UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number | 811-5002 |
DWS Variable Series II
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza
Chicago, IL 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: | 12/31/07 |
ITEM 1. REPORT TO STOCKHOLDERS
December 31, 2007
ANNUAL REPORT
DWS Balanced VIP
DWS Blue Chip VIP
DWS Conservative Allocation VIP
DWS Core Fixed Income VIP
DWS Davis Venture Value VIP
DWS Dreman High Return Equity VIP
DWS Dreman Small Mid Cap Value VIP
DWS Global Thematic VIP
DWS Government & Agency Securities VIP
DWS Growth Allocation VIP
DWS High Income VIP
DWS International Select Equity VIP
DWS Janus Growth & Income VIP
DWS Large Cap Value VIP
DWS Mid Cap Growth VIP
DWS Moderate Allocation VIP
DWS Money Market VIP
DWS Small Cap Growth VIP
DWS Strategic Income VIP
DWS Technology VIP
DWS Turner Mid Cap Growth VIP
DWS VARIABLE SERIES II
Contents
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 High Return Equity VIP
click here DWS Dreman Small Mid 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 International Select Equity VIP
click here DWS Janus Growth & Income VIP
click here DWS Large Cap Value VIP
click here DWS Mid Cap Growth VIP
click here DWS Moderate Allocation VIP
click here DWS Money Market VIP
click here DWS Small Cap Growth VIP
click here DWS Strategic Income VIP
click here DWS Technology 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 Investment Management Agreement Approval
click here Summary of Management Fee Evaluation by Independent Fee Consultant
click here Trustees and Officers
This report must be preceded or accompanied by a prospectus. To obtain an additional prospectus, call (800) 778-1482 or your financial representative. We advise you to 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 Investment Management Americas Inc. and DWS Trust Company.
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .55% and .93% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. In the current market environment, mortgage-backed securities are experiencing increased volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
Portfolio returns for all periods shown 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 | ||
[] DWS Balanced VIP — Class A [] S&P 500® Index [] Russell 1000® Index [] Lehman Brothers US Aggregate Index | 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 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. The Lehman Brothers US Aggregate Index is an unmanaged, market value-weighted measure of treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Balanced VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,484 | $12,055 | $15,182 | $15,568 |
Average annual total return | 4.84% | 6.43% | 8.71% | 4.53% | |
S&P 500 Index | Growth of $10,000 | $10,549 | $12,816 | $18,286 | $17,756 |
Average annual total return | 5.49% | 8.62% | 12.83% | 5.91% | |
Russell 1000 Index+ | Growth of $10,000 | $10,577 | $12,978 | $18,780 | $18,243 |
Average annual total return | 5.77% | 9.08% | 13.43% | 6.20% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $12,417 | $17,864 |
Average annual total return | 6.97% | 4.56% | 4.42% | 5.97% |
The growth of $10,000 is cumulative.
+ On January 23, 2007, the Russell 1000 Index replaced the S&P 500 Index as the Portfolio's benchmark index for equity investment because the Advisor believes that it more accurately reflects the portfolio's investment strategy.
| |||||
DWS Balanced VIP | 1-Year | 1-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,443 | $11,916 | $14,899 | $14,272 |
Average annual total return | 4.43% | 6.02% | 8.30% | 6.68% | |
S&P 500 Index | Growth of $10,000 | $10,549 | $12,816 | $18,286 | $16,403 |
Average annual total return | 5.49% | 8.62% | 12.83% | 9.42% | |
Russell 1000 Index+ | Growth of $10,000 | $10,577 | $12,978 | $18,780 | $16,877 |
Average annual total return | 5.77% | 9.08% | 13.43% | 9.98% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $12,417 | $13,190 |
Average annual total return | 6.97% | 4.56% | 4.42% | 5.16% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on June 30, 2002.+ On January 23, 2007, the Russell 1000 Index replaced the S&P 500 Index as the Portfolio's benchmark index for equity investment because the Advisor believes that it more accurately reflects the portfolio's investment strategy.
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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses, had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,003.60 |
| $ 1,001.60 |
|
Expenses Paid per $1,000* | $ 2.58 |
| $ 4.49 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,022.63 |
| $ 1,020.72 |
|
Expenses Paid per $1,000* | $ 2.60 |
| $ 4.53 |
|
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, 2007
DWS Balanced VIP
Equity markets were generally strong during the first half of 2007, but down in the last half, particularly in the fourth quarter, when markets responded to further bad news about the potential impact of the subprime mortgage crisis. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14% for the full year 2007. Bond returns were higher than equity returns for the year. Return of the Lehman Brothers US Aggregate Index, which is considered indicative of broad bond market trends, was 6.97% for the 12-month period.
For the 12 months ended December 31, 2007, the Portfolio's Class A shares (unadjusted for contract charges) had a return of 4.84%. Since this Portfolio invests in stocks and bonds in several different categories, performance is analyzed by comparing the Portfolio's return with indices that represent each asset class. In order to create a benchmark that is representative of the Portfolio's standard asset mix, we calculate a blended benchmark return that is 60% return of the Russell 1000® Index and 40% return of the Lehman Brothers US Aggregate Index. Although the Portfolio outperformed this blended benchmark in the first half of 2007, the Portfolio's return for the full year was below the blended benchmark return of 6.39%.
The Portfolio's allocation between stocks and bonds remained close to the neutral position of 60% equity and 40% fixed income during 2007, but with a modest overweight in equities throughout most of the period.1 This overweight was positive for returns in the first half of the year, as equities outperformed fixed income, but was negative during the last half of the year. Within equities, an underweight in small-cap equities and an overweight in large-cap equities and an emphasis on growth versus value contributed to performance. Overall, tactical asset allocation contributed to performance. The net contribution of the underlying sleeves, the term we use for each of the fixed-income and equity strategies, was negative.
In December 2007, we initiated a major strategic transition for the DWS Balanced VIP that we hope will enhance all components of our investment process over time. We updated strategic asset allocation, adding international equities, among other changes. We also expanded the iGAP overlay, which is designed to take advantage of short-term mispricing in global bond and currency markets, to 100% of the assets. Now the iGAP overlay covers 40 different markets across equities, bonds and currencies. Finally, we increased diversification by adding more managers and investment styles.
Julie Abbett Jin Chen,CFA William Chepolis, CFA John Brennan
Matthew F. MacDonald Inna Okounkova Thomas Picciochi J. Richard Robben, CFA
Gary Sullivan, CFA Robert Wang Julie M.VanCleave, CFA Matthias Knerr, CFA
Portfolio Managers, Deutsche Investment Management Americas Inc.
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. In the current market environment, mortgage-backed securities are experiencing increased volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Russell 1000 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.
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.
The Lehman Brothers US Aggregate Index is an unmanaged market-value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities.
Index returns, unlike portfolio returns, do not include 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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Balanced VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 59% | 60% |
Commercial and Non-Agency Mortgage Backed Securities | 16% | 12% |
Corporate Bonds | 7% | 17% |
Government & Agency Obligations | 5% | 3% |
Cash Equivalents | 5% | 3% |
Collateralized Mortgage Obligations | 3% | 3% |
Asset Backed | 3% | 1% |
Mortgage Backed Securities Pass-Throughs | 1% | 1% |
Senior Loans | 1% | — |
| 100% | 100% |
Sector Diversification (Excludes Cash Equivalents and Securities Lending) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 18% | 23% |
Energy | 12% | 13% |
Health Care | 12% | 10% |
Information Technology | 12% | 13% |
Industrials | 12% | 9% |
Consumer Discretionary | 11% | 13% |
Consumer Staples | 8% | 7% |
Telecommunication Services | 6% | 4% |
Materials | 5% | 5% |
Utilities | 4% | 3% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 8. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Balanced VIP
|
| Value ($) |
|
| |
Common Stocks 58.9% | ||
Consumer Discretionary 5.7% | ||
Auto Components 0.5% | ||
Aftermarket Technology Corp.* | 2,400 | 65,424 |
Aisin Seiki Co., Ltd. | 100 | 4,158 |
American Axle & Manufacturing Holdings, Inc. | 5,300 | 98,686 |
Autoliv, Inc. | 26,700 | 1,407,357 |
Bridgestone Corp. | 300 | 5,284 |
Compagnie Generale des Etablissements Michelin "B" | 105 | 12,038 |
Continental AG | 94 | 12,190 |
Cooper Tire & Rubber Co. | 11,400 | 189,012 |
Denso Corp. | 200 | 8,128 |
Drew Industries, Inc.* | 5,200 | 142,480 |
Johnson Controls, Inc. | 3,000 | 108,120 |
Lear Corp.* | 5,100 | 141,066 |
Magna International, Inc. "A" | 300 | 24,372 |
Nokian Renkaat Oyj | 13,600 | 473,757 |
Rieter Holding AG (Registered) | 16 | 7,026 |
Toyota Industries Corp. | 100 | 4,078 |
| 2,703,176 | |
Automobiles 0.3% | ||
Daimler AG (Registered) | 2,652 | 256,879 |
Fiat SpA | 2,516 | 64,666 |
Harley-Davidson, Inc. | 15,860 | 740,821 |
Honda Motor Co., Ltd. | 600 | 19,837 |
Nissan Motor Co., Ltd. | 900 | 9,745 |
PSA Peugeot Citroen | 112 | 8,420 |
Renault SA | 129 | 18,100 |
Suzuki Motor Corp. | 17,000 | 511,287 |
Toyota Motor Corp. | 1,000 | 53,825 |
Volkswagen AG | 93 | 21,157 |
| 1,704,737 | |
Distributors 0.0% | ||
Li & Fung Ltd. | 28,000 | 111,712 |
Diversified Consumer Services 0.1% | ||
DeVry, Inc. | 3,000 | 155,880 |
Sotheby's | 2,500 | 95,250 |
Strayer Education, Inc. | 700 | 119,406 |
| 370,536 | |
Hotels Restaurants & Leisure 0.8% | ||
Accor SA | 151 | 11,977 |
AFC Enterprises, Inc.* | 5,200 | 58,864 |
Aristocrat Leisure Ltd. | 2,253 | 22,163 |
Buffalo Wild Wings, Inc.* | 2,200 | 51,084 |
Carnival PLC | 148 | 6,497 |
Chipotle Mexican Grill, Inc. "B"* | 1,100 | 135,355 |
CKE Restaurants, Inc. | 7,300 | 96,360 |
Compass Group PLC | 1,390 | 8,475 |
Domino's Pizza, Inc. | 11,300 | 149,499 |
Enterprise Inns PLC | 482 | 4,643 |
Greene King PLC | 11,410 | 180,301 |
InterContinental Hotel Group PLC | 251 | 4,381 |
Lottomatica SpA | 307 | 11,133 |
McCormick & Schmick's Seafood Restaurants, Inc.* | 2,800 | 33,404 |
|
| Value ($) |
|
| |
McDonald's Corp. | 44,300 | 2,609,713 |
Monarch Casino & Resort, Inc.* | 1,700 | 40,936 |
Ruby Tuesday, Inc. | 7,200 | 70,200 |
Shangri-La Asia Ltd. | 14,000 | 43,925 |
Sodexho Alliance SA | 85 | 5,211 |
TABCORP Holdings Ltd. | 3,446 | 44,612 |
Tatts Group Ltd. | 7,068 | 24,698 |
Town Sports International Holdings, Inc.* | 12,200 | 116,632 |
Trump Entertainment Resorts, Inc.* | 11,100 | 47,730 |
TUI AG* | 155 | 4,305 |
Vail Resorts, Inc.* | 1,700 | 91,477 |
Whitbread PLC | 8,938 | 247,720 |
WMS Industries, Inc.* | 2,800 | 102,592 |
| 4,223,887 | |
Household Durables 0.5% | ||
American Greetings Corp. "A" | 6,700 | 136,010 |
CSS Industries, Inc. | 3,300 | 121,110 |
Electrolux AB "B" | 800 | 13,331 |
Fortune Brands, Inc. | 5,610 | 405,940 |
Hooker Furniture Corp. | 7,400 | 148,740 |
Husqvarna AB "B" | 900 | 10,622 |
M/I Homes, Inc. | 5,600 | 58,800 |
Makita Corp. | 4,000 | 167,143 |
Matsushita Electric Industrial Co., Ltd. | 1,000 | 20,458 |
NVR, Inc.* | 2,300 | 1,205,200 |
Persimmon PLC | 272 | 4,332 |
Sony Corp. | 400 | 21,707 |
Taylor Wimpey PLC | 1,128 | 4,509 |
Tupperware Brands Corp. | 3,500 | 115,605 |
| 2,433,507 | |
Internet & Catalog Retail 0.0% | ||
FTD Group, Inc. | 2,700 | 34,776 |
GSI Commerce, Inc.* | 2,800 | 54,600 |
Home Retail Group PLC | 703 | 4,519 |
Shutterfly, Inc.* | 2,600 | 66,612 |
Systemax, Inc. | 3,100 | 62,992 |
| 223,499 | |
Leisure Equipment & Products 0.1% | ||
Callaway Golf Co. | 5,700 | 99,351 |
Polaris Industries, Inc. | 3,300 | 157,641 |
Sturm, Ruger & Co., Inc.* | 9,200 | 76,176 |
| 333,168 | |
Media 1.3% | ||
British Sky Broadcasting Group PLC | 786 | 9,635 |
CBS Corp. "B" | 75,500 | 2,057,375 |
Comcast Corp. "A"* | 95,300 | 1,740,178 |
Fairfax Media Ltd. | 7,736 | 31,692 |
Gestevision Telecinco SA | 3,911 | 98,929 |
Global Sources Ltd.* | 4,180 | 117,960 |
Interactive Data Corp. | 2,900 | 95,729 |
ITV PLC | 3,194 | 5,399 |
Lagardere SCA | 107 | 7,978 |
McGraw-Hill Companies, Inc. | 17,870 | 782,885 |
|
| Value ($) |
|
| |
Mediacom Communications Corp. "A"* | 7,800 | 35,802 |
Mediaset SpA | 2,832 | 28,475 |
Modern Times Group MTG AB "B" | 175 | 12,213 |
Omnicom Group, Inc. | 18,420 | 875,503 |
Pearson PLC | 647 | 9,402 |
Publicis Groupe | 132 | 5,133 |
Reed Elsevier NV | 1,433 | 28,428 |
Reed Elsevier PLC* | 956 | 12,863 |
Reuters Group PLC | 846 | 10,674 |
Scholastic Corp.* | 2,700 | 94,203 |
Seat Pagine Gialle SpA | 18,242 | 7,172 |
Shaw Communications, Inc. "B" | 1,200 | 28,743 |
Singapore Press Holdings Ltd. | 212,000 | 660,977 |
Thomson Corp. | 800 | 32,658 |
Vivendi | 790 | 35,998 |
Walt Disney Co. | 3,500 | 112,980 |
Wolters Kluwer NV | 599 | 19,570 |
WPP Group PLC | 846 | 10,831 |
Yell Group PLC | 684 | 5,423 |
Yellow Pages Income Fund (Unit) | 900 | 12,675 |
| 6,987,483 | |
Multiline Retail 0.5% | ||
Canadian Tire Corp. Ltd. "A" | 300 | 22,554 |
Kohl's Corp.* | 23,180 | 1,061,644 |
Marks & Spencer Group PLC | 1,148 | 12,716 |
Next PLC | 169 | 5,421 |
PPR | 57 | 9,113 |
Target Corp. | 34,200 | 1,710,000 |
| 2,821,448 | |
Specialty Retail 1.2% | ||
Barnes & Noble, Inc. | 17,600 | 606,320 |
Best Buy Co., Inc. | 10,920 | 574,938 |
Cato Corp. "A" | 4,800 | 75,168 |
Esprit Holdings Ltd. | 50,400 | 746,471 |
GameStop Corp. "A"* | 19,200 | 1,192,512 |
Hennes & Mauritz AB "B" | 1,425 | 86,126 |
Hot Topic, Inc.* | 14,000 | 81,480 |
Industria de Diseno Textil SA | 12,223 | 743,182 |
Jo-Ann Stores, Inc.* | 5,500 | 71,940 |
Jos. A. Bank Clothiers, Inc.* | 3,800 | 108,110 |
Kingfisher PLC | 1,961 | 5,647 |
New York & Co., Inc.* | 11,900 | 75,922 |
Rent-A-Center, Inc.* | 9,800 | 142,296 |
RONA, Inc.* | 500 | 8,638 |
Staples, Inc. | 34,810 | 803,067 |
The Men's Wearhouse, Inc. | 3,800 | 102,524 |
Tiffany & Co. | 16,800 | 773,304 |
West Marine, Inc.* | 6,700 | 60,166 |
Yamada Denki Co., Ltd. | 50 | 5,691 |
| 6,263,502 | |
Textiles, Apparel & Luxury Goods 0.4% | ||
Adidas AG | 3,129 | 232,975 |
Billabong International Ltd. | 1,159 | 15,060 |
Burberry Group PLC | 424 | 4,773 |
Coach, Inc.* | 25,500 | 779,790 |
Compagnie Financiere Richemont SA "A" (Unit) | 8,667 | 591,301 |
Deckers Outdoor Corp.* | 500 | 77,530 |
Fossil, Inc.* | 2,700 | 113,346 |
Gildan Activewear, Inc.* | 400 | 16,593 |
Hermes International | 54 | 6,876 |
|
| Value ($) |
|
| |
Kellwood Co. | 2,200 | 36,608 |
Luxottica Group SpA | 492 | 15,567 |
LVMH Moet Hennessy Louis Vuitton SA | 165 | 19,831 |
Movado Group, Inc. | 2,800 | 70,812 |
Oxford Industries, Inc. | 2,200 | 56,694 |
Perry Ellis International, Inc.* | 6,300 | 96,894 |
Swatch Group AG (Bearer) | 96 | 28,782 |
Swatch Group AG (Registered) | 162 | 9,471 |
The Warnaco Group, Inc.* | 3,200 | 111,360 |
| 2,284,263 | |
Consumer Staples 5.2% | ||
Beverages 1.6% | ||
Asahi Breweries Ltd. | 800 | 13,556 |
Carlsberg AS "B" | 575 | 69,173 |
Coca-Cola Amatil Ltd. | 2,024 | 16,777 |
Coca-Cola Enterprises, Inc. | 88,800 | 2,311,464 |
Diageo PLC | 63,698 | 1,369,231 |
Foster's Group Ltd. | 7,317 | 41,990 |
Heineken NV | 681 | 43,860 |
InBev NV | 5,990 | 494,163 |
Kirin Holdings Co., Ltd. | 1,000 | 14,655 |
Pepsi Bottling Group, Inc. | 22,900 | 903,634 |
PepsiCo, Inc. | 43,760 | 3,321,384 |
Pernod Ricard SA | 154 | 35,469 |
SABMiller PLC | 698 | 19,639 |
Scottish & Newcastle PLC | 664 | 9,783 |
| 8,664,778 | |
Food & Staples Retailing 1.1% | ||
AEON Co., Ltd. | 1,200 | 17,516 |
Alimentation Couche-Tard, Inc. "B" | 1,200 | 22,238 |
BJ's Wholesale Club, Inc.* | 41,700 | 1,410,711 |
Carrefour SA | 1,049 | 81,327 |
Casey's General Stores, Inc. | 4,000 | 118,440 |
Casino Guichard-Perrachon SA | 82 | 8,923 |
Colruyt SA | 81 | 18,969 |
Delhaize Group | 491 | 42,933 |
George Weston Ltd. | 500 | 27,433 |
Ingles Markets, Inc. "A" | 3,500 | 88,865 |
J Sainsbury PLC | 1,318 | 11,092 |
Kesko Oyj "B" | 133 | 7,298 |
Koninklijke Ahold NV* | 3,598 | 49,959 |
Kroger Co. | 51,800 | 1,383,578 |
Loblaw Companies Ltd. | 900 | 30,977 |
Longs Drug Stores Corp. | 1,900 | 89,300 |
Metro AG | 1,391 | 116,096 |
Ruddick Corp. | 3,000 | 104,010 |
Seven & I Holdings Co., Ltd. | 1,400 | 40,713 |
Shoppers Drug Mart Corp. | 14,400 | 777,085 |
Spartan Stores, Inc. | 4,600 | 105,110 |
Tesco PLC | 30,114 | 284,357 |
Walgreen Co. | 27,210 | 1,036,157 |
Wesfarmers Ltd. | 1,464 | 51,874 |
Woolworths Ltd. | 4,380 | 130,010 |
| 6,054,971 | |
Food Products 0.9% | ||
Ajinomoto Co., Inc. | 1,000 | 11,319 |
Cadbury Schweppes PLC | 1,609 | 20,057 |
Danisco AS | 850 | 60,061 |
Dean Foods Co. | 43,760 | 1,131,634 |
Flowers Foods, Inc. | 2,400 | 56,184 |
Fresh Del Monte Produce, Inc.* | 5,200 | 174,616 |
|
| Value ($) |
|
| |
Groupe Danone | 13,875 | 1,245,238 |
IAWS Group PLC | 2,470 | 54,389 |
Imperial Sugar Co. | 3,000 | 56,310 |
Kellogg Co. | 20,310 | 1,064,853 |
Kerry Group PLC "A" | 2,530 | 81,861 |
Nestle SA (Registered) | 1,418 | 649,747 |
Nissin Food Products Co., Ltd. | 200 | 6,463 |
Parmalat SpA | 2,981 | 11,524 |
Saputo, Inc. | 1,200 | 36,269 |
Tate & Lyle PLC | 461 | 4,046 |
Unilever NV (CVA) | 4,792 | 175,448 |
Unilever PLC | 966 | 36,227 |
Yakult Honsha Co., Ltd. | 200 | 4,614 |
| 4,880,860 | |
Household Products 1.0% | ||
Colgate-Palmolive Co. | 14,770 | 1,151,469 |
Kao Corp. | 1,000 | 30,090 |
Kimberly-Clark Corp. | 31,000 | 2,149,540 |
Procter & Gamble Co. | 27,790 | 2,040,342 |
| 5,371,441 | |
Personal Products 0.1% | ||
Beiersdorf AG | 763 | 58,883 |
Elizabeth Arden, Inc.* | 3,800 | 77,330 |
L'Oreal SA | 434 | 61,954 |
Shiseido Co., Ltd. | 1,000 | 23,692 |
| 221,859 | |
Tobacco 0.5% | ||
Alliance One International, Inc.* | 13,000 | 52,910 |
Altadis SA | 3,683 | 267,632 |
Altria Group, Inc. | 17,100 | 1,292,418 |
British American Tobacco PLC | 1,123 | 44,220 |
Imperial Tobacco Group PLC | 506 | 27,549 |
Japan Tobacco, Inc. | 128 | 758,965 |
Swedish Match AB | 11,200 | 266,497 |
| 2,710,191 | |
Energy 7.5% | ||
Energy Equipment & Services 1.6% | ||
Acergy SA | 350 | 7,711 |
Aker Kvaerner ASA | 300 | 7,912 |
Atwood Oceanics, Inc.* | 1,600 | 160,384 |
Baker Hughes, Inc. | 24,950 | 2,023,445 |
Exterran Holdings, Inc.* | 1,700 | 139,060 |
Fugro NV (CVA) | 784 | 60,094 |
Grey Wolf, Inc.* | 27,400 | 146,042 |
GulfMark Offshore, Inc.* | 1,700 | 79,543 |
Helmerich & Payne, Inc. | 6,900 | 276,483 |
Hercules Offshore, Inc.* | 2,900 | 68,962 |
Noble Corp. | 23,160 | 1,308,772 |
Oil States International, Inc.* | 2,200 | 75,064 |
Petroleum Geo-Services ASA | 300 | 8,627 |
Pioneer Drilling Co.* | 6,700 | 79,596 |
ProSafe SE | 300 | 5,172 |
SBM Offshore NV | 1,914 | 60,036 |
Schlumberger Ltd. | 31,560 | 3,104,557 |
Seadrill Ltd.* | 400 | 9,631 |
Technip SA | 75 | 5,932 |
Transocean, Inc.* | 7,202 | 1,030,966 |
Union Drilling, Inc.* | 6,900 | 108,813 |
W-H Energy Services, Inc.* | 1,300 | 73,073 |
WorleyParsons Ltd. | 397 | 18,017 |
| 8,857,892 | |
|
| Value ($) |
|
| |
Oil, Gas & Consumable Fuels 5.9% | ||
Alon USA Energy, Inc. | 2,500 | 67,950 |
Alpha Natural Resources, Inc.* | 4,500 | 146,160 |
ATP Oil & Gas Corp.* | 2,700 | 136,458 |
Berry Petroleum Co. "A" | 2,200 | 97,790 |
BG Group PLC | 724 | 16,669 |
Bill Barrett Corp.* | 1,600 | 66,992 |
Bois d'Arc Energy, Inc.* | 5,400 | 107,190 |
BP PLC | 3,970 | 48,551 |
Brigham Exploration Co.* | 16,000 | 120,320 |
Caltex Australia Ltd. | 413 | 6,982 |
Cameco Corp. | 200 | 8,019 |
Canadian Natural Resources Ltd. | 200 | 14,708 |
Canadian Oil Sands Trust (Unit) | 100 | 3,922 |
Chesapeake Energy Corp. | 18,900 | 740,880 |
Chevron Corp. | 25,400 | 2,370,582 |
Comstock Resources, Inc.* | 4,400 | 149,600 |
ConocoPhillips | 56,480 | 4,987,184 |
Devon Energy Corp. | 26,270 | 2,335,666 |
Edge Petroleum Corp.* | 3,100 | 18,383 |
Enbridge, Inc. | 100 | 4,054 |
EnCana Corp. | 300 | 20,518 |
Encore Aquisition Co.* | 2,500 | 83,425 |
Eni SpA | 3,316 | 120,824 |
EOG Resources, Inc. | 23,220 | 2,072,385 |
ExxonMobil Corp. | 57,500 | 5,387,175 |
Frontier Oil Corp. | 21,700 | 880,586 |
Gazprom (ADR) | 8,900 | 501,175 |
Hess Corp. | 18,900 | 1,906,254 |
Husky Energy, Inc. | 100 | 4,518 |
Imperial Oil Ltd. | 100 | 5,534 |
INPEX Holdings, Inc. | 6 | 64,541 |
KazMunaiGas Exploration Production (GDR) 144A | 7,200 | 223,200 |
Marathon Oil Corp. | 30,500 | 1,856,230 |
Mariner Energy, Inc.* | 7,900 | 180,752 |
Neste Oil Oyj | 113 | 3,963 |
Nexen, Inc. | 200 | 6,505 |
Nippon Mining Holdings, Inc. | 6,500 | 41,756 |
Nippon Oil Corp. | 9,000 | 73,321 |
OMV AG | 1,633 | 131,400 |
Origin Energy Ltd. | 2,414 | 18,703 |
Paladin Energy Ltd.* | 1,466 | 8,616 |
Penn Virginia Corp. | 2,200 | 95,986 |
Petro-Canada | 200 | 10,791 |
Petrohawk Energy Corp.* | 7,800 | 135,018 |
PetroQuest Energy, Inc.* | 6,600 | 94,380 |
Repsol YPF SA | 9,074 | 323,556 |
Royal Dutch Shell PLC "A" | 756 | 31,849 |
Royal Dutch Shell PLC "B" | 575 | 24,049 |
Santos Ltd. | 1,588 | 19,709 |
Spectra Energy Corp. | 32,400 | 836,568 |
St. Mary Land & Exploration Co. | 8,700 | 335,907 |
StatoilHydro ASA | 16,150 | 499,345 |
Suncor Energy, Inc. | 200 | 21,867 |
Swift Energy Co.* | 2,900 | 127,687 |
Talisman Energy, Inc. | 500 | 9,317 |
TonenGeneral Sekiyu KK | 2,000 | 19,713 |
Total SA | 5,216 | 432,874 |
TransCanada Corp. | 200 | 8,215 |
Uranium Resources, Inc.* | 3,500 | 43,680 |
Valero Energy Corp. | 14,170 | 992,325 |
Whiting Petroleum Corp.* | 1,800 | 103,788 |
|
| Value ($) |
|
| |
Woodside Petroleum Ltd. | 1,273 | 55,987 |
XTO Energy, Inc. | 42,220 | 2,168,419 |
| 31,430,471 | |
Financials 9.9% | ||
Capital Markets 2.3% | ||
3i Group PLC | 22,373 | 444,642 |
Ameriprise Financial, Inc. | 27,500 | 1,515,525 |
Bank of New York Mellon Corp. | 23,500 | 1,145,860 |
Credit Suisse Group (Registered) | 572 | 34,393 |
Daiwa Securities Group, Inc. | 1,000 | 9,214 |
IGM Financial, Inc. | 100 | 5,069 |
Julius Baer Holding AG (Registered) | 1,799 | 146,229 |
Lehman Brothers Holdings, Inc. | 37,590 | 2,459,890 |
Mediobanca SpA | 349 | 7,161 |
Morgan Stanley | 45,200 | 2,400,572 |
Nomura Holdings, Inc. | 900 | 15,045 |
optionsXpress Holdings, Inc. | 2,800 | 94,696 |
Prospect Capital Corp. | 7,400 | 96,570 |
State Street Corp. | 17,940 | 1,456,728 |
The Goldman Sachs Group, Inc. | 10,600 | 2,279,530 |
UBS AG (Registered) | 1,122 | 52,105 |
Waddell & Reed Financial, Inc. "A" | 5,000 | 180,450 |
| 12,343,679 | |
Commercial Banks 2.3% | ||
Allied Irish Banks PLC | 4,947 | 112,376 |
AmericanWest Bancorp. | 2,000 | 35,260 |
Australia & New Zealand Banking Group Ltd. | 888 | 21,293 |
Banca Monte dei Paschi di Siena SpA | 915 | 4,836 |
Banca Popolare di Milano Scarl | 402 | 5,434 |
Banco Bilbao Vizcaya Argentaria SA | 1,958 | 48,091 |
Banco Comercial Portugues SA (Registered) | 19,399 | 82,366 |
Banco Espirito Santo SA (Registered) | 2,417 | 52,776 |
Banco Popular Espanol SA | 560 | 9,449 |
Banco Santander SA | 3,249 | 70,192 |
Bancolombia SA (ADR) (REG S) (Preferred) | 6,000 | 204,120 |
Bank of Cyprus PCL | 20,564 | 377,387 |
Bank of East Asia Ltd. | 2,800 | 18,940 |
Bank of Ireland | 5,624 | 82,856 |
Bank of Montreal | 300 | 17,122 |
Bank of Nova Scotia | 500 | 25,472 |
Bank of Yokohama Ltd. | 1,000 | 7,071 |
Barclays PLC | 1,486 | 15,053 |
BB&T Corp. | 7,000 | 214,690 |
BNP Paribas | 428 | 46,008 |
BOC Hong Kong (Holdings) Ltd. | 7,000 | 19,345 |
Canadian Imperial Bank of Commerce | 200 | 14,297 |
Cathay General Bancorp. | 5,500 | 145,695 |
China Merchants Bank Co., Ltd. "H" | 32,000 | 129,675 |
Citizens Republic Bancorp., Inc. | 8,700 | 126,237 |
City Holding Co. | 1,500 | 50,760 |
Commerzbank AG | 406 | 15,367 |
Commonwealth Bank of Australia | 608 | 31,404 |
Credit Agricole SA | 364 | 12,211 |
Danske Bank AS | 3,500 | 135,681 |
DBS Group Holdings Ltd. | 5,000 | 70,858 |
|
| Value ($) |
|
| |
Deutsche Postbank AG | 64 | 5,658 |
Dexia SA | 666 | 16,739 |
DnB NOR ASA | 5,600 | 84,930 |
Erste Bank der oesterreichischen Sparkassen AG | 5,474 | 389,064 |
First Community Bancorp. | 2,400 | 98,976 |
First Midwest Bancorp., Inc. | 3,900 | 119,340 |
FirstMerit Corp. | 6,900 | 138,069 |
Frontier Financial Corp. | 4,400 | 81,708 |
Glacier Bancorp., Inc. | 5,000 | 93,700 |
Grupo Financiero Banorte SAB de CV "O" | 68,600 | 283,468 |
Hancock Holding Co. | 1,400 | 53,480 |
Hang Seng Bank Ltd. | 1,300 | 26,565 |
HBOS PLC | 809 | 11,731 |
HSBC Holdings PLC (Registered) | 2,293 | 38,464 |
Hypo Real Estate Holding AG | 145 | 7,543 |
Intesa Sanpaolo | 4,483 | 34,898 |
Jyske Bank AS (Registered)* | 475 | 37,157 |
KBC Groep NV | 2,027 | 283,103 |
Kookmin Bank (ADR)* | 3,000 | 219,960 |
Lloyds TSB Group PLC | 1,300 | 12,122 |
MB Financial, Inc. | 3,400 | 104,822 |
Mitsubishi UFJ Financial Group, Inc. | 22,479 | 209,230 |
Mizuho Financial Group, Inc. | 4 | 18,976 |
National Australia Bank Ltd. | 790 | 26,062 |
National Bank of Canada | 100 | 5,298 |
National Bank of Greece SA | 5,200 | 358,213 |
NBT Bancorp, Inc. | 3,300 | 75,306 |
Nordea Bank AB | 3,800 | 63,038 |
Old National Bancorp. | 6,800 | 101,728 |
Oversea-Chinese Banking Corp., Ltd. | 12,000 | 69,247 |
Pacific Capital Bancorp. | 10,300 | 207,339 |
Provident Bankshares Corp. | 4,400 | 94,116 |
Raiffeisen International Bank-Holding AG | 300 | 45,199 |
Resona Holdings, Inc. | 3 | 5,488 |
Royal Bank of Canada | 700 | 35,988 |
Royal Bank of Scotland Group PLC | 2,125 | 19,104 |
Skandinaviska Enskilda Banken AB "A" | 900 | 22,761 |
Societe Generale | 1,285 | 183,646 |
Standard Chartered PLC | 9,243 | 335,676 |
Sterling Bancshares, Inc. | 13,450 | 150,102 |
Sterling Financial Corp. | 6,800 | 114,172 |
Sumitomo Mitsui Financial Group, Inc. | 3 | 22,323 |
Sumitomo Trust & Banking Co., Ltd. | 1,000 | 6,658 |
SunTrust Banks, Inc. | 16,300 | 1,018,587 |
SVB Financial Group* | 3,100 | 156,240 |
Svenska Handelsbanken AB "A" | 900 | 28,547 |
Sydbank AS | 500 | 21,245 |
UCBH Holdings, Inc. | 7,700 | 109,032 |
UniCredito Italiano SpA | 67,264 | 559,801 |
Unione di Banche Italiane SCPA | 379 | 10,433 |
United Overseas Bank Ltd. | 6,000 | 83,049 |
VTB Bank OJSC (GDR) 144A* | 26,000 | 265,200 |
Wells Fargo & Co. | 122,600 | 3,701,294 |
Westpac Banking Corp. | 886 | 21,589 |
| 12,488,506 | |
|
| Value ($) |
|
| |
Consumer Finance 0.1% | ||
Capital One Financial Corp. | 11,400 | 538,764 |
Cash America International, Inc. | 2,000 | 64,600 |
ORIX Corp. | 50 | 8,361 |
| 611,725 | |
Diversified Financial Services 1.6% | ||
ASX Ltd. | 115 | 6,081 |
Bank of America Corp. | 110,400 | 4,555,104 |
Citigroup, Inc. | 32,800 | 965,632 |
CME Group, Inc. | 2,295 | 1,574,370 |
Deutsche Boerse AG | 125 | 24,672 |
Fortis | 10,719 | 278,557 |
Groupe Bruxelles Lambert SA | 108 | 13,793 |
Hong Kong Exchanges & Clearing Ltd. | 2,000 | 56,146 |
ING Groep NV (CVA) | 2,363 | 92,234 |
Interactive Brokers Group, Inc. "A"* | 4,100 | 132,512 |
JPMorgan Chase & Co. | 19,800 | 864,270 |
OMX AB | 200 | 8,094 |
Singapore Exchange Ltd. | 4,000 | 36,564 |
| 8,608,029 | |
Insurance 2.5% | ||
ACE Ltd. | 33,100 | 2,044,918 |
Aegon NV | 1,834 | 32,177 |
Aflac, Inc. | 22,580 | 1,414,185 |
Alleanza Assicurazioni SpA | 232 | 2,981 |
Allianz SE (Registered) | 275 | 58,820 |
Allied World Assurance Co. Holdings Ltd. | 4,100 | 205,697 |
American International Group, Inc. | 3,600 | 209,880 |
AMP Ltd. | 965 | 8,397 |
AmTrust Financial Services, Inc. | 6,600 | 90,882 |
Aspen Insurance Holdings Ltd. | 6,700 | 193,228 |
Assicurazioni Generali SpA | 525 | 23,535 |
Aviva PLC | 589 | 7,823 |
Axa | 5,497 | 218,870 |
AXA Asia Pacific Holdings Ltd. | 529 | 3,410 |
CNP Assurances | 24 | 3,112 |
First Mercury Financial Corp.* | 4,400 | 107,360 |
Great-West Lifeco, Inc. | 100 | 3,604 |
Hallmark Financial Services, Inc.* | 5,600 | 88,816 |
Hartford Financial Services Group, Inc. | 24,900 | 2,171,031 |
HCC Insurance Holdings, Inc. | 4,300 | 123,324 |
Insurance Australia Group Ltd. | 1,063 | 3,829 |
Irish Life & Permanent PLC | 1,626 | 27,981 |
Legal & General Group PLC | 2,181 | 5,642 |
Manulife Financial Corp. | 800 | 32,885 |
Max Capital Group Ltd. | 4,500 | 125,955 |
MetLife, Inc. | 2,500 | 154,050 |
Millea Holdings, Inc. | 300 | 10,140 |
Mitsui Sumitomo Insurance Co., Ltd. | 1,000 | 9,760 |
Muenchener Rueckversicherungs- Gesellschaft AG (Registered) | 128 | 24,744 |
National Financial Partners Corp. | 2,500 | 114,025 |
Old Mutual PLC | 1,347 | 4,466 |
PartnerRe Ltd. | 4,200 | 346,626 |
Platinum Underwriters Holdings Ltd. | 6,100 | 216,916 |
Power Corp. of Canada | 200 | 8,132 |
Power Financial Corp. | 100 | 4,131 |
|
| Value ($) |
|
| |
Prudential PLC | 23,757 | 333,937 |
QBE Insurance Group Ltd. | 10,887 | 317,237 |
Sampo Oyj "A" | 4,366 | 114,187 |
Seabright Insurance Holdings* | 6,900 | 104,052 |
Security Capital Assurance Ltd. | 17,500 | 68,075 |
Selective Insurance Group, Inc. | 4,200 | 96,558 |
Sompo Japan Insurance, Inc. | 1,000 | 9,009 |
Storebrand ASA | 3,200 | 33,140 |
Sun Life Financial, Inc. | 300 | 16,934 |
Suncorp-Metway Ltd. | 457 | 6,766 |
Swiss Life Holding (Registered)* | 19 | 4,704 |
Swiss Re (Registered) | 190 | 13,328 |
T&D Holdings, Inc. | 100 | 5,176 |
The Travelers Companies, Inc. | 39,600 | 2,130,480 |
Topdanmark AS* | 125 | 17,825 |
W.R. Berkley Corp. | 20,600 | 614,086 |
XL Capital Ltd. "A" | 24,300 | 1,222,533 |
Zurich Financial Services AG (Registered) | 77 | 22,660 |
| 13,232,019 | |
Real Estate Investment Trusts 0.9% | ||
Alexandria Real Estate Equities, Inc. (REIT) | 1,600 | 162,672 |
Apartment Investment & Management Co. "A" (REIT) | 4,000 | 138,920 |
AvalonBay Communities, Inc. (REIT) | 2,500 | 235,350 |
BioMed Realty Trust, Inc. (REIT) | 4,000 | 92,680 |
CapitaMall Trust (REIT) | 6,000 | 14,268 |
Corio NV (REIT) | 72 | 5,795 |
Corporate Office Properties Trust (REIT) | 2,800 | 88,200 |
Cousins Properties, Inc. (REIT) | 3,500 | 77,350 |
Digital Realty Trust, Inc. (REIT) | 2,900 | 111,273 |
Equity Lifestyle Properties, Inc. (REIT) | 1,700 | 77,639 |
Equity Residential (REIT) | 8,500 | 309,995 |
First Industrial Realty Trust, Inc. (REIT) | 4,000 | 138,400 |
Glimcher Realty Trust (REIT) | 3,500 | 50,015 |
GPT Group (REIT) | 1,538 | 5,430 |
HCP, Inc. (REIT) | 3,900 | 135,642 |
Healthcare Realty Trust, Inc. (REIT) | 2,600 | 66,014 |
Home Properties, Inc. (REIT) | 2,900 | 130,065 |
Hospitality Properties Trust (REIT) | 7,200 | 231,984 |
Host Hotels & Resorts, Inc. (REIT) | 12,100 | 206,184 |
Kimco Realty Corp. (REIT) | 4,000 | 145,600 |
LaSalle Hotel Properties (REIT) | 2,600 | 82,940 |
Lexington Realty Trust (REIT) | 5,900 | 85,786 |
Link (REIT) | 4,500 | 9,752 |
Macquarie Goodman Group (REIT) | 1,094 | 4,708 |
Maguire Properties, Inc. (REIT) | 2,700 | 79,569 |
Mid-America Apartment Communities, Inc. (REIT) | 1,800 | 76,950 |
Nationwide Health Properties, Inc. (REIT) | 3,400 | 106,658 |
OMEGA Healthcare Investors, Inc. (REIT) | 2,800 | 44,940 |
Parkway Properties, Inc. (REIT) | 2,500 | 92,450 |
Pennsylvania Real Estate Investment Trust (REIT) | 2,300 | 68,264 |
Potlatch Corp. (REIT) | 2,000 | 88,880 |
ProLogis (REIT) | 4,000 | 253,520 |
Public Storage (REIT) | 2,500 | 183,525 |
Realty Income Corp. (REIT) | 4,100 | 110,782 |
|
| Value ($) |
|
| |
Senior Housing Properties Trust (REIT) | 5,800 | 131,544 |
Simon Property Group, Inc. (REIT) | 3,100 | 269,266 |
Sovran Self Storage, Inc. (REIT) | 1,500 | 60,150 |
Stockland (REIT) | 923 | 6,794 |
Strategic Hotels & Resorts, Inc. (REIT) | 4,900 | 81,977 |
Sunstone Hotel Investors, Inc. (REIT) | 4,700 | 85,963 |
Unibail-Rodamco (REIT) | 40 | 8,707 |
Vornado Realty Trust (REIT) | 3,400 | 299,030 |
Washington Real Estate Investment Trust (REIT) | 3,500 | 109,935 |
Wereldhave NV (REIT) | 48 | 5,222 |
Westfield Group (REIT) | 891 | 16,326 |
| 4,787,114 | |
Real Estate Management & Development 0.1% | ||
Brookfield Asset Management, Inc. "A" | 300 | 10,776 |
Capitaland Ltd. | 7,000 | 30,097 |
Cheung Kong (Holdings) Ltd. | 3,000 | 54,702 |
City Developments Ltd. | 2,000 | 19,475 |
Hang Lung Properties Ltd. | 4,000 | 18,342 |
Henderson Land Development Co., Ltd. | 2,000 | 18,564 |
Immoeast AG* | 3,595 | 38,395 |
Immofinanz Immobilien Anlagen AG | 4,062 | 40,932 |
Kerry Properties Ltd. | 1,000 | 8,020 |
Lend Lease Corp., Ltd. | 287 | 4,345 |
Meinl European Land Ltd.* | 2,619 | 36,181 |
Mitsubishi Estate Co., Ltd. | 1,000 | 23,971 |
Mitsui Fudosan Co., Ltd. | 7,000 | 151,283 |
New World Development Co., Ltd. | 4,000 | 14,091 |
Sino Land Co., Ltd. | 2,000 | 6,990 |
Sun Hung Kai Properties Ltd. | 2,000 | 42,024 |
Swire Pacific Ltd. "A" | 1,500 | 20,556 |
Wharf Holdings Ltd. | 38,000 | 196,132 |
| 734,876 | |
Thrifts & Mortgage Finance 0.1% | ||
Downey Financial Corp. | 2,600 | 80,886 |
First Niagara Financial Group, Inc. | 4,000 | 48,160 |
Ocwen Financial Corp.* | 22,500 | 124,650 |
WSFS Financial Corp. | 1,600 | 80,320 |
| 334,016 | |
Health Care 7.7% | ||
Biotechnology 1.5% | ||
Alexion Pharmaceuticals, Inc.* | 1,100 | 82,533 |
Alkermes, Inc.* | 5,400 | 84,186 |
Amgen, Inc.* | 34,800 | 1,616,112 |
BioMarin Pharmaceutical, Inc.* | 3,600 | 127,440 |
Celgene Corp.* | 18,400 | 850,264 |
CSL Ltd. | 7,230 | 229,777 |
Cubist Pharmaceuticals, Inc.* | 5,700 | 116,907 |
Genentech, Inc.* | 25,390 | 1,702,907 |
Gilead Sciences, Inc.* | 53,780 | 2,474,418 |
GTx, Inc.* | 3,700 | 53,095 |
Isis Pharmaceuticals, Inc.* | 3,500 | 55,125 |
Myriad Genetics, Inc.* | 2,100 | 97,482 |
Onyx Pharmaceuticals, Inc.* | 2,200 | 122,364 |
OSI Pharmaceuticals, Inc.* | 3,800 | 184,338 |
United Therapeutics Corp.* | 900 | 87,885 |
| 7,884,833 | |
|
| Value ($) |
|
| |
Health Care Equipment & Supplies 1.4% | ||
Align Technology, Inc.* | 3,000 | 50,040 |
ArthroCare Corp.* | 1,400 | 67,270 |
Baxter International, Inc. | 36,620 | 2,125,791 |
C.R. Bard, Inc. | 12,150 | 1,151,820 |
Cochlear Ltd. | 739 | 48,516 |
Cutera, Inc.* | 5,100 | 80,070 |
Cynosure, Inc. "A"* | 2,500 | 66,150 |
Essilor International SA | 609 | 38,758 |
Getinge AB "B" | 200 | 5,341 |
Hologic, Inc.* | 9,000 | 617,760 |
Inverness Medical Innovations, Inc.* | 2,200 | 123,596 |
Medtronic, Inc. | 32,600 | 1,638,802 |
Nobel Biocare Holding AG (Bearer) | 31 | 8,201 |
Quidel Corp.* | 4,900 | 95,403 |
Smith & Nephew PLC | 1,343 | 15,440 |
Sonova Holding AG (Registered) | 59 | 6,600 |
STERIS Corp. | 2,900 | 83,636 |
Synthes, Inc. | 73 | 9,023 |
Terumo Corp. | 500 | 26,341 |
William Demant Holding AS* | 100 | 9,171 |
Zimmer Holdings, Inc.* | 17,090 | 1,130,504 |
| 7,398,233 | |
Health Care Providers & Services 1.5% | ||
Aetna, Inc. | 20,600 | 1,189,238 |
Air Methods Corp.* | 900 | 44,703 |
Alliance Imaging, Inc.* | 11,200 | 107,744 |
Amedisys, Inc.* | 2,600 | 126,152 |
American Dental Partners, Inc.* | 6,400 | 64,192 |
AmSurg Corp.* | 3,100 | 83,886 |
Apria Healthcare Group, Inc.* | 10,600 | 228,642 |
Celesio AG | 413 | 25,471 |
Centene Corp.* | 6,800 | 186,592 |
Chemed Corp. | 1,400 | 78,232 |
CorVel Corp.* | 4,900 | 112,798 |
Fresenius Medical Care AG & Co. KGaA | 5,909 | 316,075 |
Healthspring, Inc.* | 10,100 | 192,405 |
Kindred Healthcare, Inc.* | 4,600 | 114,908 |
Laboratory Corp. of America Holdings* | 11,300 | 853,489 |
Magellan Health Services, Inc.* | 3,500 | 163,205 |
McKesson Corp. | 25,000 | 1,637,750 |
MedCath Corp.* | 2,900 | 71,224 |
Owens & Minor, Inc. | 2,600 | 110,318 |
Psychiatric Solutions, Inc.* | 2,200 | 71,500 |
RehabCare Group, Inc.* | 2,500 | 56,400 |
Res-Care, Inc.* | 3,300 | 83,028 |
Sonic Healthcare Ltd. | 4,134 | 60,463 |
UnitedHealth Group, Inc. | 26,930 | 1,567,326 |
WellPoint, Inc.* | 6,100 | 535,153 |
| 8,080,894 | |
Health Care Technology 0.1% | ||
Agfa Gevaert NV | 6,170 | 94,384 |
Eclipsys Corp.* | 3,200 | 80,992 |
Omnicell, Inc.* | 3,600 | 96,948 |
Phase Forward, Inc.* | 4,200 | 91,350 |
TriZetto Group, Inc.* | 6,100 | 105,957 |
| 469,631 | |
|
| Value ($) |
|
| |
Life Sciences Tools & Services 0.5% | ||
Albany Molecular Research, Inc.* | 7,200 | 103,536 |
Cambrex Corp. | 21,400 | 179,332 |
Dionex Corp.* | 1,500 | 124,290 |
Illumina, Inc.* | 1,800 | 106,668 |
Lonza Group AG (Registered) | 2,989 | 359,522 |
MDS, Inc. | 9,100 | 176,938 |
PAREXEL International Corp.* | 1,600 | 77,280 |
Pharmanet Development Group, Inc.* | 1,800 | 70,578 |
QIAGEN NV* | 877 | 18,835 |
Thermo Fisher Scientific, Inc.* | 20,700 | 1,193,976 |
Varian, Inc.* | 1,700 | 111,010 |
Ventana Medical Systems, Inc.* | 2,000 | 174,460 |
| 2,696,425 | |
Pharmaceuticals 2.7% | ||
Abbott Laboratories | 23,640 | 1,327,386 |
Alpharma, Inc. "A"* | 3,900 | 78,585 |
Astellas Pharma, Inc. | 1,600 | 69,803 |
AstraZeneca PLC | 2,082 | 89,460 |
Biovail Corp. | 10,800 | 146,196 |
Caraco Pharmaceutical Laboratories Ltd.* | 4,000 | 68,600 |
Chugai Pharmaceutical Co., Ltd. | 900 | 12,857 |
Daiichi Sankyo Co., Ltd. | 2,200 | 67,592 |
Eisai Co., Ltd. | 800 | 31,545 |
Elan Corp. PLC* | 14,392 | 310,546 |
Eli Lilly & Co. | 35,720 | 1,907,091 |
GlaxoSmithKline PLC | 7,866 | 199,614 |
Johnson & Johnson | 45,182 | 3,013,639 |
Kyowa Hakko Kogyo Co., Ltd. | 1,000 | 10,655 |
Medicis Pharmaceutical Corp. "A" | 5,200 | 135,044 |
Merck & Co., Inc. | 4,100 | 238,251 |
Merck KGaA | 1,513 | 194,359 |
Mitsubishi Tanabe Pharma Corp. | 1,000 | 9,422 |
Novartis AG (Registered) | 11,505 | 626,772 |
Noven Pharmaceuticals, Inc.* | 7,200 | 99,936 |
Novo Nordisk AS "B" | 1,900 | 124,026 |
Perrigo Co. | 5,100 | 178,551 |
Pfizer, Inc. | 177,400 | 4,032,302 |
Roche Holding AG (Genusschein) | 2,356 | 405,824 |
Sanofi-Aventis | 3,149 | 287,820 |
Sciele Pharma, Inc.* | 7,200 | 147,240 |
Shionogi & Co., Ltd. | 1,000 | 17,634 |
Taisho Pharmaceutical Co., Ltd. | 1,000 | 19,258 |
Takeda Pharmaceutical Co., Ltd. | 2,600 | 151,989 |
UCB SA | 5,229 | 235,832 |
Valeant Pharmaceuticals International* | 14,400 | 172,368 |
ViroPharma, Inc.* | 11,100 | 88,134 |
| 14,498,331 | |
Industrials 7.3% | ||
Aerospace & Defense 1.7% | ||
BAE Systems PLC | 17,500 | 171,389 |
Bombardier, Inc. "B"* | 8,200 | 49,518 |
CAE, Inc. | 1,500 | 20,229 |
Cobham PLC | 1,159 | 4,790 |
Cubic Corp. | 2,100 | 82,320 |
Curtiss-Wright Corp. | 2,800 | 140,560 |
Esterline Technologies Corp.* | 2,100 | 108,675 |
European Aeronautic Defence & Space Co. | 222 | 7,048 |
|
| Value ($) |
|
| |
Finmeccanica SpA | 206 | 6,529 |
General Dynamics Corp. | 8,100 | 720,819 |
Goodrich Corp. | 16,300 | 1,150,943 |
Honeywell International, Inc. | 30,800 | 1,896,356 |
Northrop Grumman Corp. | 31,600 | 2,485,024 |
Rolls-Royce Group PLC* | 1,290 | 13,943 |
Singapore Technologies Engineering Ltd. | 15,000 | 38,858 |
Teledyne Technologies, Inc.* | 1,600 | 85,328 |
Thales SA | 71 | 4,204 |
United Technologies Corp. | 25,240 | 1,931,870 |
| 8,918,403 | |
Air Freight & Logistics 0.0% | ||
Deutsche Post AG (Registered) | 514 | 17,567 |
TNT NV | 1,823 | 75,860 |
Toll Holdings Ltd. | 1,558 | 15,604 |
| 109,031 | |
Airlines 0.2% | ||
Air France-KLM | 113 | 3,940 |
AirTran Holdings, Inc.* | 8,500 | 60,860 |
Alaska Air Group, Inc.* | 7,100 | 177,571 |
Cathay Pacific Airways Ltd. | 13,000 | 33,781 |
Deutsche Lufthansa AG (Registered) | 185 | 4,899 |
Iberia Lineas Aereas de Espana SA | 2,831 | 12,254 |
JetBlue Airways Corp.* | 10,300 | 60,770 |
Qantas Airways Ltd. | 2,776 | 13,207 |
Republic Airways Holdings, Inc.* | 5,500 | 107,745 |
Singapore Airlines Ltd. | 6,000 | 71,817 |
SkyWest, Inc. | 4,500 | 120,825 |
US Airways Group, Inc.* | 41,600 | 611,936 |
| 1,279,605 | |
Building Products 0.1% | ||
Apogee Enterprises, Inc. | 5,900 | 100,949 |
Asahi Glass Co., Ltd. | 1,000 | 13,261 |
Assa Abloy AB "B" | 400 | 7,958 |
Builders FirstSource, Inc.* | 18,100 | 130,682 |
Compagnie de Saint-Gobain | 180 | 17,060 |
Daikin Industries Ltd. | 100 | 5,583 |
Geberit AG (Registered) | 59 | 8,044 |
NCI Building Systems, Inc.* | 2,300 | 66,217 |
Rockwool International AS "B" | 250 | 57,630 |
Universal Forest Products, Inc. | 1,700 | 50,082 |
Wienerberger AG | 3,829 | 211,514 |
| 668,980 | |
Commercial Services & Supplies 0.5% | ||
Adecco SA (Registered) | 181 | 9,706 |
Administaff, Inc. | 3,200 | 90,496 |
Allied Waste Industries, Inc.* | 2,800 | 30,856 |
Brambles Ltd. | 3,896 | 39,265 |
Casella Waste Systems, Inc. "A"* | 5,900 | 76,936 |
Cenveo, Inc.* | 4,300 | 75,121 |
COMSYS IT Partners, Inc.* | 5,300 | 83,634 |
Consolidated Graphics, Inc.* | 1,600 | 76,512 |
Deluxe Corp. | 4,800 | 157,872 |
Diamond Management & Technology Consultants, Inc. | 5,200 | 37,804 |
Experian Group Ltd. | 763 | 6,064 |
G4S PLC | 997 | 4,816 |
Hudson Highland Group, Inc.* | 14,500 | 121,945 |
Huron Consulting Group, Inc.* | 1,000 | 80,630 |
IKON Office Solutions, Inc. | 8,800 | 114,576 |
|
| Value ($) |
|
| |
Interface, Inc. "A" | 3,900 | 63,648 |
Intertek Group PLC | 11,208 | 219,743 |
Kforce, Inc.* | 6,900 | 67,275 |
Layne Christensen Co.* | 2,300 | 113,183 |
PeopleSupport, Inc.* | 4,700 | 64,296 |
Randstad Holdings NV | 248 | 9,847 |
Rentokil Initial PLC | 1,774 | 4,237 |
Rollins, Inc. | 4,200 | 80,640 |
Secom Co., Ltd. | 100 | 5,475 |
Securitas AB "B" | 400 | 5,529 |
Serco Group PLC | 23,215 | 212,210 |
SGS SA (Registered) | 7 | 8,247 |
TeleTech Holdings, Inc.* | 3,100 | 65,937 |
TrueBlue, Inc.* | 5,500 | 79,640 |
United Stationers, Inc.* | 2,800 | 129,388 |
Vedior NV (CVA) | 795 | 19,846 |
Waste Connections, Inc.* | 3,700 | 114,330 |
Waste Industries USA, Inc. | 2,900 | 105,270 |
| 2,374,974 | |
Construction & Engineering 0.6% | ||
Acciona SA | 158 | 49,661 |
ACS, Actividades de Construccion y Servicios SA | 1,180 | 69,511 |
AMEC PLC | 56,568 | 938,329 |
Balfour Beatty PLC | 491 | 4,814 |
EMCOR Group, Inc.* | 7,600 | 179,588 |
FLSmidth & Co. AS "B" | 200 | 20,268 |
Fomento de Construcciones y Contratas SA | 278 | 20,718 |
Grupo Ferrovial SA | 367 | 25,625 |
Hochtief AG | 35 | 4,658 |
Integrated Electrical Services, Inc.* | 4,600 | 86,434 |
Leighton Holdings Ltd. | 8,188 | 436,518 |
Michael Baker Corp.* | 4,300 | 176,730 |
Orascom Construction Industries (GDR) (REG S) | 2,000 | 418,838 |
Perini Corp.* | 3,600 | 149,112 |
Sacyr Vallehermoso SA | 490 | 18,849 |
Skanska AB "B" | 600 | 11,206 |
SNC-Lavalin Group, Inc. | 900 | 43,899 |
URS Corp.* | 3,500 | 190,155 |
Vinci SA | 266 | 19,540 |
YIT Oyj | 1,940 | 41,924 |
| 2,906,377 | |
Electrical Equipment 0.8% | ||
ABB Ltd. (Registered) | 12,328 | 355,440 |
Acuity Brands, Inc. | 2,300 | 103,500 |
Alstom | 65 | 13,813 |
Baldor Electric Co. | 2,700 | 90,882 |
Belden, Inc. | 3,600 | 160,200 |
Emerson Electric Co. | 51,240 | 2,903,258 |
Encore Wire Corp. | 4,800 | 76,416 |
Gamesa Corporacion Tecnologica SA | 931 | 43,074 |
GrafTech International Ltd.* | 5,800 | 102,950 |
II-VI, Inc.* | 2,800 | 85,540 |
LSI Industries, Inc. | 3,600 | 65,520 |
Mitsubishi Electric Corp. | 1,000 | 10,328 |
Regal-Beloit Corp. | 1,700 | 76,415 |
Renewable Energy Corp. AS* | 100 | 4,999 |
Schneider Electric SA | 133 | 17,784 |
Solarworld AG | 59 | 3,541 |
Sumitomo Electric Industries Ltd. | 400 | 6,372 |
|
| Value ($) |
|
| |
Superior Essex, Inc.* | 6,700 | 160,800 |
Vestas Wind Systems AS* | 600 | 64,141 |
| 4,344,973 | |
Industrial Conglomerates 1.3% | ||
Bauygues SA | 300 | 24,874 |
CSR Ltd. | 3,192 | 8,663 |
Fraser & Neave Ltd. | 10,000 | 40,492 |
General Electric Co. | 136,940 | 5,076,366 |
Hutchison Whampoa Ltd. | 20,000 | 225,064 |
Keppel Corp., Ltd. | 13,000 | 116,372 |
Koninklijke (Royal) Philips Electronics NV | 2,290 | 99,244 |
Orkla ASA | 600 | 11,558 |
SembCorp Industries Ltd. | 10,000 | 39,947 |
Siemens AG (Registered) | 3,764 | 590,908 |
Smiths Group PLC | 412 | 8,259 |
Teleflex, Inc. | 8,900 | 560,789 |
Tredegar Corp. | 6,300 | 101,304 |
| 6,903,840 | |
Machinery 1.2% | ||
Actuant Corp. "A" | 4,600 | 156,446 |
AGCO Corp.* | 18,700 | 1,271,226 |
Alfa Laval AB | 125 | 6,954 |
American Railcar Industries, Inc. | 6,400 | 123,200 |
Astec Industries, Inc.* | 1,600 | 59,504 |
Atlas Copco AB "A" | 800 | 11,811 |
Atlas Copco AB "B" | 400 | 5,400 |
Badger Meter, Inc. | 2,900 | 130,355 |
Barnes Group, Inc. | 2,700 | 90,153 |
Bucyrus International, Inc. "A" | 1,400 | 139,146 |
Caterpillar, Inc. | 8,270 | 600,071 |
Columbus McKinnon Corp.* | 2,100 | 68,502 |
EnPro Industries, Inc.* | 2,300 | 70,495 |
FANUC Ltd. | 100 | 9,756 |
GEA Group AG* | 6,400 | 221,045 |
Greenbrier Companies, Inc. | 2,600 | 57,876 |
KCI Konecranes Oyj | 943 | 32,061 |
Komatsu Ltd. | 11,400 | 308,234 |
Kone Oyj "B" | 1,150 | 79,917 |
Kubota Corp. | 1,000 | 6,845 |
MAN AG | 79 | 12,999 |
Metso Corp. | 1,913 | 103,242 |
Mitsubishi Heavy Industries Ltd. | 2,000 | 8,559 |
Mueller Industries, Inc. | 2,700 | 78,273 |
Parker Hannifin Corp. | 29,400 | 2,214,114 |
Sandvik AB | 1,200 | 20,396 |
Scania AB "B" | 400 | 9,455 |
Schindler Holding AG | 84 | 5,370 |
SKF AB "B" | 600 | 10,052 |
Sulzer AG (Registered) | 4 | 5,807 |
Sumitomo Heavy Industries Ltd. | 20,000 | 183,757 |
Sun Hydraulics Corp. | 2,300 | 58,029 |
Vallourec SA | 790 | 212,671 |
Volvo AB "A" | 600 | 9,879 |
Volvo AB "B" | 1,300 | 21,545 |
Wartsila Corp. "B" | 976 | 73,808 |
Zardoya Otis SA | 675 | 19,007 |
| 6,495,960 | |
Marine 0.0% | ||
A P Moller-Maersk AS "B" | 4 | 42,391 |
Kuehne & Nagel International AG (Registered) | 78 | 7,436 |
|
| Value ($) |
|
| |
Nippon Yusen Kabushiki Kaisha | 1,000 | 7,962 |
TBS International Ltd. "A"* | 1,900 | 62,814 |
| 120,603 | |
Road & Rail 0.6% | ||
Canadian National Railway Co. (b) | 2,900 | 137,074 |
Canadian National Railway Co. (b) | 22,300 | 1,046,539 |
Canadian Pacific Railway Ltd. | 900 | 58,562 |
Celadon Group, Inc.* | 2,600 | 23,816 |
Central Japan Railway Co. | 1 | 8,507 |
ComfortDelGro Corp., Ltd. | 22,000 | 27,680 |
Dollar Thrifty Automotive Group, Inc.* | 2,700 | 63,936 |
DSV AS | 700 | 15,215 |
East Japan Railway Co. | 1 | 8,212 |
FirstGroup PLC | 431 | 6,956 |
Marten Transport Ltd.* | 3,700 | 51,615 |
MTR Corp., Ltd. | 13,000 | 47,379 |
Ryder System, Inc. | 31,300 | 1,471,413 |
Union Pacific Corp. | 1,900 | 238,678 |
West Japan Railway Co. | 1 | 4,930 |
| 3,210,512 | |
Trading Companies & Distributors 0.2% | ||
Bunzl PLC | 366 | 5,131 |
Electro Rent Corp. | 4,000 | 59,400 |
Finning International, Inc. | 1,000 | 29,039 |
Hagemeyer NV | 2,670 | 18,219 |
Itochu Corp. | 1,000 | 9,717 |
Marubeni Corp. | 1,000 | 7,024 |
Mitsubishi Corp. | 12,100 | 329,593 |
Mitsui & Co., Ltd. | 1,000 | 21,216 |
Sumitomo Corp. | 10,200 | 145,241 |
United Rentals, Inc.* | 16,000 | 293,760 |
Wolseley PLC | 527 | 7,727 |
| 926,067 | |
Transportation Infrastructure 0.1% | ||
Abertis Infraestructuras SA | 1,434 | 45,940 |
Atlantia SpA | 186 | 7,034 |
Brisa | 18,169 | 265,919 |
Citra Concesiones de Infraestructuras de Transporte SA | 1,277 | 19,156 |
Hamburger Hafen-und Logistik AG* | 800 | 71,348 |
Hopewell Holdings Ltd. | 6,000 | 27,586 |
Macquarie Infrastructure Group (Unit) | 7,725 | 20,469 |
Novorossiysk Sea Trade Port (GDR) 144A* | 3,400 | 68,000 |
Transurban Group (Unit) | 3,144 | 18,813 |
| 544,265 | |
Information Technology 7.4% | ||
Communications Equipment 0.9% | ||
Alcatel-Lucent | 5,596 | 40,683 |
Avocent Corp.* | 3,000 | 69,930 |
Cisco Systems, Inc.* | 70,270 | 1,902,209 |
Dycom Industries, Inc.* | 5,700 | 151,905 |
InterDigital, Inc.* | 3,500 | 81,655 |
MasTec, Inc.* | 14,500 | 147,465 |
Nokia Oyj | 10,036 | 386,431 |
Nortel Networks Corp.* | 900 | 13,660 |
Plantronics, Inc. | 4,300 | 111,800 |
QUALCOMM, Inc. | 34,530 | 1,358,755 |
Research In Motion Ltd.* | 1,000 | 114,048 |
|
| Value ($) |
|
| |
Tandberg ASA | 900 | 18,545 |
Tekelec* | 5,800 | 72,500 |
Telefonaktiebolaget LM Ericsson "B" | 54,000 | 126,250 |
| 4,595,836 | |
Computers & Peripherals 1.9% | ||
Apple, Inc.* | 14,200 | 2,812,736 |
Dell, Inc.* | 20,700 | 507,357 |
Electronics for Imaging, Inc.* | 4,400 | 98,912 |
EMC Corp.* | 83,630 | 1,549,664 |
Emulex Corp.* | 8,300 | 135,456 |
Fujitsu Ltd. | 1,000 | 6,692 |
Hewlett-Packard Co. | 42,400 | 2,140,352 |
International Business Machines Corp. | 18,240 | 1,971,744 |
Intevac, Inc.* | 5,000 | 72,700 |
Lexmark International, Inc. "A"* | 25,700 | 895,902 |
Logitech International SA (Registered)* | 2,868 | 104,131 |
NEC Corp. | 1,000 | 4,620 |
Synaptics, Inc.* | 1,100 | 45,276 |
Toshiba Corp. | 2,000 | 14,914 |
Wincor Nixdorf AG | 83 | 7,822 |
| 10,368,278 | |
Electronic Equipment & Instruments 0.8% | ||
Arrow Electronics, Inc.* | 32,700 | 1,284,456 |
Avnet, Inc.* | 29,500 | 1,031,615 |
Checkpoint Systems, Inc.* | 3,100 | 80,538 |
Electrocomponents PLC | 3,804 | 15,662 |
FLIR Systems, Inc.* | 4,200 | 131,460 |
Fujifilm Holdings Corp. | 200 | 8,478 |
Hitachi Ltd. | 2,000 | 14,653 |
Hoya Corp. | 200 | 6,383 |
IBIDEN Co., Ltd. | 100 | 6,907 |
Kingboard Chemical Holdings Ltd. | 6,700 | 39,155 |
Kyocera Corp. | 100 | 8,750 |
Mettler-Toledo International, Inc.* | 10,100 | 1,149,380 |
Multi-Fineline Electronix, Inc.* | 2,400 | 41,616 |
Murata Manufacturing Co., Ltd. | 100 | 5,816 |
Nidec Corp. | 100 | 7,424 |
Olympus Corp. | 1,000 | 40,971 |
Rofin-Sinar Technologies, Inc.* | 1,400 | 67,354 |
TDK Corp. | 100 | 7,416 |
Tech Data Corp.* | 2,000 | 75,440 |
Technitrol, Inc. | 2,800 | 80,024 |
| 4,103,498 | |
Internet Software & Services 0.5% | ||
Chordiant Software, Inc.* | 4,600 | 39,330 |
CMGI, Inc.* | 4,500 | 58,905 |
CNET Networks, Inc.* | 11,600 | 106,024 |
DealerTrack Holdings, Inc.* | 1,800 | 60,246 |
EarthLink, Inc.* | 13,500 | 95,445 |
Google, Inc. "A"* | 2,215 | 1,531,628 |
Greenfield Online, Inc.* | 6,300 | 92,043 |
InfoSpace, Inc. | 2,700 | 50,760 |
Internap Network Services Corp.* | 5,000 | 41,650 |
j2 Global Communications, Inc.* | 4,200 | 88,914 |
Omniture, Inc.* | 2,400 | 79,896 |
SAVVIS, Inc.* | 2,600 | 72,566 |
Tencent Holdings Ltd. | 400 | 3,027 |
United Online, Inc. | 6,400 | 75,648 |
ValueClick, Inc.* | 6,200 | 135,780 |
VistaPrint Ltd.* | 1,900 | 81,415 |
|
| Value ($) |
|
| |
Vocus, Inc.* | 2,200 | 75,966 |
Websense, Inc.* | 3,000 | 50,940 |
Yahoo! Japan Corp. | 9 | 4,017 |
| 2,744,200 | |
IT Services 0.9% | ||
Accenture Ltd. "A" | 40,710 | 1,466,781 |
Atos Origin SA* | 177 | 9,076 |
Cap Gemini SA | 340 | 21,128 |
CGI Group, Inc. "A"* | 600 | 7,046 |
Computer Sciences Corp.* | 11,000 | 544,170 |
CSG Systems International, Inc.* | 6,300 | 92,736 |
Fiserv, Inc.* | 17,200 | 954,428 |
Gartner, Inc.* | 4,800 | 84,288 |
iGATE Corp.* | 3,500 | 29,645 |
Indra Sistemas SA | 322 | 8,651 |
LogicaCMG PLC | 12,089 | 28,187 |
ManTech International Corp. "A"* | 1,400 | 61,348 |
NTT Data Corp. | 1 | 4,456 |
Paychex, Inc. | 23,900 | 865,658 |
Redecard SA (GDR) 144A | 5,700 | 184,450 |
SAIC, Inc.* | 10,900 | 219,308 |
Sapient Corp.* | 9,400 | 82,814 |
SRA International, Inc. "A"* | 3,200 | 94,240 |
Syntel, Inc. | 3,100 | 119,412 |
| 4,877,822 | |
Office Electronics 0.1% | ||
Canon, Inc. | 11,600 | 530,008 |
Konica Minolta Holdings, Inc. | 500 | 8,800 |
Neopost SA | 90 | 9,242 |
| 548,050 | |
Semiconductors & Semiconductor Equipment 0.8% | ||
Amkor Technology, Inc.* | 5,300 | 45,209 |
ARM Holdings PLC | 10,640 | 26,084 |
ASML Holding NV* | 4,241 | 133,274 |
Asyst Technologies, Inc.* | 13,700 | 44,662 |
Atheros Communications* | 3,600 | 109,944 |
ATMI, Inc.* | 2,300 | 74,175 |
Broadcom Corp. "A"* | 19,740 | 516,004 |
Cymer, Inc.* | 2,300 | 89,539 |
Entegris, Inc.* | 10,900 | 94,067 |
Infineon Technologies AG* | 1,742 | 20,369 |
Intel Corp. | 95,500 | 2,546,030 |
Micrel, Inc. | 6,700 | 56,615 |
OC Oerlikon Corp. AG (Registered)* | 106 | 44,030 |
Pericom Semiconductor Corp.* | 4,800 | 89,760 |
PMC-Sierra, Inc.* | 12,900 | 84,366 |
RF Micro Devices, Inc.* | 14,900 | 85,079 |
ROHM Co., Ltd. | 100 | 8,704 |
SiRF Technology Holdings, Inc.* | 4,000 | 100,520 |
Skyworks Solutions, Inc.* | 13,100 | 111,350 |
STMicroelectronics NV | 1,681 | 23,930 |
Tessera Technologies, Inc.* | 2,200 | 91,520 |
Tokyo Electron Ltd. | 100 | 6,108 |
Zoran Corp.* | 6,200 | 139,562 |
| 4,540,901 | |
Software 1.5% | ||
Actuate Corp.* | 17,300 | 134,421 |
Adobe Systems, Inc.* | 33,350 | 1,425,046 |
Ansoft Corp.* | 1,400 | 36,190 |
ANSYS, Inc.* | 3,800 | 157,548 |
Aspen Technology, Inc.* | 8,200 | 133,004 |
|
| Value ($) |
|
| |
Business Objects SA* | 238 | 14,512 |
Cognos, Inc.* | 200 | 11,575 |
Commvault Systems, Inc.* | 4,200 | 88,956 |
Dassault Systemes SA | 159 | 9,364 |
Electronic Arts, Inc.* | 18,500 | 1,080,585 |
FalconStor Software, Inc.* | 7,300 | 82,198 |
Jack Henry & Associates, Inc. | 5,400 | 131,436 |
JDA Software Group, Inc.* | 4,200 | 85,932 |
Macrovision Corp.* | 2,700 | 49,491 |
MICROS Systems, Inc.* | 1,200 | 84,192 |
Microsoft Corp. | 73,550 | 2,618,380 |
Misys PLC | 4,179 | 15,215 |
Net 1 UEPS Technologies, Inc.* | 2,200 | 64,592 |
Nintendo Co., Ltd. | 500 | 303,574 |
Nuance Communications, Inc.* | 4,500 | 84,060 |
SAP AG | 2,011 | 103,902 |
SPSS, Inc.* | 3,800 | 136,458 |
Sybase, Inc.* | 5,500 | 143,495 |
The Sage Group PLC | 10,531 | 47,959 |
Ultimate Software Group, Inc.* | 3,700 | 116,439 |
VMware, Inc. "A"* (c) | 8,500 | 722,415 |
Wind River Systems, Inc.* | 5,800 | 51,794 |
| 7,932,733 | |
Materials 3.1% | ||
Chemicals 1.7% | ||
Agrium, Inc. | 100 | 7,262 |
Akzo Nobel NV | 1,151 | 91,659 |
Arch Chemicals, Inc. | 2,700 | 99,225 |
Asahi Kasei Corp. | 1,000 | 6,666 |
BASF AG | 319 | 47,145 |
Bayer AG | 5,399 | 492,251 |
CF Industries Holdings, Inc. | 2,700 | 297,162 |
Ciba Specialty Chemicals AG (Registered) | 171 | 7,874 |
Croda International PLC | 16,828 | 193,128 |
Eastman Chemical Co. | 4,100 | 250,469 |
Ecolab, Inc. | 25,550 | 1,308,416 |
GenTek, Inc.* | 3,100 | 90,737 |
Givaudan SA (Registered) | 14 | 13,451 |
Hercules, Inc. | 6,500 | 125,775 |
Imperial Chemical Industries PLC | 469 | 6,227 |
JSR Corp. | 200 | 5,174 |
Koninklijke DSM NV | 630 | 29,454 |
Kuraray Co., Ltd. | 500 | 6,036 |
Linde AG | 2,283 | 300,684 |
Lubrizol Corp. | 15,900 | 861,144 |
Mitsubishi Chemical Holdings Corp. | 1,000 | 7,665 |
Mitsui Chemicals, Inc. | 1,000 | 6,546 |
Monsanto Co. | 19,300 | 2,155,617 |
Nitto Denko Corp. | 200 | 10,559 |
Novozymes AS "B" | 1,150 | 129,794 |
Orica Ltd. | 199 | 5,526 |
PolyOne Corp.* | 18,600 | 122,388 |
Potash Corp of Saskatchewan, Inc. | 200 | 29,077 |
Praxair, Inc. | 18,300 | 1,623,393 |
Rockwood Holdings, Inc.* | 2,700 | 89,694 |
Shin-Etsu Chemical Co., Ltd. | 400 | 25,009 |
Showa Denko KK | 2,000 | 7,173 |
Solvay SA | 573 | 79,797 |
Sumitomo Chemical Co., Ltd. | 1,000 | 8,893 |
Syngenta AG (Registered) | 198 | 50,238 |
Teijin Ltd. | 1,000 | 4,274 |
Terra Industries, Inc.* | 5,400 | 257,904 |
|
| Value ($) |
|
| |
Toray Industries, Inc. | 1,000 | 7,769 |
Umicore | 226 | 55,737 |
Uralkali (GDR) 144A* | 5,200 | 193,700 |
W.R. Grace & Co.* | 2,600 | 68,068 |
Yara International ASA | 3,000 | 137,760 |
| 9,316,520 | |
Construction Materials 0.1% | ||
CRH PLC | 3,270 | 112,504 |
Fletcher Building Ltd. | 324 | 2,863 |
Holcim Ltd. (Registered) | 403 | 42,820 |
Imerys SA | 125 | 10,236 |
Lafarge SA | 481 | 87,069 |
| 255,492 | |
Containers & Packaging 0.1% | ||
Amcor Ltd. | 605 | 3,660 |
AptarGroup, Inc. | 3,400 | 139,094 |
Gerresheimer AG* | 2,285 | 126,945 |
Greif, Inc. "A" | 1,400 | 91,518 |
Rock-Tenn Co. "A" | 5,500 | 139,755 |
Silgan Holdings, Inc. | 2,000 | 103,880 |
Sonoco Products Co. | 4,100 | 133,988 |
| 738,840 | |
Metals & Mining 1.0% | ||
Acerinox SA | 4,773 | 116,624 |
Agnico-Eagle Mines Ltd. | 100 | 5,514 |
Alcoa, Inc. | 26,400 | 964,920 |
Alumina Ltd. | 739 | 4,094 |
Anglo American PLC | 6,845 | 414,834 |
Barrick Gold Corp. | 600 | 25,400 |
BHP Billiton Ltd. | 1,830 | 64,175 |
BHP Billiton PLC | 836 | 25,750 |
BlueScope Steel Ltd. | 470 | 3,958 |
Boliden AB | 1,900 | 23,533 |
Commercial Metals Co. | 29,100 | 856,995 |
Compass Minerals International, Inc. | 2,700 | 110,700 |
First Quantum Minerals Ltd. | 100 | 8,620 |
Fording Canadian Coal Trust (Unit) | 100 | 3,889 |
Fortescue Metals Group Ltd.* | 700 | 4,554 |
Goldcorp, Inc. | 500 | 17,123 |
JFE Holdings, Inc. | 6,000 | 302,344 |
Kinross Gold Corp.* | 400 | 7,417 |
Kobe Steel Ltd. | 3,000 | 9,723 |
Mitsubishi Materials Corp. | 1,000 | 4,253 |
Newcrest Mining Ltd. | 264 | 7,609 |
Nippon Steel Corp. | 5,000 | 30,791 |
Norsk Hydro ASA | 1,200 | 16,965 |
Nucor Corp. | 22,800 | 1,350,216 |
Outokumpu Oyj | 555 | 16,919 |
Quanex Corp. | 2,000 | 103,800 |
Rautaruukki Oyj | 391 | 16,641 |
Reliance Steel & Aluminum Co. | 2,500 | 135,500 |
Rio Tinto Ltd. | 1,254 | 146,405 |
Rio Tinto PLC | 357 | 37,402 |
Salzgitter AG | 31 | 4,564 |
Schnitzer Steel Industries, Inc. "A" | 1,500 | 103,695 |
SSAB Svenskt Stal AB "A" | 1,200 | 32,211 |
Sumitomo Metal Industries Ltd. | 4,000 | 18,471 |
Teck Cominco Ltd. "B" | 300 | 10,770 |
ThyssenKrupp AG | 248 | 13,841 |
voestalpine AG | 373 | 26,705 |
Worthington Industries, Inc. | 6,700 | 119,796 |
|
| Value ($) |
|
| |
Xstrata PLC | 4,641 | 326,802 |
Yamana Gold, Inc. | 500 | 6,530 |
Zinifex Ltd. | 323 | 3,483 |
| 5,503,536 | |
Paper & Forest Products 0.2% | ||
Buckeye Technologies, Inc.* | 9,500 | 118,750 |
International Paper Co. | 21,300 | 689,694 |
Oji Paper Co., Ltd. | 1,000 | 4,910 |
Stora Enso Oyj "R" | 2,637 | 39,135 |
Svenska Cellulosa AB "B" | 3,400 | 59,792 |
UPM-Kymmene Oyj | 2,405 | 48,185 |
| 960,466 | |
Telecommunication Services 3.0% | ||
Diversified Telecommunication Services 2.5% | ||
Alaska Communications Systems Group, Inc. | 11,000 | 165,000 |
AT&T, Inc. | 79,100 | 3,287,396 |
Atlantic Tele-Network, Inc. | 3,800 | 128,364 |
BCE, Inc. | 1,200 | 48,209 |
Belgacom SA | 223 | 10,938 |
BT Group PLC | 4,462 | 24,078 |
Cable & Wireless PLC | 1,466 | 5,409 |
Cincinnati Bell, Inc.* | 38,900 | 184,775 |
Deutsche Telekom AG (Registered) | 6,018 | 131,622 |
Elisa Oyj | 242 | 7,384 |
