemed | (1,500,940) | (1,201,557) |
Net increase (decrease) in net assets from Class B share transactions | (281,717) | 1,914,604 |
Increase (decrease) in net assets | 5,832,335 | 3,080,268 |
Net assets at beginning of period | 42,193,907 | 39,113,639 |
Net assets at end of period (including accumulated net investment loss of $96 and $213, respectively) | $ 48,026,242 | $ 42,193,907 |
Other Information | ||
Class A Shares outstanding at beginning of period | 3,784,410 | 4,185,184 |
Shares sold | 612,692 | 493,942 |
Shares redeemed | (569,533) | (894,716) |
Net increase (decrease) in Class A shares | 43,159 | (400,774) |
Shares outstanding at end of period | 3,827,569 | 3,784,410 |
Class B Shares outstanding at beginning of period | 793,650 | 562,802 |
Shares sold | 129,308 | 370,510 |
Shares redeemed | (157,757) | (139,662) |
Net increase (decrease) in Class B shares | (28,449) | 230,848 |
Shares outstanding at end of period | 765,201 | 793,650 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 9.23 | $ 8.24 | $ 6.08 | $ 8.80 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | (.05) | (.06) | (.06) | (.05) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | 1.30 | 1.05 | 2.22 | (2.67) | (1.18) |
Total from investment operations | 1.25 | .99 | 2.16 | (2.72) | (1.20) |
Net asset value, end of period | $ 10.48 | $ 9.23 | $ 8.24 | $ 6.08 | $ 8.80 |
Total Return (%) | 13.54c | 12.01c | 35.53c | (30.91) | (12.00)c** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 40 | 35 | 34 | 25 | 23 |
Ratio of expenses before expense reductions (%) | 1.44 | 1.48 | 1.46 | 1.14 | 1.97* |
Ratio of expenses after expense reductions (%) | 1.16 | 1.30 | 1.30 | 1.14 | 1.30* |
Ratio of net investment income (loss) (%) | (.50) | (.71) | (.85) | (.71) | (.40)* |
Portfolio turnover rate (%) | 166 | 133 | 115 | 79 | 40* |
a For the period from May 1, 2001 (commencement of operations) to December 31, 2001. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 9.15 | $ 8.21 | $ 6.07 | $ 6.51 |
Income (loss) from investment operations: Net investment income (loss)b | (.09) | (.09) | (.09) | (.03) |
Net realized and unrealized gain (loss) on investment transactions | 1.30 | 1.03 | 2.23 | (.41) |
Total from investment operations | 1.21 | .94 | 2.14 | (.44) |
Net asset value, end of period | $ 10.36 | $ 9.15 | $ 8.21 | $ 6.07 |
Total Return (%) | 13.22c | 11.45c | 35.26c | (6.76)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 8 | 7 | 5 | .1 |
Ratio of expenses before expense reductions (%) | 1.84 | 1.88 | 1.85 | 1.40* |
Ratio of expenses after expense reductions (%) | 1.55 | 1.70 | 1.69 | 1.40* |
Ratio of net investment income (loss) (%) | (.89) | (1.11) | (1.24) | (.82)* |
Portfolio turnover rate (%) | 166 | 133 | 115 | 79 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Small Cap Growth VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, stocks of small companies involve greater risk than securities of larger, more-established companies, as they often have limited product lines, markets or financial resources and may be subject to more erratic and abrupt market movements. Finally, derivatives may be more volatile and less liquid than traditional securities and the Portfolio could suffer losses on its derivatives positions. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods for Class B shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns for Class B shares would have been lower.
Growth of an Assumed $10,000 Investment in DWS Small Cap Growth VIP from 12/31/1995 to 12/31/2005 | ||
[] DWS Small Cap Growth VIP — Class A [] Russell 2000 Growth Index | The Russell 2000 Growth Index is an unmanaged index (with no defined investment objective) of those securities in the Russell 2000 Index with a higher price-to-book ratio and higher forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Small Cap Growth VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,707 | $15,803 | $7,486 | $18,295 |
Average annual total return | 7.07% | 16.48% | -5.63% | 6.23% | |
Russell 2000 Growth Index | Growth of $10,000 | $10,415 | $17,685 | $11,195 | $15,807 |
Average annual total return | 4.15% | 20.93% | 2.28% | 4.69% | |
DWS Small Cap Growth VIP |
| 1-Year | 3-Year | Life of Class* | |
Class B | Growth of $10,000 |
| $10,673 | $15,634 | $14,185 |
Average annual total return |
| 6.73% | 16.06% | 10.51% | |
Russell 2000 Growth Index | Growth of $10,000 |
| $10,415 | $17,685 | $14,921 |
Average annual total return |
| 4.15% | 20.93% | 12.11% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Small Cap Growth VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses for Class B; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,059.70 |
| $ 1,058.00 |
|
Expenses Paid per $1,000* | $ 3.74 |
| $ 5.65 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,021.58 |
| $ 1,019.71 |
|
Expenses Paid per $1,000* | $ 3.67 |
| $ 5.55 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Small Cap Growth VIP | .72% |
| 1.09% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Small Cap Growth VIP
The stock market was weighed down by concerns over rising interest rates and the possibility of a resurgence in inflation during the 12-month period ended December 31, 2005. Expressing concern about inflation, the US Federal Reserve Board (the Fed) has been raising short-term interest rates steadily since June 2004, but long-term rates continue to remain near historical lows. On the plus side, the US economy appears to be somewhat stronger than what might be expected at this stage of an expansion. Gross domestic product has expanded for 16 consecutive quarters, beginning in the fourth quarter of 2001, and corporate profits are still increasing. Other positive signs in 2005, which contributed to performance, included increases in business investment in capital projects and information technology.
For its most recent fiscal year, the Portfolio returned 7.07% (Class A shares, unadjusted for contract charges), outperforming the 4.15% return of the Russell 2000 Growth Index.
During the 12-month period, the Portfolio benefited from strong stock selection within the health care, information technology and consumer discretionary sectors. Although the Portfolio's energy holdings delivered strong positive returns, they underperformed their energy counterparts in the benchmark index. An underweight in industrials also detracted from performance. Going forward, the managers are optimistic that the Portfolio will perform well in the current market environment.
Samuel A. Dedio
Robert S. Janis
Co-Lead Portfolio Managers
Deutsche Investment Management Americas Inc.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, stocks of small companies involve greater risk than securities of larger, more-established companies, as they often have limited product lines, markets or financial resources and may be subject to more erratic and abrupt market movements. Finally, derivatives may be more volatile and less liquid than traditional securities and the Portfolio could suffer losses on its derivatives positions. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
The Russell 2000 Growth Index is an unmanaged index (with no defined investment objective) of those securities in the Russell 2000 Index with a higher price-to-book ratio and higher forecasted growth values. Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Small Cap Growth VIP
Asset Allocation (Excludes Security Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 99% | 97% |
Cash Equivalent | 1% | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Health Care | 30% | 24% |
Information Technology | 23% | 29% |
Consumer Discretionary | 17% | 22% |
Financials | 12% | 8% |
Energy | 9% | 3% |
Consumer Staples | 4% | 5% |
Industrials | 4% | 8% |
Telecommunication Services | 1% | — |
Materials | — | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 15. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Small Cap Growth VIP
|
| Value ($) |
|
| |
Common Stocks 99.1% | ||
Consumer Discretionary 16.5% | ||
Hotels Restaurants & Leisure 9.8% | ||
Buffalo Wild Wings, Inc.* (a) | 95,000 | 3,154,950 |
McCormick & Schmick's Seafood Restaurants, Inc.* | 118,600 | 2,681,546 |
Orient-Express Hotels Ltd. "A" | 155,800 | 4,910,816 |
P.F. Chang's China Bistro, Inc.* | 126,100 | 6,258,343 |
Red Robin Gourmet Burgers, Inc.* (a) | 120,000 | 6,115,200 |
Shuffle Master, Inc.* (a) | 180,700 | 4,542,798 |
| 27,663,653 | |
Textiles, Apparel & Luxury Goods 6.7% | ||
Gildan Activewear, Inc. "A"* | 150,100 | 6,431,785 |
Guess?, Inc.* | 249,700 | 8,889,320 |
The Warnaco Group, Inc.* | 134,500 | 3,593,840 |
| 18,914,945 | |
Consumer Staples 4.4% | ||
Food & Staples Retailing 2.1% | ||
Herbalife Ltd.* | 182,400 | 5,931,648 |
Household Products 2.3% | ||
Jarden Corp.* (a) | 217,050 | 6,544,058 |
Energy 9.1% | ||
Energy Equipment & Services 4.7% | ||
Atwood Oceanics, Inc.* | 61,500 | 4,798,845 |
Dresser-Rand Group, Inc.* | 120,700 | 2,918,526 |
Grey Wolf, Inc.* | 726,000 | 5,611,980 |
| 13,329,351 | |
Oil, Gas & Consumable Fuels 4.4% | ||
Bill Barrett Corp.* | 174,700 | 6,745,167 |
Comstock Resources, Inc.* | 185,400 | 5,656,554 |
| 12,401,721 | |
Financials 12.0% | ||
Banks 6.8% | ||
PrivateBancorp, Inc. | 115,800 | 4,119,006 |
Signature Bank* | 206,500 | 5,796,455 |
Texas Capital Bancshares, Inc.* | 168,700 | 3,780,567 |
Wintrust Financial Corp. | 101,800 | 5,588,820 |
| 19,284,848 | |
Consumer Finance 3.4% | ||
Euronet Worldwide, Inc.* | 221,800 | 6,166,040 |
Heartland Payment Systems, Inc.* (a) | 157,900 | 3,420,114 |
| 9,586,154 | |
Diversified Financial Services 1.8% | ||
National Financial Partners Corp. | 94,700 | 4,976,485 |
Health Care 29.7% | ||
Health Care Equipment & Supplies 8.2% | ||
American Medical Systems Holdings, Inc.* | 244,100 | 4,352,303 |
ArthroCare Corp.* | 157,400 | 6,632,836 |
|
| Value ($) |
|
| |
Hologic, Inc.* | 127,800 | 4,846,176 |
Schick Technologies, Inc.* | 98,500 | 3,246,461 |
Viasys Healthcare, Inc.* | 155,100 | 3,986,070 |
| 23,063,846 | |
Health Care Providers & Services 18.5% | ||
Amedisys, Inc.* (a) | 169,000 | 7,138,560 |
American Healthways, Inc.* (a) | 126,500 | 5,724,125 |
AMERIGROUP Corp.* | 299,100 | 5,820,486 |
Centene Corp.* | 301,400 | 7,923,806 |
Chemed Corp. | 107,300 | 5,330,664 |
Eclipsys Corp.* | 242,000 | 4,581,060 |
HealthExtras, Inc.* | 153,500 | 3,852,850 |
LCA-Vision, Inc. (a) | 121,400 | 5,767,714 |
Psychiatric Solutions, Inc.* | 100,500 | 5,903,370 |
| 52,042,635 | |
Pharmaceuticals 3.0% | ||
Adams Respiratory Therapeutics, Inc.* (a) | 100,600 | 4,090,396 |
ViroPharma, Inc.* | 236,700 | 4,390,785 |
| 8,481,181 | |
Industrials 3.7% | ||
Machinery | ||
Actuant Corp. "A" | 118,900 | 6,634,620 |
Watts Water Technologies, Inc. "A" | 125,600 | 3,804,424 |
| 10,439,044 | |
Information Technology 23.1% | ||
Communications Equipment 2.4% | ||
Foundry Networks, Inc.* | 488,500 | 6,746,185 |
Electronic Equipment & Instruments 1.5% | ||
Cognex Corp. | 139,400 | 4,194,546 |
Internet Software & Services 4.3% | ||
Digital River, Inc.* (a) | 221,300 | 6,581,462 |
j2 Global Communications, Inc.* (a) | 133,300 | 5,697,242 |
| 12,278,704 | |
Semiconductors & Semiconductor Equipment 6.2% | ||
FormFactor, Inc.* | 213,600 | 5,218,248 |
Power Integrations, Inc.* | 262,100 | 6,240,601 |
Semtech Corp.* | 324,800 | 5,930,848 |
| 17,389,697 | |
Software 8.7% | ||
Hyperion Solutions Corp.* | 180,300 | 6,458,346 |
Kronos, Inc.* | 99,200 | 4,152,512 |
Mentor Graphics Corp.* | 635,400 | 6,570,036 |
THQ, Inc.* | 307,250 | 7,327,913 |
| 24,508,807 | |
Telecommunication Services 0.6% | ||
Wireless Telecommunication Services | ||
WiderThan Co., Ltd. (ADR)* | 107,100 | 1,622,565 |
Total Common Stocks (Cost $229,588,114) | 279,400,073 | |
|
| Value ($) |
|
| |
Preferred Stocks 0.0% | ||
Information Technology | ||
Software | ||
FusionOne "D"* (b) (Cost $1,250,002) | 230,203 | 0 |
| ||
Securities Lending Collateral 16.1% | ||
Daily Assets Fund Institutional, 4.28% (c) (d) (Cost $45,223,925) | 45,223,925 | 45,223,925 |
|
| Value ($) |
|
| |
Cash Equivalents 1.1% | ||
Cash Management QP Trust, 4.26% (e) (Cost $3,043,683) | 3,043,683 | 3,043,683 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $279,105,724)+ | 116.3 | 327,667,681 |
Other Assets and Liabilities, Net | (16.3) | (45,832,173) |
Net Assets | 100.0 | 281,835,508 |
Notes to DWS Small Cap Growth VIP Portfolio of Investments
+ The cost for federal income tax purposes was $279,201,364. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $48,466,317. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $52,589,521 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $4,123,204.
* Non-income producing security.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $43,751,161 which is 15.5% of net assets.
(b) The Portfolio may purchase securities that are subject to legal or contractual restrictions on resale ("restricted securities"). Restricted securities are securities which have not been registered with the Securities and Exchange Commission under the Securities Act of 1933. The Portfolio may be unable to sell a restricted security and it may be more difficult to determine a market value for a restricted security. Moreover, if adverse market conditions were to develop during the period between the Portfolio's decision to sell a restricted security and the point at which the Portfolio is permitted or able to sell such security, the Portfolio might obtain a price less favorable than the price that prevailed when it decided to sell. This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Portfolio. The future value of these securities is uncertain and there may be changes in the estimated value of these securities.
Schedule of Restricted Securities
Restricted Security | Acquisition Date | Acquisition Cost ($) | Value ($) | As % of Net Assets |
FusionOne "D" | October 2000 | 1,250,002 | 0 | 0% |
(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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $230,838,116) — including $43,751,161 of securities loaned | $ 279,400,073 |
Investment in Daily Assets Fund Institutional (cost $45,223,925)* | 45,223,925 |
Investment in Cash Management QP Trust (cost $3,043,683) | 3,043,683 |
Total investments in securities, at value (cost $279,105,724) | 327,667,681 |
Receivable for investments sold | 208,066 |
Dividends receivable | 14,205 |
Interest receivable | 32,196 |
Receivable for Portfolio shares sold | 31,237 |
Other assets | 8,540 |
Total assets | 327,961,925 |
Liabilities | |
Payable for Fund shares redeemed | 652,450 |
Payable upon return of securities loaned | 45,223,925 |
Accrued management fee | 160,837 |
Other accrued expenses and payables | 89,205 |
Total liabilities | 46,126,417 |
Net assets, at value | $ 281,835,508 |
Net Assets | |
Net assets consist of: Accumulated net investment loss | (11,255) |
Net unrealized appreciation (depreciation) on investments | 48,561,957 |
Accumulated net realized gain (loss) | (135,624,816) |
Paid-in capital | 368,909,622 |
Net assets, at value | $ 281,835,508 |
Class A Net Asset Value, offering and redemption price per share ($243,106,860 ÷ 18,035,147 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.48 |
Class B Net Asset Value, offering and redemption price per share ($38,728,648 ÷ 2,908,589 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.32 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends | $ 330,239 |
Interest — Cash Management QP Trust | 190,158 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 115,056 |
Total Income | 635,453 |
Expenses: Management fee | 1,681,135 |
Custodian fees | 17,101 |
Distribution service fees (Class B) | 85,045 |
Record keeping fees (Class B) | 51,342 |
Auditing | 59,636 |
Legal | 9,966 |
Trustees' fees and expenses | 9,755 |
Reports to shareholders | 64,028 |
Other | 20,959 |
Total expenses before expense reductions | 1,998,967 |
Expense reductions | (14,458) |
Total expenses after expense reductions | 1,984,509 |
Net investment income (loss) | (1,349,056) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 24,013,018 |
Net realized gains on investments not meeting investment guidelines of the Portfolio | 49,496 |
Net unrealized appreciation (depreciation) during the period on investments | (117,156) |
Net gain (loss) on investment transactions | 23,945,358 |
Net increase (decrease) in net assets resulting from operations | $ 22,596,302 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ (1,349,056) | $ (1,143,378) |
Net realized gain (loss) on investment transactions | 24,013,018 | 9,898,921 |
Net realized gains on investments not meeting investment guidelines of the Portfolio | 49,496 | — |
Net unrealized appreciation (depreciation) during the period on investment transactions | (117,156) | 14,522,914 |
Net increase (decrease) in net assets resulting from operations | 22,596,302 | 23,278,457 |
Portfolio share transactions: Class A Proceeds from shares sold | 24,384,647 | 41,819,691 |
Net assets acquired in tax free reorganization | 37,649,364 | — |
Cost of shares redeemed | (48,722,289) | (62,320,969) |
Net increase (decrease) in net assets from Class A share transactions | 13,311,722 | (20,501,278) |
Class B Proceeds from shares sold | 11,204,648 | 11,462,792 |
Net assets acquired in tax free reorganization | 7,786,470 | — |
Cost of shares redeemed | (11,469,498) | (1,207,862) |
Net increase (decrease) in net assets from Class B share transactions | 7,521,620 | 10,254,930 |
Increase (decrease) in net assets | 43,429,644 | 13,032,109 |
Net assets at beginning of period | 238,405,864 | 225,373,755 |
Net assets at end of period (including accumulated net investment loss of $11,255 and $1,853, respectively) | $ 281,835,508 | $ 238,405,864 |
Other Information | ||
Class A Shares outstanding at beginning of period | 16,708,714 | 18,522,593 |
Shares sold | 1,926,487 | 3,534,946 |
Shares issued in tax free reorganization | 3,256,621 | — |
Shares redeemed | (3,856,675) | (5,348,825) |
Net increase (decrease) in Class A shares | 1,326,433 | (1,813,879) |
Shares outstanding at end of period | 18,035,147 | 16,708,714 |
Class B Shares outstanding at beginning of period | 2,250,352 | 1,358,975 |
Shares sold | 951,158 | 996,848 |
Shares issued in tax free reorganization | 680,062 | — |
Shares redeemed | (972,983) | (105,471) |
Net increase (decrease) in Class B shares | 658,237 | 891,377 |
Shares outstanding at end of period | 2,908,589 | 2,250,352 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.59 | $ 11.34 | $ 8.53 | $ 12.80 | $ 21.64 |
Income (loss) from investment operations: Net investment income (loss)a | (.06) | (.05) | (.04) | (.02) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | .95 | 1.30 | 2.85 | (4.25) | (6.27) |
Total from investment operations | .89 | 1.25 | 2.81 | (4.27) | (6.29) |
Less distributions from: Net realized gain on investment transactions | — | — | — | — | (2.52) |
Return of capital | — | — | — | — | (.03) |
Total distributions | — | — | — | — | (2.55) |
Net asset value, end of period | $ 13.48 | $ 12.59 | $ 11.34 | $ 8.53 | $ 12.80 |
Total Return (%) | 7.07b | 11.02 | 32.94 | (33.36) | (28.91) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 243 | 210 | 210 | 154 | 232 |
Ratio of expenses (%) | .72 | .71 | .69 | .71 | .68 |
Ratio of net investment income (loss) (%) | (.47) | (.47) | (.41) | (.24) | (.12) |
Portfolio turnover rate (%) | 94 | 117 | 123 | 68 | 143 |
a Based on average shares outstanding during the period. b In 2005, the Portfolio realized a gain of $49,496 on the disposal of an investment not meeting the Portfolio's investment restrictions. This gain had no effect on the total return. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.48 | $ 11.29 | $ 8.52 | $ 9.39 |
Income (loss) from investment operations: Net investment income (loss)b | (.11) | (.10) | (.09) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | .95 | 1.29 | 2.86 | (.85) |
Total from investment operations | .84 | 1.19 | 2.77 | (.87) |
Net asset value, end of period | $ 13.32 | $ 12.48 | $ 11.29 | $ 8.52 |
Total Return (%) | 6.73d | 10.54 | 32.51 | (9.27)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 39 | 28 | 15 | .5 |
Ratio of expenses before expense reductions (%) | 1.12 | 1.10 | 1.08 | .96* |
Ratio of expenses after expense reductions (%) | 1.09 | 1.09 | 1.08 | .96* |
Ratio of net investment income (loss) (%) | (.84) | (.85) | (.80) | (.39)* |
Portfolio turnover rate (%) | 94 | 117 | 123 | 68 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d In 2005, the Portfolio realized a gain of $49,496 on the disposal of an investment not meeting the Portfolio's investment restrictions. This gain had no effect on the total return. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Strategic Income VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio 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 price of the bonds, and thus the value of the bond fund, can decline and the investor can lose principal value. Additionally, investments by the Portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. Finally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. All of these factors may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods for Class B shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Strategic Income VIP from 5/1/1997 to 12/31/2005 | ||
[] DWS Strategic Income VIP — Class A [] Citigroup World Government Bond Index [] JP Morgan Emerging Markets Bond Plus Index [] Merrill Lynch High Yield Master Index [] Lehman Brothers US Treasury Index | The Citigroup World Government Bond Index (formerly known as Salomon Smith Barney World Government Bond Index) is an unmanaged index comprised of government bonds from 18 developed countries (including the US) with maturities greater than one year. JP Morgan Emerging Markets Bond Plus Index is an unmanaged foreign securities index of US dollar- and other external-currency-denominated Brady bonds, loans, Eurobonds and local market debt instruments traded in emerging markets. The Merrill Lynch High Yield Master Index is an unmanaged index which tracks the performance of below investment grade US dollar- denominated corporate bonds publicly issued in the US domestic market. Lehman Brothers US Treasury Index is an unmanaged index reflecting the performance of all public obligations and does not focus on one particular segment of the Treasury market. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Strategic Income VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,238 | $11,991 | $14,044 | $15,485 |
Average annual total return | 2.38% | 6.24% | 7.03% | 5.18% | |
Citigroup World Government Bond Index | Growth of $10,000 | $9,312 | $11,809 | $13,971 | $16,526 |
Average annual total return | -6.88% | 5.70% | 6.92% | 5.97% | |
JP Morgan Emerging Markets Bond Plus Index | Growth of $10,000 | $11,186 | $16,107 | $18,255 | $24,814 |
Average annual total return | 11.86% | 17.22% | 12.79% | 11.05% | |
Merrill Lynch High Yield Master Index | Growth of $10,000 | $10,283 | $14,491 | $15,214 | $17,015 |
Average annual total return | 2.83% | 13.16% | 8.76% | 6.32% | |
Lehman Brothers US Treasury Index | Growth of $10,000 | $10,284 | $12,091 | $15,207 | $18,844 |
Average annual total return | 2.84% | 6.53% | 8.74% | 7.58% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1997. Index returns begin April 30, 1997.
Comparative Results | |||||
DWS Strategic Income VIP |
|
| 1-Year | Life of Class** | |
Class B | Growth of $10,000 |
|
| $10,192 | $11,363 |
Average annual total return |
|
| 1.92% | 4.91% | |
Citigroup World Government Bond Index | Growth of $10,000 |
|
| $9,312 | $11,317 |
Average annual total return |
|
| -6.88% | 4.75% | |
JP Morgan Emerging Markets Bond Plus Index | Growth of $10,000 |
|
| $11,186 | $14,091 |
Average annual total return |
|
| 11.86% | 13.71% | |
Merrill Lynch High Yield Master Index | Growth of $10,000 |
|
| $10,283 | $12,835 |
Average annual total return |
|
| 2.83% | 9.81% | |
Lehman Brothers US Treasury Index | Growth of $10,000 |
|
| $10,284 | $11,788 |
Average annual total return |
|
| 2.84% | 6.36% |
The growth of $10,000 is cumulative.
** The Portfolio commenced offering Class B shares on May 1, 2003. Index returns begin April 30, 2003.
Information About Your Portfolio's Expenses
DWS Strategic Income VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses for Class B shares; had it not done so, expenses for Class B shares would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,009.70 |
| $ 1,007.00 |
|
Expenses Paid per $1,000* | $ 4.61 |
| $ 6.12 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.62 |
| $ 1,019.11 |
|
Expenses Paid per $1,000* | $ 4.63 |
| $ 6.16 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Strategic Income VIP | .91% |
| 1.21% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Strategic Income VIP
For the year, performance of the bond markets was mixed. Credit markets began to show more volatility as a result of investors' concerns over rising interest rates, higher commodity prices, credit-specific events, and natural global disasters. Despite these concerns, emerging markets debt and high-yield continued to exhibit sound fundamentals and outperformed most other fixed income asset classes. As interest rates continued to rise, the US Treasury yield curve flattened, and the US dollar non-hedged performance of international bonds trailed returns of other bond markets due primarily to strength in the US dollar.
The Portfolio posted a 2.38% total return for the period ending December 31, 2005 (Class A shares, unadjusted for contract charges). This compares with the portfolio benchmarks' returns of 11.86% for the JP Morgan Emerging Markets Bond Plus Index, 2.83% for the Merrill Lynch High Yield Master Index, 2.84% for the Lehman Brothers US Treasury Index and -6.88% for the Citigroup World Government Bond Index (US dollar terms — unhedged). (Please see page 20 for standardized performance as of December 31, 2005.)
During the year, we modestly decreased our exposure to high-yield bonds in view of the narrower yield advantage they provided, and consequently we increased our allocation to emerging market bonds. Our allocation to emerging markets and high-yield helped returns. In addition to the high-yield and emerging markets sectors, the Portfolio is also invested in high quality sovereign, agency and provincial bonds. These include US Treasury bonds, as well as debt of the United Kingdom, countries within the European Union and Yen-denominated bonds. Our Yen and euro exposure detracted from returns, as these currencies depreciated against the US dollar for the year.
William Chepolis, CFA
Andrew P. Cestone Robert Wang
Lead Portfolio Manager Portfolio Managers
Deutsche Investment Management Americas Inc
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
The Portfolio 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 investment, can decline and the investor can lose principal value. Additionally, investments by the Portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. Finally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. All of these factors may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The JP Morgan Emerging Markets Bond Plus Index is an unmanaged foreign securities index of US dollar and other external-currency-denominated Brady bonds, loans, Eurobonds and local market debt instruments traded in emerging markets.
The Merrill Lynch High Yield Master Index is an unmanaged index which tracks the performance of below-investment-grade US dollar-denominated corporate bonds publicly issued in the United States domestic market.
The Lehman Brothers US Treasury Index is an unmanaged index reflecting the performance of all public obligations and does not focus on one particular segment of the Treasury market.
The Citigroup World Government Bond Index (formerly known as Salomon Smith Barney World Government Bond Index) is an unmanaged index comprised of government bonds from 18 developed countries, including the US, with maturities greater than one year.
Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Strategic Income VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Corporate Bonds | 35% | 40% |
Foreign Bonds — US$ Denominated | 24% | 21% |
Foreign Bonds — Non US$ Denominated | 18% | 19% |
US Treasury Obligations | 15% | 13% |
Cash Equivalents | 5% | 2% |
US Government Sponsored Agencies | 2% | 4% |
Other | 1% | 1% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
AAA* | 31% | 30% |
AA | 1% | 2% |
A | 4% | 4% |
BBB | 6% | 5% |
BB | 20% | 16% |
B | 25% | 31% |
CCC | 5% | 6% |
Below CC | — | 1% |
Not Rated | 8% | 5% |
| 100% | 100% |
* Includes cash equivalents
Interest Rate Sensitivity | 12/31/05 | 12/31/04 |
|
|
|
Average maturity | 7.6 years | 7.5 years |
Average duration | 5.0 years | 5.4 years |
Asset allocation, quality and interest rate sensitivity are subject to change.
The quality ratings represent the lower of Moody's Investors Service, 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 Portfolio's credit quality does not remove market risk.