Embarq Corp. | 9,900 | 490,347 |
France Telecom SA | 7,946 | 285,157 |
Golden Telecom, Inc.* | 1,000 | 100,950 |
Hellenic Telecommunications Organization SA | 9,200 | 338,113 |
Koninklijke (Royal) KPN NV | 12,506 | 226,176 |
Nippon Telegraph & Telephone Corp. | 28 | 138,571 |
PCCW Ltd. | 301,000 | 178,055 |
Portugal Telecom, SGPS SA (Registered) | 9,867 | 128,139 |
Premiere Global Services, Inc.* | 7,900 | 117,315 |
PT Telekomunikasi Indonesia (ADR) | 8,100 | 340,281 |
Singapore Telecommunications Ltd. | 96,000 | 263,444 |
Swisscom AG (Registered) | 578 | 224,546 |
Tele2 AB "B" | 2,500 | 49,725 |
Telecom Corp. of New Zealand Ltd. | 77,310 | 257,992 |
Telecom Italia SpA | 48,324 | 149,625 |
Telecom Italia SpA (RNC) | 27,168 | 63,862 |
Telefonica SA | 21,187 | 684,705 |
Telekom Austria AG | 11,941 | 330,917 |
Telenor ASA* | 6,400 | 151,290 |
TeliaSonera AB | 18,500 | 172,052 |
Telstra Corp., Ltd. | 47,892 | 196,536 |
Telstra Corp., Ltd. (Insurance Receipt) | 24,926 | 69,056 |
Telus Corp. | 300 | 15,028 |
Telus Corp. (Non-Voting Shares) | 700 | 34,051 |
Time Warner Telecom, Inc. "A"* | 6,900 | 140,001 |
Verizon Communications, Inc. | 87,800 | 3,835,982 |
Windstream Corp. | 19,600 | 255,192 |
| 13,230,283 | |
Wireless Telecommunication Services 0.5% | ||
America Movil SAB de CV "L" (ADR) | 2,500 | 153,475 |
American Tower Corp. "A"* | 13,900 | 592,140 |
Centennial Communications Corp.* | 10,800 | 100,332 |
|
| Value ($) |
|
| |
China Mobile Ltd. | 10,500 | 181,959 |
Hutchison Telecommunications International Ltd. | 106,000 | 159,404 |
KDDI Corp. | 13 | 96,529 |
Mobistar SA | 53 | 4,803 |
NTT DoCoMo, Inc. | 86 | 142,491 |
Rogers Communications, Inc. "B" | 2,300 | 104,845 |
Softbank Corp. | 4,000 | 82,333 |
Telephone & Data Systems, Inc. | 7,600 | 475,760 |
USA Mobility, Inc.* | 9,000 | 128,700 |
Vodafone Group PLC | 78,496 | 292,556 |
| 2,515,327 | |
Utilities 2.1% | ||
Electric Utilities 1.2% | ||
Allegheny Energy, Inc. | 9,900 | 629,739 |
American Electric Power Co., Inc. | 6,700 | 311,952 |
Chubu Electric Power Co., Inc. | 2,500 | 65,278 |
CLP Holdings Ltd. | 13,000 | 88,389 |
E.ON AG | 3,167 | 672,436 |
Edison International | 20,100 | 1,072,737 |
EDP — Energias de Portugal SA | 19,404 | 126,137 |
Enel SpA | 22,674 | 267,623 |
FirstEnergy Corp. | 33,700 | 2,437,858 |
Fortis, Inc. | 2,700 | 79,308 |
Fortum Oyj | 386 | 17,280 |
Hokkaido Electric Power Co., Inc. | 800 | 17,341 |
Hongkong Electric Holding Ltd. | 13,500 | 77,629 |
Kansai Electric Power Co., Inc. | 2,900 | 67,662 |
Kyushu Electric Power Co., Inc. | 1,400 | 34,500 |
Northeast Utilities | 2,700 | 84,537 |
Oesterreichische Elektrizitaetswirtschafts AG "A" | 68 | 4,736 |
RWE AG | 266 | 37,274 |
Scottish & Southern Energy PLC | 1,620 | 52,622 |
Terna-Rete Elettrica Nationale SpA | 6,478 | 25,985 |
Tohoku Electric Power Co., Inc. | 1,600 | 36,058 |
Tokyo Electric Power Co., Inc. | 4,600 | 119,157 |
Union Fenosa SA | 2,526 | 169,424 |
Westar Energy, Inc. | 5,500 | 142,670 |
| 6,638,332 | |
Gas Utilities 0.2% | ||
Centrica PLC | 6,957 | 49,441 |
Gas Natural SDG SA | 2,642 | 153,869 |
Gaz de France | 164 | 9,550 |
Hong Kong & China Gas Co., Ltd. | 35,000 | 106,689 |
ONEOK, Inc. | 7,300 | 326,821 |
Osaka Gas Co., Ltd. | 8,000 | 31,530 |
Piedmont Natural Gas Co., Inc. | 4,900 | 128,184 |
Snam Rete Gas SpA | 4,641 | 29,469 |
South Jersey Industries, Inc. | 3,900 | 140,751 |
Southwest Gas Corp. | 3,700 | 110,149 |
Tokyo Gas Co., Ltd. | 9,000 | 42,020 |
WGL Holdings, Inc. | 4,800 | 157,248 |
| 1,285,721 | |
Independent Power Producers & Energy Traders 0.2% | ||
Electric Power Development Co., Ltd. | 600 | 22,264 |
Iberdrola Renovables* | 54,100 | 446,898 |
Iberdrola SA | 18,816 | 284,838 |
International Power PLC | 2,930 | 26,302 |
TransAlta Corp. | 3,500 | 118,268 |
| 898,570 | |
|
| Value ($) |
|
| |
Multi-Utilities 0.5% | ||
AGL Energy Ltd. | 23,289 | 271,927 |
National Grid PLC | 4,858 | 80,318 |
PNM Resources, Inc. | 3,500 | 75,075 |
Sempra Energy | 29,900 | 1,850,212 |
Suez SA | 908 | 61,549 |
United Utilities PLC | 1,724 | 25,813 |
Veolia Environnement | 307 | 27,881 |
| 2,392,775 | |
Water Utilities 0.0% | ||
Kelda Group PLC | 566 | 12,180 |
Severn Trent PLC | 474 | 14,334 |
| 26,514 | |
Total Common Stocks (Cost $265,573,875) | 315,098,976 | |
| ||
Preferred Stocks 0.1% | ||
Consumer Discretionary 0.1% | ||
Porsche Automobil Holding SE | 254 | 511,860 |
Volkswagen AG | 62 | 9,004 |
| 520,864 | |
Consumer Staples 0.0% | ||
Henkel KGaA (Preferred) | 1,524 | 85,428 |
Financials 0.0% | ||
Farm Credit Bank of Texas, Series 1, 7.561% | 218,000 | 227,614 |
Utilities 0.0% | ||
RWE AG | 22 | 2,667 |
Total Preferred Stocks (Cost $825,334) | 836,573 | |
| ||
Convertible Preferred Stocks 0.0% | ||
Consumer Discretionary | ||
ION Media Networks, Inc., 144A, 12.0% (Cost$8,344) | 60,000 | 3,630 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 7.3% | ||
Consumer Discretionary 1.5% | ||
AAC Group Holding Corp., 14.75%, 10/1/2012 (PIK) | 28,200 | 25,803 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 150,000 | 135,000 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 80,000 | 75,200 |
American Achievement Corp., 8.25%, 4/1/2012 | 15,000 | 14,625 |
American Media Operations, Inc., Series B, 10.25%, 5/1/2009 | 20,727 | 17,696 |
Asbury Automotive Group, Inc.: |
|
|
7.625%, 3/15/2017 | 35,000 | 30,975 |
8.0%, 3/15/2014 | 15,000 | 14,175 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 | 25,000 | 21,875 |
Burlington Coat Factory Warehouse Corp., 11.125%, 4/15/2014 | 35,000 | 28,088 |
Cablevision Systems Corp., Series B, 9.644%**, 4/1/2009 | 20,000 | 20,225 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Caesars Entertainment, Inc., 8.875%, 9/15/2008 | 105,000 | 108,579 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 | 25,000 | 24,469 |
Carrols Corp., 9.0%, 1/15/2013 | 15,000 | 13,650 |
Charter Communications Holdings LLC: |
|
|
Series B, 10.25%, 9/15/2010 | 50,000 | 48,750 |
10.25%, 9/15/2010 | 175,000 | 171,500 |
11.0%, 10/1/2015 | 151,000 | 123,065 |
Comcast Corp., 6.3%, 11/15/2017 | 1,250,000 | 1,296,909 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 | 25,000 | 19,813 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 30,000 | 30,037 |
Series B, 8.125%, 7/15/2009 | 30,000 | 30,487 |
Series B, 8.125%, 8/15/2009 | 60,000 | 61,050 |
Denny's Corp. Holdings, Inc., 10.0%, 10/1/2012 | 10,000 | 9,613 |
Dollar General Corp., 144A, 10.625%, 7/15/2015 | 35,000 | 32,112 |
Dollarama Group LP, 144A, 10.599%**, 8/15/2012 | 24,000 | 24,000 |
EchoStar DBS Corp.: |
|
|
6.625%, 10/1/2014 | 45,000 | 44,775 |
7.125%, 2/1/2016 | 35,000 | 35,700 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 45,000 | 39,037 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 10,000 | 9,200 |
French Lick Resorts & Casinos LLC, 144A, 10.75%, 4/15/2014 | 320,000 | 233,600 |
General Motors Corp.: |
|
|
7.2%, 1/15/2011 | 110,000 | 101,200 |
7.4%, 9/1/2025 | 30,000 | 21,750 |
8.375%, 7/15/2033 | 75,000 | 60,375 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 190,000 | 201,875 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 30,000 | 29,700 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 15,000 | 14,475 |
Hanesbrands, Inc., Series B, 8.204%**, 12/15/2014 | 45,000 | 44,550 |
Hertz Corp.: |
|
|
8.875%, 1/1/2014 | 75,000 | 76,031 |
10.5%, 1/1/2016 | 20,000 | 20,700 |
Idearc, Inc., 8.0%, 11/15/2016 | 155,000 | 142,212 |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 20,000 | 19,300 |
ION Media Networks, Inc., 144A, 11.493%**, 1/15/2013 | 85,000 | 83,619 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 50,000 | 41,000 |
Jarden Corp., 7.5%, 5/1/2017 | 25,000 | 21,500 |
Lamar Media Corp., 144A, 6.625%, 8/15/2015 | 20,000 | 19,450 |
Liberty Media LLC: |
|
|
5.7%, 5/15/2013 | 20,000 | 18,528 |
8.25%, 2/1/2030 | 45,000 | 43,184 |
8.5%, 7/15/2029 | 50,000 | 48,975 |
Majestic Star Casino LLC, 9.5%, 10/15/2010 | 5,000 | 4,725 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 15,000 | 15,450 |
Metaldyne Corp., 11.0%, 6/15/2012 | 10,000 | 6,450 |
| Principal Amount ($)(a) | Value ($) |
|
| |
MGM MIRAGE: |
|
|
6.75%, 9/1/2012 | 35,000 | 34,081 |
8.375%, 2/1/2011 | 80,000 | 81,800 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 55,000 | 55,000 |
News America, Inc., 6.15%, 3/1/2037 | 750,000 | 724,492 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 | 85,000 | 76,500 |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 80,000 | 74,800 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 35,000 | 35,612 |
Quebecor Media, Inc., 144A, 7.75%, 3/15/2016 | 20,000 | 19,200 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015 | 25,000 | 18,781 |
Reader's Digest Association, Inc., 144A, 9.0%, 2/15/2017 | 40,000 | 33,500 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 30,000 | 26,700 |
Seminole Hard Rock Entertainment, Inc., 144A, 7.491%**, 3/15/2014 | 35,000 | 33,425 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 25,000 | 24,250 |
Simmons Co.: |
|
|
Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 105,000 | 77,700 |
7.875%, 1/15/2014 | 20,000 | 18,500 |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 | 16,000 | 16,300 |
Sirius Satellite Radio, Inc., 9.625%, 8/1/2013 | 45,000 | 42,525 |
Six Flags, Inc., 9.75%, 4/15/2013 | 15,000 | 11,250 |
Sonic Automotive, Inc., Series B, 8.625%, 8/15/2013 | 35,000 | 34,037 |
Station Casinos, Inc., 6.5%, 2/1/2014 | 65,000 | 48,750 |
TCI Communications, Inc., 8.75%, 8/1/2015 | 135,000 | 157,033 |
Time Warner Cable, Inc., 5.4%, 7/2/2012 | 810,000 | 811,628 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 | 25,000 | 18,063 |
Travelport LLC: |
|
|
9.749%**, 9/1/2014 | 25,000 | 24,188 |
9.875%, 9/1/2014 | 25,000 | 25,375 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 | 70,000 | 53,287 |
United Components, Inc., 9.375%, 6/15/2013 | 5,000 | 4,938 |
Univision Communications, Inc., 144A, 9.75%, 3/15/2015 (PIK) | 115,000 | 104,794 |
Vitro SAB de CV: |
|
|
8.625%, 2/1/2012 | 20,000 | 18,800 |
9.125%, 2/1/2017 | 40,000 | 36,800 |
Series A, 11.75%, 11/1/2013 | 15,000 | 15,638 |
XM Satellite Radio, Inc., 9.75%, 5/1/2014 | 65,000 | 62,887 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 150,000 | 106,687 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Yum! Brands, Inc.: |
|
|
6.25%, 3/15/2018 | 500,000 | 506,368 |
6.875%, 11/15/2037 | 500,000 | 497,682 |
| 7,706,428 | |
Consumer Staples 0.4% | ||
Alliance One International, Inc., 8.5%, 5/15/2012 | 15,000 | 14,625 |
CVS Caremark Corp., 6.25%, 6/1/2027 | 750,000 | 751,622 |
Del Laboratories, Inc., 8.0%, 2/1/2012 | 70,000 | 72,800 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 30,000 | 31,625 |
9.0%, 4/15/2031 | 201,000 | 232,391 |
General Nutrition Centers, Inc., 10.009%**, 3/15/2014 (PIK) | 35,000 | 33,075 |
Harry & David Holdings, Inc., 10.124%**, 3/1/2012 | 30,000 | 28,200 |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 348,750 | 320,850 |
Pierre Foods, Inc., 9.875%, 7/15/2012 | 20,000 | 14,600 |
Pilgrim's Pride Corp., 7.625%, 5/1/2015 | 15,000 | 14,738 |
Rite Aid Corp., 7.5%, 3/1/2017 | 50,000 | 44,062 |
Smithfield Foods, Inc., 7.75%, 7/1/2017 | 40,000 | 38,700 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 480,000 | 480,000 |
| 2,077,288 | |
Energy 0.5% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 145,000 | 146,450 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 40,000 | 36,000 |
Chesapeake Energy Corp.: |
|
|
6.25%, 1/15/2018 | 20,000 | 19,200 |
6.875%, 1/15/2016 | 100,000 | 99,000 |
7.75%, 1/15/2015 | 15,000 | 15,300 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 25,000 | 24,563 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 75,000 | 64,125 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 | 10,000 | 9,650 |
8.375%, 5/1/2016 | 60,000 | 58,650 |
Energy Partners Ltd., 9.75%, 4/15/2014 | 25,000 | 23,625 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 25,000 | 24,875 |
Kinder Morgan Energy Partners LP, 6.0%, 2/1/2017 | 381,000 | 380,978 |
Mariner Energy, Inc.: |
|
|
7.5%, 4/15/2013 | 20,000 | 19,250 |
8.0%, 5/15/2017 | 20,000 | 19,025 |
OPTI Canada, Inc.: |
|
|
144A, 7.875%, 12/15/2014 | 40,000 | 39,100 |
144A, 8.25%, 12/15/2014 | 30,000 | 29,700 |
Plains Exploration & Production Co., 7.0%, 3/15/2017 | 15,000 | 14,344 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 20,000 | 19,650 |
Sabine Pass LNG LP, 7.5%, 11/30/2016 | 110,000 | 105,050 |
Southern Natural Gas Co., 144A, 5.9%, 4/1/2017 | 895,000 | 880,292 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Stone Energy Corp., 6.75%, 12/15/2014 | 90,000 | 83,475 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 25,000 | 26,890 |
Tesoro Corp., 6.5%, 6/1/2017 | 40,000 | 39,600 |
VeraSun Energy Corp., 144A, 9.375%, 6/1/2017 | 20,000 | 17,450 |
Whiting Petroleum Corp.: |
|
|
7.0%, 2/1/2014 | 30,000 | 29,700 |
7.25%, 5/1/2012 | 50,000 | 49,250 |
7.25%, 5/1/2013 | 10,000 | 9,850 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 | 100,000 | 108,875 |
8.75%, 3/15/2032 | 135,000 | 165,038 |
Williams Partners LP, 7.25%, 2/1/2017 | 25,000 | 25,750 |
| 2,584,705 | |
Financials 1.9% | ||
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 85,000 | 69,700 |
Ashton Woods USA LLC, 9.5%, 10/1/2015 | 230,000 | 147,200 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 15,000 | 13,350 |
Conproca SA de CV, Series REG S, 12.0%, 6/16/2010 | 405,000 | 439,425 |
Daimler Finance North America LLC, Series E, 5.441%**, 10/31/2008 | 389,000 | 388,252 |
E*TRADE Financial Corp.: |
|
|
7.375%, 9/15/2013 | 50,000 | 38,500 |
7.875%, 12/1/2015 | 80,000 | 61,000 |
8.0%, 6/15/2011 | 65,000 | 56,387 |
Erac USA Finance Co.: |
|
|
144A, 6.375%, 10/15/2017 | 500,000 | 483,056 |
144A, 7.0%, 10/15/2037 | 750,000 | 681,172 |
FIA Card Services NA, 7.125%, 11/15/2012 | 1,250,000 | 1,358,065 |
Ford Motor Credit Co., LLC: |
|
|
7.25%, 10/25/2011 | 155,000 | 134,255 |
7.375%, 10/28/2009 | 380,000 | 357,673 |
7.875%, 6/15/2010 | 105,000 | 96,880 |
GMAC LLC, 6.875%, 9/15/2011 | 410,000 | 350,753 |
Hawker Beechcraft Acquisition Co., LLC: |
|
|
144A, 8.5%, 4/1/2015 | 55,000 | 55,000 |
144A, 9.75%, 4/1/2017 | 40,000 | 39,800 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 35,000 | 37,800 |
Hub International Holdings, Inc., 144A, 9.0%, 12/15/2014 | 20,000 | 17,850 |
Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012 | 30,000 | 29,137 |
iPayment, Inc., 9.75%, 5/15/2014 | 80,000 | 74,800 |
JPMorgan Chase Bank NA, 6.0%, 10/1/2017 | 750,000 | 762,766 |
KAR Holdings, Inc.: |
|
|
144A, 8.75%, 5/1/2014 | 30,000 | 27,600 |
144A, 10.0%, 5/1/2015 | 20,000 | 17,850 |
Lehman Brothers Holdings, Inc., 7.0%, 9/27/2027 | 750,000 | 761,215 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 25,000 | 23,875 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Morgan Stanley, Series F, 5.75%, 8/31/2012 | 1,250,000 | 1,275,951 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 95,000 | 76,237 |
Nuveen Investments, Inc., 144A, 10.5%, 11/15/2015 | 55,000 | 54,794 |
Pinnacle Foods Finance LLC, 144A, 9.25%, 4/1/2015 | 25,000 | 22,813 |
Popular North America, Inc., Series E, 3.875%, 10/1/2008 | 1,000,000 | 990,424 |
Realogy Corp., 144A, 12.375%, 4/15/2015 | 20,000 | 12,600 |
Residential Capital LLC: |
|
|
5.646%**, 6/9/2008 | 30,000 | 25,650 |
7.625%, 11/21/2008 | 150,000 | 119,250 |
7.782%**, 11/21/2008 | 235,000 | 186,825 |
The Goldman Sachs Group, Inc., 6.75%, 10/1/2037 | 500,000 | 489,889 |
Triad Acquisition Corp., Series B, 11.125%, 5/1/2013 | 55,000 | 40,700 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014 | 115,000 | 73,025 |
U.S.I. Holdings Corp.: |
|
|
144A, 8.744%**, 11/15/2014 | 15,000 | 12,825 |
144A, 9.75%, 5/15/2015 | 10,000 | 8,050 |
UCI Holdco, Inc., 12.491%**, 12/15/2013 (PIK) | 36,239 | 34,246 |
Universal City Development Partners, 11.75%, 4/1/2010 | 135,000 | 139,725 |
Yankee Acquisition Corp., Series B, 8.5%, 2/15/2015 | 20,000 | 18,425 |
| 10,104,790 | |
Health Care 0.4% | ||
Abbott Laboratories, 5.6%, 11/30/2017 | 1,250,000 | 1,284,276 |
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 45,000 | 41,400 |
Bausch & Lomb, Inc., 144A, 9.875%, 11/1/2015 | 45,000 | 45,675 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 25,000 | 24,125 |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 215,000 | 219,031 |
HCA, Inc.: |
|
|
9.125%, 11/15/2014 | 45,000 | 46,800 |
9.25%, 11/15/2016 | 90,000 | 94,500 |
9.625%, 11/15/2016 (PIK) | 45,000 | 47,588 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 40,000 | 41,800 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 20,000 | 20,000 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 25,000 | 24,938 |
Sun Healthcare Group, Inc., 9.125%, 4/15/2015 | 25,000 | 25,188 |
Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK) | 90,000 | 81,900 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 50,000 | 48,625 |
Universal Hospital Services, Inc., 8.5%, 6/1/2015 (PIK) | 20,000 | 20,200 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 25,000 | 18,500 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 85,000 | 81,812 |
| 2,166,358 | |
| Principal Amount ($)(a) | Value ($) |
|
| |
Industrials 0.4% | ||
Actuant Corp., 144A, 6.875%, 6/15/2017 | 20,000 | 19,800 |
Aleris International, Inc., 9.0%, 12/15/2014 (PIK) | 35,000 | 29,225 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 130,000 | 122,200 |
American Color Graphics, Inc., 10.0%, 6/15/2010 | 140,000 | 75,600 |
American Color Graphics, Inc., Promissory Note due 3/15/2008 (h) | 8,400 | 4,536 |
ARAMARK Corp.: |
|
|
8.411%**, 2/1/2015 | 35,000 | 34,125 |
8.5%, 2/1/2015 | 45,000 | 45,562 |
Baldor Electric Co., 8.625%, 2/15/2017 | 25,000 | 25,750 |
Belden, Inc., 7.0%, 3/15/2017 | 25,000 | 24,375 |
Bristow Group, Inc., 144A, 7.5%, 9/15/2017 | 30,000 | 30,150 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 250,000 | 232,500 |
Building Materials Corp. of America, 7.75%, 8/1/2014 | 35,000 | 26,775 |
Cenveo Corp., 7.875%, 12/1/2013 | 65,000 | 57,931 |
Congoleum Corp., 8.625%, 8/1/2008* | 190,000 | 142,500 |
DRS Technologies, Inc.: |
|
|
6.625%, 2/1/2016 | 15,000 | 14,812 |
6.875%, 11/1/2013 | 75,000 | 74,625 |
7.625%, 2/1/2018 | 90,000 | 91,125 |
Education Management LLC, 8.75%, 6/1/2014 | 25,000 | 25,094 |
Esco Corp., 144A, 8.625%, 12/15/2013 | 55,000 | 55,000 |
General Cable Corp., 7.125%, 4/1/2017 | 15,000 | 14,700 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 20,000 | 18,700 |
Harland Clarke Holdings Corp., 9.5%, 5/15/2015 | 25,000 | 21,625 |
Iron Mountain, Inc., 8.75%, 7/15/2018 | 20,000 | 21,025 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 | 100,000 | 68,000 |
8.875%, 4/1/2012 | 95,000 | 54,150 |
Kansas City Southern de Mexico SA de CV: |
|
|
144A, 7.375%, 6/1/2014 | 20,000 | 19,450 |
9.375%, 5/1/2012 | 70,000 | 73,325 |
Kansas City Southern Railway Co.: |
|
|
7.5%, 6/15/2009 | 20,000 | 20,025 |
9.5%, 10/1/2008 | 175,000 | 178,500 |
Mobile Services Storage Group, Inc., 9.75%, 8/1/2014 | 50,000 | 46,000 |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 | 40,000 | 40,900 |
Panolam Industries International, Inc., 10.75%, 10/1/2013 | 45,000 | 39,150 |
R.H. Donnelley Corp., 144A, 8.875%, 10/15/2017 | 100,000 | 92,500 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 9,000 | 9,754 |
RBS Global & Rexnord Corp., 9.5%, 8/1/2014 | 25,000 | 24,750 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 25,000 | 25,344 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Swift Transportation Co., 144A, 12.5%, 5/15/2017 | 20,000 | 10,325 |
Tenneco, Inc., 144A, 8.125%, 11/15/2015 | 15,000 | 14,850 |
Titan International, Inc., 8.0%, 1/15/2012 | 95,000 | 91,675 |
TransDigm, Inc., 7.75%, 7/15/2014 | 45,000 | 45,675 |
U.S. Concrete, Inc., 8.375%, 4/1/2014 | 30,000 | 26,250 |
United Rentals North America, Inc.: |
|
|
6.5%, 2/15/2012 | 15,000 | 13,613 |
7.0%, 2/15/2014 | 80,000 | 67,000 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 55,000 | 54,930 |
| 2,223,901 | |
Information Technology 0.3% | ||
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 60,000 | 51,150 |
First Data Corp., 144A, 9.875%, 9/24/2015 | 35,000 | 32,550 |
Freescale Semiconductor, Inc., 8.875%, 12/15/2014 | 25,000 | 22,313 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 90,000 | 86,850 |
Series B, 6.375%, 10/15/2015 | 40,000 | 39,400 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 90,000 | 74,362 |
MasTec, Inc., 7.625%, 2/1/2017 | 100,000 | 94,000 |
Sanmina-SCI Corp., 8.125%, 3/1/2016 | 15,000 | 13,294 |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 50,000 | 48,750 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 70,000 | 71,575 |
Tyco Electronics Group SA: |
|
|
144A, 6.55%, 10/1/2017 | 500,000 | 514,285 |
144A, 7.125%, 10/1/2037 | 500,000 | 526,374 |
Unisys Corp., 7.875%, 4/1/2008 | 160,000 | 159,800 |
Vangent, Inc., 9.625%, 2/15/2015 | 60,000 | 51,450 |
| 1,786,153 | |
Materials 0.6% | ||
Appleton Papers, Inc., Series B, 8.125%, 6/15/2011 | 15,000 | 14,719 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 675,000 | 654,750 |
Associated Materials, Inc., Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 50,000 | 32,000 |
Cascades, Inc., 7.25%, 2/15/2013 | 77,000 | 72,187 |
Chemtura Corp., 6.875%, 6/1/2016 | 45,000 | 42,300 |
CPG International I, Inc.: |
|
|
10.5%, 7/1/2013 | 75,000 | 70,875 |
12.13%*, 7/1/2012 | 35,000 | 33,600 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 90,000 | 88,200 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/2017 | 40,000 | 42,900 |
GEO Specialty Chemicals, Inc., 144A, 13.729%**, 12/31/2009 (d) | 491,000 | 368,250 |
Georgia-Pacific Corp., 144A, 7.125%, 1/15/2017 | 20,000 | 19,450 |
Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015 | 75,000 | 67,500 |
Hexcel Corp., 6.75%, 2/1/2015 | 110,000 | 107,800 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Huntsman LLC, 11.625%, 10/15/2010 | 382,000 | 404,920 |
Innophos, Inc., 8.875%, 8/15/2014 | 15,000 | 14,925 |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 | 40,000 | 39,400 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 70,000 | 58,800 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 10,000 | 9,775 |
6.875%, 12/15/2013 | 40,000 | 37,700 |
Metals USA Holdings Corp., 144A, 11.231%**, 7/1/2012 (PIK) | 105,000 | 86,100 |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 | 15,000 | 11,175 |
Momentive Performance Materials, Inc., 144A, 9.75%, 12/1/2014 | 35,000 | 32,200 |
Mueller Water Products, Inc., 7.375%, 6/1/2017 | 15,000 | 13,406 |
Neenah Foundry Co., 9.5%, 1/1/2017 | 20,000 | 16,100 |
NewMarket Corp., 7.125%, 12/15/2016 | 175,000 | 173,250 |
Radnor Holdings Corp., 11.0%, 3/15/2010* | 40,000 | 300 |
Smurfit-Stone Container Enterprises, Inc.: |
|
|
8.0%, 3/15/2017 | 50,000 | 48,313 |
8.375%, 7/1/2012 | 25,000 | 24,813 |
Steel Dynamics, Inc.: |
|
|
144A, 6.75%, 4/1/2015 | 40,000 | 38,600 |
144A, 7.375%, 11/1/2012 | 10,000 | 10,050 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 60,000 | 58,650 |
The Mosaic Co., 144A, 7.625%, 12/1/2014 | 45,000 | 48,150 |
TriMas Corp., 9.875%, 6/15/2012 | 19,000 | 18,525 |
Witco Corp., 6.875%, 2/1/2026 | 60,000 | 48,300 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 130,000 | 123,500 |
| 2,931,483 | |
Telecommunication Services 0.6% | ||
AT&T, Inc., 6.3%, 1/15/2038 | 750,000 | 761,995 |
BCM Ireland Preferred Equity Limited, 144A, 11.58%**, 2/15/2017 (PIK) EUR | 81,523 | 109,641 |
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 105,000 | 89,775 |
Centennial Communications |
|
|
10.0%, 1/1/2013 | 65,000 | 67,600 |
10.125%, 6/15/2013 | 20,000 | 21,000 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 | 55,000 | 55,138 |
8.375%, 1/15/2014 | 30,000 | 29,250 |
Cricket Communications, Inc., 144A, 9.375%, 11/1/2014 | 65,000 | 60,937 |
Embratel, Series B, 11.0%, 12/15/2008 | 34,000 | 35,615 |
Intelsat Bermuda Ltd.: |
|
|
8.886%**, 1/15/2015 | 5,000 | 5,013 |
9.25%, 6/15/2016 | 15,000 | 15,075 |
11.25%, 6/15/2016 | 50,000 | 51,625 |
Intelsat Corp., 9.0%, 6/15/2016 | 20,000 | 20,150 |
Intelsat Ltd., 5.25%, 11/1/2008 | 20,000 | 19,750 |
Intelsat Subsidiary Holding Co., Ltd., 8.25%, 1/15/2013 | 50,000 | 50,250 |
| Principal Amount ($)(a) | Value ($) |
|
| |
iPCS, Inc., 7.036%**, 5/1/2013 | 15,000 | 14,138 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 60,000 | 56,400 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 120,000 | 127,800 |
Nortel Networks Ltd., 144A, 9.493%**, 7/15/2011 | 50,000 | 48,750 |
Qwest Corp., 7.25%, 9/15/2025 | 10,000 | 9,400 |
Rural Cellular Corp., 9.875%, 2/1/2010 | 50,000 | 51,875 |
Stratos Global Corp., 9.875%, 2/15/2013 | 15,000 | 15,825 |
SunCom Wireless Holdings, Inc., 8.5%, 6/1/2013 | 160,000 | 165,600 |
Telefonica Emisiones SAU, 6.221%, 7/3/2017 | 1,250,000 | 1,298,740 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 60,000 | 63,610 |
Virgin Media Finance PLC: |
|
|
8.75%, 4/15/2014 EUR | 45,000 | 64,312 |
8.75%, 4/15/2014 | 65,000 | 64,512 |
West Corp., 9.5%, 10/15/2014 | 30,000 | 29,400 |
| 3,403,176 | |
Utilities 0.7% | ||
AES Corp.: |
|
|
144A, 8.0%, 10/15/2017 | 55,000 | 56,238 |
144A, 8.75%, 5/15/2013 | 162,000 | 169,087 |
Allegheny Energy Supply Co., LLC, 144A, 8.25%, 4/15/2012 | 210,000 | 224,175 |
American Electric Power Co., Inc., Series C, 5.375%, 3/15/2010 | 1,000,000 | 1,014,320 |
CMS Energy Corp., 8.5%, 4/15/2011 | 125,000 | 134,651 |
DPL, Inc., 6.875%, 9/1/2011 | 500,000 | 531,821 |
Edison Mission Energy, 7.0%, 5/15/2017 | 45,000 | 44,213 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 | 80,000 | 80,400 |
Florida Power & Light Co., 5.55%, 11/1/2017 | 500,000 | 510,051 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 45,000 | 45,113 |
Mirant North America LLC, 7.375%, 12/31/2013 | 20,000 | 20,050 |
NRG Energy, Inc.: |
|
|
7.25%, 2/1/2014 | 250,000 | 243,750 |
7.375%, 2/1/2016 | 485,000 | 472,875 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 105,000 | 110,671 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 36,000 | 37,080 |
Reliant Energy, Inc., 7.875%, 6/15/2017 | 50,000 | 49,500 |
Sierra Pacific Resources: |
|
|
6.75%, 8/15/2017 | 60,000 | 60,695 |
8.625%, 3/15/2014 | 33,000 | 35,262 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015 | 120,000 | 118,800 |
| 3,958,752 | |
Total Corporate Bonds (Cost $39,774,703) | 38,943,034 | |
| ||
| Principal Amount ($)(a) | Value ($) |
|
| |
Asset Backed 2.4% | ||
Automobile Receivables 0.2% | ||
Capital Auto Receivables Asset Trust, "B", Series 2006-1, 5.26%, 10/15/2010 | 566,000 | 572,429 |
Ford Credit Auto Owner Trust, "B", Series 2007-B, 5.69%, 11/15/2012 | 379,000 | 377,995 |
| 950,424 | |
Credit Card Receivables 1.8% | ||
Capital One Multi-Asset Execution Trust, "A7", Series 2007-A7, 5.75%, 7/15/2020 | 2,187,000 | 2,200,534 |
Chase Issuance Trust, "A", Series 2007-A17, 5.12%, 10/15/2014 | 3,000,000 | 3,072,558 |
Citibank Credit Card Issuance Trust, "B5", Series 2007-B5, 5.87%**, 11/7/2014 | 2,250,000 | 2,199,210 |
MBNA Credit Card Master Note Trust, "B1", Series 2004-B1, 4.45%, 8/15/2016 | 2,050,000 | 1,938,341 |
| 9,410,643 | |
Home Equity Loans 0.4% | ||
Countrywide Asset-Backed Certificates, "1AF2", Series 2005-17, 5.363%, 5/25/2036 | 689,000 | 683,495 |
Credit-Based Asset Servicing and Securitization, "AF2", Series 2006-CB2, 5.501%, 12/25/2036 | 1,613,000 | 1,593,122 |
| 2,276,617 | |
Total Asset Backed (Cost $12,581,001) | 12,637,684 | |
| ||
Mortgage Backed Securities Pass-Throughs 1.1% | ||
Federal Home Loan Mortgage Corp.: |
|
|
5.736%**, 4/1/2037 | 2,475,465 | 2,513,884 |
6.0%, 8/1/2035 | 645,670 | 650,387 |
Federal National Mortgage Association: |
|
|
4.5%, with various maturities from 11/1/2028 until 9/1/2035 | 2,396,335 | 2,274,824 |
6.0%, 1/1/2024 | 135,309 | 137,825 |
6.5%, 5/1/2017 | 97,472 | 100,460 |
8.0%, 9/1/2015 | 151,967 | 162,954 |
Total Mortgage Backed Securities Pass-Throughs (Cost $5,863,036) | 5,840,334 | |
| ||
Commercial and Non-Agency Mortgage-Backed Securities 16.0% | ||
Adjustable Rate Mortgage Trust, "3A31", Series 2005-10, 5.416%**, 1/25/2036 | 1,000,000 | 952,475 |
Banc of America Mortgage Securities, "2A6", Series 2004-G, 4.657%**, 8/25/2034 | 2,275,000 | 2,272,043 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Bear Stearns Adjustable Rate Mortgage Trust: |
|
|
"13A2", Series 2004-1, 4.272%**, 4/25/2034 | 2,418,430 | 2,375,316 |
"12A5", Series 2004-1, 4.369%**, 4/25/2034 | 1,900,314 | 1,887,263 |
Bear Stearns Commercial Mortgage Securities: |
|
|
"A3", Series 2006-T24, 5.531%, 10/12/2041 | 1,800,000 | 1,812,078 |
"A4", Series 2007-PW17, 5.694%, 6/11/2050 | 826,000 | 843,405 |
"A4", Series 2007-PW18, 5.7%, 6/11/2050 | 1,250,000 | 1,268,502 |
Citicorp Mortgage Securities, Inc., "2A1", Series 2006-5, 5.5%, 10/25/2021 | 7,266,752 | 7,241,776 |
Citigroup Mortgage Loan Trust, Inc.: |
|
|
"1A1A", Series 2007-AR5, 5.622%**, 4/25/2037 | 1,817,529 | 1,827,111 |
"1CB2", Series 2004-NCM2, 6.75%, 8/25/2034 | 283,816 | 291,709 |
Countrywide Alternative Loan Trust: |
|
|
"A1", Series 2004-1T1, 5.0%, 2/25/2034 | 474,062 | 466,211 |
"3A11", Series 2005-20CB, 5.165%**, 7/25/2035 | 2,024,288 | 2,008,486 |
"1A5", Series 2003-J1, 5.25%, 10/25/2033 | 456,929 | 456,830 |
"4A3", Series 2005-43, 5.714%**, 10/25/2035 | 681,751 | 671,526 |
"A1", Series 2004-35T2, 6.0%, 2/25/2035 | 508,503 | 517,082 |
"3A5", Series 2005-28CB, 6.0%, 8/25/2035 | 2,165,173 | 2,174,418 |
"1A4", Series 2006-43CB, 6.0%, 2/25/2037 | 1,199,695 | 1,196,854 |
Countrywide Home Loans, "A6", Series 2003-57, 5.5%, 1/25/2034 | 127,794 | 127,813 |
CS First Boston Mortgage Securities Corp., "A3", Series 2005-C5, 5.1%**, 8/15/2038 | 2,000,000 | 1,978,949 |
First Horizon Alternative Mortgage Securities Trust, "1A7", Series 2006-FA8, 6.0%, 2/25/2037 | 2,050,000 | 2,055,251 |
First Horizon Mortgage Pass-Through Trust, "1A15", Series 2006-2, 6.0%, 8/25/2036 | 2,774,053 | 2,801,334 |
Greenwich Capital Commercial Funding Corp.: |
|
|
"A4", Series 2005-GG3, 4.799%, 8/10/2042 | 2,000,000 | 1,924,070 |
"A2", Series 2007-GG9, 5.381%, 3/10/2039 | 1,250,000 | 1,256,487 |
"AM", Series 2007-GG11, 5.867%, 12/10/2049 | 1,500,000 | 1,506,592 |
GS Mortgage Securities Corp. II: |
|
|
"AAB", Series 2006-GG8, 5.535%, 11/10/2039 | 1,800,000 | 1,822,216 |
"A4", Series 2007-GG10, 5.799%**, 8/10/2045 | 4,500,000 | 4,654,219 |
GSR Mortgage Loan Trust, "4A5", Series 2005-AR6, 4.551%**, 9/25/2035 | 1,025,000 | 1,008,940 |
| Principal Amount ($)(a) | Value ($) |
|
| |
JPMorgan Alternative Loan Trust, "2A4", Series 2006-S1, 5.5%, 2/25/2021 | 2,625,243 | 2,599,875 |
JPMorgan Chase Commercial Mortgage Securities Corp.: |
|
|
"ASB", Series 2007-CB20, 5.688%, 2/12/2051 | 3,750,000 | 3,816,213 |
"A4", Series 2007-C1, 5.716%, 2/15/2051 | 1,000,000 | 1,015,095 |
"A4", Series 2007-CB20, 5.794%, 2/12/2051 | 295,000 | 303,314 |
LB-UBS Commercial Mortgage Trust: |
|
|
"A2", Series 2005-C2, 4.821%, 4/15/2030 | 133,125 | 132,727 |
"A2", Series 2006-C7, 5.3%, 11/15/2038 | 880,000 | 883,534 |
"A4", Series 2007-C6, 5.858%, 7/15/2040 | 1,385,000 | 1,432,435 |
Master Adjustable Rate Mortgages Trust, "2A1", Series 2007-1, 5.976%**, 11/25/2036 | 2,974,077 | 3,007,327 |
Master Alternative Loans Trust, "5A1", Series 2005-1, 5.5%, 1/25/2020 | 895,040 | 881,078 |
Merrill Lynch/Countrywide Commercial Mortgage Trust, "A2", Series 2006-4, 5.112%, 12/12/2049 | 795,000 | 792,252 |
MLCC Mortgage Investors, Inc., "2A", Series 2005-2, 4.25%**, 10/25/2035 | 2,957,119 | 2,897,184 |
Structured Adjustable Rate Mortgage Loan Trust: |
|
|
"6A3", Series 2005-21, 5.4%, 11/25/2035 | 900,000 | 841,292 |
"1A1", Series 2005-17, 5.714%**, 8/25/2035 | 1,164,925 | 1,158,559 |
Structured Asset Securities Corp., "4A1", Series 2005-6, 5.0%, 5/25/2035 | 142,615 | 136,866 |
Wachovia Bank Commercial Mortgage Trust: |
|
|
"APB", Series 2006-C23, 5.446%, 1/15/2045 | 2,100,000 | 2,115,130 |
"APB", Series 2007-C34, 5.617%, 5/15/2046 | 2,875,000 | 2,910,838 |
Wachovia Mortgage Loan Trust LLC, "1A1", Series 2006-A, 5.477%**, 5/20/2036 | 2,753,568 | 2,733,514 |
Washington Mutual Mortgage Pass-Through Certificates Trust: |
|
|
"A6", Series 2004-AR4, 3.795%**, 6/25/2034 | 190,000 | 187,715 |
"A6", Series 2003-AR10, 4.056%**, 10/25/2033 | 1,620,000 | 1,610,542 |
"1A6", Series 2005-AR12, 4.835%**, 10/25/2035 | 1,880,000 | 1,862,356 |
"1A3", Series 2005-AR16, 5.101%**, 12/25/2035 | 1,005,000 | 1,001,450 |
Wells Fargo Mortgage Backed Securities Trust: |
|
|
"A3", Series 2006-1, 5.0%, 3/25/2021 | 1,617,717 | 1,594,969 |
"A1", Series 2005-6, 5.25%, 8/25/2035 | 2,318,388 | 2,284,234 |
"1A1", Series 2006-AR12, 6.025%**, 9/25/2036 | 2,139,103 | 2,164,610 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $85,281,732) | 85,762,065 | |
| Principal Amount ($)(a) | Value ($) |
|
| |
Collateralized Mortgage Obligations 2.8% | ||
Fannie Mae Whole Loan, "1A1", Series 2004-W15, 6.0%, 8/25/2044 | 695,010 | 721,875 |
Federal Home Loan Mortgage Corp.: |
|
|
"OS", Series 3102, Principal Only, Zero Coupon, 1/15/2036 | 4,950,000 | 3,958,736 |
"DE", Series 3027, 5.0%, 9/15/2025 | 2,500,000 | 2,385,703 |
"H", Series 2278, 6.5%, 1/15/2031 | 22,715 | 23,454 |
Federal National Mortgage Association, "CA", Series 2003-2, 5.0%, 12/25/2016 | 3,736,861 | 3,736,089 |
Government National Mortgage Association: |
|
|
"CK", Series 2007-31, 5.0%, 5/16/2037 | 3,000,000 | 2,890,703 |
"Z" Series, 2007- 72, 5.5%, 9/20/2035 | 1,716,124 | 1,555,674 |
Total Collateralized Mortgage Obligations (Cost $14,879,353) | 15,272,234 | |
| ||
Senior Loans** 0.3% | ||
Advanced Medical Optics, Inc, Term Loan B, LIBOR plus 1.75%, 5.974%, 4/2/2014 | 15,700 | 14,792 |
Aleris International, Inc., Term Loan B, LIBOR plus 2.375%, 6.599%, 12/14/2013 | 59,849 | 54,402 |
Bausch & Lomb, Inc.: |
|
|
Term Delay Draw, LIBOR plus 3.25%, 7.474%, 4/11/2015 | 10,000 | 9,975 |
Term Loan B, LIBOR plus 3.25%, 7.474%, 4/11/2015 | 44,000 | 43,860 |
Buffets, Inc.: |
|
|
Letter of Credit, 7.7%, 5/1/2013 | 23,489 | 19,519 |
Term Loan B, 7.74%, 1/13/2011 | 206,092 | 171,263 |
Dollar General Corp., Term Loan B1, LIBOR plus 2.75%, 6.974%, 7/6/2014 | 25,000 | 23,017 |
Energy Future Holdings Corp.: |
|
|
Term Loan B1, LIBOR plus 3.5%, 7.724%, 10/10/2014 | 250,000 | 245,694 |
Term Loan B3, LIBOR plus 3.5%, 7.724%, 10/10/2014 | 165,000 | 162,629 |
First Data Corp., Term Loan B1, LIBOR plus 2.75%, 6.974%, 9/17/2014 | 84,400 | 80,214 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 6.474%, 9/16/2013 | 14,887 | 13,597 |
Golden Nugget, 8.22%, 6/16/2014 | 35,000 | 31,850 |
Hawker Beechcraft, Inc.: |
|
|
Letter of Credit, LIBOR plus 2.0%, 6.224%, 3/26/2014 | 1,959 | 1,881 |
Term Loan, LIBOR plus 2.0%, 6.224%, 3/26/2014 | 22,983 | 21,879 |
HCA, Inc., Term Loan A1, 6.83%, 11/18/2012 | 89,675 | 85,304 |
IASIS Healthcare LLC, 10.315%, 6/15/2014 | 73,804 | 69,561 |
Local TV On Satellite LLC, Term Loan B, LIBOR plus 2.25%, 6.474%, 5/7/2013 | 14,775 | 13,944 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Longview Power LLC: |
|
|
Demand Draw, 7.125%, 4/1/2014 | 17,448 | 16,902 |
Term Loan B, 7.25%, 4/1/2014 | 25,000 | 24,229 |
Letter of Credit, 7.125%, 4/1/2014 | 13,333 | 12,919 |
Rail America, Inc., 7.81%, 10/2/2008 | 45,000 | 44,213 |
Sabre, Inc., Term Loan B, LIBOR plus 2.25%, 6.474%, 9/30/2014 | 23,027 | 20,985 |
Symbion, Inc.: |
|
|
Term Loan A, 8.21%, 8/23/2013 | 34,912 | 33,953 |
Term Loan B, 8.21%, 8/23/2014 | 34,912 | 33,821 |
Telesat Canada, Inc.: |
|
|
Term Loan, LIBOR plus 3.0%, 7.224%, 10/31/2014 | 61,102 | 61,289 |
8.09%, 9/1/2014 | 13,780 | 13,477 |
9.0%, 10/31/2008 | 225,000 | 216,563 |
Tribune Co., Term Loan B, 8.243%, 5/24/2014 | 49,538 | 42,676 |
Total Senior Loans (Cost $1,642,039) | 1,584,408 | |
| ||
Government & Agency Obligations 5.3% | ||
US Government Sponsored Agencies 1.4% | ||
Federal Home Loan Bank, 4.375%, 10/22/2010 | 1,000,000 | 1,020,026 |
Federal Home Loan Mortgage Corp., 5.5%, 8/20/2012 | 2,000,000 | 2,131,926 |
Federal National Mortgage Association, 4.875%, 5/15/2012 | 4,000,000 | 4,156,100 |
| 7,308,052 | |
US Treasury Obligations 3.9% | ||
US Treasury Bills: |
|
|
3.7%***,1/17/2008 (e) | 1,539,000 | 1,537,308 |
2.42%***, 1/17/2008 (e) | 214,000 | 213,770 |
2.201%***, 1/17/2008 (e) | 5,000 | 4,995 |
2.1%***,1/17/2008 (e) | 69,000 | 68,936 |
2.358%***, 1/17/2008 (e) | 1,000 | 999 |
2.47%***, 1/17/2008 (e) | 756,000 | 755,170 |
2.54%***, 1/17/2008 (e) | 94,000 | 93,894 |
2.7%***, 1/17/2008 (e) | 6,000 | 5,993 |
2.2%***, 1/17/2008 (e) | 4,591,000 | 4,586,511 |
US Treasury Bonds: |
|
|
5.0%, 5/15/2037 (c) | 3,500,000 | 3,814,727 |
4.5%, 5/15/2017 | 1,000,000 | 1,036,484 |
US Treasury Notes: |
|
|
4.0%, 9/30/2009 (c) | 4,000,000 | 4,063,752 |
4.625%, 7/31/2012 | 1,000,000 | 1,050,000 |
4.25%, 9/30/2012 (c) | 3,500,000 | 3,622,773 |
| 20,855,312 | |
Total Government & Agency Obligations (Cost $27,876,075) | 28,163,364 |
| Units | Value ($) |
|
| |
Other Investments 0.1% | ||
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 170,000 | 143,534 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 6/15/2008, 13.0% to 12/15/2012 | 270,000 | 148,500 |
Total Other Investments (Cost $339,117) | 292,034 |
|
| Value ($) |
|
| |
Closed End Investment Company 0.0% | ||
Apollo Investment Corp. (Cost $166,126) | 8,117 | 138,395 |
| ||
Securities Lending Collateral 2.4% | ||
Daily Assets Fund Institutional, 5.03% (f) (g) (Cost $12,596,375) | 12,596,375 | 12,596,375 |
|
| Value ($) |
|
| |
Cash Equivalents 4.9% | ||
Cash Management QP Trust, 4.67% (f) (Cost $26,470,821) | 26,470,821 | 26,470,821 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $493,877,931)+ | 101.6 | 543,639,927 |
Other Assets and Liabilities, Net | (1.6) | (8,419,504) |
Net Assets | 100.0 | 535,220,423 |
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 190,000 | USD | 190,156 | 142,500 |
Radnor Holdings Corp. | 11.0% | 3/15/2010 | 40,000 | USD | 27,743 | 300 |
|
|
|
| | 217,899 | 142,800 |
*** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $496,337,428. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $47,302,499. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $63,067,617 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $15,765,118.
(a) Principal amount is stated in US dollars unless otherwise noted.
(b) Securities with the same description are the same corporate entity but trade on different stock exchanges.
(c) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $12,308,657 which is 2.3% of net assets.
(d) Security has a deferred interest payment of $15,343 from April 1, 2006.
(e) At December 31, 2007, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(f) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(g) Represents collateral held in connection with securities lending. Earned income by the Portfolio is net of borrower rebates.
(h) Security issued in lieu of interest payment due 12/15/07, which has been deferred until 3/15/08. This security is deemed to be non-income producing.
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
CVA: Certificaten van Aandelen
GDR: Global Depositary Receipt
LIBOR: Represents the London InterBank Offered Rate.
PIK: Denotes that all or a portion of the income is paid in-kind.
Principal Only: Principal Only (PO) bonds represent the "principal only" portion of payments on a pool of underlying mortgage or mortgage-backed securities.
REIT: Real Estate Investment Trust
At December 31, 2007, the Portfolio had unfunded loan commitments of $24,457 which could be extended at the option of the borrower, pursuant to the following loan agreement:
Borrower | Unfunded Loan Commitment ($) | Value ($) | Unrealized Depreciation ($) |
Bausch & Lomb, Inc., Term Delay Draw, 4/11/2015 | 9,975 | 9,975 | — |
Longview Power LLC, Term Delay Draw, 4/1/2014 | 9,286 | 8,931 | (355) |
Telesat Canada, Inc., Term Delay Draw 9/1/2014 | 5,196 | 5,006 | (190) |
Total | 24,457 | 23,912 | (545) |
At December 31, 2007, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Canadian Government Bond | 3/19/2008 | 375 | 43,691,904 | 43,664,826 | (27,078) |
10 Year US Treasury Note | 3/19/2008 | 115 | 13,004,209 | 13,039,922 | 35,713 |
DAX Index | 3/20/2008 | 3 | 872,911 | 893,075 | 20,164 |
DJ Euro Stoxx 50 Index | 3/20/2008 | 8 | 510,812 | 518,735 | 7,923 |
EOE Dutch Stock Index | 1/18/2008 | 66 | 9,783,926 | 9,976,651 | 192,725 |
Hang Seng Stock Index | 1/30/2008 | 56 | 9,903,505 | 10,022,315 | 118,810 |
Nikkei 225 CME Index | 3/13/2008 | 1 | 75,954 | 76,025 | 71 |
Russell 2000 Index | 3/19/2008 | 1 | 385,454 | 386,100 | 646 |
S&P 500 Index | 3/19/2008 | 21 | 7,747,040 | 7,755,300 | 8,260 |
S&P/MIB Index | 3/20/2008 | 9 | 2,548,540 | 2,560,766 | 12,226 |
SPI 200 Equity Index | 3/20/2008 | 1 | 137,190 | 139,347 | 2,157 |
30 Year US Treasury Bond | 3/19/2008 | 60 | 6,995,987 | 6,982,500 | (13,487) |
United Kingdom Treasury Bond | 3/27/2008 | 170 | 36,887,260 | 37,302,060 | 414,800 |
Total net unrealized appreciation | 772,930 |
At December 31, 2007, the open futures contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Federal Republic of Germany Bond | 3/6/2008 | 186 | 30,854,555 | 30,759,287 | 95,268 |
2 Year US Treasury Note | 3/31/2008 | 82 | 17,195,407 | 17,240,500 | (45,093) |
10 Year Australian Bond | 3/17/2008 | 309 | 26,565,946 | 26,505,161 | 60,785 |
FTSE 100 Index | 3/20/2008 | 46 | 5,784,199 | 5,910,690 | (126,491) |
2 Year Federal Republic of Germany Bond | 3/6/2008 | 559 | 84,528,484 | 84,470,606 | 57,878 |
IBEX 35 Index | 1/18/2008 | 3 | 669,629 | 662,769 | 6,860 |
10 Year Japan Government Bond | 3/11/2008 | 2 | 2,448,144 | 2,449,268 | (1,124) |
Russell E Mini 2000 Index | 3/20/2008 | 9 | 682,267 | 694,980 | (12,713) |
S&P/TSE 60 Index | 3/19/2008 | 20 | 3,191,904 | 3,297,026 | (105,122) |
SPI 200 Equity Index | 3/20/2008 | 22 | 3,011,919 | 3,065,625 | (53,706) |
TOPIX Index | 3/14/2008 | 21 | 2,759,166 | 2,763,282 | (4,116) |
Total net unrealized depreciation | (127,574) |
At December 31, 2007, open credit default swap contracts sold were as follows:
Effective/Expiration Date | Notional Amount ($) | Cash Flows Received by the Portfolio | Underlying Debt Obligation | Unrealized (Depreciation) ($) |
12/15/2007 12/20/2008 | 70,0001 | Fixed — 2.9% | Tenet Healthcare Corp. 7.375%, 2/1/2013 | (357) |
10/3/2007 12/20/2008 | 75,0002 | Fixed — 3.2% | General Motors Corp. 7.125%, 7/15/2013 | (376) |
10/4/2007 12/20/2008 | 80,0003 | Fixed — 2.6% | General Motors Corp. 7.125%, 7/15/2013 | (985) |
10/20/2007 12/20/2008 | 150,0001 | Fixed — 3.06% | General Motors Corp. 7.125%, 7/15/2013 | (1,189) |
10/9/2007 12/20/2008 | 75,0004 | Fixed — 3.1% | Ford Motor Co. 6.5%, 8/1/2018 | (345) |
10/5/2007 12/20/2008 | 45,0002 | Fixed — 3.15% | Ford Motor Co. 6.5%, 8/1/2018 | (185) |
10/20/2007 12/20/2008 | 150,0001 | Fixed — 3.05% | Ford Motor Co. 6.5%, 8/1/2018 | (943) |
12/13/2007 12/20/2009 | 25,0005 | Fixed — 5.05% | Ford Motor Co. 6.5%, 8/1/2018 | (408) |
10/23/2007 12/20/2008 | 85,0006 | Fixed — 4.65% | Ford Motor Co. 6.5%, 8/1/2018 | (1,030) |
Total unrealized depreciation | (5,818) |
Counterparties: 1 Lehman Brothers, Inc. 2 JP Morgan Chase Securities, Inc. 3 Citigroup Global Markets Inc. 4 Goldman Sachs & Co. 5 Merrill Lynch, Pierce, Fenner & Smith, Inc. 6 Morgan Stanley Co., Inc. |
At December 31, 2007 the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation (US$) | ||
EUR | 253,000 | | USD | 376,140 | | 1/3/2008 | | 6,220 |
USD | 295,030 | | EUR | 205,400 | | 1/3/2008 | | 5,292 |
SEK | 4,971,000 | | USD | 777,119 | | 3/19/2008 | | 7,607 |
USD | 13,477,968 | | AUD | 15,726,000 | | 3/19/2008 | | 261,620 |
USD | 473,788 | | CAD | 479,000 | | 3/19/2008 | | 11,872 |
USD | 7,439,052 | | EUR | 5,164,000 | | 3/19/2008 | | 116,507 |
USD | 608,544 | | NOK | 3,319,000 | | 3/19/2008 | | 1,341 |
USD | 7,732,510 | | NOK | 43,217,000 | | 3/19/2008 | | 208,866 |
USD | 2,359,500 | | NZD | 3,146,000 | | 3/19/2008 | | 39,286 |
USD | 3,121,032 | | SGD | 4,474,000 | | 3/19/2008 | | 2,887 |
USD | 10,183,884 | | SGD | 14,787,000 | | 3/19/2008 | | 140,971 |
Total unrealized appreciation | 802,469 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized (Depreciation) (US$) | ||
JPY | 2,100,000 | | USD | 18,579 | | 1/4/2008 | | (227) |
EUR | 91,475 | | USD | 133,500 | | 2/4/2008 | | (320) |
CAD | 3,682,000 | | USD | 3,664,046 | | 3/19/2008 | | (69,148) |
CHF | 4,010,000 | | USD | 3,556,541 | | 3/19/2008 | | (1,533) |
CHF | 18,127,000 | | USD | 15,786,357 | | 3/19/2008 | | (297,733) |
JPY | 278,715,000 | | USD | 2,515,819 | | 3/19/2008 | | (645) |
JPY | 1,901,252,000 | | USD | 16,980,922 | | 3/19/2008 | | (185,116) |
SEK | 13,434,000 | | USD | 2,044,407 | | 3/19/2008 | | (35,182) |
USD | 935,530 | | AUD | 1,060,000 | | 3/19/2008 | | (9,422) |
USD | 2,716,181 | | EUR | 1,849,000 | | 3/19/2008 | | (10,870) |
USD | 2,436,566 | | GBP | 1,194,000 | | 3/19/2008 | | (64,895) |
USD | 7,192,000 | | GBP | 3,596,000 | | 3/19/2008 | | (49,179) |
Total unrealized depreciation | (724,270) |
Currency Abbreviations |
AUD Australian Dollar CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona SGD Singapore Dollar USD United States Dollar |
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 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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $454,810,735) — including $12,308,657 of securities loaned | $ 504,572,731 |
Investment in Daily Assets Fund Institutional (cost $12,596,375)* | 12,596,375 |
Investment in Cash Management QP Trust (cost $26,470,821) | 26,470,821 |
Total investments, at value (cost $493,877,931) | 543,639,927 |
Cash | 799,601 |
Foreign currency, at value (cost $7,567,944) | 7,558,123 |
Receivable for investments sold | 1,986,490 |
Dividends receivable | 307,048 |
Interest receivable | 1,496,730 |
Unrealized appreciation on forward foreign currency exchange contracts | 802,469 |
Foreign taxes recoverable | 11,087 |
Receivable for Portfolio shares sold | 17,024 |
Receivable for variation margin on open futures contracts | 477,427 |
Net receivable on closed forward foreign currency exchange contracts | 12,449 |
Due from Advisor | 2,661 |
Other assets | 12,526 |
Total assets | 557,123,562 |
Liabilities | |
Payable upon return of securities loaned | 12,596,375 |
Payable for investments purchased | 7,397,705 |
Payable for Portfolio shares redeemed | 664,574 |
Unrealized depreciation on forward foreign currency exchange contracts | 724,270 |
Unrealized depreciation on unfunded loan commitments | 545 |
Unrealized depreciation on credit default swap contracts | 5,818 |
Accrued management fee | 192,823 |
Other accrued expenses and payables | 321,029 |
Total liabilities | 21,903,139 |
Net assets, at value | $ 535,220,423 |
Net Assets Consist of | |
Undistributed net investment income | 17,895,386 |
Net unrealized appreciation (depreciation) on: Investments | 49,761,996 |
Futures | 645,356 |
Credit default swaps | (5,818) |
Unfunded loan commitments | (545) |
Foreign currency | 106,861 |
Accumulated net realized gain (loss) | (5,420,370) |
Paid-in capital | 472,237,557 |
Net assets, at value | $ 535,220,423 |
Class A Net Asset Value, offering and redemption price per share ($527,938,536 ÷ 21,278,440 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 24.81 |
Class B Net Asset Value, offering and redemption price per share ($7,281,887 ÷ 293,818 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 24.78 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $13,679) | $ 5,988,371 |
Interest (net of foreign taxes withheld of $4,067) | 13,748,757 |
Interest — Cash Management QP Trust | 696,014 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 108,160 |
Total Income | 20,541,302 |
Expenses: Management fee | 2,666,534 |
Custodian fee | 70,316 |
Services to shareholders | 1,280 |
Distribution service fee (Class B) | 38,042 |
Record keeping fees (Class B) | 18,909 |
Professional fees | 80,187 |
Trustees' fees and expenses | 25,411 |
Reports to shareholders | 174,441 |
Other | 4,499 |
Total expenses before expense reductions | 3,079,619 |
Expense reductions | (41,593) |
Total expenses after expense reductions | 3,038,026 |
Net investment income (loss) | 17,503,276 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 50,500,543 |
Futures | 1,121,607 |
Written options | (8,062) |
Credit default swaps | (545,020) |
Foreign currency | 347,020 |
Payments by affiliates (see Note I) | 11,348 |
| 51,427,436 |
Change in net unrealized appreciation (depreciation) on: Investments | (40,481,165) |
Futures | 625,903 |
Credit default swaps | (28,893) |
Unfunded loan commitments | (545) |
Foreign currency | (29,599) |
| (39,914,299) |
Net gain (loss) | 11,513,137 |
Net increase (decrease) in net assets resulting from operations | $ 29,016,413 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
| ||
Operations: Net investment income (loss) | $ 17,503,276 | $ 19,398,498 |
Net realized gain (loss) | 51,427,436 | 27,673,450 |
Change in net unrealized appreciation (depreciation) | (39,914,299) | 16,069,946 |
Net increase (decrease) in net assets resulting from operations | 29,016,413 | 63,141,894 |
Distributions to shareholders from: Net investment income: Class A | (18,973,533) | (15,934,054) |
Class B | (849,365) | (705,320) |
Total distributions | (19,822,898) | (16,639,374) |
Portfolio share transactions: Class A Proceeds from shares sold | 13,218,397 | 7,544,406 |
Reinvestment of distributions | 18,973,533 | 15,934,054 |
Cost of shares redeemed | (113,345,811) | (120,785,402) |
Net increase (decrease) in net assets from Class A share transactions | (81,153,881) | (97,306,942) |
Class B Proceeds from shares sold | 575,499 | 1,059,376 |
Reinvestment of distributions | 849,365 | 705,320 |
Cost of shares redeemed | (25,041,162) | (7,245,826) |
Net increase (decrease) in net assets from Class B share transactions | (23,616,298) | (5,481,130) |
Increase (decrease) in net assets | (95,576,664) | (56,285,552) |
Net assets at beginning of period | 630,797,087 | 687,082,639 |
Net assets at end of period (including undistributed net investment income of $17,895,386 and $19,394,367, respectively) | $ 535,220,423 | $ 630,797,087 |
Other Information | ||
Class A Shares outstanding at beginning of period | 24,544,133 | 28,729,438 |
Shares sold | 536,248 | 324,532 |
Shares issued to shareholders in reinvestment of distributions | 792,545 | 696,418 |
Shares redeemed | (4,594,486) | (5,206,255) |
Net increase (decrease) in Class A shares | (3,265,693) | (4,185,305) |
Shares outstanding at end of period | 21,278,440 | 24,544,133 |
Class B Shares outstanding at beginning of period | 1,244,941 | 1,479,683 |
Shares sold | 23,371 | 45,760 |
Shares issued to shareholders in reinvestment of distributions | 35,405 | 30,773 |
Shares redeemed | (1,009,899) | (311,275) |
Net increase (decrease) in Class B shares | (951,123) | (234,742) |
Shares outstanding at end of period | 293,818 | 1,244,941 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 24.46 | $ 22.75 | $ 22.37 | $ 21.32 | $ 18.66 |
Income (loss) from investment operations: Net investment incomea | .74 | .69d | .59 | .47 | .37 |
Net realized and unrealized gain (loss) | .42 | 1.60 | .34 | .93 | 2.90 |
Total from investment operations | 1.16 | 2.29 | .93 | 1.40 | 3.27 |
Less distributions from: Net investment income | (.81) | (.58) | (.55) | (.35) | (.61) |
Net asset value, end of period | $ 24.81 | $ 24.46 | $ 22.75 | $ 22.37 | $ 21.32 |
Total Return (%) | 4.84b | 10.24b,d | 4.30b | 6.64 | 18.10 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 528 | 600 | 653 | 622 | 667 |
Ratio of expenses before expense reductions (%) | .52 | .55 | .55 | .59 | .59 |
Ratio of expenses after expense reductions (%) | .51 | .51 | .53 | .59 | .59 |
Ratio of net investment income (%) | 3.00 | 2.99d | 2.66 | 2.18 | 1.88 |
Portfolio turnover rate (%) | 190c | 108 | 121c | 131c | 102c |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c The portfolio turnover rate including mortgage dollar roll transactions was 199%, 122%, 140% and 108% for the years ended December 31, 2007, December 31, 2005, December 31, 2004 and December 31, 2003, respectively. d Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.024 per share and an increase in the ratio of net investment income of 0.10%. Excluding this non-recurring income, total return would have been 0.10% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 24.43 | $ 22.72 | $ 22.33 | $ 21.28 | $ 18.64 |
Income (loss) from investment operations: Net investment incomea | .65 | .60d | .51 | .39 | .28 |
Net realized and unrealized gain (loss) | .41 | 1.60 | .35 | .92 | 2.92 |
Total from investment operations | 1.06 | 2.20 | .86 | 1.31 | 3.20 |
Less distributions from: Net investment income | (.71) | (.49) | (.47) | (.26) | (.56) |
Net asset value, end of period | $ 24.78 | $ 24.43 | $ 22.72 | $ 22.33 | $ 21.28 |
Total Return (%) | 4.43b | 9.82b,d | 3.90b | 6.26 | 17.66 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 7 | 30 | 34 | 33 | 21 |
Ratio of expenses before expense reductions (%) | .89 | .93 | .95 | .97 | .99 |
Ratio of expenses after expense reductions (%) | .88 | .89 | .91 | .97 | .99 |
Ratio of net investment income (%) | 2.63 | 2.61d | 2.28 | 1.80 | 1.48 |
Portfolio turnover rate (%) | 190c | 108 | 121c | 131c | 102c |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c The portfolio turnover rate including mortgage dollar roll transactions was 199%, 122%, 140% and 108% for the years ended December 31, 2007, December 31, 2005, December 31, 2004 and December 31, 2003, respectively. d Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.024 per share and an increase in the ratio of net investment income of 0.10%. Excluding this non-recurring income, total return would have been 0.10% lower. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual Portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .70% and 1.08% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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 | ||
[] 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 reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Blue Chip VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,350 | $13,174 | $19,452 | $16,759 |
Average annual total return | 3.50% | 9.62% | 14.23% | 5.30% | |
Russell 1000 Index | Growth of $10,000 | $10,577 | $12,978 | $18,780 | $18,243 |
Average annual total return | 5.77% | 9.08% | 13.43% | 6.20% | |
DWS Blue Chip VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,315 | $13,032 | $19,089 | $17,362 |
Average annual total return | 3.15% | 9.23% | 13.80% | 10.55% | |
Russell 1000 Index | Growth of $10,000 | $10,577 | $12,978 | $18,780 | $16,877 |
Average annual total return | 5.77% | 9.08% | 13.43% | 9.98% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on June 30, 2002.The accompanying notes are an integral part of the financial statements.
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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 978.60 |
| $ 976.60 |
|
Expenses Paid per $1,000* | $ 3.59 |
| $ 5.73 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.58 |
| $ 1,019.41 |
|
Expenses Paid per $1,000* | $ 3.67 |
| $ 5.85 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Blue Chip VIP | .72% |
| 1.15% |
|
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.
The accompanying notes are an integral part of the financial statements.
Management Summary December 31, 2007
DWS Blue Chip VIP
Except for a period of weakness in late February and early March, equity markets were quite strong during the first half of 2007. By the end of May, most indices were at or near their all-time highs, and positive trends continued through mid-July before drifting lower in the late summer. A rally in September was sparked in part by the first of the US Federal Reserve Board's (the Fed's) three interest rate reductions. Volatility increased in the fourth quarter, as markets responded to further bad news about the potential impact of the subprime mortgage crisis.
For the full year, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14%. Growth stocks, as measured by the Russell 1000® Growth Index, performed significantly better than value stocks, as measured by the Russell 1000® Value Index. With a return of 3.50% (Class A shares, unadjusted for contract charges), the Portfolio underperformed its benchmark, the Russell 1000® Index, which posted a return of 5.77%.
Positioning in the materials and banks sectors made a positive contribution to performance relative to the benchmark. Major detractors were stock selection in transportation, technology hardware & equipment, and consumer durables & apparel.
In materials, which posted the highest return of the 10 sectors in the Russell 1000 Index, holdings that were especially strong were Lyondell Chemical Co.*, which has significant involvement in energy; Southern Copper Co.*; and Celanese Corp. In the financials sector, the Portfolio's performance benefited from not owning many of the worst-performing stocks, particularly those with significant involvement in mortgage lending. Also positive was a position in pharmaceutical Schering-Plough Corp.
In the transportation sector, performance was hurt by positions in several airlines including AMR Corp. and Continental Airlines, Inc. In technology hardware & equipment, the major detractor was printer manufacturer Lexmark International, Inc. Concern about consumer spending led to poor performance of many stocks in the consumer durables & apparel sector; positions that detracted from performance include home builders NVR, Inc. and Centex Corp.* and apparel/accessories marketers Polo Ralph Lauren Corp. and Coach, Inc.*
Robert Wang, Jin Chen, CFA and Julie Abbett
Portfolio Managers, Deutsche Investment Management Americas Inc.
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 Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Russell 1000 Growth Index is an unmanaged, capitalization-weighted index consisting of those stocks in the Russell 1000 Index that have greater-than-average growth orientation.
The Russell 1000 Value Index is an unmanaged index that consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values.
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.
Index returns assume the 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 "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.* As of December 31, 2007, the positions were not held.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Blue Chip VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 97% | 99% |
Cash Equivalents | 3% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
| |
Information Technology | 15% | 13% |
Financials | 15% | 20% |
Health Care | 14% | 13% |
Energy | 14% | 10% |
Industrials | 13% | 11% |
Consumer Discretionary | 11% | 14% |
Consumer Staples | 9% | 7% |
Telecommunication Services | 4% | 5% |
Materials | 3% | 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 43. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Blue Chip VIP
| Shares | Value ($) |
|
| |
Common Stocks 96.9% | ||
Consumer Discretionary 10.5% | ||
Auto Components 0.9% | ||
American Axle & Manufacturing Holdings, Inc. | 2,000 | 37,240 |
Autoliv, Inc. | 11,100 | 585,081 |
Johnson Controls, Inc. | 26,700 | 962,268 |
Lear Corp.* | 21,000 | 580,860 |
| 2,165,449 | |
Hotels Restaurants & Leisure 2.1% | ||
Darden Restaurants, Inc. | 20,100 | 556,971 |
McDonald's Corp. | 51,600 | 3,039,756 |
Yum! Brands, Inc. | 43,200 | 1,653,264 |
| 5,249,991 | |
Household Durables 0.5% | ||
NVR, Inc.* | 2,400 | 1,257,600 |
Leisure Equipment & Products 0.2% | ||
Hasbro, Inc. | 17,600 | 450,208 |
Polaris Industries, Inc. (a) | 3,400 | 162,418 |
| 612,626 | |
Media 2.0% | ||
Comcast Corp. "A"* | 46,200 | 843,612 |
McGraw-Hill Companies, Inc. | 17,500 | 766,675 |
The DIRECTV Group, Inc.* | 149,500 | 3,456,440 |
| 5,066,727 | |
Multiline Retail 1.3% | ||
Big Lots, Inc.* | 69,900 | 1,117,701 |
Dollar Tree Stores, Inc.* | 33,800 | 876,096 |
Family Dollar Stores, Inc. | 67,700 | 1,301,871 |
| 3,295,668 | |
Specialty Retail 2.8% | ||
AutoZone, Inc.* | 19,500 | 2,338,245 |
Best Buy Co., Inc. | 3,100 | 163,215 |
Dick's Sporting Goods, Inc.* | 49,400 | 1,371,344 |
RadioShack Corp. | 93,300 | 1,573,038 |
The Men's Wearhouse, Inc. | 6,700 | 180,766 |
The Sherwin-Williams Co. | 13,600 | 789,344 |
TJX Companies, Inc. | 21,300 | 611,949 |
| 7,027,901 | |
Textiles, Apparel & Luxury Goods 0.7% | ||
Polo Ralph Lauren Corp. | 30,600 | 1,890,774 |
Consumer Staples 8.9% | ||
Beverages 2.5% | ||
Anheuser-Busch Companies, Inc. | 14,900 | 779,866 |
Coca-Cola Enterprises, Inc. | 54,600 | 1,421,238 |
Diageo PLC (ADR) | 800 | 68,664 |
Pepsi Bottling Group, Inc. | 20,400 | 804,984 |
PepsiCo, Inc. | 42,800 | 3,248,520 |
| 6,323,272 | |
Food & Staples Retailing 2.0% | ||
Costco Wholesale Corp. | 23,500 | 1,639,360 |
Kroger Co. | 102,000 | 2,724,420 |
SUPERVALU, Inc. | 2,300 | 86,296 |
Sysco Corp. | 20,600 | 642,926 |
| 5,093,002 | |
| Shares | Value ($) |
|
| |
Food Products 0.3% | ||
Fresh Del Monte Produce, Inc.* | 7,200 | 241,776 |
Kellogg Co. | 2,700 | 141,561 |
The J.M. Smucker Co. | 1,400 | 72,016 |
Wm. Wrigley Jr. Co. | 4,000 | 234,200 |
| 689,553 | |
Household Products 2.1% | ||
Colgate-Palmolive Co. | 43,500 | 3,391,260 |
Kimberly-Clark Corp. | 17,900 | 1,241,186 |
Procter & Gamble Co. | 8,500 | 624,070 |
| 5,256,516 | |
Personal Products 0.1% | ||
Herbalife Ltd. | 8,000 | 322,240 |
Tobacco 1.9% | ||
Altria Group, Inc. | 40,700 | 3,076,106 |
Loews Corp. — Carolina Group | 21,900 | 1,868,070 |
| 4,944,176 | |
Energy 13.1% | ||
Energy Equipment & Services 4.7% | ||
ENSCO International, Inc. | 29,700 | 1,770,714 |
Global Industries Ltd.* | 47,100 | 1,008,882 |
Helmerich & Payne, Inc. | 5,100 | 204,357 |
National-Oilwell Varco, Inc.* | 1,600 | 117,536 |
Noble Corp. | 53,000 | 2,995,030 |
Schlumberger Ltd. | 5,600 | 550,872 |
Tidewater, Inc. | 7,000 | 384,020 |
Transocean, Inc.* | 34,606 | 4,953,849 |
| 11,985,260 | |
Oil, Gas & Consumable Fuels 8.4% | ||
Chevron Corp. | 60,900 | 5,683,797 |
ExxonMobil Corp. | 27,840 | 2,608,330 |
Frontier Oil Corp. | 35,800 | 1,452,764 |
Hess Corp. | 32,700 | 3,298,122 |
Petroleo Brasileiro SA (ADR) (Preferred) | 26,300 | 2,530,586 |
Royal Dutch Shell PLC "A" (ADR) | 31,300 | 2,635,460 |
Sunoco, Inc. | 3,900 | 282,516 |
Tesoro Corp. | 47,800 | 2,280,060 |
Western Refining, Inc. | 7,200 | 174,312 |
Williams Companies, Inc. | 8,300 | 296,974 |
| 21,242,921 | |
Financials 14.7% | ||
Capital Markets 4.2% | ||
Lazard Ltd. "A" | 2,000 | 81,360 |
Morgan Stanley | 91,600 | 4,864,876 |
The Goldman Sachs Group, Inc. | 26,300 | 5,655,815 |
| 10,602,051 | |
Commercial Banks 0.6% | ||
PNC Financial Services Group, Inc. | 17,900 | 1,175,135 |
US Bancorp. | 10,700 | 339,618 |
| 1,514,753 | |
Diversified Financial Services 3.7% | ||
Bank of America Corp. | 87,500 | 3,610,250 |
Citigroup, Inc. | 89,200 | 2,626,048 |
JPMorgan Chase & Co. | 73,600 | 3,212,640 |
| 9,448,938 | |
| Shares | Value ($) |
|
| |
Insurance 5.7% | ||
ACE Ltd. | 31,900 | 1,970,782 |
Berkshire Hathaway, Inc. "B"* | 400 | 1,894,400 |
China Life Insurance Co., Ltd. "H" (ADR) | 9,500 | 726,750 |
Endurance Specialty Holdings Ltd. | 3,100 | 129,363 |
Hartford Financial Services Group, Inc. | 21,600 | 1,883,304 |
MetLife, Inc. | 60,200 | 3,709,524 |
PartnerRe Ltd. | 3,500 | 288,855 |
The Travelers Companies, Inc. | 13,000 | 699,400 |
W.R. Berkley Corp. | 11,300 | 336,853 |
XL Capital Ltd. "A" | 55,200 | 2,777,112 |
| 14,416,343 | |
Real Estate Investment Trusts 0.3% | ||
ProLogis (REIT) | 9,200 | 583,096 |
Vornado Realty Trust (REIT) | 1,700 | 149,515 |
| 732,611 | |
Real Estate Management & Development 0.2% | ||
Jones Lang LaSalle, Inc. | 5,700 | 405,612 |
Health Care 13.8% | ||
Biotechnology 2.0% | ||
Amgen, Inc.* | 23,000 | 1,068,120 |
Gilead Sciences, Inc.* | 84,900 | 3,906,249 |
Onyx Pharmaceuticals, Inc.* | 3,800 | 211,356 |
| 5,185,725 | |
Health Care Equipment & Supplies 1.2% | ||
Baxter International, Inc. | 9,100 | 528,255 |
Becton, Dickinson & Co. | 17,100 | 1,429,218 |
Kinetic Concepts, Inc.* | 19,400 | 1,039,064 |
| 2,996,537 | |
Health Care Providers & Services 5.2% | ||
Aetna, Inc. | 67,100 | 3,873,683 |
Coventry Health Care, Inc.* | 18,800 | 1,113,900 |
Health Net, Inc.* | 31,200 | 1,506,960 |
Humana, Inc.* | 45,500 | 3,426,605 |
McKesson Corp. | 8,400 | 550,284 |
Medco Health Solutions, Inc.* | 27,200 | 2,758,080 |
| 13,229,512 | |
Life Sciences Tools & Services 0.6% | ||
Invitrogen Corp.* | 15,300 | 1,429,173 |
Pharmaceuticals 4.8% | ||
Bristol-Myers Squibb Co. | 144,200 | 3,824,184 |
Eli Lilly & Co. | 25,800 | 1,377,462 |
Endo Pharmaceuticals Holdings, Inc.* | 11,600 | 309,372 |
Merck & Co., Inc. | 33,000 | 1,917,630 |
Pfizer, Inc. | 31,200 | 709,176 |
Schering-Plough Corp. | 97,500 | 2,597,400 |
Sepracor, Inc.* | 56,200 | 1,475,250 |
| 12,210,474 | |
Industrials 12.5% | ||
Aerospace & Defense 6.2% | ||
Boeing Co. | 52,500 | 4,591,650 |
General Dynamics Corp. | 6,300 | 560,637 |
Goodrich Corp. | 5,200 | 367,172 |
Honeywell International, Inc. | 72,200 | 4,445,354 |
Lockheed Martin Corp. | 41,900 | 4,410,394 |
Northrop Grumman Corp. | 15,600 | 1,226,784 |
| 15,601,991 | |
| Shares | Value ($) |
|
| |
Airlines 1.4% | ||
AMR Corp.* | 118,600 | 1,663,958 |
Continental Airlines, Inc. "B"* | 62,200 | 1,383,950 |
Delta Air Lines, Inc.* | 16,100 | 239,729 |
US Airways Group, Inc.* | 26,000 | 382,460 |
| 3,670,097 | |
Commercial Services & Supplies 0.4% | ||
Allied Waste Industries, Inc.* | 48,500 | 534,470 |
Dun & Bradstreet Corp. | 3,000 | 265,890 |
The Brink's Co. | 1,500 | 89,610 |
| 889,970 | |
Construction & Engineering 1.3% | ||
Fluor Corp. | 19,100 | 2,783,252 |
Shaw Group, Inc.* | 6,900 | 417,036 |
| 3,200,288 | |
Electrical Equipment 0.3% | ||
Belden, Inc. | 7,000 | 311,500 |
Emerson Electric Co. | 9,700 | 549,602 |
| 861,102 | |
Industrial Conglomerates 0.8% | ||
General Electric Co. | 51,800 | 1,920,226 |
Teleflex, Inc. | 2,200 | 138,622 |
| 2,058,848 | |
Machinery 1.6% | ||
AGCO Corp.* | 8,600 | 584,628 |
Caterpillar, Inc. | 23,400 | 1,697,904 |
PACCAR, Inc. | 24,950 | 1,359,276 |
Parker Hannifin Corp. | 6,100 | 459,391 |
| 4,101,199 | |
Road & Rail 0.5% | ||
Ryder System, Inc. | 24,700 | 1,161,147 |
Information Technology 15.0% | ||
Communications Equipment 0.6% | ||
Cisco Systems, Inc.* | 7,100 | 192,197 |
Nokia Oyj (ADR) | 33,400 | 1,282,226 |
| 1,474,423 | |
Computers & Peripherals 4.8% | ||
Apple, Inc.* | 20,400 | 4,040,832 |
Hewlett-Packard Co. | 26,700 | 1,347,816 |
International Business Machines Corp. | 54,400 | 5,880,640 |
Lexmark International, Inc. "A"* | 23,600 | 822,696 |
QLogic Corp.* | 6,900 | 97,980 |
| 12,189,964 | |
Electronic Equipment & Instruments 0.8% | ||
Arrow Electronics, Inc.* | 8,600 | 337,808 |
AU Optronics Corp. (ADR) (a) | 50,900 | 977,280 |
Avnet, Inc.* | 12,100 | 423,137 |
LG.Philips LCD Co., Ltd. (ADR)* (a) | 10,200 | 264,996 |
| 2,003,221 | |
Internet Software & Services 1.2% | ||
eBay, Inc.* | 21,200 | 703,628 |
Google, Inc. "A"* | 3,400 | 2,351,032 |
| 3,054,660 | |
IT Services 2.2% | ||
Accenture Ltd. "A" | 102,400 | 3,689,472 |
Computer Sciences Corp.* | 29,700 | 1,469,259 |
MasterCard, Inc. "A" | 2,100 | 451,920 |
| 5,610,651 | |
| Shares | Value ($) |
|
| |
Office Electronics 0.1% | ||
Canon, Inc. (ADR) | 3,100 | 142,073 |
Semiconductors & Semiconductor Equipment 1.9% | ||
Amkor Technology, Inc.* | 20,200 | 172,306 |
Applied Materials, Inc. | 146,900 | 2,608,944 |
MEMC Electronic Materials, Inc.* | 22,300 | 1,973,327 |
Teradyne, Inc.* | 3,400 | 35,156 |
| 4,789,733 | |
Software 3.4% | ||
Compuware Corp.* | 7,400 | 65,712 |
Microsoft Corp. | 220,600 | 7,853,360 |
Symantec Corp.* | 43,500 | 702,090 |
| 8,621,162 | |
Materials 2.7% | ||
Chemicals 2.4% | ||
Celanese Corp. "A" | 30,200 | 1,278,064 |
CF Industries Holdings, Inc. | 16,700 | 1,838,002 |
Eastman Chemical Co. | 7,900 | 482,611 |
Terra Industries, Inc.* | 50,300 | 2,402,328 |
| 6,001,005 | |
Containers & Packaging 0.2% | ||
Packaging Corp. of America | 14,800 | 417,360 |
Metals & Mining 0.1% | ||
Allegheny Technologies, Inc. | 3,600 | 311,040 |
Telecommunication Services 4.1% | ||
Diversified Telecommunication Services 4.0% | ||
AT&T, Inc. | 38,500 | 1,600,060 |
CenturyTel, Inc. | 17,500 | 725,550 |
Embarq Corp. | 39,300 | 1,946,529 |
Telus Corp. | 1,400 | 70,131 |
Verizon Communications, Inc. | 117,300 | 5,124,837 |
Windstream Corp. | 53,900 | 701,778 |
| 10,168,885 | |
Wireless Telecommunication Services 0.1% | ||
Telephone & Data Systems, Inc. | 3,700 | 231,620 |
| Shares | Value ($) |
|
| |
Utilities 1.6% | ||
Electric Utilities 0.6% | ||
American Electric Power Co., Inc. | 9,400 | 437,664 |
Edison International | 11,900 | 635,103 |
FirstEnergy Corp. | 5,800 | 419,571 |
| 1,492,338 | |
Gas Utilities 0.0% | ||
Energen Corp. | 1,200 | 77,076 |
Independent Power Producers & Energy Traders 0.2% | ||
Constellation Energy Group | 5,000 | 512,650 |
Multi-Utilities 0.8% | ||
Sempra Energy | 31,500 | 1,949,221 |
Total Common Stocks (Cost $230,671,239) | 245,187,129 |
| Principal Amount ($) | Value ($) |
|
| |
Government & Agency Obligations 0.3% | ||
US Treasury Bill, 3.7%**, 1/17/2008 (b) (Cost $768,734) | 770,000 | 769,154 |
|
| Value ($) |
|
| |
Securities Lending Collateral 0.3% | ||
Daily Assets Fund Institutional, 5.03% (c) (d) (Cost $788,711) | 788,711 | 788,711 |
| ||
Cash Equivalents 2.9% | ||
Cash Management QP Trust, 4.67% (c) (Cost $7,202,343) | 7,202,343 | 7,202,343 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $239,431,027)+ | 100.4 | 253,947,337 |
Other Assets and Liabilities, Net | (0.4) | (890,573) |
Net Assets | 100.0 | 253,056,764 |
** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $241,305,564. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $12,641,773. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $27,192,713 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $14,550,940.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $766,594 which is 0.3% of net assets.
(b) At December 31, 2007, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(c) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
ADR: American Depositary Receipt
REIT: Real Estate Investment Trust
At December 31, 2007, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Depreciation ($) |
S&P 500 Index | 3/19/2008 | 21 | 7,771,123 | 7,755,300 | (15,823) |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $231,439,973 — including $766,594 of securities loaned) | $ 245,956,283 |
Investment in Daily Assets Fund Institutional (cost $788,711)* | 788,711 |
Investment in Cash Management QP Trust (cost $7,202,343) | 7,202,343 |
Total investments, at value (cost $239,431,027) | 253,947,337 |
Dividends receivable | 232,399 |
Interest receivable | 28,024 |
Receivable for Portfolio shares sold | 31,582 |
Other assets | 6,403 |
Total assets | 254,245,745 |
Liabilities | |
Payable for Portfolio shares redeemed | 98,862 |
Payable upon return of securities loaned | 788,711 |
Payable for daily variation margin on open futures contracts | 43,575 |
Accrued management fee | 141,941 |
Other accrued expenses and payables | 115,892 |
Total liabilities | 1,188,981 |
Net assets, at value | $ 253,056,764 |
Net Assets Consist of | |
Undistributed net investment income | 3,469,179 |
Net unrealized appreciation (depreciation) on: Investments | 14,516,310 |
Futures | (15,823) |
Foreign currency | 12 |
Accumulated net realized gain (loss) | 32,009,773 |
Paid-in capital | 203,077,313 |
Net assets, at value | $ 253,056,764 |
Class A Net Asset Value, offering and redemption price per share ($242,018,245 ÷ 16,515,920 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.65 |
Class B Net Asset Value, offering and redemption price per share ($11,038,519 ÷ 755,480 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.61 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $2,609) | $ 5,315,097 |
Interest | 35,512 |
Interest — Cash Management QP Trust | 377,953 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 37,301 |
Total Income | 5,765,863 |
Expenses: Management fee | 2,018,922 |
Custodian fee | 30,100 |
Distribution service fee (Class B) | 58,995 |
Record keeping fees (Class B) | 31,007 |
Services to shareholders | 536 |
Professional fees | 67,754 |
Trustees' fees and expenses | 35,505 |
Reports to shareholders | 46,441 |
Other | 18,152 |
Total expenses before expense reductions | 2,307,412 |
Expense reductions | (5,737) |
Total expenses after expense reductions | 2,301,675 |
Net investment income (loss) | 3,464,188 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 32,640,003 |
Futures | 415,810 |
| 33,055,813 |
Change in net unrealized appreciation (depreciation) on: Investments | (21,613,432) |
Futures | (32,904) |
Foreign currency | 12 |
| (21,646,324) |
Net gain (loss) | 11,409,489 |
Net increase (decrease) in net assets resulting from operations | $ 14,873,677 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 3,464,188 | $ 3,670,062 |
Net realized gain (loss) | 33,055,813 | 40,582,255 |
Change in net unrealized appreciation (depreciation) | (21,646,324) | 5,884,664 |
Net increase (decrease) in net assets resulting from operations | 14,873,677 | 50,136,981 |
Distributions to shareholders from: Net investment income: Class A | (3,290,254) | (2,723,182) |
Class B | (315,334) | (213,761) |
Net realized gain: Class A | (34,899,465) | (15,496,612) |
Class B | (5,204,548) | (2,298,427) |
Total distributions | (43,709,601) | (20,731,982) |
Portfolio share transactions: Class A Proceeds from shares sold | 16,482,598 | 28,436,502 |
Reinvestment of distributions | 38,189,719 | 18,219,794 |
Cost of shares redeemed | (100,561,920) | (52,068,358) |
Net increase (decrease) in net assets from Class A share transactions | (45,889,603) | (5,412,062) |
Class B Proceeds from shares sold | 5,401,154 | 8,559,228 |
Reinvestment of distributions | 5,519,882 | 2,512,188 |
Cost of shares redeemed | (42,573,159) | (13,802,899) |
Net increase (decrease) in net assets from Class B share transactions | (31,652,123) | (2,731,483) |
Increase (decrease) in net assets | (106,377,650) | 21,261,454 |
Net assets at beginning of period | 359,434,414 | 338,172,960 |
Net assets at end of period (including undistributed net investment income of $3,469,179 and $3,565,164, respectively) | $ 253,056,764 | $ 359,434,414 |
Other Information | ||
Class A Shares outstanding at beginning of period | 19,412,716 | 19,752,422 |
Shares sold | 1,075,933 | 1,871,977 |
Shares issued to shareholders in reinvestment of distributions | 2,657,601 | 1,231,899 |
Shares redeemed | (6,630,330) | (3,443,582) |
Net increase (decrease) in Class A shares | (2,896,796) | (339,706) |
Shares outstanding at end of period | 16,515,920 | 19,412,716 |
Class B Shares outstanding at beginning of period | 2,824,828 | 2,986,497 |
Shares sold | 372,774 | 566,366 |
Shares issued to shareholders in reinvestment of distributions | 384,392 | 169,857 |
Shares redeemed | (2,826,514) | (897,892) |
Net increase (decrease) in Class B shares | (2,069,348) | (161,669) |
Shares outstanding at end of period | 755,480 | 2,824,828 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 16.17 | $ 14.88 | $ 13.65 | $ 11.84 | $ 9.37 |
Income (loss) from investment operations: Net investment incomea | .17 | .17b | .14 | .13 | .08 |
Net realized and unrealized gain (loss) | .36 | 2.07 | 1.22 | 1.76 | 2.45 |
Total from investment operations | .53 | 2.24 | 1.36 | 1.89 | 2.53 |
Less distributions from: Net investment income | (.18) | (.14) | (.13) | (.08) | (.06) |
Net realized gains | (1.87) | (.81) | — | — | — |
Total distributions | (2.05) | (.95) | (.13) | (.08) | (.06) |
Net asset value, end of period | $ 14.65 | $ 16.17 | $ 14.88 | $ 13.65 | $ 11.84 |
Total Return (%) | 3.50 | 15.65b | 10.06 | 16.04 | 27.25 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 242 | 314 | 294 | 283 | 242 |
Ratio of expenses (%) | .71 | .71 | .70 | .70 | .71 |
Ratio of net investment income (%) | 1.13 | 1.12b | 1.00 | 1.08 | .82 |
Portfolio turnover rate (%) | 275 | 226 | 288 | 249 | 182 |
a Based on average shares outstanding during the period. b Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.003 per share and an increase in the ratio of net investment income of 0.02%. Excluding this non-recurring income, total return would have been 0.02% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 16.12 | $ 14.83 | $ 13.60 | $ 11.80 | $ 9.35 |
Income (loss) from investment operations: Net investment incomea | .11 | .11b | .09 | .09 | .04 |
Net realized and unrealized gain (loss) | .36 | 2.07 | 1.22 | 1.74 | 2.45 |
Total from investment operations | .47 | 2.18 | 1.31 | 1.83 | 2.49 |
Less distributions from: Net investment income | (.11) | (.08) | (.08) | (.03) | (.04) |
Net realized gains | (1.87) | (.81) | — | — | — |
Total distributions | (1.98) | (.89) | (.08) | (.03) | (.04) |
Net asset value, end of period | $ 14.61 | $ 16.12 | $ 14.83 | $ 13.60 | $ 11.80 |
Total Return (%) | 3.15 | 15.19b | 9.68 | 15.55 | 26.76 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 11 | 46 | 44 | 37 | 17 |
Ratio of expenses (%) | 1.09 | 1.09 | 1.09 | 1.08 | 1.10 |
Ratio of net investment income (%) | .75 | .74b | .61 | .70 | .43 |
Portfolio turnover rate (%) | 275 | 226 | 288 | 249 | 182 |
a Based on average shares outstanding during the period. b Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.003 per share and an increase in the ratio of net investment income of 0.02%. Excluding this non-recurring income, total return would have been 0.02% lower. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio direct operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 is 0.79% for Class B shares. The total portfolio direct and estimated indirect Underlying DWS Portfolio operating expense ratio, gross of any fee waivers or expense reimbursements, as presented in the fee table of the prospectus dated May 1, 2007 is 1.40% for Class B shares. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. An investment in underlying money market investments is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any government agency. Although money market investments seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these investments. 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 12/31/2007 | ||
[] DWS Conservative Allocation VIP — Class B [] Lehman Brothers US Aggregate Index [] Russell 1000® Index | The Lehman Brothers US Aggregate Index is an unmanaged, market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an 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 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. | |
| ||
| |
Comparative Results | ||||
DWS Conservative Allocation VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,468 | $11,889 | $12,673 |
Average annual total return | 4.68% | 5.94% | 7.28% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $11,572 |
Average annual total return | 6.97% | 4.56% | 4.48% | |
Russell 1000 Index | Growth of $10,000 | $10,577 | $12,978 | $14,430 |
Average annual total return | 5.77% | 9.08% | 11.63% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In 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 the expense ratios from the Underlying DWS Portfolio's most recent shareholder report. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,014.60 |
Expenses Paid per $1,000* |
| $ 3.55 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,021.68 |
Expenses Paid per $1,000* |
| $ 3.57 |
Direct Portfolio Expenses and Acquired Portfolios (Underlying Portfolios) Fees and Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,014.60 |
Expenses Paid per $1,000** |
| $ 6.80 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,018.45 |
Expenses Paid per $1,000** |
| $ 6.82 |
** Expenses are equal to the Portfolio's annualized expense ratio plus the Acquired Portfolios (Underlying Portfolios) Fees and Expenses, 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 |
| .70% |
Acquired Portfolios (Underlying Portfolios) Fees and Expenses |
| .64% |
Net Annual Portfolio and Acquired Portfolios (Underlying Portfolios) Operating Expenses |
| 1.34% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Conservative Allocation VIP
Equity markets were generally strong during the first half of 2007, but down in the last half, particularly in the fourth quarter, when markets responded to further bad news about the potential impact of the subprime mortgage crisis. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14% for the full year 2007. The return of the Lehman Brothers US Aggregate Index, which is considered indicative of broad bond market trends, was 6.97% for the 12-month period.
For the 12 months ended December 31, 2007, the Portfolio's Class B shares (unadjusted for contract charges) had a return of 4.68%. Since this Portfolio invests in stock and bond funds in several different categories, performance is analyzed by comparing the Portfolio's return with indices that represent each asset class. The Portfolio's return was below that of its bond and equity benchmarks.
The Portfolio's allocation between equity and fixed-income funds remained close to its target of 40% equity and 60% fixed income during 2007, but with equities overweighted throughout the period.1 This overweight was positive for returns in the first half of the year, as equities outperformed fixed income, but was negative during the last half of the year. A change in strategic allocation implemented in July contributed to performance. As an example of this change, an increase in the allocation to international equities, with a corresponding reduction in US equities contributed, since international equities (as measured by the MSCI EAFE® Index) outperformed US equities. Another example was a reduction in the value tilt in both large cap and small cap, as growth stocks performed better than value stocks — also a positive. In the fixed-income portion of the Portfolio, a position in high-yield bonds added to performance in the first half of the year, but detracted in the last half. At mid-year, a reduction in the allocation to high yield, with an increased emphasis on investment-grade bonds, benefited performance.
Tactical asset allocation was marginally negative for performance. A tactical underweight of cash equivalents with a corresponding overweight in investment-grade bonds contributed to performance. On balance, the performance of the underlying funds detracted from returns. Although equity funds in all three categories (large cap, small cap and international) contributed positively, this contribution was offset by fixed-income fund underperformance.
Inna Okounkova Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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. An investment in underlying money market investments is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any government agency. Although money market investments seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these investments. Please read this Portfolio's prospectus for specific details regarding its risk profile.
The Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Lehman Brothers US Aggregate Index is an unmanaged market-value-weighted measure of Treasury issues, corporate bond issues and mortgage securities.
The MSCI EAFE (Morgan Stanley Capital International Europe-Australasia-Far East) Index is composed of approximately 1,100 companies in 21 countries in Europe and the Pacific Basin. The objective of the index is to reflect the movements of stock markets in these countries by representing an unmanaged (indexed) portfolio within each country. The index is calculated in US dollars and is constructed to represent about 60% of market capitalization in each country.
Index returns, 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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Conservative Allocation VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/07 | 12/31/06 |
|
|
|
Fixed Income — Bond Funds | 46% | 42% |
Equity Funds | 43% | 42% |
Fixed Income — Money Market Fund | 11% | 16% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 55. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Conservative Allocation VIP
| Shares | Value ($) |
|
| |
Equity Funds 43.1% | ||
DWS Blue Chip VIP "A" | 4,182 | 61,261 |
DWS Capital Growth VIP "A" | 16,819 | 343,267 |
DWS Davis Venture Value VIP "A" | 73,552 | 1,073,118 |
DWS Dreman High Return Equity VIP "A" | 3,112 | 44,819 |
DWS Dreman Small Mid Cap Value VIP "A" | 22,128 | 445,212 |
DWS Global Opportunities VIP "A" | 2,866 | 52,397 |
DWS Global Thematic VIP "A" | 8,949 | 140,235 |
DWS Growth & Income VIP "A" | 106,133 | 1,147,301 |
DWS Health Care VIP "A" | 18,551 | 272,331 |
DWS International Select Equity VIP "A" | 762 | 12,763 |
DWS International VIP "A" | 79,649 | 1,195,529 |
DWS Large Cap Value VIP "A" | 115,943 | 2,227,260 |
DWS Mid Cap Growth VIP "A" | 1,111 | 15,119 |
DWS RREEF Real Estate Securities VIP "A" | 8,318 | 133,589 |
DWS Small Cap Growth VIP "A" | 16,946 | 255,383 |
DWS Technology VIP "A" | 23,960 | 256,612 |
Total Equity Funds (Cost $7,170,008) | 7,676,196 | |
| Shares | Value ($) |
|
| |
Fixed Income — Bond Funds 45.9% | ||
DWS Core Fixed Income VIP "A" | 643,826 | 7,610,029 |
DWS Government & Agency Securities VIP "A" | 442 | 5,478 |
DWS High Income VIP "A" | 56,561 | 441,744 |
DWS Strategic Income VIP "A" | 9,638 | 112,672 |
Total Fixed Income — Bond Funds (Cost $8,002,218) | 8,169,923 | |
| ||
Fixed Income — Money Market Fund 11.3% | ||
Cash Management QP Trust (Cost $2,015,811) | 2,015,811 | 2,015,811 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $17,188,037)+ | 100.3 | 17,861,930 |
Other Assets and Liabilities, Net | (0.3) | (60,742) |
Net Assets | 100.0 | 17,801,188 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $15,172,226) | $ 15,846,119 |
Investment in Cash Management QP Trust (cost $2,015,811) | 2,015,811 |
Total investments, at value (cost $17,188,037) | 17,861,930 |
Interest receivable | 13,261 |
Other assets | 1,338 |
Total assets | 17,876,529 |
Liabilities | |
Accrued management fee | 529 |
Other accrued expenses and payables | 74,812 |
Total liabilities | 75,341 |
Net assets, at value | $ 17,801,188 |
Net Assets Consist of: | |
Undistributed net investment income | 1,914,850 |
Net unrealized appreciation (depreciation) on investments | 673,893 |
Accumulated net realized gain (loss) | 3,238,312 |
Paid-in capital | 11,974,133 |
Net assets, at value | $ 17,801,188 |
Class B Net Asset Value, offering and redemption price per share ($17,801,188 ÷1,504,098 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.84 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Income distributions from Underlying Affiliated Portfolios | $ 1,541,130 |
Interest — Cash Management QP Trust | 330,108 |
Total Income | 1,871,238 |
Expenses: Management fee | 83,535 |
Services to shareholders | 48 |
Custodian and accounting fees | 47,750 |
Distribution service fee | 139,224 |
Record keeping fees | 74,913 |
Professional fees | 59,166 |
Trustees' fees and expenses | 14,993 |
Reports to shareholders | 5,693 |
Other | 3,161 |
Total expenses before expense reductions | 428,483 |
Expense reductions | (30,351) |
Total expenses after expense reductions | 398,132 |
Net investment income (loss) | 1,473,106 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from investments | 2,766,416 |
Capital gain distributions from Underlying Affiliated Portfolios | 1,203,528 |
| 3,969,944 |
Change in net unrealized appreciation (depreciation) on investments | (2,632,084) |
Net gain (loss) | 1,337,860 |
Net increase (decrease) in net assets resulting from operations | $ 2,810,966 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 1,473,106 | $ 988,935 |
Net realized gain (loss) | 3,969,944 | 1,638,036 |
Change in net unrealized appreciation (depreciation) | (2,632,084) | 1,998,503 |
Net increase (decrease) in net assets resulting from operations | 2,810,966 | 4,625,474 |
Distributions to shareholders from: Net investment income: Class B | (1,186,066) | (596,935) |
Net realized gains: Class B | (1,601,633) | (265,258) |
Total distributions | (2,787,699) | (862,193) |
Portfolio share transactions: Class B Proceeds from shares sold | 2,669,740 | 20,047,242 |
Net assets acquired in tax-free reorganization | — | 13,389,187 |
Reinvestment of distributions | 2,787,699 | 862,193 |
Cost of shares redeemed | (47,127,563) | (24,685,440) |
Net increase (decrease) in net assets from Class B share transactions | (41,670,124) | 9,613,182 |
Increase (decrease) in net assets | (41,646,857) | 13,376,463 |
Net assets at beginning of period | 59,448,045 | 46,071,582 |
Net assets at end of period (including undistributed net investment income of $1,914,850 and $1,167,917, respectively) | $ 17,801,188 | $ 59,448,045 |
Other Information | ||
Class B Shares outstanding at beginning of period | 5,014,229 | 4,149,791 |
Shares sold | 226,057 | 1,769,912 |
Shares issued in tax-free reorganization | — | 1,177,592 |
Shares issued to shareholders in reinvestment of distributions | 243,893 | 77,188 |
Shares redeemed | (3,980,081) | (2,160,254) |
Net increase (decrease) in Class B shares | (3,510,131) | 864,438 |
Shares outstanding at end of period | 1,504,098 | 5,014,229 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 11.86 | $ 11.10 | $ 10.66 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .31 | .22 | .19 | (.03) |
Net realized and unrealized gain (loss) | .23 | .74 | .28 | .69 |
Total from investment operations | .54 | .96 | .47 | .66 |
Less distributions from: Net investment income | (.24) | (.14) | — | — |
Net realized gain | (.32) | (.06) | (.03) | — |
Total distributions | (.56) | (.20) | (.03) | — |
Net asset value, end of period | $ 11.84 | $ 11.86 | $ 11.10 | $ 10.66 |
Total Return (%)c,d | 4.68 | 8.81 | 4.38 | 6.60** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 18 | 59 | 46 | 14 |
Ratio of expenses before expense reductions (%)e | .77 | .79 | .94 | 2.96* |
Ratio of expenses after expense reductions (%)e | .71 | .74 | .75 | .75* |
Ratio of net investment income (loss) (%) | 2.65 | 1.90 | 1.73 | (.67)* |
Portfolio turnover rate (%) | 32 | 31 | 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 reduced certain of the 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. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .67% and 1.06% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. In the recent market environment, mortgage-backed securities are experiencing increased volatility. Investments by the Portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. 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 | ||
[] DWS Core Fixed Income VIP — Class A [] Lehman Brothers US Aggregate Index | The Lehman Brothers US Aggregate Index is an unmanaged, market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Core Fixed Income VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,417 | $11,105 | $12,203 | $16,188 |
Average annual total return | 4.17% | 3.55% | 4.06% | 4.93% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $12,417 | $17,864 |
Average annual total return | 6.97% | 4.56% | 4.42% | 5.97% | |
DWS Core Fixed Income VIP | 1-year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,375 | $10,978 | $11,972 | $12,605 |
Average annual total return | 3.75% | 3.16% | 3.67% | 4.30% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $12,417 | $13,190 |
Average annual total return | 6.97% | 4.56% | 4.42% | 5.16% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,032.30 |
| $ 1,030.60 |
|
Expenses Paid per $1,000* | $ 3.33 |
| $ 5.37 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.93 |
| $ 1,019.91 |
|
Expenses Paid per $1,000* | $ 3.31 |
| $ 5.35 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Core Fixed Income VIP | .65% |
| 1.05% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Core Fixed Income VIP
The year began with a yield curve that was slightly inverted between two and 30 years, meaning that short-term rates were actually higher than long-term rates.1 As the period progressed, market expectations were increasingly for stronger economic growth, and inflationary concerns caused the yield curve to steepen somewhat. The last half of the year was the most eventful and did the most to determine fixed-income investor returns. The summer, in particular, saw extreme volatility occasioned by the subprime mortgage crisis. As investors sought to protect against risks that were difficult to assess, liquidity disappeared in the broader fixed-income markets. Ultimately, this risk aversion caused a period of very high financial market volatility as well as a flight to quality, the principal manifestation of which was increased interest in US Treasury securities. Between September and November, the US Federal Reserve Board (the Fed) lowered the benchmark short-term rate by 100 basis points (1.0%) to its year-end level of 4.25%.
During the 12-month period ended December 31, 2007, the Portfolio provided a total return of 4.17% (Class A shares, unadjusted for contract charges) compared with the 6.97% return of its benchmark, the Lehman Brothers US Aggregate Index. The Portfolio's strategy of emphasizing fixed-income sectors that trade at a yield spread to Treasuries detracted from relative performance as investors sought refuge in the government backing of Treasuries in the second half of the year.2 We had increased exposure to commercial mortgage-backed securities in the middle of 2007 as their yield spreads versus Treasuries tripled. However, in the liquidity drain that ensued, these spreads tripled yet again as Treasuries continued to outperform. Within the residential mortgage sector our allocation to prime hybrid adjustable rate mortgages (ARMs) suffered from the same liquidity drain as all short-term spread sectors.3 While the portfolio was underweight corporate bonds, within the sector it was overweight financials, which underperformed duration-equivalent Treasuries by a wide margin.4
Gary W. Bartlett, CFA J. Christopher Gagnier Daniel R. Taylor, CFA
Warren S. Davis, III William T. Lissenden Timothy C. Vile, CFA
Thomas J. Flaherty
Portfolio Managers, Aberdeen Asset Management Inc., Subadvisor to the Portfolio
Risk Considerations
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. Investments by the Portfolio in lower-rated bonds present greater risk to principal and income than investments in higher-quality securities. 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. In the current market environment, mortgage-backed securities are experiencing increased volatility. Please see this Portfolio's prospectus for specific details regarding its investments and risk profile.
The Lehman Brothers US Aggregate Index is an unmanaged, market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities.
Index returns, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
1 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 are rewarded with higher yields.2 The yield spread is the difference between the yield of a security and the yield of a comparable duration Treasury. A large spread indicates that investors require yields substantially above those of Treasuries in order to invest in lower-quality bonds. This is generally indicative of a higher-risk environment. A smaller spread generally indicates a more positive environment, since investors are less concerned about risk and therefore willing to accept lower yields. A drop in the yield spread is a positive.
3 Spread sectors are non-Treasury bond sectors of the fixed-income market.
4 "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.
Duration is a measure of bond price volatility. Duration can be defined as the approximate percentage change in price for a 100-basis-point (one single percentage point) change in market interest rate levels. A duration of 1.25, for example, means that the price of a bond or bond portfolio should rise by approximately 1.25% for a one-percentage-point drop in interest rates, and that it should fall by 1.25% for a one-percentage-point rise in interest rates.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Core Fixed Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Commercial and Non-Agency Mortgage Backed Securities | 37% | 29% |
Corporate Bonds | 20% | 19% |
Mortgage-Backed Securities Pass-Throughs | 17% | 12% |
Government & Agency Obligations | 14% | 10% |
Collateralized Mortgage Obligations | 7% | 13% |
Asset Backed | 3% | 10% |
Municipal Bonds and Notes | 2% | 5% |
Cash Equivalents | — | 2% |
| 100% | 100% |
Bond Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 59% | 48% |
Utilities | 20% | 20% |
Consumer Staples | 6% | — |
Materials | 5% | 1% |
Information Technology | 3% | — |
Industrials | 2% | 2% |
Consumer Discretionary | 2% | 12% |
Energy | 2% | 9% |
Telecommunication Services | 1% | 8% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
US Government and Agencies | 38% | 35% |
AAA* | 42% | 45% |
AA | 2% | — |
A | 7% | 7% |
BBB | 11% | 11% |
BB | — | 2% |
| 100% | 100% |
Effective Maturity (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Under 1 year | 2% | 9% |
1-4.99 years | 48% | 37% |
5-9.99 years | 39% | 39% |
10-14.99 years | 1% | 5% |
15 years or greater | 10% | 10% |
| 100% | 100% |
Asset allocation, bond diversification, quality and effective maturity are subject to change.
Weighted average effective maturity: 6.7 years and 6.9 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 64. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Core Fixed Income VIP
| Principal Amount ($) | Value ($) |
|
| |
Corporate Bonds 19.0% | ||
Consumer Discretionary 0.3% | ||
Comcast Cable Holdings LLC: |
|
|
9.875%, 6/15/2022 | 250,000 | 338,875 |
10.125%, 4/15/2022 | 363,000 | 481,315 |
| 820,190 | |
Consumer Staples 1.1% | ||
CVS Caremark Corp., 6.302%, 6/1/2037 | 1,949,000 | 1,883,791 |
Tesco PLC, 144A, 6.15%, 11/15/2037 | 900,000 | 879,245 |
Wal-Mart Stores, Inc., 5.875%, 4/5/2027 (a) | 171,000 | 168,177 |
| 2,931,213 | |
Energy 0.3% | ||
TransCanada PipeLines Ltd., 6.35%, 5/15/2067 | 825,000 | 773,256 |
Financials 11.2% | ||
Axa, 144A, 6.379%, 12/14/2049 | 625,000 | 538,626 |
Banco Mercantil del Norte SA, Series A, 144A, 6.862%, 10/13/2021 | 610,000 | 600,179 |
Corp. Andina de Fomento: |
|
|
5.75%, 1/12/2017 | 580,000 | 574,209 |
6.875%, 3/15/2012 | 210,000 | 224,075 |
Dresdner Funding Trust I, 144A, 8.151%, 6/30/2031 | 985,000 | 1,004,629 |
Erac USA Finance Co.: |
|
|
144A, 5.8%, 10/15/2012 | 545,000 | 540,678 |
144A, 7.0%, 10/15/2037 | 1,285,000 | 1,167,074 |
144A, 8.0%, 1/15/2011 | 1,346,000 | 1,440,173 |
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 940,000 | 1,046,779 |
FPL Group Capital, Inc.: |
|
|
6.65%, 6/15/2067 | 859,000 | 827,311 |
Series D, 7.3%, 9/1/2067 | 275,000 | 280,994 |
Glen Meadow Pass-Through Trust, 144A, 6.505%, 2/12/2067 | 935,000 | 889,063 |
Goldman Sachs Capital II, 5.793%, 12/29/2049 | 2,920,000 | 2,599,749 |
ICICI Bank Ltd., 144A, 5.75%, 1/12/2012 (a) | 925,000 | 889,761 |
Mangrove Bay Pass-Through Trust, 144A, 6.102%, 7/15/2033 | 1,010,000 | 906,889 |
MUFG Capital Finance 1 Ltd., 6.346%, 7/29/2049 | 525,000 | 497,245 |
Oil Insurance Ltd., 144A, 7.558%, 12/29/2049 | 890,000 | 906,777 |
PartnerRe Finance II, 6.44%, 12/1/2066 | 697,000 | 613,073 |
Royal Bank of Scotland Group PLC: |
|
|
144A, 6.99%, 10/29/2049 | 630,000 | 628,105 |
Series U, 7.64%, 3/31/2049 | 600,000 | 616,856 |
Santander Perpetual SA, 144A, 6.671%, 10/29/2049 | 700,000 | 701,882 |
StanCorp. Financial Group, Inc., 6.9%, 5/29/2067 | 940,000 | 885,198 |
Standard Chartered PLC, 144A, 7.014%, 12/30/2049 (a) | 900,000 | 852,152 |
| Principal Amount ($) | Value ($) |
|
| |
Stoneheath Re, 6.868%, 12/29/2049 | 250,000 | 249,925 |
Sumitomo Mitsui Banking Corp., 144A, 5.625%, 7/29/2049 | 715,000 | 667,623 |
The Travelers Companies, Inc., 6.25%, 3/15/2037 | 310,000 | 290,714 |
TNK-BP Finance SA: |
|
|
Series 5,144A, 7.5%, 3/13/2013 | 365,000 | 364,088 |
Series 6,144A, 7.875%, 3/13/2018 (a) | 320,000 | 316,000 |
UDR, Inc., Series E, (REIT), 3.9%, 3/15/2010 | 345,000 | 335,704 |
USB Capital IX, 6.189%, 4/15/2049 | 2,110,000 | 1,909,577 |
Wachovia Capital Trust III, 5.8%, 3/15/2042 | 915,000 | 817,598 |
Washington Mutual Preferred Funding, Series 2007-B, 144A, 9.75%, 10/29/2049 | 400,000 | 320,000 |
Wells Fargo & Co., 5.25%, 10/23/2012 | 1,090,000 | 1,108,129 |
Woori Bank, 144A, 6.208%, 5/2/2037 | 765,000 | 664,081 |
XL Capital Ltd., Series E, 6.5%, 12/31/2049 (a) | 590,000 | 515,873 |
Xstrata Finance Canada Ltd., 144A, 6.9%, 11/15/2037 | 895,000 | 890,187 |
ZFS Finance USA Trust V, 144A, 6.5%, 5/9/2037 | 1,000,000 | 923,188 |
| 28,604,164 | |
Industrials 0.5% | ||
General Electric Co., 5.25%, 12/6/2017 | 1,160,000 | 1,157,524 |
United States Steel Corp., 5.65%, 6/1/2013 | 4,000 | 3,875 |
| 1,161,399 | |
Information Technology 0.6% | ||
Broadridge Financial Solutions, Inc., 6.125%, 6/1/2017 | 823,000 | 813,356 |
Tyco Electronics Group SA, 144A, 6.0%, 10/1/2012 | 695,000 | 712,201 |
| 1,525,557 | |
Materials 0.9% | ||
Celulosa Arauco y Constitucion SA, 5.625%, 4/20/2015 | 1,295,000 | 1,264,728 |
Vale Overseas Ltd., 6.875%, 11/21/2036 | 940,000 | 950,914 |
| 2,215,642 | |
Telecommunication Services 0.3% | ||
Nextel Communications, Inc., Series D, 7.375%, 8/1/2015 | 492,000 | 484,433 |
Qwest Corp., 7.625%, 6/15/2015 | 234,000 | 238,095 |
| 722,528 | |
Utilities 3.8% | ||
Arizona Public Service Co., 6.875%, 8/1/2036 | 1,045,000 | 1,066,455 |
Commonwealth Edison Co., Series 98, 6.15%, 3/15/2012 | 980,000 | 1,014,649 |
Dominion Resources, Inc.: |
|
|
Series 06-B, 6.3%, 9/30/2066 | 560,000 | 544,562 |
7.5%, 6/30/2066 | 640,000 | 632,745 |
| Principal Amount ($) | Value ($) |
|
| |
Entergy Mississippi, Inc., 5.92%, 2/1/2016 | 400,000 | 398,547 |
Integrys Energy Group, Inc., 6.11%, 12/1/2066 | 1,305,000 | 1,201,749 |
Pedernales Electric Cooperative, Series 2002-A, 144A, 6.202%, 11/15/2032 | 1,715,000 | 1,733,316 |
PPL Capital Funding, Inc., Series A, 6.7%, 3/30/2067 | 1,580,000 | 1,453,755 |
Wisconsin Energy Corp., Series A, 6.25%, 5/15/2067 | 1,795,000 | 1,664,649 |
| 9,710,427 | |
Total Corporate Bonds (Cost $50,584,512) | 48,464,376 | |
| ||
Asset Backed 2.8% | ||
Home Equity Loans | ||
Ameriquest Mortgage Securities, Inc., "A5", Series 2004-FR1, 4.455%, 5/25/2034 | 2,139,073 | 2,115,835 |
Countrywide Asset-Backed Certificates: |
|
|
"A6", Series 2006-S6, 5.657%, 3/25/2034 | 1,840,000 | 1,590,521 |
"A6", Series 2006-15, 5.826%, 10/25/2046 | 640,000 | 594,794 |
"A1B", Series 2007-S1, 5.888%, 11/25/2036 | 1,007,096 | 999,216 |
"1AF6", Series 2006-11, 6.15%, 9/25/2046 | 1,830,000 | 1,629,204 |
Securitized Asset Backed NIM Trust, "NIM", Series 2005-FR4, 144A, 6.0%, 1/25/2036 | 459,930 | 204,000 |
Total Asset Backed (Cost $7,875,236) | 7,133,570 | |
| ||
Mortgage Backed Securities Pass-Throughs 16.3% | ||
Federal Home Loan Mortgage Corp., 6.0%, 12/1/2034 | 1,009,388 | 1,025,593 |
Federal National Mortgage Association: |
|
|
4.5%, with various maturities from 5/1/2019 until 10/1/2033 | 7,939,896 | 7,725,964 |
5.0%, 2/1/2034 | 576,255 | 563,064 |
5.5%, with various maturities from 7/1/2024 until 7/1/2037 | 21,187,656 | 21,152,137 |
6.0%, 4/1/2024 | 1,398,265 | 1,424,264 |
6.31%, 6/1/2008 | 1,500,000 | 1,501,168 |
6.5%, with various maturities from 3/1/2017 until 4/1/2037 | 8,037,982 | 8,267,535 |
8.0%, 9/1/2015 | 27,373 | 29,352 |
Total Mortgage Backed Securities Pass-Throughs (Cost $41,258,785) | 41,689,077 | |
| ||
Commercial and Non-Agency Mortgage-Backed Securities 36.2% | ||
Adjustable Rate Mortgage Trust: |
|
|
"3A31", Series 2005-10, 5.416%*, 1/25/2036 | 1,265,000 | 1,204,881 |
"1A4", Series 2006-2, 5.761%*, 5/25/2036 | 1,705,000 | 1,669,293 |
| Principal Amount ($) | Value ($) |
|
| |
Banc of America Commercial Mortgage, Inc.: |
|
|
"A2", Series 2007-2, 5.634%, 4/10/2049 | 820,000 | 831,625 |
"A2", Series 2007-3, 5.659%*, 6/10/2049 | 660,000 | 671,636 |
"AM", Series 2007-4, 5.812%*, 2/10/2051 | 545,000 | 550,514 |
Banc of America Mortgage Securities, Inc., "1A20", Series 2005-3, 5.5%, 4/25/2035 | 1,840,000 | 1,846,285 |
Bank of America Commercial Mortgage Trust, "H", 144A, 5.84%*, 6/10/2049 | 1,050,000 | 704,905 |
Bear Stearns Adjustable Rate Mortgage Trust: |
|
|
"A1", Series 2006-1, 4.625%*, 2/25/2036 | 3,650,081 | 3,595,130 |
"2A1", Series 2006-4, 5.802%*, 10/25/2036 | 1,475,975 | 1,486,459 |
Chase Mortgage Finance Corp., "3A1", Series 2005-A1, 5.281%*, 12/25/2035 | 2,440,428 | 2,403,173 |
Citicorp Mortgage Securities, Inc., "1A1", Series 2004-8, 5.5%, 10/25/2034 | 1,005,897 | 1,008,480 |
Citigroup Commercial Mortgage Trust, "ASB", Series 2006-C5, 5.413%, 10/15/2049 | 1,390,000 | 1,396,147 |
Citigroup Mortgage Loan Trust, Inc.: |
|
|
"2A1", Series 2006-AR1, 4.7%*, 3/25/2036 | 1,245,427 | 1,225,131 |
"1A1", Series 2006-AR1, 4.9%*, 10/25/2035 | 403,827 | 401,451 |
"1A2", Series 2006-AR2, 5.532%*, 3/25/2036 | 1,994,810 | 2,004,996 |
"1CB2", Series 2004-NCM2, 6.75%, 8/25/2034 | 984,883 | 1,012,275 |
Citigroup/Deutsche Bank Commercial Mortgage Trust, "F", Series 2007-CD4, 5.555%, 12/11/2049 | 960,000 | 787,348 |
CitiMortgage Alternative Loan Trust, "A1", Series 2006-A2, 6.0%, 5/25/2036 | 1,610,258 | 1,612,609 |
Countrywide Alternative Loan Trust: |
|
|
"A2", Series 2003-6T2, 5.0%, 6/25/2033 | 157,771 | 157,707 |
"A2", Series 2003-21T1, 5.25%, 12/25/2033 | 1,042,625 | 1,041,219 |
"A6", Series 2004-14T2, 5.5%, 8/25/2034 | 946,379 | 936,602 |
"7A1", Series 2004-J2, 6.0%, 12/25/2033 | 231,851 | 234,315 |
"1A1", Series 2004-J1, 6.0%, 2/25/2034 | 156,163 | 155,089 |
GE Capital Commercial Mortgage Corp., "AJ", Series 2007-C1, 5.677%, 12/10/2049 | 2,090,000 | 1,992,802 |
GS Mortgage Securities Corp. II: |
|
|
"A2", Series 2006-GG8, 5.479%, 11/10/2039 | 1,870,000 | 1,888,485 |
"C", Series 1998-C1, 6.91%, 10/18/2030 | 1,260,000 | 1,270,106 |
IndyMac Inda Mortgage Loan Trust, "1A1", Series 2006-AR3, 5.355%*, 12/25/2036 | 1,851,690 | 1,849,205 |
| Principal Amount ($) | Value ($) |
|
| |
IndyMac Index Mortgage Loan Trust, "3A1", Series 2006-AR33, 5.782%*, 1/25/2037 | 1,448,608 | 1,444,741 |
JPMorgan Chase Commercial Mortgage Securities Corp.: |
|
|
"ASB", Series 2007-CB19, 5.73%*, 2/12/2049 | 1,680,000 | 1,721,115 |
"A2", Series 2007-LD11, 5.804%*, 6/15/2049 | 2,430,000 | 2,483,720 |
"ASB", Series 2007-LD11, 5.819%*, 6/15/2049 | 3,180,000 | 3,270,874 |
"H", Series 2007-LD11, 144A, 5.819%*, 6/15/2049 | 1,610,000 | 1,096,727 |
JPMorgan Mortgage Trust: |
|
|
"6A1", Series 2007-A1, 4.778%*, 7/25/2035 | 1,670,376 | 1,650,018 |
"2A4L", Series 2006-A6, 5.564%*, 10/25/2036 | 1,840,000 | 1,785,684 |
"2A4", Series 2006-A2, 5.752%*, 4/25/2036 | 2,565,000 | 2,517,519 |
Lehman Mortgage Trust: |
|
|
"3A3", Series 2006-1, 5.5%, 2/25/2036 | 1,740,925 | 1,728,876 |
"1A10", Series 2006-3, 6.0%, 7/25/2036 | 1,617,148 | 1,612,850 |
Master Alternative Loans Trust: |
|
|
"5A1", Series 2005-1, 5.5%, 1/25/2020 | 535,668 | 527,312 |
"5A1", Series 2005-2, 6.5%, 12/25/2034 | 154,906 | 157,956 |
"8A1", Series 2004-3, 7.0%, 4/25/2034 | 40,141 | 40,582 |
Master Asset Securitization Trust, "2A7", Series 2003-9, 5.5%, 10/25/2033 | 1,103,879 | 1,092,496 |
Merrill Lynch Mortgage Investors Trust, "A2", Series 2005-A5, 4.566%, 6/25/2035 | 210,000 | 207,615 |
Merrill Lynch Mortgage Trust, "ASB", Series 2007-C1, 5.829%*, 6/12/2050 | 900,000 | 928,146 |
Morgan Stanley Capital I: |
|
|
"A2", Series 2007-HQ11, 5.359%, 2/12/2044 | 1,800,000 | 1,806,687 |
"AAB", Series 2007-IQ14, 5.654%, 4/15/2049 | 1,845,000 | 1,872,918 |
Residential Accredit Loans, Inc.: |
|
|
"3A1", Series 2006-QS18, 5.75%, 12/25/2021 | 1,480,948 | 1,481,629 |
"CB", Series 2004-QS2, 5.75%, 2/25/2034 | 673,825 | 668,350 |
Residential Funding Mortgage Security I, "2A2", Series 2007-SA1, 5.622%*, 2/25/2037 | 2,389,350 | 2,396,946 |
Sequoia Mortgage Trust, "2A1", Series 2007-1, 5.823%*, 2/20/2047 | 2,480,938 | 2,500,632 |
Structured Adjustable Rate Mortgage Loan Trust: |
|
|
"6A3", Series 2005-21, 5.4%, 11/25/2035 | 1,485,000 | 1,388,131 |
"2A1", Series 2006-1, 5.62%*, 2/25/2036 | 1,291,063 | 1,280,950 |
"1A1", Series 2005-18, 5.655%*, 9/25/2035 | 1,089,737 | 1,064,870 |
Structured Asset Securities Corp., "4A1", Series 2005-6, 5.0%, 5/25/2035 | 688,726 | 660,962 |
| Principal Amount ($) | Value ($) |
|
| |
Wachovia Bank Commercial Mortgage Trust: |
|
|
"A3", Series 2007-C30, 5.246%, 12/15/2043 | 1,310,000 | 1,307,643 |
"AJ", Series 2007-C30, 5.413%, 12/15/2043 | 1,850,000 | 1,731,200 |
Wachovia Mortgage Loan Trust LLC, "3A1", Series 2005-B, 5.154%*, 10/20/2035 | 2,315,804 | 2,275,640 |
Washington Mutual Mortgage Pass-Through Certificates Trust: |
|
|
"2A1", Series 2002-S8, 4.5%, 1/25/2018 | 59,321 | 59,196 |
"A1", Series 2003-S7, 4.5%, 8/25/2018 | 1,641,318 | 1,603,363 |
"1A3", Series 2005-AR16, 5.101%*, 12/25/2035 | 1,660,000 | 1,654,137 |
"1A1", Series 2007-HY4, 5.554%*, 4/25/2037 | 2,502,813 | 2,491,097 |
"1A1", Series 2006-AR16, 5.608%*, 12/25/2036 | 2,184,008 | 2,176,832 |
"1A1", Series 2007-HY2, 5.628%*, 12/25/2036 | 2,463,238 | 2,473,691 |
Wells Fargo Mortgage Backed Securities Trust: |
|
|
"A4", Series 2005-AR14, 5.387%*, 8/25/2035 | 1,700,000 | 1,613,894 |
"A1", Series 2006-3, 5.5%, 3/25/2036 | 1,980,480 | 1,977,310 |
"2A5", Series 2006-AR1, 5.553%*, 3/25/2036 | 1,700,000 | 1,606,090 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $93,236,283) | 92,296,267 | |
| ||
Collateralized Mortgage Obligations 7.1% | ||
Fannie Mae Whole Loan, "1A1", Series 2004-W15, 6.0%, 8/25/2044 | 1,018,011 | 1,057,363 |
Federal Home Loan Mortgage Corp.: |
|
|
"LN", Series 3145, 4.5%, 10/15/2034 | 1,778,962 | 1,750,170 |
"PD", Series 2890, 5.0%, 3/15/2033 | 1,485,000 | 1,448,136 |
"OG", Series 2889, 5.0%, 5/15/2033 | 1,770,000 | 1,726,144 |
"PE", Series 2898, 5.0%, 5/15/2033 | 860,000 | 838,487 |
"XD", Series 2941, 5.0%, 5/15/2033 | 1,055,000 | 1,028,013 |
"BG", Series 2869, 5.0%, 7/15/2033 | 335,000 | 327,003 |
"KD", Series 2915, 5.0%, 9/15/2033 | 1,341,000 | 1,309,092 |
"NE", Series 2921, 5.0%, 9/15/2033 | 2,275,000 | 2,222,234 |
"PE", Series 2165, 6.0%, 6/15/2029 | 1,512,344 | 1,555,043 |
Federal National Mortgage Association: |
|
|
"QD", Series 2005-29, 5.0%, 8/25/2033 | 435,000 | 423,554 |
"HE", Series 2005-22, 5.0%, 10/25/2033 | 1,540,000 | 1,499,535 |
"PG", Series 2002-3, 5.5%, 2/25/2017 | 500,000 | 506,337 |
| Principal Amount ($) | Value ($) |
|
| |
"PH", Series 1999-19, 6.0%, 5/25/2029 | 1,502,687 | 1,538,913 |
"Z", Series 2001-14, 6.0%, 5/25/2031 | 946,867 | 967,304 |
Total Collateralized Mortgage Obligations (Cost $18,110,537) | 18,197,328 | |
| ||
Municipal Bonds and Notes 2.1% | ||
Indiana, Bond Bank Revenue, School Severance Funding, Series 11, 6.01%, 7/15/2021 (b) | 1,965,000 | 2,034,541 |
Jicarilla, NM, Sales & Special Tax Revenue, Apache Nation Revenue, 144A, 5.2%, 12/1/2013 | 945,000 | 962,237 |
Menasha, WI, Anticipation Notes, Series B, 5.65%, 9/1/2009 | 1,310,000 | 1,320,767 |
Michigan, Western Michigan University Revenue, 4.41%, 11/15/2014 (b) | 1,010,000 | 1,013,939 |
Total Municipal Bonds and Notes (Cost $5,197,839) | 5,331,484 | |
| ||
Government & Agency Obligations 13.8% | ||
US Treasury Obligations | ||
US Treasury Bonds, 6.0%, 2/15/2026 | 12,695,000 | 15,023,745 |
US Treasury Notes: |
|
|
3.875%, 10/31/2012 (a) | 16,253,000 | 16,571,705 |
4.0%, 2/15/2015 | 935,000 | 948,222 |
4.25%, 11/15/2017 (a) | 2,670,000 | 2,716,517 |
Total Government & Agency Obligations (Cost $34,956,180) | 35,260,189 | |
|
| Value ($) |
|
| |
Preferred Stocks 0.2% | ||
Arch Capital Group Ltd., 8.0% | 7,384 | 183,216 |
Delphi Financial Group, Inc., 7.376% | 22,600 | 418,807 |
Total Preferred Stocks (Cost $751,264) | 602,023 | |
| ||
Securities Lending Collateral 1.9% | ||
Daily Assets Fund Institutional, 5.03% (c) (d) (Cost $4,951,185) | 4,951,185 | 4,951,185 |
| ||
Cash Equivalents 0.3% | ||
Cash Management QP Trust, 4.67% (c) (Cost $664,244) | 664,244 | 664,244 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $257,586,065)+ | 99.7 | 254,589,743 |
Other Assets and Liabilities, Net | 0.3 | 684,885 |
Net Assets | 100.0 | 255,274,628 |
+ The cost for federal income tax purposes was $257,629,180. At December 31, 2007, net unrealized depreciation for all securities based on tax cost was $3,039,437. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $1,926,535 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $4,965,972.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $4,749,909 which is 1.9% of net assets.
(b) Bond is insured by one of these companies:
Insurance Coverage | As a % of Total Investment Portfolio |
Ambac Financial Group | 0.4 |
XL Capital Insurance | 0.8 |
(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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.
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 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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $251,970,636) — including $4,749,909 of securities loaned | $ 248,974,314 |
Investment in Daily Assets Fund Institutional (cost $4,951,185)* | 4,951,185 |
Investment in Cash Management QP Trust (cost $664,244) | 664,244 |
Total investments, at value (cost $257,586,065) | 254,589,743 |
Cash | 97,782 |
Receivable for investments sold | 9,339,936 |
Interest receivable | 1,941,187 |
Foreign taxes recoverable | 12,614 |
Other assets | 7,864 |
Total assets | 265,989,126 |
Liabilities | |
Payable upon return of securities loaned | 4,951,185 |
Payable for investments purchased | 4,447,848 |
Payable for Portfolio shares redeemed | 934,387 |
Accrued management fee | 154,719 |
Other accrued expenses and payables | 226,359 |
Total liabilities | 10,714,498 |
Net assets, at value | $ 255,274,628 |
Net Assets Consist of | |
Undistributed net investment income | 16,731,325 |
Net unrealized appreciation (depreciation) on investments | (2,996,322) |
Accumulated net realized gain (loss) | (4,622,767) |
Paid-in capital | 246,162,392 |
Net assets, at value | $ 255,274,628 |
Class A Net Asset Value, offering and redemption price per share ($186,245,694 ÷ 15,754,867 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.82 |
Class B Net Asset Value, offering and redemption price per share ($69,028,934 ÷ 5,850,161 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.80 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends | $ 34,679 |
Interest (net of foreign taxes withheld of $1,572) | 18,927,680 |
Interest — Cash Management QP Trust | 506,204 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 169,632 |
Total Income | 19,638,195 |
Expenses: Management fee | 2,144,122 |
Services to shareholders | 368 |
Custodian fee | 21,277 |
Distribution service fee (Class B) | 189,948 |
Record keeping fees (Class B) | 107,921 |
Professional fees | 72,602 |
Trustees' fees and expenses | 34,742 |
Reports to shareholders | 77,398 |
Registration fees | 686 |
Other | 32,752 |
Total expenses before expense reductions | 2,681,816 |
Expense reductions | (5,976) |
Total expenses after expense reductions | 2,675,840 |
Net investment income (loss) | 16,962,355 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from investments | (784,875) |
Change in net unrealized appreciation (depreciation) on investments | (1,784,782) |
Net gain (loss) | (2,569,657) |
Net increase (decrease) in net assets resulting from operations | $ 14,392,698 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income | $ 16,962,355 | $ 15,881,888 |
Net realized gain (loss) | (784,875) | (3,380,379) |
Change in net unrealized appreciation (depreciation) | (1,784,782) | 2,452,304 |
Net increase (decrease) in net assets resulting from operations | 14,392,698 | 14,953,813 |
Distributions to shareholders from: Net investment income: Class A | (12,441,885) | (9,250,155) |
Class B | (3,150,565) | (2,794,336) |
Net realized gains: Class A | — | (40,873) |
Class B | — | (13,997) |
Total distributions | (15,592,450) | (12,099,361) |
Portfolio share transactions: Class A Proceeds from shares sold | 84,886,024 | 91,229,471 |
Reinvestment of distributions | 12,441,885 | 9,291,028 |
Cost of shares redeemed | (187,114,199) | (77,798,091) |
Net increase (decrease) in net assets from Class A share transactions | (89,786,290) | 22,722,408 |
Class B Proceeds from shares sold | 2,831,011 | 10,023,723 |
Reinvestment of distributions | 3,150,565 | 2,808,333 |
Cost of shares redeemed | (19,070,128) | (19,326,554) |
Net increase (decrease) in net assets from Class B share transactions | (13,088,552) | (6,494,498) |
Increase (decrease) in net assets | (104,074,594) | 19,082,362 |
Net assets at beginning of period | 359,349,222 | 340,266,860 |
Net assets at end of period (including undistributed net investment income of $16,731,325 and $15,361,420, respectively) | $ 255,274,628 | $ 359,349,222 |
Other Information | ||
Class A Shares outstanding at beginning of period | 23,346,010 | 21,303,867 |
Shares sold | 7,294,758 | 7,951,409 |
Shares issued to shareholders in reinvestment of distributions | 1,080,025 | 821,488 |
Shares redeemed | (15,965,926) | (6,730,754) |
Net increase (decrease) in Class A shares | (7,591,143) | 2,042,143 |
Shares outstanding at end of period | 15,754,867 | 23,346,010 |
Class B Shares outstanding at beginning of period | 6,968,915 | 7,523,292 |
Shares sold | 242,748 | 863,400 |
Shares issued to shareholders in reinvestment of distributions | 273,249 | 248,086 |
Shares redeemed | (1,634,751) | (1,665,863) |
Net increase (decrease) in Class B shares | (1,118,754) | (554,377) |
Shares outstanding at end of period | 5,850,161 | 6,968,915 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Date | |||||
Net asset value, beginning of period | $ 11.86 | $ 11.81 | $ 12.07 | $ 12.16 | $ 11.98 |
Income (loss) from investment operations: Net investment incomea | .56 | .53 | .47 | .50 | .45 |
Net realized and unrealized gain (loss) | (.08) | (.05) | (.21) | .05 | .14 |
Total from investment operations | .48 | .48 | .26 | .55 | .59 |
Less distributions from: Net investment income | (.52) | (.43) | (.41) | (.43) | (.41) |
Net realized gains | — | (.00)* | (.11) | (.21) | — |
Total distributions | (.52) | (.43) | (.52) | (.64) | (.41) |
Net asset value, end of period | $ 11.82 | $ 11.86 | $ 11.81 | $ 12.07 | $ 12.16 |
Total Return (%) | 4.17 | 4.26 | 2.25 | 4.53 | 5.13 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 186 | 277 | 252 | 210 | 201 |
Ratio of expenses (%) | .66 | .68 | .67 | .66 | .66 |
Ratio of net investment income (loss) (%) | 4.78 | 4.56 | 3.96 | 4.18 | 3.75 |
Portfolio turnover rate (%)b | 197 | 183 | 164 | 185 | 229 |
a Based on average shares outstanding during the period. b The portfolio turnover rate including mortgage dollar roll transactions was 209%, 198%, 241%, 176% and 204% for the years ended December 31, 2007, December 31, 2006, December 31, 2005, December 31, 2004 and December 31, 2003, respectively. * Amount is less than $.005 |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.84 | $ 11.78 | $ 12.04 | $ 12.13 | $ 11.96 |
Income (loss) from investment operations: Net investment incomea | .51 | .49 | .42 | .45 | .40 |
Net realized and unrealized gain (loss) | (.08) | (.05) | (.21) | .05 | .15 |
Total from investment operations | .43 | .44 | .21 | .50 | .55 |
Less distributions from: Net investment income | (.47) | (.38) | (.36) | (.38) | (.38) |
Net realized gains | — | (.00)* | (.11) | (.21) | — |
Total distributions | (.47) | (.38) | (.47) | (.59) | (.38) |
Net asset value, end of period | $ 11.80 | $ 11.84 | $ 11.78 | $ 12.04 | $ 12.13 |
Total Return (%) | 3.75 | 3.89 | 1.85 | 4.10 | 4.76 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 69 | 82 | 89 | 88 | 45 |
Ratio of expenses (%) | 1.05 | 1.07 | 1.07 | 1.03 | 1.05 |
Ratio of net investment income (loss) (%) | 4.39 | 4.17 | 3.56 | 3.81 | 3.36 |
Portfolio turnover rate (%)b | 197 | 183 | 164 | 185 | 229 |
a Based on average shares outstanding during the period. b The portfolio turnover rate including mortgage dollar roll transactions was 209%, 198%, 241%, 176% and 204% for the years ended December 31, 2007, December 31, 2006, December 31, 2005, December 31, 2004 and December 31, 2003, respectively. * Amount is less than $.005 |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are 1.02% and 1.40% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the year ended December 31, 2007.
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. 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. 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 12/31/2007 | ||
[] DWS Davis Venture 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 reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Davis Venture Value VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,446 | $13,152 | $19,097 | $15,278 |
Average annual total return | 4.46% | 9.56% | 13.81% | 6.56% | |
Russell 1000 Value Index | Growth of $10,000 | $9,983 | $13,064 | $19,789 | $15,981 |
Average annual total return | -.17% | 9.32% | 14.63% | 7.29% | |
DWS Davis Venture Value VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $10,414 | $13,006 | $18,754 | $17,566 |
Average annual total return | 4.14% | 9.16% | 13.40% | 10.79% | |
Russell 1000 Value Index | Growth of $10,000 | $9,983 | $13,064 | $19,789 | $17,556 |
Average annual total return | -.17% | 9.32% | 14.63% | 10.77% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2001. Index returns began on April 30, 2001.** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 977.20 |
| $ 975.20 |
|
Expenses Paid per $1,000* | $ 4.34 |
| $ 6.27 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,020.82 |
| $ 1,018.85 |
|
Expenses Paid per $1,000* | $ 4.43 |
| $ 6.41 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Davis Venture Value VIP | .87% |
| 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, 2007
DWS Davis Venture Value VIP
For the year ended December 31, 2007, the Class A shares of DWS Davis Venture Value VIP returned 4.46%, compared to its benchmark, the Russell 1000® Value Index, which returned -0.17%.
The energy sector was the top-performing sector of the Russell 1000 Value Index. Energy companies were also the most important contributors to the Portfolio's performance over the year. The Portfolio's energy companies outperformed the corresponding sector within the Russell 1000 Value Index. ConocoPhillips, Occidental Petroleum Corp., China Coal Energy Co., Devon Energy Corp., EOG Resources, Inc. and Transocean, Inc. were among the top contributors to performance.
The Portfolio made a significant investment in consumer staple companies, and they were the second most important contributors to performance. The Portfolio's consumer staple companies outperformed the corresponding sector within the Russell 1000 Value Index and the Portfolio also benefited from a higher relative weighting in this sector. Altria Group, Inc. and Costco Wholesale Corp. were among the top contributors to performance.
The financial sector was the worst-performing sector of the Russell 1000 Value Index. The Portfolio's financial companies outperformed the corresponding sector within the Russell 1000 Value Index, but were still the largest detractors from performance. Berkshire Hathaway, Inc. was among the top contributors to performance. Citigroup, Inc., American International Group, Inc., Wachovia Corp., American Express Co., Moodys Corp. and Ambac Financial Group, Inc. were among the top detractors from performance.
The Portfolio held 13% of assets in foreign companies at year-end. As a whole, these companies outperformed the domestic companies held by the Portfolio.
Christopher C. Davis
Kenneth Charles Feinberg
Portfolio Managers
Davis Selected Advisers, L.P., Subadvisor to the Portfolio
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. 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. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
The 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. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Davis Venture Value VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 100% | 99% |
Cash Equivalents | — | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 33% | 38% |
Energy | 16% | 12% |
Consumer Staples | 16% | 14% |
Consumer Discretionary | 10% | 14% |
Information Technology | 9% | 5% |
Industrials | 7% | 7% |
Materials | 4% | 4% |
Health Care | 4% | 4% |
Telecommunication Services | 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 77. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
The accompanying notes are an integral part of the financial statements.
Investment Portfolio December 31, 2007
DWS Davis Venture Value VIP
| Shares | Value ($) |
|
| |
Common Stocks 99.9% | ||
Consumer Discretionary 10.1% | ||
Automobiles 1.3% | ||
Harley-Davidson, Inc. (a) | 88,780 | 4,146,914 |
Diversified Consumer Services 0.8% | ||
H&R Block, Inc. (a) | 139,000 | 2,581,230 |
Household Durables 0.2% | ||
Hunter Douglas NV | 8,863 | 653,701 |
Internet & Catalog Retail 0.6% | ||
Amazon.com, Inc.* | 12,000 | 1,111,680 |
Liberty Media Corp. — Interactive "A"* | 46,000 | 877,680 |
| 1,989,360 | |
Media 5.7% | ||
Comcast Corp. Special "A"* | 376,850 | 6,828,522 |
Grupo Televisa SA (ADR) | 50,000 | 1,188,500 |
Lagardere SCA | 27,000 | 2,013,252 |
Liberty Media Corp. — Capital "A"* | 9,260 | 1,078,697 |
News Corp. "A" | 249,700 | 5,116,353 |
Virgin Media, Inc. (a) | 58,232 | 998,096 |
WPP Group PLC (ADR) (a) | 24,600 | 1,581,534 |
| 18,804,954 | |
Multiline Retail 0.1% | ||
Sears Holdings Corp.* (a) | 4,900 | 500,045 |
Specialty Retail 1.4% | ||
Bed Bath & Beyond, Inc.* (a) | 54,600 | 1,604,694 |
CarMax, Inc.* (a) | 97,000 | 1,915,750 |
Lowe's Companies, Inc. | 49,740 | 1,125,119 |
| 4,645,563 | |
Consumer Staples 15.5% | ||
Beverages 2.4% | ||
Diageo PLC (ADR) | 52,000 | 4,463,160 |
Heineken Holding NV | 60,200 | 3,391,695 |
| 7,854,855 | |
Food & Staples Retailing 7.7% | ||
Costco Wholesale Corp. | 221,600 | 15,458,816 |
CVS Caremark Corp. | 117,059 | 4,653,095 |
Wal-Mart Stores, Inc. | 111,920 | 5,319,558 |
| 25,431,469 | |
Food Products 0.1% | ||
The Hershey Co. (a) | 13,800 | 543,720 |
Household Products 1.2% | ||
Procter & Gamble Co. | 53,000 | 3,891,260 |
Personal Products 0.4% | ||
Avon Products, Inc. | 36,700 | 1,450,751 |
Tobacco 3.7% | ||
Altria Group, Inc. | 160,200 | 12,107,916 |
Energy 16.2% | ||
Energy Equipment & Services 0.9% | ||
Transocean, Inc.* | 22,256 | 3,185,946 |
Oil, Gas & Consumable Fuels 15.3% | ||
Canadian Natural Resources Ltd. (a) | 62,200 | 4,549,308 |
China Coal Energy Co. "H" | 1,234,200 | 3,799,657 |
| Shares | Value ($) |
|
| |
ConocoPhillips | 172,420 | 15,224,686 |
Devon Energy Corp. | 99,400 | 8,837,654 |
EOG Resources, Inc. | 84,900 | 7,577,325 |
Occidental Petroleum Corp. | 135,000 | 10,393,650 |
| 50,382,280 | |
Financials 34.5% | ||
Capital Markets 4.4% | ||
Ameriprise Financial, Inc. | 59,720 | 3,291,169 |
Bank of New York Mellon Corp. | 90,700 | 4,422,532 |
E*TRADE Financial Corp.* (a) | 21,000 | 74,550 |
Merrill Lynch & Co., Inc. (b) | 93,700 | 4,526,835 |
Morgan Stanley | 27,800 | 1,476,458 |
State Street Corp. | 8,700 | 706,440 |
| 14,497,984 | |
Commercial Banks 4.6% | ||
Commerce Bancorp, Inc. (a) | 51,900 | 1,979,466 |
HSBC Holdings PLC | 98,694 | 1,655,547 |
Wachovia Corp. | 131,487 | 5,000,451 |
Wells Fargo & Co. | 218,800 | 6,605,572 |
| 15,241,036 | |
Consumer Finance 4.0% | ||
American Express Co. | 251,500 | 13,083,030 |
Discover Financial Services | 13,800 | 208,104 |
| 13,291,134 | |
Diversified Financial Services 5.1% | ||
Citigroup, Inc. | 96,900 | 2,852,736 |
JPMorgan Chase & Co. | 265,484 | 11,588,377 |
Moody's Corp. (a) | 60,800 | 2,170,560 |
| 16,611,673 | |
Insurance 16.0% | ||
Ambac Financial Group, Inc. (a) | 26,500 | 682,905 |
American International Group, Inc. | 204,100 | 11,899,030 |
Aon Corp. | 45,900 | 2,188,971 |
Berkshire Hathaway, Inc. "B"* | 2,979 | 14,108,544 |
Loews Corp. | 156,700 | 7,888,278 |
Markel Corp.* | 630 | 309,393 |
MBIA, Inc. (a) | 23,700 | 441,531 |
Millea Holdings, Inc. | 95,200 | 3,217,639 |
NIPPONKOA Insurance Co., Ltd. | 198,200 | 1,797,113 |
Principal Financial Group, Inc. | 17,600 | 1,211,584 |
Progressive Corp. | 270,900 | 5,190,444 |
Sun Life Financial, Inc. | 10,700 | 598,558 |
Transatlantic Holdings, Inc. (a) | 45,773 | 3,326,324 |
| 52,860,314 | |
Real Estate Management & Development 0.4% | ||
Hang Lung Group Ltd. | 248,000 | 1,343,941 |
Health Care 4.0% | ||
Health Care Equipment & Supplies 1.4% | ||
Covidien Ltd. | 107,590 | 4,765,161 |
Health Care Providers & Services 2.6% | ||
Cardinal Health, Inc. | 42,400 | 2,448,600 |
Express Scripts, Inc.* | 32,730 | 2,389,290 |
UnitedHealth Group, Inc. | 61,300 | 3,567,660 |
| 8,405,550 | |
| Shares | Value ($) |
|
| |
Industrials 5.2% | ||
Air Freight & Logistics 0.6% | ||
Toll Holdings Ltd. | 55,849 | 559,346 |
United Parcel Service, Inc. "B" | 19,900 | 1,407,328 |
| 1,966,674 | |
Commercial Services & Supplies 1.0% | ||
Dun & Bradstreet Corp. | 35,500 | 3,146,365 |
Industrial Conglomerates 1.3% | ||
Tyco International Ltd. | 107,590 | 4,265,943 |
Marine 0.8% | ||
China Shipping Development Co., Ltd. "H" | 450,000 | 1,173,531 |
Kuehne & Nagel International AG (Registered) | 15,220 | 1,451,054 |
| 2,624,585 | |
Road & Rail 0.0% | ||
Asciano Group | 40,900 | 250,353 |
Transportation Infrastructure 1.5% | ||
China Merchants Holdings International Co., Ltd | 612,065 | 3,742,718 |
Cosco Pacific Ltd. | 410,600 | 1,074,286 |
| 4,817,004 | |
Information Technology 8.9% | ||
Computers & Peripherals 1.8% | ||
Dell, Inc.* | 139,500 | 3,419,145 |
Hewlett-Packard Co. | 49,600 | 2,503,808 |
| 5,922,953 | |
Electronic Equipment & Instruments 1.7% | ||
Agilent Technologies, Inc.* | 52,400 | 1,925,176 |
Tyco Electronics Ltd. | 103,190 | 3,831,445 |
| 5,756,621 | |
Internet Software & Services 0.6% | ||
Google, Inc. "A"* | 2,720 | 1,880,825 |
IT Services 1.6% | ||
Iron Mountain, Inc.* (a) | 141,949 | 5,254,952 |
Semiconductors & Semiconductor Equipment 0.7% | ||
Texas Instruments, Inc. | 67,900 | 2,267,860 |
| Shares | Value ($) |
|
| |
Software 2.5% | ||
Microsoft Corp. | 232,200 | 8,266,320 |
Materials 4.2% | ||
Construction Materials 1.6% | ||
Martin Marietta Materials, Inc. (a) | 24,800 | 3,288,480 |
Vulcan Materials Co. (a) | 24,800 | 1,961,432 |
| 5,249,912 | |
Containers & Packaging 1.5% | ||
Sealed Air Corp. | 210,200 | 4,864,028 |
Metals & Mining 0.8% | ||
BHP Billiton PLC | 36,100 | 1,111,951 |
Rio Tinto PLC | 13,900 | 1,456,270 |
| 2,568,221 | |
Paper & Forest Products 0.3% | ||
Sino-Forest Corp. "A"* | 47,400 | 1,029,693 |
Telecommunication Services 1.3% | ||
Wireless Telecommunication Services | ||
SK Telecom Co., Ltd. (ADR) | 62,300 | 1,859,032 |
Sprint Nextel Corp. | 181,630 | 2,384,802 |
| 4,243,834 | |
Total Common Stocks (Cost $212,594,017) | 329,562,900 | |
| ||
Securities Lending Collateral 9.0% | ||
Daily Assets Fund Institutional, 5.03% (c) (d) (Cost $29,876,655) | 29,876,655 | 29,876,655 |
| ||
Cash Equivalents 0.2% | ||
Cash Management QP Trust, 4.67% (c) (Cost $522,943) | 522,943 | 522,943 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $242,993,615)+ | 109.1 | 359,962,498 |
Other Assets and Liabilities, Net | (9.1) | (30,142,476) |
Net Assets | 100.0 | 329,820,022 |
+ The cost for federal income tax purposes was $243,208,909. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $116,753,589. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $124,289,594 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $7,536,005.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $29,179,972 which is 8.8% of net assets.