For more complete details about the Portfolio's investment portfolio, see page 25. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Strategic Income VIP
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 34.2% | ||
Consumer Discretionary 8.4% | ||
155 East Tropicana LLC, 8.75%, 4/1/2012 | 85,000 | 81,812 |
Adesa, Inc., 7.625%, 6/15/2012 | 30,000 | 29,850 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 135,000 | 106,650 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 (b) | 170,000 | 153,850 |
AutoNation, Inc., 9.0%, 8/1/2008 | 100,000 | 107,375 |
Aztar Corp., 7.875%, 6/15/2014 (b) | 205,000 | 214,737 |
Cablevision Systems Corp., Series B, 8.716%**, 4/1/2009 | 40,000 | 40,400 |
Caesars Entertainment, Inc.: |
|
|
8.875%, 9/15/2008 | 50,000 | 54,063 |
9.375%, 2/15/2007 | 55,000 | 57,269 |
Charter Communications Holdings LLC: |
|
|
9.625%, 11/15/2009 | 50,000 | 37,000 |
10.25%, 9/15/2010 | 330,000 | 328,350 |
144A, 11.0%, 10/1/2015 | 346,000 | 290,640 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 (b) | 145,000 | 110,200 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 50,000 | 49,875 |
7.875%, 12/15/2007 | 190,000 | 193,325 |
Dex Media East LLC/Financial, 12.125%, 11/15/2012 | 466,000 | 545,220 |
Dura Operating Corp., Series B, 8.625%, 4/15/2012 (b) | 155,000 | 127,875 |
EchoStar DBS Corp., 6.625%, 10/1/2014 | 55,000 | 52,731 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 80,000 | 84,600 |
Ford Motor Co., 7.45%, 7/16/2031 (b) | 25,000 | 17,000 |
General Motors Corp., 8.25%, 7/15/2023 (b) | 25,000 | 16,063 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 205,000 | 229,600 |
Gregg Appliances, Inc., 9.0%, 2/1/2013 | 40,000 | 36,200 |
GSC Holdings Corp., 144A, 8.0%, 10/1/2012 (b) | 170,000 | 159,800 |
Hertz Corp., 144A, 8.875%, 1/1/2014 | 195,000 | 198,656 |
ITT Corp., 7.375%, 11/15/2015 | 50,000 | 54,250 |
Jacobs Entertainment, Inc., 11.875%, 2/1/2009 | 370,000 | 392,663 |
Levi Strauss & Co.: |
|
|
9.28% **, 4/1/2012 | 75,000 | 75,563 |
12.25%, 12/15/2012 | 20,000 | 22,300 |
Liberty Media Corp., 8.5%, 7/15/2029 (b) | 20,000 | 19,807 |
Mandalay Resort Group, Series B, 10.25%, 8/1/2007 | 35,000 | 37,319 |
Mediacom Broadband LLC, 144A, 8.5%, 10/15/2015 | 60,000 | 55,575 |
Mediacom LLC, 9.5%, 1/15/2013 (b) | 30,000 | 29,288 |
MGM MIRAGE: |
|
|
8.375%, 2/1/2011 (b) | 175,000 | 187,250 |
9.75%, 6/1/2007 | 95,000 | 100,106 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 60,000 | 64,050 |
| Principal Amount ($)(a) | Value ($) |
|
| |
NCL Corp., 10.625%, 7/15/2014 | 75,000 | 77,437 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 180,000 | 127,800 |
Paxson Communications Corp., Step-up Coupon, 0% to 1/15/2006, 12.25% to 1/15/2009 (b) | 20,000 | 21,175 |
Petro Stopping Centers, 9.0%, 2/15/2012 (b) | 120,000 | 120,600 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 (b) | 180,000 | 191,700 |
Premier Entertainment Biloxi LLC/Finance, 10.75%, 2/1/2012 | 185,000 | 178,525 |
PRIMEDIA, Inc.: |
|
|
8.875%, 5/15/2011 | 65,000 | 59,963 |
9.715%**, 5/15/2010 (b) | 200,000 | 192,250 |
Renaissance Media Group LLC, 10.0%, 4/15/2008 | 85,000 | 85,106 |
Resorts International Hotel & Casino, Inc., 11.5%, 3/15/2009 | 195,000 | 215,962 |
Schuler Homes, Inc., 10.5%, 7/15/2011 | 140,000 | 150,500 |
SGS International, Inc., 144A, 12.0%, 12/15/2013 | 50,000 | 50,082 |
Simmons Bedding Co.: |
|
|
144A, Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014(b) | 215,000 | 116,100 |
7.875%, 1/15/2014 (b) | 45,000 | 41,625 |
Sinclair Broadcast Group, Inc.: |
|
|
8.0%, 3/15/2012 | 125,000 | 128,750 |
8.75%, 12/15/2011 | 215,000 | 226,287 |
Sirius Satellite Radio, Inc., 144A, 9.625%, 8/1/2013 | 215,000 | 211,775 |
Toys "R" Us, Inc.: |
|
|
6.875%, 8/1/2006 | 25,000 | 24,875 |
7.375%, 10/15/2018 | 95,000 | 68,400 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 (b) | 390,000 | 380,250 |
TRW Automotive, Inc.: |
|
|
11.0%, 2/15/2013 | 255,000 | 286,237 |
11.75%, 2/15/2013 EUR | 35,000 | 47,859 |
United Auto Group, Inc., 9.625%, 3/15/2012 | 140,000 | 147,350 |
Wheeling Island Gaming, Inc., 10.125%, 12/15/2009 | 45,000 | 47,194 |
XM Satellite Radio, Inc., Step-up Coupon, 0% to 12/31/2005, 14.0% to 12/31/2009 | 251,321 | 267,657 |
Young Broadcasting, Inc.: |
|
|
8.75%, 1/15/2014 (b) | 345,000 | 304,031 |
10.0%, 3/1/2011 (b) | 40,000 | 37,450 |
| 8,168,252 | |
Consumer Staples 1.1% | ||
Alliance One International, Inc., 144A, 11.0%, 5/15/2012 | 140,000 | 123,200 |
Birds Eye Foods, Inc., 11.875%, 11/1/2008 | 15,000 | 15,300 |
Del Laboratories, Inc., 8.0%, 2/1/2012 (b) | 60,000 | 47,400 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 20,000 | 20,520 |
9.0%, 4/15/2031 | 55,000 | 64,659 |
GNC Corp., 8.5%, 12/1/2010 | 15,000 | 12,900 |
Harry & David Holdings, Inc., 9.41%**, 3/1/2012 | 35,000 | 35,262 |
North Atlantic Trading Co., 9.25%, 3/1/2012 | 415,000 | 273,900 |
Swift & Co.: |
|
|
10.125%, 10/1/2009 | 70,000 | 72,275 |
12.5%, 1/1/2010 | 130,000 | 136,825 |
Viskase Co., Inc., 11.5%, 6/15/2011 | 245,000 | 260,925 |
| 1,063,166 | |
Energy 2.8% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 210,000 | 214,200 |
Chaparral Energy, Inc., 144A, 8.5%, 12/1/2015 | 135,000 | 139,725 |
Chesapeake Energy Corp.: |
|
|
6.5%, 8/15/2017 | 65,000 | 65,325 |
6.875%, 1/15/2016 (b) | 145,000 | 148,625 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 (b) | 40,000 | 39,400 |
7.125%, 5/15/2018 (b) | 65,000 | 57,850 |
7.625%, 10/15/2026 | 40,000 | 35,600 |
8.75%, 2/15/2012 (b) | 20,000 | 21,600 |
144A, 9.875%, 7/15/2010 | 290,000 | 317,912 |
El Paso Production Holding Corp., 7.75%, 6/1/2013 | 100,000 | 103,750 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 40,000 | 40,800 |
Mission Resources Corp., 9.875%, 4/1/2011 | 10,000 | 10,500 |
Newpark Resources, Inc., Series B, 8.625%, 12/15/2007 | 160,000 | 160,000 |
NGC Corp. Capital Trust I, Series B, 8.316%, 6/1/2027 | 200,000 | 177,000 |
Sonat, Inc., 7.0%, 2/1/2018 | 20,000 | 19,000 |
Southern Natural Gas, 8.875%, 3/15/2010 | 175,000 | 187,025 |
Stone Energy Corp.: |
|
|
6.75%, 12/15/2014 (b) | 255,000 | 241,613 |
8.25%, 12/15/2011 | 130,000 | 134,225 |
Transmeridian Exploration, Inc., 12.0%**, 12/15/2010 | 45,000 | 52,200 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 | 355,000 | 386,950 |
8.75%, 3/15/2032 | 115,000 | 133,400 |
| 2,686,700 | |
Financials 6.7% | ||
Alamosa Delaware, Inc.: |
|
|
8.5%, 1/31/2012 | 20,000 | 21,625 |
11.0%, 7/31/2010 | 65,000 | 73,288 |
12.0%, 7/31/2009 | 65,000 | 71,094 |
AmeriCredit Corp., 9.25%, 5/1/2009 | 340,000 | 357,850 |
Ashton Woods USA LLC, 144A, 9.5%, 10/1/2015 | 145,000 | 130,681 |
Atlantic Mutual Insurance Co., 144A, 8.15%, 2/15/2028 | 35,000 | 21,261 |
E*TRADE Financial Corp.: |
|
|
144A, 7.375%, 9/15/2013 (b) | 125,000 | 126,562 |
7.875%, 12/1/2015 | 120,000 | 123,900 |
8.0%, 6/15/2011 | 90,000 | 93,600 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Ford Motor Credit Co.: |
|
|
6.5%, 1/25/2007 (b) | 65,000 | 62,886 |
7.25%, 10/25/2011 (b) | 490,000 | 423,289 |
7.375%, 10/28/2009 (b) | 440,000 | 390,230 |
General Motors Acceptance Corp.: |
|
|
5.22%**, 3/20/2007 | 65,000 | 61,396 |
6.875%, 9/15/2011 | 220,000 | 200,628 |
8.0%, 11/1/2031 (b) | 1,371,000 | 1,313,255 |
H&E Equipment/Finance, 11.125%, 6/15/2012 | 150,000 | 165,750 |
Poster Financial Group, Inc., 8.75%, 12/1/2011 | 175,000 | 180,250 |
PXRE Capital Trust I, 8.85%, 2/1/2027 | 95,000 | 93,338 |
R.H. Donnelly Finance Corp., 10.875%, 12/15/2012 | 165,000 | 186,037 |
Radnor Holdings Corp., 11.0%, 3/15/2010 | 125,000 | 101,250 |
Stripes Acquisition LLC, 144A, 10.625%, 12/15/2013 | 50,000 | 50,750 |
Tennessee Valley Authority, Series A, 6.79%, 5/23/2012 | 1,500,000 | 1,660,006 |
TIG Capital Holdings Trust, 144A, 8.597%, 1/15/2027 | 140,000 | 111,300 |
Triad Acquisition Corp., 144A, 11.125%, 5/1/2013 | 95,000 | 94,050 |
UGS Corp., 10.0%, 6/1/2012 | 130,000 | 141,700 |
Universal City Development, 11.75%, 4/1/2010 | 215,000 | 241,069 |
| 6,497,045 | |
Health Care 0.8% | ||
Accellent, Inc., 144A, 10.5%, 12/1/2013 | 130,000 | 133,250 |
HEALTHSOUTH Corp., 10.75%, 10/1/2008 (b) | 280,000 | 280,000 |
InSight Health Services Corp.: |
|
|
144A, 9.174%**, 11/1/2011 | 35,000 | 33,863 |
Series B, 9.875%, 11/1/2011 (b) | 50,000 | 37,750 |
Tenet Healthcare Corp., 144A, 9.25%, 2/1/2015 | 295,000 | 292,787 |
| 777,650 | |
Industrials 4.6% | ||
Aavid Thermal Technologies, Inc., 12.75%, 2/1/2007 | 225,000 | 231,187 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 135,000 | 130,146 |
Allied Waste North America, Inc.: |
|
|
Series B, 5.75%, 2/15/2011 (b) | 75,000 | 71,063 |
Series B, 9.25%, 9/1/2012 | 182,000 | 197,015 |
American Color Graphics, 10.0%, 6/15/2010 | 135,000 | 94,331 |
Avondale Mills, Inc., 144A, 11.065%**, 7/1/2012 | 70,000 | 67,900 |
Beazer Homes USA, Inc.: |
|
|
6.875%, 7/15/2015 (b) | 20,000 | 19,175 |
8.375%, 4/15/2012 | 95,000 | 98,800 |
8.625%, 5/15/2011 | 130,000 | 135,850 |
Browning-Ferris Industries: |
|
|
7.4%, 9/15/2035 | 205,000 | 181,425 |
9.25%, 5/1/2021 | 20,000 | 20,600 |
Case New Holland, Inc., 9.25%, 8/1/2011 | 235,000 | 251,450 |
Cenveo Corp., 7.875%, 12/1/2013 (b) | 115,000 | 110,975 |
Collins & Aikman Floor Cover, Series B, 9.75%, 2/15/2010 (b) | 179,000 | 157,520 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Columbus McKinnon Corp., 10.0%, 8/1/2010 | 65,000 | 71,988 |
Compression Polymers Corp.: |
|
|
144A, 10.5%, 7/1/2013 | 165,000 | 160,050 |
144A, 11.44%**, 7/1/2012 | 45,000 | 44,100 |
Congoleum Corp., 8.625%, 8/1/2008* | 125,000 | 124,531 |
Cornell Companies, Inc., 10.75%, 7/1/2012 | 65,000 | 67,275 |
Dana Corp., 7.0%, 3/1/2029 (b) | 165,000 | 118,387 |
DRS Technologies, Inc., 6.875%, 11/1/2013 | 30,000 | 28,688 |
ISP Chemco, Inc., Series B, 10.25%, 7/1/2011 | 255,000 | 271,575 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 (b) | 135,000 | 125,257 |
8.875%, 4/1/2012 | 175,000 | 181,845 |
Kansas City Southern, 9.5%, 10/1/2008 | 275,000 | 297,687 |
Kinetek, Inc., Series D, 10.75%, 11/15/2006 | 200,000 | 192,000 |
Millennium America, Inc., 9.25%, 6/15/2008 | 230,000 | 248,112 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 110,000 | 123,200 |
Securus Technologies, Inc., 11.0%, 9/1/2011 (b) | 75,000 | 63,750 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 140,000 | 130,900 |
Technical Olympic USA, Inc.: |
|
|
7.5%, 3/15/2011 (b) | 50,000 | 44,563 |
10.375%, 7/1/2012 | 120,000 | 118,050 |
The Brickman Group Ltd., Series B, 11.75%, 12/15/2009 | 80,000 | 88,600 |
United Rentals North America, Inc., 7.0%, 2/15/2014 (b) | 130,000 | 121,550 |
Xerox Capital Trust I, 8.0%, 2/1/2027 (b) | 85,000 | 87,550 |
| 4,477,095 | |
Information Technology 1.1% | ||
Activant Solutions, Inc.: |
|
|
144A, 10.054%**, 4/1/2010 | 15,000 | 15,469 |
10.5%, 6/15/2011 | 105,000 | 114,975 |
Eschelon Operating Co., 8.375%, 3/15/2010 | 83,000 | 76,775 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 20,000 | 19,400 |
144A, 6.375%, 10/15/2015 | 50,000 | 49,875 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 260,000 | 222,950 |
Sanmina-SCI Corp.: |
|
|
6.75%, 3/1/2013 (b) | 165,000 | 156,956 |
10.375%, 1/15/2010 | 234,000 | 258,570 |
SS&C Technologies, Inc., 144A, 11.75%, 12/1/2013 | 40,000 | 41,000 |
SunGard Data Systems, Inc., 144A, 10.25%, 8/15/2015 | 150,000 | 150,000 |
| 1,105,970 | |
Materials 3.9% | ||
ARCO Chemical Co., 9.8%, 2/1/2020 | 375,000 | 420,937 |
Associated Materials, Inc.: |
|
|
Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 165,000 | 80,850 |
9.75%, 4/15/2012 | 55,000 | 53,075 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Caraustar Industries, Inc., 9.875%, 4/1/2011 (b) | 250,000 | 255,000 |
Constar International, Inc., 11.0%, 12/1/2012 (b) | 40,000 | 29,200 |
Dayton Superior Corp.: |
|
|
10.75%, 9/15/2008 | 95,000 | 91,675 |
13.0%, 6/15/2009 (b) | 140,000 | 105,700 |
GEO Specialty Chemicals, Inc., 12.565%**, 12/31/2009 | 283,000 | 234,890 |
Georgia-Pacific Corp.: |
|
|
8.0%, 1/15/2024 (b) | 230,000 | 219,650 |
8.875%, 5/15/2031 | 25,000 | 25,063 |
Huntsman LLC, 11.625%, 10/15/2010 | 203,000 | 231,166 |
IMC Global, Inc., 10.875%, 8/1/2013 | 253,000 | 290,634 |
International Steel Group, Inc., 6.5%, 4/15/2014 | 70,000 | 70,000 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 60,000 | 60,975 |
144A, 6.875%, 12/15/2013 | 50,000 | 50,438 |
MMI Products, Inc., Series B, 11.25%, 4/15/2007 | 210,000 | 197,400 |
Neenah Foundry Co.: |
|
|
144A, 11.0%, 9/30/2010 | 255,000 | 279,225 |
144A, 13.0%, 9/30/2013 | 94,000 | 95,880 |
NewPage Corp., 10.5%**, 5/1/2012 | 100,000 | 99,000 |
Omnova Solutions, Inc., 11.25%, 6/1/2010 | 245,000 | 255,412 |
Oregon Steel Mills, Inc., 10.0%, 7/15/2009 | 60,000 | 64,200 |
Oxford Automotive, Inc., 144A, 12.0%, 10/15/2010* | 159,598 | 14,364 |
Pliant Corp., 11.625%, 6/15/2009 (PIK)* | 10 | 11 |
Portola Packaging, Inc., 8.25%, 2/1/2012 (b) | 70,000 | 51,450 |
Rockwood Specialties Group, Inc., 10.625%, 5/15/2011 | 33,000 | 36,176 |
TriMas Corp., 9.875%, 6/15/2012 (b) | 240,000 | 198,000 |
UAP Holding Corp., Step-up Coupon, 0% to 1/15/2008, 10.75% to 7/15/2012 | 55,000 | 47,644 |
United States Steel Corp., 9.75%, 5/15/2010 | 165,000 | 179,437 |
| 3,737,452 | |
Telecommunication Services 2.3% | ||
AirGate PCS, Inc., 7.9%**, 10/15/2011 | 75,000 | 77,437 |
American Cellular Corp., Series B, 10.0%, 8/1/2011 | 55,000 | 59,675 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 (b) | 145,000 | 150,800 |
8.375%, 1/15/2014 (b) | 150,000 | 147,562 |
Dobson Communications Corp., 8.875%, 10/1/2013 | 75,000 | 74,813 |
Insight Midwest LP, 9.75%, 10/1/2009 | 50,000 | 51,500 |
LCI International, Inc., 7.25%, 6/15/2007 | 135,000 | 135,675 |
Level 3 Financing, Inc., 10.75%, 10/15/2011 | 25,000 | 22,188 |
MCI, Inc., 8.735%, 5/1/2014 | 370,000 | 409,312 |
Nextel Communications, Inc., Series D, 7.375%, 8/1/2015 | 535,000 | 564,595 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Nextel Partners, Inc., 8.125%, 7/1/2011 | 100,000 | 106,875 |
Qwest Corp.: |
|
|
7.25%, 9/15/2025 | 100,000 | 99,500 |
144A, 7.741%**, 6/15/2013 | 35,000 | 37,756 |
Rural Cellular Corp.: |
|
|
9.75%, 1/15/2010 (b) | 20,000 | 20,200 |
9.875%, 2/1/2010 (b) | 20,000 | 21,100 |
144A, 10.041%**, 11/1/2012 | 20,000 | 20,150 |
SBA Telecom, Inc., Step-up Coupon, 0% to 12/15/2007, 9.75% to 12/15/2011 | 65,000 | 60,288 |
Telex Communications Holdings, Inc., 11.5%, 10/15/2008 | 10,000 | 10,650 |
Triton PCS, Inc., 8.5%, 6/1/2013 | 15,000 | 13,950 |
Ubiquitel Operating Co., 9.875%, 3/1/2011 | 60,000 | 66,450 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 100,000 | 112,500 |
| 2,262,976 | |
Utilities 2.5% | ||
AES Corp., 144A, 8.75%, 5/15/2013 | 315,000 | 342,956 |
Allegheny Energy Supply Co. LLC, 144A, 8.25%, 4/15/2012 | 340,000 | 383,350 |
CMS Energy Corp.: |
|
|
8.5%, 4/15/2011 (b) | 160,000 | 174,200 |
9.875%, 10/15/2007 | 205,000 | 219,350 |
DPL, Inc., 6.875%, 9/1/2011 | 50,000 | 52,688 |
Mirant North America LLC, 144A, 7.375%, 12/31/2013 (b) | 40,000 | 40,450 |
Mission Energy Holding Co., 13.5%, 7/15/2008 | 395,000 | 458,200 |
NorthWestern Corp., 5.875%, 11/1/2014 | 35,000 | 35,066 |
NRG Energy, Inc., 8.0%, 12/15/2013 | 234,000 | 260,910 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 410,000 | 451,000 |
| 2,418,170 | |
Total Corporate Bonds (Cost $33,592,995) | 33,194,476 | |
| ||
Foreign Bonds — US$ Denominated 23.4% | ||
Consumer Discretionary 0.8% | ||
Cablemas SA de CV, 144A, 9.375%, 11/15/2015 | 20,000 | 20,500 |
Jafra Cosmetics International, Inc., 10.75%, 5/15/2011 | 255,000 | 279,225 |
Kabel Deutschland GmbH, 144A, 10.625%, 7/1/2014 | 150,000 | 157,875 |
Shaw Communications, Inc., 8.25%, 4/11/2010 | 105,000 | 112,744 |
Telenet Group Holding NV, 144A, Step-up Coupon, 0% to 12/15/2008, 11.5% to 6/15/2014 | 178,000 | 145,960 |
Vitro SA de CV, Series A, 144A, 12.75%, 11/1/2013 (b) | 75,000 | 70,875 |
| 787,179 | |
Energy 1.6% | ||
OAO Gazprom, 144A, 9.625%, 3/1/2013 (b) | 200,000 | 241,250 |
Pemex Project Funding Master Trust: |
|
|
Series REG S, 8.0%, 11/15/2011 | 250,000 | 280,250 |
Series REG S, 9.5%, 9/15/2027 | 435,000 | 574,200 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Petroliam Nasional Berhad: |
|
|
7.625%, 10/15/2026 | 40,000 | 49,916 |
7.75%, 8/15/2015 | 80,000 | 95,613 |
Petronas Capital Ltd., Series REG S, 7.875%, 5/22/2022 | 160,000 | 200,064 |
Secunda International Ltd., 12.15%**, 9/1/2012 | 75,000 | 78,750 |
| 1,520,043 | |
Financials 0.4% | ||
Conproca SA de CV, 12.0%, 6/16/2010 | 100,000 | 119,000 |
Doral Financial Corp., 5.004%**, 7/20/2007 | 240,000 | 233,291 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 65,000 | 44,850 |
| 397,141 | |
Health Care 0.1% | ||
Biovail Corp., 7.875%, 4/1/2010 (b) | 140,000 | 145,075 |
| ||
Industrials 0.9% | ||
Grupo Transportacion Ferroviaria Mexicana SA de CV: |
|
|
144A, 9.375%, 5/1/2012 | 80,000 | 87,600 |
10.25%, 6/15/2007 | 290,000 | 305,950 |
12.5%, 6/15/2012 | 95,000 | 108,300 |
J. Ray McDermott SA, 144A, 11.5%, 12/15/2013 | 155,000 | 182,900 |
LeGrand SA, 8.5%, 2/15/2025 | 75,000 | 90,187 |
Stena AB, 9.625%, 12/1/2012 | 55,000 | 59,744 |
| 834,681 | |
Materials 1.5% | ||
Cascades, Inc., 7.25%, 2/15/2013 | 280,000 | 254,800 |
ISPAT Inland ULC, 9.75%, 4/1/2014 (b) | 147,000 | 166,478 |
Novelis, Inc., 144A, 7.5%, 2/15/2015 | 295,000 | 275,087 |
Rhodia SA, 8.875%, 6/1/2011 | 225,000 | 230,625 |
Sino-Forest Corp., 144A, 9.125%, 8/17/2011 | 10,000 | 10,725 |
Tembec Industries, Inc.: |
|
|
8.5%, 2/1/2011 | 670,000 | 371,850 |
8.625%, 6/30/2009 | 300,000 | 171,000 |
| 1,480,565 | |
Sovereign Bonds 16.9% | ||
Aries Vermogensverwaltung GmbH, Series C, REG S, 9.6%, 10/25/2014 | 500,000 | 644,745 |
Central Bank of Nigeria, Series WW, 6.25%, 11/15/2020 | 500,000 | 497,500 |
Dominican Republic, Series REG S, 9.5%, 9/27/2011 | 450,425 | 475,198 |
Egypt Government AID Bonds, 4.45%, 9/15/2015 | 1,200,000 | 1,175,868 |
Federative Republic of Brazil: |
|
|
Floating Rate Note Debt Conversion Bond, LIBOR plus ..8125%, Series 30YR, 5.188% **, 4/15/2024 | 140,000 | 136,332 |
Floating Rate Note Debt Conversion Bond, LIBOR Plus ..875%, Series 18 YR, 5.25% **, 4/15/2012 | 160,591 | 158,584 |
8.75%, 2/4/2025 | 200,000 | 221,000 |
8.875%, 10/14/2019 (b) | 35,000 | 39,218 |
| Principal Amount ($)(a) | Value ($) |
|
| |
11.0%, 1/11/2012 | 230,000 | 280,600 |
11.0%, 8/17/2040 | 435,000 | 560,715 |
14.5%, 10/15/2009 | 220,000 | 282,150 |
Government of Ukraine, Series REG S, 7.65%, 6/11/2013 | 350,000 | 377,685 |
Kingdom of Morocco, Series A, 4.813%**, 1/2/2009 | 196,000 | 195,608 |
Republic of Argentina: |
|
|
Step-up Coupon, 1.33% to 3/31/2009, 2.5% to 3/31/2019, 3.75% to 3/31/2029, 5.25% to 12/31/2038 | 940,000 | 310,200 |
Zero Coupon, 12/15/2035 | 3,164,012 | 164,529 |
8.28%, 12/31/2033 (PIK) (b) | 798,999 | 665,167 |
Republic of Bulgaria, 8.25%, 1/15/2015 | 115,000 | 138,874 |
Republic of Colombia: |
|
|
8.25%, 12/22/2014 (b) | 235,000 | 260,850 |
10.0%, 1/23/2012 | 210,000 | 249,900 |
10.75%, 1/15/2013 | 60,000 | 74,400 |
Republic of Ecuador, Step-up Coupon, 9.0% to 8/15/2006, 10.0% to 8/15/2030 | 230,000 | 210,450 |
Republic of Guatemala: |
|
|
Series REG S, 8.125%, 10/6/2034 | 70,000 | 76,300 |
Series REG S, 9.25%, 8/1/2013 | 225,000 | 261,563 |
Republic of Indonesia, Series REG S, 7.25%, 4/20/2015 | 170,000 | 174,463 |
Republic of Panama: |
|
|
7.125%, 1/29/2026 | 106,000 | 107,325 |
9.375%, 1/16/2023 | 570,000 | 713,925 |
Republic of Peru: |
|
|
7.35%, 7/21/2025 | 575,000 | 566,375 |
9.875%, 2/6/2015 | 130,000 | 156,000 |
Republic of Philippines: |
|
|
8.0%, 1/15/2016 | 340,000 | 355,300 |
9.375%, 1/18/2017 | 390,000 | 446,550 |
9.5%, 2/2/2030 | 170,000 | 199,750 |
9.875%, 1/15/2019 | 205,000 | 243,181 |
Republic of Serbia, Step-up Coupon, 3.75% to 11/1/2009, 6.75% to 11/1/2024 | 220,000 | 195,800 |
Republic of South Africa, 6.5%, 6/2/2014 | 185,000 | 200,031 |
Republic of Turkey: |
|
|
7.25%, 3/15/2015 (b) | 250,000 | 263,125 |
7.375%, 2/5/2025 | 340,000 | 351,050 |
11.75%, 6/15/2010 | 420,000 | 514,500 |
12.375%, 6/15/2009 | 300,000 | 361,875 |
Republic of Uruguay: |
|
|
7.25%, 2/15/2011 | 80,000 | 81,400 |
9.25%, 5/17/2017 | 80,000 | 91,000 |
Republic of Venezuela: |
|
|
9.375%, 1/13/2034 | 300,000 | 355,500 |
10.75%, 9/19/2013 | 845,000 | 1,039,350 |
Russian Federation, Step-up Coupon, 5.0% to 3/31/2007, 7.5% to 3/31/2030 | 845,000 | 953,920 |
Russian Ministry of Finance: |
|
|
Series V, 3.0%, 5/14/2008 | 385,000 | 365,134 |
Series VII, 3.0%, 5/14/2011 | 400,000 | 355,760 |
Socialist Republic of Vietnam, 144A, 6.875%, 1/15/2016 | 425,000 | 443,062 |
| Principal Amount ($)(a) | Value ($) |
|
| |
United Mexican States, Series A, 6.625%, 3/3/2015 | 360,000 | 394,200 |
| 16,386,012 | |
Telecommunication Services 1.0% | ||
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 (b) | 120,000 | 122,100 |
Embratel, Series B, 11.0%, 12/15/2008 | 75,000 | 84,938 |
Global Crossing UK Finance, 10.75%, 12/15/2014 (b) | 90,000 | 82,800 |
Grupo Iusacell SA de CV, Series B, 10.0%, 7/15/2004* (b) | 30,000 | 24,150 |
Intelsat Bermuda Ltd., 144A, 8.695%**, 1/15/2012 | 65,000 | 66,056 |
Intelsat Ltd., 5.25%, 11/1/2008 | 100,000 | 91,125 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 50,000 | 51,625 |
Mobifon Holdings BV, 12.5%, 7/31/2010 | 195,000 | 226,200 |
Nortel Networks Ltd., 6.125%, 2/15/2006 | 250,000 | 250,000 |
| 998,994 | |
Utilities 0.2% | ||
Intergas Finance BV, Series REG S, 6.875%, 11/4/2011 | 185,000 | 190,004 |
Total Foreign Bonds — US$ Denominated (Cost $21,853,010) | 22,739,694 | |
| ||
Foreign Bonds — Non US$ Denominated 18.0% | ||
Consumer Discretionary 0.1% | ||
IESY Repository GmbH, 144A, 8.75%, 2/15/2015 EUR | 100,000 | 116,910 |
Consumer Staples 0.1% | ||
Fage Dairy Industry SA, 144A, 7.5%, 1/15/2015 EUR | 65,000 | 66,757 |
Financials 4.2% | ||
KFW Bankengruppe, 5.0%, 7/4/2011 EUR | 3,180,000 | 4,107,489 |
Industrials 0.1% | ||
Grohe Holdings GmbH, 144A, 8.625%, 10/1/2014 EUR | 50,000 | 54,903 |
Sovereign Bonds 13.5% | ||
Federative Republic of Brazil, 8.5%, 9/24/2012 EUR | 130,000 | 177,763 |
Government of Malaysia, 4.305%, 2/27/2009 MYR | 400,000 | 108,045 |
Government of Ukraine, Series REG S, 4.95%, 10/13/2015 EUR | 245,000 | 288,025 |
Mexican Bonds, Series M-20, 10.0%, 12/5/2024 MXN | 3,810,000 | 405,828 |
Province of Ontario, 1.875%, 1/25/2010 JPY | 140,000,000 | 1,244,968 |
Republic of Argentina: |
|
|
Step-up Coupon, 1.2% to 3/31/2009, 2.26% to 3/31/2019, 3.38% to 3/31/2029, 4.74% to 12/31/2038 EUR | 160,000 | 61,563 |
Zero Coupon, 12/15/2035 ARS | 3,155,178 | 62,542 |
5.83%, 12/31/2033 (PIK) ARS | 964,375 | 372,834 |
7.82%, 12/31/2033 (PIK) EUR | 47,804 | 47,257 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Republic of Germany, Series 94, 6.25%, 1/4/2024 EUR | 1,910,000 | 3,077,736 |
Republic of Greece, 4.65%, 4/19/2007 EUR | 2,105,000 | 2,549,555 |
Republic of Peru, 7.5%, | 30,000 | 40,223 |
Republic of Turkey, 20.0%, 10/17/2007 TRY | 35 | 30 |
Republic of Uruguay, 10.5%, 10/20/2006 UYU | 4,200,000 | 215,100 |
United Kingdom Treasury | 2,500,000 | 4,521,395 |
| 13,172,864 | |
Total Foreign Bonds — Non US$ Denominated (Cost $16,866,784) | 17,518,923 | |
| ||
US Treasury Obligations 14.3% | ||
US Treasury Bond: |
|
|
5.375%, 2/15/2031 (b) (f) | 540,000 | 606,572 |
6.0%, 2/15/2026 (b) | 1,375,000 | 1,621,426 |
8.5%, 2/15/2020 (b) | 760,000 | 1,066,137 |
10.375%, 11/15/2012 (b) (f) | 3,350,000 | 3,702,273 |
US Treasury Notes: |
|
|
4.75%, 11/15/2008 (b) | 285,000 | 287,737 |
5.75%, 8/15/2010 (b) (f) | 3,000,000 | 3,173,789 |
6.125%, 8/15/2007 | 3,375,000 | 3,464,383 |
Total US Treasury Obligations (Cost $13,860,457) | 13,922,317 | |
| ||
US Government Sponsored Agencies 2.5% | ||
Federal Home Loan Mortgage Corp., 5.125%, 7/15/2012 (b) (Cost $2,372,729) | 2,350,000 | 2,392,960 |
| ||
Convertible Bond 0.3% | ||
Consumer Discretionary | ||
HIH Capital Ltd.: |
|
|
144A, Series DOM, 7.5%, 9/25/2006 | 155,000 | 153,450 |
144A, Series EURO, 7.5%, 9/25/2006 | 105,000 | 103,950 |
Total Convertible Bond (Cost $258,142) | 257,400 |
|
| Value ($) |
|
| |
Preferred Stocks 0.1% | ||
Paxson Communications Corp., 14.25% (PIK) (Cost $81,339) | 10 | 90,106 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Loan Participation 0.1% | ||
Republic of Algeria, Floating Rate Debt Conversion Bond, LIBOR plus .8125, 4.813% **, 3/4/2010 (Cost $91,074) | 94,500 | 94,406 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Dayton Superior Corp. 144A* | 10 | 0 |
TravelCenters of America, Inc* | 25 | 3 |
Total Warrants (Cost $101) | 3 |
|
| Value ($) |
|
| |
Other Investments 0.2% | ||
Hercules, Inc., (Bond Unit) 6.5%, 6/30/2029 | 150,000 | 112,500 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 12/15/2008, 13.0% to 12/15/2012 | 140,000 | 102,650 |
Total Other Investments (Cost $220,548) | 215,150 |
|
| Value ($) |
|
| |
Common Stocks 0.0% | ||
GEO Specialty Chemicals, Inc.* | 2,058 | 2,573 |
Intermet Corp.* | 760 | 8,840 |
Total Common Stocks (Cost $31,681) | 11,413 | |
| ||
Securities Lending Collateral 20.8% | ||
Daily Assets Fund Institutional, 4.28% (c) (d) (Cost $20,210,660) | 20,210,660 | 20,210,660 |
| ||
Cash Equivalents 5.1% | ||
Cash Management QP Trust, 4.26% (e) (Cost $4,913,796) | 4,913,796 | 4,913,796 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $114,353,316)+ | 119.0 | 115,561,304 |
Other Assets and Liabilities, Net | (19.0) | (18,400,376) |
Net Assets | 100.0 | 97,160,928 |
Notes to DWS Strategic Income VIP Portfolio of Investments
* Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest. The following table represents bonds that are in default.