(b) The Fund may purchase securities that are subject to legal or contractual restrictions on resale ("restricted securities"). Restricted securities are securities which have not been registered with the Securities and Exchange Commission under the Securities Act of 1933. The fund may be unable to sell a restricted security and it may be more difficult to determine a market value for a restricted security. Moreover, if adverse market conditions were to develop during the period between the Fund's decision to sell a restricted security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Fund. The future value of these securities is uncertain and there may be changes in the estimated value of these securities.
Schedule of Restricted Securities | Acquisition Date | Acquisition Cost ($) | Value ($) | Value as a % of Net Assets |
Merrill Lynch & Co., Inc. | December 2007 | 4,497,600 | 4,526,835 | 1.37% |
(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $212,594,017) — including $29,179,972 of securities loaned | $ 329,562,900 |
Investment in Daily Assets Fund Institutional (cost $29,876,655)* | 29,876,655 |
Investment in Cash Management QP Trust (cost $522,943) | 522,943 |
Total investments in securities, at value (cost $242,993,615) | 359,962,498 |
Cash | 10,000 |
Foreign currency, at value (cost $53,980) | 54,220 |
Dividends receivable | 355,659 |
Interest receivable | 34,284 |
Foreign taxes recoverable | 4,219 |
Receivable for Portfolio shares sold | 171 |
Receivable for investments sold | 532,640 |
Due from Advisor | 1,824 |
Other assets | 8,076 |
Total assets | 360,963,591 |
Liabilities | |
Payable upon return of securities loaned | 29,876,655 |
Payable for investments purchased | 315,217 |
Payable for Portfolio shares redeemed | 609,789 |
Accrued management fee | 215,456 |
Other accrued expenses and payables | 126,452 |
Total liabilities | 31,143,569 |
Net assets, at value | $ 329,820,022 |
Net Assets Consist of | |
Undistributed net investment income | 3,748,514 |
Net unrealized appreciation (depreciation) on: Investments | 116,968,883 |
Foreign currency | (329) |
Accumulated net realized gain (loss) | 35,364,950 |
Paid-in capital | 173,738,004 |
Net assets, at value | $ 329,820,022 |
Class A Net Asset Value, offering and redemption price per share ($307,290,649 ÷ 21,062,118 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.59 |
Class B Net Asset Value, offering and redemption price per share ($22,529,373 ÷ 1,546,251 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.57 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $35,231) | $ 7,116,227 |
Interest — Cash Management QP Trust | 217,942 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 61,596 |
Total Income | 7,395,765 |
Expenses: Management fee | 3,682,130 |
Custodian and accounting fees | 138,788 |
Distribution service fee (Class B) | 106,162 |
Record keeping fees (Class B) | 52,223 |
Services to shareholders | 286 |
Professional fees | 74,833 |
Trustees' fees and expenses | 27,983 |
Reports to shareholders | 59,696 |
Other | 24,507 |
Total expenses before expense reductions | 4,166,608 |
Expense reductions | (580,367) |
Total expenses after expense reductions | 3,586,241 |
Net investment income (loss) | 3,809,524 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 36,081,199 |
Foreign currency | (28,183) |
| 36,053,016 |
Change in net unrealized appreciation (depreciation) on: Investments | (20,326,224) |
Foreign currency | (358) |
| (20,326,582) |
Net gain (loss) | 15,726,434 |
Net increase (decrease) in net assets resulting from operations | $ 19,535,958 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 3,809,524 | $ 2,775,030 |
Net realized gain (loss) | 36,053,016 | 11,060,187 |
Change in net unrealized appreciation (depreciation) | (20,326,582) | 41,776,308 |
Net increase (decrease) in net assets resulting from operations | 19,535,958 | 55,611,525 |
Distributions to shareholders from: Net investment income: Class A | (2,451,514) | (2,082,948) |
Class B | (255,608) | (214,549) |
Net realized gains: Class A | (4,403,063) | — |
Class B | (989,328) | — |
Total distributions | (8,099,513) | (2,297,497) |
Portfolio share transactions: Class A Proceeds from shares sold | 14,075,726 | 23,381,717 |
Reinvestment of distributions | 6,854,577 | 2,082,948 |
Cost of shares redeemed | (68,408,104) | (31,847,982) |
Net increase (decrease) in net assets from Class A share transactions | (47,477,801) | (6,383,317) |
Class B Proceeds from shares sold | 4,124,041 | 6,563,580 |
Reinvestment of distributions | 1,244,936 | 214,549 |
Cost of shares redeemed | (65,157,088) | (15,502,095) |
Net increase (decrease) in net assets from Class B share transactions | (59,788,111) | (8,723,966) |
Increase (decrease) in net assets | (95,829,467) | 38,206,745 |
Net assets at beginning of period | 425,649,489 | 387,442,744 |
Net assets at end of period (including undistributed net investment income of $3,748,514 and $2,670,607, respectively) | $ 329,820,022 | $ 425,649,489 |
Other Information | ||
Class A Shares outstanding at beginning of period | 24,284,177 | 24,763,248 |
Shares sold | 967,409 | 1,802,609 |
Shares issued to shareholders in reinvestment of distributions | 490,313 | 163,496 |
Shares redeemed | (4,679,781) | (2,445,176) |
Net increase (decrease) in Class A shares | (3,222,059) | (479,071) |
Shares outstanding at end of period | 21,062,118 | 24,284,177 |
Class B Shares outstanding at beginning of period | 5,597,014 | 6,263,092 |
Shares sold | 287,676 | 509,107 |
Shares issued to shareholders in reinvestment of distributions | 88,987 | 16,827 |
Shares redeemed | (4,427,426) | (1,192,012) |
Net increase (decrease) in Class B shares | (4,050,763) | (666,078) |
Shares outstanding at end of period | 1,546,251 | 5,597,014 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.25 | $ 12.49 | $ 11.48 | $ 10.31 | $ 7.99 |
Income (loss) from investment operations: Net investment income (loss)a | .15 | .10 | .09 | .08 | .06 |
Net realized and unrealized gain (loss) | .47 | 1.74 | 1.01 | 1.14 | 2.31 |
Total from investment operations | .62 | 1.84 | 1.10 | 1.22 | 2.37 |
Less distributions from: Net investment income | (.10) | (.08) | (.09) | (.05) | (.05) |
Net realized gains | (.18) | — | — | — | — |
Total distributions | (.28) | (.08) | (.09) | (.05) | (.05) |
Net asset value, end of period | $ 14.59 | $ 14.25 | $ 12.49 | $ 11.48 | $ 10.31 |
Total Return (%) | 4.46b | 14.84b | 9.64b | 11.83 | 29.84 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 307 | 346 | 309 | 268 | 220 |
Ratio of expenses before expense reductions (%) | 1.02 | 1.02 | 1.02 | 1.05 | 1.01 |
Ratio of expenses after expense reductions (%) | .88 | .85 | .96 | 1.05 | 1.01 |
Ratio of net investment income (%) | 1.01 | .77 | .78 | .74 | .62 |
Portfolio turnover rate (%) | 9 | 16 | 8 | 3 | 7 |
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, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.22 | $ 12.47 | $ 11.46 | $ 10.29 | $ 7.98 |
Income (loss) from investment operations: Net investment income (loss)a | .09 | .05 | .04 | .04 | .02 |
Net realized and unrealized gain (loss) | .49 | 1.73 | 1.01 | 1.13 | 2.32 |
Total from investment operations | .58 | 1.78 | 1.05 | 1.17 | 2.34 |
Less distributions from: Net investment income | (.05) | (.03) | (.04) | (.00)* | (.03) |
Net realized gains | (.18) | — | — | — | — |
Total distributions | (.23) | (.03) | (.04) | (.00)* | (.03) |
Net asset value, end of period | $ 14.57 | $ 14.22 | $ 12.47 | $ 11.46 | $ 10.29 |
Total Return (%) | 4.14b | 14.34b | 9.23b | 11.42 | 29.42 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 23 | 80 | 78 | 66 | 29 |
Ratio of expenses before expense reductions (%) | 1.39 | 1.40 | 1.41 | 1.44 | 1.40 |
Ratio of expenses after expense reductions (%) | 1.25 | 1.23 | 1.34 | 1.44 | 1.40 |
Ratio of net investment income (%) | .64 | .39 | .40 | .36 | .23 |
Portfolio turnover rate (%) | 9 | 16 | 8 | 3 | 7 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .77% and 1.11% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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.
Portfolio returns shown for all periods for Class B shares reflect a waiver and/or expense reimbursement. Without this waiver/reimbursement, returns would have been lower.
Growth of an Assumed $10,000 Investment in DWS Dreman High Return Equity VIP from 5/4/1998 to 12/31/2007 | ||
[] DWS Dreman High Return Equity VIP — Class A [] S&P 500® Index | The Standard & Poor's 500® (S&P 500) Index is an unmanaged capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Dreman High Return Equity VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $9,814 | $12,575 | $18,921 | $18,810 |
Average annual total return | -1.86% | 7.94% | 13.60% | 6.76% | |
S&P 500 Index | Growth of $10,000 | $10,549 | $12,816 | $18,286 | $15,427 |
Average annual total return | 5.49% | 8.62% | 12.83% | 4.59% | |
DWS Dreman High Return Equity VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $9,781 | $12,431 | $18,572 | $16,981 |
Average annual total return | -2.19% | 7.52% | 13.18% | 10.11% | |
S&P 500 Index | Growth of $10,000 | $10,549 | $12,816 | $18,286 | $16,403 |
Average annual total return | 5.49% | 8.62% | 12.83% | 9.42% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 4, 1998. Index returns began on April 30, 1998.** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses for Class B shares; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 934.50 |
| $ 933.30 |
|
Expenses Paid per $1,000* | $ 3.80 |
| $ 5.41 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.27 |
| $ 1,019.61 |
|
Expenses Paid per $1,000* | $ 3.97 |
| $ 5.65 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Dreman High Return Equity VIP | .78% |
| 1.11% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Dreman High Return Equity VIP
Except for a period of weakness in late February and early March, equity markets were quite strong during the first half of 2007. By the end of May, most indices were at or near their all-time highs, and positive trends continued through mid-July before drifting lower in the late summer. A rally in September was sparked in part by the first of the US Federal Reserve Board's (the Fed's) three interest rate reductions. Volatility returned in the fourth quarter, as markets responded to further bad news about the potential impact of the subprime mortgage crisis.
For the full year, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14%. Growth stocks, as measured by the Russell 1000® Growth Index, performed significantly better than value stocks, as measured by the Russell 1000® Value index. With a return of -1.86% (Class A shares, unadjusted for contract charges), the Dreman High Return Equity VIP underperformed its benchmark, the Standard & Poor's 500® (S&P 500) Index, which posted a return of 5.49%.
The Portfolio's underperformance relative to the benchmark resulted mainly from a significant overweight in the financial sector, as well as stock selection in that sector.1 Large positions that performed poorly include Freddie Mac, Fannie Mae and Washington Mutual, Inc., all of which have significant participation in the mortgage business. We agree with the market's view that conditions in the housing and mortgage markets are the worst in many years, but we regard the response, as demonstrated by the extreme weakness in these stocks, as a severe overreaction. We believe that stocks of the financially sound companies held in this Portfolio have the opportunity to further improve their market positions as marginal players exit the mortgage business. Although holdings in the financial sector hurt performance temporarily, we believe they are significantly undervalued and should provide above-average returns over time.
The Portfolio's largest position, Altria Group, Inc., performed very well. We continue to favor this stock, as we believe the value of both the international and the domestic tobacco businesses are greater than reflected in the current stock price.
An important positive was an overweight position in energy, a sector we find attractive because of rising world demand. Energy holdings that performed especially well were ConocoPhillips, Apache Corp., Anadarko Petroleum Corp. and Devon Energy Corp.
David N. Dreman F. James Hutchinson E. Clifton Hoover, Jr.
Lead Portfolio Manager Portfolio Managers
Dreman Value Management L.L.C., Subadvisor to the Portfolio
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 Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
The Standard & Poor's 500 (S&P 500) Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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 "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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Dreman High Return Equity VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 100% | 98% |
Cash Equivalents | — | 2% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 30% | 30% |
Energy | 26% | 21% |
Health Care | 16% | 16% |
Consumer Staples | 12% | 16% |
Industrials | 8% | 7% |
Consumer Discretionary | 6% | 7% |
Telecommunication Services | 2% | 1% |
Information Technology | — | 2% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 88. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Dreman High Return Equity VIP
| Shares | Value ($) |
|
| |
Common Stocks 99.7% | ||
Consumer Discretionary 5.9% | ||
Multiline Retail 0.8% | ||
Macy's, Inc. | 260,310 | 6,734,220 |
Specialty Retail 5.1% | ||
Borders Group, Inc. (a) | 398,600 | 4,245,090 |
Lowe's Companies, Inc. | 723,100 | 16,356,522 |
Staples, Inc. | 923,910 | 21,314,603 |
| 41,916,215 | |
Consumer Staples 12.2% | ||
Tobacco | ||
Altria Group, Inc. | 991,220 | 74,916,408 |
UST, Inc. | 483,279 | 26,483,689 |
| 101,400,097 | |
Energy 25.9% | ||
Oil, Gas & Consumable Fuels | ||
Anadarko Petroleum Corp. | 512,100 | 33,639,849 |
Apache Corp. | 255,200 | 27,444,208 |
Chevron Corp. | 284,100 | 26,515,053 |
ConocoPhillips | 759,894 | 67,098,640 |
Devon Energy Corp. | 517,600 | 46,019,816 |
EnCana Corp. | 3,100 | 210,676 |
Occidental Petroleum Corp. | 176,000 | 13,550,240 |
| 214,478,482 | |
Financials 29.5% | ||
Commercial Banks 9.5% | ||
KeyCorp. | 519,618 | 12,185,042 |
PNC Financial Services Group, Inc. | 328,794 | 21,585,326 |
US Bancorp. | 283,900 | 9,010,986 |
Wachovia Corp. | 949,000 | 36,090,470 |
| 78,871,824 | |
Diversified Financial Services 5.9% | ||
Bank of America Corp. | 800,819 | 33,041,792 |
CIT Group, Inc. | 230,800 | 5,546,124 |
Citigroup, Inc. | 280,700 | 8,263,808 |
JPMorgan Chase & Co. | 45,500 | 1,986,075 |
| 48,837,799 | |
Insurance 3.2% | ||
Chubb Corp. | 280,100 | 15,287,858 |
Hartford Financial Services Group, Inc. | 123,488 | 10,766,919 |
| 26,054,777 | |
Thrifts & Mortgage Finance 10.9% | ||
Fannie Mae | 888,073 | 35,505,158 |
Freddie Mac | 795,091 | 27,088,750 |
Sovereign Bancorp, Inc. | 449,219 | 5,121,097 |
| Shares | Value ($) |
|
| |
Washington Mutual, Inc. | 1,681,975 | 22,891,680 |
| 90,606,685 | |
Health Care 15.9% | ||
Biotechnology 0.5% | ||
Amgen, Inc.* | 92,100 | 4,277,124 |
Health Care Providers & Services 7.9% | ||
Aetna, Inc. | 374,900 | 21,642,977 |
UnitedHealth Group, Inc. | 754,800 | 43,929,360 |
| 65,572,337 | |
Pharmaceuticals 7.5% | ||
Eli Lilly & Co. | 90,100 | 4,810,439 |
Pfizer, Inc. | 1,174,400 | 26,694,112 |
Wyeth | 684,900 | 30,265,731 |
| 61,770,282 | |
Industrials 7.7% | ||
Aerospace & Defense 3.2% | ||
Northrop Grumman Corp. | 122,500 | 9,633,400 |
United Technologies Corp. | 217,500 | 16,647,450 |
| 26,280,850 | |
Industrial Conglomerates 4.5% | ||
3M Co. | 270,700 | 22,825,424 |
General Electric Co. | 394,600 | 14,627,822 |
| 37,453,246 | |
Materials 0.0% | ||
Chemicals | ||
Tronox, Inc. "B" | 490 | 4,239 |
Telecommunication Services 2.6% | ||
Diversified Telecommunication Services | ||
Verizon Communications, Inc. | 500,500 | 21,866,845 |
Total Common Stocks (Cost $669,186,998) | 826,125,022 | |
| ||
Securities Lending Collateral 0.5% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $4,186,200) | 4,186,200 | 4,186,200 |
| ||
Cash Equivalents 0.1% | ||
Cash Management QP Trust, 4.67% (b) (Cost $502,942) | 502,942 | 502,942 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $673,876,140)+ | 100.3 | 830,814,164 |
Other Assets and Liabilities, Net | (0.3) | (2,282,279) |
Net Assets | 100.0 | 828,531,885 |
+ The cost for federal income tax purposes was $676,886,837. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $153,927,327. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $234,668,131 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $80,740,804.
(a) All or a portion of these securities were on loan. The value of all securities loaned at December 31, 2007 amounted to $3,812,700 which is 0.5% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $669,186,998) — including $3,812,700 of securities loaned | $ 826,125,022 |
Investment in Daily Assets Fund Institutional (cost $4,186,200)* | 4,186,200 |
Investment in Cash Management QP Trust (cost $502,942) | 502,942 |
Total investments at value (cost $673,876,140) | 830,814,164 |
Cash | 1,893,627 |
Dividends receivable | 1,279,839 |
Receivable for investments sold | 999,213 |
Receivable for Portfolio shares sold | 471,934 |
Interest receivable | 3,691 |
Due from Advisor | 41,706 |
Other assets | 18,507 |
Total assets | 835,522,681 |
Liabilities | |
Payable upon return of securities loaned | 4,186,200 |
Payable for Portfolio shares redeemed | 423,699 |
Payable for investments purchased | 1,634,372 |
Accrued management fee | 507,819 |
Other accrued expenses and payables | 238,706 |
Total liabilities | 6,990,796 |
Net assets, at value | $ 828,531,885 |
Net Assets Consist of | |
Undistributed net investment income | 19,200,356 |
Net unrealized appreciation (depreciation) on investments | 156,938,024 |
Accumulated net realized gain (loss) | 119,331,501 |
Paid-in capital | 533,062,004 |
Net assets, at value | $ 828,531,885 |
Class A Net Asset Value, offering and redemption price per share ($791,756,263 ÷ 54,976,574 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.40 |
Class B Net Asset Value, offering and redemption price per share ($36,775,622 ÷ 2,551,709 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.41 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $12,012) | $ 27,174,825 |
Interest — Cash Management QP Trust | 450,389 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 12,478 |
Total Income | 27,637,692 |
Expenses: Management fee | 7,381,802 |
Custodian and accounting fees | 174,876 |
Distribution service fee (Class B) | 224,891 |
Services to shareholders | 1,781 |
Record keeping fees (Class B) | 114,757 |
Professional fees | 88,519 |
Trustees' fees and expenses | 52,652 |
Reports to shareholders | 139,376 |
Other | 74,415 |
Total expenses before expense reductions | 8,253,069 |
Expense reductions | (35,804) |
Total expenses after expense reductions | 8,217,265 |
Net investment income (loss) | 19,420,427 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 121,656,723 |
Futures | 1,189,686 |
| 122,846,409 |
Change in net unrealized appreciation (depreciation) on: Investments | (150,183,329) |
Futures | (88,602) |
| (150,271,931) |
Net gain (loss) | (27,425,522) |
Net increase (decrease) in net assets resulting from operations | $ (8,005,095) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31 | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 19,420,427 | $ 17,995,718 |
Net realized gain (loss) | 122,846,409 | 58,924,813 |
Change in net unrealized appreciation (depreciation) | (150,271,931) | 98,885,982 |
Net increase (decrease) in net assets resulting from operations | (8,005,095) | 175,806,513 |
Distributions to shareholders from: Net investment income: Class A | (13,677,685) | (16,100,036) |
Class B | (1,939,768) | (1,938,310) |
Net realized gains: Class A | (7,925,978) | (37,221,919) |
Class B | (1,537,591) | (7,173,691) |
Total distributions | (25,081,022) | (62,433,956) |
Portfolio share transactions: Class A Proceeds from shares sold | 30,297,612 | 40,524,596 |
Net assets acquired in tax-free reorganization | — | 137,231,257 |
Reinvestment of distributions | 21,603,663 | 53,321,955 |
Cost of shares redeemed | (218,373,492) | (119,759,898) |
Net increase (decrease) in net assets from Class A share transactions | (166,472,217) | 111,317,910 |
Class B Proceeds from shares sold | 4,409,581 | 53,270,899 |
Net assets acquired in tax-free reorganization | — | 47,215,059 |
Reinvestment of distributions | 3,477,359 | 9,112,001 |
Cost of shares redeemed | (163,138,034) | (71,564,607) |
Net increase (decrease) in net assets from Class B share transactions | (155,251,094) | 38,033,352 |
Increase (decrease) in net assets | (354,809,428) | 262,723,819 |
Net assets at beginning of period | 1,183,341,313 | 920,617,494 |
Net assets at end of period (including undistributed net investment income of $19,200,356 and $15,397,382, respectively) | $ 828,531,885 | $ 1,183,341,313 |
Other Information | ||
Class A Shares outstanding at beginning of period | 66,083,197 | 58,564,793 |
Shares sold | 2,028,711 | 2,833,575 |
Shares issued in tax-free reorganization | — | 9,458,080 |
Shares issued to shareholders in reinvestment of distributions | 1,492,997 | 3,653,359 |
Shares redeemed | (14,628,331) | (8,426,610) |
Net increase (decrease) in Class A shares | (11,106,623) | 7,518,404 |
Shares outstanding at end of period | 54,976,574 | 66,083,197 |
Class B Shares outstanding at beginning of period | 12,713,676 | 10,109,241 |
Shares sold | 292,792 | 3,689,964 |
Shares issued in tax-free reorganization | — | 3,256,256 |
Shares issued to shareholders in reinvestment of distributions | 239,488 | 620,552 |
Shares redeemed | (10,694,247) | (4,962,337) |
Net increase (decrease) in Class B shares | (10,161,967) | 2,604,435 |
Shares outstanding at end of period | 2,551,709 | 12,713,676 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 15.02 | $ 13.41 | $ 12.65 | $ 11.29 | $ 8.76 |
Income (loss) from investment operations: Net investment income (loss)a | .29 | .27 | .24 | .23 | .20 |
Net realized and unrealized gain (loss) | (.56) | 2.21 | .75 | 1.32 | 2.53 |
Total from investment operations | (.27) | 2.48 | .99 | 1.55 | 2.73 |
Less distributions from: Net investment income | (.22) | (.28) | (.23) | (.19) | (.20) |
Net realized gains | (.13) | (.59) | — | — | — |
Total distributions | (.35) | (.87) | (.23) | (.19) | (.20) |
Net asset value, end of period | $ 14.40 | $ 15.02 | $ 13.41 | $ 12.65 | $ 11.29 |
Total Return (%) | (1.86) | 18.74 | 7.92 | 13.95 | 32.04 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 792 | 992 | 785 | 747 | 672 |
Ratio of expenses (%) | .78 | .77 | .78 | .78 | .79 |
Ratio of net investment income (%) | 1.94 | 1.87 | 1.84 | 1.96 | 2.14 |
Portfolio turnover rate (%) | 27 | 20 | 10 | 9 | 18 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 15.02 | $ 13.39 | $ 12.63 | $ 11.27 | $ 8.75 |
Income (loss) from investment operations: Net investment income (loss)a | .24 | .22 | .19 | .18 | .16 |
Net realized and unrealized gain (loss) | (.56) | 2.19 | .75 | 1.33 | 2.53 |
Total from investment operations | (.32) | 2.41 | .94 | 1.51 | 2.69 |
Less distributions from: Net investment income | (.16) | (.19) | (.18) | (.15) | (.17) |
Net realized gains | (.13) | (.59) | — | — | — |
Total distributions | (.29) | (.78) | (.18) | (.15) | (.17) |
Net asset value, end of period | $ 14.41 | $ 15.02 | $ 13.39 | $ 12.63 | $ 11.27 |
Total Return (%) | (2.19)b | 18.21b | 7.51 | 13.53 | 31.60 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 37 | 191 | 135 | 117 | 66 |
Ratio of expenses before expense reduction (%) | 1.15 | 1.16 | 1.17 | 1.16 | 1.18 |
Ratio of expenses after expense reduction (%) | 1.13 | 1.16 | 1.17 | 1.16 | 1.18 |
Ratio of net investment income (%) | 1.59 | 1.48 | 1.45 | 1.58 | 1.75 |
Portfolio turnover rate (%) | 27 | 20 | 10 | 9 | 18 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. |
Performance Summary December 31, 2007
DWS Dreman Small Mid 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 contact your participating insurance company 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 total annual Portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .77% and 1.15% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
This Portfolio is subject to stock market risk. Stocks of small and medium-sized 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. Small and mid-cap company stocks tend to experience steeper price fluctuations — down as well as up — than stocks of larger companies. Small and mid-cap company stocks are typically less liquid than large company stocks. 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 Mid Cap Value VIP | ||
[] DWS Dreman Small Mid Cap Value VIP — Class A [] Russell 2500™ Value Index | The Russell 2500™ Value Index is an unmanaged Index of those securities in the Russell 3000® Index with a lower price-to-book 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. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Dreman Small Mid Cap Value VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,306 | $14,209 | $25,455 | $25,185 |
Average annual total return | 3.06% | 12.42% | 20.55% | 9.68% | |
Russell 2500 Value Index | Growth of $10,000 | $9,273 | $12,006 | $21,155 | $25,157 |
Average annual total return | -7.27% | 6.28% | 16.17% | 9.66% | |
DWS Dreman Small Mid Cap Value VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,267 | $14,043 | $24,968 | $20,987 |
Average annual total return | 2.67% | 11.98% | 20.08% | 14.43% | |
Russell 2500 Value Index | Growth of $10,000 | $9,273 | $12,006 | $21,155 | $18,207 |
Average annual total return | -7.27% | 6.28% | 16.17% | 11.51% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on June 30, 2002.Information About Your Portfolio's Expenses
DWS Dreman Small Mid 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,030.60 |
| $ 1,026.70 |
|
Expenses Paid per $1,000* | $ 3.89 |
| $ 5.82 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.37 |
| $ 1,019.46 |
|
Expenses Paid per $1,000* | $ 3.87 |
| $ 5.80 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Dreman Small Mid Cap Value VIP | .76% |
| 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, 2007
DWS Dreman Small Mid Cap Value VIP
Except for a period of weakness in late February and early March, equity markets were quite strong during the first half of 2007. By the end of May, most indices were at or near their all-time highs, and positive trends continued through mid-July before drifting lower in the late summer. A rally in September was sparked in part by the first of the US Federal Reserve Board's (the Fed's) three interest rate reductions. Volatility returned in the fourth quarter, as markets responded to further bad news about the potential impact of the subprime mortgage crisis. For the full year, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14%.
The Dreman Small Mid Cap Value VIP Portfolio (Class A shares, unadjusted for contract charges) returned 3.06% for the year, outperforming its benchmark, the Russell 2500® Value Index, which had a return of -7.27%. An overweight in energy and an underweight in financials, as well as stock selection in both of these sectors contributed to performance.1 Holdings in the energy sector that contributed significantly include Uranium Resources, Inc. and Atwood Oceanics, Inc. Other positives were Central European Distribution Corp.* and General Cable Corp.
The biggest detractor from performance relative to the benchmark was an underweight in the utilities sector. Other positions that detracted from performance include Sterling Financial Corp., a bank holding company with significant participation in the mortgage business, and retailer The Men's Wearhouse, Inc.
David N. Dreman E. Clifton Hoover, Jr. and Mark Roach
Lead Portfolio Manager Portfolio Managers, Dreman Value Management, L.L.C., Subadvisor to the Portfolio
Risk Considerations
This Portfolio is subject to stock market risk. Stocks of small and medium-sized 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. Small and mid-cap company stocks tend to experience steeper price fluctuations — down as well as up — than stocks of larger companies. Small and mid-cap company stocks are typically less liquid than large company stocks. 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 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Russell 2500 Value Index is an unmanaged Index of those securities in the Russell 3000 Index with a lower price-to-book 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 "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.* As of December 31, 2007, the position was not held.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Dreman Small Mid Cap Value VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 97% | 95% |
Cash Equivalents | 3% | 4% |
Closed-End Investment Company | — | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 25% | 22% |
Industrials | 20% | 26% |
Energy | 12% | 10% |
Consumer Staples | 12% | 3% |
Health Care | 8% | 9% |
Information Technology | 7% | 11% |
Consumer Discretionary | 7% | 5% |
Materials | 4% | 8% |
Utilities | 4% | 5% |
Telecommunications 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 98. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Dreman Small Mid Cap Value VIP
|
Shares | Value ($) |
|
| |
Common Stocks 96.5% | ||
Consumer Discretionary 6.2% | ||
Diversified Consumer Services 1.0% | ||
Regis Corp. (a) | 181,650 | 5,078,934 |
Household Durables 1.1% | ||
Leggett & Platt, Inc. (a) | 314,050 | 5,477,032 |
Media 0.7% | ||
Idearc, Inc. | 198,300 | 3,482,148 |
Specialty Retail 1.8% | ||
Penske Automotive Group, Inc. (a) | 252,800 | 4,413,888 |
The Men's Wearhouse, Inc. (a) | 177,350 | 4,784,903 |
9,198,791 | ||
Textiles, Apparel & Luxury Goods 1.6% | ||
Hanesbrands, Inc.* | 296,700 | 8,061,339 |
Consumer Staples 11.3% | ||
Food & Staples Retailing 2.2% | ||
Ruddick Corp. (a) | 273,050 | 9,466,644 |
Weis Markets, Inc. (a) | 38,350 | 1,531,699 |
10,998,343 | ||
Food Products 7.3% | ||
Del Monte Foods Co. (a) | 756,750 | 7,158,855 |
Hormel Foods Corp. | 159,800 | 6,468,704 |
Pilgrim's Pride Corp. (a) | 220,000 | 6,369,000 |
Ralcorp Holdings, Inc.* | 138,150 | 8,398,138 |
The J.M. Smucker Co. | 159,200 | 8,189,248 |
36,583,945 | ||
Tobacco 1.8% | ||
Vector Group Ltd. (a) | 444,686 | 8,920,401 |
Energy 11.3% | ||
Energy Equipment & Services 6.0% | ||
Atwood Oceanics, Inc.* (a) | 153,200 | 15,356,768 |
Key Energy Services, Inc.* | 423,450 | 6,093,446 |
Superior Energy Services, Inc.* | 260,250 | 8,957,805 |
30,408,019 | ||
Oil, Gas & Consumable Fuels 5.3% | ||
Alon USA Energy, Inc. | 189,400 | 5,147,892 |
Cimarex Energy Co. | 196,600 | 8,361,398 |
Pinnacle Gas Resources, Inc. 144A* | 241,000 | 1,103,780 |
St. Mary Land & Exploration Co. | 173,650 | 6,704,626 |
Uranium Resources, Inc.* | 413,383 | 5,159,020 |
26,476,716 | ||
Financials 24.1% | ||
Capital Markets 2.3% | ||
FBR Capital Markets Corp. 144A* | 95,600 | 915,848 |
Waddell & Reed Financial, Inc. "A" | 294,750 | 10,637,528 |
11,553,376 | ||
Commercial Banks 5.3% | ||
Boston Private Financial Holdings, Inc. (a) | 261,800 | 7,089,544 |
Huntington Bancshares, Inc. (a) | 386,600 | 5,706,216 |
Sterling Financial Corp. (a) | 229,723 | 3,857,049 |
UCBH Holdings, Inc. (a) | 402,950 | 5,705,772 |
|
Shares | Value ($) |
|
| |
Wachovia Corp. | 107,299 | 4,080,581 |
26,439,162 | ||
Diversified Financial Services 0.9% | ||
CIT Group, Inc. | 182,300 | 4,380,669 |
CMET Finance Holdings, Inc. 144A* | 7,200 | 86,400 |
4,467,069 | ||
Insurance 12.1% | ||
Arch Capital Group Ltd.* | 117,200 | 8,245,020 |
Argo Group International Holdings Ltd.* (a) | 155,588 | 6,554,922 |
Endurance Specialty Holdings Ltd. (a) | 222,350 | 9,278,666 |
Hanover Insurance Group, Inc. (a) | 158,000 | 7,236,400 |
HCC Insurance Holdings, Inc. | 238,450 | 6,838,746 |
IPC Holdings Ltd. (a) | 257,700 | 7,439,799 |
Platinum Underwriters Holdings Ltd. (a) | 250,750 | 8,916,670 |
Protective Life Corp. | 155,100 | 6,362,202 |
60,872,425 | ||
Real Estate Investment Trusts 3.5% | ||
American Financial Realty Trust (REIT) (a) | 632,400 | 5,071,848 |
Hospitality Properties Trust (REIT) (a) | 165,700 | 5,338,854 |
Ventas, Inc. (REIT) | 163,300 | 7,389,325 |
17,800,027 | ||
Health Care 7.8% | ||
Health Care Equipment & Supplies 5.0% | ||
Beckman Coulter, Inc. | 119,600 | 8,706,880 |
Hillenbrand Industries, Inc. | 133,250 | 7,426,022 |
Kinetic Concepts, Inc.* | 168,700 | 9,035,572 |
25,168,474 | ||
Health Care Providers & Services 2.8% | ||
Healthspring, Inc.* | 390,200 | 7,433,310 |
Lincare Holdings, Inc.* | 192,900 | 6,782,364 |
14,215,674 | ||
Industrials 19.6% | ||
Aerospace & Defense 5.6% | ||
Alliant Techsystems, Inc.* (a) | 93,800 | 10,670,688 |
Curtiss-Wright Corp. | 198,300 | 9,954,660 |
DRS Technologies, Inc. (a) | 139,550 | 7,573,378 |
28,198,726 | ||
Commercial Services & Supplies 2.0% | ||
HNI Corp. | 162,900 | 5,711,274 |
Kelly Services, Inc. "A" | 244,850 | 4,568,901 |
10,280,175 | ||
Construction & Engineering 1.0% | ||
Perini Corp.* | 120,800 | 5,003,536 |
Electrical Equipment 3.9% | ||
General Cable Corp.* | 79,600 | 5,833,088 |
Hubbell, Inc. "B" | 126,900 | 6,548,040 |
Regal-Beloit Corp. (a) | 154,800 | 6,958,260 |
19,339,388 | ||
|
Shares | Value ($) |
|
| |
Industrial Conglomerates 1.4% | ||
Walter Industries, Inc. (a) | 197,000 | 7,078,210 |
Machinery 4.7% | ||
Barnes Group, Inc. (a) | 354,350 | 11,831,747 |
Kennametal, Inc. (a) | 196,000 | 7,420,560 |
Mueller Water Products, Inc. "A" (a) | 437,150 | 4,161,668 |
23,413,975 | ||
Trading Companies & Distributors 1.0% | ||
WESCO International, Inc.* | 125,000 | 4,955,000 |
Information Technology 6.5% | ||
Communications Equipment 3.0% | ||
Arris Group, Inc.* | 426,650 | 4,257,967 |
CommScope, Inc.* | 219,200 | 10,786,832 |
15,044,799 | ||
Electronic Equipment & Instruments 1.8% | ||
Anixter International, Inc.* (a) | 140,400 | 8,742,708 |
Software 1.7% | ||
Jack Henry & Associates, Inc. (a) | 354,250 | 8,622,445 |
Materials 4.0% | ||
Chemicals 1.4% | ||
Hercules, Inc. | 359,950 | 6,965,033 |
Metals & Mining 2.6% | ||
IAMGOLD Corp. | 758,800 | 6,146,280 |
RTI International Metals, Inc.* (a) | 100,150 | 6,903,339 |
13,049,619 | ||
Telecommunication Services 1.4% | ||
Diversified Telecommunication Services | ||
Windstream Corp. | 526,000 | 6,848,520 |
|
Shares | Value ($) |
|
| |
Utilities 4.3% | ||
Electric Utilities 2.7% | ||
ALLETE, Inc. | 161,250 | 6,382,275 |
IDACORP, Inc. (a) | 207,250 | 7,299,345 |
13,681,620 | ||
Independent Power Producers & Energy Traders 0.1% | ||
Dynegy, Inc. "A"* | 11,529 | 82,317 |
Mirant Corp.* | 8,069 | 314,530 |
396,847 | ||
Multi-Utilities 1.5% | ||
Integrys Energy Group, Inc. (a) | 142,800 | 7,381,332 |
Total Common Stocks (Cost $470,781,768) | 484,203,808 | |
| ||
Securities Lending Collateral 12.3% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $61,979,470) | 61,979,470 | 61,979,470 |
| ||
Cash Equivalents 2.6% | ||
Cash Management QP Trust, 4.67% (b) (Cost $13,162,414) | 13,162,414 | 13,162,414 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $545,923,652)+ | 111.4 | 559,345,692 |
Other Assets and Liabilities, Net | (11.4) | (57,446,777) |
Net Assets | 100.0 | 501,898,915 |
+ The cost for federal income tax purposes was $545,923,652. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $13,422,040. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $69,893,017 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $56,470,977.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $58,989,969 which is 11.8% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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.
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $470,781,768 — including $58,973,119 of securities loaned) | $ 484,203,808 |
Investment in Daily Assets Fund Institutional (cost $61,979,470)* | 61,979,470 |
Investment in Cash Management QP Trust (cost $13,162,414) | 13,162,414 |
Total investments, at value (cost $545,923,652) | 559,345,692 |
Cash | 75 |
Receivable for investments sold | 4,342,003 |
Dividends receivable | 647,829 |
Interest receivable | 135,695 |
Receivable for Portfolio shares sold | 30,844 |
Other assets | 11,819 |
Total assets | 564,513,957 |
Liabilities | |
Payable upon return of securities loaned | 61,979,470 |
Payable for Portfolio shares redeemed | 142,395 |
Accrued management fee | 339,291 |
Other accrued expenses and payables | 153,886 |
Total liabilities | 62,615,042 |
Net assets, at value | $ 501,898,915 |
Net Assets Consist of: | |
Undistributed net investment income | 6,809,899 |
Net unrealized appreciation (depreciation) on: Investments | 13,422,040 |
Foreign currency related transactions | 452 |
Accumulated net realized gain (loss) | 169,437,719 |
Paid-in capital | 312,228,805 |
Net assets, at value | $ 501,898,915 |
Class A Net Asset Value, offering and redemption price per share ($468,370,231 ÷ 23,283,418 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 20.12 |
Class B Net Asset Value, offering and redemption price per share ($33,528,684 ÷ 1,669,556 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 20.08 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $7,225) | $ 7,505,239 |
Interest — Cash Management QP Trust | 1,787,793 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 469,274 |
Total Income | 9,762,306 |
Expenses: Management fee | 4,418,373 |
Custodian fee | 32,476 |
Distribution and service fee (Class B) | 129,482 |
Record keeping fees (Class B) | 64,766 |
Services to shareholders | 1,722 |
Professional fees | 80,060 |
Trustees' fees and expenses | 39,814 |
Reports to shareholders | 74,880 |
Other | 31,183 |
Total expenses before expense reductions | 4,872,756 |
Expense reductions | (9,077) |
Total expenses after expense reductions | 4,863,679 |
Net investment income (loss) | 4,898,627 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from investments | 173,994,914 |
Change in net unrealized appreciation (depreciation) on: Investments | (153,504,376) |
Foreign currency | 498 |
| (153,503,878) |
Net gain (loss) | 20,491,036 |
Net increase (decrease) in net assets resulting from operations | $ 25,389,663 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 4,898,627 | $ 4,078,886 |
Net realized gain (loss) | 173,994,914 | 91,462,667 |
Change in net unrealized appreciation (depreciation) | (153,503,878) | 42,123,164 |
Net increase (decrease) in net assets resulting from operations | 25,389,663 | 137,664,717 |
Distributions to shareholders from: Net investment income: Class A | (5,615,367) | (4,273,776) |
Class B | (521,975) | (345,890) |
Distributions to shareholders from: Net realized gains: Class A | (79,369,510) | (41,452,231) |
Class B | (12,524,743) | (7,012,173) |
Total distributions | (98,031,595) | (53,084,070) |
Portfolio share transactions: Class A Proceeds from shares sold | 42,602,597 | 35,405,526 |
Reinvestment of distributions | 84,984,877 | 45,726,007 |
Cost of shares redeemed | (156,265,470) | (84,469,976) |
Net increase (decrease) in net assets from Class A share transactions | (28,677,996) | (3,338,443) |
Class B Proceeds from shares sold | 12,637,109 | 5,496,550 |
Reinvestment of distributions | 13,046,718 | 7,358,063 |
Cost of shares redeemed | (74,159,545) | (17,725,542) |
Net increase (decrease) in net assets from Class B share transactions | (48,475,718) | (4,870,929) |
Increase (decrease) in net assets | (149,795,646) | 76,371,275 |
Net assets at beginning of period | 651,694,561 | 575,323,286 |
Net assets at end of period (including undistributed net investment income of $6,809,899 and $3,855,010, respectively) | $ 501,898,915 | $ 651,694,561 |
Other Information | ||
Class A Shares outstanding at beginning of period | 24,500,577 | 24,658,095 |
Shares sold | 1,968,230 | 1,671,537 |
Shares issued to shareholders in reinvestment of distributions | 4,200,933 | 2,176,393 |
Shares redeemed | (7,386,322) | (4,005,448) |
Net increase (decrease) in Class A shares | (1,217,159) | (157,518) |
Shares outstanding at end of period | 23,283,418 | 24,500,577 |
Class B Shares outstanding at beginning of period | 3,927,983 | 4,153,458 |
Shares sold | 603,769 | 258,137 |
Shares issued to shareholders in reinvestment of distributions | 644,282 | 349,884 |
Shares redeemed | (3,506,478) | (833,496) |
Net increase (decrease) in Class B shares | (2,258,427) | (225,475) |
Shares outstanding at end of period | 1,669,556 | 3,927,983 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 22.93 | $ 19.98 | $ 20.05 | $ 16.06 | $ 11.66 |
Income (loss) from investment operations: Net investment income (loss)a | .18 | .15 | .19 | .17 | .19 |
Net realized and unrealized gain (loss) | .54 | 4.69 | 1.67 | 3.98 | 4.55 |
Total from investment operations | .72 | 4.84 | 1.86 | 4.15 | 4.74 |
Less distributions from: Net investment income | (.23) | (.18) | (.15) | (.16) | (.15) |
Net realized gains | (3.30) | (1.71) | (1.78) | — | (.19) |
Total distributions | (3.53) | (1.89) | (1.93) | (.16) | (.34) |
Net asset value, end of period | $ 20.12 | $ 22.93 | $ 19.98 | $ 20.05 | $ 16.06 |
Total Return (%) | 3.06 | 25.06 | 10.25 | 26.03 | 42.15 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 468 | 562 | 493 | 467 | 354 |
Ratio of expenses (%) | .78 | .79 | .79 | .79 | .80 |
Ratio of net investment income (%) | .85 | .71 | .96 | .96 | 1.46 |
Portfolio turnover rate (%) | 110 | 52 | 61 | 73 | 71 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 22.88 | $ 19.93 | $ 20.01 | $ 16.03 | $ 11.65 |
Income (loss) from investment operations: Net investment income (loss)a | .10 | .07 | .11 | .10 | .13 |
Net realized and unrealized gain (loss) | .54 | 4.67 | 1.66 | 3.97 | 4.56 |
Total from investment operations | .64 | 4.74 | 1.77 | 4.07 | 4.69 |
Less distributions from: Net investment income | (.14) | (.08) | (.07) | (.09) | (.12) |
Net realized gains | (3.30) | (1.71) | (1.78) | — | (.19) |
Total distributions | (3.44) | (1.79) | (1.85) | (.09) | (.31) |
Net asset value, end of period | $ 20.08 | $ 22.88 | $ 19.93 | $ 20.01 | $ 16.03 |
Total Return (%) | 2.67 | 24.59 | 9.78 | 25.52 | 41.65 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 34 | 90 | 83 | 71 | 32 |
Ratio of expenses (%) | 1.16 | 1.17 | 1.19 | 1.16 | 1.19 |
Ratio of net investment income (%) | .47 | .33 | .56 | .59 | 1.07 |
Portfolio turnover rate (%) | 110 | 52 | 61 | 73 | 71 |
a Based on average shares outstanding during the period. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are 1.38% and 1.76% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the year ended December 31, 2007.
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 Global Thematic VIP from 5/5/1998 to 12/31/2007 | ||
[] 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 translates into 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. | |
| ||
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 | $10,629 | $17,007 | $25,204 | $21,509 |
Average annual total return | 6.29% | 19.36% | 20.31% | 8.25% | |
MSCI World Index | Growth of $10,000 | $10,904 | $14,333 | $21,887 | $17,042 |
Average annual total return | 9.04% | 12.75% | 16.96% | 5.67% | |
DWS Global Thematic VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $10,584 | $16,810 | $24,785 | $22,246 |
Average annual total return | 5.84% | 18.90% | 19.91% | 15.65% | |
MSCI World Index | Growth of $10,000 | $10,904 | $14,333 | $21,887 | $19,230 |
Average annual total return | 9.04% | 12.75% | 16.96% | 12.62% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 5, 1998. Index returns began on April 30, 1998.** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 954.90 |
| $ 952.60 |
|
Expenses Paid per $1,000* | $ 5.42 |
| $ 7.28 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,019.66 |
| $ 1,017.74 |
|
Expenses Paid per $1,000* | $ 5.60 |
| $ 7.53 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Global Thematic VIP | 1.10% |
| 1.48% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Global Thematic VIP
Despite second half market volatility, the MSCI World Index — the Portfolio's benchmark — returned 9.04% during 2007. The Class A shares of the Portfolio (unadjusted for contract charges) returned 6.29%, underperforming the index.
To review, we look for long-term themes in the global economy, then we use a combination of quantitative analysis and intensive fundamental research to identify companies that we believe can benefit as these themes unfold. The theme Public/Private Partnerships, which focuses on companies that partner with governments and regulators to provide important public services, made the largest contribution to performance behind a surge in OMX AB*, the Nordic region's largest stock exchange. Performance also was helped by successful stock selection in the two weakest areas of the market — the financial and consumer discretionary sectors. The Portfolio's leading individual contributors were Gazprom, Archer Daniels Midland Co., and ABN AMRO Holding N.V.*, while the most significant detractors were Office Depot, Inc., the US-based convenience store chain Pantry, Inc., and the Japanese stock Orix Corp. A below-benchmark weighting in the strong-performing energy sector also hurt relative performance.
Equities' poor second half performance has created opportunities to purchase undervalued stocks in industries that have little or no connection to the troubled US subprime market. Our global thematic strategy allows us to invest in companies we believe are undervalued as a result of market sell-offs.
Oliver Kratz
Lead Portfolio Manager
Deutsche Investment Management Americas Inc.
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 translates into 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.
* As of December 31, 2007, the positions were not held.Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Global Thematic VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 92% | 93% |
Cash Equivalents | 4% | 2% |
Exchange Traded Funds | 2% | 3% |
Preferred Stocks | 2% | 2% |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 24% | 23% |
Industrials | 21% | 16% |
Consumer Discretionary | 13% | 9% |
Health Care | 11% | 10% |
Information Technology | 11% | 15% |
Consumer Staples | 8% | 5% |
Materials | 5% | 7% |
Energy | 4% | 11% |
Telecommunication Services | 3% | 3% |
Utilities | — | 1% |
| 100% | 100% |
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Continental Europe | 39% | 31% |
United States | 28% | 28% |
Asia (excluding Japan) | 12% | 14% |
Latin America | 7% | 6% |
Japan | 6% | 8% |
United Kingdom | 3% | 7% |
Middle East | 2% | 1% |
Africa | 2% | 2% |
Canada | 1% | 1% |
Bermuda | — | 2% |
| 100% | 100% |
Asset allocation, sector and geographical diversifications are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 108. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Global Thematic VIP
|
| Value ($) |
|
| |
Common Stocks 92.6% | ||
Argentina 0.5% | ||
Banco Macro SA (ADR) (Cost $1,058,404) | 31,200 | 771,888 |
Australia 0.5% | ||
Australian Wealth Management Ltd. (Cost $766,162) | 370,220 | 815,449 |
Austria 5.3% | ||
Erste Bank der oesterreichischen Sparkassen AG | 14,600 | 1,037,693 |
Flughafen Wien AG | 12,400 | 1,432,341 |
Immoeast AG* | 98,389 | 1,050,805 |
Wienerberger AG | 90,037 | 4,973,645 |
(Cost $8,706,011) | 8,494,484 | |
Belgium 0.8% | ||
Fortis (Cost $1,658,477) | 51,400 | 1,335,743 |
Brazil 2.4% | ||
Diagnosticos da America SA | 36,100 | 741,008 |
Marfrig Frigorificos e Comercio de Alimentos SA* | 90,500 | 771,066 |
Santos Brasil Participacoes SA (Units)* | 126,000 | 1,875,842 |
SLC Agricola SA* | 55,400 | 512,807 |
(Cost $3,439,759) | 3,900,723 | |
Canada 0.5% | ||
Coalcorp Mining, Inc.* | 70,735 | 152,658 |
Nexen, Inc. | 22,200 | 722,042 |
(Cost $946,334) | 874,700 | |
China 0.4% | ||
Sunshine Holdings Ltd. (Cost $657,117) | 2,935,000 | 613,843 |
Denmark 1.5% | ||
A P Moller-Maersk AS "B" (Cost $3,113,091) | 231 | 2,448,063 |
Finland 0.3% | ||
Metso Corp. (Cost $515,263) | 9,000 | 485,719 |
France 2.4% | ||
PPR | 6,228 | 995,724 |
Sanofi-Aventis | 17,968 | 1,642,284 |
Vallourec SA | 4,507 | 1,213,304 |
(Cost $3,421,441) | 3,851,312 | |
Germany 9.0% | ||
Air Berlin PLC* (a) | 102,890 | 1,827,107 |
Axel Springer AG | 10,945 | 1,563,662 |
Bilfinger Berger AG | 16,900 | 1,282,338 |
Continental AG | 13,740 | 1,781,779 |
Hamburger Hafen- und Logistik AG* | 13,900 | 1,239,672 |
Muenchener Rueckversicherungs- Gesellschaft AG (Registered) | 10,095 | 1,951,476 |
Siemens AG (Registered) | 8,677 | 1,362,196 |
Symrise AG* | 94,031 | 2,622,550 |
TUI AG* | 31,314 | 869,663 |
(Cost $14,558,748) | 14,500,443 | |
|
| Value ($) |
|
| |
Hong Kong 3.2% | ||
China Water Affairs Group Ltd.* | 1,093,700 | 673,765 |
GOME Electrical Appliances Holdings Ltd. | 635,000 | 1,606,075 |
Hongkong & Shanghai Hotels Ltd. | 377,099 | 660,306 |
Hutchison Whampoa Ltd. | 191,000 | 2,149,366 |
(Cost $4,495,730) | 5,089,512 | |
Hungary 0.5% | ||
OTP Bank Nyrt. (Cost $765,118) | 15,100 | 759,762 |
Indonesia 0.7% | ||
PT Telekomunikasi Indonesia (ADR) (Cost $1,149,589) | 25,000 | 1,050,250 |
Israel 0.7% | ||
NICE Systems Ltd. (ADR)* (Cost $914,789) | 33,200 | 1,139,424 |
Italy 2.9% | ||
Gemina SpA | 705,717 | 1,232,662 |
Mediolanum SpA (a) | 248,800 | 1,970,047 |
UniCredito Italiano SpA | 168,800 | 1,404,830 |
(Cost $4,642,122) | 4,607,539 | |
Japan 5.2% | ||
Credit Saison Co., Ltd. | 33,700 | 919,559 |
FANUC Ltd. | 9,700 | 946,299 |
Mitsubishi Heavy Industries Ltd. | 257,000 | 1,099,826 |
Mitsui Fudosan Co., Ltd. | 51,000 | 1,102,209 |
Mizuho Financial Group, Inc. | 154 | 730,583 |
ORIX Corp. | 4,100 | 685,626 |
Ryobi Ltd. | 123,000 | 660,050 |
Seven & I Holdings Co., Ltd. | 45,000 | 1,308,621 |
Sony Financial Holdings, Inc.* | 237 | 900,768 |
(Cost $7,946,362) | 8,353,541 | |
Kazakhstan 0.6% | ||
Kazakhstan Kagazy PLC (GDR) 144A* (Cost $911,000) | 182,200 | 956,550 |
Korea 3.9% | ||
CDNetworks Co., Ltd.* | 31,221 | 531,066 |
Daesang Corp.* | 33,996 | 441,346 |
Kangwon Land, Inc. | 37,400 | 976,671 |
Kookmin Bank | 15,500 | 1,139,264 |
Kookmin Bank (ADR) (a) | 23,200 | 1,701,024 |
Samsung Electronics Co., Ltd. | 2,621 | 1,540,522 |
(Cost $6,357,435) | 6,329,893 | |
Luxembourg 0.7% | ||
Tenaris SA (ADR) (Cost $1,256,567) | 25,500 | 1,140,615 |
Malaysia 0.9% | ||
AMMB Holdings Bhd. | 785,600 | 899,278 |
Steppe Cement Ltd.* | 114,601 | 627,293 |
(Cost $1,231,744) | 1,526,571 | |
Mexico 2.8% | ||
Cemex SAB de CV (ADR)* | 34,900 | 902,165 |
Empresas ICA SAB de CV (ADR)* | 33,350 | 880,440 |
Grupo Televisa SA (ADR) | 114,400 | 2,719,288 |
(Cost $4,705,134) | 4,501,893 | |
|
| Value ($) |
|
| |
Netherlands 2.3% | ||
QIAGEN NV* (a) | 102,900 | 2,209,930 |
TNT NV | 37,400 | 1,556,310 |
(Cost $3,337,835) | 3,766,240 | |
Norway 0.5% | ||
Cermaq ASA (Cost $992,139) | 54,200 | 748,105 |
Poland 0.8% | ||
Telekomunikacja Polska SA* (Cost $1,204,939) | 143,900 | 1,311,117 |
Portugal 0.5% | ||
Banco BPI SA (Registered) (Cost $796,053) | 101,700 | 790,139 |
Russia 3.3% | ||
Gazprom (ADR) (b) | 7,350 | 416,745 |
Gazprom (ADR) (b) | 45,432 | 2,558,359 |
Novorossiysk Sea Trade Port (GDR) 144A* | 37,200 | 744,000 |
Open Investments (GDR) (REG S)* | 31,400 | 1,216,750 |
Uralkali (GDR) 144A* | 8,300 | 309,175 |
(Cost $4,358,134) | 5,245,029 | |
Singapore 0.4% | ||
CapitaRetail China Trust (REIT)* | 233,000 | 345,729 |
Food Empire Holdings Ltd. | 699,000 | 370,106 |
(Cost $864,084) | 715,835 | |
South Africa 1.6% | ||
Gold Fields Ltd. | 81,300 | 1,166,128 |
Gold Fields Ltd. (ADR) | 33,000 | 468,600 |
Lewis Group Ltd. | 147,000 | 985,573 |
(Cost $2,859,631) | 2,620,301 | |
Sweden 1.3% | ||
Tele2 AB "B" (Cost $1,903,904) | 102,500 | 2,038,720 |
Switzerland 4.6% | ||
Credit Suisse Group (Registered) | 11,942 | 718,041 |
Julius Baer Holding AG (Registered) | 19,957 | 1,622,178 |
SGS SA (Registered) | 1,058 | 1,246,434 |
Synthes, Inc. | 14,615 | 1,806,492 |
UBS AG (Registered) (b) | 32,549 | 1,511,556 |
UBS AG (Registered) (b) | 10,800 | 496,800 |
(Cost $7,583,466) | 7,401,501 | |
Taiwan 1.1% | ||
Hon Hai Precision Industry Co., Ltd. (Cost $1,946,894) | 286,000 | 1,766,671 |
Thailand 0.3% | ||
Seamico Securities PCL (Foreign Registered) | 2,375,800 | 238,391 |
Siam City Bank PCL (Foreign Registered) | 670,700 | 298,664 |
(Cost $596,455) | 537,055 | |
Turkey 0.4% | ||
Turkiye Is Bankasi (Isbank) "C" (Cost $349,789) | 110,639 | 690,830 |
United Arab Emirates 1.5% | ||
DP World Ltd.* | 248,999 | 296,309 |
Emaar Properties | 538,448 | 2,184,522 |
(Cost $2,082,339) | 2,480,831 | |
|
| Value ($) |
|
| |
United Kingdom 2.9% | ||
AstraZeneca PLC | 20,451 | 878,749 |
G4S PLC | 257,743 | 1,245,064 |
GlaxoSmithKline PLC | 99,393 | 2,522,279 |
(Cost $4,548,107) | 4,646,092 | |
United States 25.4% | ||
Advanced Micro Devices, Inc.* | 76,050 | 570,375 |
Akamai Technologies, Inc.* | 41,900 | 1,449,740 |
AMR Corp.* | 49,400 | 693,082 |
Archer-Daniels-Midland Co. | 69,500 | 3,226,885 |
BMB Munai, Inc.* (a) | 34,800 | 217,500 |
Caterpillar, Inc. | 10,200 | 740,112 |
Chiquita Brands International, Inc.* | 54,900 | 1,009,611 |
Cisco Systems, Inc.* | 98,150 | 2,656,920 |
Citigroup, Inc. | 52,900 | 1,557,376 |
Cogent, Inc.* | 126,000 | 1,404,900 |
Corn Products International, Inc. | 33,400 | 1,227,450 |
Dean Foods Co. | 44,300 | 1,145,598 |
Exxon Mobil Corp. | 15,300 | 1,433,457 |
Harley-Davidson, Inc. | 25,700 | 1,200,447 |
Johnson & Johnson | 41,350 | 2,758,045 |
Level 3 Communications, Inc.* | 166,700 | 506,768 |
Mattel, Inc. | 69,900 | 1,330,896 |
Merrill Lynch & Co., Inc. | 42,500 | 2,281,400 |
Microsoft Corp. | 34,900 | 1,242,440 |
Monster Worldwide, Inc.* | 34,200 | 1,108,080 |
New York Times Co. "A" (a) | 77,400 | 1,356,822 |
Office Depot, Inc.* | 78,400 | 1,090,544 |
Pantry, Inc.* | 43,700 | 1,141,881 |
Pfizer, Inc. | 54,975 | 1,249,582 |
Stryker Corp. | 15,200 | 1,135,744 |
Sun Microsystems, Inc.* | 103,950 | 1,884,613 |
Symantec Corp.* | 102,600 | 1,655,964 |
The Blackstone Group LP (Limited Partnership) | 36,100 | 798,893 |
Wal-Mart Stores, Inc. | 18,100 | 860,293 |
Wyeth | 27,550 | 1,217,435 |
Yahoo!, Inc.* | 32,600 | 758,277 |
(Cost $44,512,276) | 40,911,130 | |
Total Common Stocks (Cost $151,152,442) | 149,217,513 | |
| ||
Preferred Stocks 2.1% | ||
Brazil 1.1% | ||
Net Servicos de Comunicacao SA* (Cost $2,151,734) | 151,300 | 1,813,407 |
Russia 1.0% | ||
Sberbank (Cost $1,342,035) | 503,922 | 1,511,766 |
Total Preferred Stocks (Cost $3,493,769) | 3,325,173 | |
| ||
Participatory Note 0.2% | ||
United States 0.2% | ||
Agility Capital, Inc. (issuer Citigroup Global Markets Holdings, Inc.), Expiration Date 3/17/2008 (Cost $499,500) | 75,000 | 365,850 |
| ||
|
| Value ($) |
|
| |
Exchange Traded Funds 2.0% | ||
Biotech HOLDRs Trust | 5,500 | 889,680 |
iShares Nasdaq Biotechnology Index Fund (a) | 29,225 | 2,372,485 |
Total Exchange Traded Funds (Cost $2,994,505) | 3,262,165 | |
| ||
Securities Lending Collateral 6.5% | ||
Daily Asset Funds Institutional, 5.03% (c) (d) (Cost $10,557,700) | 10,557,700 | 10,557,700 |
| ||
|
| Value ($) |
|
| |
Cash Equivalents 3.9% | ||
Cash Management QP Trust, 4.67% (c) (Cost $6,232,327) | 6,232,327 | 6,232,327 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $174,930,243)+ | 107.3 | 172,960,728 |
Other Assets and Liabilities, Net | (7.3) | (11,733,362) |
Net Assets | 100.0 | 161,227,366 |
+ The cost for federal income tax purposes was $177,044,367. At December 31, 2007, net unrealized depreciation for all securities based on tax cost was $4,083,639. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $11,493,060 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $15,576,699.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $10,059,412 which is 6.2% of net assets.
(b) Securities with the same description are the same corporate entity but trade on different stock exchanges.
(c) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
HOLDRs: Holding Company Depositary Receipts
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $158,140,216) — including $10,059,412 of securities loaned | $ 156,170,701 |
Investment in Daily Assets Fund Institutional (cost $10,557,700)* | 10,557,700 |
Investment in Cash Management QP Trust (cost $6,232,327) | 6,232,327 |
Total investments, at value (cost $174,930,243) | 172,960,728 |
Foreign currency, at value (cost $884,478) | 883,886 |
Dividends receivable | 99,842 |
Interest receivable | 27,265 |
Receivable for investments sold | 61,817 |
Receivable for Portfolio shares sold | 486 |
Foreign taxes recoverable | 53,662 |
Due from Advisor | 1,707 |
Other assets | 3,823 |
Total assets | 174,093,216 |
Liabilities | |
Cash overdraft | 46,649 |
Payable for investments purchased | 1,941,855 |
Payable upon return of securities loaned | 10,557,700 |
Payable for Portfolio shares redeemed | 31,497 |
Accrued management fee | 138,822 |
Other accrued expenses and payables | 149,327 |
Total liabilities | 12,865,850 |
Net assets, at value | $ 161,227,366 |
Net Assets Consist of | |
Undistributed net investment income | 1,638,227 |
Net unrealized appreciation (depreciation) on: Investments | (1,969,515) |
Foreign currency | 3,254 |
Accumulated net realized gain (loss) | 36,969,225 |
Paid-in capital | 124,586,175 |
Net assets, at value | $ 161,227,366 |
Class A Net Asset Value, offering and redemption price per share ($151,316,138 ÷ 9,660,413 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 15.66 |
Class B Net Asset Value, offering and redemption price per share ($9,911,228 ÷ 632,933 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 15.66 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $234,690) | $ 2,931,250 |
Interest | 5,284 |
Interest — Cash Management QP Trust | 263,974 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 146,502 |
Total Income | 3,347,010 |
Expenses: Management fee | 1,732,290 |
Services to shareholders | 546 |
Custodian and accounting fees | 586,182 |
Distribution and service fee (Class B) | 38,519 |
Record keeping fees (Class B) | 18,322 |
Professional fees | 74,447 |
Trustees' fees and expenses | 20,062 |
Reports to shareholders | 26,527 |
Other | 60,873 |
Total expenses before expense reductions | 2,557,768 |
Expense reductions | (582,485) |
Total expenses after expense reductions | 1,975,283 |
Net investment income (loss) | 1,371,727 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments (net of foreign taxes of $71,747) | 38,309,236 |
Foreign currency (net of foreign taxes of $126) | 13,279 |
| 38,322,515 |
Change in net unrealized appreciation (depreciation) on: Investments (including deferred foreign tax credit of $72,433) | (28,184,517) |
Foreign currency | (273) |
| (28,184,790) |
Net gain (loss) | 10,137,725 |
Net increase (decrease) in net assets resulting from operations | $ 11,509,452 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 1,371,727 | $ 1,139,734 |
Net realized gain (loss) | 38,322,515 | 25,502,594 |
Change in net unrealized appreciation (depreciation) | (28,184,790) | 8,974,038 |
Net increase (decrease) in net assets resulting from operations | 11,509,452 | 35,616,366 |
Distributions to shareholders from: Net investment income: Class A | (976,630) | (572,746) |
Class B | (67,864) | (42,929) |
Net realized gains: Class A | (22,498,351) | (7,184,784) |
Class B | (3,879,598) | (1,620,965) |
Total distributions | (27,422,443) | (9,421,424) |
Portfolio share transactions: Class A Proceeds from shares sold | 32,962,118 | 39,340,554 |
Reinvestment of distributions | 23,474,981 | 7,757,530 |
Cost of shares redeemed | (33,544,797) | (11,647,602) |
Net increase (decrease) in net assets from Class A share transactions | 22,892,302 | 35,450,482 |
Class B Proceeds from shares sold | 5,026,580 | 5,266,200 |
Reinvestment of distributions | 3,947,462 | 1,663,894 |
Cost of shares redeemed | (22,340,318) | (5,607,559) |
Net increase (decrease) in net assets from Class B share transactions | (13,366,276) | 1,322,535 |
Increase (decrease) in net assets | (6,386,965) | 62,967,959 |
Net assets at beginning of period | 167,614,331 | 104,646,372 |
Net assets at end of period (including undistributed net investment income of $1,638,227 and $963,505, respectively) | $ 161,227,366 | $ 167,614,331 |
Other Information | ||
Class A Shares outstanding at beginning of period | 8,197,243 | 5,887,898 |
Shares sold | 1,983,290 | 2,556,665 |
Shares issued to shareholders in reinvestment of distributions | 1,533,310 | 513,064 |
Shares redeemed | (2,053,430) | (760,384) |
Net increase (decrease) in Class A shares | 1,463,170 | 2,309,345 |
Shares outstanding at end of period | 9,660,413 | 8,197,243 |
Class B Shares outstanding at beginning of period | 1,443,479 | 1,359,840 |
Shares sold | 302,846 | 334,421 |
Shares issued to shareholders in reinvestment of distributions | 257,164 | 109,756 |
Shares redeemed | (1,370,556) | (360,538) |
Net increase (decrease) in Class B shares | (810,546) | 83,639 |
Shares outstanding at end of period | 632,933 | 1,443,479 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 17.39 | $ 14.44 | $ 11.78 | $ 10.39 | $ 8.08 |
Income (loss) from investment operations: Net investment income (loss)a | .14 | .15c | .12 | .04 | .09 |
Net realized and unrealized gain (loss) | .88 | 4.02 | 2.58 | 1.48 | 2.25 |
Total from investment operations | 1.02 | 4.17 | 2.70 | 1.52 | 2.34 |
Less distributions from: Net investment income | (.11) | (.09) | (.04) | (.13) | (.03) |
Net realized gains | (2.64) | (1.13) | — | — | — |
Total distributions | (2.75) | (1.22) | (.04) | (.13) | (.03) |
Net asset value, end of period | $ 15.66 | $ 17.39 | $ 14.44 | $ 11.78 | $ 10.39 |
Total Return (%)b | 6.29 | 30.14c | 22.94 | 14.76 | 29.13 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 151 | 143 | 85 | 63 | 55 |
Ratio of expenses before expense reductions (%) | 1.44 | 1.38 | 1.41 | 1.44 | 1.48 |
Ratio of expenses after expense reductions (%) | 1.11 | 1.04 | 1.28 | 1.43 | 1.17 |
Ratio of net investment income (%) | .82 | .92c | .98 | .38 | 1.02 |
Portfolio turnover rate (%) | 191 | 136 | 95 | 81 | 65 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.004 per share and an increase in the ratio of net investment income of 0.03%. Excluding this non-recurring income, total return would have been 0.02% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 17.38 | $ 14.43 | $ 11.78 | $ 10.38 | $ 8.06 |
Income (loss) from investment operations: Net investment income (loss)a | .07 | .09c | .07 | .00d | .04 |
Net realized and unrealized gain (loss) | .90 | 4.02 | 2.58 | 1.48 | 2.29 |
Total from investment operations | .97 | 4.11 | 2.65 | 1.48 | 2.33 |
Less distributions from: Net investment income | (.05) | (.03) | — | (.08) | (.01) |
Net realized gains | (2.64) | (1.13) | — | — | — |
Total distributions | (2.69) | (1.16) | — | (.08) | (.01) |
Net asset value, end of period | $ 15.66 | $ 17.38 | $ 14.43 | $ 11.78 | $ 10.38 |
Total Return (%)b | 5.84 | 29.65c | 22.50 | 14.33 | 28.96 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 10 | 25 | 20 | 13 | 6 |
Ratio of expenses before expense reductions (%) | 1.81 | 1.76 | 1.79 | 1.84 | 1.87 |
Ratio of expenses after expense reductions (%) | 1.47 | 1.43 | 1.65 | 1.83 | 1.64 |
Ratio of net investment income (%) | .46 | .53c | .61 | .02 | .55 |
Portfolio turnover rate (%) | 191 | 136 | 95 | 81 | 65 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.004 per share and an increase in the ratio of net investment income of 0.03%. Excluding this non-recurring income, total return would have been 0.02% lower. d Amount is less than $.005 per share. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .67% and 1.07% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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 investment, can decline and the investor can lose principal value. In the current market environment, mortgage-backed securities are experiencing increased 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 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, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Government & Agency Securities VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,595 | $11,320 | $12,010 | $16,674 |
Average annual total return | 5.95% | 4.22% | 3.73% | 5.25% | |
Lehman Brothers GNMA Index | Growth of $10,000 | $10,698 | $11,549 | $12,396 | $17,655 |
Average annual total return | 6.98% | 4.92% | 4.39% | 5.85% | |
DWS Government & Agency Securities VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,543 | $11,183 | $11,770 | $12,208 |
Average annual total return | 5.43% | 3.80% | 3.31% | 3.69% | |
Lehman Brothers GNMA Index | Growth of $10,000 | $10,698 | $11,549 | $12,396 | $12,911 |
Average annual total return | 6.98% | 4.92% | 4.39% | 4.75% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,052.70 |
| $ 1,049.30 |
|
Expenses Paid per $1,000* | $ 3.26 |
| $ 5.17 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,022.03 |
| $ 1,020.16 |
|
Expenses Paid per $1,000* | $ 3.21 |
| $ 5.09 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Government & Agency Securities VIP | .63% |
| 1.00% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Government & Agency Securities VIP
The period began with a yield curve that was slightly inverted between two and 30 years, meaning that short-term rates were actually higher than long-term rates.1 As the period progressed, market expectations were increasingly for stronger economic growth, and inflationary concerns caused the yield curve to steepen somewhat. The last half of the fiscal year was the most eventful and did the most to determine fixed-income investor returns. In particular, the summer saw extreme volatility occasioned by the subprime mortgage crisis. As investors sought to protect against risks that were difficult to assess, liquidity disappeared in the broader fixed-income markets. Ultimately, this risk aversion caused a period of very high financial market volatility as well as a flight to quality, the principal manifestation of which was increased interest in US Treasury securities. The yield curve steepened significantly and rates fell across all maturities, as bond market participants anticipated US Federal Reserve Board (the Fed) easing of short-term rates. Between September and November, the Fed lowered the benchmark short-term rate by 100 basis points (one basis point equals .01%) to its year-end level of 4.25%.
During the 12-month period ended December 31, 2007, the Portfolio provided a total return of 5.95% (Class A shares, unadjusted for contract charges) compared with the 6.98% return of its benchmark, the Lehman Brothers GNMA Index. The Portfolio's return exceeded the 4.66% average return of the 15 funds in its Lipper category, U.S. Mortgage Funds.
Early in the year, our focus on high-coupon mortgages worked well as prepayments remained low and we were able to earn attractive income. During the latter half of the year, we implemented a shift toward lower coupon mortgages as a defensive measure against a possible rise in prepayments as rates declined. This constrained performance to a degree as the market viewed increased prepayments as less of a threat in a tight credit and refinancing environment. Our modest exposure to conventional mortgages such as those backed by Freddie Mac and Fannie Mae also held back performance as GNMA benefited from the market's strong focus on credit quality.2 Performance benefited from strategic exposure to TIPS (Treasury Inflation Protected Securities) as Fed easing raised inflation expectations. Going forward, we will continue to monitor the credit and interest rate environment closely as we seek to maintain an attractive dividend for investors.
William Chepolis, CFA and Matthew F. MacDonald
Co-Managers
Deutsche Investment Management Americas Inc.
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 investment, can decline and the investor can lose principal value. In the current market environment, mortgage-backed securities are experiencing increased volatility. 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, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
The Lipper U.S. Mortgage Funds category consists of funds that invest at least 65% of fund assets in mortgages/securities issued or guaranteed as to principal and interest by the U.S. government and certain federal agencies. Category returns assume reinvestment of dividends. It is not possible to invest directly into a Lipper category.
1 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 are rewarded with higher yields.2 Credit quality is a measure of a bond issuer's ability to repay interest and principal in a timely manner. Rating agencies assign letter designations such as AAA, AA and so forth. The lower the rating, the higher the probability of default.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Government & Agency Securities VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/07 | 12/31/06 |
|
|
|
Agencies Backed by the Full Faith and Credit of the US Government (GNMA) | 61% | 53% |
Agencies Not Backed by the Full Faith and Credit of the US Government (FNMA, FHLMC) | 36% | 32% |
Cash Equivalents | 2% | 10% |
US Treasury Obligations | 1% | 5% |
| 100% | 100% |
Quality | 12/31/07 | 12/31/06 |
|
|
|
AAA* | 100% | 100% |
Interest Rate Sensitivity | 12/31/07 | 12/31/06 |
|
|
|
Average Maturity | 5.9 years | 5.6 years |
Average Duration | 3.5 years | 3.4 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 quality does not remove market risk.