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 125,000 | USD | 105,994 | 124,531 |
Grupo Iusacell SA de CV | 10.0% | 7/15/2004 | 30,000 | USD | 21,475 | 24,150 |
Oxford Automotive, Inc. | 12.0% | 10/15/2010 | 159,598 | USD | 14,988 | 14,364 |
Pliant Corp. | 11.625% | 6/15/2009 | 10 | USD | 10 | 11 |
|
|
|
|
| $ 142,467 | $ 163,056 |
** 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 December 31, 2005.
+ The cost for federal income tax purposes was $114,710,912. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $850,392. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,445,798 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,595,406.
(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 December 31, 2005 amounted to $19,780,513 which is 20.4% of net assets.
(c) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.
(d) Represents collateral held in connection with securities lending.
(e) Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(f) At December 31, 2005, this security, in part or in whole, has been segregated to cover initial margin requirements for open future contracts.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
LIBOR: Represents the London InterBank Offered Rate.
PIK: Denotes that all or a portion of the income is paid in-kind.
At December 31, 2005, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Canada Government Bond | 3/22/2006 | 21 | 2,058,571 | 2,066,308 | 7,737 |
10 Year Federal Germany Bond | 3/8/2006 | 34 | 4,865,794 | 4,904,376 | 38,582 |
10 Year Japanese Government Bond | 3/9/2006 | 3 | 3,505,392 | 3,493,874 | (11,518) |
Total net unrealized appreciation | 34,801 |
At December 31, 2005, open futures contracts sold short were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Depreciation ($) |
10 Year Australian Bond | 3/15/2006 | 21 | 1,595,116 | 1,633,376 | (38,260) |
10 Year US Treasury Bond | 3/22/2006 | 42 | 4,569,003 | 4,595,063 | (26,060) |
UK Treasury Bond | 3/29/2006 | 21 | 4,097,157 | 4,135,138 | (37,981) |
Total net unrealized depreciation | (102,301) |
At December 31, 2005, open credit default swap contract purchased was as follows:
Effective/Expiration Date | Notional Amount ($) | Cash Flows Paid by the Portfolio | Underlying Debt Obligation | Net Unrealized Depreciation ($) |
10/18/2005 | 4,345,000+ | Fixed — 3.95% | Dow Jones CDX High Yield 100 | (134,856) |
Counterparty: + JPMorgan Chase Bank |
Currency Abbreviations |
ARS Argentine Peso EUR Euro GBP British Pound JPY Japanese Yen MXN Mexican Peso MYR Malaysian Ringgitt TRY New Turkish Lira UYU Uraguary Peso |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $89,228,860) — including $19,780,513 of securities loaned | $ 90,436,848 |
Investment in Daily Assets Fund Institutional (cost $20,210,660)* | 20,210,660 |
Investment in Cash Management QP Trust (cost $4,913,796) | 4,913,796 |
Total investments in securities, at value (cost $114,353,316) | 115,561,304 |
Cash | 171,149 |
Foreign currency, at value (cost $299,908) | 300,249 |
Receivable for investments sold | 9,301 |
Interest receivable | 1,905,490 |
Receivable for Portfolio shares sold | 9,912 |
Receivable for daily variation on open futures contracts | 5,231 |
Foreign taxes recoverable | 2,164 |
Unrealized appreciation on forward currency exchange contracts | 111,514 |
Due from Advisor | 2,298 |
Other assets | 2,467 |
Total assets | 118,081,079 |
Liabilities | |
Payable for investments purchased | 131,232 |
Payable upon return of securities loaned | 20,210,660 |
Payable for Portfolio shares redeemed | 89,171 |
Net payable on closed forward foreign currency exchange contracts | 159,838 |
Unrealized depreciation on forward foreign currency exchange contracts | 90,019 |
Unrealized depreciation on credit default swap contracts | 134,856 |
Accrued management fee | 47,186 |
Other accrued expenses and payables | 57,189 |
Total liabilities | 20,920,151 |
Net assets, at value | $ 97,160,928 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 4,603,670 |
Net unrealized appreciation (depreciation) on: Investments | 1,207,988 |
Credit default swaps | (134,856) |
Foreign currency related transactions | (129,973) |
Futures | (67,500) |
Accumulated net realized gain (loss) | 550,593 |
Paid-in capital | 91,131,006 |
Net assets, at value | $ 97,160,928 |
Class A Net Asset Value, offering and redemption price per share ($70,804,886 ÷ 6,158,201 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.50 |
Class B Net Asset Value, offering and redemption price per share ($26,356,042 ÷ 2,304,696 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.44 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends | $ 31,504 |
Interest | 5,569,498 |
Interest — Cash Management QP Trust | 207,414 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 48,556 |
Total Income | 5,856,972 |
Expenses: Management fee | 586,283 |
Custodian fees | 48,640 |
Distribution service fees (Class B) | 58,999 |
Record keeping fees (Class B) | 28,221 |
Auditing | 53,790 |
Legal | 12,752 |
Trustees' fees and expenses | 3,544 |
Reports to shareholders | 25,200 |
Other | 65,777 |
Total expenses before expense reductions | 883,206 |
Expense reductions | (11,628) |
Total expenses after expense reductions | 871,578 |
Net investment income | 4,985,394 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 1,049,114 |
Credit default swaps | (130,575) |
Futures | 96,220 |
Foreign currency related transactions | (659,699) |
| 355,060 |
Net unrealized appreciation (depreciation) during the period on: Investments | (3,500,120) |
Credit default swaps | (134,856) |
Futures | (125,539) |
Foreign currency related transactions | 471,669 |
| (3,288,846) |
Net gain (loss) on investment transactions | (2,933,786) |
Net increase (decrease) in net assets resulting from operations | $ 2,051,608 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income | $ 4,985,394 | $ 3,680,243 |
Net realized gain (loss) on investment transactions | 355,060 | 2,282,802 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (3,288,846) | 390,098 |
Net increase (decrease) in net assets resulting from operations | 2,051,608 | 6,353,143 |
Distributions to shareholders from: Net investment income: Class A | (5,064,114) | — |
Class B | (1,726,009) | — |
Net realized gains: Class A | (149,856) | (2,822,807) |
Class B | (53,955) | (547,427) |
Portfolio share transactions: Class A Proceeds from shares sold | 19,392,981 | 13,206,141 |
Reinvestment of distributions | 5,213,970 | 2,822,807 |
Cost of shares redeemed | (12,247,000) | (17,995,166) |
Net increase (decrease) in net assets from Class A share transactions | 12,359,951 | (1,966,218) |
Class B Proceeds from shares sold | 7,141,190 | 13,821,690 |
Reinvestment of distributions | 1,779,964 | 547,427 |
Cost of shares redeemed | (2,685,538) | (2,371,956) |
Net increase (decrease) in net assets from Class B share transactions | 6,235,616 | 11,997,161 |
Increase (decrease) in net assets | 13,653,241 | 13,013,852 |
Net assets at beginning of period | 83,507,687 | 70,493,835 |
Net assets at end of period (including undistributed net investment income of $4,603,670 and $7,007,553, respectively) | $ 97,160,928 | $ 83,507,687 |
Other Information | ||
Class A Shares outstanding at beginning of period | 5,069,464 | 5,264,429 |
Shares sold | 1,677,930 | 1,130,086 |
Shares issued to shareholders in reinvestment of distributions | 468,040 | 247,832 |
Shares redeemed | (1,057,233) | (1,572,883) |
Net increase (decrease) in Class A shares | 1,088,737 | (194,965) |
Shares outstanding at end of period | 6,158,201 | 5,069,464 |
Class B Shares outstanding at beginning of period | 1,758,421 | 701,718 |
Shares sold | 619,274 | 1,213,237 |
Shares issued to shareholders in reinvestment of distributions | 160,213 | 48,231 |
Shares redeemed | (233,212) | (204,765) |
Net increase (decrease) in Class B shares | 546,275 | 1,056,703 |
Shares outstanding at end of period | 2,304,696 | 1,758,421 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.25 | $ 11.82 | $ 11.10 | $ 10.27 | $ 9.86 |
Income (loss) from investment operations: Net investment incomeb | .65 | .58 | .41 | .45 | .48 |
Net realized and unrealized gain (loss) on investment transactions | (.39) | .39 | .47 | .68 | .03 |
Total from investment operations | .26 | .97 | .88 | 1.13 | .51 |
Less distributions from: Net investment income | (.98) | — | (.15) | (.30) | (.10) |
Net realized gain on investment transactions | (.03) | (.54) | (.01) | — | — |
Total distributions | (1.01) | (.54) | (.16) | (.30) | (.10) |
Net asset value, end of period | $ 11.50 | $ 12.25 | $ 11.82 | $ 11.10 | $ 10.27 |
Total Return (%) | 2.38 | 8.60 | 7.85 | 11.30 | 5.23 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 71 | 62 | 62 | 60 | 21 |
Ratio of expenses (%) | .88 | .84 | .83 | .73 | .66 |
Ratio of net investment income (%) | 5.61 | 4.99 | 3.60 | 4.26 | 4.76 |
Portfolio turnover rate (%) | 120 | 210 | 160 | 65 | 27 |
a As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on debt securities. b Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003a |
Selected Per Share Data | |||
Net asset value, beginning of period | $ 12.17 | $ 11.78 | $ 11.44 |
Income (loss) from investment operations: Net investment incomeb | .61 | .53 | .17 |
Net realized and unrealized gain (loss) on investment transactions | (.38) | .40 | .17 |
Total from investment operations | .23 | .93 | .34 |
Less distributions from: Net investment income | (.93) | — | — |
Net realized gain on investment transactions | (.03) | (.54) | — |
Total distributions | (.96) | (.54) | — |
Net asset value, end of period | $ 11.44 | $ 12.17 | $ 11.78 |
Total Return (%) | 1.92c | 8.27 | 2.97** |
Ratios to Average Net Assets and Supplemental Data | |||
Net assets, end of period ($ millions) | 26 | 21 | 8 |
Ratio of expenses before expense reductions (%) | 1.25 | 1.22 | 1.26* |
Ratio of expenses after expense reductions (%) | 1.21 | 1.22 | 1.26* |
Ratio of net investment income (%) | 5.28 | 4.61 | 1.80* |
Portfolio turnover rate (%) | 120 | 210 | 160 |
a For the period from May 1, 2003 (commencement of operations of Class B shares) to December 31, 2003. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Technology VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Investments by the Portfolio in small companies present greater risk of loss than investments in larger, more established companies. Concentration of the Portfolio's investment in technology stocks may present a greater risk than investments in a more diversified Portfolio. Investments by the Portfolio in emerging technology companies present greater risk than investments in more-established technology companies. This Portfolio is non-diversified and can take larger positions in fewer companies, increasing its overall potential risk. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for the 3-year and the Life of Class for Class B shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Technology VIP from 5/1/1999 to 12/31/2005 | ||
[] DWS Technology VIP — Class A [] Goldman Sachs Technology Index [] Russell 1000 Growth Index | The Goldman Sachs Technology Index is an unmanaged capitalization-weighted index based on a universe of technology-related stocks. The Russell 1000 Growth Index is an unmanaged index that consists of those stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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| |
Yearly periods ended December 31 |
|
Comparative Results | |||||
DWS Technology VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,374 | $15,501 | $6,758 | $9,418 |
Average annual total return | 3.74% | 15.73% | -7.54% | -.90% | |
Goldman Sachs Technology Index | Growth of $10,000 | $10,203 | $16,189 | $6,906 | $7,089 |
Average annual total return | 2.03% | 17.42% | -7.14% | -5.03% | |
Russell 1000 Growth Index | Growth of $10,000 | $10,526 | $14,518 | $8,332 | $8,082 |
Average annual total return | 5.26% | 13.23% | -3.58% | -3.14% | |
DWS Technology VIP |
| 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 |
| $10,327 | $15,318 | $14,591 |
Average annual total return |
| 3.27% | 15.28% | 11.40% | |
Goldman Sachs Technology Index | Growth of $10,000 |
| $10,203 | $16,189 | $14,431 |
Average annual total return |
| 2.03% | 17.42% | 11.02% | |
Russell 1000 Growth Index | Growth of $10,000 |
| $10,526 | $14,518 | $13,216 |
Average annual total return |
| 5.26% | 13.23% | 8.29% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1999. Index returns begin April 30, 1999.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Technology VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,107.10 |
| $ 1,104.30 |
|
Expenses Paid per $1,000* | $ 4.62 |
| $ 6.79 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,020.82 |
| $ 1,018.75 |
|
Expenses Paid per $1,000* | $ 4.43 |
| $ 6.51 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Technology VIP | .87% |
| 1.28% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Technology VIP
The technology sector delivered a modestly positive return in 2005, masking significant intraperiod volatility and an exceptionally wide dispersion in returns among the best and worst performers. In this potentially challenging environment, DWS Technology VIP (Class A shares, unadjusted for contract charges) returned 3.74%, comfortably ahead of the 2.03% return of its benchmark, the Goldman Sachs Technology Index. The Portfolio underperformed versus the Russell 1000 Growth Index which returned 5.26%.
The largest positive contribution to return came from the substantial outperformance of our stock picks in semiconductors. Here, the Portfolio was underweight in the largest stocks in the sector in favor of companies with strong product cycles — such as Advanced Micro Devices, Inc. (3.4% of net assets as of December 31, 2005) and Broadcom Corp. (1.4%) — as well as restructuring stories such as National Semiconductor Corp. (0.9%). Performance was also boosted by an overweight in communications equipment stocks, which outperformed, and strong stock selection in the Internet sector. Unfortunately, an underweight in Apple Computer, Inc. (2.6%), one of the strongest stocks in the benchmark, detracted significantly from returns. The underperformance of our stock picks in the software sector also detracted from returns.
As we move into 2006, our belief is that the fundamentals of the technology sector are solid but not spectacular. While we believe that technology can outperform the broader market in the long-term, we do not foresee outsized returns on an absolute basis given the slow, steady recovery we have been experiencing over the past few years. In this environment, we intend to continue to focus on managing risk by emphasizing companies with strong market positions, robust balance sheets and favorable growth prospects.
Ian Link, CFA Kelly P. Davis
Lead Manager Brian S. Peters, CFA
Portfolio Managers
Deutsche Investment Management Americas Inc.
Percentages in parnetheses represent percentages of the Portfolio's total net assets as of December 31, 2005.
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 data quoted. Please visit www.dws-scudder.com for the product's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns.
Risk Considerations
Investments by the Portfolio in small companies present greater risk of loss than investments in larger, more established companies. Concentration of the Portfolio's investment in technology stocks may present a greater risk than investments in a more diversified portfolio. Investments by the Portfolio in emerging technology companies present greater risk than investments in more established technology companies. This Portfolio is non-diversified and can take larger positions in fewer companies, increasing its overall potential risk. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
The Goldman Sachs Technology Index is an unmanaged, capitalization-weighted index based on a universe of technology-related stocks.
The Russell 1000 Growth Index is an unmanaged index that consists of those stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values.
Index returns assume reinvestment of all dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Technology VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 95% | 91% |
Cash Equivalents | 5% | 9% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Information Technology | 95% | 96% |
Consumer Discretionary | 5% | 3% |
Health Care | — | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 42. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Technology VIP
|
| Value ($) |
|
| |
Common Stocks 95.0% | ||
Consumer Discretionary 4.2% | ||
Internet & Catalog Retail | ||
eBay, Inc.* | 210,600 | 9,108,450 |
Information Technology 90.5% | ||
Communications Equipment 15.0% | ||
Avocent Corp.* (a) | 129,900 | 3,531,981 |
Cisco Systems, Inc.* | 347,600 | 5,950,912 |
Corning, Inc.* | 254,500 | 5,003,470 |
Lucent Technologies, Inc.* | 809,900 | 2,154,334 |
Motorola, Inc. | 236,484 | 5,342,174 |
Nokia Oyj (ADR) | 195,700 | 3,581,310 |
QUALCOMM, Inc. | 130,016 | 5,601,089 |
Scientific-Atlanta, Inc. | 23,900 | 1,029,373 |
| 32,194,643 | |
Computers & Peripherals 20.5% | ||
Apple Computer, Inc.* | 77,700 | 5,585,853 |
Dell, Inc.* | 282,225 | 8,463,928 |
EMC Corp.* | 675,300 | 9,197,586 |
Hewlett-Packard Co. | 106,700 | 3,054,821 |
Hon Hai Precision Industry Co., Ltd. | 230,000 | 1,261,176 |
International Business Machines Corp. | 79,100 | 6,502,020 |
Network Appliance, Inc.* | 96,600 | 2,608,200 |
QLogic Corp.* | 107,210 | 3,485,397 |
SanDisk Corp.* | 20,900 | 1,312,938 |
Sun Microsystems, Inc.* | 662,300 | 2,775,037 |
| 44,246,956 | |
Electronic Equipment & Instruments 1.1% | ||
AU Optronics Corp. (ADR) (a) | 90,610 | 1,360,056 |
Cheng Uei Precision Industry Co., Ltd. | 332,000 | 1,077,118 |
| 2,437,174 | |
Internet Software & Services 8.8% | ||
Google, Inc. "A"* | 23,800 | 9,873,668 |
Yahoo!, Inc.* | 235,700 | 9,234,726 |
| 19,108,394 | |
IT Consulting & Services 6.7% | ||
Affiliated Computer Services, Inc. "A"* | 37,000 | 2,189,660 |
Automatic Data Processing, Inc. | 150,530 | 6,907,822 |
Cognizant Technology Solutions Corp. "A"* | 105,500 | 5,311,925 |
| 14,409,407 | |
Semiconductors & Semiconductor Equipment 24.0% | ||
Advanced Micro Devices, Inc.* | 239,400 | 7,325,640 |
Applied Materials, Inc. | 309,900 | 5,559,606 |
Broadcom Corp. "A"* | 62,658 | 2,954,325 |
Intel Corp. | 555,189 | 13,857,517 |
|
| Value ($) |
|
| |
Intersil Corp. "A" | 124,400 | 3,095,072 |
Maxim Integrated Products, Inc. | 158,934 | 5,759,768 |
Micron Technology, Inc.* (a) | 107,400 | 1,429,494 |
National Semiconductor Corp. (a) | 73,600 | 1,912,128 |
Spansion, Inc. "A"* | 83,500 | 1,162,320 |
Sumco Corp.* | 14,800 | 776,801 |
Taiwan Semiconductor Manufacturing Co., Ltd. | 664,000 | 1,264,222 |
Texas Instruments, Inc. | 205,900 | 6,603,213 |
| 51,700,106 | |
Software 14.4% | ||
Activision, Inc.* | 296,766 | 4,077,565 |
Business Objects SA (ADR)* (a) | 175,400 | 7,087,914 |
Computer Associates International, Inc. | 74,900 | 2,111,431 |
Microsoft Corp. | 183,046 | 4,786,653 |
Oracle Corp.* | 420,400 | 5,133,084 |
Patni Computer Systems Ltd. (ADR)* (a) | 10,400 | 241,072 |
Quest Software, Inc.* (a) | 150,000 | 2,188,500 |
Symantec Corp.* | 192,677 | 3,371,847 |
Take-Two Interactive Software, Inc.* (a) | 113,600 | 2,010,720 |
| 31,008,786 | |
Materials 0.3% | ||
Metals & Mining | ||
SODIFF Advanced Materials Co., Ltd. | 28,944 | 577,598 |
Total Common Stocks (Cost $172,973,040) | 204,791,514 | |
| ||
Call Options Purchased 0.0% | ||
Intel Corp. Expiring 1/16/2006, Strike Price, $25.0 (Cost $61,903) | 860 | 51,600 |
| ||
Securities Lending Collateral 5.3% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $11,500,547) | 11,500,547 | 11,500,547 |
| ||
Cash Equivalents 4.5% | ||
Cash Management QP Trust, 4.26% (d) (Cost $9,671,342) | 9,671,342 | 9,671,342 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $194,206,832)+ | 104.8 | 226,015,003 |
Other Assets and Liabilities, Net | (4.8) | (10,412,262) |
Net Assets | 100.0 | 215,602,741 |
Notes to DWS Technology VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $210,884,745. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $15,130,258. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $28,273,058 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $13,142,800.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $11,144,411 which is 5.2% of net assets.
(b) Daily Assets Fund Institutional, an affiliated fund, is managed by Deutsche Asset Management, Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending.
(d) Cash Management QP Trust, an affiliated fund, is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
ADR: American Depositary Receipt
At December 31, 2005, open written options were as follows:
Written Options | Expiration Date | Number of Contracts | Strike Price | Value ($) |
Call Options Yahoo! Inc. (Premiums received $69,716) | 1/21/2006 | 403 | 42.5 | (17,732) |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $173,034,943) — including $11,144,411 of securities loaned | $ 204,843,114 |
Investment in Daily Assets Fund Institutional (cost $11,500,547)* | 11,500,547 |
Investment in Cash Management QP Trust (cost $9,671,342) | 9,671,342 |
Total investments in securities, at value (cost $194,206,832) | 226,015,003 |
Foreign currency, at value (cost $56,400) | 57,591 |
Receivable for investments sold | 958,971 |
Dividends receivable | 56,508 |
Interest receivable | 44,795 |
Receivable for Portfolio shares sold | 513,727 |
Foreign taxes recoverable | 274 |
Other assets | 6,864 |
Total assets | 227,653,733 |
Liabilities | |
Payable for investments purchased | 300,775 |
Payable for Portfolio shares redeemed | 3,659 |
Payable upon return of securities loaned | 11,500,547 |
Written options, at value (premiums received $69,716) | 17,732 |
Accrued management fee | 139,037 |
Other accrued expenses and payables | 89,242 |
Total liabilities | 12,050,992 |
Net assets, at value | $ 215,602,741 |
Net Assets | |
Net assets consist of: Accumulated distributions in excess of net investment income | (402) |
Net unrealized appreciation (depreciation) on: Investments | 31,808,171 |
Written options | 51,984 |
Foreign currency related transactions | 1,193 |
Accumulated net realized gain (loss) | (271,637,475) |
Paid-in capital | 455,379,270 |
Net assets, at value | $ 215,602,741 |
Class A Net Asset Value, offering and redemption price per share ($199,181,092 ÷ 21,420,473 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 9.30 |
Class B Net Asset Value, offering and redemption price per share ($16,421,649 ÷ 1,782,726 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 9.21 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $27,464) | $ 776,548 |
Interest | 2,573 |
Interest — Cash Management QP Trust | 266,204 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 22,980 |
Total Income | 1,068,305 |
Expenses: Management fee | 1,609,872 |
Custodian and accounting fees | 110,875 |
Distribution service fees (Class B) | 37,898 |
Record keeping fees (Class B) | 22,257 |
Auditing | 46,540 |
Legal | 13,238 |
Trustees' fees and expenses | 10,020 |
Reports to shareholders | 42,955 |
Other | 16,148 |
Total expenses before expense reductions | 1,909,803 |
Expense reductions | (3,696) |
Total expenses after expense reductions | 1,906,107 |
Net investment income (loss) | (837,802) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 11,625,908 |
Written options | 1,541,327 |
Foreign currency related transactions | (146,548) |
| 13,020,687 |
Net unrealized appreciation (depreciation) during the period on: Investments | (6,121,456) |
Written options | (74,442) |
Foreign currency related transactions | (6,521) |
| (6,202,419) |
Net gain (loss) on investment transactions | 6,818,268 |
Net increase (decrease) in net assets resulting from operations | $ 5,980,466 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ (837,802) | $ 1,003,070 |
Net realized gain (loss) | 13,020,687 | 14,690,748 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (6,202,419) | (12,924,302) |
Net increase (decrease) in net assets resulting from operations | 5,980,466 | 2,769,516 |
Distributions to shareholders from: Net investment income: Class A | (979,061) | — |
Class B | (18,255) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 13,734,734 | 32,575,554 |
Reinvestment of distributions | 979,061 | — |
Cost of shares redeemed | (50,111,493) | (61,621,741) |
Net increase (decrease) in net assets from Class A share transactions | (35,397,698) | (29,046,187) |
Class B Proceeds from shares sold | 2,549,674 | 7,002,084 |
Reinvestment of distributions | 18,255 | — |
Cost of shares redeemed | (2,984,180) | (1,720,967) |
Net increase (decrease) in net assets from Class B share transactions | (416,251) | 5,281,117 |
Increase (decrease) in net assets | (30,830,799) | (20,995,554) |
Net assets at beginning of period | 246,433,540 | 267,429,094 |
Net assets at end of period (including accumulated distributions in excess of net investment and undistributed net investment income of $402 and $950,616, respectively) | $ 215,602,741 | $ 246,433,540 |
Other Information | ||
Class A Shares outstanding at beginning of period | 25,536,462 | 29,035,542 |
Shares sold | 1,583,343 | 3,753,123 |
Shares issued to shareholders in reinvestment of distributions | 119,107 | — |
Shares redeemed | (5,818,439) | (7,252,203) |
Net increase (decrease) in Class A shares | (4,115,989) | (3,499,080) |
Shares outstanding at end of period | 21,420,473 | 25,536,462 |
Class B Shares outstanding at beginning of period | 1,832,122 | 1,217,540 |
Shares sold | 296,780 | 821,254 |
Shares issued to shareholders in reinvestment of distributions | 2,234 | — |
Shares redeemed | (348,410) | (206,672) |
Net increase (decrease) in Class B shares | (49,396) | 614,582 |
Shares outstanding at end of period | 1,782,726 | 1,832,122 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 9.01 | $ 8.84 | $ 6.02 | $ 9.36 | $ 13.87 |
Income (loss) from investment operations: Net investment income (loss)a | (.03) | .04 | (.04) | (.03) | .01 |
Net realized and unrealized gain (loss) on investment transactions | .36 | .13 | 2.86 | (3.30) | (4.50) |
Total from investment operations | .33 | .17 | 2.82 | (3.33) | (4.49) |
Less distributions from: Net investment income | (.04) | — | — | (.01) | (.02) |
Net asset value, end of period | $ 9.30 | $ 9.01 | $ 8.84 | $ 6.02 | $ 9.36 |
Total Return (%) | 3.74 | 1.92 | 46.84 | (35.52) | (32.39) |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 199 | 230 | 257 | 219 | 351 |
Ratio of expenses (%) | .86 | .83 | .86 | .80 | .81 |
Ratio of net investment income (%) | (.36) | .43 | (.50) | (.37) | .12 |
Portfolio turnover rate (%) | 135 | 112 | 66 | 64 | 56 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 8.93 | $ 8.80 | $ 6.01 | $ 6.32 |
Income (loss) from investment operations: Net investment income (loss)b | (.07) | .01 | (.07) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | .36 | .12 | 2.86 | (.29) |
Total from investment operations | .29 | .13 | 2.79 | (.31) |
Less distributions from: Net investment income | (.01) | — | — | — |
Net asset value, end of period | $ 9.21 | $ 8.93 | $ 8.80 | $ 6.01 |
Total Return (%) | 3.27 | 1.48 | 46.42 | (4.75)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 16 | 16 | 11 | .3 |
Ratio of expenses before expense reductions (%) | 1.26 | 1.22 | 1.25 | 1.06* |
Ratio of expenses after expense reductions (%) | 1.26 | 1.21 | 1.25 | 1.06* |
Ratio of net investment income (%) | (.76) | .05 | (.89) | (.79)* |
Portfolio turnover rate (%) | 135 | 112 | 66 | 64 |
a For the period from July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on average shares outstanding during the period. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Templeton Foreign Value VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns shown for all periods reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Templeton Foreign Value VIP from 11/15/2004 to 12/31/2005 | ||
[] DWS Templeton Foreign Value VIP — Class A [] MSCI World ex-US Index | The MSCI World ex-US Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates. As of May 2005 the MSCI World Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Index returns assume reinvested dividends and, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
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Comparative Results | |||
DWS Templeton Foreign Value VIP | 1-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,961 | $11,575 |
Average annual total return | 9.61% | 13.92% | |
MSCI World ex-US Index | Growth of $10,000 | $11,447 | $11,931 |
Average annual total return | 14.47% | 17.70% | |
DWS Templeton Foreign Value VIP | 1-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,939 | $11,552 |
Average annual total return | 9.39% | 13.71% | |
MSCI World ex-US Index | Growth of $10,000 | $11,447 | $11,931 |
Average annual total return | 14.47% | 17.70% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on November 15, 2004. Index returns begin November 30, 2004.
Information About Your Portfolio's Expenses
DWS Templeton Foreign Value VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,118.40 |
| $ 1,117.20 |
|
Expenses Paid per $1,000* | $ 6.14 |
| $ 7.20 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,019.41 |
| $ 1,018.40 |
|
Expenses Paid per $1,000* | $ 5.85 |
| $ 6.87 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Templeton Foreign Value VIP | 1.15% |
| 1.35% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Templeton Foreign Value VIP
For the 12 months ended December 31, 2005, Class A shares of DWS Templeton Foreign Value VIP returned 9.61% (Class A shares, unadjusted for sales charges), compared with 14.47% for its benchmark, the Morgan Stanley Capital International (MSCI) All Countries World (ex-US) Index.
Let's look first at the global economic environment during the period. During 2005, the global economy overcame fears of derailment generated by higher energy costs; it advanced at a solid clip, with signs of firming recoveries in Europe and Japan. At the same time, inflation (excluding the volatile energy and food sectors) remained relatively subdued worldwide. And, despite short-term interest rate hikes in the United States and Europe, interest rates remained fairly accommodative.
The global equity markets performed strongly during 2005, particularly outside the United States. The energy and materials sectors led equity market performance, and the telecommunications services and consumer-related sectors lagged.
DWS Templeton Foreign Value VIP benefited from an overweight1 (relative to the MSCI World ex-US Index) in the industrials sector during the period. Several holdings in the financials sector also boosted the Portfolio's performance.
On the other hand, an underweight in the energy sector hindered relative performance. Several holdings in the materials sectors also weighed on performance. In addition, the Portfolio's overweight in telecommunication services, the worst-performing sector in the MSCI World ex-US Index for the period, hurt performance.
Also detracting from the Portfolio's performance was the US dollar's appreciation versus most foreign currencies. Investments in securities with non-US currency exposure lost value as the dollar strengthened.
At Templeton, our investment focus has always centered on individual companies and longer-term returns. We are confident that regardless of the macroeconomic climate we might encounter, we should continue to find "bargain" investment opportunities. This has been our experience for more than 60 years.
Antonio Docal, CFA
Lead Portfolio Manager
Templeton Investment Counsel LLC, Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Risk Considerations
This Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Additionally, investing in foreign securities presents certain unique risks not associated with domestic investments, such as currency fluctuation, political and economic changes and market risks. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The MSCI World ex-US Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The index is calculated using closing local market prices and converts to US dollars using the London close foreign exchange rates. As of May 2005 the MSCI World Index consisted of the following 22 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
Index returns assume reinvested dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
1 "Overweight" means the Portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the Portfolio holds a lower weighting.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Templeton Foreign Value VIP
Asset Allocation | 12/31/05 | 12/31/04 |
|
|
|
Common Stocks | 95% | 95% |
Cash Equivalents | 5% | 5% |
| 100% | 100% |
Geographical Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Europe (excluding United Kingdom) | 46% | 44% |
United Kingdom | 21% | 24% |
Japan | 12% | 11% |
Pacific Basin | 11% | 10% |
Latin America | 2% | 2% |
Australia | 2% | 3% |
Other | 6% | 6% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
|
|
|
Financials | 22% | 23% |
Consumer Discretionary | 15% | 13% |
Industrials | 14% | 14% |
Telecommunications Services | 12% | 10% |
Materials | 11% | 11% |
Health Care | 7% | 6% |
Information Technology | 6% | 6% |
Energy | 5% | 7% |
Utilities | 4% | 5% |
Consumer Staples | 4% | 5% |
| 100% | 100% |
Asset allocation, geographical and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 51. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Templeton Foreign Value VIP
|
| Value ($) |
|
| |
Common Stocks 95.2% | ||
Australia 1.8% | ||
Alumina Ltd. | 29,582 | 160,914 |
National Australia Bank Ltd. | 8,806 | 209,164 |
(Cost $330,476) | 370,078 | |
Bermuda 0.9% | ||
ACE Ltd.* (Cost $162,979) | 3,650 | 195,056 |
Brazil 1.2% | ||
Companhia Vale do Rio Doce (ADR) | 2,720 | 98,600 |
Empresa Brasiliera de Aeronautica SA (Preferred) (ADR) | 3,780 | 147,798 |
(Cost $187,692) | 246,398 | |
Canada 2.7% | ||
Alcan, Inc. | 3,810 | 156,536 |
BCE, Inc. | 6,440 | 154,400 |
Domtar, Inc. | 43,900 | 253,404 |
(Cost $544,069) | 564,340 | |
Cayman Islands 0.8% | ||
XL Capital Ltd. "A" (Cost $182,758) | 2,590 | 174,514 |
China 0.8% | ||
China Telecom Corp., Ltd. "H" (Cost $153,987) | 428,000 | 155,939 |
Denmark 0.5% | ||
Vestas Wind Systems AS* (Cost $108,784) | 6,880 | 112,993 |
Finland 2.2% | ||
Stora Enso Oyj | 13,240 | 179,155 |
UPM-Kymmene Oyj | 14,400 | 282,318 |
(Cost $473,252) | 461,473 | |
France 8.2% | ||
Accor SA | 3,131 | 172,218 |
Axa | 9,062 | 292,459 |
Compagnie Generale des Etablissements Michelin "B" | 3,282 | 184,486 |
France Telecom SA | 10,290 | 255,707 |
Sanofi-Aventis | 3,258 | 285,429 |
Suez SA | 4,949 | 154,095 |
Total SA | 869 | 218,313 |
Valeo SA | 3,854 | 143,316 |
(Cost $1,613,164) | 1,706,023 | |
Germany 7.4% | ||
BASF AG | 2,645 | 202,634 |
Bayerische Motoren Werke AG | 4,535 | 198,921 |
Celesio AG | 1,336 | 114,926 |
Deutsche Post AG | 9,509 | 230,558 |
E.ON AG | 3,125 | 323,316 |
Muenchener Rueckversicherungs- | 1,280 | 173,330 |
Siemens AG (Registered) | 3,420 | 293,143 |
(Cost $1,391,462) | 1,536,828 | |
|
| Value ($) |
|
| |
Hong Kong 2.6% | ||
Cheung Kong Holdings Ltd. | 19,000 | 195,179 |
Hutchison Whampoa Ltd. | 20,000 | 190,620 |
Swire Pacific Ltd. "A" | 16,500 | 147,898 |
(Cost $508,667) | 533,697 | |
Israel 0.9% | ||
Check Point Software Technologies Ltd.* (Cost $198,558) | 8,960 | 180,096 |
Italy 2.5% | ||
Eni SpA | 8,940 | 247,985 |
UniCredito Italiano SpA | 37,810 | 260,522 |
(Cost $440,848) | 508,507 | |
Japan 11.8% | ||
East Japan Railway Co. | 26 | 178,793 |
Fuji Photo Film Co., Ltd. | 5,800 | 191,801 |
Hitachi Ltd. | 22,000 | 148,302 |
KDDI Corp. | 35 | 201,806 |
Mabuchi Motor Co., Ltd. | 4,399 | 244,316 |
NEC Corp. | 14,000 | 87,133 |
Nintendo Co., Ltd. | 1,700 | 205,410 |
Nippon Telegraph & Telephone Corp. | 37 | 168,160 |
Nomura Holdings, Inc. | 13,400 | 256,785 |
Olympus Corp. | 6,000 | 157,714 |
Sompo Japan Insurance, Inc. | 12,000 | 162,293 |
Sony Corp. | 6,100 | 249,307 |
Takeda Chemical Industries Ltd. | 3,500 | 189,342 |
(Cost $2,146,885) | 2,441,162 | |
Korea 5.2% | ||
Kookmin Bank (ADR) | 3,690 | 275,680 |
Korea Electric Power Corp. (ADR) | 5,220 | 101,738 |
POSCO (ADR) | 2,280 | 112,883 |
Samsung Electronics Co., Ltd. (GDR), 144A | 1,447 | 476,786 |
SK Telecom Co., Ltd. (ADR) | 5,080 | 103,073 |
(Cost $815,130) | 1,070,160 | |
Mexico 0.9% | ||
Telefonos de Mexico SA de CV "L" (ADR) (Cost $140,726) | 7,430 | 183,372 |
Netherlands 7.1% | ||
Akzo Nobel NV | 4,317 | 200,092 |
ING Groep NV | 8,633 | 299,464 |
Koninklijke (Royal) Philips Electronics NV | 8,506 | 264,344 |
Reed Elsevier NV | 9,725 | 135,858 |
Royal Dutch Shell PLC "B" | 5,295 | 169,265 |
Unilever NV | 3,367 | 230,601 |
Wolters Kluwer NV | 8,063 | 163,042 |
(Cost $1,322,545) | 1,462,666 | |
Norway 2.3% | ||
Norske Skogindustrier ASA | 14,887 | 236,565 |
Telenor ASA | 24,220 | 237,739 |
(Cost $431,150) | 474,304 | |
|
| Value ($) |
|
| |
Portugal 1.1% | ||
Portugal Telecom SGPS SA (Registered) (Cost $233,204) | 23,022 | 233,037 |
Singapore 0.9% | ||
DBS Group Holdings Ltd. (Cost $166,652) | 18,000 | 178,631 |
Spain 3.8% | ||
Banco Santander Central Hispano SA | 21,066 | 278,081 |
Iberdrola SA | 4,868 | 133,073 |
Repsol YPF SA | 7,565 | 220,950 |
Telefonica SA (ADR) | 3,602 | 162,162 |
(Cost $745,553) | 794,266 | |
Sweden 3.8% | ||
Atlas Copco AB "A" | 9,240 | 205,863 |
Nordea Bank AB | 20,809 | 216,092 |
Securitas AB "B" | 14,530 | 241,420 |
Volvo AB "B" | 2,830 | 133,405 |
(Cost $690,866) | 796,780 | |
Switzerland 4.4% | ||
Lonza Group AG (Registered) | 3,611 | 220,939 |
Nestle SA (Registered) | 784 | 234,475 |
Swiss Re (Registered) | 2,994 | 219,187 |
UBS AG (Registered) | 2,493 | 237,338 |
(Cost $824,861) | 911,939 | |
Taiwan 1.5% | ||
Chunghwa Telecom Co., Ltd. (ADR) | 8,940 | 164,049 |
Compal Electronics, Inc. (GDR), 144A | 28,860 | 146,611 |
(Cost $309,775) | 310,660 | |
|
| Value ($) |
|
| |
United Kingdom 19.9% | ||
Alliance Unichem PLC | 11,797 | 162,476 |
BAE Systems PLC | 39,131 | 257,013 |
Boots Group PLC | 18,188 | 189,319 |
BP PLC | 17,829 | 189,877 |
British Airways PLC* | 31,780 | 182,623 |
British Sky Broadcasting Group PLC | 40,623 | 347,013 |
Cadbury Schweppes PLC | 19,040 | 180,007 |
Compass Group PLC | 88,888 | 337,215 |
GKN PLC | 18,816 | 93,234 |
GlaxoSmithKline PLC | 9,542 | 241,166 |
HSBC Holdings PLC (Hong Kong Registered) | 12,800 | 205,364 |
National Grid PLC | 16,509 | 161,479 |
Pearson PLC | 12,449 | 147,252 |
Rentokil Initial PLC | 64,712 | 182,036 |
Rolls-Royce Group PLC* | 28,289 | 208,069 |
Royal Bank of Scotland Group PLC | 9,095 | 274,622 |
Shire PLC | 13,244 | 169,530 |
Smiths Group PLC | 8,459 | 152,232 |
Vodafone Group PLC | 141,902 | 306,399 |
Yell Group PLC | 13,897 | 128,278 |
(Cost $4,022,418) | 4,115,204 | |
Total Common Stocks (Cost $18,146,461) | 19,718,123 | |
| ||
Cash Equivalents 5.6% | ||
Cash Management QP Trust, 4.26% (a) (Cost $1,150,780) | 1,150,780 | 1,150,780 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $19,297,241)+ | 100.8 | 20,868,903 |
Other Assets and Liabilities, Net | (0.8) | (160,439) |
Net Assets | 100.0 | 20,708,464 |
Notes to DWS Templeton Foreign Value VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $19,329,198. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $1,539,705. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $1,825,832 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $286,127.
(a) 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.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $18,146,461) | $ 19,718,123 |
Investment in Cash Management QP Trust (cost $1,150,780) | 1,150,780 |
Total investments in securities, at value (cost $19,297,241) | 20,868,903 |
Cash | 9,921 |
Foreign currency, at value (cost $97,522) | 97,227 |
Receivable for investments sold | 1,504 |
Dividends receivable | 33,775 |
Interest receivable | 3,090 |
Receivable for Portfolio shares sold | 4,689 |
Foreign taxes recoverable | 3,461 |
Due from Advisor | 59,208 |
Other assets | 395 |
Total assets | 21,082,173 |
Liabilities | |
Payable for investments purchased | 303,186 |
Payable for Portfolio shares redeemed | 1,342 |
Other accrued expenses and payables | 69,181 |
Total liabilities | 373,709 |
Net assets, at value | $ 20,708,464 |
Net Assets | |
Net assets consist of: Distributions in excess of net investment income | (9,319) |
Net unrealized appreciation (depreciation) on: Investments | 1,571,662 |
Foreign currency related transactions | (269) |
Accumulated net realized gain (loss) | 58,313 |
Paid-in capital | 19,088,077 |
Net assets, at value | $ 20,708,464 |
Class A Net Asset Value, offering and redemption price per share ($13,345,371 ÷ 1,167,164 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.43 |
Class B Net Asset Value, offering and redemption price per share ($7,363,093 ÷ 643,963 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.43 |
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $31,660) | $ 282,644 |
Interest — Cash Management QP Trust | 30,337 |
Total Income | 312,981 |
Expenses: Management fee | 112,526 |
Custodian and accounting fees | 177,764 |
Distribution service fees (Class B) | 11,702 |
Record keeping fees (Class B) | 1,741 |
Auditing | 25,001 |
Legal | 9,877 |
Trustees' fees and expenses | 13 |
Reports to shareholders | 4,204 |
Offering cost | 6,193 |
Other | 5,840 |
Total expenses before expense reductions | 354,861 |
Expense reductions | (209,277) |
Total expenses after expense reductions | 145,584 |
Net investment income (loss) | 167,397 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 151,924 |
Foreign currency related transactions | (22,628) |
| 129,296 |
Net unrealized appreciation (depreciation) during the period on: Investments | 1,275,604 |
Foreign currency related transactions | (297) |
| 1,275,307 |
Net gain (loss) on investment transactions | 1,404,603 |
Net increase (decrease) in net assets resulting from operations | $ 1,572,000 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Year Ended December 31, 2005 | Period Ended December 31, 2004a |
Operations: Net investment income (loss) | $ 167,397 | $ 2,020 |
Net realized gain (loss) on investment transactions | 129,296 | (8,340) |
Net unrealized appreciation (depreciation) during the period on investment transactions | 1,275,307 | 296,086 |
Net increase (decrease) in net assets resulting from operations | 1,572,000 | 289,766 |
Distributions to shareholders from: Net investment income: Class A | (109,492) | — |
Class B | (45,602) | — |
Net realized gains: Class A | (57,627) | — |
Class B | (31,845) | — |
Portfolio share transactions: Class A Proceeds from shares sold | 11,598,184 | 2,500,000 |
Reinvestment of distributions | 167,119 | — |
Cost of shares redeemed | (1,908,590) | — |
Net increase (decrease) in net assets from Class A share transactions | 9,856,713 | 2,500,000 |
Class B Proceeds from shares sold | 4,140,045 | 2,758,419 |
Reinvestment of distributions | 77,446 | — |
Cost of shares redeemed | (241,047) | (312) |
Net increase (decrease) in net assets from Class B share transactions | 3,976,444 | 2,758,107 |
Increase (decrease) in net assets | 15,160,591 | 5,547,873 |
Net assets at beginning of period | 5,547,873 | — |
Net assets at end of period (including distributions in excess of net investment income and accumulated net investment loss of $9,319 and $3,133, respectively) | $ 20,708,464 | $ 5,547,873 |
Other Information | ||
Class A Shares outstanding at beginning of period | 250,000 | — |
Shares sold | 1,074,821 | 250,000 |
Shares reissued to shareholders in reinvestment of distributions | 14,621 | — |
Shares redeemed | (172,278) | — |
Net increase (decrease) in Class A shares | 917,164 | 250,000 |
Shares outstanding at end of period | 1,167,164 | 250,000 |
Class B Shares outstanding at beginning of period | 275,227 | — |
Shares sold | 383,957 | 275,257 |
Shares reissued to shareholders in reinvestment of distributions | 6,776 | — |
Shares redeemed | (21,997) | (30) |
Net increase (decrease) in Class B shares | 368,736 | 275,227 |
Shares outstanding at end of period | 643,963 | 275,227 |
a For the period from November 15, 2004 (commencement of operations) to December 31, 2004.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.56 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .17 | .01 |
Net realized and unrealized gain (loss) on investment transactions | .85 | .55 |
Total from investment operations | 1.02 | .56 |
Less distributions from: Net investment income | (.10) | — |
Net realized gain on investment transactions | (.05) | — |
Total distributions | (.15) | — |
Net asset value, end of period | $ 11.43 | $ 10.56 |
Total Return (%)c | 9.61 | 5.60** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 13 | 3 |
Ratio of expenses before expense reductions (%) | 2.88 | 7.34* |
Ratio of expenses after expense reductions (%) | 1.15 | 1.14* |
Ratio of net investment income (%) | 1.49 | .41* |
Portfolio turnover rate (%) | 15 | — |
a For the period from November 15, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 10.56 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .14 | — |
Net realized and unrealized gain (loss) on investment transactions | .85 | .56 |
Total from investment operations | .99 | .56 |
Less distributions from: Net investment income | (.07) | — |
Net realized gain on investment transactions | (.05) | — |
Total distributions | (.12) | — |
Net asset value, end of period | $ 11.43 | $ 10.56 |
Total Return (%)c | 9.39 | 5.60** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | 7 | 3 |
Ratio of expenses before expense reductions (%) | 3.17 | 7.74* |
Ratio of expenses after expense reductions (%) | 1.35 | 1.34* |
Ratio of net investment income (%) | 1.29 | .21* |
Portfolio turnover rate (%) | 15 | — |
a For the period from November 15, 2004 (commencement of operations) to December 31, 2004. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Performance Summary December 31, 2005
DWS Turner Mid Cap Growth VIP
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 data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
Portfolio returns shown for life of portfolio period for Class A shares and for all periods shown for Class B shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Turner Mid Cap Growth VIP from 5/1/2001 to 12/31/2005 | ||
[] DWS Turner Mid Cap Growth VIP — Class A [] Russell Midcap Growth Index | The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvestment of dividends and unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly in an index. | |
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Comparative Results | ||||
DWS Turner Mid Cap Growth VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $11,176 | $18,428 | $11,020 |
Average annual total return | 11.76% | 22.60% | 2.10% | |
Russell Midcap Growth Index | Growth of $10,000 | $11,210 | $18,474 | $12,252 |
Average annual total return | 12.10% | 22.70% | 4.45% | |
DWS Turner Mid Cap Growth VIP | 1-Year | 3-Year | Life of Class** | |
Class B | Growth of $10,000 | $11,125 | $18,224 | $16,485 |
Average annual total return | 11.25% | 22.15% | 15.36% | |
Russell Midcap Growth Index | Growth of $10,000 | $11,210 | $18,474 | $16,702 |
Average annual total return | 12.10% | 22.70% | 15.78% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2001. Index returns begin April 30, 2001.
** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns begin June 30, 2002.
Information About Your Portfolio's Expenses
DWS Turner Mid Cap Growth VIP
As an investor of the Portfolio, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Portfolio expenses. Examples of transaction costs include 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 the Portfolio 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 Portfolio limited these expenses in Class B; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended December 31, 2005.
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2005 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,112.00 |
| $ 1,110.20 |
|
Expenses Paid per $1,000* | $ 5.70 |
| $ 7.61 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/05 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/05 | $ 1,019.81 |
| $ 1,018.00 |
|
Expenses Paid per $1,000* | $ 5.45 |
| $ 7.27 |
|
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Turner Mid Cap Growth VIP | 1.07% |
| 1.43% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the portfolio or any variable life insurance policy or variable annuity contract for which the portfolio is an investment option.
Management Summary December 31, 2005
DWS Turner Mid Cap Growth VIP
In 2005, corporate earnings were strong. The same can't be said for the stock market during 2005, however; it, as represented by the Standard & Poor's 500 Index, gained just 4.91%. This confounded the expectations of some market strategists.
During this period, DWS Turner Mid Cap Growth VIP gained 11.76% (Class A shares, unadjusted for contract charges), versus a 12.10 % gain for the Russell Midcap Growth Index.
Five of the Portfolio's 10 sector positions beat their corresponding index sectors. Contributing the most to performance were growth-oriented holdings in the utility, consumer discretionary and energy sectors, a combined 38% weighting in the Portfolio. Holdings that added value included wireless telecommunications, apparel/footwear and oil/gas production stocks.
Detracting the most from performance was the healthcare sector, an 18% weighting in the Portfolio. Holdings in the pharmaceuticals industry also detracted from performance.
We remain optimistic about the near-term outlook for the stock market. Our bottom-up fundamental analysis tells us that the recent strong earnings of corporate America should persist. Also, companies are intent on capitalizing on their fastest growing products and services, controlling costs, improving productivity, buying back shares and raising dividends. All in all, then, we see a favorable backdrop for continued stock market gains in the new year.
Christopher K. McHugh
William C. McVail
Robert E. Turner
Portfolio Managers
Turner Investment Partners, Inc., Subadvisor to the Portfolio
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-scudder.com for the Portfolio's most recent month-end performance. Performance doesn't reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option. These charges and fees will reduce returns. While all share classes have the same underlying portfolio, their performance will differ.
Risk Considerations
The Portfolio is subject to stock market risk, meaning stocks in the Portfolio may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
The Standard & Poor's 500 Index is an unmanaged group of large-company stocks. Index returns assume reinvestment of dividends and unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly in an index.
The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2005, and may not come to pass. This information is subject to change at any time based on market and other conditions.
Portfolio Summary
DWS Turner Mid Cap Growth VIP
Asset Allocation (Excludes Securities Lending Collateral) | 12/31/05 | 12/31/04 |
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Common Stocks | 96% | 99% |
Cash Equivalents | 4% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/05 | 12/31/04 |
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Information Technology | 25% | 31% |
Consumer Discretionary | 17% | 18% |
Health Care | 17% | 19% |
Industrials | 14% | 11% |
Financials | 10% | 9% |
Energy | 10% | 5% |
Materials | 3% | 3% |
Telecommunication Services | 2% | 2% |
Consumer Staples | 2% | 2% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 60. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on the 15th of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2005
DWS Turner Mid Cap Growth VIP
|
| Value ($) |
|
| |
Common Stocks 95.6% | ||
Consumer Discretionary 16.6% | ||
Auto Components 0.6% | ||
Johnson Controls, Inc. | 11,530 | 840,652 |
Hotels Restaurants & Leisure 3.1% | ||
Scientific Games Corp. "A"* | 45,170 | 1,232,238 |
Starwood Hotels & Resorts Worldwide, Inc. | 34,720 | 2,217,219 |
Station Casinos, Inc. | 16,590 | 1,124,802 |
| 4,574,259 | |
Household Durables 1.1% | ||
Harman International Industries, Inc. | 17,180 | 1,681,063 |
Media 2.9% | ||
Getty Images, Inc.* (a) | 15,480 | 1,381,899 |
Sirius Satellite Radio, Inc.* (a) | 340,180 | 2,279,206 |
XM Satellite Radio Holdings, Inc. "A"* | 25,210 | 687,729 |
| 4,348,834 | |
Multiline Retail 1.1% | ||
Nordstrom, Inc. | 43,070 | 1,610,818 |
Specialty Retail 5.1% | ||
Chico's FAS, Inc.* | 46,640 | 2,048,895 |
Circuit City Stores, Inc. | 41,620 | 940,196 |
GameStop Corp. "A"* (a) | 24,910 | 792,636 |
Tiffany & Co. (a) | 30,800 | 1,179,332 |
Urban Outfitters, Inc.* (a) | 38,590 | 976,713 |
Williams-Sonoma, Inc.* | 38,130 | 1,645,310 |
| 7,583,082 | |
Textiles, Apparel & Luxury Goods 2.7% | ||
Coach, Inc.* | 83,880 | 2,796,559 |
Polo Ralph Lauren Corp. | 23,450 | 1,316,483 |
| 4,113,042 | |
Consumer Staples 2.0% | ||
Beverages 0.9% | ||
Hansen Natural Corp.* (a) | 16,680 | 1,314,551 |
Food & Staples Retailing 1.1% | ||
Whole Foods Market, Inc. | 21,820 | 1,688,650 |
Energy 9.3% | ||
Energy Equipment & Services 2.1% | ||
Cal Dive International, Inc.* | 19,100 | 685,499 |
Grant Prideco, Inc.* | 19,290 | 851,075 |
National-Oilwell Varco, Inc.* | 24,650 | 1,545,555 |
| 3,082,129 | |
Oil, Gas & Consumable Fuels 7.2% | ||
Chesapeake Energy Corp. (a) | 26,650 | 845,605 |
Newfield Exploration Co.* | 21,550 | 1,079,008 |
Peabody Energy Corp. | 12,420 | 1,023,656 |
Range Resources Corp. (a) | 73,614 | 1,938,993 |
Southwestern Energy Co.* | 38,480 | 1,382,971 |
Sunoco, Inc. | 21,530 | 1,687,521 |
Ultra Petroleum Corp.* | 19,550 | 1,090,890 |
XTO Energy, Inc. | 38,136 | 1,675,696 |
| 10,724,340 | |
|
| Value ($) |
|
| |
Financials 9.6% | ||
Banks 0.5% | ||
Colonial BancGroup, Inc. | 29,080 | 692,686 |
Capital Markets 2.6% | ||
Mellon Financial Corp. | 50,110 | 1,716,268 |
T. Rowe Price Group, Inc. | 30,280 | 2,181,068 |
| 3,897,336 | |
Diversified Financial Services 5.0% | ||
Affiliated Managers Group, Inc.* (a) | 21,954 | 1,761,808 |
Ameritrade Holding Corp.* | 65,670 | 1,576,080 |
Chicago Mercantile Exchange Holdings, Inc. | 5,090 | 1,870,524 |
Moody's Corp. | 22,860 | 1,404,061 |
Nasdaq Stock Market, Inc.* | 23,310 | 820,046 |
| 7,432,519 | |
Insurance 0.7% | ||
HCC Insurance Holdings, Inc. | 33,110 | 982,705 |
Real Estate 0.8% | ||
CB Richard Ellis Group, Inc. "A"* | 20,600 | 1,212,310 |
Health Care 15.9% | ||
Biotechnology 3.9% | ||
Biogen Idec, Inc.* | 25,350 | 1,149,116 |
Celgene Corp.* | 20,840 | 1,350,432 |
Cephalon, Inc.* (a) | 12,460 | 806,660 |
MedImmune, Inc.* | 39,330 | 1,377,337 |
Protein Design Labs, Inc.* | 41,260 | 1,172,609 |
| 5,856,154 | |
Health Care Equipment & Supplies 2.8% | ||
Dade Behring Holdings, Inc. | 36,600 | 1,496,574 |
Intuitive Surgical, Inc.* | 6,280 | 736,456 |
ResMed, Inc.* | 27,050 | 1,036,285 |
Varian Medical Systems, Inc.* | 17,450 | 878,433 |
| 4,147,748 | |
Health Care Providers & Services 5.0% | ||
Cerner Corp.* (a) | 14,780 | 1,343,650 |
Community Health Systems, Inc.* | 17,090 | 655,230 |
DaVita, Inc.* | 20,670 | 1,046,729 |
Express Scripts, Inc.* | 19,370 | 1,623,206 |
Omnicare, Inc. | 36,690 | 2,099,402 |
Pharmaceutical Product Development, Inc. | 12,070 | 747,736 |
WellPoint, Inc.* | 1 | 74 |
| 7,516,027 | |
Pharmaceuticals 4.2% | ||
Allergan, Inc. | 19,490 | 2,104,141 |
Barr Pharmaceuticals, Inc.* | 25,560 | 1,592,132 |
Sepracor, Inc.* (a) | 13,580 | 700,728 |
Shire Pharmaceuticals Group PLC (ADR) (a) | 30,270 | 1,174,173 |
United Therapeutics Corp.* (a) | 9,350 | 646,272 |
| 6,217,446 | |
|
| Value ($) |
|
| |
Industrials 13.0% | ||
Aerospace & Defense 1.6% | ||
Ceradyne, Inc.* (a) | 20,230 | 886,074 |
Precision Castparts Corp. | 28,280 | 1,465,187 |
| 2,351,261 | |
Air Freight & Logistics 1.6% | ||
C.H. Robinson Worldwide, Inc. | 33,470 | 1,239,394 |
UTI Worldwide, Inc. | 12,260 | 1,138,218 |
| 2,377,612 | |
Commercial Services & Supplies 2.9% | ||
aQuantive, Inc.* (a) | 30,630 | 773,101 |
Manpower, Inc. | 26,580 | 1,235,970 |
Monster Worldwide, Inc.* | 55,660 | 2,272,041 |
| 4,281,112 | |
Construction & Engineering 0.7% | ||
McDermott International, Inc.* | 22,150 | 988,112 |
Electrical Equipment 1.6% | ||
AMETEK, Inc. | 23,140 | 984,376 |
Roper Industries, Inc. | 36,800 | 1,453,968 |
| 2,438,344 | |
Machinery 2.9% | ||
Actuant Corp. "A" | 10,420 | 581,436 |
Joy Global, Inc. | 43,985 | 1,759,400 |
Oshkosh Truck Corp. | 24,550 | 1,094,684 |
Terex Corp.* | 14,610 | 867,834 |
| 4,303,354 | |
Road & Rail 0.7% | ||
Norfolk Southern Corp. | 21,950 | 984,019 |
Trading Companies & Distributors 1.0% | ||
WESCO International, Inc.* | 36,660 | 1,566,482 |
Information Technology 23.6% | ||
Communications Equipment 3.6% | ||
Comverse Technologies, Inc.* | 27,900 | 741,861 |
F5 Networks, Inc.* | 35,320 | 2,019,951 |
Foundry Networks, Inc.* | 82,570 | 1,140,292 |
JDS Uniphase Corp.* (a) | 594,350 | 1,402,666 |
| 5,304,770 | |
Computers & Peripherals 1.5% | ||
ATI Technologies, Inc.* | 49,840 | 846,782 |
Network Appliance, Inc.* | 49,440 | 1,334,880 |
| 2,181,662 | |
Electronic Equipment & Instruments 2.6% | ||
Agilent Technologies, Inc.* | 52,580 | 1,750,389 |
Cogent, Inc.* (a) | 47,190 | 1,070,269 |
Itron, Inc.* (a) | 12,280 | 491,691 |
Trident Microsystems, Inc.* (a) | 33,510 | 603,180 |
| 3,915,529 | |
Internet Software & Services 3.5% | ||
Akamai Technologies, Inc.* (a) | 75,680 | 1,508,302 |
CNET Networks, Inc.* (a) | 110,800 | 1,627,652 |
Openwave Systems, Inc.* (a) | 68,210 | 1,191,629 |
ValueClick, Inc.* (a) | 52,280 | 946,791 |
| 5,274,374 | |
|
| Value ($) |
|
| |
IT Consulting & Services 1.3% | ||
Global Payments, Inc. | 24,790 | 1,155,462 |
MPS Group, Inc.* | 57,760 | 789,579 |
| 1,945,041 | |
Semiconductors & Semiconductor Equipment 10.4% | ||
Advanced Micro Devices, Inc.* | 88,570 | 2,710,242 |
ASML Holding NV (New York Registered Shares)* (a) | 65,200 | 1,309,216 |
Broadcom Corp. "A"* | 68,630 | 3,235,904 |
KLA-Tencor Corp. | 49,270 | 2,430,489 |
Lam Research Corp.* | 19,730 | 703,966 |
Micron Technology, Inc.* (a) | 119,310 | 1,588,016 |
Silicon Laboratories, Inc.* (a) | 43,180 | 1,582,979 |
SiRF Technology Holdings, Inc.* (a) | 26,380 | 786,124 |
Varian Semiconductor Equipment Associates, Inc.* (a) | 26,320 | 1,156,238 |
| 15,503,174 | |
Software 0.7% | ||
Red Hat, Inc.* | 19,160 | 521,918 |
Salesforce.com, Inc.* (a) | 14,500 | 464,725 |
| 986,643 | |
Materials 3.2% | ||
Construction Materials 0.4% | ||
Florida Rock Industries, Inc. | 11,740 | 575,964 |
Metals & Mining 2.8% | ||
Allegheny Technologies, Inc. (a) | 34,590 | 1,248,007 |
CONSOL Energy, Inc. | 21,120 | 1,376,602 |
Freeport-McMoRan Copper & Gold, Inc. "B" | 28,040 | 1,508,552 |
| 4,133,161 | |
Telecommunication Services 2.4% | ||
Wireless Telecommunication Services | ||
Crown Castle International Corp.* | 34,330 | 923,820 |
NII Holdings, Inc.* | 61,300 | 2,677,584 |
| 3,601,404 | |
Total Common Stocks (Cost $112,297,094) | 142,228,369 | |
| ||
Securities Lending Collateral 18.7% | ||
Daily Assets Fund Institutional, 4.28% (b) (c) (Cost $27,863,138) | 27,863,138 | 27,863,138 |
| ||
Cash Equivalents 3.9% | ||
Cash Management QP Trust, 4.26% (d) (Cost $5,741,167) | 5,741,167 | 5,741,167 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $145,901,399)+ | 118.2 | 175,832,674 |
Other Assets and Liabilities, Net | (18.2) | (27,014,184) |
Net Assets | 100.0 | 148,818,490 |
Notes to DWS Turner Mid Cap Growth VIP Portfolio of Investments
* Non-income producing security.