For more complete details about the Portfolio's investment portfolio, see page 119. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Government & Agency Securities VIP
| Principal Amount ($) | Value ($) |
|
| |
Agencies Backed by the Full Faith and Credit of the US Government 56.6% | ||
Government National Mortgage Association: |
|
|
5.0%, with various maturities from 4/20/2033 until 7/20/2036 | 30,430,776 | 29,861,068 |
5.5%, with various maturities from 10/15/2032 until 11/15/2035 | 39,580,408 | 39,852,869 |
6.0%, with various maturities from 4/15/2013 until 11/15/2037 | 21,560,827 | 22,075,163 |
6.5%, with various maturities from 3/15/2014 until 10/15/2037 | 18,633,747 | 19,298,696 |
7.0%, with various maturities from 10/15/2026 until 7/15/2036 | 1,803,881 | 1,891,213 |
7.5%, with various maturities from 4/15/2026 until 1/15/2037 | 2,243,412 | 2,369,845 |
9.5%, with various maturities from 6/15/2013 until 12/15/2022 | 53,765 | 59,589 |
10.0%, with various maturities from 2/15/2016 until 3/15/2016 | 18,689 | 21,208 |
Total Agencies Backed By the Full Faith and Credit of the US Government (Cost $115,575,141) | 115,429,651 | |
| ||
Agencies Not Backed by the Full Faith and Credit of the US Government 37.3% | ||
Federal Farm Credit Bank, 4.875%, 12/16/2015 | 12,000,000 | 12,415,464 |
Federal Home Loan Bank, 5.5%, 8/13/2014 | 13,000,000 | 14,011,816 |
Federal Home Loan Mortgage Corp.: |
|
|
4.5%, 5/1/2019 | 54,809 | 54,049 |
5.5%, with various maturities from 2/1/2017 until 11/1/2034 | 15,049,670 | 15,014,498 |
5.73%*, 4/1/2037 | 2,962,055 | 2,997,937 |
5.77%*, 10/1/2036 | 2,816,396 | 2,854,408 |
5.872%*, 11/1/2036 | 1,243,890 | 1,266,085 |
5.891%*, 9/1/2036 | 1,155,715 | 1,173,603 |
6.5%, 9/1/2032 | 150,328 | 155,418 |
7.0%, with various maturities from 5/1/2029 until 8/1/2035 | 1,475,042 | 1,531,838 |
7.5%, with various maturities from 1/1/2027 until 5/1/2032 | 120,197 | 128,337 |
8.0%, 11/1/2030 | 2,164 | 2,354 |
8.5%, 7/1/2030 | 2,738 | 3,001 |
Federal National Mortgage Association: |
|
|
5.0%, with various maturities from 10/1/2033 until 2/1/2034 | 10,624,039 | 10,365,223 |
5.5%, with various maturities from 2/1/2033 until 6/1/2034 | 3,548,710 | 3,550,379 |
6.0%, 9/1/2035 | 10,000,000 | 10,154,688 |
| Principal Amount ($) | Value ($) |
|
| |
7.0%, with various maturities from 9/1/2013 until 7/1/2034 | 470,755 | 491,712 |
8.0%, 12/1/2024 | 12,566 | 13,626 |
Total Agencies Not Backed by the Full Faith and Credit of the US Government (Cost $75,647,538) | 76,184,436 | |
| ||
Collateralized Mortgage Obligations 14.5% | ||
Federal Home Loan Mortgage Corp.: |
|
|
"MO", Series 3171, Principal Only, Zero Coupon, 6/15/2036 | 914,007 | 678,847 |
"GZ", Series 2906, 5.0%, 9/15/2034 | 1,451,840 | 1,299,182 |
"FT", Series 3346, 5.378%*, 10/15/2033 | 2,864,459 | 2,848,845 |
Federal National Mortgage Association,"LO", Series 2005-50, Principal Only, Zero Coupon, 6/25/2035 | 1,112,575 | 753,298 |
Government National Mortgage Association: |
|
|
"JO", Series 2006-22, Principal Only, Zero Coupon, 4/20/2036 | 1,086,551 | 812,192 |
"PO", Series 2006-25, Principal Only, Zero Coupon, 5/20/2036 | 904,168 | 678,424 |
"OD", Series 2006-36, Principal Only, Zero Coupon, 7/16/2036 | 605,050 | 482,686 |
"GD", Series 2004-26, 5.0%, 11/16/2032 | 2,184,000 | 2,128,701 |
"LG", Series 2003- 70, 5.0%, 8/20/2033 | 4,000,000 | 3,765,087 |
"KE", Series 2004-19, 5.0%, 3/16/2034 | 500,000 | 458,757 |
"ZM", Series 2004-24, 5.0%, 4/20/2034 | 1,801,136 | 1,630,628 |
"LE", Series 2004-87, 5.0%, 10/20/2034 | 1,000,000 | 927,557 |
"ZB", Series 2005-15, 5.0%, 2/16/2035 | 1,267,039 | 1,149,499 |
"YZ", Series 2007-7, 5.0%, 2/16/2037 | 630,778 | 629,200 |
"CK", Series 2007-31, 5.0%, 5/16/2037 | 1,000,000 | 963,568 |
"FH", Series 1999-18, 5.278%*, 5/16/2029 | 2,422,481 | 2,412,119 |
"FE", Series 2003-57, 5.328%*, 3/16/2033 | 170,382 | 168,849 |
"ZB", Series 2003-85, 5.5%, 10/20/2033 | 2,401,923 | 2,266,119 |
"B", Series 2005-88, 5.5%, 11/20/2035 | 1,804,000 | 1,771,679 |
"ZA", Series 2006-7, 5.5%, 2/20/2036 | 1,879,924 | 1,785,888 |
"ZW", Series 2007-36, 5.5%, 6/16/2037 | 706,687 | 706,042 |
"FB", Series 2001-28, 5.528%*, 6/16/2031 | 792,471 | 794,769 |
"PH" Series 2002- 84, 6.0%, 11/16/2032 | 500,000 | 503,543 |
Total Collateralized Mortgage Obligations (Cost $29,339,386) | 29,615,479 | |
| Principal Amount ($) | Value ($) |
|
| |
US Treasury Obligations 1.7% | ||
US Treasury Bill, 3.7%**, 1/17/2008 (a) | 428,000 | 427,529 |
US Treasury Inflation Indexed Note, 2.0%, 4/15/2012 | 1,544,355 | 1,600,579 |
US Treasury Note, 3.375%, 11/30/2012 | 1,500,000 | 1,494,962 |
Total US Treasury Obligations (Cost $3,523,894) | 3,523,070 |
|
| Value ($) |
|
| |
Cash Equivalents 2.4% | ||
Cash Management QP Trust, 4.67% (b) (Cost $4,800,048) | 4,800,048 | 4,800,048 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $228,886,007)+ | 112.5 | 229,552,684 |
Other Assets and Liabilities, Net | (12.5) | (25,522,513) |
Net Assets | 100.0 | 204,030,171 |
** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $228,916,950. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $635,734. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,620,975 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,985,241.
(a) At December 31, 2007, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
Principal Only: Principal Only (PO) bonds represent the "principal only" portion of payments on a pool of underlying mortgages or mortgage-backed securities.
At December 31, 2007, open futures contracts sold were as follows:
Futures | Expiration | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year US Treasury Note | 3/19/2008 | 258 | 28,997,403 | 29,254,783 | (257,380) |
30 Year US Treasury Bond | 3/19/2008 | 56 | 6,565,205 | 6,517,000 | 48,205 |
Total net unrealized depreciation | (209,175) |
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 Home Loan Mortgage Corp., Federal National Mortgage Association and Government National Mortgage Association 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, 2007 | |
Assets | |
Investments Investments in securities, at value (cost $224,085,959) | $ 224,752,636 |
Investments in Cash Management QP Trust (cost $4,800,048) | 4,800,048 |
Total investments, at value (cost $228,886,007) | 229,552,684 |
Receivable for investments sold | 60,522,840 |
Interest receivable | 1,275,870 |
Due from Advisor | 9,022 |
Other assets | 4,425 |
Total assets | 291,364,841 |
Liabilities | |
Cash overdraft | 691,564 |
Payable for investments purchased | 26,409,835 |
Payable for investments purchased — mortgage dollar rolls | 59,152,924 |
Payable for daily variation margin on open futures contracts | 163,470 |
Payable for Portfolio shares redeemed | 597,778 |
Accrued management fee | 110,945 |
Other accrued expenses and payables | 208,154 |
Total liabilities | 87,334,670 |
Net assets, at value | $ 204,030,171 |
Net Assets Consist of | |
Undistributed net investment income | 10,227,324 |
Net unrealized appreciation (depreciation) on: Investments | 666,677 |
Futures | (209,175) |
Accumulated net realized gain (loss) | (2,681,050) |
Paid-in capital | 196,026,395 |
Net assets, at value | $ 204,030,171 |
Class A Net Asset Value, offering and redemption price per share ($199,044,759 ÷ 16,080,508 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.38 |
Class B Net Asset Value, offering and redemption price per share ($4,985,412 ÷ 403,813 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.35 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Interest | $ 10,745,591 |
Interest — Cash Management QP Trust | 1,146,052 |
Total Income | 11,891,643 |
Expenses: Management fee | 1,209,630 |
Custodian fee | 18,834 |
Distribution service fee (Class B) | 38,854 |
Services to shareholders | 924 |
Record keeping fees (Class B) | 20,185 |
Professional fees | 78,260 |
Trustees' fees and expenses | 35,135 |
Reports to shareholders | 73,344 |
Other | 25,706 |
Total expenses before expense reductions | 1,500,872 |
Expense reductions | (48,623) |
Total expenses after expense reductions | 1,452,249 |
Net investment income | 10,439,394 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | (69,929) |
Futures | (1,243,624) |
Written options | 27,232 |
| (1,286,321) |
Change in net unrealized appreciation (depreciation) on: Investments | 3,495,499 |
Futures | (221,834) |
| 3,273,665 |
Net gain (loss) | 1,987,344 |
Net increase (decrease) in net assets resulting from operations | $ 12,426,738 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income | $ 10,439,394 | $ 11,691,142 |
Net realized gain (loss) | (1,286,321) | (1,278,409) |
Change in net unrealized appreciation (depreciation) | 3,273,665 | (560,933) |
Net increase (decrease) in net assets resulting from operations | 12,426,738 | 9,851,800 |
Distributions to shareholders from: Net investment income: Class A | (10,212,645) | (8,821,928) |
Class B | (1,469,899) | (1,559,664) |
Total distributions | (11,682,544) | (10,381,592) |
Portfolio share transactions: Class A Proceeds from shares sold | 30,397,968 | 9,888,675 |
Reinvestment of distributions | 10,212,645 | 8,821,928 |
Cost of shares redeemed | (53,955,468) | (51,098,907) |
Net increase (decrease) in net assets from Class A share transactions | (13,344,855) | (32,388,304) |
Class B Proceeds from shares sold | 9,440,856 | 2,370,667 |
Reinvestment of distributions | 1,469,899 | 1,559,664 |
Cost of shares redeemed | (38,336,134) | (17,355,673) |
Net increase (decrease) in net assets from Class B share transactions | (27,425,379) | (13,425,342) |
Increase (decrease) in net assets | (40,026,040) | (46,343,438) |
Net assets at beginning of period | 244,056,211 | 290,399,649 |
Net assets at end of period (including undistributed net investment income of $10,227,324 and $11,470,474, respectively) | $ 204,030,171 | $ 244,056,211 |
Other Information | ||
Class A Shares outstanding at beginning of period | 17,174,275 | 19,851,802 |
Shares sold | 2,509,518 | 824,144 |
Shares issued to shareholders in reinvestment of distributions | 862,554 | 749,527 |
Shares redeemed | (4,465,839) | (4,251,198) |
Net increase (decrease) in Class A shares | (1,093,767) | (2,677,527) |
Shares outstanding at end of period | 16,080,508 | 17,174,275 |
Class B Shares outstanding at beginning of period | 2,706,547 | 3,838,802 |
Shares sold | 788,569 | 196,489 |
Shares issued to shareholders in reinvestment of distributions | 124,042 | 132,399 |
Shares redeemed | (3,215,345) | (1,461,143) |
Net increase (decrease) in Class B shares | (2,302,734) | (1,132,255) |
Shares outstanding at end of period | 403,813 | 2,706,547 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.28 | $ 12.26 | $ 12.55 | $ 12.54 | $ 12.84 |
Income (loss) from investment operations: Net investment incomea | .58 | .55 | .51 | .44 | .31 |
Net realized and unrealized gain (loss) | .12 | (.06) | (.20) | .03 | (.04) |
Total from investment operations | .70 | .49 | .31 | .47 | .27 |
Less distributions from: Net investment income | (.60) | (.47) | (.50) | (.35) | (.35) |
Net realized gains | — | — | (.10) | (.11) | (.22) |
Total distributions | (.60) | (.47) | (.60) | (.46) | (.57) |
Net asset value, end of period | $ 12.38 | $ 12.28 | $ 12.26 | $ 12.55 | $ 12.54 |
Total Return (%) | 5.95b | 4.16 | 2.57 | 3.75 | 2.26 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 199 | 211 | 243 | 280 | 347 |
Ratio of expenses before expense reductions(%) | .66 | .67 | .63 | .61 | .61 |
Ratio of expenses after expense reductions (%) | .63 | .67 | .63 | .61 | .61 |
Ratio of net investment income (loss) (%) | 4.77 | 4.56 | 4.17 | 3.59 | 2.50 |
Portfolio turnover rate (%)c | 465 | 241 | 191 | 226 | 511 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c The portfolio turnover rate including mortgage dollar roll transactions was 629%, 403%, 325%, 391% and 536% for the periods ended December 31, 2007, December 31, 2006, December 31, 2005, December 31, 2004 and December 31, 2003, respectively. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.25 | $ 12.23 | $ 12.52 | $ 12.51 | $ 12.82 |
Income (loss) from investment operations: Net investment incomea | .53 | .50 | .47 | .40 | .27 |
Net realized and unrealized gain (loss) | .12 | (.06) | (.21) | .02 | (.04) |
Total from investment operations | .65 | .44 | .26 | .42 | .23 |
Less distributions from: Net investment income | (.55) | (.42) | (.45) | (.30) | (.32) |
Net realized gains | — | — | (.10) | (.11) | (.22) |
Total distributions | (.55) | (.42) | (.55) | (.41) | (.54) |
Net asset value, end of period | $ 12.35 | $ 12.25 | $ 12.23 | $ 12.52 | $ 12.51 |
Total Return (%) | 5.43b | 3.74 | 2.24 | 3.36 | 1.83 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 5 | 33 | 47 | 49 | 38 |
Ratio of expenses before expense reductions(%) | 1.04 | 1.07 | 1.02 | 1.00 | .98 |
Ratio of expenses after expense reductions (%) | 1.01 | 1.07 | 1.02 | 1.00 | .98 |
Ratio of net investment income (%) | 4.39 | 4.16 | 3.78 | 3.21 | 2.13 |
Portfolio turnover rate (%)c | 465 | 241 | 191 | 226 | 511 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c The portfolio turnover rate including mortgage dollar roll transactions was 629%, 403%, 325%, 391% and 536% for the periods ended December 31, 2007, December 31, 2006, December 30, 2005, December 31, 2004 and December 31, 2003, respectively. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio direct operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 is 0.62% for Class B shares. The total portfolio direct and estimated indirect Underlying DWS Portfolio operating expense ratio, gross of any fee waivers or expense reimbursements, as presented in the fee table of the prospectus dated May 1, 2007 is 1.33% for Class B shares. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. An investment in underlying money market investments is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any government agency. Although money market investments seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these investments. 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 12/31/2007 | ||
[] DWS Growth Allocation VIP — Class B [] Russell 1000® Index [] Lehman Brothers US Aggregate 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 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. The Lehman Brothers US Aggregate Index is an unmanaged, market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
| |
Comparative Results | ||||
DWS Growth Allocation VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,558 | $12,610 | $13,909 |
Average annual total return | 5.58% | 8.04% | 10.28% | |
Russell 1000 Index | Growth of $10,000 | $10,577 | $12,978 | $14,430 |
Average annual total return | 5.77% | 9.08% | 11.63% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $11,572 |
Average annual total return | 6.97% | 4.56% | 4.48% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In 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 the expense ratios from the Underlying DWS Portfolio's most recent shareholder report. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,005.50 |
Expenses Paid per $1,000* |
| $ 2.88 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,022.33 |
Expenses Paid per $1,000* |
| $ 2.91 |
Direct Portfolio Expenses and Acquired Portfolios (Underlying Portfolios) Fees and Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,005.50 |
Expenses Paid per $1,000** |
| $ 6.57 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,018.65 |
Expenses Paid per $1,000** |
| $ 6.61 |
** Expenses are equal to the Portfolio's annualized expense ratio plus the Acquired Portfolios (Underlying Portfolios) Fees and Expenses, 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 |
| .57% |
Acquired Portfolios (Underlying Portfolios) Fees and Expenses |
| .73% |
Net Annual Portfolio and Acquired Portfolios (Underlying Portfolios) Operating Expenses |
| 1.30% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Growth Allocation VIP
Equity markets were generally strong during the first half of 2007, but down in the last half, particularly in the fourth quarter, when markets responded to further bad news about the potential impact of the subprime mortgage crisis. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14% for the full year 2007. Return of the Lehman Brothers US Aggregate Index, which is considered indicative of broad bond market trends, was 6.97% for the 12-month period.
For the 12 months ended December 31, 2007, the Portfolio's Class B shares (unadjusted for contract charges) had a return of 5.58%. Since this Portfolio invests in stock and bond funds in several different categories, performance is analyzed by comparing the Portfolio's return with indices that represent each asset class. The Portfolio's return was below that of its bond and equity benchmarks.
The Portfolio's allocation between equity and fixed-income funds remained close to its target of 75% equity and 25% fixed income during the first half of 2007, but with equities overweighted throughout the period.1 This overweight was positive for returns in the first half of the year, as equities outperformed fixed income, but was negative during the last half of the year. A change in strategic allocation implemented in July contributed to performance. As an example of this change, an increase in the Portfolio's allocation to international equities, with a corresponding reduction in US equities contributed, since international equities (as measured by the MSCI EAFE® Index) outperformed US equities. Another example was a reduction in the value tilt in both large cap and small cap, as growth stocks performed better than value stocks — also a positive. In the fixed-income portion of the Portfolio, a position in high-yield bonds added to performance in the first half of the year, but detracted in the last half. At mid-year, an increased strategic allocation to cash equivalents, with a corresponding reduction in bonds, detracted from performance.
Tactical asset allocation was marginally negative for performance. A tactical underweight of cash equivalents with a corresponding overweight in investment-grade bonds contributed to performance. On balance, the performance of the underlying funds detracted from returns. Although equity funds in all three categories (large cap, small cap and international) contributed positively, this contribution was offset by fixed-income fund underperformance.
Inna Okounkova Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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. An investment in underlying money market investments is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any government agency. Although money market investments seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these investments. Please read this Portfolio's prospectus for specific details regarding its risk profile.
The Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Lehman Brothers US Aggregate Index is an unmanaged market-value-weighted measure of Treasury issues, corporate bond issues and mortgage securities.
The MSCI EAFE (Morgan Stanley Capital International Europe-Australasia-Far East) Index is composed of approximately 1,100 companies in 21 countries in Europe and the Pacific Basin. The objective of the index is to reflect the movements of stock markets in these countries by representing an unmanaged (indexed) portfolio within each country. The index is calculated in US dollars and is constructed to represent about 60% of market capitalization in each country.
Index returns, 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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Growth Allocation VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/07 | 12/31/06 |
|
|
|
Equity Funds | 79% | 75% |
Fixed Income — Bond Funds | 19% | 18% |
Fixed Income — Money Market Fund | 2% | 7% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 129. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Growth Allocation VIP
| Shares | Value ($) |
|
| |
Equity Funds 79.1% | ||
DWS Blue Chip VIP "A" | 5,290 | 77,501 |
DWS Capital Growth VIP "A" | 39,171 | 799,480 |
DWS Davis Venture Value VIP "A" | 239,599 | 3,495,756 |
DWS Dreman High Return Equity VIP "A" | 20,683 | 297,835 |
DWS Dreman Small Mid Cap Value VIP "A" | 72,009 | 1,448,814 |
DWS Global Opportunities VIP "A" | 7,431 | 135,846 |
DWS Global Thematic VIP "A" | 33,392 | 523,258 |
DWS Growth & Income VIP "A" | 359,169 | 3,882,614 |
DWS Health Care VIP "A" | 61,193 | 898,308 |
DWS International Select Equity VIP "A" | 3,985 | 66,793 |
DWS International VIP "A" | 315,997 | 4,743,111 |
DWS Large Cap Value VIP "A" | 373,829 | 7,181,263 |
DWS Mid Cap Growth VIP "A" | 1,913 | 26,032 |
DWS RREEF Real Estate Securities VIP "A" | 27,258 | 437,768 |
DWS Small Cap Growth VIP "A" | 54,941 | 827,956 |
DWS Technology VIP "A" | 112,009 | 1,199,621 |
Total Equity Funds (Cost $24,690,320) | 26,041,956 | |
| Shares | Value ($) |
|
| |
Fixed Income — Bond Funds 19.2% | ||
DWS Core Fixed Income VIP "A" | 506,276 | 5,984,182 |
DWS Government & Agency Securities VIP "A" | 299 | 3,697 |
DWS High Income VIP "A" | 34,601 | 270,236 |
DWS Strategic Income VIP "A" | 5,977 | 69,876 |
Total Fixed Income — Bond Funds (Cost $6,219,622) | 6,327,991 | |
| ||
Fixed Income — Money Market Fund 2.1% | ||
Cash Management QP Trust (Cost $687,342) | 687,342 | 687,342 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $31,597,284)+ | 100.4 | 33,057,289 |
Other Assets and Liabilities, Net | (0.4) | (143,025) |
Net Assets | 100.0 | 32,914,264 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $30,909,942) | $ 32,369,947 |
Investment in Cash Management QP Trust (cost $687,342) | 687,342 |
Total investments, at value (cost $31,597,284) | 33,057,289 |
Interest receivable | 9,909 |
Other assets | 4,345 |
Total assets | 33,071,543 |
Liabilities | |
Accrued management fee | 8,858 |
Other accrued expenses and payables | 148,421 |
Total liabilities | 157,279 |
Net assets, at value | $ 32,914,264 |
Net Assets Consist of | |
Undistributed net investment income | 5,144,244 |
Net unrealized appreciation (depreciation) on investments | 1,460,005 |
Accumulated net realized gain (loss) | 23,802,958 |
Paid-in capital | 2,507,057 |
Net assets, at value | $ 32,914,264 |
Class B Net Asset Value, offering and redemption price per share ($32,914,264÷ 2,590,950 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.70 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Income distributions from Underlying Affiliated Portfolios | $ 4,083,633 |
Interest — Cash Management QP Trust | 233,109 |
Total Income | 4,316,742 |
Expenses: Management fee | 296,674 |
Services to shareholders | 123 |
Custodian and accounting fees | 52,444 |
Distribution service fee | 494,456 |
Record keeping fees | 283,190 |
Professional fees | 63,995 |
Trustees' fees and expenses | 25,172 |
Reports to shareholders | 14,844 |
Other | 9,906 |
Total expenses before expense reductions | 1,240,804 |
Expense reductions | (98,891) |
Total expenses after expense reductions | 1,141,913 |
Net investment income (loss) | 3,174,829 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from investments | 20,218,941 |
Capital gain distributions from Underlying Affiliated Portfolios | 6,249,842 |
| 26,468,783 |
Change in net unrealized appreciation (depreciation) on investments | (16,832,031) |
Net gain (loss) | 9,636,752 |
Net increase (decrease) in net assets resulting from operations | $ 12,811,581 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 3,174,829 | $ 2,461,081 |
Net realized gain (loss) | 26,468,783 | 11,769,458 |
Change in net unrealized appreciation (depreciation) | (16,832,031) | 10,477,889 |
Net increase (decrease) in net assets resulting from operations | 12,811,581 | 24,708,428 |
Distributions to shareholders from: Net investment income: Class B | (4,126,872) | (1,665,343) |
Net realized gains: Class B | (10,532,122) | (1,700,403) |
Total share distributions | (14,658,994) | (3,365,746) |
Portfolio share transactions: Class B Proceeds from shares sold | 5,915,221 | 17,704,517 |
Reinvestment of distributions | 14,658,994 | 3,365,746 |
Cost of shares redeemed | (194,804,275) | (30,803,312) |
Net increase (decrease) in net assets from Class B share transactions | (174,230,060) | (9,733,049) |
Increase (decrease) in net assets | (176,077,473) | 11,609,633 |
Net assets at beginning of period | 208,991,737 | 197,382,104 |
Net assets at end of period (including undistributed net investment income of $5,144,244 and $4,067,143, respectively) | $ 32,914,264 | $ 208,991,737 |
Other Information | ||
Class B Shares outstanding at beginning of period | 16,154,379 | 16,920,311 |
Shares sold | 462,860 | 1,481,587 |
Shares issued to shareholders in reinvestment of distributions | 1,205,509 | 281,181 |
Shares redeemed | (15,231,798) | (2,528,700) |
Net increase (decrease) in Class B shares | (13,563,429) | (765,932) |
Shares outstanding at end of period | 2,590,950 | 16,154,379 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.94 | $ 11.67 | $ 11.03 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .21 | .14 | .11 | (.03) |
Net realized and unrealized gain (loss) | .47 | 1.33 | .55 | 1.06 |
Total from investment operations | .68 | 1.47 | .66 | 1.03 |
Less distributions from: Net investment income | (.26) | (.10) | — | — |
Net realized gains | (.66) | (.10) | (.02) | — |
Total distributions | (.92) | (.20) | (.02) | — |
Net asset value, end of period | $ 12.70 | $ 12.94 | $ 11.67 | $ 11.03 |
Total Return (%)c,d | 5.58 | 12.66 | 6.02 | 10.30** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 33 | 209 | 197 | 47 |
Ratio of expenses before expense reductions (%)e | .63 | .62 | .65 | 1.38* |
Ratio of expenses after expense reductions (%)e | .58 | .57 | .60 | 0.75* |
Ratio of net investment income (loss) (%) | 1.60 | 1.20 | 1.01 | (0.69)* |
Portfolio turnover rate (%) | 31 | 45 | 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 reduced certain of the 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. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .70% and 1.10% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the year ended December 31, 2007.
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 investment, 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 | The Credit Suisse High Yield Index is an unmanaged index that is market-weighted, including publicly traded bonds having a rating below BBB by Standard & Poor's and Moody's. Index returns, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS High Income VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,096 | $11,586 | $16,232 | $15,718 |
Average annual total return | .96% | 5.03% | 10.17% | 4.63% | |
Credit Suisse High Yield Index | Growth of $10,000 | $10,265 | $11,748 | $16,826 | $18,073 |
Average annual total return | 2.65% | 5.52% | 10.97% | 6.10% | |
DWS High Income VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,054 | $11,448 | $15,929 | $16,326 |
Average annual total return | .54% | 4.61% | 9.76% | 9.32% | |
Credit Suisse High Yield Index | Growth of $10,000 | $10,265 | $11,748 | $16,826 | $17,321 |
Average annual total return | 2.65% | 5.52% | 10.97% | 10.49% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 979.90 |
| $ 978.70 |
|
Expenses Paid per $1,000* | $ 3.39 |
| $ 5.49 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.78 |
| $ 1,019.66 |
|
Expenses Paid per $1,000* | $ 3.47 |
| $ 5.60 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS High 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, 2007
DWS High Income VIP
High-yield bonds provided a positive total return during 2007, but the gains were confined to the first half of the year. During this time, the market was supported by abundant liquidity, and investors' hearty appetite for risk. The second half of 2007 proved more challenging, as the combination of weakness in the subprime mortgage sector, tighter liquidity, slower economic growth and weakening corporate earnings led to heightened investor risk aversion and rising yield spreads relative to US Treasuries.
The Portfolio's Class A shares provided a total return of 0.96% (unadjusted for contract charges) for the 12 months ended December 31, 2007. In comparison, the Credit Suisse High Yield Index returned 2.65%. The Portfolio's performance was helped by an underweight in housing and real estate development issues, which underperformed, as well as our decision to avoid both Delphi and Countrywide Financial.1 Also helping performance was an underweight position in Realogy Corp. and an overweight in Kansas City Southern Railroad Co. Among the largest detractors were the homebuilder K. Hovanian Enterprises; Tropicana Entertainment LLC, which lost its gaming license in Atlantic City; Alliance Mortgage; and the lack of a position in Calpine.
We remain cautiously optimistic on the outlook for the high-yield asset class, believing its fundamentals remain strong. Additionally, the asset class enters 2008 with a yield substantially above that of US Treasuries — a positive starting point. Having said that, we believe our bottom-up, research-driven approach can prove well-suited to the more risk-conscious environment likely to characterize the months ahead, during which the avoidance of downside risk in specific issues is likely to prove critical to outperformance.
Gary Sullivan, CFA
Portfolio Manager
Deutsche Investment Management Americas Inc.
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 investment, 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 Credit Suisse High Yield Index is an unmanaged index that is market-weighted, including publicly traded bonds having a rating below BBB by Standard & Poor's and Moody's. Index returns, 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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS High Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Corporate Bonds | 89% | 98% |
Senior Loans | 7% | — |
Cash Equivalents | 3% | 1% |
Other Investments | 1% | 1% |
| 100% | 100% |
Bond Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Consumer Discretionary | 22% | 25% |
Financials | 14% | 16% |
Industrials | 13% | 10% |
Materials | 11% | 15% |
Energy | 11% | 8% |
Telecommunication Services | 8% | 8% |
Utilities | 7% | 9% |
Health Care | 6% | 2% |
Information Technology | 4% | 4% |
Consumer Staples | 4% | 2% |
Sovereign Bonds | — | 1% |
| 100% | 100% |
Quality | 12/31/07 | 12/31/06 |
|
|
|
Cash Equivalents | 3% | 1% |
BBB | 4% | 3% |
BB | 29% | 30% |
B | 51% | 50% |
CCC | 13% | 16% |
| 100% | 100% |
Asset allocation, bond diversification and foreign bonds diversification and quality are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 138. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com as of each calendar quarter-end on or after the last day of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS High Income VIP
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 88.2% | ||
Consumer Discretionary 19.8% | ||
AAC Group Holding Corp., 14.75%, 10/1/2012 (PIK) (b) | 488,392 | 446,879 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 905,000 | 814,500 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 1,305,000 | 1,226,700 |
American Achievement Corp., 8.25%, 4/1/2012 | 255,000 | 248,625 |
American Media Operations, Inc., Series B, 10.25%, 5/1/2009 (b) | 347,180 | 297,872 |
Asbury Automotive Group, Inc.: |
|
|
7.625%, 3/15/2017 | 590,000 | 522,150 |
8.0%, 3/15/2014 | 250,000 | 236,250 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 | 420,000 | 367,500 |
Burlington Coat Factory Warehouse Corp., 11.125%, 4/15/2014 | 510,000 | 409,275 |
Cablevision Systems Corp., Series B, 9.644%**, 4/1/2009 | 335,000 | 338,769 |
Caesars Entertainment, Inc., 8.875%, 9/15/2008 | 620,000 | 641,130 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 | 380,000 | 371,925 |
Carrols Corp., | 250,000 | 227,500 |
Charter Communications Holdings LLC: |
|
|
Series B, 10.25%, 9/15/2010 | 940,000 | 916,500 |
10.25%, 9/15/2010 | 2,005,000 | 1,964,900 |
11.0%, 10/1/2015 | 2,157,000 | 1,757,955 |
Cirsa Capital Luxembourg, 144A, 7.875%, 7/15/2012 EUR | 285,000 | 375,016 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 (b) | 325,000 | 257,563 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 540,000 | 540,675 |
Series B, 8.125%, 7/15/2009 | 450,000 | 457,313 |
Series B, 8.125%, 8/15/2009 | 900,000 | 915,750 |
Denny's Corp. Holdings, Inc., 10.0%, 10/1/2012 | 165,000 | 158,606 |
Dollar General Corp., 144A, 10.625%, 7/15/2015 | 470,000 | 431,225 |
Dollarama Group LP, 144A, 10.599%**, 8/15/2012 | 387,000 | 387,000 |
EchoStar DBS Corp.: |
|
|
6.625%, 10/1/2014 | 665,000 | 661,675 |
7.125%, 2/1/2016 | 650,000 | 663,000 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 720,000 | 624,600 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 175,000 | 161,000 |
French Lick Resorts & Casinos LLC, 144A, 10.75%, 4/15/2014 | 1,935,000 | 1,412,550 |
| Principal Amount ($)(a) | Value ($) |
|
| |
General Motors Corp.: |
|
|
7.2%, 1/15/2011 | 1,645,000 | 1,513,400 |
7.4%, 9/1/2025 | 530,000 | 384,250 |
8.375%, 7/15/2033 | 1,070,000 | 861,350 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 1,585,000 | 1,684,062 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 505,000 | 499,950 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 250,000 | 241,250 |
Hanesbrands, Inc., Series B, 8.204%**, 12/15/2014 | 755,000 | 747,450 |
Hertz Corp.: |
|
|
8.875%, 1/1/2014 | 1,180,000 | 1,196,225 |
10.5%, 1/1/2016 (b) | 310,000 | 320,850 |
Idearc, Inc., 8.0%, 11/15/2016 | 2,140,000 | 1,963,450 |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 330,000 | 318,450 |
ION Media Networks, Inc., 144A, 11.493%**, 1/15/2013 | 515,000 | 506,631 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 760,000 | 623,200 |
Jarden Corp., 7.5%, 5/1/2017 | 420,000 | 361,200 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 | 115,000 | 120,750 |
Lamar Media Corp., 144A, 6.625%, 8/15/2015 | 330,000 | 320,925 |
Liberty Media LLC: |
|
|
5.7%, 5/15/2013 (b) | 95,000 | 88,009 |
8.25%, 2/1/2030 | 765,000 | 734,125 |
8.5%, 7/15/2029 (b) | 735,000 | 719,927 |
Majestic Star Casino LLC, 9.5%, 10/15/2010 | 95,000 | 89,775 |
Mediacom Broadband LLC, 8.5%, 10/15/2015 | 40,000 | 35,450 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 255,000 | 262,650 |
Metaldyne Corp., 11.0%, 6/15/2012 (b) | 140,000 | 90,300 |
MGM MIRAGE: |
|
|
6.75%, 9/1/2012 | 215,000 | 209,356 |
8.375%, 2/1/2011 (b) | 475,000 | 485,688 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 880,000 | 880,000 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 (b) | 1,385,000 | 1,246,500 |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 1,260,000 | 1,178,100 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 (b) | 525,000 | 534,187 |
Quebecor Media, Inc., 144A, 7.75%, 3/15/2016 | 325,000 | 312,000 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015 | 420,000 | 315,525 |
Quiksilver, Inc., 6.875%, 4/15/2015 | 560,000 | 480,200 |
Reader's Digest Association, Inc., 144A, 9.0%, 2/15/2017 | 345,000 | 288,938 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 460,000 | 409,400 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Seminole Hard Rock Entertainment, Inc., 144A, 7.491%**, 3/15/2014 | 590,000 | 563,450 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 410,000 | 397,700 |
Simmons Co.: |
|
|
Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 1,655,000 | 1,224,700 |
7.875%, 1/15/2014 | 310,000 | 286,750 |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 (b) | 302,000 | 307,663 |
Sirius Satellite Radio, Inc., 9.625%, 8/1/2013 | 755,000 | 713,475 |
Six Flags, Inc., | 230,000 | 172,500 |
Sonic Automotive, Inc., | 490,000 | 476,525 |
Station Casinos, Inc., 6.5%, 2/1/2014 | 1,000,000 | 750,000 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 | 425,000 | 307,063 |
Travelport LLC: |
|
|
9.749%**, 9/1/2014 | 390,000 | 377,325 |
9.875%, 9/1/2014 | 395,000 | 400,925 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 (b) | 1,100,000 | 837,375 |
United Components, Inc., 9.375%, 6/15/2013 | 80,000 | 79,000 |
Unity Media GmbH, 144A, 10.375%, 2/15/2015 | 255,000 | 260,100 |
Univision Communications, Inc., 144A, 9.75%, 3/15/2015 (PIK) | 1,420,000 | 1,293,975 |
UPC Holding BV: |
|
|
144A, 7.75%, 1/15/2014 EUR | 430,000 | 599,605 |
144A, 8.0%, 11/1/2016 EUR | 190,000 | 261,817 |
Vitro SAB de CV: |
|
|
8.625%, 2/1/2012 (b) | 335,000 | 314,900 |
9.125%, 2/1/2017 | 780,000 | 717,600 |
Series A, | 215,000 | 224,138 |
XM Satellite Radio, Inc., 9.75%, 5/1/2014 | 985,000 | 952,987 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 2,405,000 | 1,710,556 |
| 51,088,055 | |
Consumer Staples 3.8% | ||
Alliance One International, Inc., 8.5%, 5/15/2012 | 250,000 | 243,750 |
Del Laboratories, Inc., 8.0%, 2/1/2012 | 420,000 | 436,800 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 190,000 | 200,290 |
9.0%, 4/15/2031 | 1,017,000 | 1,175,831 |
General Nutrition Centers, Inc., 10.009%**, 3/15/2014 (PIK) | 590,000 | 557,550 |
Harry & David Holdings, Inc., 10.124%**, 3/1/2012 | 360,000 | 338,400 |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 2,081,750 | 1,915,210 |
Pierre Foods, Inc., 9.875%, 7/15/2012 | 290,000 | 211,700 |
Pilgrim's Pride Corp., 7.625%, 5/1/2015 | 210,000 | 206,325 |
Rite Aid Corp., 7.5%, 3/1/2017 | 690,000 | 608,063 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Smithfield Foods, Inc., 7.75%, 7/1/2017 (b) | 580,000 | 561,150 |
Tereos Europe SA, 144A, 6.375%, 4/15/2014 EUR | 150,000 | 188,604 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 3,100,000 | 3,100,000 |
| 9,743,673 | |
Energy 7.4% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 2,280,000 | 2,302,800 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 600,000 | 540,000 |
Chesapeake Energy Corp.: |
|
|
6.25%, 1/15/2018 | 325,000 | 312,000 |
6.875%, 1/15/2016 | 1,421,000 | 1,406,790 |
7.75%, 1/15/2015 | 220,000 | 224,400 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 410,000 | 402,825 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 1,115,000 | 953,325 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 (b) | 195,000 | 188,175 |
8.375%, 5/1/2016 | 945,000 | 923,737 |
Energy Partners Ltd., 9.75%, 4/15/2014 | 405,000 | 382,725 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 365,000 | 363,175 |
Mariner Energy, Inc.: |
|
|
7.5%, 4/15/2013 | 145,000 | 139,563 |
8.0%, 5/15/2017 | 340,000 | 323,425 |
OPTI Canada, Inc., 144A, 8.25%, 12/15/2014 | 505,000 | 499,950 |
Plains Exploration & Production Co., 7.0%, 3/15/2017 | 245,000 | 234,281 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 325,000 | 319,313 |
Sabine Pass LNG LP, 7.5%, 11/30/2016 | 1,370,000 | 1,308,350 |
Stone Energy Corp., 6.75%, 12/15/2014 | 1,450,000 | 1,344,875 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 420,000 | 451,755 |
Tesoro Corp., 6.5%, 6/1/2017 | 675,000 | 668,250 |
VeraSun Energy Corp., 144A, 9.375%, 6/1/2017 | 330,000 | 287,925 |
Whiting Petroleum Corp.: |
|
|
7.0%, 2/1/2014 | 500,000 | 495,000 |
7.25%, 5/1/2012 | 680,000 | 669,800 |
7.25%, 5/1/2013 | 165,000 | 162,525 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 | 1,365,000 | 1,486,144 |
8.75%, 3/15/2032 | 1,885,000 | 2,304,412 |
Williams Partners LP, 7.25%, 2/1/2017 | 420,000 | 432,600 |
| 19,128,120 | |
Financials 13.1% | ||
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 1,250,000 | 1,025,000 |
Ashton Woods USA LLC, 9.5%, 10/1/2015 | 1,370,000 | 876,800 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 250,000 | 222,500 |
CEVA Group PLC, 144A, 8.5%, 12/1/2014 EUR | 360,000 | 434,229 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Conproca SA de CV, Series REG S, 12.0%, 6/16/2010 | 2,385,000 | 2,587,725 |
E*TRADE Financial Corp.: |
|
|
7.375%, 9/15/2013 | 740,000 | 569,800 |
7.875%, 12/1/2015 | 1,160,000 | 884,500 |
8.0%, 6/15/2011 | 920,000 | 798,100 |
Ford Motor Credit Co., LLC: |
|
|
7.25%, 10/25/2011 | 2,960,000 | 2,563,831 |
7.375%, 10/28/2009 | 3,240,000 | 3,049,637 |
7.875%, 6/15/2010 | 1,790,000 | 1,651,574 |
GMAC LLC, 6.875%, 9/15/2011 | 6,055,000 | 5,180,016 |
Hawker Beechcraft Acquisition Co., LLC: |
|
|
144A, 8.5%, 4/1/2015 | 780,000 | 780,000 |
144A, 8.875%, 4/1/2015 (PIK) | 895,000 | 886,050 |
144A, 9.75%, 4/1/2017 | 630,000 | 626,850 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 470,000 | 507,600 |
Hub International Holdings, Inc., 144A, 9.0%, 12/15/2014 | 335,000 | 298,988 |
Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012 | 500,000 | 485,625 |
iPayment, Inc., 9.75%, 5/15/2014 | 475,000 | 444,125 |
KAR Holdings, Inc.: |
|
|
144A, 8.75%, 5/1/2014 | 460,000 | 423,200 |
144A, 10.0%, 5/1/2015 | 320,000 | 285,600 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 430,000 | 410,650 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 575,000 | 461,437 |
Nuveen Investments, Inc., 144A, 10.5%, 11/15/2015 | 820,000 | 816,925 |
Petroplus Finance Ltd.: |
|
|
144A, 6.75%, 5/1/2014 | 355,000 | 330,594 |
144A, 7.0%, 5/1/2017 | 355,000 | 324,825 |
Pinnacle Foods Finance LLC, 144A, 9.25%, 4/1/2015 | 335,000 | 305,687 |
Realogy Corp., 144A, 12.375%, 4/15/2015 (b) | 325,000 | 204,750 |
Residential Capital LLC: |
|
|
5.646%**, 6/9/2008 | 160,000 | 136,800 |
7.625%, 11/21/2008 | 810,000 | 643,950 |
7.782%**, 11/21/2008 | 1,290,000 | 1,025,550 |
Triad Acquisition Corp., Series B, 11.125%, 5/1/2013 | 280,000 | 207,200 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014 | 1,370,000 | 869,950 |
U.S.I. Holdings Corp.: |
|
|
144A, 8.744%**, 11/15/2014 | 255,000 | 218,025 |
144A, 9.75%, 5/15/2015 | 150,000 | 120,750 |
UCI Holdco, Inc., 12.491%**, 12/15/2013 (PIK) | 574,851 | 543,234 |
Universal City Development Partners, 11.75%, 4/1/2010 | 2,125,000 | 2,199,375 |
Yankee Acquisition Corp., Series B, 8.5%, 2/15/2015 (b) | 320,000 | 294,800 |
| 33,696,252 | |
Health Care 4.8% | ||
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 620,000 | 570,400 |
Bausch & Lomb, Inc., 144A, 9.875%, 11/1/2015 | 665,000 | 674,975 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 410,000 | 395,650 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 3,010,000 | 3,066,437 |
HCA, Inc.: |
|
|
9.125%, 11/15/2014 | 760,000 | 790,400 |
9.25%, 11/15/2016 | 1,330,000 | 1,396,500 |
9.625%, 11/15/2016 (PIK) | 670,000 | 708,525 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 560,000 | 585,200 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 315,000 | 315,000 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 420,000 | 418,950 |
Sun Healthcare Group, Inc., 9.125%, 4/15/2015 | 420,000 | 423,150 |
Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK) | 515,000 | 468,650 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 840,000 | 816,900 |
Universal Hospital Services, Inc., 8.5%, 6/1/2015 (PIK) | 295,000 | 297,950 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 505,000 | 373,700 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 1,215,000 | 1,169,438 |
| 12,471,825 | |
Industrials 11.8% | ||
Actuant Corp., 144A, 6.875%, 6/15/2017 | 335,000 | 331,650 |
Aleris International, Inc., 9.0%, 12/15/2014 (PIK) | 590,000 | 492,650 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 769,000 | 722,860 |
American Color Graphics, Inc., 10.0%, 6/15/2010 | 850,000 | 459,000 |
American Color Graphics, Inc., Promissory Note due 3/15/2008 (f) | 51,000 | 27,540 |
American Railcar Industries, Inc., 7.5%, 3/1/2014 | 420,000 | 396,900 |
ARAMARK Corp.: |
|
|
8.411%**, 2/1/2015 | 585,000 | 570,375 |
8.5%, 2/1/2015 (b) | 680,000 | 688,500 |
Baldor Electric Co., 8.625%, 2/15/2017 | 420,000 | 432,600 |
Belden, Inc., 7.0%, 3/15/2017 | 420,000 | 409,500 |
Bombardier, Inc.: |
|
|
144A, 6.3%, 5/1/2014 | 265,000 | 259,038 |
144A, 8.0%, 11/15/2014 (b) | 115,000 | 120,175 |
Bristow Group, Inc., 144A, 7.5%, 9/15/2017 | 500,000 | 502,500 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 1,560,000 | 1,450,800 |
Building Materials Corp. of America, 7.75%, 8/1/2014 | 585,000 | 447,525 |
Cenveo Corp., 7.875%, 12/1/2013 | 1,062,000 | 946,507 |
Congoleum Corp., 8.625%, 8/1/2008* | 1,200,000 | 900,000 |
DRS Technologies, Inc.: |
|
|
6.625%, 2/1/2016 | 210,000 | 207,375 |
6.875%, 11/1/2013 (b) | 655,000 | 651,725 |
7.625%, 2/1/2018 | 1,450,000 | 1,468,125 |
Education Management LLC, 8.75%, 6/1/2014 | 430,000 | 431,613 |
Esco Corp.: |
|
|
144A, 8.625%, 12/15/2013 | 730,000 | 730,000 |
144A, 8.866%**, 12/15/2013 | 430,000 | 421,400 |
| Principal Amount ($)(a) | Value ($) |
|
| |
General Cable Corp.: |
|
|
7.125%, 4/1/2017 | 500,000 | 490,000 |
7.606%**, 4/1/2015 | 505,000 | 479,750 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 335,000 | 313,225 |
Harland Clarke Holdings Corp., 9.5%, 5/15/2015 | 420,000 | 363,300 |
Iron Mountain, Inc., 8.75%, 7/15/2018 (b) | 330,000 | 346,913 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 | 1,600,000 | 1,088,000 |
8.875%, 4/1/2012 | 1,495,000 | 852,150 |
Kansas City Southern de Mexico SA de CV: |
|
|
144A, 7.375%, 6/1/2014 | 335,000 | 325,788 |
7.625%, 12/1/2013 | 1,085,000 | 1,070,081 |
9.375%, 5/1/2012 | 1,065,000 | 1,115,587 |
Kansas City Southern Railway Co.: |
|
|
7.5%, 6/15/2009 | 380,000 | 380,475 |
9.5%, 10/1/2008 | 2,705,000 | 2,759,100 |
Mobile Services Storage Group, 9.75%, 8/1/2014 | 775,000 | 713,000 |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 | 675,000 | 690,187 |
Panolam Industries International, Inc., 10.75%, 10/1/2013 | 265,000 | 230,550 |
R.H. Donnelley Corp., 144A, 8.875%, 10/15/2017 | 1,560,000 | 1,443,000 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 112,000 | 121,380 |
RBS Global, Inc. & Rexnord Corp., 9.5%, 8/1/2014 | 370,000 | 366,300 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 415,000 | 420,706 |
Swift Transportation Co., 144A, 12.5%, 5/15/2017 (b) | 340,000 | 175,525 |
Tenneco, Inc., 144A, 8.125%, 11/15/2015 | 245,000 | 242,550 |
Titan International, Inc., 8.0%, 1/15/2012 | 1,325,000 | 1,278,625 |
TransDigm, Inc., 7.75%, 7/15/2014 | 260,000 | 263,900 |
U.S. Concrete, Inc., 8.375%, 4/1/2014 (b) | 470,000 | 411,250 |
United Rentals North America, Inc.: |
|
|
6.5%, 2/15/2012 | 230,000 | 208,725 |
7.0%, 2/15/2014 | 1,095,000 | 917,062 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 315,000 | 314,602 |
| 30,450,089 | |
Information Technology 2.9% | ||
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 350,000 | 298,375 |
First Data Corp., 144A, 9.875%, 9/24/2015 | 485,000 | 451,050 |
Freescale Semiconductor, Inc., 8.875%, 12/15/2014 | 420,000 | 374,850 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 1,280,000 | 1,235,200 |
Series B, 6.375%, 10/15/2015 | 705,000 | 694,425 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 (b) | 1,410,000 | 1,165,012 |
MasTec, Inc., 7.625%, 2/1/2017 | 610,000 | 573,400 |
Sanmina-SCI Corp.: |
|
|
144A, 7.741%**, 6/15/2010 | 196,000 | 195,510 |
8.125%, 3/1/2016 | 235,000 | 208,269 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 800,000 | 780,000 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 1,090,000 | 1,114,525 |
Vangent, Inc., 9.625%, 2/15/2015 | 350,000 | 300,125 |
| 7,390,741 | |
Materials 10.7% | ||
Appleton Papers, Inc., Series B, 8.125%, 6/15/2011 | 235,000 | 230,594 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 3,790,000 | 3,676,300 |
Associated Materials, Inc., Step-up Coupon, 0% to 3/1/2009, 11.25% to 3/1/2014 | 850,000 | 544,000 |
Cascades, Inc., 7.25%, 2/15/2013 | 1,246,000 | 1,168,125 |
Chemtura Corp., 6.875%, 6/1/2016 | 720,000 | 676,800 |
Clondalkin Acquisition BV, 144A, 6.991%**, 12/15/2013 | 540,000 | 510,300 |
CPG International I, Inc.: |
|
|
10.5%, 7/1/2013 | 1,190,000 | 1,124,550 |
12.13%**, 7/1/2012 | 280,000 | 268,800 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 1,415,000 | 1,386,700 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/2017 | 665,000 | 713,212 |
GEO Specialty Chemicals, Inc., 144A, 13.729%**, 12/31/2009 (c) | 3,044,000 | 2,283,000 |
Georgia-Pacific Corp., 144A, 7.125%, 1/15/2017 | 295,000 | 286,887 |
Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015 | 435,000 | 391,500 |
Hexcel Corp., 6.75%, 2/1/2015 | 1,735,000 | 1,700,300 |
Huntsman LLC, 11.625%, 10/15/2010 | 1,277,000 | 1,353,620 |
Innophos, Inc., | 190,000 | 189,050 |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 (b) | 620,000 | 610,700 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 1,145,000 | 961,800 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 125,000 | 122,188 |
6.875%, 12/15/2013 | 590,000 | 556,075 |
Metals USA Holdings Corp., 144A, 11.231%**, 7/1/2012 (PIK) | 565,000 | 463,300 |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 | 200,000 | 149,000 |
Momentive Performance Materials, Inc., 144A, 9.75%, 12/1/2014 | 475,000 | 437,000 |
Mueller Water Products, Inc., 7.375%, 6/1/2017 | 245,000 | 218,969 |
Neenah Foundry Co., 9.5%, 1/1/2017 | 120,000 | 96,600 |
NewMarket Corp., 7.125%, 12/15/2016 | 1,045,000 | 1,034,550 |
OI European Group BV, 144A, 6.875%, 3/31/2017 EUR | 475,000 | 663,223 |
Pliant Corp., 11.625%, 6/15/2009 (PIK) | 11 | 11 |
Radnor Holdings Corp., 11.0%, 3/15/2010* | 265,000 | 1,988 |
Rhodia SA, 144A, 7.482%**, 10/15/2013 EUR | 475,000 | 671,903 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Smurfit-Stone Container Enterprises, Inc.: |
|
|
8.0%, 3/15/2017 | 835,000 | 806,819 |
8.375%, 7/1/2012 | 420,000 | 416,850 |
Steel Dynamics, Inc.: |
|
|
144A, 6.75%, 4/1/2015 | 675,000 | 651,375 |
144A, 7.375%, 11/1/2012 | 155,000 | 155,775 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 905,000 | 884,637 |
The Mosaic Co., 144A, 7.625%, 12/1/2014 | 755,000 | 807,850 |
TriMas Corp., | 258,000 | 251,550 |
Witco Corp., 6.875%, 2/1/2026 | 360,000 | 289,800 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 770,000 | 731,500 |
| 27,487,201 | |
Telecommunication Services 6.7% | ||
BCM Ireland Preferred Equity Limited, 144A, 11.58%**, 2/15/2017 (PIK) EUR | 479,970 | 645,518 |
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 1,640,000 | 1,402,200 |
Centennial Communications |
|
|
10.0%, 1/1/2013 (b) | 995,000 | 1,034,800 |
10.125%, 6/15/2013 | 335,000 | 351,750 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 | 795,000 | 796,987 |
8.375%, 1/15/2014 | 450,000 | 438,750 |
Cricket Communications, Inc., 144A, 9.375%, 11/1/2014 | 930,000 | 871,875 |
Embratel, Series B, 11.0%, 12/15/2008 (b) | 197,000 | 206,358 |
Grupo Iusacell Cellular SA de CV, 10.0%, 3/31/2012 | 285,718 | 284,289 |
Intelsat Bermuda Ltd.: |
|
|
8.886%**, 1/15/2015 | 95,000 | 95,238 |
9.25%, 6/15/2016 | 285,000 | 286,425 |
11.25%, 6/15/2016 | 860,000 | 887,950 |
Intelsat Corp., 9.0%, 6/15/2016 | 330,000 | 332,475 |
Intelsat Ltd., 5.25%, 11/1/2008 | 325,000 | 320,937 |
Intelsat Subsidiary Holding Co., Ltd., 8.25%, 1/15/2013 | 700,000 | 703,500 |
iPCS, Inc., 7.036%**, 5/1/2013 | 200,000 | 188,500 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 975,000 | 916,500 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 685,000 | 729,525 |
Nortel Networks Ltd., 144A, 9.493%**, 7/15/2011 | 780,000 | 760,500 |
Orascom Telecom Finance, 144A, 7.875%, 2/8/2014 | 170,000 | 160,650 |
Qwest Corp., | 145,000 | 136,300 |
Rural Cellular Corp., 9.875%, 2/1/2010 | 775,000 | 804,062 |
Stratos Global Corp., 9.875%, 2/15/2013 | 330,000 | 348,150 |
SunCom Wireless Holdings, Inc., 8.5%, 6/1/2013 | 950,000 | 983,250 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 980,000 | 1,038,969 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Virgin Media Finance PLC: 8.75%, 4/15/2014 EUR | 700,000 | 1,000,408 |
8.75%, 4/15/2014 | 990,000 | 982,575 |
West Corp., 9.5%, 10/15/2014 | 500,000 | 490,000 |
| 17,198,441 | |
Utilities 7.2% | ||
AES Corp.: |
|
|
144A, 8.0%, 10/15/2017 | 830,000 | 848,675 |
144A, 8.75%, 5/15/2013 | 1,504,000 | 1,569,800 |
Allegheny Energy Supply Co., LLC, 144A, 8.25%, 4/15/2012 | 2,355,000 | 2,513,963 |
CMS Energy Corp., 8.5%, 4/15/2011 | 1,030,000 | 1,109,526 |
Edison Mission Energy, 7.0%, 5/15/2017 | 760,000 | 746,700 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 | 1,240,000 | 1,246,200 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 610,000 | 611,525 |
Mirant North America LLC, 7.375%, 12/31/2013 | 300,000 | 300,750 |
NRG Energy, Inc.: |
|
|
7.25%, 2/1/2014 | 1,560,000 | 1,521,000 |
7.375%, 2/1/2016 | 1,830,000 | 1,784,250 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 | 1,665,000 | 1,754,927 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 575,000 | 592,250 |
Reliant Energy, Inc., 7.875%, 6/15/2017 | 840,000 | 831,600 |
Sierra Pacific Resources: |
|
|
6.75%, 8/15/2017 | 975,000 | 986,301 |
8.625%, 3/15/2014 | 200,000 | 213,706 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015 | 1,820,000 | 1,801,800 |
| 18,432,973 | |
Total Corporate Bonds (Cost $242,672,301) | 227,087,370 | |
| ||
Senior Loans** 6.8% | ||
Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 5.974%, 4/2/2014 | 248,051 | 233,710 |
Aleris International, Inc.: Term Loan B, LIBOR plus 2.375%, 6.599%, 12/14/2013 | 165,000 | 149,985 |
Term Loan, LIBOR plus 2.375%, 6.599%, 12/19/2013 | 169,146 | 153,753 |
Alliance Mortgage Cycle Loan, LIBOR plus 7.25%, 11.474%, 6/4/2010* | 700,000 | 70,000 |
Bausch & Lomb, Inc. Term Loan B, LIBOR plus 3.25%, 7.474%, 4/11/2015 | 661,000 | 658,899 |
Buffets, Inc.: |
|
|
Letter of Credit, 7.7%, 5/1/2013 | 128,602 | 106,868 |
Term Loan B, 7.74%, 1/13/2011 | 1,129,087 | 938,272 |
Dollar General Corp., Term Loan B, LIBOR plus 2.75%, 6.974%, 7/6/2014 | 390,000 | 359,071 |
Energy Future Holdings Corp.: |
|
|
Term Loan B3, LIBOR plus 3.5%, 7.724%, 10/10/2014 | 2,480,000 | 2,444,362 |
Term Loan B1, LIBOR plus 3.5%, 7.724%, 10/10/2014 | 3,805,000 | 3,739,459 |
| Principal Amount ($)(a) | Value ($) |
|
| |
First Data Corp., Term Loan B1, LIBOR plus 2.75%, 6.974%, 9/17/2014 | 1,291,638 | 1,227,579 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 6.474%, 9/16/2013 | 245,000 | 223,813 |
Golden Nugget, 8.22%, 6/16/2014 | 460,000 | 418,600 |
Hawker Beechcraft, Inc.: |
|
|
Letter of Credit, LIBOR plus 2.0%, 6.224%, 3/26/2014 | 18,026 | 17,305 |
Term Loan B, LIBOR plus 2.0%, 6.224%, 3/26/2014 | 211,441 | 201,450 |
HCA, Inc., Term Loan A1, 6.83%, 11/18/2012 | 1,281,601 | 1,219,123 |
IASIS Healthcare LLC, 10.315%, 6/15/2014 | 400,653 | 377,615 |
Local TV on Satellite LLC, Term Loan B, LIBOR plus 2.25%, 6.474%, 5/7/2013 | 238,750 | 225,320 |
Longview Power LLC: |
|
|
Demand Draw, 7.125%, 4/1/2014 | 68,700 | 66,552 |
Letter of Credit, 7.125%, 4/1/2014 | 30,000 | 29,069 |
Term Loan B, 7.25%, 4/1/2014 | 90,000 | 87,225 |
Rail America, Inc., 7.81%, 10/2/2008 | 720,000 | 707,400 |
Sabre, Inc., Term Loan B, LIBOR plus 2.25%, 6.474%, 9/30/2014 | 412,595 | 376,015 |
Symbion, Inc.: |
|
|
Term Loan A, 8.21%, 8/23/2013 | 199,500 | 194,016 |
Term Loan B, 8.21%, 8/23/2014 | 199,500 | 193,266 |
Telesat Canada, Inc.: |
|
|
Term Loan B, LIBOR plus 3.0%, 7.224%, 10/31/2014 | 686,068 | 660,341 |
Term Loan B, LIBOR plus 3.0%, 7.224%, 10/31/2014 | 206,681 | 201,753 |
Term Loan B, LIBOR plus 3.0%, 7.224%, 10/31/2014 | 170,126 | 166,502 |
8.09%, 9/1/2014 | 177,124 | 172,192 |
9.0%, 10/31/2008 | 1,285,000 | 1,236,812 |
Tribune Co., Term Loan B, 8.244%, 5/24/2014 | 835,650 | 719,901 |
Total Senior Loans (Cost $18,782,677) | 17,576,228 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Dayton Superior Corp., 144A, Expiration Date 6/15/2009* | 95 | 0 |
|
| Value ($) |
|
| |
DeCrane Aircraft Holdings, Inc., 144A, Expiration Date 9/30/2008* | 1,350 | 0 |
Total Warrants (Cost $1) | 0 |
|
| Value ($) |
|
| |
Other Investments 0.7% | ||
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 1,100,000 | 929,500 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 6/15/2008, 13.0% to 12/15/2012 | 1,735,000 | 954,250 |
Total Other Investments (Cost $2,347,542) | 1,883,750 |
|
| Value ($) |
|
| |
Common Stocks 0.0% | ||
GEO Specialty Chemicals, Inc. 144A* | 2,206 | 1,875 |
GEO Specialty Chemicals, Inc.* | 24,225 | 20,591 |
Total Common Stocks (Cost $290,952) | 22,466 | |
| ||
Preferred Stocks 0.0% | ||
ION Media Networks: |
|
|
Series AI, 144A, 12.0%* | 30,000 | 1,815 |
Series B, 12.0%* | 5,000 | 303 |
144A, 12.0% | 3 | 18,150 |
Total Preferred Stocks (Cost $46,019) | 20,268 | |
| ||
Securities Lending Collateral 2.7% | ||
Daily Assets Fund Institutional, 5.03% (d) (e) (Cost $6,836,017) | 6,836,017 | 6,836,017 |
| ||
Cash Equivalents 3.1% | ||
Cash Management QP Trust, 4.67% (d) (Cost $7,887,827) | 7,887,827 | 7,887,827 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $278,863,336)+ | 101.5 | 261,313,926 |
Other Assets and Liabilities, Net | (1.5) | (3,836,662) |
Net Assets | 100.0 | 257,477,264 |
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Alliance Mortgage Cycle Loan | 11.474% | 6/4/2010 | 700,000 | USD | 700,000 | 70,000 |
Congoleum Corp. | 8.625% | 8/1/2008 | 1,200,000 | USD | 1,021,050 | 900,000 |
Radnor Holdings Corp. | 11.0% | 3/15/2010 | 265,000 | USD | 234,313 | 1,988 |
|
|
|
| | 1,955,363 | 971,988 |
** 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, 2007.
(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, 2007 amounted to $6,535,627 which is 2.5% of net assets.
(c) Security has deferred interest payment of $92,407 from April 1, 2006.
(d) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(e) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
(f) Security issued in lieu of interest payment due 12/15/2007, which has been deferred until 3/15/2008. This security is deemed to be non-income producing.
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, 2007, the Portfolio had unfunded loan commitments of $288,148 which could be extended at the option of the borrower, pursuant to the following loan agreement:
Borrower | Unfunded Loan Commitment ($) | Value ($) | Unrealized Appreciation/ |
Bausch & Lomb, Inc., Term Delay Draw, 4/11/2015 | 163,795 | 163,590 | (205) |
Longview Power LLC, Term Delay Draw, 4/1/2014 | 34,394 | 35,166 | 772 |
Telesat Canada, Inc., Term Delay Draw, 9/1/2014 | 89,959 | 88,897 | (1,062) |
Total net unrealized depreciation | 288,148 | 287,653 | (495) |
At December 31, 2007, open credit default swap contracts as follows:
Effective/ | Notional Amount ($) | Cash Flows Received by the Fund | Underlying Debt Obligation | Unrealized Appreciation/ |
10/4/2007 | 430,0001 | Fixed — 3.1% | Ford Motor Co., 6.5%, 8/1/2008 | (1,757) |
10/5/2007 | 255,0002 | Fixed — 3.15% | Ford Motor Co., 6.5%, 8/1/2008 | (913) |
10/20/2007 | 845,0003 | Fixed — 3.5% | Ford Motor Co., 6.5%, 8/1/2008 | (5,313) |
10/23/2007 | 485,0004 | Fixed — 4.65% | Ford Motor Co., 6.5%, 8/1/2008 | (5,809) |
12/13/2007 | 400,0005 | Fixed — 5.05% | Ford Motor Co., 6.5%, 8/1/2008 | (6,134) |
10/3/2007 | 430,0002 | Fixed — 3.2% | General Motors Corp., 7.125%, 7/15/2013 | (2,041) |
10/4/2007 | 450,0006 | Fixed — 2.6% | General Motors Corp., 7.125%, 7/15/2013 | (5,347) |
10/20/2007 | 845,0003 | Fixed — 3.05% | General Motors Corp., 7.125%, 7/15/2013 | (6,639) |
11/21/2007 | 430,0005 | Fixed — 4.02% | Tenet Healthcare Corp., 7.375%, 2/1/2013 | 3,206 |
12/15/2007 | 535,0003 | Fixed — 2.9% | Tenet Healthcare Corp., 7.375%, 2/1/2013 | (2,724) |
Total net unrealized depreciation on credit default swaps | (33,471) | |||
Counterparties: 1 Goldman Sachs & Co. 2 JPMorgan Chase 3 Lehman Brothers, Inc. 4 Morgan Stanley Co., Inc. 5 Merrill Lynch, Pierce, Fenner & Smith, Inc. 6 Citigroup Global Markets, Inc. |
At December 31, 2006, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver |
| In Exchange For |
| Settlement Date | Unrealized Appreciation US ($) | ||
USD | 251,939 | | EUR | 175,400 | | 1/3/2008 | 4,519 |
EUR | 3,193,000 | | USD | 4,747,097 | | 1/3/2008 | 78,505 |
Total unrealized appreciation | 83,024 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date | Unrealized Depreciation US ($) | ||
EUR | 3,056,225 | | USD | 4,460,285 | | 2/4/2008 | (10,712) |
Total unrealized depreciation | (10,712) |
Currency Abbreviations |
EUR Euro USD United States Dollar |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $264,139,492) — including $6,535,627 of securities loaned | $ 246,590,082 |
Investment in Daily Assets Fund Institutional (cost $6,836,017)* | 6,836,017 |
Investment in Cash Management QP Trust (cost $7,887,827) | 7,887,827 |
Total investments, at value (cost $278,863,336) | 261,313,926 |
Foreign currency, at value (cost $92) | 93 |
Receivable for investments sold | 1,202,836 |
Receivable for Portfolio shares sold | 19,126 |
Interest receivable | 5,272,810 |
Unrealized appreciation on credit default swap contracts | 3,206 |
Unrealized appreciation on forward foreign currency exchange contracts | 83,024 |
Net receivable on closed forward foreign currency exchange contracts | 10,500 |
Foreign taxes recoverable | 4,403 |
Other assets | 3,867 |
Total assets | 267,913,791 |
Liabilities | |
Cash overdraft | 23,894 |
Payable for investments purchased | 2,912,386 |
Payable for Portfolio shares redeemed | 259,448 |
Payable upon return of securities loaned | 6,836,017 |
Unrealized depreciation on credit default swap contracts | 36,677 |
Unrealized depreciation on forward foreign currency exchange contracts | 10,712 |
Unrealized depreciation on unfunded loan commitments | 495 |
Accrued management fee | 134,168 |
Other accrued expenses and payables | 222,730 |
Total liabilities | 10,436,527 |
Net assets, at value | $ 257,477,264 |
Net Assets Consist of | |
Undistributed net investment income | 24,527,293 |
Net unrealized appreciation (depreciation) on: Investments | (17,549,410) |
Credit default swap contracts | (33,471) |
Unfunded loan commitments | (495) |
Foreign currency | 95,404 |
Accumulated net realized gain (loss) | (114,129,983) |
Paid-in capital | 364,567,926 |
Net assets, at value | $ 257,477,264 |
Class A Net Asset Value, offering and redemption price per share ($247,620,031 ÷ 31,702,335 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 7.81 |
Class B Net Asset Value, offering and redemption price per share ($9,857,233 ÷ 1,262,331 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 7.81 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Interest (net of foreign taxes withheld of $1,020) | $ 27,053,362 |
Dividends | 783 |
Interest — Cash Management QP Trust | 346,939 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 92,076 |
Total Income | 27,493,160 |
Expenses: Management fee | 1,912,439 |
Custodian fee | 26,546 |
Distribution service fee (Class B) | 63,359 |
Services to shareholders | 375 |
Record keeping fees (Class B) | 32,137 |
Professional fees | 122,770 |
Trustees' fees and expenses | 25,304 |
Reports to shareholders | 67,853 |
Other | 70,183 |
Total expenses before expense reductions | 2,320,966 |
Expense reductions | (6,820) |
Total expenses after expense reductions | 2,314,146 |
Net investment income (loss) | 25,179,014 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | (1,846,396) |
Credit default swaps | 93,187 |
Foreign currency | (611,797) |
| (2,365,006) |
Change in net unrealized appreciation (depreciation) on: Investments | (17,335,877) |
Credit default swap contracts | (137,249) |
Unfunded loan commitments | (495) |
Foreign currency | 142,206 |
| (17,331,415) |
Net gain (loss) | (19,696,421) |
Net increase (decrease) in net assets resulting from operations | $ 5,482,593 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income | $ 25,179,014 | $ 29,073,209 |
Net realized gain (loss) | (2,365,006) | (4,241,151) |
Change in net unrealized appreciation (depreciation) | (17,331,415) | 12,833,965 |
Net increase (decrease) in net assets resulting from operations | 5,482,593 | 37,666,023 |
Distributions to shareholders from: Net investment income: Class A | (24,698,902) | (26,233,542) |
Class B | (3,765,571) | (4,096,501) |
Total distributions | (28,464,473) | (30,330,043) |
Portfolio share transactions: Class A Proceeds from shares sold | 39,622,315 | 42,074,123 |
Reinvestment of distributions | 24,698,902 | 26,233,542 |
Cost of shares redeemed | (117,470,499) | (96,640,530) |
Net increase (decrease) in net assets from Class A share transactions | (53,149,282) | (28,332,865) |
Class B Proceeds from shares sold | 3,273,156 | 8,449,167 |
Reinvestment of distributions | 3,765,571 | 4,096,501 |
Cost of shares redeemed | (48,245,391) | (15,970,978) |
Net increase (decrease) in net assets from Class B share transactions | (41,206,664) | (3,425,310) |
Increase (decrease) in net assets | (117,337,826) | (24,422,195) |
Net assets at beginning of period | 374,815,090 | 399,237,285 |
Net assets at end of period (including undistributed net investment income of $24,527,293 and $28,104,439, respectively) | $ 257,477,264 | $ 374,815,090 |
Other Information | ||
Class A Shares outstanding at beginning of period | 38,357,993 | 41,769,600 |
Shares sold | 4,945,319 | 5,241,451 |
Shares issued to shareholders in reinvestment of distributions | 3,110,693 | 3,376,260 |
Shares redeemed | (14,711,670) | (12,029,318) |
Net increase (decrease) in Class A shares | (6,655,658) | (3,411,607) |
Shares outstanding at end of period | 31,702,335 | 38,357,993 |
Class B Shares outstanding at beginning of period | 6,354,214 | 6,770,189 |
Shares sold | 397,938 | 1,037,633 |
Shares issued to shareholders in reinvestment of distributions | 473,062 | 525,192 |
Shares redeemed | (5,962,883) | (1,978,800) |
Net increase (decrease) in Class B shares | (5,091,883) | (415,975) |
Shares outstanding at end of period | 1,262,331 | 6,354,214 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 8.38 | $ 8.23 | $ 8.78 | $ 8.43 | $ 7.40 |
Income (loss) from investment operations: Net investment incomea | .63 | .62 | .68 | .67 | .67 |
Net realized and unrealized gain (loss) | (.54) | .19 | (.38) | .31 | 1.03 |
Total from investment operations | .09 | .81 | .30 | .98 | 1.70 |
Less distributions from: Net investment income | (.66) | (.66) | (.85) | (.63) | (.67) |
Net asset value, end of period | $ 7.81 | $ 8.38 | $ 8.23 | $ 8.78 | $ 8.43 |
Total Return (%) | .96 | 10.47 | 3.89 | 12.42 | 24.62 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 248 | 322 | 344 | 393 | 413 |
Ratio of expenses (%) | .69 | .71 | .70 | .66 | .67 |
Ratio of net investment income (%) | 7.84 | 7.73 | 8.27 | 8.11 | 8.62 |
Portfolio turnover rate (%) | 61 | 93 | 100 | 162 | 165 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 8.38 | $ 8.22 | $ 8.77 | $ 8.41 | $ 7.39 |
Income (loss) from investment operations: Net investment incomea | .60 | .59 | .65 | .64 | .64 |
Net realized and unrealized gain (loss) | (.54) | .20 | (.39) | .32 | 1.03 |
Total from investment operations | .06 | .79 | .26 | .96 | 1.67 |
Less distributions from: Net investment income | (.63) | (.63) | (.81) | (.60) | (.65) |
Net asset value, end of period | $ 7.81 | $ 8.38 | $ 8.22 | $ 8.77 | $ 8.41 |
Total Return (%) | .54 | 10.11 | 3.41 | 12.08 | 24.14 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 10 | 53 | 56 | 57 | 37 |
Ratio of expenses (%) | 1.08 | 1.10 | 1.10 | 1.06 | 1.06 |
Ratio of net investment income (%) | 7.45 | 7.34 | 7.87 | 7.71 | 8.23 |
Portfolio turnover rate (%) | 61 | 93 | 100 | 162 | 165 |
a Based on average shares outstanding during the period. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .88% and 1.26% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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.
Please keep in mind that 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 International Select Equity VIP | ||
[] DWS International Select Equity VIP — Class A [] MSCI EAFE® + EMF Index | The MSCI EAFE® + EMF Index (Morgan Stanley Capital International Europe, Australasia, Far East and Emerging Markets Free 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 translates into 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. | |
| ||
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 | $11,671 | $16,781 | $25,761 | $21,471 |
Average annual total return | 16.71% | 18.83% | 20.84% | 7.94% | |
MSCI EAFE + EMF Index | Growth of $10,000 | $11,631 | $17,297 | $29,514 | $25,599 |
Average annual total return | 16.31% | 20.04% | 24.17% | 9.86% | |
DWS International Select Equity VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $11,620 | $16,565 | $25,264 | $22,338 |
Average annual total return | 16.20% | 18.32% | 20.36% | 15.73% | |
MSCI EAFE + EMF Index | Growth of $10,000 | $11,631 | $17,297 | $29,514 | $25,404 |
Average annual total return | 16.31% | 20.04% | 24.17% | 18.47% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,052.10 |
| $ 1,049.70 |
|
Expenses Paid per $1,000* | $ 4.76 |
| $ 6.82 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,020.57 |
| $ 1,018.55 |
|
Expenses Paid per $1,000* | $ 4.69 |
| $ 6.72 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS International Select Equity VIP | .92% |
| 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, 2007
DWS International Select Equity VIP
International equities — as measured by the US dollar return of the fund's benchmark, the MSCI EAFE ® + EMF Index — gained 16.31% during the past year. The Portfolio's Class A shares (unadjusted for contract charges) outpaced the benchmark with a total return of 16.71%.
The Portfolio's performance was helped by its geographic weightings. Overweights in Europe and the emerging markets — both of which outperformed — and a substantial underweight in Japan, the worst performer among the major global markets, all proved beneficial to returns.1 In terms of individual holdings, the top performer was AMEC PLC, a UK-based construction and engineering company. Also helping performance were positions in Gazprom, the Russian energy concern; China Mobile*, a Hong-Kong based stock that benefited from rising wireless penetration in China; and the German stocks Bayer AG, Porsche AG, and E.ON AG. Detractors included two Italian banks, UniCredito Italiano and Banca Italease*, along with positions in several Japanese banks.
Expecting that 2008 will be a challenging year characterized by slower growth in the developed world, we intend to maintain a focus on companies with the ability to outperform in any economic environment. We have found a number of such companies in the emerging markets, particularly Russia, the Middle East, and Africa. At the same time, we have cut the Portfolio's weighting in Europe and have chosen not to raise its weighting in Japan. Overall, we intend to use bottom-up, individual company research to identify opportunities in stocks that we believe have been artificially depressed by volatility in the broader markets.
Matthias Knerr, CFA
Portfolio Manager
Deutsche Investment Management Americas Inc.
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 + EMF Index (Morgan Stanley Capital International Europe, Australasia, Far East and Emerging Markets Free 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 translates into 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.