+ The cost for federal income tax purposes was $145,919,877. At December 31, 2005, net unrealized appreciation for all securities based on tax cost was $29,912,797. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $31,029,734 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,116,937.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2005 amounted to $26,923,208 which is 18.1% of net assets.
(b) 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.
(c) Represents collateral held in connection with securities lending.
(d) 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.
ADR: American Depositary Receipt
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2005 | |
Assets | |
Investments: Investments in securities, at value (cost $112,297,094) — including $26,923,208 of securities loaned | $ 142,228,369 |
Investment in Daily Assets Fund Institutional (cost $27,863,138)* | 27,863,138 |
Investment in Cash Management QP Trust (cost $5,741,167) | 5,741,167 |
Total investments in securities, at value (cost $145,901,399) | 175,832,674 |
Cash | 617,907 |
Receivable for investments sold | 1,420,884 |
Dividends receivable | 62,980 |
Interest receivable | 25,971 |
Other assets | 4,306 |
Total assets | 177,964,722 |
Liabilities | |
Payable upon return of securities loaned | 27,863,138 |
Payable for investments purchased | 958,223 |
Payable for Portfolio shares redeemed | 131,838 |
Accrued management fee | 106,193 |
Other accrued expenses and payables | 86,840 |
Total liabilities | 29,146,232 |
Net assets, at value | $ 148,818,490 |
Net Assets | |
Net assets consist of: Accumulated net investment loss | (86) |
Net unrealized appreciation (depreciation) on investments | 29,931,275 |
Accumulated net realized gain (loss) | 11,657,906 |
Paid-in capital | 107,229,395 |
Net assets, at value | $ 148,818,490 |
Class A Net Asset Value, offering and redemption price per share ($121,631,079 ÷ 11,034,621 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.02 |
Class B Net Asset Value, offering and redemption price per share ($27,187,411 ÷ 2,497,836 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.88 |
* Represents collateral on securities loaned.
Statement of Operations for the year ended December 31, 2005 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $498) | $ 628,787 |
Interest — Cash Management QP Trust | 68,963 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 52,492 |
Total Income | 750,242 |
Expenses: Management fee | 1,287,229 |
Custodian and accounting fees | 115,609 |
Distribution service fees (Class B) | 60,306 |
Record keeping fees (Class B) | 34,105 |
Auditing | 45,362 |
Legal | 9,745 |
Trustees' fees and expenses | 5,721 |
Reports to shareholders | 34,223 |
Other | 16,094 |
Total expenses before expense reductions | 1,608,394 |
Expense reductions | (9,279) |
Total expenses after expense reductions | 1,599,115 |
Net investment income (loss) | (848,873) |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from investments | 15,832,540 |
Foreign currency related transactions | (24) |
| 15,832,516 |
Net unrealized appreciation (depreciation) during the period on investments | (148,045) |
Net gain (loss) on investment transactions | 15,684,471 |
Net increase (decrease) in net assets resulting from operations | $ 14,835,598 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
| Years Ended December 31, | |
Increase (Decrease) in Net Assets | 2005 | 2004 |
Operations: Net investment income (loss) | $ (848,873) | $ (1,138,786) |
Net realized gain (loss) on investment transactions | 15,832,516 | 10,201,612 |
Net unrealized appreciation (depreciation) during the period on investment transactions | (148,045) | 4,371,388 |
Net increase (decrease) in net assets resulting from operations | 14,835,598 | 13,434,214 |
Portfolio share transactions: Class A Proceeds from shares sold | 10,529,915 | 14,595,440 |
Cost of shares redeemed | (18,562,756) | (17,916,695) |
Net increase (decrease) in net assets from Class A share transactions | (8,032,841) | (3,321,255) |
Class B Proceeds from shares sold | 6,985,137 | 9,964,790 |
Cost of shares redeemed | (5,854,761) | (2,100,980) |
Net increase (decrease) in net assets from Class B share transactions | 1,130,376 | 7,863,810 |
Increase (decrease) in net assets | 7,933,133 | 17,976,769 |
Net assets at beginning of period | 140,885,357 | 122,908,588 |
Net assets at end of period (including accumulated net investment loss of $86 and $301, respectively) | $ 148,818,490 | $ 140,885,357 |
Other Information | ||
Class A Shares outstanding at beginning of period | 11,918,058 | 12,352,137 |
Shares sold | 997,835 | 1,622,749 |
Shares redeemed | (1,881,272) | (2,056,828) |
Net increase (decrease) in Class A shares | (883,437) | (434,079) |
Shares outstanding at end of period | 11,034,621 | 11,918,058 |
Class B Shares outstanding at beginning of period | 2,386,654 | 1,499,883 |
Shares sold | 684,539 | 1,126,297 |
Shares redeemed | (573,357) | (239,526) |
Net increase (decrease) in Class B shares | 111,182 | 886,771 |
Shares outstanding at end of period | 2,497,836 | 2,386,654 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2005 | 2004 | 2003 | 2002 | 2001a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 9.86 | $ 8.88 | $ 5.98 | $ 8.82 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | (.05) | (.07) | (.06) | (.06) | (.04) |
Net realized and unrealized gain (loss) on investment transactions | 1.21 | 1.05 | 2.96 | (2.78) | (1.14) |
Total from investment operations | 1.16 | .98 | 2.90 | (2.84) | (1.18) |
Net asset value, end of period | $ 11.02 | $ 9.86 | $ 8.88 | $ 5.98 | $ 8.82 |
Total Return (%) | 11.76 | 11.04 | 48.49 | (32.20) | (11.80)c** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 122 | 118 | 110 | 61 | 48 |
Ratio of expenses before expense reductions (%) | 1.11 | 1.19 | 1.18 | 1.13 | 1.82* |
Ratio of expenses after expense reductions (%) | 1.11 | 1.19 | 1.18 | 1.13 | 1.30* |
Ratio of net investment income (loss) (%) | (.56) | (.82) | (.90) | (.82) | (.76)* |
Portfolio turnover rate (%) | 151 | 174 | 155 | 225 | 205* |
a For the period from May 1, 2001 (commencement of operations) to December 31, 2001. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Class B Years Ended December 31, | 2005 | 2004 | 2003 | 2002a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 9.78 | $ 8.84 | $ 5.97 | $ 6.60 |
Income (loss) from investment operations: Net investment income (loss)b | (.09) | (.10) | (.09) | (.02) |
Net realized and unrealized gain (loss) on investment transactions | 1.19 | 1.04 | 2.96 | (.61) |
Total from investment operations | 1.10 | .94 | 2.87 | (.63) |
Net asset value, end of period | $ 10.88 | $ 9.78 | $ 8.84 | $ 5.97 |
Total Return (%) | 11.25c | 10.63 | 48.07 | (9.55)** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 27 | 23 | 13 | .6 |
Ratio of expenses before expense reductions (%) | 1.51 | 1.56 | 1.57 | 1.38* |
Ratio of expenses after expense reductions (%) | 1.48 | 1.56 | 1.57 | 1.38* |
Ratio of net investment income (loss) (%) | (.93) | (1.19) | (1.29) | (.81)* |
Portfolio turnover rate (%) | 151 | 174 | 155 | 225 |
a For the period July 1, 2002 (commencement of operations of Class B shares) to December 31, 2002. b Based on an average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
A. Significant Accounting Policies
DWS Variable Series II (formerly Scudder Variable Series II) (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end, diversified management investment company organized as a Massachusetts business trust. The Trust offers twenty-nine portfolios (the "portfolio(s)"), including four portfolios that invest primarily in existing DWS Portfolios (formerly Scudder Portfolios) ("Underlying Portfolios"). Each Underlying Portfolio's accounting policies and investment holdings are outlined in the Underlying Portfolio's financials statements and are available upon request.
Multiple Classes of Shares of Beneficial Interest. The Trust offers two classes of shares (Class A shares and Class B shares) except DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP, which offer Class B shares only. Sales of Class B shares are subject to record keeping fees up to 0.15% and Rule 12b-1 fees under the 1940 Act equal to an annual rate of 0.25%, of the average daily net assets of the Class B shares of the applicable portfolio. Class A shares are not subject to such fees.
Investment income, realized and unrealized gains and losses, and certain portfolio-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares except that each class bears certain expenses unique to that class (including the applicable 12b-1 fee and record keeping fee). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The Trust'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 Trust in the preparation of its financial statements.
Security Valuation. DWS Money Market VIP values all securities utilizing the amortized cost method permitted in accordance with Rule 2a-7 under the 1940 Act and certain conditions therein. Under this method, which does not take into account unrealized capital gains or losses on securities, an instrument is initially valued at its cost and thereafter assumes a constant accretion/amortization to maturity of any discount or premium.
Investments in securities and Underlying Portfolios are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Debt securities are valued by independent pricing services approved by the Trustees of the portfolios. 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.
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.
Investments in the Underlying Portfolios are valued at the net asset value per share of each class of the Underlying Portfolios as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
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. The portfolios may use a fair valuation model to value international equity securities in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange.
Foreign Currency Translations. The books and records of the Trust 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.
Repurchase Agreements. The portfolios may enter into repurchase agreements with certain banks and broker/dealers whereby the portfolios, through their custodian or sub-custodian bank, receive delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the value is equal to at least the principal amount of the repurchase price plus accrued interest. The custodian bank holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the financial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, the portfolios have the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the portfolios' claims on the collateral may be subject to legal proceedings.
Securities Lending. Each portfolio, except DWS Money Market VIP, DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP, DWS Conservative Allocation VIP, DWS Mercury Large Cap Core VIP and DWS Templeton Foreign Value VIP, may lend securities to financial institutions. The portfolios retain beneficial ownership of the securities they have loaned and continue to receive interest and dividends paid by the securities and to participate in any changes in their market value. The portfolio requires the borrowers of the securities to maintain collateral with the portfolio consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The portfolio may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The portfolios receive compensation for lending their securities either in the form of fees or by earning interest on invested cash collateral net fees paid to a lending agent. Either the portfolios or the borrower may terminate the loan. The portfolios are 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 portfolio may buy or sell credit default swap contracts to seek to increase the portfolio'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 portfolio 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 portfolio. In return, the Portfolio 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 Portfolio would keep the stream of payments and would have no payment obligations. The portfolio may also buy credit default swap contracts in order to hedge against the risk of default of debt securities, in which case the portfolio 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 portfolio in the event of a default. When the Portfolio 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 portfolio.
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 DWS Strategic Income VIP is recorded as an asset on the statement of assets and liabilities. An upfront payment received by the DWS Strategic Income VIP is recorded as a liability on the statement of assets and liabilities. Under the terms of the credit default swap contracts, the portfolio receives or makes payments semi-annually 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.
Options. An option contract is a contract in which the writer of the option grants the buyer of the option the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices, will require cash settlement by the portfolio if the option is exercised. The portfolios may enter into option contracts in order to hedge against potential adverse price movements in the value of portfolio assets; as a temporary substitute for selling selected investments; to lock in the purchase price of a security or currency which it expects to purchase in the near future; as a temporary substitute for purchasing selected investments; and to enhance potential gain.
The liability representing the portfolio's obligation under an exchange traded written option or investment in a purchased option is valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid and asked price are available. Over-the-counter written or purchased options are valued using dealer-supplied quotations. Gain or loss is recognized when the option contract expires or is closed.
If the portfolio writes a covered call option, the portfolio foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the portfolio writes a put option it accepts the risk of a decline in the value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The portfolio's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the portfolio's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The portfolios may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes and for duration management, risk management and return enhancement purposes.
Upon entering into a futures contract, the portfolio is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the portfolio dependent upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the portfolio. When entering into a closing transaction, the portfolio will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the portfolio's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities or currencies hedged. When utilizing futures contracts to hedge, the portfolio gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
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 portfolios 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 portfolio gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.
Loan Participations/Assignments. The portfolios may invest in US dollar-denominated fixed and floating rate loans ("Loans") arranged through private negotiations between a foreign sovereign entity and one or more financial institutions ("Lenders"). The portfolios invest in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of loans from third parties ("Assignments"). Participations typically result in the portfolios having a contractual relationship only with the Lender, not with the sovereign borrower. The portfolios have the right to receive payments of principal, interest and any fees to which they are entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the portfolios generally have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the portfolios will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the portfolios assume the credit risk of both the borrower and the Lender that is selling the Participation.
Mortgage Dollar Rolls. DWS Core Fixed Income VIP, DWS Government & Agency Securities VIP and DWS Balanced VIP entered into mortgage dollar rolls in which each portfolio sells to a bank or broker/dealer (the "counterparty") mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities on a fixed date. The counterparty receives all principal and interest payments, including prepayments, made on the security while it is the holder. Each portfolio receives compensation as consideration for entering into the commitment to repurchase. The compensation is paid in the form of a lower price for the security upon its repurchase, or alternatively, a fee. Mortgage dollar rolls may be renewed with a new sale and repurchase price and a cash settlement made at each renewal without physical delivery of the securities subject to the contract.
Mortgage dollar rolls may be treated for purposes of the 1940 Act as borrowings by each portfolio because they involve the sale of a security coupled with an agreement to repurchase. A mortgage dollar roll involves costs to each portfolio. For example, while each portfolio receives compensation as consideration for agreeing to repurchase the security, each portfolio forgoes the right to receive all principal and interest payments while the counterparty holds the security. These payments to the counterparty may exceed the compensation received by each portfolio, thereby effectively charging each portfolio interest on its borrowings. Further, although each portfolio can estimate the amount of expected principal prepayment over the term of the mortgage dollar roll, a variation in the actual amount of prepayment could increase or decrease the cost of each portfolio's borrowing.
Certain risks may arise upon entering into mortgage dollar rolls from the potential inability of counterparties to meet the terms of their commitments. Additionally, the value of such securities may change adversely before each portfolio is able to repurchase them. There can be no assurance that each portfolio's use of the cash that it receives from a mortgage dollar roll will provide a return that exceeds its borrowing costs.
When-Issued/Delayed Delivery Securities. Several of the portfolios may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the portfolio enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the portfolio until payment takes place. At the time the portfolio enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
Federal Income Taxes. The portfolios' policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable and tax-exempt income to its shareholders. Accordingly, the portfolios paid no federal income taxes and no federal income tax provision was required.
At December 31, 2005, the following portfolios have utilized and had an approximate net tax basis capital loss carryforward which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until the following expiration dates, whichever occurs first:
Portfolio | Capital Loss Carryforward ($) | Expiration | Capital Loss Carryforwards Utilized ($) |
DWS Balanced VIP* | 4,703,100 | 12/31/2008 | 15,537,732 |
| 6,354,400 | 12/31/2009 |
|
| 18,679,700 | 12/31/2010 |
|
| 46,269,100 | 12/31/2011 |
|
DWS Blue Chip VIP | — | — | 16,510,800 |
DWS Davis Venture Value VIP | 3,600,000 | 12/31/2010 | 900,000 |
| 1,400,000 | 12/31/2011 |
|
| 1,100,000 | 12/31/2012 |
|
DWS Dreman Financial Services VIP | — | — | 5,323,000 |
DWS Dreman High Return Equity VIP | 6,700,000 | 12/31/2011 | 12,700,000 |
DWS Global Thematic VIP | — | — | 4,736,665 |
DWS Government & Agency Securities VIP | 14,000 | 12/31/2013 | — |
DWS High Income VIP | 3,945,000 | 12/31/2007 | 878,427 |
| 16,114,000 | 12/31/2008 |
|
| 22,935,000 | 12/31/2009 |
|
| 55,108,000 | 12/31/2010 |
|
| 13,877,000 | 12/31/2011 |
|
DWS International Select Equity VIP** | 6,900,000 | 12/31/2009 | 27,700,000 |
| 10,600,000 | 12/31/2010 | |
| 4,401,000 | 12/31/2011 |
|
DWS Janus Growth & Income VIP | 3,482,000 | 12/31/2009 | 9,032,000 |
| 29,907,000 | 12/31/2010 |
|
| 6,934,000 | 12/31/2011 |
|
DWS Janus Growth Opportunities VIP | 22,695,000 | 12/31/2009 | 8,734,800 |
| 42,499,000 | 12/31/2010 |
|
| 19,473,000 | 12/31/2011 |
|
DWS Large Cap Value VIP | 7,347,000 | 12/31/2010 | 10,601,000 |
| 6,438,000 | 12/31/2011 |
|
DWS Mid Cap Growth VIP | 8,893,000 | 12/31/2010 | 6,246,916 |
| 23,998,000 | 12/31/2011 |
|
DWS Oak Strategic Equity VIP | 3,525,000 | 12/31/2010 | 1,197,000 |
| 2,522,000 | 12/31/2011 |
|
| 3,689,000 | 12/31/2012 |
|
DWS Salomon Aggressive Growth VIP | — | — | 2,700,000 |
DWS Small Cap Growth VIP | 59,486,000 | 12/31/2009 | 24,129,000 |
| 71,888,400 | 12/31/2010 |
|
| 4,154,600 | 12/31/2011 |
|
DWS Technology VIP | 87,259,000 | 12/31/2009 | 8,093,000 |
| 93,499,000 | 12/31/2010 |
|
| 71,516,000 | 12/31/2011 |
|
DWS Turner Mid Cap Growth VIP | — | — | 3,770,000 |
* Certain of these losses may be subject to limitations under Sections 381-384 of the Internal Revenue Code.
** Certain of these losses may be subject to limitations under Sections 381-383 of the Internal Revenue Code.
For the period from November 1, 2005 through December 31, 2005, the following portfolios incurred approximate net realized capital losses as follows:
Portfolio | Net Realized Capital Loss ($) |
DWS Core Fixed Income VIP | 293,200 |
DWS Government & Agency Securities VIP | 12,000 |
DWS High Income VIP | 40,500 |
DWS Janus Growth & Income VIP | 240,400 |
DWS Mercury Large Cap Core VIP | 10,500 |
DWS MFS Strategic Value VIP | 616,000 |
DWS Technology VIP | 2,685,000 |
As permitted by tax regulations, the portfolios intend to elect to defer these losses and treat them as arising in the fiscal year ended December 31, 2006.
Distribution of Income and Gains. Distributions of net investment income, if any, for all portfolios except the DWS Money Market VIP, are made annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the portfolio if not distributed and, therefore, will be distributed to shareholders at least annually. All of the net investment income of the DWS Money Market VIP is declared as a daily dividend and is distributed to shareholders monthly.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, a portfolio may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the portfolio.
At December 31, 2005, the portfolios' components of distributable earnings on a tax basis were as follows:
Portfolio | Undistributed Ordinary Income ($) | Undistributed Net Long-Term Capital Gains ($) | Capital Loss Carryforwards ($) | Unrealized Appreciation (Depreciation) on Investments ($) |
DWS Balanced VIP | 16,309,424 | — | (76,006,300) | 67,040,446 |
DWS Blue Chip VIP | 11,833,742 | 8,925,855 | — | 28,672,820 |
DWS Conservative Allocation VIP | 708,948 | 151,805 | — | 1,073,117 |
DWS Core Fixed Income VIP | 11,528,171 | 54,769 | — | (3,828,131) |
DWS Davis Venture Value VIP | 2,254,777 | — | (6,100,000) | 95,139,526 |
DWS Dreman Financial Services VIP | 2,884,953 | 1,446,693 | — | 28,856,509 |
DWS Dreman High Return Equity VIP | 15,444,856 | — | (6,700,000) | 191,921,884 |
DWS Dreman Small Cap Value VIP | 5,506,651 | 47,312,546 | — | 124,542,214 |
DWS Global Thematic VIP | 1,314,634 | 8,014,353 | — | 17,072,317 |
DWS Government & Agency Securities VIP | 10,459,567 | — | (14,000) | (2,282,709) |
DWS Growth Allocation VIP | 2,466,981 | 741,615 | — | 7,703,344 |
DWS High Income VIP | 29,763,859 | — | (111,979,000) | (13,091,657) |
DWS Income Allocation VIP | 287,149 | — | — | 123,088 |
DWS International Select Equity VIP | 5,174,107 | — | (21,876,000) | 50,913,016 |
DWS Janus Growth & Income VIP | 1,218,239 | — | (40,323,000) | 55,585,910 |
DWS Janus Growth Opportunities VIP | 66,147 | — | (84,667,000) | 27,433,151 |
DWS Large Cap Value VIP | 4,766,169 | — | (13,785,000) | 38,426,214 |
DWS Mercury Large Cap Core VIP | — | — | — | 452,745 |
DWS Mid Cap Growth VIP | — | — | (32,891,000) | 12,668,189 |
DWS MFS Strategic Value VIP | — | — | — | 3,778,753 |
DWS Moderate Allocation VIP | 2,151,112 | 542,102 | — | 5,559,222 |
DWS Oak Strategic Equity VIP | — | — | (9,736,000) | 7,396,849 |
DWS Salomon Aggressive Growth VIP | 1,030,058 | 7,347,835 | — | 2,796,395 |
DWS Small Cap Growth VIP | — | — | (135,529,000) | 48,466,317 |
DWS Strategic Income VIP | 5,311,786 | 25,142 | — | 850,392 |
DWS Technology VIP | 41,529 | — | (252,274,000) | 15,130,258 |
DWS Templeton Foreign Value VIP | 686 | 80,265 | — | 1,539,705 |
DWS Turner Mid Cap Growth VIP | — | 11,676,383 | — | 29,912,797 |
In addition, the tax character of distributions paid by the portfolios is summarized as follows:
| Distributions from ordinary income ($)* | Distributions from long-term capital gains ($) | ||
�� | Years Ended December 31, | Years Ended December 31, | ||
Portfolio | 2005 | 2004 | 2005 | 2004 |
DWS Balanced VIP | 15,182,335 | 10,994,018 | — | — |
DWS Blue Chip VIP | 2,905,214 | 1,683,204 | — | — |
DWS Conservative Allocation VIP | 47,583 | — | 2,423 | — |
DWS Core Fixed Income VIP | 11,142,235 | 11,368,699 | 1,635,169 | 1,643,431 |
DWS Davis Venture Value VIP | 2,352,085 | 1,018,451 | — | — |
DWS Dreman Financial Services VIP | 2,709,871 | 2,372,080 | — | — |
DWS Dreman High Return Equity VIP | 15,007,524 | 12,318,605 | — | — |
DWS Dreman Small Cap Value VIP | 3,657,738 | 3,617,447 | 47,511,442 | — |
DWS Global Thematic VIP | 188,888 | 744,211 | — | — |
DWS Government & Agency Securities VIP | 15,012,462 | 12,782,714 | 22,888 | — |
DWS Growth Allocation VIP | 130,703 | — | 13,910 | — |
DWS High Income VIP | 38,836,639 | 32,409,504 | — | — |
DWS Income Allocation VIP | 6,214 | — | 191 | — |
DWS International Select Equity VIP | 6,456,379 | 1,778,472 | — | — |
DWS Janus Growth & Income VIP | 419,512 | — | — | — |
DWS Janus Growth Opportunities VIP | 444,341 | — | — | — |
DWS Large Cap Value VIP | 5,337,409 | 4,405,034 | — | — |
DWS Moderate Allocation VIP | 89,661 | — | 8,902 | — |
DWS Mercury Large Cap Core VIP | 16,872 | — | — | — |
DWS MFS Strategic Value VIP** | 2,709,671 | 51,014 | 2,293,917 | 15,306 |
DWS Money Market VIP | 8,462,304 | 3,060,457 | — | — |
DWS Oak Strategic Equity VIP | 9,542 | — | — | — |
DWS Strategic Income VIP | 6,790,122 | 2,582,795 | 203,812 | 787,439 |
DWS Technology VIP | 997,316 | — | — | — |
DWS Templeton Foreign Value VIP | 244,566 | — | — | — |
* For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
** For the year ended December 31, 2005, the DWS MFS Strategic Value Fund had tax return of capital distributions of $464,763.
Expenses. Expenses arising in connection with a specific portfolio are allocated to that portfolio. Trust expenses are allocated between the portfolios in proportion to their relative net assets.
Offering Costs. Offering costs for DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP, DWS Conservative Allocation VIP, DWS Mercury Large Cap Core VIP and DWS Templeton Foreign Value VIP were paid in connection with the offering of shares and were amortized over one year.
Contingencies. In the normal course of business, the portfolios may enter into contracts with service providers that contain general indemnification clauses. The portfolios' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the portfolios that have not yet been made. However, based on experience, the portfolios expect the risk of loss to be remote.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the portfolio is informed of such dividends. 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 for all portfolios, with the exception of securities in default of principal. Distributions of income and capital gains from the Underlying Portfolios are recorded on the ex-dividend date.
B. Purchases and Sales of Securities
During the year ended December 31, 2005, purchases and sales of investment transactions (excluding short-term investments) were as follows:
Portfolio | Purchases ($) | Sales ($) |
DWS Balanced VIP excluding US Treasury Obligations and mortgage dollar roll transactions | 564,179,281 | 641,790,302 |
US Treasury Obligations | 227,887,877 | 228,481,650 |
mortgage dollar roll transactions | 11,702,903 | 11,705,275 |
DWS Blue Chip VIP | 915,450,155 | 920,653,818 |
DWS Conservative Allocation VIP | 29,681,214 | 6,703,756 |
DWS Core Fixed Income VIP excluding US Treasury Obligations and mortgage dollar roll transactions | 261,943,870 | 180,986,168 |
US Treasury Obligations | 317,110,531 | 318,080,615 |
mortgage dollar roll transactions | 38,278,312 | 36,897,226 |
DWS Davis Venture Value VIP | 66,697,783 | 28,361,784 |
DWS Dreman Financial Services VIP | 39,251,598 | 59,229,856 |
DWS Dreman High Return Equity VIP | 100,918,804 | 83,463,805 |
DWS Dreman Small Cap Value VIP | 323,329,761 | 332,554,054 |
DWS Global Thematic VIP | 88,858,059 | 76,328,779 |
DWS Government & Agency Securities VIP excluding US Treasury Obligations and mortgage dollar roll transactions | 560,312,909 | 546,074,198 |
US Treasury Obligations | 75,146,790 | 73,072,859 |
mortgage dollar roll transactions | 414,625,809 | 449,677,191 |
DWS Growth Allocation VIP | 141,782,866 | 20,465,320 |
DWS High Income VIP excluding US Treasury Obligations | 396,243,599 | 429,682,232 |
US Treasury Obligations | 1,495,158 | 1,471,714 |
DWS Income Allocation VIP | 11,512,881 | 3,399,696 |
DWS International Select Equity VIP | 224,320,881 | 218,210,814 |
DWS Janus Growth & Income VIP | 66,716,951 | 79,842,911 |
DWS Janus Growth Opportunities VIP | 73,229,422 | 66,081,830 |
DWS Large Cap Value VIP | 186,984,470 | 204,485,550 |
DWS Mercury Large Cap Core VIP | 5,306,587 | 2,273,576 |
DWS MFS Strategic Value VIP | 41,163,100 | 29,239,881 |
DWS Mid Cap Growth VIP | 60,638,427 | 63,831,983 |
DWS Moderate Allocation VIP | 121,539,078 | 12,873,947 |
DWS Oak Strategic Equity VIP | 15,224,500 | 29,011,910 |
DWS Salomon Aggressive Growth VIP | 67,458,808 | 68,469,309 |
DWS Small Cap Growth VIP | 239,637,041 | 262,188,537 |
DWS Strategic Income VIP excluding US Treasury Securities | 91,237,880 | 81,330,995 |
US Treasury Securities | 23,200,073 | 19,343,507 |
DWS Technology VIP | 278,975,656 | 303,973,728 |
DWS Templeton Foreign Value VIP | 14,679,015 | 1,700,854 |
DWS Turner Mid Cap Growth VIP | 203,409,892 | 217,046,771 |
For the year ended December 31, 2005, transactions for written options on securities were as follows for the DWS Technology VIP:
| Contract Amounts | Premium ($) |
Beginning of period | 2,074 | 332,731 |
Written | 25,242 | 3,230,766 |
Closed | (10,597) | (1,788,637) |
Exercised | (11,102) | (1,279,980) |
Expired | (5,214) | (425,164) |
End of period | 403 | 69,716 |
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the portfolios in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the portfolios. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. Accordingly, for the year ended December 31, 2005, the fees pursuant to the Management Agreement were equivalent to the annual effective rates shown below of the portfolios' average daily net assets:
Portfolio | Annual Management Fee Rate |
DWS Blue Chip VIP | 0.65% |
DWS Core Fixed Income VIP | 0.60% |
DWS Government & Agency Securities VIP | 0.55% |
DWS High Income VIP | 0.60% |
DWS International Select Equity VIP | 0.75% |
DWS Large Cap Value VIP | 0.75% |
DWS Strategic Income VIP | 0.65% |
DWS Dreman Small Cap Value VIP | 0.75% |
For the period from January 1, 2005, through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Strategic Income VIP to the extent necessary to maintain the annual expenses of Class A at 1.05% and Class B at 1.30%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of DWS Strategic Income VIP to the extent necessary to maintain the annual expenses of Class B at 1.199% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings).
In addition, for the year ended December 31, 2005, the Advisor waived $5,796 of record keeping fees for Class B shares of the DWS Strategic Income VIP.
For the year ended December 31, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of DWS Large Cap Value VIP to the extent necessary to maintain annual expenses of Class A at 0.80% and Class B at 1.20%. For the year ended December 31, 2005, the Advisor waived $12,690 of management fee and the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.75% of the portfolio's average daily net assets.
In addition, for the year ended December 31, 2005, the Advisor waived $536 of record keeping fees for Class B shares of the DWS Large Cap Value VIP.
For the period from January 1, 2005 through May 1, 2005, the DWS Small Cap Growth VIP paid a monthly investment management fee of 0.65%, based on the average daily net assets of the portfolio.
Effective May 2, 2005, the DWS Small Cap Growth VIP pays a monthly investment management fee, based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.650% |
next $750 million | 0.625% |
over $1 billion | 0.600% |
Effective May 2, 2005 through April 30, 2008, the Advisor agreed to limit its fees and reimburse expenses of DWS Small Cap Growth VIP to the extent necessary to maintain the annual expense of Class A at 0.72% and Class B at 1.09% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). The fee pursuant to the Management Agreement was equivalent to the annual effective rate of 0.65%of the portfolio's average daily net assets.
For the year ended December 31, 2005, the Advisor waived $9,538 of record keeping fees for Class B shares of the DWS Small Cap Growth VIP.
For the period from January 1, 2005 through May 1, 2005, the DWS Balanced VIP paid a monthly investment management fee of 0.55%, based on the average daily net assets of the portfolio.
Effective May 2, 2005, the DWS Balanced VIP pays a monthly investment management fee, based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.470% |
next $750 million | 0.445% |
over $1 billion | 0.410% |
Effective May 2, 2005 through April 30, 2008, the Advisor agreed to limit its fees and reimburse expenses of DWS Balanced VIP to the extent necessary to maintain the annual expenses of Class A at 0.51% and Class B at 0.89% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $99,176 of management fee and the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.47% of the portfolio's average daily net assets.
In addition, for the year ended December 31, 2005, the Advisor waived $8,199 of record keeping fees for Class B shares of the DWS Balanced VIP.
The DWS Money Market VIP pays a monthly investment management fee, based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$215 million | 0.500% |
next $335 million | 0.375% |
next $250 million | 0.300% |
over $800 million | 0.250% |
Accordingly, for the year ended December 31, 2005, the fee pursuant to the Management Agreement was equivalent to the annual effective rate of 0.46% of the DWS Money Market VIP's average daily net assets.
The DWS Mid Cap Growth VIP, DWS Technology VIP, DWS Dreman Financial Services VIP and DWS Dreman High Return Equity VIP each pay a monthly investment management fee, based on the average daily net assets of each portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.75% |
next $750 million | 0.72% |
next $1.5 billion | 0.70% |
next $2.5 billion | 0.68% |
next $2.5 billion | 0.65% |
next $2.5 billion | 0.64% |
next $2.5 billion | 0.63% |
over $12.5 billion | 0.62% |
For the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Mid Cap Growth VIP to the extent necessary to maintain the annual expenses of Class A at 0.95% and Class B at 1.35%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of DWS Mid Cap Growth VIP to the extent necessary to maintain the annual expenses of Class B at 1.308% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $32,030 of management fee and the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.70% of the portfolio's average daily net assets.
In addition, for the year ended December 31, 2005, the Advisor waived $2,113 of record keeping fees for Class B shares of the DWS Mid Cap Growth VIP.
Accordingly, for the year ended December 31, 2005, the fees pursuant to the Management Agreement were equivalent to the annual effective rates shown below of each portfolios' average daily net assets:
Portfolio | Effective Rate |
DWS Dreman Financial Services VIP | 0.75% |
DWS Dreman High Return Equity VIP | 0.73% |
DWS Mid Cap Growth VIP | 0.70% |
DWS Technology VIP | 0.75% |
DWS Salomon Aggressive Growth VIP and DWS Turner Mid Cap Growth VIP each paid a monthly investment management fee, based on the average daily net assets of each portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 1.000% |
next $250 million | 0.975% |
next $500 million | 0.950% |
next $1.5 billion | 0.925% |
over $2.5 billion | 0.900% |
Effective August 1, 2005, the DWS Salomon Aggressive Growth VIP pays a monthly investment management fee, based on average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.800% |
next $500 million | 0.775% |
next $750 million | 0.750% |
next $1.5 billion | 0.725% |
Effective October 1, 2005, the DWS Turner Mid Cap Growth VIP pays a monthly investment management fee, based on average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.800% |
next $200 million | 0.785% |
next $500 million | 0.770% |
over $1 billion | 0.755% |
For the period from January 1, 2005 to July 31, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Salomon Aggressive Growth VIP to the extent necessary to maintain the annual expenses of Class A at 1.30% and Class B at 1.70%. Effective August 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of the DWS Salomon Aggressive Growth VIP to the extent necessary to maintain annual expenses of Class A at 1.10% and Class B at 1.50%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of the DWS Salomon Aggressive Growth VIP to the extent necessary to maintain the annual expense of Class A at 0.908% and Class B at 1.308% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $119,238 of management fees. Effective August 1, 2005, the Advisor was changed from Invesco/AIM to Salomon Brothers Asset Management and the name was changed to DWS Salomon Aggressive Growth VIP.
In addition, for the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Turner Mid Cap Growth VIP to the extent necessary to maintain the annual expenses of Class A at 1.30% and Class B at 1.70%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of the DWS Turner Mid Cap Growth VIP to the extent necessary to maintain the annual expense of Class B at 1.337% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting fee savings).
For the year ended December 31, 2005, the Advisor waived $6,545 of record keeping fees for Class B shares of the DWS Turner Mid Cap Growth VIP.
Accordingly, for the year ended December 31, 2005, the fees pursuant to the Management Agreement were equivalent to the annual effective rates of 0.63% and 0.95% of the portfolios' average daily net assets of the DWS Salomon Aggressive Growth VIP and DWS Turner Mid Cap Growth VIP, respectively.
DWS Davis Venture Value VIP, DWS Janus Growth & Income VIP, DWS Janus Growth Opportunities VIP and DWS Oak Strategic Equity VIP each paid a monthly investment management fee, based on the average daily net assets of each portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.950% |
next $250 million | 0.925% |
next $500 million | 0.900% |
next $1.5 billion | 0.875% |
over $2.5 billion | 0.850% |
Effective May 1, 2005, the DWS Janus Growth & Income VIP and DWS Janus Growth Opportunities VIP each pay a monthly investment management fee based on the average daily net assets of each portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.750% |
next $750 million | 0.725% |
next $1.5 billion | 0.700% |
over $2.5 billion | 0.675% |
Accordingly, for the year ended December 31, 2005, the fees pursuant to the Management Agreement were equivalent to the annual effective rates shown below of the portfolios' average daily net assets:
Portfolio | Effective Rate |
DWS Janus Growth & Income VIP | 0.81% |
DWS Janus Growth Opportunities VIP | 0.81% |
For the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit the fees and reimburse each class of the DWS Janus Growth & Income VIP to the extent necessary to maintain annual operating expenses of Class A at 1.15% and Class B at 1.55%. Effective May 2, 2005, through April 30, 2006, the Advisor agreed to limit the fees and reimburse expenses of the DWS Janus Growth & Income VIP to the extent necessary to maintain annual operating expenses of Class A at 0.95%. Effective May 2, 2005, through September 30, 2005, the Advisor agreed to limit the fees and reimburse expenses of the DWS Janus Growth & Income VIP to the extent necessary to maintain annual operating expenses of Class B at 1.35%. Effective October 1, 2005, through September 30, 2006, the Advisor agreed to limit the fees and reimburse expenses of the DWS Janus Growth & Income VIP to the extent necessary to maintain annual expenses of Class B at 1.253% (excluding certain expenses such as extraordinary expense, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $6,113 of record keeping fees for Class B shares of the portfolio.
For the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Davis Venture Value VIP to the extent necessary to maintain the annual expenses of Class A at 1.15% and Class B at 1.55%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of DWS Davis Venture Value VIP to the extent necessary to maintain the annual expenses of Class A at 0.853% and Class B at 1.253% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $187,410 of management fees.
In addition, for the year ended December 31, 2005, the Advisor waived $7,238 of record keeping fees for Class B shares of the DWS Davis Venture Value VIP.
For the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Oak Strategic Equity VIP to the extent necessary to maintain the annual expenses of Class A at 1.15% and Class B at 1.55%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of DWS Oak Strategic Equity VIP to the extent necessary to maintain the annual expenses of Class B at 1.301% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings).
For the year ended December 31, 2005, the Advisor waived $7,449 of record keeping fees for Class B shares of the DWS Oak Strategic Equity VIP.
Effective October 1, 2005, the DWS Oak Strategic Equity VIP pays a monthly investment management fee, based on average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.750% |
next $200 million | 0.735% |
next $500 million | 0.720% |
over $1 billion | 0.705% |
Accordingly, for the year ended December 31, 2005, the fees pursuant to the Management Agreement were equivalent to the annual effective rates shown below of the portfolios' average daily net assets:
Portfolio | Effective Rate |
DWS Davis Venture Value VIP | 0.89% |
DWS Oak Strategic Equity VIP | 0.90% |
The DWS Global Thematic VIP pays a monthly investment management fee, based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 1.00% |
next $500 million | 0.95% |
next $750 million | 0.90% |
next $1.5 billion | 0.85% |
over $3 billion | 0.80% |
For the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Global Thematic VIP to the extent necessary to maintain the annual expenses of Class A at 1.56% and Class B at 1.96%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of DWS Global Thematic VIP to the extent necessary to maintain the annual expenses of Class A at 1.04% and Class B at 1.44% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $112,367 of management fees and the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.87% of the portfolio's average daily net assets.
In addition, for the year ended December 31, 2005, the Advisor waived $1,700 of record keeping fees for Class B shares of the DWS Global Thematic VIP.
The DWS MFS Strategic Value VIP pays a monthly investment management fee, based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.950% |
next $250 million | 0.925% |
next $500 million | 0.900% |
next $500 million | 0.825% |
next $1 billion | 0.800% |
over $2.5 billion | 0.775% |
For the period from January 1, 2005, through September 30, 3005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS MFS Strategic Value VIP to the extent necessary to maintain the annual expenses of Class A at 1.15% and Class B at 1.55%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit it fees and reimburse expenses of the DWS MFS Strategic Value VIP to the extent necessary to maintain the annual operating expense of Class A at 0.86% and Class B at 1.26%. (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for year ended December 31, 2005, the Advisor waived $98,710 of management fee and the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.75% of the portfolio's average daily net assets.
The DWS Mercury Large Cap Core VIP pays a monthly investment management fee based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.900% |
next $250 million | 0.850% |
next $500 million | 0.800% |
next $1 billion | 0.750% |
next $500 million | 0.700% |
over $2.5 billion | 0.650% |
For the period from January 1, 2005 through September 30, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Mercury Large Cap Core VIP to the extent necessary to maintain the annual expenses of Class A at 1.00% and Class B at 1.20%. Effective October 1, 2005 through September 30, 2006, the Advisor agreed to limit its fees and reimburse expenses of DWS Mercury Large Cap Core VIP to the extent necessary to maintain the annual expenses of Class A at 0.873% and Class B at 1.20% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). Accordingly, for the year ended December 31, 2005, the Advisor waived $26,156 of management fee and the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.00% of the portfolio's average daily net assets.
In addition, for the year ended December 31, 2005, the Advisor waived $1,954 of record keeping fees for Class B shares of the portfolio and $40,416 of other expenses.
The DWS Templeton Foreign Value VIP pays a monthly investment management fee based on the average daily net assets of the portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$250 million | 0.950% |
next $250 million | 0.900% |
next $500 million | 0.850% |
next $500 million | 0.800% |
next $1 billion | 0.750% |
over $2.5 billion | 0.700% |
For the year ended December 31, 2005, the Advisor agreed to limit its fees and reimburse expenses of each class of the DWS Templeton Foreign Value VIP to the extent necessary to maintain the annual expenses of Class A at 1.14% and Class B at 1.34% (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and fund accounting outsourcing fee savings). For the year ended December 31, 2005, the Advisor waived $112,526 of management fees. Accordingly, for the year ended December 31, 2005, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.00% of DWS Templeton Foreign Value VIP's average daily net assets.
In addition, for the year ended December 31, 2005, the Advisor waived $1,741 of record keeping fees for Class B shares of the DWS Templeton Foreign Value VIP.
The DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP pay a monthly investment management fee based on the average daily net assets of each portfolio, computed and accrued daily and payable monthly, of 1/12 of the annual rates shown below:
Average Daily Net Assets of the Portfolio | Annual Management Fee Rate |
$0-$500 million | 0.150% |
next $500 million | 0.140% |
next $500 million | 0.130% |
next $1 billion | 0.120% |
over $2.5 billion | 0.110% |
The Advisor has agreed to waive 0.05% of average daily net assets of the portfolio against the monthly investment management fee of Class B of the DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP. For the year ended December 31, 2005, the Advisor waived $4,372, $49,685, $55,420 and $14,339 of management fees for the DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP, respectively.
In addition, for the year ended December 31, 2005, the Advisor waived $8,744 of management fees for the DWS Income Allocation VIP.
Through April 30, 2006, the Advisor, underwriter and accounting agent have each contractually agreed to waive their respective fees and reimburse expenses of Class B of the DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP to the extent necessary to maintain each portfolio's direct operating expenses at 0.75% of average daily net assets (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest). For the year ended December 31, 2005, the Advisor waived $11,265 and $39,927 of record keeping fees for the DWS Income Allocation VIP and DWS Conservative Allocation VIP, respectively.
Accordingly, for the year ended December 31, 2005, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.00%, 0.10%, 0.10% and 0.10%, of DWS Income Allocation VIP's, DWS Moderate Allocation VIP's, DWS Growth Allocation VIP's and DWS Conservative Allocation VIP's average daily net assets, respectively.
DWS Income Allocation VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP do not invest in the Underlying Portfolios for the purpose of exercising management or control; however, investments within the set limits may represent a significant portion of an Underlying Portfolio. At December 31, 2005, the DWS portfolios held the following percentage of the Underlying Portfolios' outstanding shares as follows:
Portfolio | DWS Core Fixed Income VIP |
DWS Conservative Allocation VIP | 5% |
DWS Growth Allocation VIP | 7% |
DWS Moderate Allocation VIP | 12% |
Portfolio | DWS Blue Chip VIP |
DWS Growth Allocation VIP | 5% |
Portfolio | DWS Janus Growth Opportunities VIP |
DWS Growth Allocation VIP | 7% |
DWS Moderate Allocation VIP | 5% |
Portfolio | DWS Templeton Foreign Value VIP |
DWS Growth Allocation VIP | 30% |
DWS Moderate Allocation VIP | 16% |
Portfolio | Scudder RREEF Real Estate Securities VIP |
DWS Growth Allocation VIP | 12% |
DWS Moderate Allocation VIP | 8% |
Portfolio | DWS MFS Strategic Value VIP |
DWS Growth Allocation VIP | 17% |
DWS Moderate Allocation VIP | 11% |
Portfolio | DWS Growth & Income VIP |
DWS Growth Allocation VIP | 9% |
DWS Moderate Allocation VIP | 5% |
Portfolio | DWS Large Cap Value VIP |
DWS Growth Allocation VIP | 6% |
DWS Moderate Allocation VIP | 5% |
On December 1, 2005, Aberdeen Asset Management PLC ("Aberdeen PLC") acquired from Deutsche Bank AG, the parent company of the Advisor, parts of its asset management business and related assets based in London and Philadelphia. As of December 2, 2005, and pursuant to a written contract with the Advisor (the "Sub-Advisory Agreement"), Aberdeen PLC serves as subadvisor to DWS Core Fixed Income VIP. Aberdeen PLC is paid by the Advisor for its services. Please see Note L for details regarding the change in subadvisor prior to period end.
Prior to September 30, 2005, Deutsche Asset Management Investment Services Limited ("DeAMIS") served as sub-advisor to the DWS International Select Equity, DWS Strategic Income and DWS Balanced VIPs and was paid by the Advisor for its services.
Dreman Value Management, L.L.C. serves as sub-advisor to the DWS Dreman Financial Services, DWS Dreman High Return Equity and DWS Dreman Small Cap Value VIPs and is paid by the Advisor for its services.
INVESCO Institutional (N.A.) Inc. served as sub-advisor to the DWS Salomon Aggressive Growth VIP and was paid by the Advisor for its services. Effective August 1, 2005, Salomon Brothers Asset Management Inc. became the sub-advisor to the portfolio and the portfolio's name was changed to DWS Salomon Aggressive Growth VIP.
Janus Capital Management, L.L.C., formerly Janus Capital Corporation, serves as sub-advisor to the DWS Janus Growth & Income and DWS Janus Growth Opportunities VIPs and is paid by the Advisor for its services.
Turner Investment Partners, Inc. serves as sub-advisor to the DWS Turner Mid Cap Growth VIP and is paid by the Advisor for its services.
Oak Associates, Ltd. serves as sub-advisor to the DWS Oak Strategic Equity VIP and is paid by the Advisor for its services.
Davis Selected Advisers, L.P., serves as sub-advisor to the DWS Davis Venture Value VIP and is paid by the Advisor for its services.
Massachusetts Financial Services Company ("MFS") serves as sub-advisor to the DWS MFS Strategic Value VIP and is paid by the Advisor for its services.
Fund Asset Management, L.P., a division of Merrill Lynch Investment Managers ("MLIM"), serves as sub-advisor to the DWS Mercury Large Cap Core VIP and is paid by the Advisor for its services.
Templeton Investment Counsel L.L.C. serves as sub-advisor to the DWS Templeton Foreign Value VIP and is paid by the Advisor for its services.
Service Provider Fees. DWS Scudder Fund Accounting Corporation ("DWS-SFAC"), a subsidiary of the Advisor, is responsible for determining the daily net asset value per share and maintaining the portfolio and general accounting records of each portfolio. In turn, DWS-SFAC has delegated certain fund accounting functions to a third-party service provider. For the year ended December 31, 2005, DWS-SFAC received the following fee for its services for the following portfolios:
Portfolio | Total Aggregated | Waived ($) | Unpaid at December 31, 2005 ($) |
DWS Conservative Allocation VIP | 61,714 | — | 3,100 |
DWS Davis Venture Value VIP | 85,936 | — | 7,908 |
DWS Dreman Financial Services VIP | 80,307 | — | 11,078 |
DWS Dreman High Return Equity VIP | 131,840 | — | 11,543 |
DWS Global Thematic VIP | 111,026 | — | 8,428 |
DWS Growth Allocation VIP | 62,705 | — | 5,249 |
DWS Income Allocation VIP | 45,388 | 22,002 | 10,727 |
DWS Janus Growth & Income VIP | 70,775 | — | 6,829 |
DWS Janus Growth Opportunities VIP | 58,944 | — | 5,787 |
DWS Mercury Large Cap Core VIP | 99,304 | 99,304 | — |
DWS MFS Strategic Value VIP | 72,872 | — | 5,858 |
DWS Mid Cap Growth VIP | 62,902 | — | 5,623 |
DWS Moderate Allocation VIP | 73,338 | — | 4,148 |
DWS Oak Strategic Equity VIP | 53,346 | — | 4,520 |
DWS Salomon Aggressive Growth VIP | 79,855 | — | 3,120 |
DWS Technology VIP | 78,641 | — | 6,461 |
DWS Templeton Foreign Value VIP | 102,741 | 92,526 | — |
DWS Turner Mid Cap Growth VIP | 94,542 | — | 9,447 |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS Scudder Investments Service Company ("DWS-SISC") receives a fee ("Distribution Service Fee") of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2005, the Distribution Service Fee was as follows:
Portfolio | Total Aggregated | Waived ($) | Unpaid at December 31, 2005 ($) |
DWS Balanced VIP | 82,992 | — | 7,009 |
DWS Blue Chip VIP | 101,201 | — | 9,106 |
DWS Conservative Allocation VIP | 71,696 | — | 5,437 |
DWS Core Fixed Income VIP | 220,712 | — | 16,924 |
DWS Davis Venture Value VIP | 177,310 | — | 16,146 |
DWS Dreman Financial Services VIP | 42,361 | — | 3,703 |
DWS Dreman High Return Equity VIP | 312,165 | — | 27,861 |
DWS Dreman Small Cap Value VIP | 189,045 | — | 16,717 |
DWS Global Thematic VIP | 38,339 | — | 3,983 |
DWS Government & Agency Securities VIP | 120,593 | — | 9,901 |
DWS Growth Allocation VIP | 277,101 | — | 40,041 |
DWS High Income VIP | 139,382 | — | 11,558 |
DWS Income Allocation VIP | 21,861 | 21,861 | — |
DWS International Select Equity VIP | 133,737 | — | 12,631 |
DWS Janus Growth & Income VIP | 70,642 | — | 6,642 |
DWS Janus Growth Opportunities VIP | 22,312 | — | 2,143 |
DWS Large Cap Value VIP | 100,801 | — | 8,454 |
DWS Mercury Large Cap Core VIP | 5,900 | 579 | — |
DWS Mid Cap Growth VIP | 15,682 | — | 1,509 |
DWS MFS Strategic Value VIP | 82,714 | — | 3,791 |
DWS Moderate Allocation VIP | 248,426 | — | 33,738 |
DWS Money Market VIP | 140,673 | — | 13,454 |
DWS Oak Strategic Equity VIP | 50,458 | — | 4,285 |
DWS Salomon Aggressive Growth VIP | 18,686 | — | 1,948 |
DWS Small Cap Growth VIP | 85,045 | — | 8,149 |
DWS Strategic Income VIP | 58,999 | 2,527 | 3,902 |
DWS Technology VIP | 37,898 | — | 3,494 |
DWS Templeton Foreign Value VIP | 11,702 | 2,484 | — |
DWS Turner Mid Cap Growth VIP | 60,306 | — | 5,613 |
Typesetting and Filing Service Fees. Under an agreement with DeIM, DeIM is compensated for providing typesetting and regulatory filing services to the portfolios. For the year ended December 31, 2005, the amounts charged to the portfolios by DeIM included in reports to shareholders were as follows:
Portfolio | Total Aggregated | Unpaid at December 31, 2005 ($) |
DWS Balanced VIP | 3,789 | 1,216 |
DWS Blue Chip VIP | 3,789 | 1,216 |
DWS Conservative Allocation VIP | 3,392 | 1,216 |
DWS Core Fixed Income VIP | 3,789 | 1,216 |
DWS Davis Venture Value VIP | 3,789 | 1,216 |
DWS Dreman Financial Services VIP | 3,789 | 1,216 |
DWS Dreman High Return Equity VIP | 3,789 | 1,216 |
DWS Dreman Small Cap Value VIP | 3,789 | 1,216 |
DWS Global Thematic VIP | 3,789 | 1,216 |
DWS Government & Agency Securities VIP | 3,789 | 1,216 |
DWS Growth Allocation VIP | 3,392 | 1,216 |
DWS High Income VIP | 3,789 | 1,216 |
DWS Income Allocation VIP | 3,392 | 1,216 |
DWS International Select Equity VIP | 3,789 | 1,216 |
DWS Janus Growth & Income VIP | 3,789 | 1,216 |
DWS Janus Growth Opportunities VIP | 3,789 | 1,216 |
DWS Large Cap Value VIP | 3,789 | 1,216 |
DWS Mercury Large Cap Core VIP | 3,789 | 1,216 |
DWS MFS Strategic Value VIP | 3,789 | 1,216 |
DWS Mid Cap Growth VIP | 3,789 | 1,216 |
DWS Moderate Allocation VIP | 3,392 | 1,216 |
DWS Money Market VIP | 3,789 | 1,216 |
DWS Oak Strategic Equity VIP | 3,789 | 1,216 |
DWS Salomon Aggressive Growth VIP | 3,789 | 1,216 |
DWS Small Cap Growth VIP | 3,789 | 1,216 |
DWS Strategic Income VIP | 3,789 | 1,216 |
DWS Technology VIP | 3,789 | 1,216 |
DWS Templeton Foreign Value VIP | 3,789 | 1,216 |
DWS Turner Mid Cap Growth VIP | 3,789 | 1,216 |
Trustees' Fees and Expenses. The portfolios paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the portfolios 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 the Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Investing in High Yield Securities
Investing in high yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and 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. Investing in Emerging Markets
Investing in emerging markets may involve special risks and considerations not typically associated with investing in the United States of America. These risks include revaluation of currencies, high rates of inflation, repatriation restrictions on income and capital, and future adverse political, social and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements and their prices more volatile than those of comparable securities in the United States of America.
F. Expense Reductions
For the year ended December 31, 2005, the Advisor agreed to reimburse the portfolios which represents a portion of the fee savings expected to be realized by the Advisor related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider in the following amounts:
Portfolio | Amount ($) |
DWS Balanced VIP | 8,766 |
DWS Blue Chip VIP | 4,709 |
DWS Core Fixed Income VIP | 4,410 |
DWS Davis Venture Value VIP | 4,934 |
DWS Dreman Financial Services VIP | 2,678 |
DWS Dreman High Return Equity VIP | 10,685 |
DWS Dreman Small Cap Value VIP | 7,225 |
DWS Global Thematic VIP | 2,066 |
DWS Government & Agency Securities VIP | 4,406 |
DWS High Income VIP | 5,625 |
DWS International Select Equity VIP | 3,755 |
DWS Janus Growth & Income VIP | 3,379 |
DWS Janus Growth Opportunities VIP | 2,785 |
DWS Large Cap Value VIP | 4,434 |
DWS MFS Strategic Value VIP | 1,733 |
DWS Mid Cap Growth VIP | 1,850 |
DWS Money Market VIP | 4,524 |
DWS Oak Strategic Equity VIP | 2,030 |
DWS Salomon Aggressive Growth VIP | 1,653 |
DWS Small Cap Growth VIP | 4,200 |
DWS Strategic Income VIP | 2,160 |
DWS Technology VIP | 3,446 |
DWS Turner Mid Cap Growth VIP | 2,620 |
In addition, the portfolios have entered into arrangements with their custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the portfolios' expenses. During the year ended December 31, 2005, the portfolios' custodian fees were reduced under these arrangements as follows:
Portfolio | Amount ($) |
DWS Balanced VIP | 1,752 |
DWS Blue Chip VIP | 152 |
DWS Core Fixed Income VIP | 1,495 |
DWS Davis Venture Value VIP | 50 |
DWS Dreman Financial Services VIP | 34 |
DWS Dreman High Return Equity VIP | 222 |
DWS Dreman Small Cap Value VIP | 1,529 |
DWS Government & Agency Securities VIP | 365 |
DWS High Income VIP | 5,390 |
DWS Janus Growth & Income VIP | 554 |
DWS Janus Growth Opportunities VIP | 73 |
DWS Large Cap Value VIP | 81 |
DWS Mercury Large Cap Core VIP | 38 |
DWS MFS Strategic Value VIP | 39 |
DWS Mid Cap Growth VIP | 47 |
DWS Money Market VIP | 559 |
DWS Oak Strategic Equity VIP | 73 |
DWS Salomon Aggressive Growth VIP | 140 |
DWS Small Cap Growth VIP | 720 |
DWS Strategic Income VIP | 1,145 |
DWS Technology VIP | 250 |
DWS Turner Mid Cap Growth VIP | 114 |
G. Forward Foreign Currency Exchange Contracts
As of December 31, 2005, the following portfolios had entered into the following forward foreign currency exchange contracts resulting in the following:
DWS Balanced VIP
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation (US$) | ||
USD | 4,652,627 |
| CAD | 5,468,000 |
| 1/27/2006 |
| 55,095 |
USD | 192,550 |
| CAD | 228,000 |
| 1/27/2006 |
| 3,748 |
CHF | 4,000 |
| USD | 3,108 |
| 1/27/2006 |
| 55 |
CHF | 3,347,000 |
| USD | 2,631,662 |
| 1/27/2006 |
| 77,314 |
CHF | 126,000 |
| USD | 96,272 |
| 1/27/2006 |
| 112 |
EUR | 1,016,000 |
| USD | 1,220,617 |
| 1/27/2006 |
| 15,928 |
EUR | 288,000 |
| USD | 349,128 |
| 1/27/2006 |
| 7,641 |
USD | 96,271 |
| GBP | 56,000 |
| 1/27/2006 |
| 64 |
EUR | 5,306 |
| USD | 6,437 |
| 1/12/2006 |
| 150 |
JPY | 263,461,000 |
| USD | 2,276,455 |
| 1/27/2006 |
| 34,755 |
NZD | 264,000 |
| USD | 181,769 |
| 1/27/2006 |
| 1,958 |
NZD | 120,000 |
| USD | 82,042 |
| 1/27/2006 |
| 309 |
NZD | 328,000 |
| USD | 232,972 |
| 1/27/2006 |
| 9,570 |
USD | 30,414 |
| MXN | 329,025 |
| 2/10/2006 |
| 379 |
USD | 65,322 |
| MXN | 704,036 |
| 2/10/2006 |
| 567 |
MXN | 499,000 |
| USD | 47,310 |
| 2/10/2006 |
| 610 |
EUR | 35,133 |
| USD | 41,801 |
| 2/15/2006 |
| 102 |
Total unrealized appreciation | 208,357 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Depreciation (US$) | ||
USD | 975,950 |
| AUD | 1,310,000 |
| 1/27/2006 |
| (16,485) |
USD | 68,876 |
| AUD | 94,000 |
| 1/27/2006 |
| (29) |
USD | 384,233 |
| AUD | 514,000 |
| 1/27/2006 |
| (7,771) |
CAD | 2,225,000 |
| USD | 1,891,508 |
| 1/27/2006 |
| (24,125) |
EUR | 91,000 |
| USD | 107,325 |
| 1/27/2006 |
| (575) |
USD | 2,496,241 |
| GBP | 1,406,000 |
| 1/27/2006 |
| (77,532) |
JPY | 82,963,000 |
| USD | 692,651 |
| 1/27/2006 |
| (13,253) |
USD | 26,148 |
| MXN | 278,567 |
| 2/10/2006 |
| (78) |
MXN | 1,311,628 |
| USD | 121,054 |
| 2/10/2006 |
| (1,696) |
EUR | 254,299 |
| USD | 299,583 |
| 2/15/2006 |
| (2,240) |
EUR | 100,969 |
| USD | 119,469 |
| 2/15/2006 |
| (368) |
EUR | 52,610 |
| USD | 61,879 |
| 2/15/2006 |
| (563) |
Total unrealized depreciation | (144,715) |
DWS High Income VIP
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation (US$) | ||
USD | 211,396 |
| MXN | 2,286,945 |
| 2/10/2006 |
| 2,633 |
USD | 397,574 |
| MXN | 4,285,053 |
| 2/10/2006 |
| 3,453 |
EUR | 210,800 |
| USD | 250,806 |
| 2/15/2006 |
| 612 |
Total unrealized appreciation | 6,698 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Depreciation (US$) | ||
USD | 167,611 |
| MXN | 1,785,644 |
| 2/10/2006 |
| (497) |
MXN | 8,357,642 |
| USD | 711,349 |
| 2/10/2006 |
| (10,821) |
EUR | 4,056,494 |
| USD | 4,778,839 |
| 2/15/2006 |
| (35,729) |
EUR | 458,600 |
| USD | 542,629 |
| 2/15/2006 |
| (1,673) |
EUR | 189,394 |
| USD | 222,762 |
| 2/15/2006 |
| (2,026) |
EUR | 530,000 |
| USD | 626,486 |
| 2/15/2006 |
| (2,560) |
Total unrealized depreciation | (53,306) |
DWS Janus Growth & Income VIP
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation (US$) | ||
CHF | 955,000 |
| USD | 758,237 |
| 1/27/2006 |
| 29,405 |
CHF | 400,000 |
| USD | 316,331 |
| 1/27/2006 |
| 11,060 |
EUR | 790,000 |
| USD | 969,363 |
| 1/27/2006 |
| 32,646 |
CHF | 925,000 |
| USD | 748,988 |
| 2/23/2006 |
| 41,303 |
EUR | 325,000 |
| USD | 398,824 |
| 2/27/2006 |
| 13,466 |
Total unrealized appreciation | 127,880 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Depreciation (US$) | ||
EUR | 200,000 |
| USD | 237,920 |
| 5/11/2006 |
| (614) |
Total unrealized depreciation | (614) |
DWS Strategic Income VIP
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation (US$) | ||
EUR | 46,706 |
| USD | 56,657 |
| 1/12/2006 |
| 1,324 |
USD | 52,023 |
| AUD | 71,000 |
| 1/27/2006 |
| 54 |
USD | 1,990,215 |
| CAD | 2,339,000 |
| 1/27/2006 |
| 17,502 |
USD | 154,547 |
| CAD | 183,000 |
| 1/27/2006 |
| 2,534 |
CHF | 1,806,000 |
| USD | 1,403,263 |
| 1/27/2006 |
| 26,041 |
CHF | 578,000 |
| USD | 454,467 |
| 1/27/2006 |
| 13,695 |
CHF | 114,000 |
| USD | 87,103 |
| 1/27/2006 |
| 169 |
EUR | 977,300 |
| USD | 1,174,123 |
| 1/27/2006 |
| 15,087 |
JPY | 191,583,100 |
| USD | 1,655,389 |
| 1/27/2006 |
| 24,691 |
NZD | 192,000 |
| USD | 132,196 |
| 1/27/2006 |
| 1,103 |
NZD | 88,000 |
| USD | 60,164 |
| 1/27/2006 |
| 80 |
NZD | 269,000 |
| USD | 191,065 |
| 1/27/2006 |
| 7,399 |
USD | 19,503 |
| MXN | 210,990 |
| 2/10/2006 |
| 243 |
USD | 43,183 |
| MXN | 465,430 |
| 2/10/2006 |
| 375 |
MXN | 944,000 |
| USD | 89,500 |
| 2/10/2006 |
| 1,153 |
EUR | 21,958 |
| USD | 26,126 |
| 2/15/2006 |
| 64 |
Total unrealized appreciation | 111,514 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Depreciation (US$) | ||
USD | 707,750 |
| AUD | 950,000 |
| 1/27/2006 |
| (10,948) |
USD | 336,391 |
| AUD | 450,000 |
| 1/27/2006 |
| (6,327) |
EUR | 62,000 |
| USD | 73,123 |
| 1/27/2006 |
| (407) |
USD | 1,800,276 |
| GBP | 1,014,000 |
| 1/27/2006 |
| (57,782) |
USD | 89,395 |
| GBP | 52,000 |
| 1/27/2006 |
| (36) |
JPY | 64,674,000 |
| USD | 539,958 |
| 1/27/2006 |
| (10,528) |
EUR | 143,000 |
| USD | 169,143 |
| 2/8/2006 |
| (517) |
EUR | 196,901 |
| USD | 233,263 |
| 2/8/2006 |
| (347) |
USD | 16,262 |
| MXN | 173,248 |
| 2/10/2006 |
| (48) |
MXN | 849,668 |
| USD | 78,418 |
| 2/10/2006 |
| (1,100) |
EUR | 176,356 |
| USD | 207,759 |
| 2/15/2006 |
| (1,553) |
EUR | 52,610 |
| USD | 62,146 |
| 2/15/2006 |
| (296) |
EUR | 35,750 |
| USD | 42,300 |
| 2/15/2006 |
| (130) |
Total unrealized depreciation | (90,019) |
Currency Abbreviations |
AUD Australian Dollar CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen MXN Mexican Peso NZD New Zealand Dollar USD United States Dollar |
H. Ownership of the Portfolios
At December 31, 2005, the beneficial ownership in the portfolios was as follows:
DWS Balanced VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 40%, 25% and 17%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 73% and 26%.