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.* As of December 31, 2007, the positions were not held.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS International Select Equity VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 94% | 94% |
Cash Equivalents | 3% | 3% |
Preferred Stocks | 3% | 3% |
| 100% | 100% |
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Continental Europe | 52% | 56% |
Japan | 15% | 20% |
United Kingdom | 12% | 15% |
Asia (excluding Japan) | 9% | 3% |
Russia | 4% | — |
Latin America | 2% | 6% |
Australia | 2% | — |
Africa | 2% | — |
Middle East | 2% | — |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Financials | 23% | 30% |
Industrials | 18% | 9% |
Consumer Discretionary | 16% | 17% |
Materials | 9% | 5% |
Consumer Staples | 7% | 5% |
Telecommunications Services | 6% | 6% |
Utilities | 6% | 2% |
Information Technology | 5% | 8% |
Energy | 5% | 6% |
Health Care | 5% | 12% |
| 100% | 100% |
Asset allocation, geographical and sector diversifications are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 155. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS International Select Equity VIP
|
| Value ($) |
|
| |
Common Stocks 92.9% | ||
Australia 1.9% | ||
Leighton Holdings Ltd. (a) (Cost $3,440,762) | 92,200 | 4,915,356 |
Austria 2.5% | ||
Erste Bank der oesterreichischen Sparkassen AG | 35,600 | 2,530,265 |
Wienerberger AG | 67,571 | 3,732,623 |
(Cost $6,356,276) | 6,262,888 | |
Belgium 5.3% | ||
Fortis | 133,351 | 3,465,421 |
InBev NV | 66,800 | 5,510,872 |
KBC Groep NV | 31,000 | 4,329,640 |
(Cost $13,633,980) | 13,305,933 | |
Cyprus 1.7% | ||
Bank of Cyprus PCL (Cost $3,907,310) | 229,684 | 4,215,124 |
Egypt 2.3% | ||
Orascom Construction Industries (GDR) (REG S) (Cost $4,916,404) | 27,300 | 5,717,137 |
Finland 3.8% | ||
Nokia Oyj | 88,800 | 3,419,195 |
Nokian Renkaat Oyj | 176,100 | 6,134,459 |
(Cost $6,635,124) | 9,553,654 | |
Germany 11.7% | ||
Bayer AG | 65,411 | 5,963,817 |
Daimler AG (Registered) | 26,300 | 2,547,479 |
E.ON AG | 23,338 | 4,955,260 |
GEA Group AG* | 68,799 | 2,376,198 |
Gerresheimer AG* | 63,260 | 3,514,444 |
Hamburger Hafen- und Logistik AG* | 7,400 | 659,969 |
Linde AG | 31,300 | 4,122,392 |
Siemens AG (Registered) | 33,100 | 5,196,346 |
(Cost $20,478,356) | 29,335,905 | |
Greece 2.2% | ||
National Bank of Greece SA (Cost $3,466,651) | 81,800 | 5,634,974 |
Hong Kong 3.8% | ||
Esprit Holdings Ltd. | 445,000 | 6,590,867 |
Wharf Holdings Ltd. | 587,000 | 3,029,721 |
(Cost $8,205,195) | 9,620,588 | |
India 2.3% | ||
Bharti Airtel Ltd.* | 202,380 | 5,054,054 |
Suzlon Energy Ltd. | 12,745 | 626,185 |
(Cost $5,425,307) | 5,680,239 | |
Italy 2.1% | ||
UniCredito Italiano SpA (Cost $4,725,250) | 625,200 | 5,203,195 |
Japan 14.3% | ||
Canon, Inc. | 113,400 | 5,181,282 |
Japan Tobacco, Inc. | 1,347 | 7,986,917 |
Komatsu Ltd. | 121,000 | 3,271,601 |
|
| Value ($) |
|
| |
Mitsubishi Corp. | 135,200 | 3,682,724 |
Mitsui Fudosan Co., Ltd. | 107,000 | 2,312,477 |
Nintendo Co., Ltd. | 7,000 | 4,250,034 |
Sumitomo Heavy Industries Ltd. | 374,000 | 3,436,260 |
Suzuki Motor Corp. | 195,000 | 5,864,767 |
(Cost $32,809,671) | 35,986,062 | |
Kazakhstan 1.1% | ||
KazMunaiGas Exploration Production (GDR) 144A (Cost $1,563,746) | 92,700 | 2,873,700 |
Korea 1.6% | ||
Kookmin Bank (Cost $3,941,687) | 55,300 | 4,064,600 |
Mexico 2.2% | ||
Empresas ICA SAB de CV* | 284,500 | 1,876,543 |
Grupo Financiero Banorte SAB de CV "O" | 860,400 | 3,555,340 |
(Cost $5,071,912) | 5,431,883 | |
Norway 1.9% | ||
StatoilHydro ASA (Cost $4,176,184) | 151,400 | 4,681,167 |
Russia 3.7% | ||
Gazprom (ADR) (b) | 72,500 | 4,082,608 |
Gazprom (ADR) (b) | 17,250 | 978,075 |
Novorossiysk Sea Trade Port (GDR) 144A* | 45,300 | 906,000 |
Sberbank* | 778,621 | 3,248,868 |
(Cost $7,796,535) | 9,215,551 | |
Spain 7.6% | ||
Iberdrola Renovables* | 495,100 | 4,089,815 |
Iberdrola SA | 276,912 | 4,191,918 |
Industria de Diseno Textil SA | 40,900 | 2,486,800 |
Telefonica SA | 258,858 | 8,365,568 |
(Cost $16,038,776) | 19,134,101 | |
Switzerland 8.7% | ||
Compagnie Financiere Richemont SA"A" (Unit) | 81,839 | 5,583,416 |
Lonza Group AG (Registered) | 34,055 | 4,096,196 |
Nestle SA (Registered) | 8,399 | 3,848,536 |
Roche Holding AG (Genusschein) | 17,867 | 3,077,615 |
Xstrata PLC | 74,837 | 5,269,750 |
(Cost $16,714,214) | 21,875,513 | |
United Arab Emirates 1.0% | ||
DP World Ltd.* | 634,685 | 755,275 |
Emaar Properties | 413,575 | 1,677,903 |
(Cost $2,206,498) | 2,433,178 | |
United Kingdom 11.2% | ||
3i Group PLC | 270,286 | 5,371,680 |
AMEC PLC | 596,905 | 9,901,240 |
Greene King PLC | 71,674 | 1,132,595 |
Intertek Group PLC | 134,524 | 2,637,468 |
Prudential PLC | 234,314 | 3,293,605 |
Standard Chartered PLC | 113,352 | 4,116,575 |
Whitbread PLC | 57,170 | 1,584,484 |
(Cost $24,107,582) | 28,037,647 | |
Total Common Stocks (Cost $195,617,420) | 233,178,395 | |
|
| Value ($) |
|
| |
Preferred Stocks 2.7% | ||
Germany | ||
Porsche AG (Cost $4,915,857) | 3,394 | 6,839,574 |
| ||
Rights 0.0% | ||
Hong Kong | ||
Wharf Holdings Ltd.* (Cost $0) | 73,375 | 100,689 |
| ||
|
| Value ($) |
|
| |
Securities Lending Collateral 1.8% | ||
Daily Assets Fund Institutional, 5.03% (c) (d) (Cost $4,512,760) | 4,512,760 | 4,512,760 |
| ||
Cash Equivalents 2.9% | ||
Cash Management QP Trust, 4.67% (c) (Cost $7,233,361) | 7,233,361 | 7,233,361 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $212,279,398)+ | 100.3 | 251,864,779 |
Other Assets and Liabilities, Net | (0.3) | (894,976) |
Net Assets | 100.0 | 250,969,803 |
+ The cost for federal income tax purposes was $213,125,813. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $38,738,966. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $45,362,993 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $6,624,027.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $4,266,079 which is 1.7% of net assets.
(b) Securities with the same description are the same corporate entity but trade on different stock exchanges.
(c) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $200,533,277) — including $4,266,079 of securities loaned | $ 240,118,658 |
Investment in Daily Assets Fund Institutional (cost $4,512,760)* | 4,512,760 |
Investment in Cash Management QP Trust (cost $7,233,361) | 7,233,361 |
Total investments, at value (cost $212,279,398) | 251,864,779 |
Cash | 1,540 |
Foreign currency, at value (cost $1,158,802) | 1,147,650 |
Receivable for investments sold | 2,614,217 |
Dividends receivable | 201,807 |
Interest receivable | 34,350 |
Foreign taxes recoverable | 145,176 |
Receivable for Fund shares sold | 40,519 |
Other assets | 5,799 |
Total assets | 256,055,837 |
Liabilities | |
Payable for investments purchased | 51,660 |
Payable for Portfolio shares redeemed | 178,171 |
Payable upon return of securities loaned | 4,512,760 |
Deferred foreign taxes payable | 15,499 |
Accrued management fee | 173,479 |
Other accrued expenses and payables | 154,465 |
Total liabilities | 5,086,034 |
Net assets, at value | $ 250,969,803 |
Net Assets Consist of | |
Undistributed net investment income | 1,838,472 |
Net unrealized appreciation (depreciation) on: Investments (net of deferred foreign taxes of $15,499) | 39,569,882 |
Foreign currency | 16,142 |
Accumulated net realized gain (loss) | 57,738,101 |
Paid-in capital | 151,807,206 |
Net assets, at value | $ 250,969,803 |
Class A Net Asset Value, offering and redemption price per share ($235,725,197 ÷ 14,064,172 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 16.76 |
Class B Net Asset Value, offering and redemption price per share ($15,244,606 ÷ 912,661 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 16.70 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $481,103) | $ 6,112,342 |
Interest | 39,823 |
Interest — Cash Management QP Trust | 209,155 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 221,729 |
Total Income | 6,583,049 |
Expenses: Management fee | 2,007,490 |
Custodian fee | 208,017 |
Distribution service fee (Class B) | 87,237 |
Services to shareholders | 351 |
Record keeping fees (Class B) | 41,675 |
Professional fees | 79,253 |
Trustees' fees and expenses | 26,594 |
Reports to shareholders | 110,069 |
Other | 56,720 |
Total expenses before expense reductions | 2,617,406 |
Expense reductions | (4,657) |
Total expenses after expense reductions | 2,612,749 |
Net investment income (loss) | 3,970,300 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments (net of foreign taxes of $5,992) | 62,632,767 |
Foreign currency | (141,571) |
| 62,491,196 |
Change in net unrealized appreciation (depreciation) on: Investments | (23,085,352) |
Foreign currency | (1,766) |
| (23,087,118) |
Net gain (loss) on investment transactions | 39,404,078 |
Net increase (decrease) in net assets resulting from operations | $ 43,374,378 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, 2007 | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 3,970,300 | $ 4,337,404 |
Net realized gain (loss) | 62,491,196 | 51,728,515 |
Change in net unrealized appreciation (depreciation) | (23,087,118) | 6,810,936 |
Net increase (decrease) in net assets resulting from operations | 43,374,378 | 62,876,855 |
Distributions to shareholders from: Net investment income: Class A | (6,153,181) | (4,319,400) |
Class B | (1,706,211) | (1,106,261) |
Net realized gains: Class A | (21,172,091) | — |
Class B | (6,853,490) | — |
Total distributions | (35,884,973) | (5,425,661) |
Portfolio share transactions: Class A Proceeds from shares sold | 26,016,717 | 19,462,653 |
Reinvestment of distributions | 27,325,272 | 4,319,400 |
Cost of shares redeemed | (48,603,167) | (40,279,711) |
Net increase (decrease) in net assets from Class A share transactions | 4,738,822 | (16,497,658) |
Class B Proceeds from shares sold | 3,741,916 | 6,691,885 |
Reinvestment of distributions | 8,559,701 | 1,106,261 |
Cost of shares redeemed | (69,011,239) | (11,527,517) |
Net increase (decrease) in net assets from Class B share transactions | (56,709,622) | (3,729,371) |
Increase (decrease) in net assets | (44,481,395) | 37,224,165 |
Net assets at beginning of period | 295,451,198 | 258,227,033 |
Net assets at end of period (including undistributed net investment income of $1,838,472 and $1,329,997, respectively) | $ 250,969,803 | $ 295,451,198 |
Other Information |
| |
Class A Shares outstanding at beginning of period | 13,653,834 | 14,778,650 |
Shares sold | 1,594,102 | 1,353,025 |
Shares issued to shareholders in reinvestment of distributions | 1,820,471 | 298,301 |
Shares redeemed | (3,004,235) | (2,776,142) |
Net increase (decrease) in Class A shares | 410,338 | (1,124,816) |
Shares outstanding at end of period | 14,064,172 | 13,653,834 |
Class B Shares outstanding at beginning of period | 4,475,081 | 4,725,198 |
Shares sold | 229,248 | 460,794 |
Shares issued to shareholders in reinvestment of distributions | 570,267 | 76,399 |
Shares redeemed | (4,361,935) | (787,310) |
Net increase (decrease) in Class B shares | (3,562,420) | (250,117) |
Shares outstanding at end of period | 912,661 | 4,475,081 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 16.31 | $ 13.25 | $ 11.91 | $ 10.18 | $ 7.96 |
Income (loss) from investment operations: Net investment incomea | .25 | .24b | .20 | .17 | .10 |
Net realized and unrealized gain (loss) | 2.24 | 3.11 | 1.48 | 1.67 | 2.23 |
Total from investment operations | 2.49 | 3.35 | 1.68 | 1.84 | 2.33 |
Less distributions from: Net investment income | (.46) | (.29) | (.34) | (.11) | (.11) |
Net realized gains | (1.58) | — | — | — | — |
Total distributions | (2.04) | (.29) | (.34) | (.11) | (.11) |
Net asset value, end of period | $ 16.76 | $ 16.31 | $ 13.25 | $ 11.91 | $ 10.18 |
Total Return (%) | 16.71 | 25.56 | 14.51 | 18.25 | 29.83 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 236 | 223 | 196 | 184 | 147 |
Ratio of expenses (%) | .93 | .88 | .87 | .89 | .94 |
Ratio of net investment income (%) | 1.53 | 1.65b | 1.59 | 1.58 | 1.17 |
Portfolio turnover rate (%) | 117 | 122 | 93 | 88 | 139 |
a Based on average shares outstanding during the period. b Net investment income per share and the ratio of net investment income without non-recurring dividend income amounting to $0.20 per share and 1.39% of average daily net assets, respectively. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 16.26 | $ 13.21 | $ 11.88 | $ 10.15 | $ 7.94 |
Income (loss) from investment operations: Net investment incomea | .19 | .19b | .15 | .13 | .06 |
Net realized and unrealized gain (loss) | 2.22 | 3.09 | 1.47 | 1.67 | 2.24 |
Total from investment operations | 2.41 | 3.28 | 1.62 | 1.80 | 2.30 |
Less distributions from: Net investment income | (.39) | (.23) | (.29) | (.07) | (.09) |
Net realized gains | (1.58) | — | — | — | — |
Total distributions | (1.97) | (.23) | (.29) | (.07) | (.09) |
Net asset value, end of period | $ 16.70 | $ 16.26 | $ 13.21 | $ 11.88 | $ 10.15 |
Total Return (%) | 16.20 | 25.06 | 14.00 | 17.84 | 29.42 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 15 | 73 | 62 | 47 | 18 |
Ratio of expenses (%) | 1.30 | 1.26 | 1.26 | 1.28 | 1.33 |
Ratio of net investment income (%) | 1.16 | 1.27b | 1.20 | 1.19 | .78 |
Portfolio turnover rate (%) | 117 | 122 | 93 | 88 | 139 |
a Based on average shares outstanding during the period. b Net investment income per share and the ratio of net investment income without non-recurring dividend income amounting to $0.15 per share and 1.01% of average daily net assets, respectively. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .85% and 1.24% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the year ended December 31, 2007.
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 the 3-year, 5-year and Life of Class periods for Class B shares reflect a 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 12/31/2007 | ||
[] 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 reinvestment dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Janus Growth & Income VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,659 | $12,958 | $17,971 | $13,127 |
Average annual total return | 6.59% | 9.02% | 12.44% | 3.39% | |
Russell 1000 Growth Index | Growth of $10,000 | $11,181 | $12,838 | $17,706 | $9,172 |
Average annual total return | 11.81% | 8.68% | 12.11% | -1.05% | |
DWS Janus Growth & Income VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $10,622 | $12,813 | $17,642 | $15,891 |
Average annual total return | 6.22% | 8.61% | 12.02% | 8.79% | |
Russell 1000 Growth Index | Growth of $10,000 | $11,181 | $12,838 | $17,706 | $16,118 |
Average annual total return | 11.81% | 8.68% | 12.11% | 9.07% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations October 29, 1999. Index returns began on 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 began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,008.00 |
| $ 1,005.60 |
|
Expenses Paid per $1,000* | $ 4.56 |
| $ 6.72 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,020.67 |
| $ 1,018.50 |
|
Expenses Paid per $1,000* | $ 4.58 |
| $ 6.77 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Janus Growth & Income VIP | .90% |
| 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, 2007
DWS Janus Growth & Income VIP
For the 12 months ended December 31, 2007, the Portfolio's Class A shares (unadjusted for contract charges) returned 6.59%, while its benchmark, the Russell 1000® Growth Index, returned 11.81%.
Holdings within the financials and technology sectors were the main laggards during the period. Select materials holdings, as well as an underweight to the group as a whole, further pressured relative results.1
In terms of positive contributors, select energy holdings coupled with a significant overweight to the sector drove performance during the period. Certain industrials holdings also aided returns.
E*TRADE Financial Corp. was the largest detractor from performance. We initiated a position in E*TRADE due to its growth prospects in the on-line brokerage industry. However, the company recently disclosed greater-than-expected losses in its mortgage portfolio, stemming from the recent subprime credit meltdown. We sold the position. The Portfolio's holding in Advanced Micro Devices (AMD) was another detractor. The company was forced to pare back its ambitious plan to gain market share when it became evident that rival Intel would successfully defend its market position through its balance sheet and manufacturing capacity. Intel proved better prepared to weather margin pressure from the ensuing price war, resulting in a setback for AMD. As such we chose to exit the position.
Suntech Power Holdings Co. was one of the top contributors to performance for the year. The company, which manufactures photovoltaic (PV) cells and modules for electricity generation, has been experiencing rapid sales growth as solar power becomes an attractive alternative energy source. We believe that Suntech should continue to benefit from its scale and price advantage as the industry expands. Hess Corp. also made a positive contribution to performance for the year. The company benefited from the rising price of oil during 2007 and increased appreciation for the future production potential from Hess' new projects, including deep water projects in the Gulf of Mexico and off the coast of Brazil. We believe that Hess remains undervalued given the potential reserves in these projects.
In closing, effective November 7, 2007, there was a change in management for the DWS Janus Growth & Income Portfolio. Under the new leadership, the Portfolio will continue to employ the same investment processes and leverage the same in-depth, fundamental analysis and company-by-company approach to portfolio construction that are hallmarks of Janus' research process.
Marc Pinto, CFA
Portfolio Manager
Janus Capital Management LLC, Subadvisor to the Portfolio
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 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 "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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Janus Growth & Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 95% | 98% |
Participatory Notes | 2% | — |
Cash Equivalents | 1% | 2% |
Equity Linked Structured Notes | 1% | — |
Preferred Stocks | 1% | — |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Information Technology | 25% | 25% |
Energy | 16% | 18% |
Consumer Staples | 14% | 8% |
Consumer Discretionary | 14% | 17% |
Health Care | 11% | 11% |
Financials | 10% | 12% |
Industrials | 8% | 9% |
Materials | 2% | — |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 165. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Janus Growth & Income VIP
|
| Value ($) |
|
| |
Common Stocks 94.9% | ||
Consumer Discretionary 13.1% | ||
Hotels Restaurants & Leisure 2.4% | ||
Melco PBL Entertainment (Macau) Ltd. (ADR)* | 248,720 | 2,875,203 |
Starwood Hotels & Resorts Worldwide, Inc. | 29,880 | 1,315,617 |
| 4,190,820 | |
Household Durables 0.4% | ||
Sony Corp. (ADR) | 12,465 | 676,849 |
Internet & Catalog Retail 0.3% | ||
Liberty Media Corp. — Interactive "A"* (a) | 25,095 | 478,813 |
Media 4.8% | ||
British Sky Broadcasting Group PLC | 292,006 | 3,579,515 |
Comcast Corp. "A"* | 22,770 | 415,780 |
Lamar Advertising Co. "A" (a) | 32,140 | 1,544,970 |
Marvel Entertainment, Inc.* (a) | 58,302 | 1,557,246 |
News Corp. "B" (a) | 54,275 | 1,153,344 |
| 8,250,855 | |
Multiline Retail 1.4% | ||
Nordstrom, Inc. (a) | 67,155 | 2,466,603 |
Specialty Retail 3.3% | ||
Best Buy Co., Inc. (a) | 22,315 | 1,174,885 |
Esprit Holdings Ltd. | 87,180 | 1,291,217 |
PETsMART, Inc. (a) | 48,210 | 1,134,381 |
Tiffany & Co. (a) | 47,195 | 2,172,386 |
| 5,772,869 | |
Textiles, Apparel & Luxury Goods 0.5% | ||
NIKE, Inc. "B" | 12,450 | 799,788 |
Consumer Staples 13.9% | ||
Beverages 1.6% | ||
InBev NV | 24,880 | 2,052,553 |
The Coca-Cola Co. | 12,465 | 764,977 |
| 2,817,530 | |
Food & Staples Retailing 2.9% | ||
CVS Caremark Corp. | 127,510 | 5,068,523 |
Food Products 3.4% | ||
Archer-Daniels-Midland Co. | 14,515 | 673,931 |
Nestle SA (ADR) (Registered) | 19,905 | 2,283,601 |
Nestle SA (Registered) | 4,950 | 2,268,158 |
TreeHouse Foods, Inc.* (a) | 31,295 | 719,472 |
| 5,945,162 | |
Household Products 3.1% | ||
Procter & Gamble Co. | 52,960 | 3,888,323 |
Reckitt Benckiser Group PLC | 25,098 | 1,449,884 |
| 5,338,207 | |
Personal Products 0.9% | ||
Avon Products, Inc. | 37,425 | 1,479,410 |
Tobacco 2.0% | ||
Altria Group, Inc. | 46,045 | 3,480,081 |
|
| Value ($) |
|
| |
Energy 14.9% | ||
Energy Equipment & Services 1.1% | ||
Halliburton Co. | 49,380 | 1,871,996 |
Oil, Gas & Consumable Fuels 13.8% | ||
EnCana Corp. | 69,328 | 4,711,531 |
EOG Resources, Inc. (a) | 15,520 | 1,385,160 |
ExxonMobil Corp. | 47,945 | 4,491,967 |
Hess Corp. | 62,544 | 6,308,188 |
Suncor Energy, Inc. | 38,033 | 4,158,408 |
Valero Energy Corp. | 42,390 | 2,968,572 |
| 24,023,826 | |
Financials 9.3% | ||
Capital Markets 2.6% | ||
Goldman Sachs Group, Inc. | 21,170 | 4,552,608 |
Consumer Finance 2.2% | ||
American Express Co. | 74,850 | 3,893,697 |
Diversified Financial Services 1.9% | ||
JPMorgan Chase & Co. | 74,595 | 3,256,072 |
Real Estate Management & Development 0.5% | ||
Hang Lung Properties Ltd. | 184,725 | 847,049 |
Thrifts & Mortgage Finance 2.1% | ||
Fannie Mae | 90,215 | 3,606,796 |
Health Care 10.3% | ||
Biotechnology 1.5% | ||
Celgene Corp.* (a) | 12,505 | 577,856 |
Genentech, Inc.* | 31,535 | 2,115,052 |
| 2,692,908 | |
Health Care Equipment & Supplies 2.7% | ||
Alcon, Inc. | 12,530 | 1,792,291 |
Align Technology, Inc.* (a) | 41,870 | 698,392 |
Medtronic, Inc. | 23,660 | 1,189,388 |
Nobel Biocare Holding AG (Bearer) | 3,745 | 990,693 |
| 4,670,764 | |
Health Care Providers & Services 2.3% | ||
Coventry Health Care, Inc.* (a) | 38,370 | 2,273,422 |
Pediatrix Medical Group, Inc.* | 24,040 | 1,638,326 |
| 3,911,748 | |
Pharmaceuticals 3.8% | ||
Merck & Co., Inc. | 50,325 | 2,924,386 |
Roche Holding AG (Genusschein) | 16,941 | 2,918,110 |
Wyeth | 18,835 | 832,319 |
| 6,674,815 | |
Industrials 7.3% | ||
Aerospace & Defense 2.7% | ||
BAE Systems PLC (ADR) (a) | 30,000 | 1,185,750 |
Boeing Co. | 21,700 | 1,897,882 |
Empresa Brasiliera de Aeronautica SA (ADR) | 35,993 | 1,640,921 |
| 4,724,553 | |
Air Freight & Logistics 0.5% | ||
United Parcel Service, Inc. "B" | 11,695 | 827,070 |
|
| Value ($) |
|
| |
Electrical Equipment 1.2% | ||
JA Solar Holdings Co., Ltd. (ADR)* | 4,700 | 328,107 |
Suntech Power Holdings Co., Ltd. (ADR)* (a) | 22,237 | 1,830,550 |
| 2,158,657 | |
Industrial Conglomerates 2.0% | ||
General Electric Co. | 91,800 | 3,403,026 |
Machinery 0.9% | ||
Caterpillar, Inc. (a) | 12,525 | 908,814 |
Watts Water Technologies, Inc. "A" (a) | 18,880 | 562,624 |
| 1,471,438 | |
Information Technology 23.5% | ||
Communications Equipment 3.5% | ||
Corning, Inc. | 64,485 | 1,546,995 |
Nokia Oyj (ADR) | 78,398 | 3,009,699 |
QUALCOMM, Inc. | 39,185 | 1,541,930 |
| 6,098,624 | |
Computers & Peripherals 3.2% | ||
Dell, Inc.* | 74,615 | 1,828,814 |
EMC Corp.* | 206,440 | 3,825,333 |
| 5,654,147 | |
Internet Software & Services 6.1% | ||
eBay, Inc.* | 69,925 | 2,320,811 |
Google, Inc. "A"* | 7,884 | 5,451,628 |
Yahoo!, Inc.* | 118,255 | 2,750,611 |
| 10,523,050 | |
IT Services 2.1% | ||
Infosys Technologies Ltd. (ADR) (a) | 27,424 | 1,243,953 |
Satyam Computer Services Ltd. (ADR) (a) | 27,424 | 732,769 |
Western Union Co. | 67,775 | 1,645,577 |
| 3,622,299 | |
Semiconductors & Semiconductor Equipment 6.3% | ||
ASML Holding NV (NY Registered Shares)* (a) | 57,272 | 1,792,041 |
KLA-Tencor Corp. (a) | 32,210 | 1,551,234 |
Samsung Electronics Co., Ltd. (GDR) 144A | 9,834 | 2,878,903 |
SiRF Technology Holdings, Inc.* (a) | 71,055 | 1,785,612 |
Spansion, Inc. "A"* (a) | 74,575 | 293,080 |
Texas Instruments, Inc. | 78,495 | 2,621,733 |
| 10,922,603 | |
Software 2.3% | ||
Electronic Arts, Inc.* | 33,635 | 1,964,620 |
Oracle Corp.* | 87,180 | 1,968,525 |
| 3,933,145 | |
Materials 1.5% | ||
Chemicals 1.0% | ||
Syngenta AG (ADR) (a) | 33,680 | 1,706,229 |
Paper & Forest Products 0.5% | ||
Weyerhaeuser Co. | 11,845 | 873,450 |
|
| Value ($) |
|
| |
Telecommunication Services 0.3% | ||
Wireless Telecommunication Services | ||
American Tower Corp. "A"* | 13,855 | 590,223 |
Utilities 0.8% | ||
Water Utilities | ||
American States Water Co. (a) | 13,450 | 506,796 |
Aqua America, Inc. (a) | 25,600 | 542,720 |
California Water Service Group (a) | 10,110 | 374,272 |
| 1,423,788 | |
Total Common Stocks (Cost $130,574,574) | 164,700,091 | |
| ||
Participatory Notes 1.5% | ||
Apple, Inc. (Issuer Merrill Lynch International & Co.), Expiration Date 3/20/2008 (Cost $2,274,800) | 15,824 | 2,631,056 |
| ||
Preferred Stocks 0.7% | ||
Fannie Mae, 8.25% | 25,055 | 645,166 |
Freddie Mac, Series Z, 8.375% | 19,750 | 516,463 |
Total Preferred Stocks (Cost $1,138,939) | 1,161,629 | |
| ||
Equity Linked Structured Notes 1.0% | ||
Financials | ||
Capital Markets | ||
Lehman Brothers Holdings, Inc., Convertible (Corning, Inc.) 144A, 10.55% | 62,039 | 1,492,038 |
UBS AG Jersey, Convertible (Celgene Corp., E*Trade Financial Corp., and Marvell Technology Group Ltd.) Series 4934, 144A, 37.0% | 1,683 | 306,609 |
Total Equity Linked Structured Notes (Cost $3,215,363) | 1,798,647 | |
| ||
Securities Lending Collateral 11.9% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $20,744,793) | 20,744,793 | 20,744,793 |
| ||
Cash Equivalents 1.5% | ||
Cash Management QP Trust, 4.67% (b) (Cost $2,526,845) | 2,526,845 | 2,526,845 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $160,475,314)+ | 111.5 | 193,563,061 |
Other Assets and Liabilities, Net | (11.5) | (20,015,170) |
Net Assets | 100.0 | 173,547,891 |
+ The cost for federal income tax purposes was $160,972,495. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $32,590,566. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $39,378,352 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $6,787,786.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $20,160,014 which is 11.6% of net assets.
(b) Affiliated Fund is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR: American Depositary Receipt
GDR: Global Depositary Receipt
At December 31, 2007, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation ($) | ||
CHF | 1,355,000 | | USD | 1,238,121 | | 5/2/2008 | | 33,567 |
EUR | 915,000 | | USD | 1,358,592 | | 5/2/2008 | | 20,064 |
Total unrealized appreciation | 53,631 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Depreciation ($) | ||
CHF | 925,000 | | USD | 777,520 | | 2/15/2008 | | (41,796) |
EUR | 200,000 | | USD | 284,195 | | 5/14/2008 | | (8,362) |
Total unrealized depreciation | (50,158) |
Currency Abbreviations |
CHF Swiss Franc EUR Euro USD United States Dollar |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $137,203,676) — including $20,160,014 of securities loaned | $ 170,291,423 |
Investments in Daily Asset Fund Institutional, (cost $20,744,793)* | 20,744,793 |
Investment in Cash Management QP Trust (cost $2,526,845) | 2,526,845 |
Total investments, at value (cost $160,475,314) | 193,563,061 |
Cash | 22,479 |
Foreign currency, at value (cost $274,991) | 275,106 |
Receivable for investments sold | 586,207 |
Dividends receivable | 152,698 |
Interest receivable | 24,821 |
Foreign taxes recoverable | 775 |
Unrealized appreciation on forward foreign currency exchange contracts | 53,631 |
Other assets | 4,679 |
Total assets | 194,683,457 |
Liabilities | |
Payable upon return of securities loaned | 20,744,793 |
Payable for Portfolio shares redeemed | 116,424 |
Unrealized depreciation on forward foreign currency exchange contracts | 50,158 |
Accrued management fee | 104,922 |
Other accrued expenses and payables | 119,269 |
Total liabilities | 21,135,566 |
Net assets, at value | $ 173,547,891 |
Net Assets Consist of | |
Undistributed net investment income | 1,499,729 |
Net unrealized appreciation (depreciation) on: Investments | 33,087,747 |
Foreign currency | 3,649 |
Accumulated net realized gain (loss) | 10,567,574 |
Paid-in capital | 128,389,192 |
Net assets, at value | $ 173,547,891 |
Class A Net Asset Value, offering and redemption price per share ($168,623,371 ÷ 13,362,156 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.62 |
Class B Net Asset Value, offering and redemption price per share ($4,924,520 ÷ 392,971 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.53 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $72,457) | $ 3,312,775 |
Interest — Cash Management QP Trust | 126,341 |
Interest (net of foreign taxes withheld of $25) | 68,679 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 104,628 |
Total Income | 3,612,423 |
Expenses: Management fee | 1,474,026 |
Services to shareholders | 334 |
Custodian and accounting fees | 108,430 |
Distribution service fee (Class B) | 34,879 |
Record keeping fees (Class B) | 18,352 |
Professional fees | 66,912 |
Trustees' fees and expenses | 28,670 |
Reports to shareholders | 68,708 |
Other | 34,043 |
Total expenses before expense reductions | 1,834,354 |
Expense reductions | (5,212) |
Total expenses after expense reductions | 1,829,142 |
Net investment income (loss) | 1,783,281 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 26,483,132 |
Foreign currency | (324,614) |
| 26,158,518 |
Change in net unrealized appreciation (depreciation) on: Investments | (14,727,191) |
Foreign currency | 75,032 |
| (14,652,159) |
Net gain (loss) | 11,506,359 |
Net increase (decrease) in net assets resulting from operations | $ 13,289,640 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 1,783,281 | $ 1,426,682 |
Net realized gain (loss) | 26,158,518 | 26,044,260 |
Change in net unrealized appreciation (depreciation) | (14,652,159) | (9,385,310) |
Net increase (decrease) in net assets resulting from operations | 13,289,640 | 18,085,632 |
Distributions to shareholders from: Net investment income: Class A | (1,085,636) | (1,244,972) |
Class B | (60,241) | (74,570) |
Total distributions | (1,145,877) | (1,319,542) |
Portfolio share transactions: Class A Proceeds from shares sold | 3,234,514 | 11,754,230 |
Reinvestment of distributions | 1,085,636 | 1,244,972 |
Cost of shares redeemed | (39,897,035) | (28,913,722) |
Net increase (decrease) in net assets from Class A share transactions | (35,576,885) | (15,914,520) |
Class B Proceeds from shares sold | 923,888 | 2,861,992 |
Reinvestment of distributions | 60,241 | 74,570 |
Cost of shares redeemed | (29,091,879) | (6,002,097) |
Net increase (decrease) in net assets from Class B share transactions | (28,107,750) | (3,065,535) |
Increase (decrease) in net assets | (51,540,872) | (2,213,965) |
Net assets at beginning of period | 225,088,763 | 227,302,728 |
Net assets at end of period (including undistributed net investment income of $1,499,729 and $1,186,939, respectively) | $ 173,547,891 | $ 225,088,763 |
Other Information | ||
Class A Shares outstanding at beginning of period | 16,236,105 | 17,645,394 |
Shares sold | 261,428 | 1,022,138 |
Shares issued to shareholders in reinvestment of distributions | 92,159 | 107,325 |
Shares redeemed | (3,227,536) | (2,538,752) |
Net increase (decrease) in Class A shares | (2,873,949) | (1,409,289) |
Shares outstanding at end of period | 13,362,156 | 16,236,105 |
Class B Shares outstanding at beginning of period | 2,676,871 | 2,946,169 |
Shares sold | 77,171 | 250,333 |
Shares issued to shareholders in reinvestment of distributions | 5,135 | 6,456 |
Shares redeemed | (2,366,206) | (526,087) |
Net increase (decrease) in Class B shares | (2,283,900) | (269,298) |
Shares outstanding at end of period | 392,971 | 2,676,871 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.91 | $ 11.05 | $ 9.88 | $ 8.86 | $ 7.18 |
Income (loss) from investment operations: Net investment income (loss)a | .12 | .07 | .05 | .03 | .03 |
Net realized and unrealized gain (loss) | .66 | .86 | 1.14 | .99 | 1.71 |
Total from investment operations | .78 | .93 | 1.19 | 1.02 | 1.74 |
Less distributions from: Net investment income | (.07) | (.07) | (.02) | — | (.06) |
Net asset value, end of period | $ 12.62 | $ 11.91 | $ 11.05 | $ 9.88 | $ 8.86 |
Total Return (%) | 6.59 | 8.43 | 12.11 | 11.51 | 24.37 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 169 | 193 | 195 | 187 | 189 |
Ratio of expenses (%) | .90 | .85 | .92 | 1.06 | 1.07 |
Ratio of net investment income (loss) (%) | .93 | .68 | .45 | .34 | .40 |
Portfolio turnover rate (%) | 73 | 44 | 32 | 52 | 46 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.82 | $ 10.97 | $ 9.82 | $ 8.84 | $ 7.17 |
Income (loss) from investment operations: Net investment income (loss)a | .07 | .03 | .01 | (.01) | .00* |
Net realized and unrealized gain (loss) | .66 | .85 | 1.14 | .99 | 1.71 |
Total from investment operations | .73 | .88 | 1.15 | .98 | 1.71 |
Less distributions from: Net investment income | (.02) | (.03) | — | — | (.04) |
Net asset value, end of period | $ 12.53 | $ 11.82 | $ 10.97 | $ 9.82 | $ 8.84 |
Total Return (%) | 6.22 | 7.98 | 11.71b | 11.09 | 23.94 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 5 | 32 | 32 | 27 | 15 |
Ratio of expenses before expense reductions (%) | 1.29 | 1.24 | 1.32 | 1.44 | 1.47 |
Ratio of expenses after expense reductions (%) | 1.29 | 1.24 | 1.30 | 1.44 | 1.47 |
Ratio of net investment income (loss) (%) | .55 | .29 | .07 | (.04) | (.01) |
Portfolio turnover rate (%) | 73 | 44 | 32 | 52 | 46 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005 per share. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual Portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .82% and 1.20% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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 | ||
[] 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 reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Large Cap Value VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $11,315 | $13,315 | $19,433 | $20,928 |
Average annual total return | 13.15% | 10.01% | 14.21% | 7.66% | |
Russell 1000 Value Index | Growth of $10,000 | $9,983 | $13,064 | $19,789 | $20,965 |
Average annual total return | -.17% | 9.32% | 14.63% | 7.68% | |
DWS Large Cap Value VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $11,277 | $13,168 | $19,086 | $16,784 |
Average annual total return | 12.77% | 9.61% | 13.80% | 9.87% | |
Russell 1000 Value Index | Growth of $10,000 | $9,983 | $13,064 | $19,789 | $17,556 |
Average annual total return | -.17% | 9.32% | 14.63% | 10.77% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses, had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,060.20 |
| $ 1,058.40 |
|
Expenses Paid per $1,000* | $ 4.26 |
| $ 6.28 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.07 |
| $ 1,019.11 |
|
Expenses Paid per $1,000* | $ 4.18 |
| $ 6.16 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Large Cap Value VIP | .82% |
| 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, 2007
DWS Large Cap Value VIP
Despite a variety of concerns, equity markets in the US were generally positive in 2007, despite considerable volatility. Most world markets were stronger than the US market, particularly Asian markets other than Japan.
For the full year, the Russell 3000® Index, which is generally regarded as a good indicator of the broad US stock market, returned 5.14%. Growth stocks, as measured by the Russell 1000® Growth Index, performed significantly better than value stocks, as measured by the Russell 1000® Value Index. With a return of 13.15% (Class A shares, unadjusted for contract charges), the Portfolio significantly outperformed its benchmark, the Russell 1000 Value Index, which had a return of -0.17%.
In February 2007 a new management team assumed responsibility for the Portfolio. In restructuring the Portfolio, we had three major objectives: to increase diversification by adding to the number of holdings; to increase the position in mid-cap stocks, with a corresponding reduction in the emphasis on the largest capitalization companies; and to increase the representation of companies based outside the US.
The largest contribution to performance relative to the benchmark was made by an underweight and stock selection in the financials sector, where the emphasis was on insurance and the worst-performing stocks were not held in the Portfolio.1 Other major positives were in energy, where Noble Energy, Inc. and Suncor Energy, Inc. were particularly strong, and information technology, where Nokia Corp.* performed very well.
Performance relative to the benchmark was hurt by stock selection in consumer staples, where an overweight in Kraft Foods, Inc. and underweights in some of the best-performing stocks in the benchmark detracted from the Portfolio's performance relative to the benchmark.
Thomas Schuessler, PhD
Portfolio Manager
Deutsche Asset Management International GmbH, Subadvisor to the Portfolio
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.
The Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Russell 1000 Growth Index is an unmanaged, capitalization-weighted index consisting of those stocks in the Russell 1000 Index that have greater-than-average growth orientation.
The Russell 1000 Value Index is an unmanaged, capitalization-weighted index which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted-growth values.
Index returns assume the reinvestment of all dividends and, unlike portfolio returns, do not include 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.* As of December 31, 2007, the position was not held.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Large Cap Value VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 100% | 96% |
Cash Equivalents | — | 4% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Energy | 26% | 19% |
Financials | 20% | 33% |
Utilities | 13% | 1% |
Consumer Staples | 9% | 5% |
Health Care | 8% | 8% |
Industrials | 6% | 9% |
Information Technology | 6% | 10% |
Materials | 4% | 4% |
Consumer Discretionary | 4% | 7% |
Telecommunication Services | 4% | 4% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 176. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Large Cap Value VIP
| Shares | Value ($) |
|
| |
Common Stocks 92.8% | ||
Consumer Discretionary 3.9% | ||
Hotels Restaurants & Leisure 1.3% | ||
McDonald's Corp. | 53,653 | 3,160,698 |
Household Durables 0.8% | ||
Centex Corp. | 74,714 | 1,887,276 |
Media 1.3% | ||
Gannett Co., Inc. | 80,897 | 3,154,983 |
Specialty Retail 0.5% | ||
Office Depot, Inc.* | 80,807 | 1,124,025 |
Consumer Staples 7.9% | ||
Food & Staples Retailing 1.9% | ||
CVS Caremark Corp. | 113,825 | 4,524,544 |
Food Products 2.8% | ||
General Mills, Inc. | 62,223 | 3,546,711 |
Kraft Foods, Inc. "A" | 95,488 | 3,115,773 |
6,662,484 | ||
Tobacco 3.2% | ||
Altria Group, Inc. | 62,603 | 4,731,535 |
Reynolds American, Inc. (a) | 43,013 | 2,837,137 |
7,568,672 | ||
Energy 24.2% | ||
Energy Equipment & Services 5.7% | ||
Baker Hughes, Inc. | 28,112 | 2,279,883 |
ENSCO International, Inc. | 45,664 | 2,722,488 |
Halliburton Co. | 129,244 | 4,899,640 |
Noble Corp. | 61,968 | 3,501,812 |
13,403,823 | ||
Oil, Gas & Consumable Fuels 18.5% | ||
Cameco Corp. | 78,623 | 3,129,981 |
Chevron Corp. | 26,836 | 2,504,604 |
ConocoPhillips | 46,711 | 4,124,581 |
Devon Energy Corp. | 53,146 | 4,725,211 |
ExxonMobil Corp. | 51,955 | 4,867,664 |
Hess Corp. | 30,084 | 3,034,272 |
Marathon Oil Corp. | 69,607 | 4,236,282 |
Nexen, Inc. | 86,869 | 2,803,263 |
Noble Energy, Inc. | 68,073 | 5,413,165 |
Occidental Petroleum Corp. | 44,313 | 3,411,658 |
Suncor Energy, Inc. | 52,886 | 5,750,295 |
44,000,976 | ||
Financials 18.5% | ||
Capital Markets 3.0% | ||
Bank of New York Mellon Corp. | 90,973 | 4,435,844 |
Lehman Brothers Holdings, Inc. | 40,148 | 2,627,285 |
7,063,129 | ||
Commercial Banks 1.4% | ||
Comerica, Inc. | 28,805 | 1,253,881 |
Zions Bancorp. | 43,314 | 2,022,331 |
3,276,212 | ||
Diversified Financial Services 2.6% | ||
CIT Group, Inc. | 39,978 | 960,671 |
Citigroup, Inc. | 80,653 | 2,374,424 |
| Shares | Value ($) |
|
| |
JPMorgan Chase & Co. | 68,141 | 2,974,355 |
6,309,450 | ||
Insurance 11.0% | ||
Aflac, Inc. | 61,122 | 3,828,071 |
Allstate Corp. | 84,234 | 4,399,542 |
Genworth Financial, Inc. "A" | 164,151 | 4,177,643 |
Hartford Financial Services Group, Inc. | 37,732 | 3,289,853 |
Loews Corp. | 86,654 | 4,362,163 |
MetLife, Inc. | 38,813 | 2,391,657 |
Prudential Financial, Inc. | 40,530 | 3,770,911 |
26,219,840 | ||
Thrifts & Mortgage Finance 0.5% | ||
Washington Mutual, Inc. (a) | 80,215 | 1,091,726 |
Health Care 7.7% | ||
Biotechnology 0.9% | ||
Amgen, Inc.* | 45,578 | 2,116,642 |
Health Care Equipment & Supplies 1.9% | ||
Baxter International, Inc. | 77,188 | 4,480,763 |
Life Sciences Tools & Services 1.2% | ||
Thermo Fisher Scientific, Inc.* | 48,244 | 2,782,714 |
Pharmaceuticals 3.7% | ||
Abbott Laboratories | 43,780 | 2,458,247 |
Merck & Co., Inc. | 62,821 | 3,650,528 |
Wyeth | 60,929 | 2,692,453 |
8,801,228 | ||
Industrials 5.5% | ||
Aerospace & Defense 4.2% | ||
Honeywell International, Inc. | 67,605 | 4,162,440 |
Raytheon Co. | 43,936 | 2,666,915 |
United Technologies Corp. | 41,099 | 3,145,717 |
9,975,072 | ||
Machinery 1.3% | ||
Dover Corp. | 65,174 | 3,003,870 |
Information Technology 5.1% | ||
Computers & Peripherals 2.3% | ||
Brocade Communications Systems, Inc.* | 397,301 | 2,916,189 |
Hewlett-Packard Co. | 51,054 | 2,577,206 |
5,493,395 | ||
Semiconductors & Semiconductor Equipment 1.3% | ||
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) (a) | 305,564 | 3,043,418 |
Software 1.5% | ||
Microsoft Corp. | 103,674 | 3,690,794 |
Materials 4.0% | ||
Chemicals 2.8% | ||
Air Products & Chemicals, Inc. | 41,506 | 4,093,737 |
Dow Chemical Co. | 61,954 | 2,442,227 |
6,535,964 | ||
Containers & Packaging 1.2% | ||
Sonoco Products Co. | 88,183 | 2,881,820 |
| Shares | Value ($) |
|
| |
Telecommunication Services 3.7% | ||
Diversified Telecommunication Services | ||
AT&T, Inc. | 145,047 | 6,028,153 |
Verizon Communications, Inc. | 61,208 | 2,674,178 |
8,702,331 | ||
Utilities 12.3% | ||
Electric Utilities 9.0% | ||
Allegheny Energy, Inc. | 71,470 | 4,546,207 |
Duke Energy Corp. | 155,866 | 3,143,817 |
Exelon Corp. | 67,303 | 5,494,617 |
FirstEnergy Corp. | 56,273 | 4,070,789 |
FPL Group, Inc. | 60,863 | 4,125,294 |
21,380,724 | ||
Multi-Utilities 3.3% | ||
Dominion Resources, Inc. | 65,240 | 3,095,638 |
| Shares | Value ($) |
|
| |
PG&E Corp. | 109,628 | 4,723,871 |
7,819,509 | ||
Total Common Stocks (Cost $186,453,756) | 220,156,082 | |
| ||
Securities Lending Collateral 0.9% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $2,063,750) | 2,063,750 | 2,063,750 |
| ||
Cash Equivalents 0.3% | ||
Cash Management QP Trust, 4.67%(b) (Cost $741,747) | 741,747 | 741,747 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $189,259,253)+ | 94.0 | 222,961,579 |
Other Assets and Liabilities, Net | 6.0 | 14,316,940 |
Net Assets | 100.0 | 237,278,519 |
+ The cost for federal income tax purposes was $191,282,952. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $31,678,627. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $38,384,484 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $6,705,857.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $2,037,940 which is 0.9% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $186,453,756) — including $2,037,940 of securities loaned | $ 220,156,082 |
Investment in Daily Asset Fund Institutional (cost $2,063,750)* | 2,063,750 |
Investment in Cash Management QP Trust (cost $741,747) | 741,747 |
Total investments, at value (cost $189,259,253) | 222,961,579 |
Receivable for investments sold | 20,571,799 |
Dividends receivable | 388,691 |
Interest receivable | 91,388 |
Receivable for Portfolio shares sold | 13,891 |
Other assets | 4,029 |
Total assets | 244,031,377 |
Liabilities | |
Cash overdraft | 1,574,007 |
Payable upon return of securities loaned | 2,063,750 |
Payable for Portfolio shares redeemed | 254,142 |
Payable for investments purchased | 2,545,237 |
Accrued management fee | 138,559 |
Other accrued expenses and payables | 177,163 |
Total liabilities | 6,752,858 |
Net assets, at value | $ 237,278,519 |
Net Assets Consist of | |
Undistributed net investment income | 3,977,565 |
Net unrealized appreciation (depreciation) on: Investments | 33,702,326 |
Foreign currency | 64 |
Accumulated net realized gain (loss) | 50,505,433 |
Paid-in capital | 149,093,131 |
Net assets, at value | $ 237,278,519 |
Class A Net Asset Value, offering and redemption price per share ($229,353,363 ÷ 11,941,625 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.21 |
Class B Net Asset Value, offering and redemption price per share ($7,925,156 ÷ 412,771 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 19.20 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $44,178) | $ 5,935,930 |
Interest — Cash Management QP Trust | 534,825 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 11,936 |
Total Income | 6,482,691 |
Expenses: Management fee | 1,950,386 |
Administration fee | 197,410 |
Services to shareholders | 802 |
Custodian fee | 30,823 |
Professional fees | 76,816 |
Distribution service fee (Class B) | 46,834 |
Record keeping fees (Class B) | 24,065 |
Trustees' fees and expenses | 34,182 |
Reports to shareholders | 70,666 |
Other | 13,124 |
Total expenses before expense reductions | 2,445,108 |
Expense reductions | (18,061) |
Total expenses after expense reductions | 2,427,047 |
Net investment income (loss) | 4,055,644 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: | |
Investments | 52,279,003 |
Foreign currency | 3 |
Payments by affiliates (see Note I) | 92,456 |
| 52,371,462 |
Change in net unrealized appreciation (depreciation) on: Investments | (20,593,364) |
Foreign currency | 64 |
| (20,593,300) |
Net gain (loss) | 31,778,162 |
Net increase (decrease) in net assets resulting from operations | $ 35,833,806 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 4,055,644 | $ 5,237,807 |
Net realized gain (loss) | 52,371,462 | 25,014,587 |
Change in net unrealized appreciation (depreciation) | (20,593,300) | 14,129,866 |
Net increase (decrease) in net assets resulting from operations | 35,833,806 | 44,382,260 |
Distributions to shareholders from: Net investment income: Class A | (4,770,707) | (4,273,682) |
Class B | (538,814) | (482,902) |
Net realized gains: Class A | (9,924,139) | — |
Class B | (1,431,558) | — |
Total Distributions | $ (16,665,218) | $ (4,756,584) |
Portfolio share transactions: Class A Proceeds from shares sold | 14,988,182 | 20,402,810 |
Reinvestment of distributions | 14,694,846 | 4,273,682 |
Cost of shares redeemed | (93,544,614) | (52,316,305) |
Net increase (decrease) in net assets from Class A share transactions | (63,861,586) | (27,639,813) |
Class B Proceeds from shares sold | 699,209 | 1,368,796 |
Reinvestment of distributions | 1,970,372 | 482,902 |
Cost of shares redeemed | (35,609,682) | (7,365,382) |
Net increase (decrease) in net assets from Class B share transactions | (32,940,101) | (5,513,684) |
Increase (decrease) in net assets | (77,633,099) | 6,472,179 |
Net assets at beginning of period | 314,911,618 | 308,439,439 |
Net assets at end of period (including undistributed net investment income of $3,977,565 and $5,231,439, respectively) | $ 237,278,519 | $ 314,911,618 |
Other Information | ||
Class A Shares outstanding at beginning of period | 15,303,964 | 16,949,748 |
Shares sold | 804,074 | 1,230,380 |
Shares issued to shareholders in reinvestment of distributions | 857,842 | 263,158 |
Shares redeemed | (5,024,255) | (3,139,322) |
Net increase (decrease) in Class A shares | (3,362,339) | (1,645,784) |
Shares outstanding at end of period | 11,941,625 | 15,303,964 |
Class B Shares outstanding at beginning of period | 2,232,310 | 2,564,460 |
Shares sold | 38,354 | 81,671 |
Shares issued to shareholders in reinvestment of distributions | 114,823 | 29,681 |
Shares redeemed | (1,972,716) | (443,502) |
Net increase (decrease) in Class B shares | (1,819,539) | (332,150) |
Shares outstanding at end of period | 412,771 | 2,232,310 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 17.96 | $ 15.81 | $ 15.79 | $ 14.57 | $ 11.24 |
Income (loss) from investment operations: Net investment income (loss)a | .26 | .29c | .26 | .27 | .24 |
Net realized and unrealized gain (loss) | 1.98 | 2.12 | .04 | 1.18 | 3.33 |
Total from investment operations | 2.24 | 2.41 | .30 | 1.45 | 3.57 |
Less distributions from: Net investment income | (.32) | (.26) | (.28) | (.23) | (.24) |
Net realized gains | (.67) | — | — | — | — |
Total Distributions | (.99) | (.26) | (.28) | (.23) | (.24) |
Net asset value, end of period | $ 19.21 | $ 17.96 | $ 15.81 | $ 15.79 | $ 14.57 |
Total Return (%) | 13.15b,d | 15.41c | 1.97b | 10.07 | 32.60 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 229 | 275 | 268 | 274 | 263 |
Ratio of expenses before expense reductions (%) | .83 | .83 | .80 | .80 | .80 |
Ratio of expenses after expense reductions (%) | .82 | .83 | .80 | .80 | .80 |
Ratio of net investment income (loss) (%) | 1.43 | 1.73c | 1.64 | 1.84 | 1.94 |
Portfolio turnover rate (%) | 103 | 76 | 64 | 40 | 58 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.008 per share and an increase in the ratio of net investment income of 0.04%. Excluding this non-recurring income, total return would have been 0.04% lower. d Includes a reimbursement from the Advisor for $92,456 for losses on certain operation errors during the period. Excluding this reimbursement, total return would have been 0.04% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 17.94 | $ 15.79 | $ 15.77 | $ 14.55 | $ 11.23 |
Income (loss) from investment operations: Net investment income (loss)a | .19 | .23c | .19 | .22 | .18 |
Net realized and unrealized gain (loss) | 1.99 | 2.11 | .05 | 1.17 | 3.35 |
Total from investment operations | 2.18 | 2.34 | .24 | 1.39 | 3.53 |
Less distributions from: Net investment income | (.25) | (.19) | (.22) | (.17) | (.21) |
Net realized gains | (.67) | — | — | — | — |
Total Distributions | (.92) | (.19) | (.22) | (.17) | (.21) |
Net asset value, end of period | $ 19.20 | $ 17.94 | $ 15.79 | $ 15.77 | $ 14.55 |
Total Return (%) | 12.77b,d | 14.96c | 1.58b | 9.65 | 32.19 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 8 | 40 | 40 | 40 | 18 |
Ratio of expenses before expense reductions (%) | 1.21 | 1.21 | 1.21 | 1.18 | 1.19 |
Ratio of expenses after expense reductions (%) | 1.20 | 1.21 | 1.20 | 1.18 | 1.19 |
Ratio of net investment income (loss) (%) | 1.06 | 1.35c | 1.24 | 1.46 | 1.55 |
Portfolio turnover rate (%) | 103 | 76 | 64 | 40 | 58 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.008 per share and an increase in the ratio of net investment income of 0.04%. Excluding this non-recurring income, total return would have been 0.04% lower. d Includes a reimbursement from the Advisor for $92,456 for losses on certain operation errors during the period. Excluding this reimbursement, total return would have been 0.04% lower. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are 1.03% and 1.42% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. Stocks of medium-sized 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 more-abrupt market movements. 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 Mid Cap Growth VIP from 5/1/1999 to 12/31/2007 | ||
[] DWS Mid Cap Growth VIP — Class A [] Russell Midcap® Growth Index | 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 reinvestment of dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $10,836 | $13,831 | $19,278 | $13,904 |
Average annual total return | 8.36% | 11.42% | 14.03% | 3.88% | |
Russell Midcap Growth Index | Growth of $10,000 | $11,143 | $13,822 | $22,779 | $16,304 |
Average annual total return | 11.43% | 11.39% | 17.90% | 5.80% | |
DWS Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $10,792 | $13,678 | $18,909 | $17,968 |
Average annual total return | 7.92% | 11.01% | 13.59% | 11.24% | |
Russell Midcap Growth Index | Growth of $10,000 | $11,143 | $13,822 | $22,779 | $20,594 |
Average annual total return | 11.43% | 11.39% | 17.90% | 14.04% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1999. Index returns began on April 30, 1999.** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 965.20 |
| $ 963.20 |
|
Expenses Paid per $1,000* | $ 4.51 |
| $ 6.68 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,020.62 |
| $ 1,018.40 |
|
Expenses Paid per $1,000* | $ 4.63 |
| $ 6.87 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Mid Cap Growth VIP | .91% |
| 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 of any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Mid Cap Growth VIP
In the first half of 2007, inflation fears, rising global interest rates, increases in energy prices and subprime mortgage woes contributed to volatility in the US and international equity markets. In that same period, strong rallies in US stocks were driven by better-than-expected corporate earnings and a rush of merger and acquisition activity. However, volatility in the US stock market continued right through the fourth quarter. Several financial institutions reported write-downs that amounted to tens of billions of dollars stemming from the subprime mortgage crisis, and market observers worry that there is more disruption to come. Toward the end of the year, the dollar fell to record lows as oil prices reached new highs. In an effort to stimulate economic activity and avoid a recession, the US Federal Reserve Board (the Fed) cut a key short-term interest rate on several occasions, while at the same time noting its continuing concern over inflationary pressures.
For the 12 months ended December 31, 2007, the Portfolio returned 8.36% (Class A shares, unadjusted for contract charges), underperforming the 11.43% return of the Russell Midcap®Growth Index.
During the period, positive contributors to performance included stock selection in the financials and health care sectors. An underweight to consumer staples relative to the benchmark and an overweight to industrials also helped performance.1 Detractors from performance included stock selection in the consumer discretionary and information technology sectors as well as an overweight to telecommunication services and an underweight to materials compared with the benchmark. We continue to maintain our long-term perspective, investing in quality mid-cap growth stocks.
Robert S. Janis Joseph Axtell, CFA
Lead Portfolio Manager Portfolio Manager
Deutsche Investment Management Americas Inc.
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. Stocks of medium-sized 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 more-abrupt market movements. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
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 values. The stocks are also members of the Russell 1000 Growth 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.
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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Mid Cap Growth VIP
Asset Allocation (As a% of Investment Portfolio Excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 99% | 98% |
Cash Equivalents | 1% | 2% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Information Technology | 26% | 18% |
Industrials | 18% | 14% |
Consumer Discretionary | 14% | 24% |
Health Care | 12% | 16% |
Energy | 11% | 11% |
Financials | 9% | 12% |
Telecommunication Services | 5% | 2% |
Materials | 3% | 1% |
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 186. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Mid Cap Growth VIP
|
| Value ($) |
|
| |
Common Stocks 99.0% | ||
Consumer Discretionary 13.5% | ||
Specialty Retail 11.1% | ||
Dick's Sporting Goods, Inc.* (a) | 39,000 | 1,082,640 |
Guess?, Inc. (a) | 42,000 | 1,591,380 |
Tiffany & Co. (a) | 18,000 | 828,540 |
Urban Outfitters, Inc.* (a) | 85,500 | 2,330,730 |
5,833,290 | ||
Textiles, Apparel & Luxury Goods 2.4% | ||
Crocs, Inc.* (a) | 18,100 | 666,261 |
Phillips-Van Heusen Corp. (a) | 16,600 | 611,876 |
1,278,137 | ||
Consumer Staples 1.9% | ||
Food & Staples Retailing 0.9% | ||
Whole Foods Market, Inc. (a) | 12,300 | 501,840 |
Personal Products 1.0% | ||
Herbalife Ltd. (a) | 12,800 | 515,584 |
Energy 11.4% | ||
Energy Equipment & Services 5.2% | ||
FMC Technologies, Inc.* (a) | 14,700 | 833,490 |
National-Oilwell Varco, Inc.* | 14,500 | 1,065,170 |
Rowan Companies, Inc. (a) | 21,150 | 834,579 |
2,733,239 | ||
Oil, Gas & Consumable Fuels 6.2% | ||
Southwestern Energy Co.* | 29,100 | 1,621,452 |
Ultra Petroleum Corp.* | 22,530 | 1,610,895 |
3,232,347 | ||
Financials 9.0% | ||
Capital Markets | ||
Affiliated Managers Group, Inc.* (a) | 14,910 | 1,751,329 |
Eaton Vance Corp. (a) | 18,200 | 826,462 |
T. Rowe Price Group, Inc. (a) | 23,500 | 1,430,680 |
Waddell & Reed Financial, Inc. "A" | 20,700 | 747,063 |
4,755,534 | ||
Health Care 11.6% | ||
Health Care Equipment & Supplies 2.7% | ||
Hologic, Inc.* (a) | 20,600 | 1,413,984 |
Health Care Providers & Services 3.1% | ||
Pediatrix Medical Group, Inc.* | 24,000 | 1,635,600 |
Life Sciences Tools & Services 4.1% | ||
Covance, Inc.* | 13,500 | 1,169,370 |
Pharmaceutical Product Development, Inc. | 24,400 | 985,028 |
2,154,398 | ||
Pharmaceuticals 1.7% | ||
Mylan, Inc. (a) | 62,700 | 881,562 |
Industrials 17.5% | ||
Aerospace & Defense 2.5% | ||
BE Aerospace, Inc.* | 25,100 | 1,327,790 |
|
| Value ($) |
|
| |
Commercial Services & Supplies 1.1% | ||
Huron Consulting Group, Inc.* (a) | 7,200 | 580,536 |
Construction & Engineering 0.9% | ||
Aecom Technology Corp.* (a) | 17,100 | 488,547 |
Electrical Equipment 3.4% | ||
General Cable Corp.* (a) | 8,900 | 652,192 |
Roper Industries, Inc. (a) | 17,650 | 1,103,831 |
1,756,023 | ||
Industrial Conglomerates 1.6% | ||
McDermott International, Inc.* | 13,800 | 814,614 |
Machinery 8.0% | ||
Harsco Corp. (a) | 10,100 | 647,107 |
Manitowoc Co., Inc. | 14,400 | 703,152 |
Oshkosh Truck Corp. (a) | 15,680 | 741,037 |
Terex Corp.* (a) | 32,280 | 2,116,599 |
4,207,895 | ||
Information Technology 26.1% | ||
Communications Equipment 4.3% | ||
F5 Networks, Inc.* (a) | 43,100 | 1,229,212 |
Foundry Networks, Inc.* | 59,900 | 1,049,448 |
2,278,660 | ||
Semiconductors & Semiconductor Equipment 15.2% | ||
FormFactor, Inc.* (a) | 17,000 | 562,700 |
Lam Research Corp.* (a) | 15,600 | 674,388 |
MEMC Electronic Materials, Inc.* | 45,500 | 4,026,295 |
NVIDIA Corp.* | 28,000 | 952,560 |
Tessera Technologies, Inc.* (a) | 22,500 | 936,000 |
Varian Semiconductor Equipment Associates, Inc.* (a) | 22,400 | 828,800 |
7,980,743 | ||
Software 6.6% | ||
Activision, Inc.* | 58,900 | 1,749,330 |
Citrix Systems, Inc.* | 25,200 | 957,852 |
FactSet Research Systems, Inc. (a) | 13,900 | 774,230 |
3,481,412 | ||
Materials 3.0% | ||
Metals & Mining | ||
Allegheny Technologies, Inc. (a) | 6,000 | 518,400 |
Gerdau Ameristeel Corp. | 73,000 | 1,038,060 |
1,556,460 | ||
Telecommunication Services 5.0% | ||
Wireless Telecommunication Services | ||
NII Holdings, Inc.* | 29,060 | 1,404,179 |
SBA Communications Corp. "A"* (a) | 36,400 | 1,231,776 |
2,635,955 | ||
Total Common Stocks (Cost $39,758,020) | 52,044,150 | |
| ||
Securities Lending Collateral 31.0% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $16,301,818) | 16,301,818 | 16,301,818 |
|
| Value ($) |
|
| |
Cash Equivalents 1.0% | ||
Cash Management QP Trust, 4.67%(b) (Cost $514,888) | 514,888 | 514,888 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $56,574,726)+ | 131.0 | 68,860,856 |
Other Assets and Liabilities, Net | (31.0) | (16,287,963) |
Net Assets | 100.0 | 52,572,893 |
+ The cost for federal income tax purposes was $56,574,726. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $12,286,130. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $13,529,050 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,242,920.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $15,876,687 which is 30.2% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $39,758,020) — including $15,876,687 of securities loaned | $ 52,044,150 |
Investment in Daily Assets Fund Institutional (cost $16,301,818)* | 16,301,818 |
Investment in Cash Management QP Trust (cost $514,888) | 514,888 |
Total investments, at value (cost $56,574,726) | 68,860,856 |
Cash | 3,115 |
Receivable for investments sold | 171,385 |
Dividends receivable | 11,700 |
Interest receivable | 10,342 |
Due from Advisor | 2,447 |
Other assets | 1,204 |
Total assets | 69,061,049 |
Liabilities | |
Payable for Portfolio shares redeemed | 87,107 |
Payable upon return of securities loaned | 16,301,818 |
Accrued management fee | 22,398 |
Other accrued expenses and payables | 76,833 |
Total liabilities | 16,488,156 |
Net assets, at value | $ 52,572,893 |
Net Assets Consist of | |
Accumulated net investment loss | (6,766) |
Net unrealized appreciation (depreciation) on investments | 12,286,130 |
Accumulated net realized gain (loss) | (20,554,048) |
Paid-in capital | 60,847,577 |
Net assets, at value | $ 52,572,893 |
Class A Net Asset Value, offering and redemption price per share ($50,630,325 ÷ 3,720,929 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.61 |
Class B Net Asset Value, offering and redemption price per share ($1,942,568 ÷ 145,552 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 13.35 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Dividends | $ 133,606 |
Interest — Cash Management QP Trust | 80,645 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 85,683 |
Total Income | 299,934 |
Expenses: Management fee | 435,886 |
Services to shareholders | 407 |
Custodian and accounting fees | 69,696 |
Distribution service fee (Class B) | 10,285 |
Record keeping fees (Class B) | 5,524 |
Professional fees | 64,427 |
Trustees' fees and expenses | 12,891 |
Reports to shareholders | 22,101 |
Other | 4,134 |
Total expenses before expense reductions | 625,351 |
Expense reductions | (86,543) |
Total expenses after expense reductions | 538,808 |
Net investment income (loss) | (238,874) |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: | |
Investments | 8,021,482 |
Foreign currency | (35) |
| 8,021,447 |
Change in net unrealized appreciation (depreciation) on investments | (2,652,715) |
Net gain (loss) | 5,368,732 |
Net increase (decrease) in net assets resulting from operations | $ 5,129,858 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ (238,874) | $ (344,480) |
Net realized gain (loss) | 8,021,447 | 4,409,781 |
Change in net unrealized appreciation (depreciation) | (2,652,715) | 2,176,003 |
Net increase (decrease) in net assets resulting from operations | 5,129,858 | 6,241,304 |
Portfolio share transactions: Class A Proceeds from shares sold | 7,675,878 | 5,059,680 |
Cost of shares redeemed | (14,497,003) | (14,794,831) |
Net increase (decrease) in net assets from Class A share transactions | (6,821,125) | (9,735,151) |
Class B Proceeds from shares sold | 1,053,940 | 1,920,284 |
Cost of shares redeemed | (7,779,098) | (1,540,560) |
Net increase (decrease) in net assets from Class B share transactions | (6,725,158) | 379,724 |
Increase (decrease) in net assets | (8,416,425) | (3,114,123) |
Net assets at beginning of period | 60,989,318 | 64,103,441 |
Net assets at end of period (including accumulated net investment loss of $6,766 and $5,750, respectively) | $ 52,572,893 | $ 60,989,318 |
Other Information | ||
Class A Shares outstanding at beginning of period | 4,226,008 | 5,056,911 |
Shares sold | 567,035 | 418,748 |
Shares redeemed | (1,072,114) | (1,249,651) |
Net increase (decrease) in Class A shares | (505,079) | (830,903) |
Shares outstanding at end of period | 3,720,929 | 4,226,008 |
Class B Shares outstanding at beginning of period | 640,328 | 612,639 |
Shares sold | 79,290 | 159,745 |
Shares redeemed | (574,066) | (132,056) |
Net increase (decrease) in Class B shares | (494,776) | 27,689 |
Shares outstanding at end of period | 145,552 | 640,328 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.56 | $ 11.32 | $ 9.84 | $ 9.46 | $ 7.06 |
Income (loss) from investment operations: Net investment income (loss)a | (.05) | (.06)c | (.05) | (.01) | (.05) |
Net realized and unrealized gain (loss) | 1.10 | 1.30 | 1.53 | .39 | 2.45 |
Total from investment operations | 1.05 | 1.24 | 1.48 | .38 | 2.40 |
Net asset value, end of period | $ 13.61 | $ 12.56 | $ 11.32 | $ 9.84 | $ 9.46 |
Total Return (%)b | 8.36 | 10.95c | 15.04 | 4.02 | 33.99 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 51 | 53 | 57 | 53 | 56 |
Ratio of expenses before expense reductions (%) | 1.05 | 1.03 | 1.01 | 1.02 | .98 |
Ratio of expenses after expense reductions (%) | .90 | .93 | .95 | .95 | .95 |
Ratio of net investment income (loss) (%) | (.38) | (.51)c | (.45) | (.11) | (.57) |
Portfolio turnover rate (%) | 68 | 46 | 104 | 103 | 91 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.003 per share and an increase in the ratio of net investment income of 0.03%. Excluding this non-recurring income, total return would have been 0.03% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.37 | $ 11.19 | $ 9.76 | $ 9.42 | $ 7.06 |
Income (loss) from investment operations: Net investment income (loss)a | (.10) | (.10)c | (.09) | (.05) | (.09) |
Net realized and unrealized gain (loss) | 1.08 | 1.28 | 1.52 | .39 | 2.45 |
Total from investment operations | .98 | 1.18 | 1.43 | .34 | 2.36 |
Net asset value, end of period | $ 13.35 | $ 12.37 | $ 11.19 | $ 9.76 | $ 9.42 |
Total Return (%)b | 7.92 | 10.55c | 14.65 | 3.61 | 33.43 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 2 | 8 | 7 | 6 | 4 |
Ratio of expenses before expense reductions (%) | 1.43 | 1.42 | 1.40 | 1.41 | 1.37 |
Ratio of expenses after expense reductions (%) | 1.28 | 1.29 | 1.32 | 1.34 | 1.34 |
Ratio of net investment income (loss) (%) | (.76) | (.87)c | (.82) | (.50) | (.96) |
Portfolio turnover rate (%) | 68 | 46 | 104 | 103 | 91 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.003 per share and an increase in the ratio of net investment income of 0.03%. Excluding this non-recurring income, total return would have been 0.03% lower. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio direct operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 is 0.62% for Class B shares. The total portfolio direct and estimated indirect Underlying DWS Portfolio operating expense ratio, gross of any fee waivers or expense reimbursements, as presented in the fee table of the prospectus dated May 1, 2007 is 1.30% for Class B shares. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. An investment in underlying money market investments is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any government agency. Although money market investments seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these investments. 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 12/31/2007 | ||
[] DWS Moderate Allocation VIP — Class B [] Russell 1000® Index [] Lehman Brothers US Aggregate 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 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. The Lehman Brothers US Aggregate Index is an unmanaged, market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns, unlike Portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
| |
| ||
| |
Comparative Results | ||||
DWS Moderate Allocation VIP | 1-Year | 3-Year | Life of Portfolio* | |
Class B | Growth of $10,000 | $10,509 | $12,248 | $13,276 |
Average annual total return | 5.09% | 6.99% | 8.77% | |
Russell 1000 Index | Growth of $10,000 | $10,577 | $12,978 | $14,430 |
Average annual total return | 5.77% | 9.08% | 11.63% | |
Lehman Brothers US Aggregate Index | Growth of $10,000 | $10,697 | $11,431 | $11,572 |
Average annual total return | 6.97% | 4.56% | 4.48% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on August 16, 2004. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In 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 the expense ratios from the Underlying DWS Portfolio's most recent shareholder report. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Direct Portfolio Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,009.00 |
Expenses Paid per $1,000* |
| $ 2.94 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,022.28 |
Expenses Paid per $1,000* |
| $ 2.96 |
Direct Portfolio Expenses and Acquired Portfolios (Underlying Portfolios) Fees and Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||
Actual Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,009.00 |
Expenses Paid per $1,000** |
| $ 6.53 |
Hypothetical 5% Portfolio Return |
| Class B |
Beginning Account Value 7/1/07 |
| $ 1,000.00 |
Ending Account Value 12/31/07 |
| $ 1,018.70 |
Expenses Paid per $1,000** |
| $ 6.56 |
** Expenses are equal to the Portfolio's annualized expense ratio plus the Acquired Portfolios (Underlying Portfolios) Fees and Expenses, 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% |
Acquired Portfolios (Underlying Portfolios) Fees and Expenses |
| .71% |
Net Annual Portfolio and Acquired Portfolios (Underlying Portfolios) Operating Expenses |
| 1.29% |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Moderate Allocation VIP
Equity markets were generally strong during the first half of 2007, but down in the last half, particularly in the fourth quarter, when markets responded to further bad news about the potential impact of the subprime mortgage crisis. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned 5.14% for the full year 2007. The return of the Lehman Brothers US Aggregate Index, which is considered indicative of broad bond market trends, was 6.97% for the 12-month period.
For the 12 months ended December 31, 2007, the Portfolio's Class B shares (unadjusted for contract charges) had a return of 5.09%. Since this Portfolio invests in stock and bond funds in several different categories, performance is analyzed by comparing the Portfolio's return with indices that represent each asset class. The Portfolio's return was below that of its bond and equity benchmarks.
The Portfolio's allocation between equity and fixed-income funds remained close to its target of 60% equity and 40% fixed income during the first half of 2007, but with equities overweighted throughout the period.1 This overweight was positive for returns in the first half of the year, as equities outperformed fixed income, but was negative during the last half of the year. A change in strategic allocation implemented in July contributed to performance. As an example of this change, an increase in the Portfolio's allocation to international equities, with a corresponding reduction in US equities contributed, since international equities (as measured by the MSCI EAFE® Index) outperformed US equities. Another example was a reduction in the value tilt in both large cap and small cap, as growth stocks performed better than value stocks — also a positive. In the fixed-income portion of the Portfolio, a position in high-yield bonds added to performance in the first half of the year, but detracted in the last half. At mid-year, an increased strategic allocation to cash equivalents, with a corresponding reduction in bonds, detracted from performance.
Tactical asset allocation was marginally negative for performance. A tactical underweight of cash equivalents with a corresponding overweight in investment-grade bonds contributed to performance. On balance, the performance of the underlying funds detracted from returns. Although equity funds in all three categories (large cap, small cap and international) contributed positively, this contribution was offset by fixed-income fund underperformance.
Inna Okounkova Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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. An investment in underlying money market investments is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any government agency. Although money market investments seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in these investments. Please read this Portfolio's prospectus for specific details regarding its risk profile.
The Russell 3000 Index measures the performance of the 3,000 largest US companies based on total market capitalization, which represents approximately 98% of the investable US equity market.
The Lehman Brothers US Aggregate Index is an unmanaged market-value-weighted measure of Treasury issues, corporate bond issues and mortgage securities.
The MSCI EAFE (Morgan Stanley Capital International Europe-Australasia-Far East Index) is composed of approximately 1,100 companies in 21 countries in Europe and the Pacific Basin. The objective of the index is to reflect the movements of stock markets in these countries by representing an unmanaged (indexed) portfolio within each country. The index is calculated in US dollars and is constructed to represent about 60% of market capitalization in each country.
Index returns, 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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Moderate Allocation VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/07 | 12/31/06 |
|
|
|
Equity Funds | 63% | 61% |
Fixed Income — Bond Funds | 33% | 32% |
Fixed Income — Money Market Fund | 4% | 7% |
| 100% | 100% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 197. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Moderate Allocation VIP
|
| Value ($) |
|
| |
Equity Funds 63.7% | ||
DWS Blue Chip VIP "A" | 8,242 | 120,748 |
DWS Capital Growth VIP "A" | 47,854 | 976,707 |
DWS Davis Venture Value VIP "A" | 204,078 | 2,977,499 |
DWS Dreman High Return Equity VIP "A" | 6,720 | 96,768 |
DWS Dreman Small Mid Cap Value VIP "A" | 64,188 | 1,291,455 |
DWS Global Opportunities VIP "A" | 9,029 | 165,045 |
DWS Global Thematic VIP "A" | 25,755 | 403,583 |
DWS Growth & Income VIP "A" | 301,476 | 3,258,952 |
DWS Health Care VIP "A" | 40,091 | 588,529 |
DWS International Select Equity VIP "A" | 2,753 | 46,146 |
DWS International VIP "A" | 238,086 | 3,573,666 |
DWS Large Cap Value VIP "A" | 325,703 | 6,256,762 |
DWS Mid Cap Growth VIP "A" | 2,469 | 33,598 |
DWS RREEF Real Estate Securities VIP "A" | 23,480 | 377,091 |
DWS Small Cap Growth VIP "A" | 48,918 | 737,193 |
DWS Technology VIP "A" | 82,015 | 878,378 |
Total Equity Funds (Cost $20,364,839) | 21,782,120 | |
|
| Value ($) |
|
| |
Fixed Income — Bond Funds 33.2% | ||
DWS Core Fixed Income VIP "A" | 872,034 | 10,307,440 |
DWS Government & Agency Securities VIP "A" | 55 | 680 |
DWS High Income VIP "A" | 107,594 | 840,311 |
DWS Strategic Income VIP "A" | 18,131 | 211,956 |
Total Fixed Income — Bond Funds (Cost $11,144,962) | 11,360,387 | |
| ||
Fixed Income — Money Market Fund 3.5% | ||
Cash Management QP Trust (Cost $1,188,957) | 1,188,957 | 1,188,957 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $32,698,758)+ | 100.4 | 34,331,464 |
Other Assets and Liabilities, Net | (0.4) | (120,540) |
Net Assets | 100.0 | 34,210,924 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in Underlying Affiliated Portfolios, at value (cost $31,509,801) | $ 33,142,507 |
Investment in Cash Management QP Trust (cost $1,188,957) | 1,188,957 |
Total investments, at value (cost $32,698,758) | 34,331,464 |
Interest receivable | 10,069 |
Other assets | 3,761 |
Total assets | 34,345,294 |
Liabilities | |
Payable for Portfolio shares redeemed | 4,355 |
Accrued management fee | 946 |
Other accrued expenses and payables | 129,069 |
Total liabilities | 134,370 |
Net assets, at value | $ 34,210,924 |
Net Assets Consist of | |
Undistributed net investment income | 5,098,423 |
Net unrealized appreciation (depreciation) on investments | 1,632,706 |
Accumulated net realized gain (loss) | 16,107,575 |
Paid-in capital | 11,372,220 |
Net assets, at value | $ 34,210,924 |
Class B Net Asset Value, offering and redemption price per share ($34,210,924 ÷ 2,785,245 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.28 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Income distributions from Underlying Affiliated Portfolios | 4,335,753 |
Interest — Cash Management QP Trust | 223,037 |
Total Income | 4,558,790 |
Expenses: Management fee | 254,334 |
Services to shareholders | 114 |
Custodian and accounting fees | 49,743 |
Distribution service fee | 423,890 |
Record keeping fees | 239,884 |
Professional fees | 61,264 |
Trustees' fees and expenses | 23,766 |
Reports to shareholders | 10,846 |
Other | 8,831 |
Total expenses before expense reductions | 1,072,672 |
Expense reductions | (84,778) |
Total expenses after expense reductions | 987,894 |
Net investment income (loss) | 3,570,896 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from investments | 13,727,580 |
Capital gain distributions from Underlying Affiliated Portfolios | 4,706,160 |
| 18,433,740 |
Change in net unrealized appreciation (depreciation) on investments | (12,317,475) |
Net gain (loss) | 6,116,265 |
Net increase (decrease) in net assets resulting from operations | $ 9,687,161 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ 3,570,896 | $ 2,957,152 |
Net realized gain (loss) | 18,433,740 | 6,922,802 |
Change in net unrealized appreciation (depreciation) | (12,317,475) | 8,346,369 |
Net increase (decrease) in net assets resulting from operations | 9,687,161 | 18,226,323 |
Distributions to shareholders from: Net investment income: Class B | (3,955,828) | (1,569,948) |
Net realized gains: Class B | (6,545,482) | (1,255,958) |
Total distributions | (10,501,310) | (2,825,906) |
Portfolio share transactions: Class B Proceeds from shares sold | 4,472,231 | 12,643,004 |
Reinvestment of distributions | 10,501,310 | 2,825,906 |
Cost of shares redeemed | (158,853,998) | (23,279,005) |
Net increase (decrease) in net assets from Class B share transactions | (143,880,457) | (7,810,095) |
Increase (decrease) in net assets | (144,694,606) | 7,590,322 |
Net assets at beginning of period | 178,905,530 | 171,315,208 |
Net assets at end of period (including undistributed net investment income of $5,098,423 and $3,893,238, respectively) | $ 34,210,924 | $ 178,905,530 |
Other Information | ||
Class B Shares outstanding at beginning of period | 14,409,131 | 15,061,439 |
Shares sold | 363,437 | 1,083,996 |
Shares issued to shareholders in reinvestment of distributions | 888,436 | 244,244 |
Shares redeemed | (12,875,759) | (1,980,548) |
Net increase (decrease) in Class B shares | (11,623,886) | (652,308) |
Shares outstanding at end of period | 2,785,245 | 14,409,131 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004a |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.42 | $ 11.37 | $ 10.84 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .26 | .19 | .12 | (.03) |
Net realized and unrealized gain (loss) | .34 | 1.04 | .43 | .87 |
Total from investment operations | .60 | 1.23 | .55 | .84 |
Less distributions from: Net investment income | (.28) | (.10) | — | — |
Net realized gains | (.46) | (.08) | (.02) | — |
Total distributions | (.74) | (.18) | (.02) | — |
Net asset value, end of period | $ 12.28 | $ 12.42 | $ 11.37 | $ 10.84 |
Total Return (%)c,d | 5.09 | 10.93 | 5.06 | 8.40** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 34 | 179 | 171 | 39 |
Ratio of expenses before expense reductions (%)e | .63 | .62 | .66 | 1.53* |
Ratio of expenses after expense reductions (%)e | .58 | .57 | .61 | .75* |
Ratio of net investment income (loss) (%) | 2.11 | 1.65 | 1.15 | (.68)* |
Portfolio turnover rate (%) | 30 | 35 | 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 reduced certain of the 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. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized |
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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had they not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,024.70 |
| $ 1,022.90 |
|
Expenses Paid per $1,000* | $ 2.25 |
| $ 4.03 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,022.99 |
| $ 1,021.22 |
|
Expenses Paid per $1,000* | $ 2.24 |
| $ 4.02 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Money Market VIP | .44% |
| .79% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Money Market VIP
In the first quarter of 2007, increasing defaults by subprime mortgage borrowers and losses on residential mortgage-backed securities sparked volatility in the financial markets as investors wondered to what degree Wall Street and the banking community would be hurt by a retrenchment in this market. As we entered the second half of the year, it became clear that several financial firms would need to shed excess debt and sell assets in order to avoid significant losses. For much of August, buyers in the credit markets had almost disappeared, replaced entirely by sellers. At the short end of the yield curve, asset-backed securities' yields spiked significantly, reflecting investors' credit concerns, as did LIBOR, the industry standard for measuring one-year money market rates. In response to this "credit crunch," as well as to fears of an oncoming economic recession, the US Federal Reserve Board (the Fed) added liquidity to the financial system with a number of measures, including three separate cuts of the federal funds rate (the overnight rate charged by banks when they borrow money from each other) totaling one percentage point.
During the 12-month period ended December 31, 2007, the Portfolio provided a total return of 5.00% (Class A shares, unadjusted for contract charges) compared with the 4.78% average return for the 107 funds in the Lipper Money Market Variable Annuity Funds category for the same period, according to Lipper Inc. The 7-day current yield for the period ending December 31, 2007 was 4.58%. The investment advisor has agreed to waive fees/reimburse expenses. Without such fee waivers/expense reimbursements, the 7-day current yield would have been 4.58% as of December 31, 2007.
Given the difficult situation throughout the investment markets during the period, and recognizing that the credit crunch was not likely to be a short-term phenomenon, our strategy was to avoid credit risk as much as possible. Therefore, especially during the latter half of the year, we increased the Portfolio's positions in Treasury securities, agency securities and overnight liquidity positions, and decreased holdings in asset-backed commercial paper. During the summer we kept the Portfolio's average maturity short, but, confident that the Fed would need to cut rates, we gradually extended maturity with very high-quality securities. This strategy helped avoid problem credits and losses stemming from the widespread credit issues in the market. Going forward, we will continue to monitor investment markets, economic data and Fed statements carefully.
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 contact your participating insurance company 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.
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.
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.
The Lipper Money Market Variable Annuity Funds category includes funds that invest in high-quality financial instruments rated in the top two grades with dollar-weighted average maturities of less than 90 days and that intend to keep a constant net asset value. It is not possible to invest directly in a Lipper category.
LIBOR, or 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.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Money Market VIP
Asset Allocation | 12/31/07 | 12/31/06 |
|
|
|
Commercial Paper | 46% | 32% |
Short-Term Notes | 22% | 37% |
Certificates of Deposit and Bank Notes | 20% | 19% |
Government & Agency Obligations | 4% | — |
Promissory Notes | 2% | 2% |
Repurchase Agreements | 2% | 6% |
Master Notes | 2% | — |
Time Deposit | 1% | — |
Asset Backed | 1% | 1% |
Funding Agreement | — | 3% |
| 100% | 100% |
Weighted Average Maturity* |
|
|
|
|
|
DWS Variable Series II — DWS Money Market VIP | 41 days | 35 days |
First Tier Retail Money Fund Average | 41 days | 42 days |
Asset allocation and weighted average maturity are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 205. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the 14th day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 14th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Money Market VIP
| Principal Amount ($) | Value ($) |
|
| |
Certificates of Deposit and Bank Notes 20.1% | ||
ABN Amro Bank NV: |
|
|
4.81%, 1/31/2008 | 2,000,000 | 2,000,010 |
5.03%, 1/24/2008 | 1,800,000 | 1,800,023 |
5.1%, 1/22/2008 | 4,000,000 | 4,000,069 |
Banco Bilbao Vizcaya Argentaria SA, 5.27%, 1/8/2008 | 3,000,000 | 3,000,006 |
Banco Santander Central Hispano SA, 4.99%, 2/1/2008 | 7,000,000 | 7,000,238 |
Bank of Tokyo-Mitsubishi-UFJ, Ltd., 5.3%, 2/21/2008 | 5,000,000 | 5,000,000 |
Barclays Bank PLC: |
|
|
5.2%, 4/9/2008 | 1,800,000 | 1,800,000 |
5.5%, 3/12/2008 | 3,500,000 | 3,500,000 |
BNP Paribas, 5.1%, 3/13/2008 | 3,000,000 | 3,000,000 |
Calyon, 4.8%, 3/25/2008 | 1,750,000 | 1,750,000 |
Chase Bank USA, NA, 5.15%, 2/12/2008 | 1,750,000 | 1,750,000 |
Citibank, NA, 5.3%, 2/20/2008 | 2,000,000 | 2,000,000 |
Credit Industrial et Commercial, 4.95%, 2/1/2008 | 1,500,000 | 1,500,006 |
Dexia Credit Local, 4.95%, 1/22/2008 | 4,000,000 | 4,000,000 |
HSH Nordbank AG, 5.35%, 1/11/2008 | 3,500,000 | 3,499,996 |
JPMorgan Chase Bank, NA, 4.75%, 6/10/2008 | 1,900,000 | 1,900,000 |
KBC Bank NV, 5.7%, 3/6/2008 | 1,500,000 | 1,500,261 |
Landesbank Baden Wurttemberg, 5.4%, 3/18/2008 | 1,500,000 | 1,500,000 |
Mizuho Corporate Bank, 4.93%, 2/19/2008 | 11,500,000 | 11,500,000 |
Societe Generale: |
|
|
5.305%, 1/24/2008 | 3,000,000 | 3,000,009 |
5.35%, 1/18/2008 | 3,700,000 | 3,700,000 |
UBS AG: |
|
|
5.39%, 3/18/2008 | 3,800,000 | 3,800,000 |
5.48%, 3/7/2008 | 3,800,000 | 3,800,000 |
Total Certificates of Deposit and Bank Notes (Cost $76,300,618) | 76,300,618 | |
| ||
Commercial Paper** 46.1% | ||
AstraZeneca PLC: |
|
|
4.65%, 2/28/2008 | 2,200,000 | 2,183,518 |
4.95%, 4/7/2008 | 2,750,000 | 2,713,322 |
Bank of America Corp., 4.865%, 4/11/2008 | 2,000,000 | 1,972,702 |
CAFCO LLC, 5.35%, 2/12/2008 | 4,000,000 | 3,975,033 |
Cancara Asset Securitization LLC: |
|
|
4.87%, 2/8/2008 | 1,800,000 | 1,790,747 |
4.93%, 1/9/2008 | 4,000,000 | 3,995,618 |
Ciesco LLC: |
|
|
5.4%, 1/28/2008 | 3,000,000 | 2,987,850 |
5.43%, 2/14/2008 | 2,500,000 | 2,483,408 |
5.45%, 2/14/2008 | 2,500,000 | 2,483,347 |
CVS Corp., 4.8%, 1/2/2008 | 2,000,000 | 1,999,733 |
DNB NOR Bank ASA, 5.075%, 1/16/2008 | 3,000,000 | 2,993,656 |
Eksportfinans AS, 4.61%, 4/21/2008 | 6,000,000 | 5,914,715 |
| Principal Amount ($) | Value ($) |
|
| |
Falcon Asset Securitization Corp.: |
|
|
4.9%, 1/15/2008 | 4,000,000 | 3,992,378 |
5.4%, 1/28/2008 | 2,000,000 | 1,991,900 |
General Electric Capital Corp., 5.15%, 1/24/2008 | 2,400,000 | 2,392,103 |
Giro Balanced Funding Corp., 5.59%, 1/31/2008 | 3,000,000 | 2,986,025 |
Glaxosmithkline Finance PLC, 4.55%, 1/22/2008 | 4,000,000 | 3,989,383 |
Grampian Funding LLC: |
|
|
4.865%, 2/11/2008 | 1,500,000 | 1,491,689 |
5.16%, 2/5/2008 | 2,500,000 | 2,487,458 |
Greenwich Capital Holdings, Inc., 4.81%, 5/28/2008 | 1,800,000 | 1,764,406 |
International Lease Finance Corp., 4.68%, 1/25/2008 | 3,600,000 | 3,588,768 |
KBC Financial Products International Ltd., 4.97%, 2/14/2008 | 6,750,000 | 6,708,998 |
Kellogg Co.: |
|
|
5.0%, 1/10/2008 | 2,500,000 | 2,496,875 |
5.28%, 1/31/2008 | 800,000 | 796,480 |
Kitty Hawk Funding Corp.: |
|
|
4.87%, 2/14/2008 | 6,826,000 | 6,785,370 |
5.0%, 1/7/2008 | 2,500,000 | 2,497,917 |
Lake Constance Funding LLC, 5.23%, 1/11/2008 | 3,000,000 | 2,995,642 |
Liberty Street Funding, 5.4%, 2/19/2008 | 3,800,000 | 3,772,070 |
Natexis Banques Populaires US Finance Co., LLC, 4.745%, 2/6/2008 | 1,500,000 | 1,492,883 |
Nestle Capital Corp.: |
|
|
4.3%, 10/31/2008 | 500,000 | 481,844 |
5.23%, 1/24/2008 | 2,000,000 | 1,993,317 |
Nissan Motor Acceptance Corp.: |
|
|
5.15%, 1/23/2008 | 3,000,000 | 2,990,558 |
5.7%, 1/9/2008 | 1,500,000 | 1,498,100 |
Norddeutsche Landesbank Girozentrale, 5.23%, 1/7/2008 | 1,500,000 | 1,498,693 |
North Sea Funding LLC, 5.15%, 1/25/2008 | 3,000,000 | 2,989,700 |
Old Line Funding LLC, 5.85%, 2/8/2008 | 2,000,000 | 1,987,650 |
Perry Global Funding LLC, Series A, 5.26%, 1/17/2008 | 1,500,000 | 1,496,493 |
Pfizer, Inc.: |
|
|
4.4%, 5/14/2008 | 2,500,000 | 2,459,056 |
4.41%, 5/16/2008 | 1,000,000 | 983,340 |
4.53%, 4/28/2008 | 1,800,000 | 1,773,273 |
Procter & Gamble International Funding S.C.A.: |
|
|
4.47%, 2/14/2008 | 500,000 | 497,268 |
4.5%, 2/5/2008 | 5,600,000 | 5,575,500 |
San Paolo IMI US Financial Co., 5.28%, 1/7/2008 | 10,000,000 | 9,991,200 |
Scaldis Capital LLC: |
|
|
5.02%, 1/25/2008 | 5,300,000 | 5,282,263 |
5.24%, 1/9/2008 | 3,000,000 | 2,996,507 |
| Principal Amount ($) | Value ($) |
|
| |
Sheffield Receivables Corp.: |
|
|
5.8%, 1/18/2008 | 2,000,000 | 1,994,522 |
5.9%, 1/23/2008 | 1,900,000 | 1,893,149 |
Societe Generale North America, Inc.: |
|
|
4.775%, 2/1/2008 | 3,000,000 | 2,987,665 |
5.16%, 1/3/2008 | 3,400,000 | 3,399,025 |
Swedbank AB, 4.73%, 2/29/2008 | 3,800,000 | 3,770,543 |
The Goldman Sachs Group, Inc., 5.3%, 1/8/2008 | 1,500,000 | 1,498,454 |
Three Rivers Funding Corp., 5.0%, 1/2/2008 | 7,300,000 | 7,298,986 |
Toyota Motor Credit Corp.: |
|
|
4.5%, 2/12/2008 | 3,500,000 | 3,481,625 |
4.61%, 4/25/2008 | 3,300,000 | 3,251,403 |
4.84%, 3/31/2008 | 1,500,000 | 1,481,850 |
United Parcel Service, Inc., 4.18%, 5/30/2008 | 750,000 | 736,938 |
Victory Receivables Corp., 5.5%, 2/15/2008 | 2,500,000 | 2,482,813 |
Westpac Banking Corp., 5.1%, 1/11/2008 | 3,200,000 | 3,195,467 |
Windmill Funding Corp.: |
|
|
5.07%, 1/18/2008 | 3,500,000 | 3,491,620 |
5.35%, 2/1/2008 | 1,900,000 | 1,891,247 |
Total Commercial Paper (Cost $175,074,063) | 175,074,063 | |
| ||
Short Term Notes* 21.7% | ||
American General Finance Corp., 5.328%, 1/18/2008 | 5,000,000 | 4,999,800 |
American Honda Finance Corp., 5.171%, 1/23/2008 | 3,000,000 | 3,000,088 |
Banco Bilbao Vizcaya Argentaria SA, 5.234%, 4/17/2008 | 3,500,000 | 3,500,441 |
Banco Espanol de Credito SA, 5.198%, 8/11/2008 | 3,700,000 | 3,700,000 |
Bank of America NA, 4.315%, 5/16/2008 | 2,500,000 | 2,500,000 |
BNP Paribas, 4.896%, 8/25/2008 | 3,000,000 | 3,000,000 |
Caja de Ahorros y Monte de Piedad de Madrid, 5.348%, 8/12/2008 | 1,000,000 | 1,000,000 |
Canadian Imperial Bank of Commerce, 4.41%, 6/9/2008 | 1,000,000 | 1,000,000 |
Credit Agricole SA, 4.853%, 7/22/2008 | 3,000,000 | 3,000,000 |
Danske Bank AS, 4.918%, 8/19/2008 | 3,200,000 | 3,199,865 |
DNB NOR Bank ASA, 4.865%, 9/24/2008 | 9,500,000 | 9,500,000 |
General Electric Capital Corp.: |
|
|
4.916%, 8/19/2011 | 10,000,000 | 10,000,000 |
5.198%, 1/15/2008 | 2,000,000 | 1,999,916 |
Intesa Bank Ireland PLC, 4.875%, 8/22/2008 | 500,000 | 500,000 |
K2 (USA) LLC, 144A, 5.03%, 2/26/2008 | 8,000,000 | 8,000,358 |
Links Finance LLC: |
|
|
4.97%, 4/28/2008 | 3,000,000 | 2,999,906 |
144A, 5.0%, 2/25/2008 | 4,000,000 | 3,999,968 |
M&I Marshall & Ilsley Bank, 5.027%, 8/14/2008 | 4,000,000 | 4,000,000 |
Northern Rock PLC, 5.27%, 8/4/2008 | 3,500,000 | 3,500,000 |
| Principal Amount ($) | Value ($) |
|
| |
Skandinaviska Enskilda Banken, 5.016%, 8/19/2008 | 4,000,000 | 4,000,000 |
UniCredito Italiano Bank (Ireland) PLC: |
|
|
5.047%, 8/14/2008 | 1,000,000 | 1,000,000 |
5.262%, 8/8/2008 | 4,000,000 | 4,000,000 |
Total Short Term Notes (Cost $82,400,342) | 82,400,342 | |
| ||
Asset Backed 0.8% | ||
Steers Mercury III Trust, 144A, 4.885%*, 5/27/2048 (Cost $2,947,821) | 2,947,821 | 2,947,821 |
| ||
Master Notes 2.1% | ||
Citigroup Global Markets, Inc., 4.6%*, 1/2/2008 (a) (Cost $8,000,000) | 8,000,000 | 8,000,000 |
| ||
Promissory Notes 2.4% | ||
The Goldman Sachs Group, Inc., 4.12%*, 1/18/2008 (Cost $9,000,000) | 9,000,000 | 9,000,000 |
| ||
Time Deposit 0.8% | ||
Calyon, 3.875%, 1/2/2008 (Cost $3,000,000) | 3,000,000 | 3,000,000 |
| ||
Government and Agency Obligations 4.0% | ||
US Government Sponsored Agencies 2.6% | ||
Federal Home Loan Bank, 4.625%, 11/21/2008 | 1,200,000 | 1,204,833 |
Federal Home Loan Mortgage Corp.: |
|
|
3.7%**, 10/10/2008 | 750,000 | 728,185 |
4.15%**, 6/9/2008 | 1,000,000 | 981,556 |
4.27%**, 3/20/2008 | 2,000,000 | 1,981,259 |
Federal National Mortgage Association: |
|
|
3.94%**, 8/8/2008 | 2,000,000 | 1,951,845 |
4.2%**, 4/18/2008 | 1,000,000 | 987,400 |
4.235%**, 3/19/2008 | 2,000,000 | 1,981,648 |
US Treasury Obligations 1.4% | ||
US Treasury Bills: |
|
|
3.17%**, 5/29/2008 | 1,500,000 | 1,480,320 |
3.265%**, 6/19/2008 | 1,500,000 | 1,476,873 |
3.275%**, 6/19/2008 | 1,500,000 | 1,476,802 |
US Treasury Note, 3.375%, 12/15/2008 | 750,000 | 752,929 |
Total Government and Agency Obligations (Cost $15,003,650) | 15,003,650 | |
| ||
Repurchase Agreements 2.1% | ||
JPMorgan Securities, Inc., 4.76%, dated 12/31/2007, to be repurchased at $7,982,841 on 1/2/2008 (b) (Cost $7,980,731) | 7,980,731 | 7,980,731 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $379,707,225)+ | 100.1 | 379,707,225 |
Other Assets and Liabilities, Net | (0.1) | (220,908) |
Net Assets | 100.0 | 379,486,317 |
** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $379,707,225.
(a) Reset date; not a maturity date.
(b) Collateralized by $7,746,385 Government National Mortgage Association, 6.5%, maturing on 5/20/2032 with a value of $8,142,700.
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, 2007 | |
Assets | |
Investments: Investment in securities, valued at amortized cost | $ 379,707,225 |
Total investments, valued at amortized cost | 379,707,225 |
Cash | 11,649 |
Interest receivable | 1,444,309 |
Receivable for Portfolio shares sold | 112,072 |
Other assets | 7,629 |
Total assets | 381,282,884 |
Liabilities | |
Payable for Portfolio shares redeemed | 873,959 |
Distributions payable | 667,424 |
Accrued management fee | 125,258 |
Other accrued expenses and payables | 129,926 |
Total liabilities | 1,796,567 |
Net assets, at value | $ 379,486,317 |
Net Assets Consist of | |
Distributions in excess of net investment income | (23,878) |
Paid-in capital | 379,510,195 |
Net assets, at value | $ 379,486,317 |
Class A Net Asset Value, offering and redemption price per share ($355,230,953 ÷ 355,238,751 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 ($24,255,364 ÷ 24,259,126 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 1.00 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Interest | $ 19,288,778 |
Expenses: Management fee | 1,392,290 |
Services to shareholders | 1,785 |
Custodian fee | 28,318 |
Distribution service fee (Class B) | 88,694 |
Professional fees | 66,277 |
Record keeping fees (Class B) | 43,686 |
Trustees' fee and expenses | 26,632 |
Reports to shareholders | 115,697 |
Other | 12,928 |
Total expenses, before expense reductions | 1,776,307 |
Expense reductions | (35,333) |
Total expenses, after expense reductions | 1,740,974 |
Net investment income | 17,547,804 |
Net realized gain (loss) | 15,068 |
Net increase (decrease) in net assets resulting from operations | $ 17,562,872 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income | $ 17,547,804 | $ 14,558,077 |
Net realized gain (loss) | 15,068 | 5,373 |
Net increase (decrease) in net assets resulting from operations | 17,562,872 | 14,563,450 |
Distributions to shareholders from: Net investment income: Class A | (15,932,890) | (12,054,423) |
Class B | (1,617,257) | (2,502,064) |
Total Distributions | $ (17,550,147) | $ (14,556,487) |
Portfolio share transactions: Class A Proceeds from shares sold | 266,620,495 | 168,824,740 |
Net assets acquired in tax-free reorganization | — | 56,965,779 |
Reinvestment of distributions | 15,863,609 | 11,880,927 |
Cost of shares redeemed | (221,020,237) | (178,891,004) |
Net increase (decrease) in net assets from Class A share transactions | 61,463,867 | 58,780,442 |
Class B Proceeds from shares sold | 36,113,440 | 63,581,378 |
Reinvestment of distributions | 1,612,484 | 2,487,387 |
Cost of shares redeemed | (71,843,157) | (65,942,247) |
Net increase (decrease) in net assets from Class B share transactions | (34,117,233) | 126,518 |
Increase (decrease) in net assets | 27,359,359 | 58,913,923 |
Net assets at beginning of period | 352,126,958 | 293,213,035 |
Net assets at end of period (including distributions in excess of net investment income of $23,878 and $34,790, respectively) | $ 379,486,317 | $ 352,126,958 |
Other Information | ||
Class A Shares outstanding at beginning of period | 293,774,884 | 235,000,612 |
Shares sold | 266,620,495 | 168,824,740 |
Shares acquired in tax-free reorganization | — | 56,959,609 |
Shares issued to shareholders in reinvestment of distributions | 15,863,609 | 11,880,927 |
Shares redeemed | (221,020,237) | (178,891,004) |
Net increase (decrease) in Class A shares | 61,463,867 | 58,774,272 |
Shares outstanding at end of period | 355,238,751 | 293,774,884 |
Class B Shares outstanding at beginning of period | 58,376,359 | 58,249,841 |
Shares sold | 36,113,440 | 63,581,378 |
Shares issued to shareholders in reinvestment of distributions | 1,612,484 | 2,487,387 |
Shares redeemed | (71,843,157) | (65,942,247) |
Net increase (decrease) in Class B shares | (34,117,233) | 126,518 |
Shares outstanding at end of period | 24,259,126 | 58,376,359 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Income from investment operations: Net investment income | .049 | .046 | .028 | .009 | .007 |
Total from investment operations | .049 | .046 | .028 | .009 | .007 |
Less distributions from: Net investment income | (.049) | (.046) | (.028) | (.009) | (.007) |
Net asset value, end of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Total Return (%) | 5.00a | 4.65a | 2.80 | .91 | .72 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 355 | 294 | 235 | 241 | 326 |
Ratio of expenses before expense reductions (%) | .46 | .52 | .52 | .53 | .54 |
Ratio of expenses after expense reductions (%) | .45 | .51 | .52 | .53 | .54 |
Ratio of net investment income (%) | 4.88 | 4.58 | 2.77 | .88 | .73 |
a Total return would have been lower had certain expenses not been reduced. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
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 | .046 | .042 | .024 | .005 | .004 |
Total from investment operations | .046 | .042 | .024 | .005 | .004 |
Less distributions from: Net investment income | (.046) | (.042) | (.024) | (.005) | (.004) |
Net asset value, end of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Total Return (%) | 4.65a | 4.25a | 2.42 | .52 | .42a |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 24 | 58 | 58 | 53 | 66 |
Ratio of expenses before expense reductions (%) | .82 | .90 | .89 | .91 | .93 |
Ratio of expenses after expense reductions (%) | .80 | .89 | .89 | .91 | .92 |
Ratio of net investment income (%) | 4.53 | 4.20 | 2.40 | .50 | .35 |
a Total return would have been lower had certain expenses not been reduced. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual Portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .73% and 1.12% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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.
Portfolio returns during the period 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 Small Cap Growth VIP | ||
[] DWS Small Cap Growth VIP — Class A [] Russell 2000® Growth Index | The Russell 2000® Growth Index is an unmanaged, capitalization-weighted index 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 dividends and, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Small Cap Growth VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,620 | $11,970 | $17,667 | $11,903 |
Average annual total return | 6.20% | 6.18% | 12.06% | 1.76% | |
Russell 2000 Growth Index | Growth of $10,000 | $10,705 | $12,637 | $21,457 | $15,262 |
Average annual total return | 7.05% | 8.11% | 16.50% | 4.32% | |
DWS Small Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Class* | |
Class B | Growth of $10,000 | $10,580 | $11,835 | $17,336 | $15,729 |
Average annual total return | 5.80% | 5.78% | 11.63% | 8.58% | |
Russell 2000 Growth Index | Growth of $10,000 | $10,705 | $12,637 | $21,457 | $18,104 |
Average annual total return | 7.05% | 8.11% | 16.50% | 11.40% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 954.40 |
| $ 952.30 |
|
Expenses Paid per $1,000* | $ 3.55 |
| $ 5.61 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.58 |
| $ 1,019.46 |
|
Expenses Paid per $1,000* | $ 3.67 |
| $ 5.80 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Small Cap Growth VIP | .72% |
| 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, 2007
DWS Small Cap Growth VIP
In the first half of 2007, inflation fears, rising global interest rates, increases in energy prices and subprime mortgage woes contributed to volatility in the US and international equity markets. In that same period, strong rallies in US stocks were driven by better-than-expected corporate earnings and a rush of merger and acquisition activity. However, volatility in the US stock market continued right through the fourth quarter. Several financial institutions reported write-downs that amounted to tens of billions of dollars stemming from the subprime mortgage crisis, and market observers worry that there is more disruption to come. However, worldwide there has been adequate liquidity to offset such losses through investments in these troubled companies. Toward the end of the year, the dollar fell to record lows as oil prices reached new highs. In an effort to stimulate economic activity and avoid a recession, the US Federal Reserve Board (the Fed) cut a key short-term interest rate on three occasions, while at the same time noting its continuing concern over inflationary pressures.
For the 12 months ended December 31, 2007, the Portfolio returned 6.20% (Class A shares, unadjusted for contract charges), underperforming the 7.05% return of the Russell 2000® Growth Index.
During the period, positive contributors to performance included stock selection in the energy, consumer discretionary and financials sectors. Underweights to financials and consumer staples compared with the benchmark also helped performance.1 Detractors from performance included stock selection in the health care and information technology sectors; an underweight to health care, industrials and materials; and an overweight to consumer discretionary relative to the benchmark. We continue to maintain a long-term perspective, investing in quality small-cap growth stocks.
Robert S. Janis Joseph Axtell, CFA
Lead Portfolio Manager Portfolio Manager
Deutsche Investment Management Americas Inc.
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, capitalization-weighted index 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 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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Small Cap Growth VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 98% | 97% |
Cash Equivalents | 2% | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Information Technology | 29% | 26% |
Consumer Discretionary | 20% | 22% |
Industrials | 15% | 4% |
Health Care | 13% | 23% |
Energy | 11% | 12% |
Financials | 8% | 8% |
Consumer Staples | 2% | 3% |
Materials | 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 216. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Small Cap Growth VIP
|
| Value ($) |
|
| |
Common Stocks 97.5% | ||
Consumer Discretionary 19.5% | ||
Hotels Restaurants & Leisure 8.7% | ||
Buffalo Wild Wings, Inc.* | 153,200 | 3,557,304 |
Chipotle Mexican Grill, Inc. "A"* (a) | 29,300 | 4,309,151 |
Einstein Noah Restaurant Group, Inc.* (a) | 85,800 | 1,557,270 |
Orient-Express Hotels Ltd. "A" | 109,400 | 6,292,688 |
| 15,716,413 | |
Specialty Retail 9.3% | ||
bebe stores, inc. (a) | 224,100 | 2,881,926 |
Cabela's, Inc.* (a) | 120,700 | 1,818,949 |
Citi Trends, Inc.* (a) | 100,300 | 1,548,632 |
Guess?, Inc. | 216,500 | 8,203,185 |
Zumiez, Inc.* (a) | 98,700 | 2,404,332 |
| 16,857,024 | |
Textiles, Apparel & Luxury Goods 1.5% | ||
Volcom, Inc.* | 123,600 | 2,722,908 |
Consumer Staples 2.2% | ||
Personal Products | ||
American Oriental Bioengineering, Inc.* (a) | 356,500 | 3,950,020 |
Energy 11.2% | ||
Energy Equipment & Services 6.0% | ||
Atwood Oceanics, Inc.* (a) | 82,900 | 8,309,896 |
Dril-Quip, Inc.* | 45,100 | 2,510,266 |
| 10,820,162 | |
Oil, Gas & Consumable Fuels 5.2% | ||
Carrizo Oil & Gas, Inc.* | 125,500 | 6,871,125 |
EXCO Resources, Inc.* | 166,700 | 2,580,516 |
| 9,451,641 | |
Financials 7.5% | ||
Capital Markets 3.8% | ||
FCStone Group, Inc.* | 64,300 | 2,959,729 |
Waddell & Reed Financial, Inc. "A" | 107,700 | 3,886,893 |
| 6,846,622 | |
Diversified Financial Services 2.0% | ||
Portfolio Recovery Associates, Inc. (a) | 90,370 | 3,584,978 |
Insurance 1.7% | ||
eHealth, Inc.* (a) | 95,300 | 3,060,083 |
Health Care 12.6% | ||
Health Care Equipment & Supplies 3.6% | ||
Orthofix International NV* | 68,000 | 3,941,960 |
West Pharmaceutical Services, Inc. | 62,800 | 2,549,052 |
| 6,491,012 | |
Health Care Providers & Services 7.1% | ||
inVentiv Health, Inc.* | 125,100 | 3,873,096 |
Nighthawk Radiology Holdings, Inc.* (a) | 181,800 | 3,826,890 |
Providence Service Corp.* (a) | 181,900 | 5,118,666 |
| 12,818,652 | |
|
| Value ($) |
|
| |
Life Sciences Tools & Services 1.9% | ||
Kendle International, Inc.* | 71,900 | 3,517,348 |
Industrials 14.7% | ||
Aerospace & Defense 4.0% | ||
BE Aerospace, Inc.* | 135,600 | 7,173,240 |
Commercial Services & Supplies 6.4% | ||
EnergySolutions, Inc.* | 36,400 | 982,436 |
Fuel Tech, Inc.* (a) | 112,600 | 2,550,390 |
Hill International, Inc.* (a) | 212,000 | 3,004,040 |
Huron Consulting Group, Inc.* | 61,400 | 4,950,682 |
| 11,487,548 | |
Construction & Engineering 0.9% | ||
Aecom Technology Corp.* | 57,100 | 1,631,347 |
Electrical Equipment 1.8% | ||
Baldor Electric Co. | 82,000 | 2,760,120 |
Orion Energy Systems, Inc.* | 29,700 | 554,202 |
| 3,314,322 | |
Machinery 1.6% | ||
Astec Industries, Inc.* | 79,800 | 2,967,762 |
Information Technology 28.2% | ||
Communications Equipment 2.0% | ||
Foundry Networks, Inc.* | 208,000 | 3,644,160 |
Electronic Equipment & Instruments 3.9% | ||
Itron, Inc.* (a) | 72,500 | 6,957,825 |
Internet Software & Services 4.2% | ||
Bankrate, Inc.* (a) | 82,500 | 3,967,425 |
LoopNet, Inc.* (a) | 264,100 | 3,710,605 |
| 7,678,030 | |
IT Services 3.8% | ||
CyberSource Corp.* | 236,900 | 4,209,713 |
Forrester Research, Inc.* | 93,200 | 2,611,464 |
| 6,821,177 | |
Semiconductors & Semiconductor Equipment 9.4% | ||
Atheros Communications* | 112,300 | 3,429,642 |
FormFactor, Inc.* | 145,000 | 4,799,500 |
Netlogic Microsystems, Inc.* (a) | 66,300 | 2,134,860 |
Standard Microsystems Corp.* | 82,900 | 3,238,903 |
Tessera Technologies, Inc.* | 80,000 | 3,328,000 |
| 16,930,905 | |
Software 4.9% | ||
Blackboard, Inc.* | 86,800 | 3,493,700 |
Informatica Corp.* | 115,300 | 2,077,706 |
THQ, Inc.* | 116,650 | 3,288,363 |
| 8,859,769 | |
Materials 1.6% | ||
Metals & Mining | ||
Brush Engineered Materials, Inc.* | 44,200 | 1,636,285 |
Haynes International, Inc.* | 18,100 | 1,257,950 |
| 2,894,235 | |
Total Common Stocks (Cost $145,211,347) | 176,197,183 | |
|
| Value ($) |
|
| |
Securities Lending Collateral 24.8% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $44,828,725) | 44,828,725 | 44,828,725 |
| ||
Cash Equivalents 2.2% | ||
Cash Management QP Trust, 4.67% (b) (Cost $4,001,824) | 4,001,824 | 4,001,824 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $194,041,896) | 124.5 | 225,027,732 |
Other Assets and Liabilities, Net | (24.5) | (44,338,343) |
Net Assets | 100.0 | 180,689,389 |
+ The cost for federal income tax purposes was $194,085,421. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $30,942,311. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $42,852,114 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $11,909,803.
(a) All or a portion of these securities were on loan amounting to $41,583,233. In addition, included in other assets and liabilities, net is a pending sale, amounting to $1,831,418, that is also on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $43,414,651 which is 24.0% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $145,211,347) — including $41,583,233 of securities loaned | $ 176,197,183 |
Investment in Daily Assets Fund Institutional (cost $44,828,725)* | 44,828,725 |
Investment in Cash Management QP Trust (cost $4,001,824) | 4,001,824 |
Total investments, at value (cost $194,041,896) | 225,027,732 |
Receivable for investments sold | 2,887,086 |
Dividends receivable | 33,401 |
Interest receivable | 87,784 |
Receivable for Portfolio shares sold | 37 |
Due from Advisor | 926 |
Other assets | 4,557 |
Total assets | 228,041,523 |
Liabilities | |
Cash overdraft | 1,831,418 |
Payable for Portfolio shares redeemed | 42,958 |
Payable upon return of securities loaned | 44,828,725 |
Payable for investments purchased | 414,857 |
Accrued management fee | 91,002 |
Other accrued expenses and payables | 143,174 |
Total liabilities | 47,352,134 |
Net assets, at value | $ 180,689,389 |
Net Assets Consist of | |
Accumulated net investment loss | (16,875) |
Net unrealized appreciation (depreciation) on investments | 30,985,836 |
Accumulated net realized gain (loss) | (87,377,733) |
Paid-in capital | 237,098,161 |
Net assets, at value | $ 180,689,389 |
Class A Net Asset Value, offering and redemption price per share ($173,775,366 ÷ 11,529,906 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 15.07 |
Class B Net Asset Value, offering and redemption price per share ($6,914,023 ÷ 468,018 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 14.77 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends | $ 319,882 |
Interest — Cash Management QP Trust | 234,704 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 804,557 |
Total Income | 1,359,143 |
Expenses: Management fee | 1,413,741 |
Services to shareholders | 530 |
Custodian fee | 15,612 |
Distribution service fee (Class B) | 43,093 |
Record keeping fees (Class B) | 22,349 |
Professional fees | 77,960 |
Trustees' fees and expenses | 30,308 |
Reports to shareholders | 70,374 |
Other | 12,694 |
Total expenses before expense reductions | 1,686,661 |
Expense reductions | (60,838) |
Total expenses after expense reductions | 1,625,823 |
Net investment income (loss) | (266,680) |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 29,911,977 |
Foreign currency | 9 |
| 29,911,986 |
Change in net unrealized appreciation (depreciation) on investments | (13,909,833) |
Net gain (loss) | 16,002,153 |
Net increase (decrease) in net assets resulting from operations | $ 15,735,473 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ (266,680) | $ (999,550) |
Net realized gain (loss) | 29,911,986 | 18,324,595 |
Change in net unrealized appreciation (depreciation) | (13,909,833) | (3,666,288) |
Net increase (decrease) in net assets resulting from operations | 15,735,473 | 13,658,757 |
Portfolio share transactions: Class A Proceeds from shares sold | 7,088,648 | 11,831,161 |
Cost of shares redeemed | (54,833,999) | (58,380,185) |
Net increase (decrease) in net assets from Class A share transactions | (47,745,351) | (46,549,024) |
Class B Proceeds from shares sold | 890,860 | 2,945,973 |
Cost of shares redeemed | (33,397,002) | (6,685,805) |
Net increase (decrease) in net assets from Class B share transactions | (32,506,142) | (3,739,832) |
Increase (decrease) in net assets | (64,516,020) | (36,630,099) |
Net assets at beginning of period | 245,205,409 | 281,835,508 |
Net assets at end of period (including accumulated net investment loss of $16,875 and $9,528, respectively) | $ 180,689,389 | $ 245,205,409 |
Other Information | ||
Class A Shares outstanding at beginning of period | 14,686,087 | 18,035,147 |
Shares sold | 469,331 | 837,139 |
Shares redeemed | (3,625,512) | (4,186,199) |
Net increase (decrease) in Class A shares | (3,156,181) | (3,349,060) |
Shares outstanding at end of period | 11,529,906 | 14,686,087 |
Class B Shares outstanding at beginning of period | 2,636,495 | 2,908,589 |
Shares sold | 59,404 | 216,737 |
Shares redeemed | (2,227,881) | (488,831) |
Net increase (decrease) in Class B shares | (2,168,477) | (272,094) |
Shares outstanding at end of period | 468,018 | 2,636,495 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 14.19 | $ 13.48 | $ 12.59 | $ 11.34 | $ 8.53 |
Income (loss) from investment operations: Net investment income (loss)a | (.01) | (.04)d | (.06) | (.05) | (.04) |
Net realized and unrealized gain (loss) | .89 | .75 | .95 | 1.30 | 2.85 |
Total from investment operations | .88 | .71 | .89 | 1.25 | 2.81 |
Net asset value, end of period | $ 15.07 | $ 14.19 | $ 13.48 | $ 12.59 | $ 11.34 |
Total Return (%) | 6.20b | 5.27b,d | 7.07c | 11.02 | 32.94 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 174 | 208 | 243 | 210 | 210 |
Ratio of expenses before expense reductions (%) | .75 | .73 | .72 | .71 | .69 |
Ratio of expenses after expense reductions (%) | .72 | .72 | .72 | .71 | .69 |
Ratio of net investment income (loss) (%) | (.09) | (.32)d | (.47) | (.47) | (.41) |
Portfolio turnover rate (%) | 67 | 73 | 94 | 117 | 123 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses been reduced. c In 2005, the Portfolio realized a gain of $49,496 on the disposal of an investment not meeting the Portfolio's investment restrictions. This violation had no negative impact on the total return. d Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.008 per share and an increase in the ratio of net investment income of 0.06%. Excluding this non-recurring income, total return would have been 0.06% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 13.96 | $ 13.32 | $ 12.48 | $ 11.29 | $ 8.52 |
Income (loss) from investment operations: Net investment income (loss)a | (.07) | (.09)d | (.11) | (.10) | (.09) |
Net realized and unrealized gain (loss) | .88 | .73 | .95 | 1.29 | 2.86 |
Total from investment operations | .81 | .64 | .84 | 1.19 | 2.77 |
Net asset value, end of period | $ 14.77 | $ 13.96 | $ 13.32 | $ 12.48 | $ 11.29 |
Total Return (%) | 5.80b | 4.80b,d | 6.73b,c | 10.54b | 32.51 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 7 | 37 | 39 | 28 | 15 |
Ratio of expenses before expense reductions (%) | 1.13 | 1.12 | 1.12 | 1.10 | 1.08 |
Ratio of expenses after expense reductions (%) | 1.09 | 1.09 | 1.09 | 1.09 | 1.08 |
Ratio of net investment income (loss) (%) | (.46) | (.69)d | (.84) | (.85) | (.80) |
Portfolio turnover rate (%) | 67 | 73 | 94 | 117 | 123 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c In 2005, the Portfolio realized a gain of $49,496 on the disposal of an investment not meeting the Portfolio's investment restrictions. This violation had no negative impact on the total return. d Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.008 per share and an increase in the ratio of net investment income of 0.06%. Excluding this non-recurring income, total return would have been 0.06% lower. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .85% and 1.24% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the year ended December 31, 2007.
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.
Portfolio returns for all periods shown 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 | ||
[] DWS Strategic Income VIP — Class A [] Citigroup World Government Bond Index [] JP Morgan Emerging Markets Bond Plus Index [] Merrill Lynch High Yield Master Cash Pay Index [] Lehman Brothers US Treasury Index | The Citigroup World Government Bond Index is an unmanaged index comprised of government bonds from 22 developed countries (including the US) with maturities greater than one year. 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 Cash Pay 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. 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. Index returns, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Strategic Income VIP | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $10,543 | $11,764 | $13,778 | $17,296 |
Average annual total return | 5.43% | 5.56% | 6.62% | 5.63% | |
Citigroup World Government Bond Index | Growth of $10,000 | $11,095 | $10,964 | $13,903 | $18,446 |
Average annual total return | 10.95% | 3.12% | 6.81% | 6.31% | |
JP Morgan Emerging Markets Bond Plus Index | Growth of $10,000 | $10,645 | $13,156 | $18,944 | $26,795 |
Average annual total return | 6.45% | 9.57% | 13.63% | 10.36% | |
Merrill Lynch High Yield Master Cash Pay Index | Growth of $10,000 | $10,217 | $11,729 | $16,529 | $17,580 |
Average annual total return | 2.17% | 5.46% | 10.57% | 5.80% | |
Lehman Brothers US Treasury Index | Growth of $10,000 | $10,901 | $11,551 | $12,227 | $17,759 |
Average annual total return | 9.01% | 4.92% | 4.10% | 5.91% |
The growth of $10,000 is cumulative.
Comparative Results | |||||
DWS Strategic Income VIP |
| 1-Year | 3-Year | Life of Class* | |
Class B | Growth of $10,000 |
| $10,507 | $11,646 | $12,983 |
Average annual total return |
| 5.07% | 5.21% | 5.75% | |
Citigroup World Government Bond Index | Growth of $10,000 |
| $11,095 | $10,964 | $13,324 |
Average annual total return |
| 10.95% | 3.12% | 6.34% | |
JP Morgan Emerging Markets Bond Plus Index | Growth of $10,000 |
| $10,645 | $13,156 | $16,573 |
Average annual total return |
| 6.45% | 9.57% | 11.42% | |
Merrill Lynch High Yield Master Cash Pay Index | Growth of $10,000 |
| $10,217 | $11,729 | $14,640 |
Average annual total return |
| 2.17% | 5.46% | 8.51% | |
Lehman Brothers US Treasury Index | Growth of $10,000 |
| $10,901 | $11,551 | $12,052 |
Average annual total return |
| 9.01% | 4.92% | 4.08% |
The growth of $10,000 is cumulative.
* The Portfolio commenced offering Class B shares on May 1, 2003. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Portfolio limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,036.30 |
| $ 1,034.70 |
|
Expenses Paid per $1,000* | $ 4.16 |
| $ 6.00 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,021.12 |
| $ 1,019.31 |
|
Expenses Paid per $1,000* | $ 4.13 |
| $ 5.96 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Strategic Income VIP | .81% |
| 1.17% |
|
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2007
DWS Strategic Income VIP
The Portfolio's Class A shares provided a total return of 5.43% (unadjusted for contract charges) during 2007. The returns of its benchmarks were as follows: Citigroup World Government Bond Index, 10.95%; JP Morgan Emerging Markets Bond Plus Index, 6.45%; Merrill Lynch High Yield Master Cash Pay Index, 2.17%; Lehman Brothers US Treasury Index, 9.01%.
The Portfolio was overweight in high-yield bonds early in the year, a positive for returns.1 We later opted to reduce this weighting to neutral, a move that proved well-timed given the sector's subsequent downturn. The Portfolio also was overweight in emerging-markets bonds, which added value in the first half of the period but later dampened returns. In the United States, we emphasized Treasuries for the majority of the year, but rising yield spreads prompted us to purchase select corporate issues and AAA-rated commercial mortgage-backed securities during the second half.2 We added to our overall position in the United States in recent months, redeploying a portion of the assets that had been invested in the developed international markets. Outside of the United States, the low interest rate environment prompted us to overweight higher-yielding countries such as Canada, Greece, and Spain, as well as short-term bonds in the United Kingdom. In currencies, we added value by underweighting the poor-performing US dollar.
Amid a potentially challenging environment, we believe it is essential to maintain diversification across the entire bond market. While this positioning may cause short-term performance to ebb and flow, we believe it can continue to prove effective over time.
Gary Sullivan, CFA William Chepolis, CFA
Matthew F. MacDonald Thomas Picciochi
Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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 Citigroup World Government Bond Index is an unmanaged index comprised of government bonds from 22 developed countries, including the US, with maturities greater than one year.
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 Cash Pay 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.
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.
Index returns, unlike portfolio returns, do not reflect 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.2 The yield spread is the difference between the yield of a security and the yield of a comparable duration Treasury. A large spread indicates that investors require yields substantially above those of Treasuries in order to invest in lower-quality bonds. This is generally indicative of a higher-risk environment. A smaller spread generally indicates a more positive environment, since investors are less concerned about risk and therefore willing to accept lower yields. A drop in the yield spread is a positive.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Strategic Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Government & Agency Obligations | 44% | 56% |
Corporate Bonds | 34% | 36% |
Cash Equivalents | 13% | 7% |
Commercial and Non-Agency Mortgage-Backed Securities | 5% | — |
Senior Loans | 2% | — |
Sovereign Loans | 1% | — |
Asset Backed | 1% | — |
Other | — | 1% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
AAA* | 32% | 30% |
AA | 1% | 1% |
A | 5% | 6% |
BBB | 7% | 5% |
BB | 20% | 25% |
B | 16% | 20% |
CCC | 4% | 5% |
Not Rated | 15% | 8% |
| 100% | 100% |
Interest Rate Sensitivity | 12/31/07 | 12/31/06 |
|
|
|
Average maturity | 6.6 years | 7.6 years |
Average duration | 3.5 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 227. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Strategic Income VIP
| Principal Amount ($)(a) | Value ($) |
|
| |
Corporate Bonds 32.3% | ||
Consumer Discretionary 6.4% | ||
AAC Group Holding Corp., 14.75%, 10/1/2012 (PIK) (b) | 47,542 | 43,501 |
Affinia Group, Inc., 9.0%, 11/30/2014 | 90,000 | 81,000 |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 145,000 | 136,300 |
American Achievement Corp., 8.25%, 4/1/2012 | 30,000 | 29,250 |
American Media Operations, Inc., Series B, 10.25%, 5/1/2009 (b) | 41,454 | 35,391 |
Asbury Automotive Group, Inc.: |
|
|
7.625%, 3/15/2017 | 65,000 | 57,525 |
8.0%, 3/15/2014 (b) | 30,000 | 28,350 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 | 120,000 | 105,000 |
Burlington Coat Factory Warehouse Corp., 11.125%, 4/15/2014 | 55,000 | 44,138 |
Cablevision Systems Corp., Series B, 9.644%**, 4/1/2009 | 25,000 | 25,281 |
Caesars Entertainment, Inc., 8.875%, 9/15/2008 | 65,000 | 67,215 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 | 50,000 | 48,938 |
Carrols Corp., 9.0%, 1/15/2013 | 30,000 | 27,300 |
Charter Communications Holdings LLC: |
|
|
Series B, 10.25%, 9/15/2010 | 80,000 | 78,000 |
10.25%, 9/15/2010 | 325,000 | 318,500 |
11.0%, 10/1/2015 (b) | 261,000 | 212,715 |
Cooper-Standard Automotive, Inc., 8.375%, 12/15/2014 (b) | 40,000 | 31,700 |
CSC Holdings, Inc.: |
|
|
7.25%, 7/15/2008 | 50,000 | 50,062 |
Series B, 8.125%, 7/15/2009 | 55,000 | 55,894 |
Series B, 8.125%, 8/15/2009 | 110,000 | 111,925 |
Denny's Corp. Holdings, Inc., 10.0%, 10/1/2012 | 20,000 | 19,225 |
Dollar General Corp., 144A, 10.625%, 7/15/2015 | 60,000 | 55,050 |
Dollarama Group LP, 144A, 10.599%**, 8/15/2012 | 52,000 | 52,000 |
EchoStar DBS Corp.: |
|
|
6.625%, 10/1/2014 | 65,000 | 64,675 |
7.125%, 2/1/2016 | 80,000 | 81,600 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 80,000 | 69,400 |
Foot Locker, Inc., 8.5%, 1/15/2022 | 20,000 | 18,400 |
French Lick Resorts & Casinos LLC, 144A, 10.75%, 4/15/2014 | 210,000 | 153,300 |
General Motors Corp.: |
|
|
7.2%, 1/15/2011 | 200,000 | 184,000 |
7.4%, 9/1/2025 | 60,000 | 43,500 |
8.375%, 7/15/2033 | 140,000 | 112,700 |
Goodyear Tire & Rubber Co., 11.25%, 3/1/2011 | 340,000 | 361,250 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 55,000 | 54,450 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 30,000 | 28,950 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Hanesbrands, Inc., Series B, 8.204%**, 12/15/2014 (b) | 85,000 | 84,150 |
Hertz Corp.: |
|
|
8.875%, 1/1/2014 | 80,000 | 81,100 |
10.5%, 1/1/2016 (b) | 35,000 | 36,225 |
Idearc, Inc., 8.0%, 11/15/2016 | 280,000 | 256,900 |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 40,000 | 38,600 |
ION Media Networks, Inc., 144A, 11.493%**, 1/15/2013 | 55,000 | 54,106 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 90,000 | 73,800 |
Jarden Corp., 7.5%, 5/1/2017 | 50,000 | 43,000 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 | 75,000 | 78,750 |
Lamar Media Corp., 144A, 6.625%, 8/15/2015 | 40,000 | 38,900 |
Liberty Media LLC: |
|
|
5.7%, 5/15/2013 (b) | 10,000 | 9,264 |
8.25%, 2/1/2030 (b) | 50,000 | 47,982 |
8.5%, 7/15/2029 (b) | 95,000 | 93,052 |
Majestic Star Casino LLC, 9.5%, 10/15/2010 | 10,000 | 9,450 |
McDonald's Corp., Series I, 6.3%, 10/15/2037 | 210,000 | 217,778 |
Mediacom Broadband LLC, 8.5%, 10/15/2015 | 5,000 | 4,431 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 30,000 | 30,900 |
Metaldyne Corp., 11.0%, 6/15/2012 (b) | 20,000 | 12,900 |
MGM MIRAGE: |
|
|
6.75%, 9/1/2012 | 25,000 | 24,344 |
8.375%, 2/1/2011 | 50,000 | 51,125 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 95,000 | 95,000 |
News America, Inc., 144A, 6.65%, 11/15/2037 | 430,000 | 443,535 |
Norcraft Holdings/Capital, Step-up Coupon, 0% to 9/1/2008, 9.75% to 9/1/2012 (b) | 155,000 | 139,500 |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 140,000 | 130,900 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 60,000 | 61,050 |
Quebecor Media, Inc., 144A, 7.75%, 3/15/2016 | 40,000 | 38,400 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015 | 45,000 | 33,806 |
Reader's Digest Association, Inc., 144A, 9.0%, 2/15/2017 | 50,000 | 41,875 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 50,000 | 44,500 |
Seminole Hard Rock Entertainment, Inc., 144A, 7.491%**, 3/15/2014 | 65,000 | 62,075 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 50,000 | 48,500 |
Simmons Co.: |
|
|
Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 185,000 | 136,900 |
7.875%, 1/15/2014 | 50,000 | 46,250 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 (b) | 29,000 | 29,544 |
Sirius Satellite Radio, Inc., 9.625%, 8/1/2013 | 85,000 | 80,325 |
Six Flags, Inc., | 25,000 | 18,750 |
Sonic Automotive, | 55,000 | 53,487 |
Station Casinos, Inc., 6.5%, 2/1/2014 (b) | 120,000 | 90,000 |
Toys "R" Us, Inc., 7.375%, 10/15/2018 | 45,000 | 32,513 |
Travelport LLC: |
|
|
9.749%**, 9/1/2014 | 45,000 | 43,538 |
9.875%, 9/1/2014 | 55,000 | 55,825 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 (b) | 125,000 | 95,156 |
United Components, Inc., 9.375%, 6/15/2013 | 10,000 | 9,875 |
Univision Communications, Inc., 144A, 9.75%, 3/15/2015 (PIK) | 205,000 | 186,806 |
UPC Holding BV: |
|
|
144A, 7.75%, 1/15/2014 EUR | 100,000 | 139,443 |
144A, 8.0%, 11/1/2016 EUR | 50,000 | 68,899 |
Vitro SAB de CV: |
|
|
8.625%, 2/1/2012 | 40,000 | 37,600 |
9.125%, 2/1/2017 | 150,000 | 138,000 |
Series A, | 35,000 | 36,488 |
XM Satellite Radio, Inc., 9.75%, 5/1/2014 | 115,000 | 111,262 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 330,000 | 234,712 |
6,957,756 | ||
Consumer Staples 1.7% | ||
Alliance One International, Inc., 8.5%, 5/15/2012 | 20,000 | 19,500 |
Archer-Daniels-Midland Co., 6.45%, 1/15/2038 | 285,000 | 296,202 |
Del Laboratories, Inc., 8.0%, 2/1/2012 | 50,000 | 52,000 |
Delhaize America, Inc.: |
|
|
8.05%, 4/15/2027 | 20,000 | 21,083 |
9.0%, 4/15/2031 | 132,000 | 152,615 |
General Nutrition | 65,000 | 61,425 |
Harry & David Holdings, Inc., 10.124%**, 3/1/2012 | 50,000 | 47,000 |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 223,000 | 205,160 |
Pierre Foods, Inc., 9.875%, 7/15/2012 | 35,000 | 25,550 |
Pilgrim's Pride Corp., 7.625%, 5/1/2015 | 25,000 | 24,563 |
Reynolds American, Inc., 6.75%, 6/15/2017 | 600,000 | 611,114 |
Rite Aid Corp., 7.5%, 3/1/2017 | 95,000 | 83,719 |
Smithfield Foods, Inc., 7.75%, 7/1/2017 | 65,000 | 62,887 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 225,000 | 225,000 |
1,887,818 | ||
| Principal Amount ($)(a) | Value ($) |
|
| |
Energy 3.0% | ||
Belden & Blake Corp., 8.75%, 7/15/2012 | 310,000 | 313,100 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 110,000 | 99,000 |
Chesapeake Energy Corp.: |
|
|
6.25%, 1/15/2018 | 35,000 | 33,600 |
6.875%, 1/15/2016 | 170,000 | 168,300 |
7.75%, 1/15/2015 | 25,000 | 25,500 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 45,000 | 44,213 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 125,000 | 106,875 |
Dynegy Holdings, Inc.: |
|
|
6.875%, 4/1/2011 (b) | 15,000 | 14,475 |
8.375%, 5/1/2016 | 105,000 | 102,638 |
Energy Partners Ltd., 9.75%, 4/15/2014 | 50,000 | 47,250 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 40,000 | 39,800 |
GAZ Capital (Gazprom), 144A, 6.51%, 3/7/2022 | 230,000 | 218,661 |
Mariner Energy, Inc.: |
|
|
7.5%, 4/15/2013 | 50,000 | 48,125 |
8.0%, 5/15/2017 | 70,000 | 66,588 |
OPTI Canada, Inc.: |
|
|
144A, 7.875%, 12/15/2014 | 90,000 | 87,975 |
144A, 8.25%, 12/15/2014 | 70,000 | 69,300 |
Petrobras International Finance Co., 5.875%, 3/1/2018 | 80,000 | 79,560 |
Petronas Capital Ltd., Series REG S, 7.875%, 5/22/2022 | 115,000 | 143,501 |
Plains Exploration & Production Co., 7.0%, 3/15/2017 | 60,000 | 57,375 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 45,000 | 44,213 |
Sabine Pass LNG LP: |
|
|
7.25%, 11/30/2013 | 100,000 | 95,500 |
7.5%, 11/30/2016 | 200,000 | 191,000 |
Stone Energy Corp., 6.75%, 12/15/2014 | 195,000 | 180,862 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 45,000 | 48,402 |
Tesoro Corp., 6.5%, 6/1/2017 | 75,000 | 74,250 |
VeraSun Energy Corp., 144A, 9.375%, 6/1/2017 (b) | 40,000 | 34,900 |
Whiting Petroleum Corp.: |
|
|
7.0%, 2/1/2014 | 70,000 | 69,300 |
7.25%, 5/1/2012 | 125,000 | 123,125 |
7.25%, 5/1/2013 (b) | 30,000 | 29,550 |
Williams Companies, Inc.: |
|
|
8.125%, 3/15/2012 | 180,000 | 195,975 |
8.75%, 3/15/2032 | 265,000 | 323,962 |
Williams Partners LP, 7.25%, 2/1/2017 | 45,000 | 46,350 |
3,223,225 | ||
Financials 7.7% | ||
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 160,000 | 131,200 |
American General Finance Corp., Series J, 6.9%, 12/15/2017 | 350,000 | 350,350 |
Ashton Woods USA LLC, 9.5%, 10/1/2015 | 145,000 | 92,800 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 30,000 | 26,700 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Conproca SA de CV, Series REG S, 12.0%, 6/16/2010 | 300,000 | 325,500 |
Countrywide Home Loans, Inc., Series L, 3.25%, 5/21/2008 | 660,000 | 596,421 |
Diageo Capital PLC, 4.375%, 5/3/2010 | 400,000 | 398,904 |
E*TRADE Financial Corp.: |
|
|
7.375%, 9/15/2013 | 100,000 | 77,000 |
7.875%, 12/1/2015 | 155,000 | 118,187 |
8.0%, 6/15/2011 | 120,000 | 104,100 |
Ford Motor Credit Co., LLC: |
|
|
7.25%, 10/25/2011 | 125,000 | 108,270 |
7.375%, 10/28/2009 | 690,000 | 649,460 |
7.875%, 6/15/2010 | 205,000 | 189,147 |
7.993%**, 1/13/2012 | 100,000 | 83,996 |
GMAC LLC, 6.875%, 9/15/2011 | 750,000 | 641,620 |
Hawker Beechcraft Acquisition Co., LLC: |
|
|
144A, 8.5%, 4/1/2015 | 115,000 | 115,000 |
144A, 8.875%, 4/1/2015 (PIK) | 100,000 | 99,000 |
144A, 9.75%, 4/1/2017 | 110,000 | 109,450 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 60,000 | 64,800 |
Hub International Holdings, Inc., 144A, 9.0%, 12/15/2014 | 40,000 | 35,700 |
Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012 | 70,000 | 67,988 |
iPayment, Inc., | 45,000 | 42,075 |
KAR Holdings, Inc.: |
|
|
144A, 8.75%, 5/1/2014 (b) | 50,000 | 46,000 |
144A, 10.0%, 5/1/2015 | 40,000 | 35,700 |
Kreditanstalt fuer |
|
|
2.05%, 9/21/2009 JPY | 185,000,000 | 1,689,828 |
2.05%, 2/16/2026 JPY | 110,000,000 | 981,399 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 50,000 | 47,750 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 90,000 | 72,225 |
Nuveen Investments, Inc., 144A, 10.5%, 11/15/2015 | 100,000 | 99,625 |
Petroplus Finance Ltd., 144A, 7.0%, 5/1/2017 | 75,000 | 68,625 |
Pinnacle Foods Finance LLC, 144A, 9.25%, 4/1/2015 | 35,000 | 31,938 |
Realogy Corp., 144A, 12.375%, 4/15/2015 (b) | 40,000 | 25,200 |
Residential Capital LLC: |
|
|
5.646%**, 6/9/2008 | 20,000 | 17,100 |
7.625%, 11/21/2008 | 100,000 | 79,500 |
7.782%**, 11/21/2008 | 155,000 | 123,225 |
Triad Acquisition Corp., Series B, 11.125%, 5/1/2013 | 35,000 | 25,900 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014 | 195,000 | 123,825 |
U.S.I. Holdings Corp.: |
|
|
144A, 8.744%**, 11/15/2014 | 25,000 | 21,375 |
144A, 9.75%, 5/15/2015 | 20,000 | 16,100 |
UCI Holdco, Inc., 12.491%**, 12/15/2013 (PIK) | 62,384 | 58,953 |
Universal City Development Partners, 11.75%, 4/1/2010 (b) | 235,000 | 243,225 |
Yankee Acquisition Corp., Series B, 8.5%, 2/15/2015 (b) | 80,000 | 73,700 |
8,308,861 | ||
| Principal Amount ($)(a) | Value ($) |
|
| |
Health Care 1.4% | ||
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 90,000 | 82,800 |
Bausch & Lomb, Inc., 144A, 9.875%, 11/1/2015 | 80,000 | 81,200 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 50,000 | 48,250 |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 390,000 | 397,312 |
HCA, Inc.: |
|
|
9.125%, 11/15/2014 | 95,000 | 98,800 |
9.25%, 11/15/2016 | 135,000 | 141,750 |
9.625%, 11/15/2016 (PIK) | 85,000 | 89,888 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 70,000 | 73,150 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 50,000 | 50,000 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 50,000 | 49,875 |
Sun Healthcare Group, Inc., 9.125%, 4/15/2015 | 45,000 | 45,338 |
Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK) | 55,000 | 50,050 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 95,000 | 92,387 |
Universal Hospital Services, Inc., 8.5%, 6/1/2015 (PIK) | 35,000 | 35,350 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 75,000 | 55,500 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 150,000 | 144,375 |
1,536,025 | ||
Industrials 3.5% | ||
Actuant Corp., 144A, 6.875%, 6/15/2017 | 40,000 | 39,600 |
Aleris International, Inc., 9.0%, 12/15/2014 (PIK) | 65,000 | 54,275 |
Allied Security Escrow Corp., 11.375%, 7/15/2011 | 85,000 | 79,900 |
American Color Graphics, Inc., 10.0%, 6/15/2010 | 80,000 | 43,200 |
American Color Graphics, Inc., Promissory Note due 3/15/2008 10.0%, 6/15/2010 (g) | 4,800 | 2,592 |
ARAMARK Corp.: |
|
|
8.411%**, 2/1/2015 | 65,000 | 63,375 |
8.5%, 2/1/2015 (b) | 75,000 | 75,937 |
Baldor Electric Co., 8.625%, 2/15/2017 | 45,000 | 46,350 |
Belden, Inc., 7.0%, 3/15/2017 | 45,000 | 43,875 |
Bombardier, Inc., 144A, 6.75%, 5/1/2012 (b) | 100,000 | 101,250 |
Bristow Group, Inc., 144A, 7.5%, 9/15/2017 | 70,000 | 70,350 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 165,000 | 153,450 |
Building Materials Corp. of America, 7.75%, 8/1/2014 | 65,000 | 49,725 |
Cenveo Corp., 7.875%, 12/1/2013 | 120,000 | 106,950 |
Congoleum Corp., 8.625%, 8/1/2008* | 125,000 | 93,750 |
DRS Technologies, Inc.: |
|
|
6.625%, 2/1/2016 | 25,000 | 24,688 |
6.875%, 11/1/2013 (b) | 135,000 | 134,325 |
7.625%, 2/1/2018 | 165,000 | 167,062 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Education Management LLC, 8.75%, 6/1/2014 | 45,000 | 45,169 |
Esco Corp., 144A, 8.625%, 12/15/2013 | 95,000 | 95,000 |
General Cable Corp.: |
|
|
7.125%, 4/1/2017 (b) | 55,000 | 53,900 |
7.606%**, 4/1/2015 | 55,000 | 52,250 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 (b) | 50,000 | 46,750 |
Harland Clarke Holdings Corp., 9.5%, 5/15/2015 (b) | 45,000 | 38,925 |
Iron Mountain, Inc., 8.75%, 7/15/2018 (b) | 35,000 | 36,794 |
K. Hovnanian Enterprises, Inc.: |
|
|
6.25%, 1/15/2016 | 175,000 | 119,000 |
8.875%, 4/1/2012 | 170,000 | 96,900 |
Kansas City Southern de Mexico SA de CV: |
|
|
144A, 7.375%, 6/1/2014 | 40,000 | 38,900 |
7.625%, 12/1/2013 | 155,000 | 152,869 |
9.375%, 5/1/2012 | 140,000 | 146,650 |
Kansas City Southern Railway Co.: |
|
|
7.5%, 6/15/2009 | 45,000 | 45,056 |
9.5%, 10/1/2008 | 385,000 | 392,700 |
Mobile Services Storage Group, Inc., 9.75%, 8/1/2014 | 85,000 | 78,200 |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 (b) | 75,000 | 76,687 |
Panolam Industries International, Inc., 10.75%, 10/1/2013 | 30,000 | 26,100 |
R.H. Donnelley Corp., 144A, 8.875%, 10/15/2017 | 310,000 | 286,750 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 13,000 | 14,089 |
RBS Global & Rexnord Corp., 9.5%, 8/1/2014 | 45,000 | 44,550 |
Ship Finance International Ltd., 8.5%, 12/15/2013 | 45,000 | 45,619 |
Swift Transportation Co., 144A, 12.5%, 5/15/2017 | 40,000 | 20,650 |
Tenneco, Inc., 144A, 8.125%, 11/15/2015 | 30,000 | 29,700 |
Titan International, Inc., 8.0%, 1/15/2012 (b) | 195,000 | 188,175 |
TransDigm, Inc., 7.75%, 7/15/2014 | 30,000 | 30,450 |
U.S. Concrete, Inc., 8.375%, 4/1/2014 | 55,000 | 48,125 |
United Rentals North America, Inc.: |
|
|
6.5%, 2/15/2012 | 60,000 | 54,450 |
7.0%, 2/15/2014 | 145,000 | 121,437 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 35,000 | 34,956 |
3,811,455 | ||
Information Technology 0.9% | ||
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 40,000 | 34,100 |
First Data Corp., 144A, 9.875%, 9/24/2015 | 60,000 | 55,800 |
Freescale Semiconductor, Inc., 8.875%, 12/15/2014 (b) | 45,000 | 40,162 |
L-3 Communications Corp.: |
|
|
5.875%, 1/15/2015 | 160,000 | 154,400 |
Series B, 6.375%, 10/15/2015 | 80,000 | 78,800 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 (b) | 205,000 | 169,381 |
| Principal Amount ($)(a) | Value ($) |
|
| |
MasTec, Inc., 7.625%, 2/1/2017 | 65,000 | 61,100 |
Sanmina-SCI Corp.: |
|
|
144A, 7.741%**, 6/15/2010 | 24,000 | 23,940 |
8.125%, 3/1/2016 | 30,000 | 26,588 |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 90,000 | 87,750 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 135,000 | 138,037 |
Unisys Corp., 7.875%, 4/1/2008 (b) | 105,000 | 104,869 |
Vangent, Inc., 9.625%, 2/15/2015 | 35,000 | 30,013 |
1,004,940 | ||
Materials 3.0% | ||
Appleton Papers, Inc., Series B, 8.125%, 6/15/2011 (b) | 25,000 | 24,531 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 440,000 | 426,800 |
Associated Materials, Inc., Step-up Coupon, 0% to��3/1/2009, 11.25% to 3/1/2014 | 95,000 | 60,800 |
Cascades, Inc., | 140,000 | 131,250 |
Chemtura Corp., | 80,000 | 75,200 |
Clondalkin Acquisition BV, 144A, 6.991%**, 12/15/2013 | 75,000 | 70,875 |
CPG International I, Inc.: |
|
|
10.5%, 7/1/2013 | 130,000 | 122,850 |
12.13%**, 7/1/2012 | 30,000 | 28,800 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 160,000 | 156,800 |
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 4/1/2017 | 75,000 | 80,437 |
GEO Specialty Chemicals, Inc., 144A, 13.729%**, 12/31/2009 (c) | 283,000 | 212,250 |
Georgia-Pacific Corp., 144A, 7.125%, 1/15/2017 | 35,000 | 34,038 |
Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015 | 45,000 | 40,500 |
Hexcel Corp., 6.75%, 2/1/2015 | 195,000 | 191,100 |
Huntsman LLC, 11.625%, 10/15/2010 | 243,000 | 257,580 |
Innophos, Inc., 8.875%, 8/15/2014 | 35,000 | 34,825 |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 (b) | 75,000 | 73,875 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 130,000 | 109,200 |
Massey Energy Co.: |
|
|
6.625%, 11/15/2010 | 15,000 | 14,663 |
6.875%, 12/15/2013 | 70,000 | 65,975 |
Metals USA Holdings Corp., 144A, 11.231%**, 7/1/2012 (PIK) | 70,000 | 57,400 |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 | 35,000 | 26,075 |
Momentive Performance Materials, Inc., 144A, 9.75%, 12/1/2014 | 60,000 | 55,200 |
Mueller Water Products, Inc., 7.375%, 6/1/2017 | 30,000 | 26,813 |
Neenah Foundry Co., 9.5%, 1/1/2017 | 15,000 | 12,075 |
NewMarket Corp., 7.125%, 12/15/2016 | 110,000 | 108,900 |
| Principal Amount ($)(a) | Value ($) |
|
| |
NewPage Corp., 144A, 10.0%, 5/1/2012 | 110,000 | 110,550 |
OI European Group BV, 144A, 6.875%, 3/31/2017 EUR | 65,000 | 90,757 |
Pliant Corp., 11.625%, 6/15/2009 (PIK) | 10 | 10 |
Radnor Holdings Corp., 11.0%, 3/15/2010* | 25,000 | 188 |
Smurfit-Stone Container Enterprises, Inc.: |
|
|
8.0%, 3/15/2017 | 90,000 | 86,962 |
8.375%, 7/1/2012 | 45,000 | 44,662 |
Steel Dynamics, Inc.: |
|
|
144A, 6.75%, 4/1/2015 | 75,000 | 72,375 |
144A, 7.375%, 11/1/2012 | 20,000 | 20,100 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 110,000 | 107,525 |
The Mosaic Co., 144A, 7.625%, 12/1/2014 | 85,000 | 90,950 |
TriMas Corp., 9.875%, 6/15/2012 | 40,000 | 39,000 |
Witco Corp., 6.875%, 2/1/2026 | 35,000 | 28,175 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 85,000 | 80,750 |
3,270,816 | ||
Telecommunication Services 2.0% | ||
BCM Ireland Preferred Equity Limited, 144A, 11.58%**, 2/15/2017 (PIK) EUR | 59,783 | 77,844 |
Cell C Property Ltd., 144A, 11.0%, 7/1/2015 | 180,000 | 153,900 |
Centennial |
|
|
10.0%, 1/1/2013 (b) | 110,000 | 114,400 |
10.125%, 6/15/2013 | 40,000 | 42,000 |
Cincinnati Bell, Inc.: |
|
|
7.25%, 7/15/2013 | 100,000 | 100,250 |
8.375%, 1/15/2014 (b) | 55,000 | 53,625 |
Cricket Communications, Inc., 144A, 9.375%, 11/1/2014 | 120,000 | 112,500 |
Embratel, Series B, 11.0%, 12/15/2008 (b) | 20,000 | 20,950 |
Grupo Iusacell Cellular SA de CV, 10.0%, 3/31/2012 | 30,075 | 29,925 |
Intelsat Bermuda Ltd.: |
|
|
8.886%**, 1/15/2015 (b) | 10,000 | 10,025 |
9.25%, 6/15/2016 | 35,000 | 35,175 |
11.25%, 6/15/2016 | 95,000 | 98,087 |
Intelsat Corp., 9.0%, 6/15/2016 | 40,000 | 40,300 |
Intelsat Ltd., 5.25%, 11/1/2008 | 35,000 | 34,563 |
Intelsat Subsidiary Holding Co., Ltd., 8.25%, 1/15/2013 | 80,000 | 80,400 |
iPCS, Inc., 7.036%**, 5/1/2013 | 35,000 | 32,988 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 150,000 | 141,000 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 210,000 | 223,650 |
Nortel Networks Ltd., 144A, 9.493%**, 7/15/2011 | 85,000 | 82,875 |
Qwest Corp., 7.25%, 9/15/2025 | 20,000 | 18,800 |
Rural Cellular Corp., 9.875%, 2/1/2010 | 85,000 | 88,187 |
Stratos Global Corp., 9.875%, 2/15/2013 | 30,000 | 31,650 |
| Principal Amount ($)(a) | Value ($) |
|
| |
SunCom Wireless Holdings, Inc., 8.5%, 6/1/2013 | 100,000 | 103,500 |
US Unwired, Inc., Series B, 10.0%, 6/15/2012 | 110,000 | 116,619 |
Virgin Media FinancePLC: |
|
|
8.75%, 4/15/2014 EUR | 85,000 | 121,478 |
8.75%, 4/15/2014 | 120,000 | 119,100 |
West Corp., 9.5%, 10/15/2014 | 55,000 | 53,900 |
2,137,691 | ||
Utilities 2.7% | ||
AES Corp.: |
|
|
144A, 8.0%, 10/15/2017 | 100,000 | 102,250 |
144A, 8.75%, 5/15/2013 | 290,000 | 302,688 |
Allegheny Energy Supply Co., LLC, 144A, 8.25%, 4/15/2012 | 370,000 | 394,975 |
CMS Energy Corp., 8.5%, 4/15/2011 (b) | 225,000 | 242,372 |
Edison Mission Energy, 7.0%, 5/15/2017 | 85,000 | 83,513 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 | 150,000 | 150,750 |
Intergas Finance BV, Series REG S, 6.875%, 11/4/2011 | 375,000 | 361,875 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 130,000 | 130,325 |
Mirant North America LLC, 7.375%, 12/31/2013 | 30,000 | 30,075 |
NRG Energy, Inc.: |
|
|
7.25%, 2/1/2014 | 165,000 | 160,875 |
7.375%, 2/1/2016 | 310,000 | 302,250 |
PSE&G Energy Holdings LLC, 10.0%, 10/1/2009 (b) | 190,000 | 200,262 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 80,000 | 82,400 |
Reliant Energy, Inc., 7.875%, 6/15/2017 (b) | 95,000 | 94,050 |
Sierra Pacific Resources: |
|
|
6.75%, 8/15/2017 | 105,000 | 106,217 |
8.625%, 3/15/2014 | 25,000 | 26,712 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015 | 220,000 | 217,800 |
2,989,389 | ||
Total Corporate Bonds (Cost $36,413,141) | 35,127,976 | |
| ||
Commercial and Non-Agency Mortgage-Backed Securities 4.4% | ||
Credit Suisse Mortgage Capital Certificates Trust, "A2", Series 2007-C1, 5.268%, 2/15/2040 | 1,174,000 | 1,175,372 |
Greenwich Capital Commercial Funding Corp., "A4", Series 2007-GG9, 5.444%, 3/10/2039 | 1,498,000 | 1,506,844 |
Morgan Stanley Capital I Trust, "A4", Series 2007-HQ11, 5.447%, 2/12/2044 | 720,000 | 721,707 |
Wachovia Bank Commercial Mortgage Trust, "A2", Series 2007-C32, 5.736%**, 6/15/2049 | 1,400,000 | 1,425,695 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $4,806,581) | 4,829,618 | |
| Principal Amount ($)(a) | Value ($) |
|
| |
Asset Backed 0.9% | ||
Credit Card Receivables | ||
Washington Mutual Master Note Trust, "C1", Series 2007-C1, 144A, 5.428%**, 5/15/2014 (Cost $954,141) | 1,000,000 | 960,625 |
| ||
Government & Agency Obligations 44.4% | ||
Sovereign Bonds 26.9% | ||
Aries Vermogensverwaltung GmbH, Series C, REG S, 9.6%, 10/25/2014 | 250,000 | 321,750 |
Dominican Republic, Series REG S, 9.5%, 9/27/2011 | 226,596 | 240,191 |
Federal Republic of Germany, Series 94, 6.25%, 1/4/2024 EUR | 1,600,000 | 2,781,521 |
Federative Republic of Brazil: |
|
|
6.0%, 1/17/2017 | 1,330,000 | 1,351,280 |
7.125%, 1/20/2037 (b) | 310,000 | 350,300 |
7.875%, 3/7/2015 (b) | 235,000 | 265,315 |
8.75%, 2/4/2025 | 260,000 | 329,550 |
8.875%, 10/14/2019 (b) | 610,000 | 754,875 |
11.0%, 8/17/2040 (b) | 655,000 | 875,080 |
12.5%, 1/5/2016 BRL | 250,000 | 144,556 |
Government of Malaysia, Series 1/04, | 1,650,000 | 503,451 |
Government of Ukraine: |
|
|
144A, 6.75%, 11/14/2017 | 250,000 | 245,625 |
Series REG S, | 150,000 | 158,595 |
Kingdom of Spain, 3.15%, 1/31/2016 EUR | 1,300,000 | 1,747,510 |
Province of Ontario, 4.7%, 6/2/2037 CAD | 1,100,000 | 1,130,304 |
Province of Quebec, Series PO, 1.6%, 5/9/2013 JPY | 126,000,000 | 1,152,151 |
Republic of Argentina: |
|
|
5.389%**, 8/3/2012 (PIK) | 830,000 | 457,385 |
5.83%, 12/31/2033 (PIK) ARS | 375 | 137 |
Republic of Colombia: |
|
|
8.25%, 12/22/2014 | 145,000 | 165,300 |
10.0%, 1/23/2012 (b) | 290,000 | 337,125 |
Republic of El Salvador, 144A, 7.65%, 6/15/2035 (b) | 576,000 | 665,280 |
Republic of Ghana, 144A, 8.5%, 10/4/2017 | 100,000 | 105,375 |
Republic of Greece, 3.6%, 7/20/2016 EUR | 1,400,000 | 1,911,310 |
Republic of Indonesia, 144A, 6.875%, 3/9/2017 (b) | 340,000 | 352,750 |
Republic of Panama: |
|
|
7.125%, 1/29/2026 (b) | 141,000 | 155,100 |
9.375%, 1/16/2023 | 570,000 | 741,000 |
Republic of Peru: |
|
|
6.55%, 3/14/2037 | 400,000 | 418,000 |
7.35%, 7/21/2025 (b) | 975,000 | 1,111,500 |
Republic of Philippines: |
|
|
7.75%, 1/14/2031 | 100,000 | 115,375 |
8.0%, 1/15/2016 (b) | 540,000 | 612,900 |
8.375%, 2/15/2011 | 20,000 | 21,500 |
9.375%, 1/18/2017 | 150,000 | 185,625 |
Republic of Serbia, 144A, Step-up Coupon, 3.75% to 11/1/2009, 6.75% to 11/1/2024 | 115,000 | 105,513 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Republic of Turkey: |
|
|
7.0%, 9/26/2016 | 425,000 | 449,437 |
7.25%, 3/15/2015 | 70,000 | 74,900 |
11.75%, 6/15/2010 | 405,000 | 468,281 |
Republic of Uruguay: |
|
|
7.625%, 3/21/2036 | 101,000 | 110,090 |
8.0%, 11/18/2022 | 265,000 | 296,800 |
9.25%, 5/17/2017 | 105,000 | 126,525 |
Republic of Venezuela, 10.75%, 9/19/2013 | 650,000 | 695,500 |
Russian Federation, Series REG S, 7.5%, 3/31/2030 | 1,415,700 | 1,621,826 |
Russian Ministry of Finance, Series VII, 3.0%, 5/14/2011 | 250,000 | 231,285 |
Socialist Republic of Vietnam, 144A, 6.875%, 1/15/2016 (b) | 540,000 | 572,400 |
United Kingdom Treasury |
|
|
5.0%, 3/7/2008 GBP | 1,000,000 | 1,990,600 |
5.75%, 12/7/2009 GBP | 1,050,000 | 2,143,847 |
United Mexican States: |
|
|
5.625%, 1/15/2017 | 510,000 | 516,885 |
Series A, 6.75%, 9/27/2034 | 83,000 | 91,674 |
29,203,279 | ||
US Government Sponsored Agencies 2.8% | ||
Farmer Mac Guaranteed Trust, Series 2007-1, 144A, 5.125%, 4/19/2017 | 1,400,000 | 1,450,470 |
Tennessee Valley Authority, Series A, 6.79%, 5/23/2012 | 1,500,000 | 1,662,995 |
3,113,465 | ||
US Treasury Obligations 14.7% | ||
US Treasury Bill, 3.7%***, 1/17/2008 (d) | 723,000 | 722,205 |
US Treasury Bond, 5.25%, 11/15/2028 | 1,200,000 | 1,320,281 |
US Treasury Inflation Indexed Note, 2.0%, 4/15/2012 | 411,828 | 426,821 |
US Treasury Notes: |
|
|
3.375%, 11/30/2012 | 4,150,000 | 4,136,060 |
4.0%, 8/31/2009 | 6,460,000 | 6,554,884 |
4.25%, 11/15/2017 | 2,750,000 | 2,797,911 |
15,958,162 | ||
Total Government & Agency Obligations (Cost $46,707,887) | 48,274,906 | |
| ||
Loan Participations and Assignments 2.6% | ||
Sovereign Loans 0.7% | ||
Credit Suisse (City of Kiev Ukraine), 144A, 8.25%, 11/26/2012 | 530,000 | 530,265 |
CSFB International (Exim Ukraine), 6.8%, 10/4/2012 | 205,000 | 199,075 |
| 729,340 | |
Senior Loans** 1.9% | ||
Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 5.974%, 4/2/2014 | 29,774 | 28,054 |
Aleris International, Inc., Term Loan B, LIBOR plus 2.375%, 6.599%, 12/14/2013 | 39,799 | 37,313 |
Algoma Steel, Inc., LIBOR plus 2.5%, 6.724%, 6/30/2013 | 17,760 | 16,916 |
| Principal Amount ($)(a) | Value ($) |
|
| |
Bausch & Lomb, Inc., Term Loan B, LIBOR plus 3.25%, 7.474%, 4/11/2015 | 80,000 | 79,746 |
Buffets, Inc.: |
|
|
Letter of Credit, 7.7%, 5/1/2013 | 18,791 | 15,615 |
Term Loan B, 7.74%, 1/13/2011 | 141,109 | 117,262 |
Dollar General Corp., Term Loan B1, LIBOR plus 2.75%, 6.974%, 7/6/2014 | 50,000 | 46,035 |
Energy Future Holdings Corp.: |
|
|
Term Loan B1, LIBOR plus 3.5%, 7.724%, 10/10/2014 | 463,838 | 455,848 |
Term Loan B3, LIBOR plus 3.5%, 7.724%, 10/10/2014 | 299,250 | 294,950 |
First Data Corp., Term Loan B1, LIBOR plus 2.75%, 6.974%, 9/17/2014 | 158,700 | 150,829 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 6.474%, 9/16/2013 | 29,925 | 27,331 |
Golden Nugget, 8.22%, 6/16/2014 | 55,000 | 50,050 |
Hawker Beechcraft, Inc.: |
|
|
Letter of Credit, LIBOR plus 2.0%, 6.224%, 3/26/2014 | 3,527 | 3,386 |
Term Loan B, LIBOR plus 2.0%, 6.224%, 3/26/2014 | 41,369 | 39,414 |
HCA, Inc., Term Loan A1, 6.83%, 11/18/2012 | 166,450 | 158,336 |
Hexion Specialty Chemicals: |
|
|
LIBOR plus 2.25%, 6.47%, 5/5/2013 | 9,728 | 9,448 |
6.85%, 5/5/2013 | 15,208 | 14,771 |
Local TV On Satellite LLC, Term Loan B, LIBOR plus 2.25%, 6.474%, 5/7/2013 | 29,850 | 28,171 |
Longview Power LLC: |
|
|
Demand Draw, 7.125%, 4/1/2014 | 7,640 | 7,401 |
Letter of Credit, 7.125%, 4/1/2014 | 4,000 | 3,876 |
Term Loan B, 7.25%, 4/1/2014 | 12,000 | 11,630 |
NewPage Corp, Term Loan B, LIBOR plus 3.0%, 7.224%, 11/5/2014 | 15,000 | 14,922 |
Sabre, Inc., Term Loan B, LIBOR plus 2.25%, 6.474%, 9/30/2014 | 48,590 | 44,282 |
Symbion, Inc.: |
|
|
Term Loan A, 8.21%, 8/23/2013 | 24,937 | 24,251 |
Term Loan B, 8.21%, 8/23/2014 | 24,937 | 24,158 |
Telesat Canada, Inc.: |
|
|
Term Loan B, LIBOR plus 3.0%, 7.224%, 10/31/2014 | 111,575 | 109,154 |
8.09%, 9/1/2014 | 24,409 | 23,873 |
9.0%, 10/31/2008 | 150,000 | 144,375 |
Tribune Co., Term Loan B, 8.244%, 5/24/2014 | 89,550 | 77,146 |
| 2,058,543 | |
Total Loan Participations and Assignments (Cost $2,844,154) | 2,787,883 |
|
| Value ($) |
|
| |
Warrants 0.0% | ||
Dayton Superior Corp., 144A, Expiration Date 6/15/2009* (Cost $0) | 10 | 0 |
|
| Value ($) |
|
| |
Other Investments 0.1% | ||
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 | 85,000 | 72,134 |
IdleAire Technologies Corp. (Bond Unit), 144A, Step-up Coupon, 0% to 6/15/2008, 13.0% to 12/15/2012 | 160,000 | 88,000 |
Total Other Investments (Cost $194,223) | 160,134 |
|
| Value ($) |
|
| |
Common Stocks 0.0% | ||
GEO Specialty Chemicals, Inc.* (Cost $19,822) | 2,058 | 1,749 |
| ||
Convertible Preferred Stock 0.0% | ||
Consumer Discretionary | ||
ION Media Networks, Inc.: |
|
|
144A, 12.0% | 10,000 | 605 |
Series AI, 144A, 12.0% | 20,000 | 1,210 |
Total Convertible Preferred Stocks (Cost $4,191) | 1,815 | |
| ||
Securities Lending Collateral 7.4% | ||
Daily Assets Fund Institutional, 5.03% (e) (f) (Cost $7,995,630) | 7,995,630 | 7,995,630 |
| ||
Cash Equivalents 13.3% | ||
Cash Management QP Trust, 4.67% (e) (Cost $14,474,916) | 14,474,916 | 14,474,916 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $114,414,686)+ | 105.4 | 114,615,252 |
Other Assets and Liabilities, Net | (5.4) | (5,866,881) |
Net Assets | 100.0 | 108,748,371 |
Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) | |
Congoleum Corp. | 8.625% | 8/1/2008 | 125,000 | USD | 105,994 | 93,750 |
Radnor Holdings Corp. | 11.0% | 3/15/2010 | 25,000 | USD | 17,152 | 188 |
|
|
|
| | 123,146 | 98,938 |
*** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $114,502,930. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $112,322. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,102,909 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,990,587.