DWS Blue Chip VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 54% and 32%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 73% and 26%.
DWS Conservative Allocation VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 72% and 28%.
DWS Core Fixed Income VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 32%, 31% and 26%. Two Participating Insurance Companies were the owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 83% and 17%.
DWS Davis Venture Value VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 73% and 20%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 72% and 28%.
DWS Dreman Financial Services VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 58% and 39%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 74% and 26%.
DWS Dreman High Return Equity VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 67% and 26%. Two Participating Insurance Companies were the owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 81% and 17%.
DWS Dreman Small Cap Value VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 56%, 25% and 15%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 75% and 21%.
DWS Global Thematic VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 63% and 35%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 68% and 32%.
DWS Government & Agency Securities VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 41%, 34% and 18%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the portfolio, owning 88%.
DWS Growth Allocation VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 85% and 15%.
DWS High Income VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 37%, 32% and 26%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 77% and 22%.
DWS Income Allocation VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 62% and 38%.
DWS International Select Equity VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 45%, 28% and 25%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 58% and 42%.
DWS Janus Growth & Income VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 69% and 29%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, owning 84% and 16%.
DWS Janus Growth Opportunities VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 60%, 26% and 13%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the portfolio, owning 88%.
DWS Large Cap Value VIP: Four Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 39%, 31%, 15% and 12%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 82% and 18%.
DWS Mercury Large Cap Core VIP: One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class A shares of the portfolio, owning 100%. Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 57%, 30% and 13%.
DWS MFS Strategic Value VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning, 62%, 22% and 11%. Two Participating Insurance Companies were the owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 87% and 13%.
DWS Mid Cap Growth VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 65% and 29%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 80% and 19%.
DWS Moderate Allocation VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 80% and 20%.
DWS Money Market VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 42%, 33% and 24%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 66% and 34%.
DWS Oak Strategic Equity VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 80% and 20%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 77% and 23%.
DWS Salomon Aggressive Growth VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 82% and 17%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the portfolio, owning 87%.
DWS Small Cap Growth VIP: Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 47%, 22% and 21%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 83% and 17%.
DWS Strategic Income VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 53% and 40%. Two Participating Insurance Companies were owners of record of 10% or more of the outstanding Class B shares of the portfolio, each owning 62% and 37%.
DWS Technology VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 63% and 33%. Two Participating Insurance Companies were owners of record of 10% or more of the outstanding Class B shares of the portfolio, each owning 78% and 21%.
DWS Templeton Foreign Value VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 77% and 22%. Three Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 42%, 39% and 18%.
DWS Turner Mid Cap Growth VIP: Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class A shares of the portfolio, each owning 80% and 20%. Two Participating Insurance Companies were the owners of record of 10% or more of the total outstanding Class B shares of the portfolio, each owning 83% and 17%.
I. Line of Credit
The Trust and several other affiliated funds (the "Participants") share in a $1.1 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The facility borrowing limit for each portfolio as a percent of net assets is as follows:
Portfolio | Facility Borrowing Limit |
DWS Balanced VIP | 33% |
DWS Blue Chip VIP | 33% |
DWS Conservative Allocation VIP | 5% |
DWS Core Fixed Income VIP | 33% |
DWS Davis Venture Value VIP | 33% |
DWS Dreman Financial Services VIP | 33% |
DWS Dreman High Return Equity VIP | 33% |
DWS Dreman Small Cap Value VIP | 33% |
DWS Global Thematic VIP | 33% |
DWS Government & Agency Securities VIP | 33% |
DWS Growth Allocation VIP | 5% |
DWS High Income VIP | 33% |
DWS Income Allocation VIP | 5% |
DWS International Select Equity VIP | 33% |
DWS Janus Growth & Income VIP | 33% |
DWS Janus Growth Opportunities VIP | 33% |
DWS Large Cap Value VIP | 33% |
DWS Mercury Large Cap Core VIP | 33% |
DWS MFS Strategic Value VIP | 33% |
DWS Mid Cap Growth VIP | 33% |
DWS Moderate Allocation VIP | 5% |
DWS Money Market VIP | 33% |
DWS Oak Strategic Equity VIP | 33% |
DWS Salomon Aggressive Growth VIP | 33% |
DWS Small Cap Growth VIP | 33% |
DWS Strategic Income VIP | 33% |
DWS Technology VIP | 5% |
DWS Templeton Foreign Value VIP | 33% |
DWS Turner Mid Cap Growth VIP | 33% |
J. Regulatory Matters and Litigation
Market Timing Related Regulatory and Litigation Matters. Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including DWS Scudder. The DWS funds' advisors have been cooperating in connection with these inquiries and are in discussions with the regulators concerning proposed settlements. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the DWS funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming 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 allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. It is not possible to determine with certainty what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors.
With respect to the lawsuits, 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.
With respect to the regulatory matters, Deutsche Asset Management ("DeAM") has advised the funds as follows:
DeAM expects to reach final agreements with regulators early in 2006 regarding allegations of improper trading in the DWS funds. DeAM expects that it will reach settlement agreements with the Securities and Exchange Commission, the New York Attorney General and the Illinois Secretary of State providing for payment of disgorgement, penalties, and investor education contributions totaling approximately $134 million. Approximately $127 million of this amount would be distributed to shareholders of the affected DWS funds in accordance with a distribution plan to be developed by an independent distribution consultant. DeAM does not believe that any of the DWS funds will be named as respondents or defendants in any proceedings. 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 they have already been reserved.
Based on the settlement discussions thus far, DeAM believes that it will be able to reach a settlement with the regulators on a basis that is generally consistent with settlements reached by other advisors, taking into account the particular facts and circumstances of market timing at DeAM and at the legacy Scudder and Kemper organizations prior to their acquisition by DeAM in April 2002. Among the terms of the expected settled orders, DeAM would be subject to certain undertakings regarding the conduct of its business in the future, including maintaining existing management fee reductions for certain funds for a period of five years. DeAM expects that these settlements would resolve regulatory allegations that it violated certain provisions of federal and state securities laws (i) by entering into trading arrangements that permitted certain investors to engage in market timing in certain DWS funds and (ii) by failing more generally to take adequate measures to prevent market timing in the DWS funds, primarily during the 1999-2001 period. With respect to the trading arrangements, DeAM expects that the settlement documents will include allegations related to one legacy DeAM arrangement, as well as three legacy Scudder and six legacy Kemper arrangements. All of these trading arrangements originated in businesses that existed prior to the current DeAM organization, which came together in April 2002 as a result of the 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 the trading arrangements.
There is no certainty that the final settlement documents will contain the foregoing terms and conditions. The independent Trustees/Directors of the DWS funds have carefully monitored these regulatory investigations with the assistance of independent legal counsel and independent economic consultants. Additional information announced by DeAM regarding the terms of the expected settlements 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.
Other Regulatory Matters. DeAM is also engaged in settlement discussions with the Enforcement Staffs of the SEC and the NASD regarding DeAM's practices during 2001-2003 with respect to directing brokerage commissions for portfolio transactions by certain DWS funds to broker-dealers that sold shares in the DWS funds and provided enhanced marketing and distribution for shares in the DWS funds. In addition, on January 13, 2006, DWS Scudder Distributors, Inc. received a Wells notice from the Enforcement Staff of the NASD regarding DWS Scudder Distributors' payment of non-cash compensation to associated persons of NASD member firms, as well as DWS Scudder Distributors' procedures regarding non-cash compensation regarding entertainment provided to such associated persons. Additional information announced by DeAM regarding the terms of the expected settlements 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.
K. Acquisition of Assets
On April 29, 2005, the DWS Small Cap Growth VIP acquired all of the net assets of Scudder Variable Series I 21st Century Growth Portfolio pursuant to a plan of reorganization approved by shareholders on April 20, 2005. The acquisition was accomplished by a tax-free exchange of 7,739,831 Class A shares and 1,627,657 Class B shares of the Scudder Variable Series I 21st Century Growth Portfolio for 3,256,621 Class A shares and 680,062 Class B shares of the DWS Small Cap Growth VIP outstanding on April 29, 2005. Scudder Variable Series I 21st Century Growth Portfolio's net assets at that date of $45,435,834, including $4,404,910 of net unrealized appreciation, were combined with those of the DWS Small Cap Growth VIP. The aggregate net assets of the DWS Small Cap Growth VIP immediately before the acquisition were $209,671,733. The combined net assets of the DWS Small Cap Growth VIP immediately following the acquisitions were $255,107,567.
On April 29, 2005, the DWS Balanced VIP acquired all of the net assets of Scudder Variable Series I Balanced Portfolio pursuant to a plan of reorganization approved by shareholders on April 20, 2005. The acquisition was accomplished by a tax-free exchange of 10,773,456 Class A shares of the Scudder Variable Series I Balanced Portfolio for 5,591,767 Class A shares of the DWS Balanced VIP outstanding on April 29, 2005. Scudder Variable Series I Balanced Portfolio's net assets at that date of $118,997,707, including $9,126,657 of net unrealized appreciation, were combined with those of the DWS Balanced VIP. The aggregate net assets of the DWS Balanced VIP immediately before the acquisition were $598,273,318. The combined net assets of the DWS Balanced VIP immediately following the acquisitions were $717,271,025.
L. Payments made by Affiliates and Investment Restriction Violations
During the year ended December 31, 2005, the Advisor fully reimbursed the DWS Balanced VIP, DWS High Income VIP, the DWS Strategic Income VIP and DWS Technology VIP $3,830, $27,576, $2,298 and $3,842, respectively, for losses incurred on a trade executed incorrectly.
In addition, the Advisor fully reimbursed the DWS Davis Venture Value VIP and DWS Government & Agency Securities VIP $621 and $234, respectively, for losses incurred in violation of investment restrictions. During the period, the DWS Small Cap Growth VIP realized a gain of $49,496 on the disposal of an investment not meeting the Portfolio's investment restrictions.
M. Other
Prior to September 30, 2005, Deutsche Asset Management Investment Services Ltd. ("DeAMIS"), an affiliate of the Advisor, served as subadvisor with respect to the investment and reinvestment of assets of DWS International Select Equity VIP, DWS Strategic Income VIP and DWS Balanced VIP. DeAMIS was sold to Aberdeen Asset Management PLC ("Aberdeen"). The Portfolio's Board allowed the subadvisory agreement with DeAMIS, due for renewal on September 30, 2005 to expire and only the advisory agreement with DeIM was approved for continuation. Aberdeen plays no role in managing the portfolios. Additionally, effective December 2, 2005, pursuant to an investment subadvisory agreement between Aberdeen and the Advisor, Aberdeen acts as the subadvisor for DWS Core Fixed Income VIP. As subadvisor, Aberdeen, under the supervision of the Board of Trustees and the Advisor, makes the portfolio's investment decisions, buys and sells securities for the portfolio, and conducts the research that leads to these purchase and sale decisions. Aberdeen is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges. Aberdeen provides a full range of international investment advisory services to institutional and retail clients. Aberdeen will be paid for its services by the Advisor from its fee as investment advisor to the portfolio.
N. Subsequent Event
Effective February 6, 2006, Scudder Investments changed its name to DWS Scudder and the Scudder funds were renamed DWS funds. The DWS Scudder name represents the alignment of Scudder with all of Deutsche Bank's mutual fund operations around the globe. In addition, the Web site for all Scudder funds changed to www.dws-scudder.com.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of DWS Variable Series II:
We have audited the accompanying statements of assets and liabilities of DWS Variable Series II (formerly Scudder Variable Series II) (the "Trust"), comprising the DWS Balanced VIP (formerly Scudder Total Return Portfolio), DWS Blue Chip VIP (formerly Scudder Blue Chip Portfolio), DWS Conservative Allocation VIP (formerly Scudder Income & Growth Strategy Portfolio), DWS Core Fixed Income VIP (formerly Scudder Fixed Income Portfolio), DWS Davis Venture Value VIP (formerly SVS Davis Venture Value Portfolio), DWS Dreman Financial Services VIP (formerly SVS Dreman Financial Services Portfolio), DWS Dreman High Return Equity VIP (formerly SVS Dreman High Return Equity Portfolio), DWS Dreman Small Cap Value VIP (formerly SVS Dreman Small Cap Value Portfolio), DWS Global Thematic VIP (formerly Scudder Global Blue Chip Portfolio), DWS Government & Agency Securities VIP (formerly Scudder Government & Agency Securities Portfolio), DWS Growth Allocation VIP (formerly Scudder Growth Strategy Portfolio), DWS High Income VIP (formerly Scudder High Income Portfolio), DWS Income Allocation VIP (formerly Scudder Conservative Income Strategy Portfolio), DWS International Select Equity VIP (formerly Scudder International Select Equity Portfolio), DWS Janus Growth & Income VIP (formerly SVS Janus Growth and Income Portfolio), DWS Janus Growth Opportunities VIP (formerly SVS Janus Growth Opportunities Portfolio), DWS Large Cap Value VIP (formerly Scudder Large Cap Value Portfolio), DWS Mercury Large Cap Core VIP (formerly Scudder Mercury Large Cap Core Portfolio), DWS MFS Strategic Value VIP (formerly SVS MFS Strategic Value Portfolio), DWS Mid Cap Growth VIP (formerly Scudder Mid Cap Growth Portfolio and formerly Scudder Aggressive Growth Portfolio), DWS Moderate Allocation VIP (formerly Scudder Growth & Income Strategy Portfolio), DWS Money Market VIP (formerly Scudder Money Market Portfolio), DWS Oak Strategic Equity VIP (formerly SVS Oak Strategic Equity Portfolio), DWS Salomon Aggressive Growth VIP (formerly Scudder Aggressive Growth Portfolio and formerly SVS INVESCO Dynamic Growth Portfolio), DWS Small Cap Growth VIP (formerly Scudder Small Cap Growth Portfolio), DWS Strategic Income VIP (formerly Scudder Strategic Income Portfolio), DWS Technology VIP (formerly Scudder Technology Growth Portfolio), DWS Templeton Foreign Value VIP (formerly Scudder Templeton Foreign Value Portfolio), and DWS Turner Mid Cap Growth VIP (formerly SVS Turner Mid Cap Growth Portfolio) (collectively, the "Portfolios"), including the portfolios of investments, as of December 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the aforementioned portfolios of the DWS Variable Series II at December 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 16, 2006
The following portfolios paid distributions from net long-term capital gains during the year ended December 31, 2005 as follows:
Portfolio | Distribution Per Share ($) | % Representing 15% Rate Gains |
DWS Core Fixed Income VIP | .06 | 100% |
DWS Dreman Small Cap Value VIP | 1.78 | 100% |
DWS Government & Agency Securities VIP | .001 | 100% |
DWS MFS Strategic Value VIP | .5518 | 100% |
DWS Strategic Income VIP | .03 | 100% |
The following portfolios designated as capital gain dividends for its year ended December 31, 2005:
Portfolio | Capital Gain ($) | % Representing 15% Rate Gains |
DWS Blue Chip VIP | 9,819,000 | 100% |
DWS Conservative Allocation VIP | 167,000 | 100% |
DWS Core Fixed Income VIP | 93,200 | 100% |
DWS Dreman Financial Services | 1,600,000 | 100% |
DWS Dreman Small Cap Value VIP | 52,300,000 | 100% |
DWS Global Thematic VIP | 8,816,000 | 100% |
DWS Growth Allocation VIP | 820,000 | 100% |
DWS Income Allocation VIP | 191 | 100% |
DWS MFS Strategic Value VIP | 500,000 | 100% |
DWS Moderate Allocation VIP | 600,000 | 100% |
DWS Salomon Aggressive Growth VIP | 8,100,000 | 100% |
DWS Strategic Income VIP | 32,000 | 100% |
DWS Turner Mid Cap Growth VIP | 12,844,000 | 100% |
DWS Templeton Foreign Value VIP | 88,300 | 100% |
For corporate shareholders, the following percentage of income dividends paid during the following portfolios' fiscal year ended December 31, 2005 qualified for the dividends received deduction:
Portfolio | % |
DWS Balanced VIP | 43 |
DWS Blue Chip VIP | 100 |
DWS Conservative Allocation VIP | 100 |
DWS Davis Venture Value VIP | 100 |
DWS Dreman Financial Services VIP | 100 |
DWS Dreman High Return Equity VIP | 100 |
DWS Dreman Small Cap Value VIP | 100 |
DWS Global Thematic VIP | 100 |
DWS Growth Allocation VIP | 100 |
DWS Janus Growth and Income VIP | 100 |
DWS Janus Growth Opportunities VIP | 100 |
DWS Large Cap Value VIP | 100 |
DWS Mercury Large Cap Core VIP | 100 |
DWS MFS Strategic Value VIP | 100 |
DWS Oak Strategic Equity VIP | 100 |
DWS Technology VIP | 71 |
DWS Templeton Foreign Value VIP | 38 |
DWS Global Thematic VIP paid foreign taxes of $170,000 and earned $454,040 of foreign source income during the year ended December 31, 2005. Pursuant to section 853 of the Internal Revenue Code, the portfolio designates $0.03 per share as foreign taxes paid and $0.07 per share as income earned from foreign sources for the year ended December 31, 2005.
DWS International Select Equity VIP paid foreign taxes of $678,821 and earned $4,638,967 of foreign source income during the year ended December 31, 2005. Pursuant to Section 853 of the Internal Revenue Code, the portfolio designates $0.04 per share as foreign taxes paid and $0.24 per share as income earned from foreign sources for the year ended December 31, 2005.
DWS Templeton Foreign Value VIP paid foreign taxes of $21,600 and earned $139,100 of foreign source income during the year ended December 31, 2005. Pursuant to Section 853 of the Internal Revenue Code, the portfolio designates $0.02 per share as foreign taxes paid and $0.08 per share as income earned from foreign sources for the year ended December 31, 2005.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 621-1048.
A description of the Trust's policies and procedures for voting proxies for portfolio securities and information about how the Trust 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 (type "proxy voting" in the search field) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Trust's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.
A Special Meeting of Shareholders (the "Meeting") of DWS Salomon Aggressive Growth VIP (the "Portfolio") was held on October 21, 2005 at the offices of Deutsche Investment Management Americas Inc. ("DeIM"), which is part of Deutsche Asset Management, 345 Park Avenue, New York, NY 10154. At the Meeting, the following matters were voted upon by the shareholders (the resulting votes are presented below).
1. To approve a new Investment Management Agreement between DWS Variable Series II, on behalf of the Portfolio, and DeIM:
Number of Votes: | ||
Affirmative | Against | Abstain |
3,983,737 | 94,156 | 333,050 |
2. To approve a new Sub-advisory Agreement between DeIM and Salomon Brothers Asset Management Inc.:
Number of Votes: | ||
Affirmative | Against | Abstain |
3,962,802 | 112,845 | 335,296 |
A Special Meeting of Shareholders (the "Meeting") of DWS Core Fixed Income VIP (the "Portfolio") was held on November 18, 2005, at the offices of DeIM, 345 Park Avenue, New York, NY 10154. At the meeting, the following matters were voted upon by the shareholders (the resulting votes are presented below).
1. To approve an Amended and Restated Investment Management Agreement between DWS Variable Series II, on behalf of the Portfolio, and DeIM:
Number of Votes: | ||
Affirmative | Against | Abstain |
18,762,395 | 363,523 | 1,458,292 |
2. To approve a new Sub-advisory Agreement between DeIM and Aberdeen Asset Management, Inc.:
Number of Votes: | ||
Affirmative | Against | Abstain |
18,733,967 | 364,585 | 1,485,657 |
Investment Management Agreement Approval
The Board of Trustees, including the Independent Trustees, approved the renewal of each Portfolio's investment management agreement (each an "Agreement") with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor") in September 2005. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Agreements. Over the course of several months, the Contract Review Committee, in coordination with the Equity Oversight Committee and the Fixed Income Oversight Committee, as applicable, and the Operations Committee of the Board, reviewed comprehensive materials received from the Advisor, independent third parties and independent counsel. The Board also received extensive information throughout the year regarding performance and operating results of each Portfolio. After their review of the information received, the Committees presented their findings and recommendations to the Independent Trustees as a group. The Independent Trustees then reviewed the Committees' findings and recommendations and presented their recommendations to the full Board.
In connection with the contract review process, the various Committees and the Board considered the factors discussed below, among others. The Board also considered that the Advisor and its predecessors have managed each Portfolio since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of each of the Portfolios. The Board considered, generally, that shareholders invested in a Portfolio, or approved the investment management agreement for a Portfolio, knowing that the Advisor managed the Portfolio and knowing the investment management fee schedule. In connection with recent and ongoing efforts by Deutsche Bank to restructure its US mutual fund business, which resulted in turnover of senior management and other personnel of the Advisor, the Board considered Deutsche Bank's commitment that it will devote to the Advisor and its affiliates all attention and resources that are necessary to provide the Portfolios with top-quality investment management and shareholder, administrative and product distribution services.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services provided under the Agreements, including portfolio management services and administrative services. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of the Advisor to attract and retain high-quality personnel, and the organizational depth and stability of the Advisor. For certain Funds, the Board considered the delegation of day-to-day portfolio management responsibility to a sub-advisor. The Board reviewed each Portfolio's performance over short-term and, as applicable, long-term periods, and compared those returns to various agreed-upon performance measures, including market indices and peer groups. The Board considered whether investment results were consistent with a Portfolio's investment objective and policies. The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their peer group), and receives more frequent reporting and information from the Advisor regarding such funds, along with the Advisor's remedial plans to address underperformance. The Board believes this process is an effective manner of addressing poorly performing funds at this time.
On the basis of this evaluation and the ongoing review of investment results by the Equity Oversight Committee and Fixed-Income Oversight Committee, as applicable, the Board concluded that the nature, quality and extent of services provided by the Advisor historically have been and continue to be satisfactory and unless otherwise noted below, each Portfolio's performance over time was satisfactory.
Fees and Expenses. The Board considered each Portfolio's management fee rate, operating expenses and total expense ratios, and compared management fees to a peer group and total expenses to a broader peer universe based on information and data supplied by Lipper Inc. ("Lipper"). For purposes of this comparison, the Board relied on historical data compiled by Lipper for the peer funds and the Advisor's estimate of current expenses for each Portfolio (including, as applicable, the effect of a Portfolio's then-current expense cap). The information provided to the Board showed that, unless otherwise noted below, each Portfolio's management fee rate was below the median of its peer group and that each Portfolio's total expense ratio was below the median of its peer universe. The Board also considered each Portfolio's management fee rate as compared to fees charged by the Advisor and certain of its affiliates for comparable mutual funds and, as applicable, for similarly managed institutional accounts. With respect to institutional accounts, the Board noted that (i) both the mix of services provided and the level of responsibility required under an Agreement were significantly greater as compared to the Advisor's obligations for similarly managed institutional accounts; and (ii) the management fees of institutional accounts are less relevant to the Board's consideration because they reflect significantly different competitive forces from those in the mutual fund marketplace. With respect to the other comparable DWS Funds, the Board considered differences in fund and fee structures among the DWS Funds and, as applicable, among the various legacy organizations. When applicable, the Board took into account the Advisor's commitment to cap total expenses for certain classes through specified periods.
On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by the Advisor.
Profitability. The Board reviewed detailed information regarding revenues received by the Advisor under each Agreement. The Board considered the estimated costs and pre-tax profits realized by the Advisor from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing each Portfolio in particular. The Board also received information regarding the estimated enterprise-wide profitability of the DWS organization with respect to all fund services in totality and by fund. The Board reviewed DeIM's methodology in allocating its costs to the management of each Portfolio. Although the Board noted the inherently subjective nature of any allocation methodology, the Board received an attestation report from an accounting firm affirming that the allocation methods were consistently applied and were based upon practices commonly used in the investment management industry. Based on the information provided, the Board concluded that the pre-tax profits realized by DeIM in connection with the management of each Portfolio, were not unreasonable. For DWS Mid Cap Growth VIP, DWS Global Thematic VIP, DWS Mercury Large Cap Core VIP, DWS MFS Strategic Value VIP and DWS Templeton Foreign Value VIP, the Board noted that, based on the information provided, the Advisor operated each Portfolio at a loss.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of each Portfolio and whether each Portfolio benefits from any economies of scale. The Board considered whether the management fee schedule under each Agreement is reasonable in relation to the asset size of the Portfolio. The Board noted that the management fee schedule for seventeen of the Portfolios included breakpoints designed to share economies of scale with the shareholders. The Board concluded that each management fee schedule reflects an appropriate level of sharing of any economies of scale.
Other Benefits to DeIM and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DeIM and its affiliates, including fees received by the Advisor for administrative services provided to each Portfolio. The Board also considered benefits to DeIM related to brokerage and soft-dollar allocations, which pertain primarily to funds investing in equity securities. The Board considered that, during the past year, the Advisor agreed to cease allocating brokerage to acquire research services from third-party service providers. The Board concluded that management fees were reasonable in light of these fallout benefits.
Regulatory Matters. The Board also considered information regarding ongoing inquiries of the Advisor regarding market timing, late trading and other matters by federal and state regulators and private lawsuits on related topics. Among other matters, the Board considered the Advisor's commitment to indemnify the DWS Funds against regulatory actions or lawsuits arising from such inquiries. The Board also considered management's representation that such actions will not materially impact the Advisor's ability to perform under the Agreements or materially impact the Portfolios.
In connection with the factors described above, the Board considered factors specific to a particular Portfolio, as discussed below.
DWS Mid Cap Growth VIP (formerly Scudder Mid Cap Growth Portfolio)
Nature, Quality and Extent of Services. The Board noted that effective October 28, 2005, the Portfolio would adopt a new investment objective and strategy and, accordingly, changed its name to Scudder Mid Cap Growth Portfolio.
The Board noted the relative underperformance of the Portfolio, and took into account the factors contributing to such performance and steps being taken by the Advisor to improve performance, including the Portfolio's adoption of a new investment objective and strategy.
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that total expenses remained in the fourth quartile. The Board took note of the Advisor's commitment to cap total expenses through April 30, 2006.
In light of the fourth quartile ranking of the total expenses for Class B shares, the Board recommended that the Advisor cap expenses of Class B shares (less 12b-1 plan and recordkeeping expenses) at a level within the third quartile. The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such ratio (after the recommended expense cap) was within an acceptable range of the peer universe, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Davis Venture Value VIP (formerly SVS Davis Venture Value Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was above the median of the peer group and that the Portfolio's total expense ratio was above the median of the peer universe but below the fourth quartile for Class A shares and in the fourth quartile for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio remained in the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
In light of the fourth quartile ranking of total expenses for Class B shares, the Board recommended that the Advisor cap total expenses (less 12b-1 plan and recordkeeping expenses) for Class B shares at a level within the third quartile. The Board noted that although the Portfolio's management fee rate was above the median for the peer group and the total expense ratios for Class A and B shares were above the median of the peer universe, such expenses (after the recommended expense cap) were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Dreman High Return Equity VIP (formerly SVS Dreman High Return Equity Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was above the median of the peer group but below the fourth quartile, and that the Portfolio's total expense ratios were below the median of the peer universe for Class A shares and in the fourth quartile for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio was below the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
The Board noted that although the Portfolio's management fee rate was above the median for the peer group and the total expense ratio for Class B shares was above the median of the peer universe, such expenses were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Dreman Small Cap Value VIP (formerly SVS Dreman Small Cap Value Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was above the median of the peer universe, but below the fourth quartile, for Class B shares. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such expenses were within an acceptable range of the peer universe and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Global Thematic VIP (formerly Scudder Global Blue Chip Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was above the median of the peer group but below the fourth quartile, and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class A and Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio remained in the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
In light of the fourth quartile ranking of total expenses for Class A and Class B shares, the Board recommended that the Advisor cap total expenses of Class A and Class B shares (less 12b-1 plan and recordkeeping expenses) at a level within the third quartile. The Board noted that although the Portfolio's management fee rate was above the median for the peer group and total expenses for Class A and B shares were above the median for the peer universe, such expenses (after the recommended expense cap) were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS International Select Equity VIP (formerly Scudder International Select Equity Portfolio)
Nature, Quality and Extent of Services. The Board noted that, in the past, the Advisor delegated a portion of the Portfolio's assets, to be invested in foreign securities, for management by Deutsche Asset Management Investment Services Limited ("DeAMIS"), an affiliate of the Advisor, pursuant to a sub-advisory agreement. In light of Deutsche Bank's agreement to sell DeAMIS, the Advisor recommended that the Board not renew the sub-advisory agreement with DeAMIS, but, rather, proposed that the assets previously managed by DeAMIS be managed by the Advisor utilizing the Advisor's existing resources. The Board received information related to the resources and capabilities of the Advisor in managing foreign securities. The Board concluded that the Advisor has the resources and capabilities to manage the foreign securities portion of the Portfolio previously managed by DeAMIS.
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was above the median but below the fourth quartile of the peer universe for Class B shares.
The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such expenses were within an acceptable range of the peer universe and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Salomon Aggressive Growth VIP (formerly Scudder Salomon Aggressive Growth Portfolio)
Nature, Quality and Extent of Services. The Board noted that, previously, the Advisor delegated management of the Portfolio's assets to INVESCO Institutional N.A. ("INVESCO"), pursuant to a sub-advisory agreement. Effective August 1, 2005, the Board terminated the sub-advisory agreement with INVESCO and approved an interim sub-advisory agreement with Salomon Brothers Asset Management Inc. ("Salomon") pending shareholder approval of the new agreement. The Board considered changes in the investment objective and strategy of the Portfolio in connection with the recent change in sub-advisor.
Fees and Expenses. The Board noted that, effective August 1, 2005, the Portfolio adopted a lower management fee schedule. The information provided to the Board showed that the Portfolio's management fee rate (adjusted for the new management fee schedule) was above the median of the peer group and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class A and Class B shares. The Board examined the total expense ratio for Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio remained in the fourth quartile. The Board also took into account the Advisor's commitment to cap expenses through April 30, 2006.
In light of the fourth quartile ranking of total expenses for Class A and Class B shares, the Board recommended that the Advisor cap total expenses for Class A shares and Class B shares (less 12b-1 plan and recordkeeping expenses) at a level within the third quartile. The Board noted that although the Portfolio's management fee rate was above the median for the peer group and total expenses for Class A and B shares were above the median for the peer universe, such expenses (after the recommended expense caps) were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Janus Growth & Income VIP (formerly SVS Janus Growth And Income Portfolio)
Fees and Expenses. The Board noted that the Advisor agreed to reduce the Portfolio's management fee rate, effective May 1, 2005. The information provided to the Board, which reflected the management fee reduction, showed that the Portfolio's management fee rate was above the median of the peer group but below the fourth quartile, and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio remained in the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
In light of the fourth quartile ranking of total expenses for Class B shares, the Board recommended that the Advisor cap total expenses (less 12b-1 plan and recordkeeping expenses) for Class B shares at a level within the third quartile. The Board noted that although the Portfolio's management fee rate was above the median for the peer group and total expenses were above the median for Class B shares, such expenses (after the recommended expense cap) were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Janus Growth Opportunities VIP (formerly SVS Janus Growth Opportunities Portfolio)
Fees and Expenses. The Board noted that the Advisor agreed to reduce the Portfolio's management fee rate, effective May 1, 2005. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio for Class B shares was below the fourth quartile.
The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such ratio was within an acceptable range of the peer universe and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Large Cap Value VIP (formerly Scudder Large Cap Value Portfolio)
Nature, Quality and Extent of Services. The Board noted the short-term relative underperformance of the Portfolio, and took into account the factors contributing to such performance, the Portfolio's favorable long-term performance, and steps being taken by the Advisor to improve performance.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was above the median of the peer group but below the fourth quartile, and that the Portfolio's total expense ratio was above the median but below the fourth quartile of the peer universe for Class B shares.
The Board noted that although the Portfolio's management fees were above the median of the peer group and total expenses for Class B shares were above the median of peer universe, respectively, such expenses were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Mercury Large Cap Core VIP (formerly Scudder Mercury Large Cap Core Portfolio)
Nature, Quality and Extent of Services. The Board noted that comparative performance information was not available due to the Portfolio's limited operating history.
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was above the median but below the fourth quartile of the peer universe for Class A shares and in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio of Class B shares remained in the fourth quartile.
Given that the Advisor's estimates of current expenses provided to the Board for Class A and B shares were impacted by the current expense caps, and in light of the fourth quartile ranking of total expenses for Class B shares, the Board recommended that the expense cap for Class A shares be extended through September 30, 2006, and that the Advisor cap expenses for Class B shares through September 30, 2006 at a level within the third quartile. The Board noted that although the Portfolio's total expense ratios for Class A and B shares were above the median for its peer universe, such expenses (after the recommended expense caps) were within an acceptable range of the peer universe and consistent with reasonable expectations in light of the small size and short operating history of the Portfolio and the nature, quality and extent of services provided by the Advisor.
DWS MFS Strategic Value VIP (formerly SVS MFS Strategic Value Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class A shares and Class B shares. The Board examined the total expense ratio for Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio for Class B shares remained in the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
In light of the fourth quartile ranking of total expenses for Class A shares and Class B shares, the Board recommended that the Advisor cap total expenses for Class A and Class B shares (less 12b-1 plan and recordkeeping expenses) at a level within the third quartile. The Board noted that although the Portfolio's total expense ratios for Class A and B shares were above the median for the peer universe, such expenses (after the recommended expense caps) were within an acceptable range of the peer universe, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Oak Strategic Equity VIP (formerly SVS Oak Strategic Equity Portfolio)
Nature, Quality and Extent of Services. The Board noted the short-term relative underperformance of the Portfolio, but considered that the Portfolio has performed at high levels over time and that such volatility is consistent with the Portfolio's investment strategy.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was in the fourth quartile of the peer group, and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class A and Class B shares. The Board noted that, in response to questions of the Independent Trustees regarding the levels of management fee rates and total expenses, the Advisor agreed to a lower management fee schedule and lower expense caps effective with the renewal of the Agreement. The Board examined the total expense ratio for Class A and B shares (taking into effect the lower management fee) and less 12b-1 plan and recordkeeping expenses for Class B shares, and noted that the expense ratio for Class B shares remained in the fourth quartile.
In light of the fourth quartile ranking of total expenses for Class B shares, the Board recommended that the Advisor cap the total expense ratio (less 12b-1 plan and recordkeeping expenses) at a level within the third quartile. The Board noted that although the Portfolio's total expense ratios for Class A and B shares were above the median for the peer universe, such expenses (after the recommended expense cap) were within an acceptable range of the peer universe, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Small Cap Growth VIP (formerly Scudder Small Cap Growth Portfolio)
Nature, Quality and Extent of Services. The Board noted the long-term relative underperformance of the Portfolio, and took into account the factors contributing to such performance and steps being taken by the Advisor to improve performance.
Fees and Expenses. The Board noted that the Portfolio adopted a lower management fee schedule in connection with the acquisition of the assets and liabilities of DWS Variable Series I — 21st Century Growth Portfolio in May 2005 (the "21st Century Merger"). The information provided to the Board showed that the Portfolio's management fee rate (taking into account the effect of the 21st Century Merger) was below the median of the peer group and that the Portfolio's total expense ratios for Class A and Class B shares were below the median of the peer universe. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2008 in connection with the 21st Century Merger.
DWS Technology VIP (formerly Scudder Technology Growth Portfolio)
Nature, Quality and Extent of Services. The Board noted the short-term relative underperformance of the Portfolio, and took into account the factors contributing to such performance and steps being taken by the Advisor to improve performance.
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was above the median but below the fourth quartile for Class B shares.
The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such ratio was within an acceptable range of the peer universe, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Templeton Foreign Value VIP (formerly Scudder Templeton Foreign Value Portfolio)
Nature, Quality and Extent of Services. The Board noted that comparative performance information was not available due to the Portfolio's limited operating history.
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile for Class B shares. The Board examined the total expenses ratio for Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio for Class B shares was below the fourth quartile.
Given that the Advisor's estimates of current expenses provided to the Board for Class A and Class B shares were impacted by the current expense caps, the Board recommended that the expense caps be extended through September 30, 2006 for Class A and Class B shares. The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such expenses (after the recommended expense cap) were within an acceptable range of the peer universe and consistent with reasonable expectations in light of the small size and short operating history of the Portfolio and the nature, quality and extent of services provided by the Advisor.
DWS Balanced VIP (formerly Scudder Total Return Portfolio)
Nature, Quality and Extent of Services. The Board noted that, in the past, the Advisor delegated management of the portion of the Portfolio's assets, to be invested in foreign securities, to Deutsche Asset Management Investment Services Limited ("DeAMIS"), an affiliate of the Advisor, pursuant to a sub-advisory agreement. In light of Deutsche Bank's agreement to sell DeAMIS, the Advisor recommended that the Board not renew the sub-advisory agreement with DeAMIS, but, rather, proposed that the assets previously managed by DeAMIS be managed by the Advisor utilizing the Advisor's existing resources. The Board received information related to the resources and capabilities of the Advisor in managing foreign securities. The Board concluded that the Advisor has the resources and capabilities to manage the foreign securities portion of the Portfolio previously managed by DeAMIS.
The Board noted the relative underperformance of the Portfolio, and took into account the factors contributing to such performance and steps being taken by the Advisor to improve performance.
Fees and Expenses. The Board noted that the Portfolio adopted a lower management fee schedule in connection with the acquisition of the assets and liabilities of DWS Variable Series I — Balanced Portfolio in May 2005 (the "Balanced Fund Merger"). The information provided to the Board showed that the Portfolio's management fee rate (taking into account the effects of the Balanced Fund Merger) was below the median of the peer group and that the Portfolio's total expense ratio was below the median of the peer universe for Class A shares and above the median but below the fourth quartile for Class B shares. The Board took into account the Advisor's commitment to cap total expenses for Class A shares through April 30, 2008 in connection with the Balanced Fund Merger and to cap total expenses for Class B shares through April 30, 2006.
The Board noted that although the Portfolio's total expense ratio for Class B shares was above the median for the peer universe, such ratio was within an acceptable range of the peer universe, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Turner Mid Cap Growth VIP (formerly SVS Turner Mid Cap Growth Portfolio)
Nature, Quality and Extent of Services. The Board noted the short-term relative underperformance of the Portfolio, and took into account the factors contributing to such performance and steps being taken by the Advisor and Turner to improve performance.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was in the fourth quartile of the peer group, and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class A and Class B shares. The Board noted that, in response to questions of the Independent Trustees regarding the levels of the management fee rate and total expenses, the Advisor agreed to a lower management fee schedule and lower expense caps effective with the renewal of the Agreement. The Board examined the total expense ratio for Class A and B shares (taking into effect the lower management fee) and less 12b-1 plan and recordkeeping expenses for Class B shares, and noted that the expense ratio for Class B shares remained in the fourth quartile.
In light of the fourth quartile ranking of total expenses for Class B shares, the Board recommended that the Advisor cap the total expense ratio (less 12b-1 plan and recordkeeping expenses) at a level within the third quartile. The Board noted that although the Portfolio's revised management fee rate and the total expense ratios for Class A and B shares were above the median for the peer group and peer universe, respectively, such expenses (after the recommended expense cap) were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Income Allocation VIP (formerly Scudder Conservative Income Strategy Portfolio)
DWS Growth Allocation VIP (formerly Scudder Growth Strategy Portfolio)
DWS Moderate Allocation VIP (formerly Scudder Growth & Income Strategy Portfolio)
DWS Conservative Allocation VIP (formerly Scudder Income & Growth Strategy Portfolio)
Nature, Quality and Extent of Services. The Board considered that the Portfolio is a fund-of-funds and that investment management services consisted primarily of asset allocation services. The Board noted that the Portfolio commenced operations on August 16, 2004 and that comparative performance results were not available due to the limited operating history of the Portfolio.
Fees and Expenses. The Board noted that the comparative Lipper peer group and peer universe information included many mutual funds that were not structured as funds-of-funds. As a result, the information provided to the Board showed that the Portfolio's management fee rate was below the median of the peer group and that the Portfolio's total expense ratio was below the median of the peer universe. Based upon questions from the Independent Trustees, the Advisor produced additional comparative information on other funds-of-funds selected by the Advisor. Based upon that data, the Board observed that the Portfolio's management fees for the asset allocation service were above the median. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
Given that the Advisor's estimate of current expenses provided to the Board was impacted by a voluntary cap on management fees, the Board recommended that the Advisor make such cap contractual through September 30, 2006.
Profitability. The Board did not receive profitability information with respect to the Portfolio, but did receive such information with respect to the funds in which the Portfolio invests.
DWS Core Fixed Income VIP (formerly Scudder Fixed Income Portfolio)
Nature, Quality and Extent of Services. The Board noted the Advisor's representation that in connection with Deutsche Bank's agreement to sell Deutsche Asset Management Investment Services Limited, an affiliate of the Advisor, to Aberdeen Asset Management PLC ("Aberdeen"), it expects that substantially all the members of the portfolio management team that currently manages the fixed income portion of the Portfolio will undertake employment with Aberdeen. The Board also noted the Advisor's recommendation to retain Aberdeen as subadvisor, with no increase in fees.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was above the median of the peer group but below the fourth quartile, and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio for Class B shares was below the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
The Board noted that, although the Portfolio's management fee rate was above the median of the peer group and the total expense ratio for Class B shares was above the median of the peer universe, such management fee rate and total expense ratio were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Government & Agency Securities VIP (formerly Scudder Government & Agency Securities Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio of Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio for Class B shares was below the fourth quartile.
The Board noted that, although the Portfolio's total expense ratio for Class B shares was above the median of the peer universe, such ratio was within an acceptable range of the peer universe and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS High Income VIP (formerly Scudder High Income Portfolio)
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio for Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio was below the fourth quartile.
The Board noted that, although the Portfolio's total expense ratio for Class B shares was above the median of the peer universe, such ratio was within an acceptable range of the peer universe and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Strategic Income VIP (formerly Scudder Strategic Income Portfolio)
Nature, Quality and Extent of Services. The Board noted that, in the past, the Advisor delegated management of the portion of the Portfolio's assets, to be invested in foreign securities, to Deutsche Asset Management Investment Services Limited ("DeAMIS"), an affiliate of the Advisor, pursuant to a sub-advisory agreement. In light of Deutsche Bank's agreement to sell DeAMIS, the Advisor recommended that the Board not renew the sub-advisory agreement with DeAMIS, but, rather, proposed that the assets previously managed by DeAMIS be managed by the Advisor utilizing the Advisor's existing resources. The Board received information related to the resources and capabilities of the Advisor in managing foreign securities. The Board concluded that the Advisor has the resources and capabilities to manage the foreign securities portion of the Portfolio previously managed by DeAMIS.
Fees and Expenses. The information provided to the Board showed that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expenses for Class B shares less 12b-1 plan and recordkeeping expenses and noted that the expense ratio for Class B shares remained in the fourth quartile. The Board took into account the Advisor's commitment to cap total expenses through April 30, 2006.
In light of the fourth quartile ranking of total expenses for Class B shares, the Board recommended that total expenses (less 12b-1 plan and recordkeeping expenses) for Class B shares be capped at a level within the third quartile. The Board noted that, although the Portfolio's total expense ratio for Class B shares was above the median of the peer universe, such ratio (after the recommended expense cap) was within an acceptable range of the peer universe and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
DWS Money Market VIP (formerly Scudder Money Market Portfolio)
Nature, Quality and Extent of Services. The Board reviewed the Portfolio's gross and net performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including peer groups focusing, for this purpose, primarily on gross performance. The Board concluded that the Portfolio's gross performance over time was satisfactory.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was above the median of the peer group, but below the fourth quartile, and that the Portfolio's total expense ratio was in the fourth quartile of the peer universe for Class B shares. The Board examined the total expense ratio less 12b-1 plan and recordkeeping expenses for Class B shares and noted that the expense ratio was below the fourth quartile.
The Board noted that although the Portfolio's management fee rate was above the median of the peer group and the total expense ratio for Class B shares was above the median of the peer universe, such expenses were within an acceptable range of the peer group and peer universe, respectively, and consistent with reasonable expectations in light of the nature, quality and extent of services provided by the Advisor.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Trustees) determined that the terms of each Agreement continue to be fair and reasonable and that the continuation of each Agreement is in the best interests of each Portfolio. No single factor was determinative in the Board's analysis.
Board Considerations in Connection with the Annual Review of the Sub-Advisory Agreement for each of the following "Portfolios":
DWS Davis Venture Value VIP
DWS Dreman High Return Equity VIP
DWS Dreman Small Cap Value VIP
DWS Janus Growth & Income VIP
DWS Janus Growth Opportunities VIP
DWS Mercury Large Cap Core VIP
DWS MFS Strategic Value VIP
DWS Oak Strategic Equity VIP
DWS Templeton Foreign Value VIP
DWS Turner Mid Cap Growth VIP
The Board of Trustees, including the Independent Trustees, approved the renewal of each Portfolio's sub-advisory agreement (the "Sub-Advisory Agreement") between Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor") and each Portfolio's sub-advisor (each a "Sub-Advisor") in September 2005. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate each Sub-Advisory Agreement. The review process followed by the Board is described in detail above. In connection with the renewal of the Sub-Advisory Agreements, the various Committees and the Board considered the factors described below, among others.
Nature, Quality and Extent of Services. The Board considered the nature, extent and quality of services provided under each Sub-Advisory Agreement. The Board considered the reputation, qualifications and background of each Sub-Advisor, investment approach of each Sub-Advisor, the experience and skills of investment personnel responsible for the day-to-day management of each Portfolio, and the resources made available to such personnel. The Board considered short-term and longer-term performance of each Portfolio (as described above).
On the basis of this evaluation and the ongoing review of investment results by the Equity Oversight Committee, the Board concluded that the nature, quality and extent of services provided by each Sub-Advisor historically have been and continue to be satisfactory and that, except as discussed below, each Portfolio's performance during the tenure of the Sub-Advisor was satisfactory.
With respect to DWS Oak Strategic Equity VIP, the Board noted that although the short-term performance of the Portfolio was disappointing, the Portfolio has performed at high levels over time and such volatility is consistent with the Portfolio's investment strategy. With respect to DWS Turner Mid Cap Growth VIP, the Board noted the disappointing short-term performance of the Portfolio, and took into account the factors contributing to such underperformance, steps being taken to improve performance and also considered favorable year-to-date performance.
Fees; Profitability and Economies of Scale. The Board considered the sub-advisory fee rate of each Sub-Advisory Agreement and how it related to the overall management fee structure of the Portfolio. With respect to the Portfolios subadvised by Janus Capital Management LLC ("Janus"), the Board noted that Janus agreed to reduce its sub-advisory fees, effective May 1, 2005. With respect to the Portfolios subadvised by Dreman Value Management, L.L.C. ("Dreman"), the Board considered the terms of a relationship agreement between the Advisor and Dreman. The Board considered that each sub-advisory fee rate was negotiated at arm's length between the Advisor and Sub-Advisor, an unaffiliated third party, and that the Advisor compensates each Sub-Advisor from its fees. Accordingly, the Board considered the estimated profitability of the Advisor and did not consider estimated profitability of each Sub-Advisor. The Board evaluated whether the overall management fees payable by each Portfolio were designed to share economies of scale.
As part of its review of the investment management agreement with DeIM, the Board considered whether there will be economies of scale with respect to the overall fee structure of each Portfolio and whether the Portfolio will benefit from any economies of scale. With respect to DWS Oak Strategic Equity VIP, DWS Turner Mid Cap Growth VIP and the Portfolios subadvised by Janus, the Board noted that the Advisor agreed to reduce each Portfolio's management fee, effective October 1, 2005 for DWS Oak Strategic Equity VIP and DWS Turner Mid Cap Growth VIP, and May 1, 2005 for the Portfolios subadvised by Janus. The Board noted that most investment management agreements with DeIM included breakpoints and concluded that the overall structure was designed to share economies of scale with shareholders.
Other Benefits to the Sub-Advisor. The Board also considered the character and amount of other incidental benefits received by each Sub-Advisor and their affiliates. For the Portfolios subadvised by Dreman, this includes benefits received by Dreman in connection with executing brokerage transactions for the Portfolios. For all other sub-advised Portfolios, the Board noted that each Sub-Advisor agreed to adhere to DeIM's Soft Dollar Policy for the Portfolios, which includes an agreement not to use Portfolio brokerage transactions to pay for research services generated by parties other than the executing broker-dealer. The Board concluded that the sub-advisory fees were reasonable in light of these fallout benefits.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Trustees) determined that the terms of each Sub-Advisory Agreement continue to be fair and reasonable and that the continuation of each Sub-Advisory Agreement is in the best interests of each Portfolio. No single factor was determinative in the Board's analysis.
The following table presents certain information regarding the Trustees and Officers of the fund as of December 31, 2005. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual 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 individual is c/o Deutsche Asset Management, 222 South Riverside Plaza, Chicago, Illinois 60606. Each Trustee's term of office extends until the next shareholders' meeting called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, retires, resigns or is removed as provided in the governing documents of the fund.
Independent Trustees | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
Shirley D. Peterson (1941) Chairperson, 2004-present Trustee, 1995-present | Retired; formerly, President, Hood College (1995-2000); prior thereto, Partner, Steptoe & Johnson (law firm); Commissioner, Internal Revenue Service; Assistant Attorney General (Tax), US Department of Justice. Directorships: Federal Mogul Corp. (supplier of automotive components and subsystems); AK Steel (steel production); Goodyear Tire & Rubber Co. (April 2004-present) ; Champion Enterprises, Inc. (manufactured home building); Wolverine World Wide, Inc. (designer, manufacturer and marketer of footwear) (April 2005-present); Trustee, Bryn Mawr College. Former Directorship: Bethlehem Steel Corp. | 71 |
John W. Ballantine (1946) Trustee, 1999-present | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: First Oak Brook Bancshares, Inc.; Oak Brook Bank; Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company) | 71 |
Donald L. Dunaway (1937) Trustee, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994) | 71 |
James R. Edgar (1946) Trustee, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: Kemper Insurance Companies; John B. Sanfilippo & Son, Inc. (processor/packager/marketer of nuts, snacks and candy products); Horizon Group Properties, Inc.; Youbet.com (online wagering platform); Alberto-Culver Company (manufactures, distributes and markets health and beauty care products) | 71 |
Paul K. Freeman (1950) Trustee, 2002-present | President, Cook Street Holdings (consulting); Senior Visiting Research Scholar, Graduate School of International Studies, University of Denver; Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998) | 71 |
Robert B. Hoffman (1936) Trustee, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2000); prior thereto, Vice Chairman and Chief Financial Officer, Monsanto Company (agricultural, pharmaceutical and nutritional/food products) (1994-1999). Directorships: RCP Advisors, LLC (a private equity investment advisory firm) | 71 |
William McClayton (1944) Trustee, 2004-present | Managing Director of Finance and Administration, DiamondCluster International, Inc. (global management consulting firm) (2001-present); formerly, Partner, Arthur Andersen LLP (1986-2001). Formerly: Trustee, Ravinia Festival; Board of Managers, YMCA of Metropolitan Chicago | 71 |
Robert H. Wadsworth (1940) Trustee, 2004-present | President, Robert H. Wadsworth Associates, Inc. (consulting firm) (1983-present). Director, The European Equity Fund, Inc. (since 1986), The New Germany Fund, Inc. (since 1992), The Central Europe and Russia Fund, Inc. (since 1990). Formerly, Trustee of New York Board Scudder Funds; President and Trustee, Trust for Investment Managers (registered investment company) (1999-2002). President, Investment Company Administration, L.L.C. (1992*-2001); President, Treasurer and Director, First Fund Distributors, Inc. (June 1990-January 2002); Vice President, Professionally Managed Portfolios (May 1991-January 2002) and Advisors Series Trust (October 1996-January 2002) (registered investment companies) *Inception date of the corporation which was the predecessor to the L.L.C. | 74 |
Interested Trustee and Officers2 | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
William N. Shiebler4 (1942) Trustee, 2004-present | Vice Chairman, Deutsche Asset Management ("DeAM") and a member of the DeAM Global Executive Committee (since 2002); Vice Chairman of Putnam Investments, Inc. (1999); Director and Senior Managing Director of Putnam Investments, Inc. and President, Chief Executive Officer, and Director of Putnam Mutual Funds Inc. (1990-1999) | 120 |
Vincent J. Esposito4 (1956) President, 2005-present | Managing Director3, Deutsche Asset Management (since 2003); President and Chief Executive Officer of The Central Europe and Russia Fund, Inc., The European Equity Fund, Inc., The New Germany Fund, Inc. (since 2003) (registered investment companies); Vice Chairman and Director of The Brazil Fund, Inc. (2004-present); formerly, Managing Director, Putnam Investments (1991-2002) | n/a |
Philip J. Collora (1945) Vice President and Assistant Secretary, 1986-present | Director3, Deutsche Asset Management | n/a |
Paul H. Schubert4 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present | Managing Director3, 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) | n/a |
John Millette5 (1962) Secretary, 2001-present | Director3, Deutsche Asset Management | n/a |
Patricia DeFilippis4 (1963) Assistant Secretary, 2005-present | Vice President, Deutsche Asset Management (since June 2005); Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003) | n/a |
Elisa D. Metzger4,6 (1962) Assistant Secretary 2005-present | Director3, Deutsche Asset Management (since September 2005); Counsel, Morrison and Foerster LLP (1999-2005) | n/a |
Caroline Pearson5 (1962) Assistant Secretary, 1998-present | Managing Director3, Deutsche Asset Management | n/a |
Scott M. McHugh5 (1971) Assistant Treasurer, 2005-present | Director3, Deutsche Asset Management | n/a |
Kathleen Sullivan D'Eramo5 (1957) Assistant Treasurer, 2003-present | Director3, Deutsche Asset Management | n/a |
John Robbins4 (1966) Anti-Money Laundering Compliance Officer, 2005-present | Managing Director3, Deutsche Asset Management (since 2005); formerly, Chief Compliance Officer and Anti-Money Laundering Compliance Officer for GE Asset Management (1999-2005) | n/a |
Philip Gallo4 (1962) Chief Compliance Officer, 2004-present | Managing Director3, Deutsche Asset Management (2003-present); formerly, Co-Head of Goldman Sachs Asset Management Legal (1994-2003) | n/a |
1 Length of time served represents the date that each Trustee was first elected to the common board of Trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each officer was first elected to serve as an officer of any fund overseen by the aforementioned common board of Trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
3 Executive title, not a board directorship
4 Address: 345 Park Avenue, New York, New York 10154
5 Address: Two International Place, Boston, Massachusetts 02110
6 Elected on November 15, 2005
The fund's Statement of Additional Information ("SAI") includes additional information about the Trustees. 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.
About the Fund's Advisor
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Asset Management, Inc., Deutsche Investment Management Americas Inc. and DWS Trust Company.
An investment in DWS Money Market VIP is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although DWS Money Market VIP seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Portfolio.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by individual investors.
DWS Scudder Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 778-1482
VS2-2 (2/06) 42921
| ITEM 2. | CODE OF ETHICS. |
As of the end of the period, December 31, 2005, DWS Variable Series II has adopted 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 Fund’s Board of Directors/Trustees has determined that the Fund has at least one “audit committee financial expert” serving on its audit committee: Mr. Donald L. Dunaway. This audit committee member is “independent,” meaning that he is not an “interested person” of the Fund (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) and he does not accept any consulting, advisory, or other compensatory fee from the Fund (except in the capacity as a Board or committee member).
An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an “audit committee financial expert.” Further, the designation of a person as an “audit committee financial expert” does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the “audit committee financial expert” designation. Similarly, the designation of a person as an “audit committee financial expert” does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
DWS VARIABLE SERIES II
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young, LLP (“E&Y”), the Series’ auditor, billed to the Series during the Series’ last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Series.
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 Series’ Auditor Billed to the Series
Fiscal Year | Audit Fees Billed to Series | Audit-Related | Tax Fees Billed to Series | All |
2005 | $1,071,665 | $0 | $146,136 | $0 |
2004 | $1,142,235 | $0 | $201,571 | $0 |
The above "Tax Fees" were billed for professional services rendered for tax compliance and tax return preparation.
Services that the Series’ Auditor Billed to the Adviser and
Affiliated Series Service Providers
The following table shows the amount of fees billed by E&Y 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 Series (“Affiliated Fund Service Provider”), for engagements directly related to the Series’ operations and financial reporting, during the Series’ last two fiscal years.
Fiscal Year | Audit-Related | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All |
2005 | $355,000 | $488,670 | $0 |
2004 | $347,500 | $0 | $0 |
The “Audit-Related Fees” were billed for services in connection with the assessment of internal controls, agreed upon procedures and additional related procedures and the above “Tax Fees” were billed in connection with consultation services and agreed upon procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the Series’ last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Series’ operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Series’ last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y’s independence.
Fiscal Year | 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 Series) (B) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) | Total of (A), (B) |
2005 | $146,136 | $488,670 | $40,721 | $675,527 |
2004 | $201,571 | $0 | $386,601 | $588,172 |
All other engagement fees were billed for services in connection with risk management and process improvement initiatives for DeIM and other related entities that provide support for the operations of the series.
| 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 primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Procedures and Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to the Fund’s Secretary for the attention of the Chairman of the Nominating and Governance Committee, Two International Place, Boston, MA 02110. Suggestions for candidates must include a resume of the candidate.
| 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 Variable Series II |
By: | /s/Vincent J. Esposito | |
| Vincent J. Esposito |
|
President
Date: | March 2, 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 Variable Series II |
By: | /s/Vincent J. Esposito | |
| Vincent J. Esposito |
|
President
Date: | March 2, 2006 |
By: | /s/Paul Schubert | |
| Paul Schubert |
|
Chief Financial Officer and Treasurer
Date: | March 2, 2006 |