(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, 2007 amounted to $7,673,829 which is 7.1% of net assets.
(c) Security has a deferred interest payment of $9,219 from April 1, 2006.
(d) At December 31, 2007, this security, in part or in whole, has been segregated to cover initial margin requirements for open future contracts.
(e) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(f) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
(g) Security issued in lieu of interest payment due 12/15/07, which has been deferred until 3/15/08. This security is deemed to be non-income producing.
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.
PIK: Denotes that all or a portion of the income is paid in-kind.
LIBOR: Represents the London InterBank Offered Rate.
At December 31, 2007 the Portfolio had unfunded loan commitments of $35,442 which could be extended at the option of the borrower, pursuant to the following loan agreement:
Borrower | Unfunded Loan Commitment ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
Bausch & Lomb, Inc, Term Delay Draw B, 4/11/2015 | 19,950 | 19,950 | — |
Longview Power LLC, Term Delay Draw, 4/1/2014 | 4,586 | 4,689 | 103 |
Telesat Canada, Inc., Term Delay Draw, 9/1/2014 | 10,906 | 10,782 | (124) |
Total | 35,442 | 35,421 | (21) |
At December 31, 2007, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Canadian Government Bond | 3/19/2008 | 68 | 8,000,067 | 7,917,888 | (82,179) |
10 Year US Treasury Note | 3/19/2008 | 28 | 3,190,773 | 3,174,938 | (15,835) |
United Kingdom Treasury Bond | 3/27/2008 | 61 | 13,379,613 | 13,384,857 | 5,244 |
Total net unrealized depreciation | (92,770) |
At December 31, 2007, open futures contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Federal Republic of Germany Bond | 3/6/2008 | 55 | 9,273,240 | 9,095,488 | 177,752 |
10 Year Australian Treasury Bond | 3/17/2008 | 137 | 11,781,462 | 11,751,479 | 29,983 |
2 Year Federal Republic of Germany Bond | 3/6/2008 | 28 | 4,260,499 | 4,231,085 | 29,414 |
10 Year Japanese Government Bond | 3/11/2008 | 1 | 1,219,059 | 1,224,634 | (5,575) |
Total net unrealized appreciation | 231,574 |
At December 31, 2007, the open credit default swap contracts sold were as follows:
Effective/Expiration Date | Notional Amount ($) | Cash Flows Received by the Portfolio | Underlying Debt Obligation | Unrealized Appreciation/ (Depreciation) ($) |
10/4/2007 | 50,0001 | Fixed — 3.1% | Ford Motor Co., 6.0%, 8/1/2018 | (204) |
10/5/2007 | 30,0002 | Fixed — 3.15% | Ford Motor Co., 6.0%, 8/1/2018 | (108) |
10/23/2007 | 110,0003 | Fixed — 3.4% | Ford Motor Co., 6.0%, 8/1/2018 | (256) |
10/23/2007 | 55,0003 | Fixed — 4.65% | Ford Motor Co., 6.0%, 8/1/2018 | (659) |
12/11/2007 | 60,0004 | Fixed — 5.05% | Ford Motor Co., 6.0%, 8/1/2018 | (1,141) |
10/3/2007 | 50,0002 | Fixed — 3.2% | General Motors Corp., 7.125%, 7/15/2013 | (237) |
10/4/2007 | 55,0005 | Fixed — 2.6% | General Motors Corp., 7.125%, 7/15/2013 | (653) |
10/23/2007 | 100,0003 | Fixed — 3.0% | General Motors Corp., 7.125%, 7/15/2013 | (877) |
11/21/2007 | 55,0004 | Fixed — 4.02% | Tenet Healthcare Corp., 7.375%, 2/1/2013 | 158 |
Total net unrealized depreciation | (3,977) | |||
Counterparty: 1 Goldman Sachs & Co. 2 JP Morgan Chase Securities, Inc. 3 Morgan Stanley Co., Inc. 4 Merrill Lynch, Pierce, Fenner & Smith, Inc. 5 Citigroup Global Markets, Inc. |
At December 31, 2007, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Appreciation ($) | ||
EUR | 269,000 | | USD | 399,927 | | 1/3/2008 | | 6,613 |
GBP | 1,425,000 | | USD | 2,943,893 | | 1/17/2008 | | 117,208 |
SEK | 10,907,000 | | USD | 1,705,098 | | 3/19/2008 | | 16,690 |
USD | 1,287,834 | | CAD | 1,302,000 | | 3/19/2008 | | 32,269 |
USD | 1,723 | | EUR | 1,200 | | 1/3/2008 | | 31 |
USD | 1,780,161 | | NOK | 9,709,000 | | 3/19/2008 | | 3,924 |
USD | 6,627,136 | | SGD | 9,500,000 | | 3/19/2008 | | 6,131 |
Total unrealized appreciation | 182,866 |
Contracts to Deliver |
| In Exchange For |
| Settlement Date |
| Unrealized Depreciation ($) | ||
CAD | 450,000 | | USD | 452,143 | | 1/17/2008 | | (3,423) |
CHF | 10,638,000 | | USD | 9,435,033 | | 3/19/2008 | | (4,066) |
EUR | 301,700 | | USD | 440,304 | | 2/4/2008 | | (1,057) |
JPY | 748,587,000 | | USD | 6,757,115 | | 3/19/2008 | | (1,733) |
USD | 2,981,338 | | AUD | 3,378,000 | | 3/19/2008 | | (30,026) |
USD | 1,409,629 | | EUR | 950,000 | | 1/17/2008 | | (22,287) |
USD | 6,484,166 | | EUR | 4,414,000 | | 3/19/2008 | | (25,949) |
USD | 6,897,482 | | GBP | 3,380,000 | | 3/19/2008 | | (183,706) |
USD | 1,383,585 | | JPY | 150,000,000 | | 1/17/2008 | | (38,479) |
Total unrealized depreciation | (310,726) |
Currency Abbreviations |
ARS Argentine Peso AUD Australian Dollar BRL Brazilian Real CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen MYR Malaysian Ringitt NOK Norwegian Krone SEK Swedish Krona SGD Singapore Dollar USD United States Dollar |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $91,944,140) — including $7,673,829 of securities loaned | $ 92,144,706 |
Investment in Daily Assets Fund Institutional (cost $7,995,630)* | 7,995,630 |
Investment in Cash Management QP Trust (cost $14,474,916) | 14,474,916 |
Total investments, at value (cost $114,414,686) | 114,615,252 |
Cash | 292,335 |
Foreign currency, at value (cost $947,465) | 933,604 |
Receivable for investments sold | 96,635 |
Interest receivable | 1,607,670 |
Receivable for variation margin on open futures | 20,483 |
Foreign taxes recoverable | 850 |
Unrealized appreciation on forward foreign currency exchange contracts | 182,866 |
Other assets | 2,413 |
Total assets | 117,752,108 |
Liabilities | |
Payable upon return of securities loaned | 7,995,630 |
Payable for investments purchased | 411,300 |
Payable for Portfolio shares redeemed | 122,204 |
Unrealized depreciation on forward foreign currency exchange contracts | 310,726 |
Unrealized depreciation on credit default swap contracts | 3,977 |
Unrealized depreciation on unfunded loan commitments | 21 |
Accrued management fee | 53,102 |
Other accrued expenses and payables | 106,777 |
Total liabilities | 9,003,737 |
Net assets, at value | $ 108,748,371 |
Net Assets Consist of | |
Undistributed net investment income | 6,660,644 |
Net unrealized appreciation (depreciation) on: Investments | 200,566 |
Unfunded loan commitments | (21) |
Credit default swaps | (3,977) |
Futures | 138,804 |
Foreign currency | (123,678) |
Accumulated net realized gain (loss) | 1,444,517 |
Paid-in capital | 100,431,516 |
Net assets, at value | $ 108,748,371 |
Class A Net Asset Value, offering and redemption price per share ($100,172,432 ÷ 8,561,326 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.70 |
Class B Net Asset Value, offering and redemption price per share ($8,575,939 ÷ 737,068 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 11.64 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Interest (net of foreign taxes withheld of $3,040) | $ 6,122,036 |
Interest — Cash Management QP Trust | 641,132 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 27,956 |
Total Income | 6,791,124 |
Expenses: Management fee | 697,461 |
Services to shareholders | 524 |
Custodian fee | 31,960 |
Distribution service fee (Class B) | 36,164 |
Legal fees | 20,025 |
Audit fees | 62,050 |
Record keeping fees (Class B) | 17,161 |
Trustees' fees and expenses | 18,025 |
Reports to shareholders | 29,405 |
Other | 40,620 |
Total expenses before expense reductions | 953,395 |
Expense reductions | (10,545) |
Total expenses after expense reductions | 942,850 |
Net investment income (loss) | 5,848,274 |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 1,668,466 |
Credit default swaps | (29,296) |
Futures | 973,956 |
Written options | (1,807) |
Foreign currency | (251,539) |
Payments by affiliates (see Note I) | 3,963 |
| 2,363,743 |
Change in net unrealized appreciation (depreciation) on: Investments | (2,521,550) |
Unfunded loan commitments | (21) |
Credit default swaps | (66,244) |
Futures | 126,379 |
Foreign currency | 55,713 |
| (2,405,723) |
Net gain (loss) | (41,980) |
Net increase (decrease) in net assets resulting from operations | $ 5,806,294 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income | $ 5,848,274 | $ 5,491,929 |
Net realized gain (loss) | 2,363,743 | 1,616,533 |
Change in net unrealized appreciation (depreciation) | (2,405,723) | 1,741,758 |
Net increase (decrease) in net assets resulting from operations | 5,806,294 | 8,850,220 |
Distributions to shareholders from: Net investment income: Class A | (5,451,249) | (3,447,308) |
Class B | (1,430,805) | (1,139,329) |
Net realized gains: Class A | — | (665,270) |
Class B | — | (235,620) |
Total distributions | (6,882,054) | (5,487,527) |
Portfolio share transactions: Class A Proceeds from shares sold | 27,023,346 | 23,655,231 |
Reinvestment of distributions | 5,451,249 | 4,112,578 |
Cost of shares redeemed | (17,567,946) | (15,500,783) |
Net increase (decrease) in net assets from Class A share transactions | 14,906,649 | 12,267,026 |
Class B Proceeds from shares sold | 2,524,276 | 3,743,282 |
Reinvestment of distributions | 1,430,805 | 1,374,949 |
Cost of shares redeemed | (19,503,873) | (7,442,604) |
Net increase (decrease) in net assets from Class B share transactions | (15,548,792) | (2,324,373) |
Increase (decrease) in net assets | (1,717,903) | 13,305,346 |
Net assets at beginning of period | 110,466,274 | 97,160,928 |
Net assets at end of period (including undistributed net investment income of $6,660,644 and $6,991,143, respectively) | $ 108,748,371 | $ 110,466,274 |
Other Information | ||
Class A Shares outstanding at beginning of period | 7,267,545 | 6,158,201 |
Shares sold | 2,337,780 | 2,099,310 |
Shares issued to shareholders in reinvestment of distributions | 483,267 | 375,578 |
Shares redeemed | (1,527,266) | (1,365,544) |
Net increase (decrease) in Class A shares | 1,293,781 | 1,109,344 |
Shares outstanding at end of period | 8,561,326 | 7,267,545 |
Class B Shares outstanding at beginning of period | 2,104,567 | 2,304,696 |
Shares sold | 219,518 | 329,869 |
Shares issued to shareholders in reinvestment of distributions | 127,295 | 125,911 |
Shares redeemed | (1,714,312) | (655,909) |
Net increase (decrease) in Class B shares | (1,367,499) | (200,129) |
Shares outstanding at end of period | 737,068 | 2,104,567 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.80 | $ 11.50 | $ 12.25 | $ 11.82 | $ 11.10 |
Income (loss) from investment operations: Net investment incomea | .63 | .62 | .65 | .58 | .41 |
Net realized and unrealized gain (loss) | (.01) | .36 | (.39) | .39 | .47 |
Total from investment operations | .62 | .98 | .26 | .97 | .88 |
Less distributions from: Net investment income | (.72) | (.57) | (.98) | — | (.15) |
Net realized gains | — | (.11) | (.03) | (.54) | (.01) |
Total distributions | (.72) | (.68) | (1.01) | (.54) | (.16) |
Net asset value, end of period | $ 11.70 | $ 11.80 | $ 11.50 | $ 12.25 | $ 11.82 |
Total Return (%) | 5.43b | 8.98 | 2.38 | 8.60 | 7.85 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 100 | 86 | 71 | 62 | 62 |
Ratio of expenses before expense reductions (%) | .84 | .85 | .88 | .84 | .83 |
Ratio of expenses after expense reductions (%) | .83 | .85 | .88 | .84 | .83 |
Ratio of net investment income (loss) (%) | 5.50 | 5.47 | 5.61 | 4.99 | 3.60 |
Portfolio turnover rate (%) | 147 | 143 | 120 | 210 | 160 |
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, | 2007 | 2006 | 2005 | 2004 | 2003a |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 11.74 | $ 11.44 | $ 12.17 | $ 11.78 | $ 11.44 |
Income (loss) from investment operations: Net investment incomeb | .59 | .59 | .61 | .53 | .17 |
Net realized and unrealized gain (loss) | (.01) | .35 | (.38) | .40 | .17 |
Total from investment operations | .58 | .94 | .23 | .93 | .34 |
Less distributions from: Net investment income | (.68) | (.53) | (.93) | — | — |
Net realized gains | — | (.11) | (.03) | (.54) | — |
Total distributions | (.68) | (.64) | (.96) | (.54) | — |
Net asset value, end of period | $ 11.64 | $ 11.74 | $ 11.44 | $ 12.17 | $ 11.78 |
Total Return (%) | 5.07c | 8.75c | 1.92c | 8.27 | 2.97** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 9 | 25 | 26 | 21 | 8 |
Ratio of expenses before expense reductions (%) | 1.21 | 1.24 | 1.25 | 1.22 | 1.26* |
Ratio of expenses after expense reductions (%) | 1.20 | 1.18 | 1.21 | 1.22 | 1.26* |
Ratio of net investment income (loss) (%) | 5.13 | 5.14 | 5.28 | 4.61 | 1.80* |
Portfolio turnover rate (%) | 147 | 143 | 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, 2007
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 contact your participating insurance company 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 total annual Portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .89% and 1.28% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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.
Growth of an Assumed $10,000 Investment in DWS Technology VIP from 5/1/1999 to 12/31/2007 | ||
[] DWS Technology VIP — Class A [] Russell 1000® Growth Index [] S&P® Goldman Sachs Technology Index | 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. The S&P® Goldman Sachs Technology Index is an unmanaged capitalization-weighted index based on a universe of technology-related 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 into an index. | |
| ||
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 | $11,430 | $11,947 | $17,851 | $10,846 |
Average annual total return | 14.30% | 6.11% | 12.29% | .94% | |
Russell 1000 Growth Index | Growth of $10,000 | $11,181 | $12,838 | $17,706 | $9,856 |
Average annual total return | 11.81% | 8.68% | 12.11% | -.17% | |
S&P Goldman Sachs Technology Index | Growth of $10,000 | $11,694 | $13,002 | $20,630 | $9,034 |
Average annual total return | 16.94% | 9.14% | 15.58% | -1.16% | |
DWS Technology VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $11,384 | $11,807 | $17,514 | $16,683 |
Average annual total return | 13.84% | 5.69% | 11.86% | 9.75% | |
Russell 1000 Growth Index | Growth of $10,000 | $11,181 | $12,838 | $17,706 | $16,118 |
Average annual total return | 11.81% | 8.68% | 12.11% | 9.07% | |
S&P Goldman Sachs Technology Index | Growth of $10,000 | $11,694 | $13,002 | $20,630 | $18,390 |
Average annual total return | 16.94% | 9.14% | 15.58% | 11.69% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 1999. Index returns began on April 30, 1999.** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,057.30 |
| $ 1,055.10 |
|
Expenses Paid per $1,000* | $ 4.67 |
| $ 6.63 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,020.67 |
| $ 1,018.75 |
|
Expenses Paid per $1,000* | $ 4.58 |
| $ 6.51 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Technology VIP | .90% |
| 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, 2007
DWS Technology VIP
Technology stocks performed very well during 2007, as instability in the subprime mortgage sector and the related concerns about financial stocks caused investors to view technology as being a more defensive group. The Class A shares of DWS Technology VIP (unadjusted for contract charges) returned 14.30%, ahead of the 11.81% return of the Russell 1000® Growth Index and behind the 16.94% return of the S&P® Goldman Sachs Technology Index.
The Portfolio delivered its best relative performance in the software sector, where three mid-cap stocks — Activision, Inc., VMware, Inc. and Citrix Systems, Inc. — made the largest positive contributions. The communications equipment and IT services sectors were also sources of strength for the Portfolio. Performance was less favorable in hardware, where QLogic Corp. and Network Appliance Inc. both lost ground due to slowing demand in their respective industries. Also detracting was our positioning in electronic equipment, where the Portfolio's holdings in Taiwanese stocks lagged during the fourth quarter, and in the Internet sector, where an underweight in Amazon.com resulted in underperformance relative to the benchmark.1
Given the high correlation between corporate profits and technology spending, we expect that concerns about the US economy will result in a more challenging environment for the tech sector in 2008. Our response is to focus on companies with 1) a high percentage of revenues from outside of the United States, 2) lower exposure to corporate spending and 3) strong product cycles. We believe this approach can help the Portfolio to take advantage of individual stock opportunities even if the overall backdrop proves difficult in the year ahead.
Kelly P. Davis
Portfolio Manager
Deutsche Investment Management Americas Inc.
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 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.
The S&P Goldman Sachs Technology Index is an unmanaged, capitalization-weighted index based on a universe of technology-related stocks.
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.
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, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Technology VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 99% | 99% |
Cash Equivalents | 1% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Information Technology: |
|
|
Computers & Peripherals | 24% | 19% |
Software | 21% | 23% |
Semiconductors & Semiconductor Equipment | 16% | 18% |
Communications Equipment | 16% | 16% |
Internet Software & Services | 14% | 13% |
IT Services | 5% | 6% |
Electronic Equipment & Instruments | 2% | 2% |
Electronic Equipment | — | 1% |
Consumer Discretionary | 1% | — |
Industrials | 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 245. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Technology VIP
|
| Value ($) |
|
| |
Common Stocks 99.8% | ||
Consumer Discretionary 0.7% | ||
Media | ||
Grupo Televisa SA (ADR) | 46,100 | 1,095,797 |
Financials 0.5% | ||
Real Estate Investment Trusts | ||
DuPont Fabros Technology, Inc. (REIT)* (a) | 39,700 | 778,120 |
Industrials 0.7% | ||
Commercial Services & Supplies | ||
Manpower, Inc. | 19,800 | 1,126,620 |
Information Technology 97.9% | ||
Communications Equipment 15.8% | ||
Ciena Corp.* (a) | 28,800 | 982,368 |
Cisco Systems, Inc.* | 306,400 | 8,294,248 |
Foundry Networks, Inc.* | 93,900 | 1,645,128 |
Juniper Networks, Inc.* | 106,300 | 3,529,160 |
NICE Systems Ltd. (ADR)* | 22,800 | 782,496 |
Nokia Oyj (ADR) | 41,000 | 1,573,990 |
Polycom, Inc.* | 62,800 | 1,744,584 |
QUALCOMM, Inc. | 100,616 | 3,959,239 |
Research In Motion Ltd.* | 20,100 | 2,279,340 |
| 24,790,553 | |
Computers & Peripherals 23.7% | ||
Apple, Inc.* | 44,200 | 8,755,136 |
Asustek Computer, Inc. | 550,309 | 1,640,851 |
Brocade Communications Systems, Inc.* (a) | 82,500 | 605,550 |
Dell, Inc.* | 217,600 | 5,333,376 |
Electronics for Imaging, Inc.* (a) | 29,600 | 665,408 |
EMC Corp.* | 81,300 | 1,506,489 |
Foxconn Technology Co., Ltd. | 118,450 | 955,700 |
Hewlett-Packard Co. | 168,100 | 8,485,688 |
Innolux Display Corp. | 141,000 | 472,870 |
Innolux Display Corp. (GDR) 144A* | 76,600 | 520,880 |
International Business Machines Corp. | 48,600 | 5,253,660 |
Sun Microsystems, Inc.* | 156,025 | 2,828,733 |
| 37,024,341 | |
Electronic Equipment & Instruments 2.4% | ||
Brightpoint, Inc.* (a) | 55,500 | 852,480 |
Hon Hai Precision Industry Co., Ltd. | 376,240 | 2,324,099 |
Phoenix Precision Technology Corp. | 647,191 | 545,124 |
| 3,721,703 | |
Internet Software & Services 13.9% | ||
Akamai Technologies, Inc.* (a) | 75,800 | 2,622,680 |
Alibaba.com Ltd.* | 22,500 | 81,229 |
DealerTrack Holdings, Inc.* (a) | 23,500 | 786,545 |
eBay, Inc.* | 67,800 | 2,250,282 |
Google, Inc. "A"* | 17,500 | 12,100,900 |
Yahoo!, Inc.* | 166,900 | 3,882,094 |
| 21,723,730 | |
|
| Value ($) |
|
| |
IT Services 4.7% | ||
Cognizant Technology Solutions Corp. "A"* | 33,000 | 1,120,020 |
Fiserv, Inc.* | 30,900 | 1,714,641 |
Global Payments, Inc. | 69,000 | 3,209,880 |
Paychex, Inc. (a) | 35,300 | 1,278,566 |
| 7,323,107 | |
Semiconductors & Semiconductor Equipment 15.9% | ||
Advanced Semiconductor Engineering, Inc. | 1,153,671 | 1,146,068 |
Broadcom Corp. "A"* | 40,500 | 1,058,670 |
Intel Corp. | 414,789 | 11,058,275 |
Marvell Technology Group Ltd.* | 95,800 | 1,339,284 |
Microchip Technology, Inc. (a) | 67,300 | 2,114,566 |
MKS Instruments, Inc.* | 66,900 | 1,280,466 |
National Semiconductor Corp. | 70,400 | 1,593,856 |
NVIDIA Corp.* | 39,550 | 1,345,491 |
PMC-Sierra, Inc.* (a) | 105,800 | 691,932 |
SiRF Technology Holdings, Inc.* (a) | 30,000 | 753,900 |
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) | 141,406 | 1,408,404 |
Texas Instruments, Inc. | 33,500 | 1,118,900 |
| 24,909,812 | |
Software 21.5% | ||
Activision, Inc.* | 86,200 | 2,560,140 |
Adobe Systems, Inc.* | 83,800 | 3,580,774 |
Citrix Systems, Inc.* | 183,100 | 6,959,631 |
Electronic Arts, Inc.* (a) | 46,100 | 2,692,701 |
Microsoft Corp. | 292,846 | 10,425,317 |
Nintendo Co., Ltd. | 1,400 | 850,007 |
Oracle Corp.* | 166,700 | 3,764,086 |
Salesforce.com, Inc.* (a) | 22,100 | 1,385,449 |
VMware, Inc. "A"* (a) | 12,000 | 1,019,880 |
VanceInfo Technologies, Inc. (ADR)* | 54,400 | 489,600 |
| 33,727,585 | |
Total Common Stocks (Cost $127,589,835) | 156,221,368 | |
| ||
Securities Lending Collateral 7.5% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $11,628,324) | 11,628,324 | 11,628,324 |
| ||
Cash Equivalents 0.4% | ||
Cash Management QP Trust, 4.67% (b) (Cost $663,453) | 663,453 | 663,453 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $139,881,612)+ | 107.7 | 168,513,145 |
Other Assets and Liabilities, Net | (7.7) | (12,027,027) |
Net Assets | 100.0 | 156,486,118 |
+ The cost for federal income tax purposes was $148,174,673. At December 31 2007, net unrealized appreciation for all securities based on tax cost was $20,338,472. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $35,704,604 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $15,366,132.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $11,221,438 which is 7.2% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $127,589,835) — including $11,221,438 of securities loaned | $ 156,221,368 |
Investment in Daily Assets Fund Institutional (cost $11,628,324)* | 11,628,324 |
Investment in Cash Management QP Trust (cost $663,453) | 663,453 |
Total investments, at value (cost $139,881,612) | 168,513,145 |
Cash | 7,520 |
Foreign currency, at value (cost $3,640) | 3,631 |
Receivable for investments sold | 2,480 |
Interest receivable | 20,078 |
Dividends receivable | 37,879 |
Receivable for Portfolio shares sold | 3,384 |
Foreign taxes recoverable | 274 |
Due from Advisor | 2,067 |
Other assets | 4,001 |
Total assets | 168,594,459 |
Liabilities | |
Payable for Portfolio shares redeemed | 252,813 |
Payable upon return of securities loaned | 11,628,324 |
Accrued management fee | 101,492 |
Other accrued expenses and payables | 125,712 |
Total liabilities | 12,108,341 |
Net assets, at value | $ 156,486,118 |
Net Assets | |
Net assets consist of: Accumulated net investment loss | (5,235) |
Net unrealized appreciation (depreciation) on: Investments | 28,631,533 |
Foreign currency | (9) |
Accumulated net realized gain (loss) | (246,456,680) |
Paid-in capital | 374,316,509 |
Net assets, at value | $ 156,486,118 |
Class A Net Asset Value, offering and redemption price per share ($153,060,486 ÷ 14,290,167 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 ($3,425,632 ÷ 325,361 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 10.53 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends (net of foreign taxes withheld of $60,252) | $ 1,013,319 |
Interest | 2,367 |
Interest — Cash Management QP Trust | 148,298 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 88,315 |
Total Income | 1,252,299 |
Expenses: Management fee | 1,237,197 |
Custodian and accounting fees | 91,476 |
Distribution service fee (Class B) | 17,126 |
Record keeping fees (Class B) | 8,590 |
Services to shareholders | 300 |
Professional fees | 65,563 |
Trustees' fees and expenses | 23,704 |
Reports to shareholders | 62,941 |
Other | 23,473 |
Total expenses before expense reductions | 1,530,370 |
Expense reductions | (3,562) |
Total expenses after expense reductions | 1,526,808 |
Net investment income (loss) | (274,509) |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from: Investments | 19,092,791 |
Written options | (58,736) |
Foreign currency | 7,540 |
| 19,041,595 |
Change in net unrealized appreciation (depreciation) on: Investments | 2,772,289 |
Written options | (46,329) |
Foreign currency | (663) |
| 2,725,297 |
Net gain (loss) | 21,766,892 |
Net increase (decrease) in net assets resulting from operations | $ 21,492,383 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ (274,509) | $ (294,773) |
Net realized gain (loss) | 19,041,595 | 6,112,890 |
Net unrealized appreciation (depreciation) | 2,725,297 | (5,955,121) |
Net increase (decrease) in net assets resulting from operations | 21,492,383 | (137,004) |
Portfolio share transactions: Class A Proceeds from shares sold | 10,492,529 | 6,300,268 |
Cost of shares redeemed | (42,815,094) | (40,707,874) |
Net increase (decrease) in net assets from Class A share transactions | (32,322,565) | (34,407,606) |
Class B Proceeds from shares sold | 1,326,815 | 2,069,789 |
Cost of shares redeemed | (12,807,358) | (4,331,077) |
Net increase (decrease) in net assets from Class B share transactions | (11,480,543) | (2,261,288) |
Increase (decrease) in net assets | (22,310,725) | (36,805,898) |
Net assets at beginning of period | 178,796,843 | 215,602,741 |
Net assets at end of period (including accumulated net investment loss of $5,235 and $2,464, respectively) | $ 156,486,118 | $ 178,796,843 |
Other Information | ||
Class A Shares outstanding at beginning of period | 17,575,288 | 21,420,473 |
Shares sold | 994,111 | 695,699 |
Shares redeemed | (4,279,232) | (4,540,884) |
Net increase (decrease) in Class A shares | (3,285,121) | (3,845,185) |
Shares outstanding at end of period | 14,290,167 | 17,575,288 |
Class B Shares outstanding at beginning of period | 1,525,054 | 1,782,726 |
Shares sold | 127,903 | 234,259 |
Shares redeemed | (1,327,596) | (491,931) |
Net increase (decrease) in Class B shares | (1,199,693) | (257,672) |
Shares outstanding at end of period | 325,361 | 1,525,054 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 9.37 | $ 9.30 | $ 9.01 | $ 8.84 | $ 6.02 |
Income (loss) from investment operations: Net investment income (loss)a | (.02) | (.01)b | (.03) | .04 | (.04) |
Net realized and unrealized gain (loss) | 1.36 | .08 | .36 | .13 | 2.86 |
Total from investment operations | 1.34 | .07 | .33 | .17 | 2.82 |
Less distributions from: Net investment income | — | — | (.04) | — | — |
Net asset value, end of period | $ 10.71 | $ 9.37 | $ 9.30 | $ 9.01 | $ 8.84 |
Total Return (%) | 14.30 | .75b | 3.74 | 1.92 | 46.84 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 153 | 165 | 199 | 230 | 257 |
Ratio of expenses (%) | .91 | .89 | .86 | .83 | .86 |
Ratio of net investment income (loss) (%) | (.15) | (.12)b | (.36) | .43 | (.50) |
Portfolio turnover rate (%) | 91 | 49 | 135 | 112 | 66 |
a Based on average shares outstanding during the period. b Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.017 per share and an increase in the ratio of net investment income of 0.18%. Excluding this non-recurring income, total return would have been 0.19% lower. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 9.25 | $ 9.21 | $ 8.93 | $ 8.80 | $ 6.01 |
Income (loss) from investment operations: Net investment income (loss)a | (.05) | (.04)c | (.07) | .01 | (.07) |
Net realized and unrealized gain (loss) | 1.33 | .08 | .36 | .12 | 2.86 |
Total from investment operations | 1.28 | .04 | .29 | .13 | 2.79 |
Less distributions from: Net investment income | — | — | (.01) | — | — |
Net asset value, end of period | $ 10.53 | $ 9.25 | $ 9.21 | $ 8.93 | $ 8.80 |
Total Return (%) | 13.84 | .43c | 3.27 | 1.48b | 46.42 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 3 | 14 | 16 | 16 | 11 |
Ratio of expenses before expense reductions (%) | 1.29 | 1.28 | 1.26 | 1.22 | 1.25 |
Ratio of expenses after expense reductions (%) | 1.29 | 1.28 | 1.26 | 1.21 | 1.25 |
Ratio of net investment income (loss) (%) | (.53) | (.51)c | (.76) | .05 | (.89) |
Portfolio turnover rate (%) | 91 | 49 | 135 | 112 | 66 |
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. c Includes non-recurring income from the Advisor recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with sales of DWS Scudder Funds. The non-recurring income resulted in an increase in net investment income of $0.017 per share and an increase in the ratio of net investment income of 0.18%. Excluding this non-recurring income, total return would have been 0.19% lower. |
Performance Summary December 31, 2007
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 contact your participating insurance company 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 total annual portfolio operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2007 are .97% and 1.37% for Class A and Class B shares, respectively. Please see the Information About Your Portfolio's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related Parties) sections of this report for gross and net expense related disclosure for the period ended December 31, 2007.
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. Stocks of medium-sized 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 more-abrupt market movements. 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 3-, 5- and Life of Class period 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 12/31/2007 | ||
[] DWS Turner Mid Cap Growth VIP — Class A [] Russell Midcap® 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 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. | |
| ||
Yearly periods ended December 31 | |
Comparative Results | |||||
DWS Turner Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Portfolio* | |
Class A | Growth of $10,000 | $12,575 | $14,970 | $24,684 | $14,761 |
Average annual total return | 25.75% | 14.40% | 19.81% | 6.01% | |
Russell Midcap Growth Index | Growth of $10,000 | $11,143 | $13,822 | $22,779 | $15,107 |
Average annual total return | 11.43% | 11.39% | 17.90% | 6.38% | |
DWS Turner Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Class** | |
Class B | Growth of $10,000 | $12,513 | $14,785 | $24,221 | $21,909 |
Average annual total return | 25.13% | 13.92% | 19.35% | 15.33% | |
Russell Midcap Growth Index | Growth of $10,000 | $11,143 | $13,822 | $22,779 | $20,594 |
Average annual total return | 11.43% | 11.39% | 17.90% | 14.04% |
The growth of $10,000 is cumulative.
* The Portfolio commenced operations on May 1, 2001. Index returns began on April 30, 2001.** The Portfolio commenced offering Class B shares on July 1, 2002. Index returns began on 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 contract charges, redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Portfolio and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2007 to December 31, 2007).
The tables illustrate your Portfolio's expenses in two ways:
Actual Portfolio Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Portfolio using the Portfolio's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Portfolio Return. This helps you to compare your Portfolio's ongoing expenses (but not transaction costs) with those of other mutual funds using the Portfolio's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical Portfolio return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended December 31, 2007 | ||||
Actual Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,099.90 |
| $ 1,097.60 |
|
Expenses Paid per $ | $ 4.87 |
| $ 6.71 |
|
Hypothetical 5% Portfolio Return | Class A |
| Class B |
|
Beginning Account Value 7/1/07 | $ 1,000.00 |
| $ 1,000.00 |
|
Ending Account Value 12/31/07 | $ 1,020.57 |
| $ 1,018.80 |
|
Expenses Paid per $1,000* | $ 4.69 |
| $ 6.46 |
|
Annualized Expense Ratios | Class A |
| Class B |
|
DWS Variable Series II — DWS Turner Mid Cap Growth VIP | .92% |
| 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, 2007
DWS Turner Mid Cap Growth VIP
In 2007, the broad equity market ended in positive territory, recording its fifth consecutive year of gains. In a role reversal, growth stocks assumed market leadership after seven years of underperformance. Value stocks actually posted negative results (the first time since 2002), while growth stocks generated double-digit returns. The relative underperformance of value stocks can largely be attributed to the financial services sector, which plummeted approximately 22% while representing one-third of the Russell 3000® Value Index on average. Another trend that reversed course during the year was the emergence of large-capitalization stocks. Similar to the shift in style, a large-cap bias has become increasingly evident throughout the year as mega-cap stocks outpaced their smaller-cap counterparts.
For the year, the DWS Turner Mid Cap Growth VIP Class A shares (unadjusted for contract charges) recorded a return of 25.75%, versus the 11.43% return posted by the Russell Midcap® Growth Index. Eight of the Portfolio's 10 sector positions beat their corresponding index sectors. Contributing the most to performance were growth-oriented holdings in the consumer discretionary, energy and materials/processing sectors, a combined 39% weighting. Stocks that added value included aQuantive, GameStop Corp, First Solar, Inc., Range Resources Corp. and Owens-Illinois, Inc. Detracting the most from performance were our holdings in the technology sector, a 14% weighting. Akamai Technologies, Inc. and F5 Networks Inc. were the largest detractors from performance.
Looking towards 2008, we believe slow-to-moderate economic growth should keep inflation and interest rates subdued and help companies to report higher earnings growth — notwithstanding some volatility along the way. Specific to growth stocks, in an environment where above-average growth becomes scarce, growth stocks become more valuable. This, coupled with the fact that growth stocks remain inexpensive relative to value stocks, should be supportive for our style of growth-stock investing.
Christopher K. McHugh Tara Hedlund
Jason Schrotberger
Lead Manager Portfolio Managers
Turner Investment Partners, Inc., Subadvisor to the Portfolio
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. Stocks of medium-sized 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 more abrupt market movements. Please read this Portfolio's prospectus for specific details regarding this product's investments and risk profile.
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 values.
The Russell 3000 Value Index is an unmanaged Index that measures the performance of those Russell 3000® Index companies 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.
Portfolio management market commentary is as of December 31, 2007, and may not come to pass. This information is subject to change at any time based on market and other conditions. Past performance does not guarantee future results.
Portfolio Summary
DWS Turner Mid Cap Growth VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/07 | 12/31/06 |
|
|
|
Common Stocks | 100% | 99% |
Cash Equivalents | — | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/07 | 12/31/06 |
|
|
|
Information Technology | 23% | 23% |
Industrials | 19% | 11% |
Health Care | 12% | 16% |
Energy | 12% | 7% |
Consumer Discretionary | 11% | 21% |
Financials | 9% | 10% |
Materials | 5% | 2% |
Consumer Staples | 4% | 3% |
Utilities | 3% | 1% |
Telecommunication Services | 2% | 6% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 255. Information concerning portfolio holdings of the Portfolio as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Portfolio's top ten holdings and other information about the Portfolio is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end.
Following the Portfolio's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio December 31, 2007
DWS Turner Mid Cap Growth VIP
|
| Value ($) |
|
| |
Common Stocks 100.3% | ||
Consumer Discretionary 11.1% | ||
Diversified Consumer Services 1.4% | ||
Apollo Group, Inc. "A"* | 27,210 | 1,908,782 |
Hotels Restaurants & Leisure 4.1% | ||
Melco PBL Entertainment (Macau) Ltd. (ADR)* | 65,560 | 757,874 |
WMS Industries, Inc.* (a) | 37,765 | 1,383,709 |
Wynn Resorts Ltd. (a) | 11,630 | 1,304,072 |
Yum! Brands, Inc. | 54,090 | 2,070,024 |
| 5,515,679 | |
Internet & Catalog Retail 0.6% | ||
Priceline.com, Inc.* (a) | 6,830 | 784,494 |
Media 0.8% | ||
Central European Media Enterprises Ltd. "A"* (a) | 9,350 | 1,084,413 |
Specialty Retail 3.5% | ||
GameStop Corp. "A"* | 39,310 | 2,441,544 |
Guess?, Inc. (a) | 38,800 | 1,470,132 |
Urban Outfitters, Inc.* | 25,050 | 682,863 |
| 4,594,539 | |
Textiles, Apparel & Luxury Goods 0.7% | ||
Under Armour, Inc. "A"* (a) | 21,930 | 957,683 |
Consumer Staples 4.1% | ||
Beverages 1.3% | ||
Molson Coors Brewing Co. "B" | 16,580 | 855,860 |
Pepsi Bottling Group, Inc. | 23,070 | 910,342 |
| 1,766,202 | |
Food Products 2.8% | ||
Bunge Ltd. | 10,400 | 1,210,664 |
H.J. Heinz Co. | 24,490 | 1,143,193 |
Wm. Wrigley Jr. Co. | 24,500 | 1,434,475 |
| 3,788,332 | |
Energy 12.2% | ||
Energy Equipment & Services 5.8% | ||
Diamond Offshore Drilling, Inc. (a) | 14,420 | 2,047,640 |
Exterran Holdings, Inc.* (a) | 13,100 | 1,071,580 |
National-Oilwell Varco, Inc.* | 26,610 | 1,954,771 |
Tidewater, Inc. | 13,290 | 729,089 |
Weatherford International Ltd.* | 28,280 | 1,940,008 |
| 7,743,088 | |
Oil, Gas & Consumable Fuels 6.4% | ||
CONSOL Energy, Inc. | 16,520 | 1,181,511 |
Quicksilver Resources, Inc.* | 28,970 | 1,726,322 |
Range Resources Corp. | 49,714 | 2,553,311 |
Southwestern Energy Co.* | 21,440 | 1,194,637 |
Williams Companies, Inc. | 53,790 | 1,924,606 |
| 8,580,387 | |
Financials 9.0% | ||
Capital Markets 5.0% | ||
Affiliated Managers Group, Inc.* (a) | 7,824 | 919,007 |
BlackRock, Inc. (a) | 5,010 | 1,086,168 |
|
| Value ($) |
|
| |
Northern Trust Corp. | 22,810 | 1,746,790 |
T. Rowe Price Group, Inc. | 48,530 | 2,954,506 |
| 6,706,471 | |
Diversified Financial Services 3.2% | ||
IntercontinentalExchange, Inc.* | 12,040 | 2,317,700 |
Nymex Holdings, Inc. (a) | 14,350 | 1,917,304 |
| 4,235,004 | |
Insurance 0.8% | ||
Aon Corp. | 23,560 | 1,123,576 |
Health Care 12.3% | ||
Biotechnology 2.7% | ||
Alexion Pharmaceuticals, Inc.* (a) | 17,950 | 1,346,788 |
BioMarin Pharmaceutical, Inc.* | 33,770 | 1,195,458 |
United Therapeutics Corp.* (a) | 10,360 | 1,011,654 |
| 3,553,900 | |
Health Care Equipment & Supplies 3.4% | ||
DENTSPLY International, Inc. | 24,390 | 1,098,038 |
Hologic, Inc.* | 13,730 | 942,427 |
Intuitive Surgical, Inc.* | 5,470 | 1,775,015 |
Inverness Medical Innovations, Inc.* (a) | 12,720 | 714,610 |
| 4,530,090 | |
Health Care Providers & Services 2.4% | ||
Express Scripts, Inc.* | 29,310 | 2,139,630 |
Henry Schein, Inc.* (a) | 17,940 | 1,101,516 |
| 3,241,146 | |
Life Sciences Tools & Services 1.3% | ||
Charles River Laboratories International, Inc.* | 17,260 | 1,135,708 |
Waters Corp.* | 8,390 | 663,397 |
| 1,799,105 | |
Pharmaceuticals 2.5% | ||
Allergan, Inc. | 30,870 | 1,983,089 |
Shire PLC (ADR) (a) | 19,560 | 1,348,662 |
| 3,331,751 | |
Industrials 18.7% | ||
Aerospace & Defense 2.3% | ||
BE Aerospace, Inc.* | 22,680 | 1,199,772 |
Precision Castparts Corp. | 13,850 | 1,920,995 |
| 3,120,767 | |
Air Freight & Logistics 1.9% | ||
C.H. Robinson Worldwide, Inc. (a) | 25,420 | 1,375,730 |
Expeditors International of Washington, Inc. | 27,200 | 1,215,296 |
| 2,591,026 | |
Commercial Services & Supplies 2.7% | ||
Covanta Holding Corp.* (a) | 25,500 | 705,330 |
FTI Consulting, Inc.* (a) | 17,760 | 1,094,726 |
Stericycle, Inc.* | 19,270 | 1,144,638 |
Waste Connections, Inc.* | 21,050 | 650,445 |
| 3,595,139 | |
|
| Value ($) |
|
| |
Construction & Engineering 0.9% | ||
Shaw Group, Inc.* | 19,150 | 1,157,426 |
Electrical Equipment 4.0% | ||
AMETEK, Inc. | 37,040 | 1,734,954 |
First Solar, Inc.* | 8,390 | 2,241,304 |
Roper Industries, Inc. | 20,870 | 1,305,210 |
| 5,281,468 | |
Industrial Conglomerates 1.0% | ||
McDermott International, Inc.* | 23,220 | 1,370,677 |
Machinery 5.9% | ||
AGCO Corp.* (a) | 28,300 | 1,923,834 |
Flowserve Corp. | 19,640 | 1,889,368 |
Harsco Corp. | 27,250 | 1,745,907 |
Manitowoc Co., Inc. | 23,300 | 1,137,739 |
SPX Corp. | 11,790 | 1,212,602 |
| 7,909,450 | |
Information Technology 22.6% | ||
Communications Equipment 2.2% | ||
Foundry Networks, Inc.* | 47,800 | 837,456 |
Juniper Networks, Inc.* | 61,620 | 2,045,784 |
| 2,883,240 | |
Computers & Peripherals 1.1% | ||
Seagate Technology | 55,970 | 1,427,235 |
Electronic Equipment & Instruments 1.0% | ||
Dolby Laboratories, Inc. "A"* | 27,870 | 1,385,696 |
Internet Software & Services 4.3% | ||
Equinix, Inc.* | 7,530 | 761,057 |
Omniture, Inc.* | 24,000 | 798,960 |
SINA Corp.* | 17,800 | 788,718 |
VeriSign, Inc.* (a) | 63,120 | 2,373,943 |
VistaPrint Ltd.* (a) | 25,510 | 1,093,104 |
| 5,815,782 | |
IT Services 1.7% | ||
MasterCard, Inc. "A" (a) | 10,590 | 2,278,968 |
Semiconductors & Semiconductor Equipment 6.4% | ||
Atheros Communications* | 32,440 | 990,718 |
Cavium Networks, Inc.* (a) | 28,450 | 654,919 |
Cypress Semiconductor Corp.* | 24,580 | 885,618 |
MEMC Electronic Materials, Inc.* | 25,770 | 2,280,387 |
NVIDIA Corp.* | 39,715 | 1,351,104 |
Silicon Laboratories, Inc.* (a) | 22,270 | 833,566 |
Varian Semiconductor Equipment Associates, Inc.* | 44,080 | 1,630,960 |
| 8,627,272 | |
Software 5.9% | ||
Activision, Inc.* | 42,670 | 1,267,299 |
Citrix Systems, Inc.* | 46,990 | 1,786,090 |
|
| Value ($) |
|
| |
Electronic Arts, Inc.* | 33,700 | 1,968,417 |
McAfee, Inc.* | 17,540 | 657,750 |
Nuance Communications, Inc.* | 33,900 | 633,252 |
Salesforce.com, Inc.* (a) | 25,450 | 1,595,460 |
| 7,908,268 | |
Materials 5.3% | ||
Chemicals 2.6% | ||
Air Products & Chemicals, Inc. | 17,510 | 1,727,011 |
The Mosaic Co.* | 18,550 | 1,750,007 |
| 3,477,018 | |
Containers & Packaging 1.8% | ||
Owens-Illinois, Inc.* | 49,480 | 2,449,260 |
Metals & Mining 0.9% | ||
Steel Dynamics, Inc. (a) | 20,380 | 1,214,037 |
Telecommunication Services 1.9% | ||
Wireless Telecommunication Services | ||
Crown Castle International Corp.* | 32,040 | 1,332,864 |
Millicom International Cellular SA* | 4,730 | 557,856 |
SBA Communications Corp. "A"* | 19,500 | 659,880 |
| 2,550,600 | |
Utilities 3.1% | ||
Electric Utilities 0.8% | ||
Allegheny Energy, Inc. | 17,760 | 1,129,714 |
Gas Utilities 0.9% | ||
Questar Corp. | 21,300 | 1,152,330 |
Independent Power Producers & Energy Traders 1.4% | ||
NRG Energy, Inc.* (a) | 43,600 | 1,889,624 |
Total Common Stocks (Cost $99,977,964) | 134,459,639 | |
| ||
Securities Lending Collateral 19.4% | ||
Daily Assets Fund Institutional, 5.03% (b) (c) (Cost $26,025,007) | 26,025,007 | 26,025,007 |
| ||
Cash Equivalents 0.4% | ||
Cash Management QP Trust, 4.67% (b) (Cost $578,827) | 578,827 | 578,827 |
| % of Net Assets | Value ($) |
|
| |
Total Investment Portfolio (Cost $126,581,798)+ | 120.1 | 161,063,473 |
Other Assets and Liabilities, Net | (20.1) | (26,998,578) |
Net Assets | 100.0 | 134,064,895 |
+ The cost for federal income tax purposes was $126,708,015. At December 31, 2007, net unrealized appreciation for all securities based on tax cost was $34,355,458. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $35,621,423 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $1,265,965.
(a) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2007 amounted to $25,410,921 which is 19.0% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.
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, 2007 | |
Assets | |
Investments: Investments in securities, at value (cost $99,977,964) — including $25,410,921 of securities loaned | $ 134,459,639 |
Investment in Daily Assets Fund Institutional (cost $26,025,007)* | 26,025,007 |
Investment in Cash Management QP Trust (cost $578,827) | 578,827 |
Total investments, at value (cost $126,581,798) | 161,063,473 |
Cash | 15,147 |
Dividends receivable | 63,212 |
Interest receivable | 17,861 |
Receivable for Portfolio shares sold | 14,241 |
Due from Advisor | 2,553 |
Other assets | 3,069 |
Total assets | 161,179,556 |
Liabilities | |
Payable upon return of securities loaned | 26,025,007 |
Payable for investments purchased | 662,526 |
Payable for Portfolio shares redeemed | 239,978 |
Accrued management fee | 94,830 |
Other accrued expenses and payables | 92,320 |
Total liabilities | 27,114,661 |
Net assets, at value | $ 134,064,895 |
Net Assets Consist of | |
Accumulated net investment loss | (4,298) |
Net unrealized appreciation (depreciation) on investments | 34,481,675 |
Accumulated net realized gain (loss) | 23,021,594 |
Paid-in capital | 76,565,924 |
Net assets, at value | $ 134,064,895 |
Class A Net Asset Value, offering and redemption price per share ($128,764,146 ÷ 10,261,710 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.55 |
Class B Net Asset Value, offering and redemption price per share ($5,300,749 ÷ 432,386 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.26 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2007 | |
Investment Income | |
Income: Dividends | $ 598,612 |
Interest — Cash Management QP Trust | 90,717 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 97,855 |
Total Income | 787,184 |
Expenses: Management fee | 1,067,206 |
Services to shareholders | 190 |
Custodian and accounting fees | 100,641 |
Distribution service fee (Class B) | 30,511 |
Record keeping fees (Class B) | 15,831 |
Professional fees | 57,832 |
Trustees' fees and expenses | 23,179 |
Reports to shareholders | 6,299 |
Other | 16,953 |
Total expenses before expense reductions | 1,318,642 |
Expense reductions | (3,384) |
Total expenses after expense reductions | 1,315,258 |
Net investment income (loss) | (528,074) |
Realized and Unrealized Gain (Loss) | |
Net realized gain (loss) from investments | 23,736,292 |
Change in net unrealized appreciation (depreciation) on investments | 7,277,206 |
Net gain (loss) | 31,013,498 |
Net increase (decrease) in net assets resulting from operations | $ 30,485,424 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended December 31, | |
2007 | 2006 | |
Operations: Net investment income (loss) | $ (528,074) | $ (189,600) |
Net realized gain (loss) | 23,736,292 | 11,845,281 |
Change in net unrealized appreciation (depreciation) | 7,277,206 | (2,726,806) |
Net increase (decrease) in net assets resulting from operations | 30,485,424 | 8,928,875 |
Distributions to shareholders from: Net realized gains: Class A | (9,828,253) | (9,522,910) |
Class B | (2,183,905) | (2,156,952) |
Total distributions | (12,012,158) | (11,679,862) |
Portfolio share transactions: Class A Proceeds from shares sold | 17,681,217 | 8,775,738 |
Reinvestment of distributions | 9,828,253 | 9,522,910 |
Cost of shares redeemed | (33,144,770) | (20,986,374) |
Net increase (decrease) in net assets from Class A share transactions | (5,635,300) | (2,687,726) |
Class B Proceeds from shares sold | 706,509 | 3,506,164 |
Reinvestment of distributions | 2,183,905 | 2,156,952 |
Cost of shares redeemed | (24,376,442) | (6,329,936) |
Net increase (decrease) in net assets from Class B share transactions | (21,486,028) | (666,820) |
Increase (decrease) in net assets | (8,648,062) | (6,105,533) |
Net assets at beginning of period | 142,712,957 | 148,818,490 |
Net assets at end of period (including accumulated net investment loss of $4,298 and $2,089, respectively) | $ 134,064,895 | $ 142,712,957 |
Other Information | ||
Class A Shares outstanding at beginning of period | 10,696,292 | 11,034,621 |
Shares sold | 1,504,234 | 775,698 |
Shares issued to shareholders in reinvestment of distributions | 950,508 | 829,522 |
Shares redeemed | (2,889,324) | (1,943,549) |
Net increase (decrease) in Class A shares | (434,582) | (338,329) |
Shares outstanding at end of period | 10,261,710 | 10,696,292 |
Class B Shares outstanding at beginning of period | 2,410,110 | 2,497,836 |
Shares sold | 61,336 | 324,988 |
Shares issued to shareholders in reinvestment of distributions | 215,587 | 190,543 |
Shares redeemed | (2,254,647) | (603,257) |
Net increase (decrease) in Class B shares | (1,977,724) | (87,726) |
Shares outstanding at end of period | 432,386 | 2,410,110 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 10.92 | $ 11.02 | $ 9.86 | $ 8.88 | $ 5.98 |
Income (loss) from investment operations: Net investment income (loss)a | (.04) | (.01) | (.05) | (.07) | (.06) |
Net realized and unrealized gain (loss) | 2.64 | .77 | 1.21 | 1.05 | 2.96 |
Total from investment operations | 2.60 | .76 | 1.16 | .98 | 2.90 |
Less distributions from: Net realized gains | (.97) | (.86) | — | — | — |
Net asset value, end of period | $ 12.55 | $ 10.92 | $ 11.02 | $ 9.86 | $ 8.88 |
Total Return (%) | 25.75 | 6.52 | 11.76 | 11.04 | 48.49 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 129 | 117 | 122 | 118 | 110 |
Ratio of expenses (%) | .95 | .97 | 1.11 | 1.19 | 1.18 |
Ratio of net investment income (loss) (%) | (.36) | (.06) | (.56) | (.82) | (.90) |
Portfolio turnover rate (%) | 133 | 148 | 151 | 174 | 155 |
a Based on average shares outstanding during the period. |
Class B Years Ended December 31, | 2007 | 2006 | 2005 | 2004 | 2003 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 10.73 | $ 10.88 | $ 9.78 | $ 8.84 | $ 5.97 |
Income (loss) from investment operations: Net investment income (loss)a | (.08) | (.05) | (.09) | (.10) | (.09) |
Net realized and unrealized gain (loss) | 2.58 | .76 | 1.19 | 1.04 | 2.96 |
Total from investment operations | 2.50 | .71 | 1.10 | .94 | 2.87 |
Less distributions from: Net realized gains | (.97) | (.86) | — | — | — |
Net asset value, end of period | $ 12.26 | $ 10.73 | $ 10.88 | $ 9.78 | $ 8.84 |
Total Return (%) | 25.13 | 6.21 | 11.25b | 10.63 | 48.07 |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 5 | 26 | 27 | 23 | 13 |
Ratio of expenses before expense reductions (%) | 1.34 | 1.37 | 1.51 | 1.56 | 1.57 |
Ratio of expenses after expense reductions (%) | 1.34 | 1.37 | 1.48 | 1.56 | 1.57 |
Ratio of net investment income (loss) (%) | (.75) | (.46) | (.93) | (1.19) | (1.29) |
Portfolio turnover rate (%) | 133 | 148 | 151 | 174 | 155 |
a Based on an average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. |
A. Significant Accounting Policies
DWS 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-one portfolios (hereinafter referred to individually as "Portfolio" or collectively as "Portfolios"), including three portfolios that invest primarily in existing DWS 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 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 fees). Differences in class-level expenses may result in payment of different per share dividends by class. All shares have equal rights with respect to voting subject to class-specific arrangements.
The 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 rate to maturity of any discount or premium.
Investments in securities 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. Certain 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.
In September 2006, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. As of December 31, 2007, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.
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 gain/appreciation and loss/depreciation on investments.
Repurchase Agreements. Each Portfolio may enter into repurchase agreements with certain banks and broker/dealers whereby each Portfolio, through its custodian or sub-custodian bank, receives 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 Portfolio has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the Portfolio's claim on the collateral may be subject to legal proceedings.
Securities Lending. Each Portfolio, except DWS Money Market VIP, DWS Moderate Allocation VIP, DWS Growth Allocation VIP and DWS Conservative Allocation VIP, may lend securities to financial institutions. The Portfolio retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Portfolio requires the borrowers of the securities to maintain collateral with the Portfolio consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. The Portfolio may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Portfolio receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Portfolio or the borrower may terminate the loan. The Portfolio is subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.
Interest Rate Swap Contracts. DWS Balanced VIP, DWS Government & Agency Securities VIP and DWS Strategic Income VIP may enter into interest rate swap transactions to reduce the interest rate risk inherent in the Portfolio's underlying investments. The use of interest rate swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Portfolio would agree to pay to the other party to the interest rate swap (which is known as the "counterparty") a fixed rate payment in exchange for the counterparty agreeing to pay to the Portfolio a variable rate payment, or the Portfolio would agree to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Portfolio a variable rate payment. The payment obligations would be based on the notional amount of the swap. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in interest rates. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by the counterparty and the change in value is recorded as unrealized appreciation or depreciation.
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. DWS Balanced VIP, DWS High Income VIP and DWS Strategic Income VIP 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 Portfolio is recorded as an asset on the statement of assets and liabilities. An upfront payment received by the Portfolio 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. Each Portfolio, except for DWS Money Market VIP, 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). Each Portfolio, except for DWS Money Market VIP, 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. Each Portfolio, except for DWS Money Market VIP, 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.
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 and Assignments. DWS Balanced VIP, DWS High Income VIP and DWS Strategic Income VIP may invest in Loan Participations and Assignments. Loan Participations and Assignments are portions of loans originated by banks and sold in pieces to investors. These US dollar-denominated fixed and floating rate loans ("Loans") in which the Portfolio invests, are arranged between the borrower and one or more financial institutions ("Lenders"). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy-outs and refinancings, and Sovereign Loans, which are debt instruments between a foreign sovereign entity and one or more financial institutions. The Portfolio invests in such Loans in the form of participations in Loans ("Participations") or assignments of all or a portion of Loans from third parties ("Assignments"). Participations typically result in the Portfolio having a contractual relationship only with the Lender, not with the borrower. The Portfolio has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the Portfolio generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, or any rights of set-off against the borrower, and the Portfolio will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Portfolio assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Portfolio having a direct contractual relationship with the borrower, and the Portfolio may enforce compliance by the borrower with the terms of the loan agreement. All Loan Participations and Assignments involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
Mortgage Dollar Rolls. DWS Core Fixed Income VIP, DWS Government & Agency Securities VIP and DWS Balanced VIP may enter into mortgage dollar rolls in which the 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. The 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.
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 the Portfolio is able to repurchase them. There can be no assurance that the Portfolio's use of the cash that it receives from a mortgage dollar roll will provide a return that exceeds its costs.
When-Issued/Delayed Delivery Securities. DWS Balanced VIP, DWS Core Fixed Income VIP, DWS Government & Agency Securities VIP, DWS High Income VIP and DWS Strategic Income VIP may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Portfolios enter 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 Portfolios until payment takes place. At the time the Portfolios enter 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.
Taxes. Each Portfolio's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, each Portfolio paid no federal income taxes and no federal income tax provision was required.
Additionally, based on the Portfolios' understanding of the tax rules and rates related to income, gains and transactions for the foreign jurisdictions in which they invest, the Portfolios will provide for foreign taxes, and where appropriate, deferred foreign taxes.
At December 31, 2007, the following Portfolios 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 ($) | Expiration | Capital Loss Carryforward Utilized ($) |
DWS Balanced VIP* | 1,788,000 | 12/31/2009 | 46,988,000 |
| 1,388,000 | 12/31/2011 | |
DWS Core Fixed Income VIP | 3,813,000 | 12/31/2014 | — |
| 50,000 | 12/31/2015 | |
DWS Government & Agency Securities VIP | 14,000 | 12/31/2013 | — |
| 1,337,000 | 12/31/2014 | |
| 924,000 | 12/31/2015 | |
DWS High Income VIP | 16,114,000 | 12/31/2008 | — |
| 22,935,000 | 12/31/2009 | |
| 55,108,000 | 12/31/2010 | |
| 13,877,000 | 12/31/2011 | |
| 3,844,000 | 12/31/2014 | |
| 858,000 | 12/31/2015 | |
DWS Janus Growth & Income VIP | — | — | 15,655,000 |
DWS Mid Cap Growth VIP | 20,155,000 | 12/31/2011 | 8,380,000 |
DWS Money Market VIP | — | — | 1,800 |
DWS Small Cap Growth VIP | 11,300,000 | 12/31/2009 | 30,000,000 |
| 72,000,000 | 12/31/2010 | |
| 4,100,000 | 12/31/2011 | |
DWS Strategic Income VIP | — | — | 23,340 |
DWS Technology VIP | 73,056,000 | 12/31/2009 | 13,637,000 |
| 93,499,000 | 12/31/2010 | |
| 71,517,000 | 12/31/2011 |
In addition, from November 1, 2007 through December 31, 2007, the following Portfolios incurred net realized capital losses. 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, 2008.
Portfolio |
|
DWS Blue Chip VIP | 3,680,000 |
DWS Core Fixed Income VIP | 717,000 |
DWS Government & Agency Securities VIP | 585,000 |
DWS High Income VIP | 1,327,000 |
DWS Mid Cap Growth VIP | 400,000 |
The Portfolios have reviewed the tax positions for each of the three open tax years as of December 31, 2007 and have determined that no provision for income tax is required in the Portfolios' financial statements. The Portfolios' federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. Distributions of net investment income, if any, for each Portfolio, except DWS Money Market VIP, are made annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to each Portfolio if not distributed and, therefore, will be distributed to shareholders at least annually. All of the net investment income of 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. These differences primarily relate to net operating losses, investments in foreign denominated investments, investments in forward foreign currency exchange contracts, investments in futures, income received from Passive Foreign Investment Companies and Real Estate Investment Trusts and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, each Portfolio may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Portfolio.
At December 31, 2007, the 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 | 17,873,345 | — | (3,176,000) | 47,302,499 |
DWS Blue Chip VIP | 22,768,418 | 18,254,623 | — | 12,641,773 |
DWS Conservative Allocation VIP | 1,971,806 | 3,209,268 | — | 649,323 |
DWS Core Fixed Income VIP | 16,739,742 | — | (3,863,000) | (3,039,437) |
DWS Davis Venture Value VIP | 7,864,318 | 31,468,257 | — | 116,753,589 |
DWS Dreman High Return Equity VIP | 45,097,725 | 96,459,670 | — | 153,927,327 |
DWS Dreman Small Mid Cap Value VIP | 41,725,108 | 134,537,180 | — | 13,422,040 |
DWS Global Thematic VIP | 21,056,765 | 19,678,184 | — | (4,083,639) |
DWS Government & Agency Securities VIP | 10,244,329 | — | (2,275,000) | 635,734 |
DWS Growth Allocation VIP | 5,695,293 | 23,261,296 | — | 1,455,665 |
DWS High Income VIP | 24,600,992 | — | (112,736,000) | (17,616,454) |
DWS International Select Equity VIP | 31,088,908 | 29,324,473 | — | 38,738,966 |
DWS Janus Growth & Income VIP | 1,511,363 | 11,064,755 | — | 32,590,566 |
DWS Large Cap Value VIP | 16,236,155 | 40,280,218 | — | 31,678,627 |
DWS Mid Cap Growth VIP | — | — | (20,155,000) | 12,286,130 |
DWS Moderate Allocation VIP | 5,472,721 | 15,760,374 | — | 1,610,541 |
DWS Small Cap Growth VIP | — | — | (87,400,000) | 30,942,311 |
DWS Strategic Income VIP | 7,048,954 | 908,461 | — | 112,322 |
DWS Technology VIP | — | — | (238,072,000) | 20,338,472 |
DWS Turner Mid Cap Growth VIP | 5,018,188 | 18,129,623 | — | 34,355,458 |
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 | 2007 | 2006 | 2007 | 2006 |
DWS Balanced VIP | 19,822,898 | 16,639,374 | — | — |
DWS Blue Chip VIP | 29,126,324 | 11,866,416 | 14,583,277 | 8,865,566 |
DWS Conservative Allocation VIP | 1,232,404 | 710,388 | 1,555,295 | 151,805 |
DWS Core Fixed Income VIP | 15,592,450 | 12,044,592 | — | 54,870 |
DWS Davis Venture Value VIP | 2,795,861 | 2,297,497 | 5,303,652 | — |
DWS Dreman High Return Equity VIP | 15,617,453 | 18,038,346 | 9,463,569 | 44,395,610 |
DWS Dreman Small Mid Cap Value VIP | 29,285,554 | 5,725,641 | 68,746,041 | 47,358,429 |
DWS Global Thematic VIP | 14,911,083 | 1,387,851 | 12,511,360 | 8,033,573 |
DWS Government & Agency Securities VIP | 11,682,544 | 10,381,592 | — | — |
DWS Growth Allocation VIP | 5,836,849 | 2,576,899 | 8,822,145 | 788,847 |
DWS High Income VIP | 28,464,473 | 30,330,043 | — | — |
DWS International Select Equity VIP | 11,746,411 | 5,425,661 | 24,138,562 | — |
DWS Janus Growth & Income VIP | 1,145,877 | 1,319,542 | — | — |
DWS Large Cap Value VIP | 7,889,590 | 4,756,584 | 8,775,628 | — |
DWS Moderate Allocation VIP | 3,978,433 | 2,260,725 | 6,522,877 | 565,181 |
DWS Money Market VIP | 17,550,147 | 14,556,487 | — | — |
DWS Strategic Income VIP | 6,882,054 | 5,462,385 | — | 25,142 |
DWS Turner Mid Cap Growth VIP | — | — | 12,012,158 | 11,679,862 |
Expenses. Expenses arising in connection with a specific Portfolio are allocated to that Portfolio. Trust expenses are allocated between each Portfolio in proportion to its relative net assets.
Contingencies. In the normal course of business, each Portfolio may enter into contracts with service providers that contain general indemnification clauses. The Portfolio's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolio that have not yet been made. However, based on experience, the Portfolio expects the risk of loss to be remote.
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 each Portfolio, 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, 2007, 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 | 872,312,101 | 984,871,413 |
US Treasury Obligations | 184,105,640 | 191,036,369 |
mortgage dollar roll transactions | 53,941,531 | 53,791,508 |
DWS Blue Chip VIP | 844,217,552 | 964,021,997 |
DWS Conservative Allocation VIP | 15,629,658 | 49,785,000 |
DWS Core Fixed Income VIP excluding US Treasury Obligations and mortgage dollar roll transactions | 191,133,690 | 283,257,959 |
US Treasury Obligations | 499,865,461 | 503,204,559 |
mortgage dollar roll transactions | 39,664,115 | 43,728,427 |
DWS Davis Venture Value VIP | 36,310,234 | 143,007,549 |
DWS Dreman High Return Equity VIP | 273,936,835 | 582,135,059 |
DWS Dreman Small Mid Cap Value VIP | 616,279,362 | 774,950,695 |
DWS Global Thematic VIP | 320,123,774 | 336,945,786 |
DWS Government & Agency Securities VIP excluding US Treasury Obligations and mortgage dollar roll transactions | 1,004,530,722 | 1,017,184,508 |
US Treasury Obligations | 26,025,195 | 35,079,250 |
mortgage dollar roll transactions | 363,768,140 | 361,788,464 |
DWS Growth Allocation VIP | 58,333,474 | 224,355,000 |
DWS High Income VIP | 190,435,304 | 284,335,711 |
DWS International Select Equity VIP | 309,615,931 | 395,591,503 |
DWS Janus Growth & Income VIP | 141,908,209 | 204,290,502 |
DWS Large Cap Value VIP | 281,859,375 | 396,513,960 |
DWS Mid Cap Growth VIP | 38,434,583 | 51,307,602 |
DWS Moderate Allocation VIP | 48,531,913 | 183,410,000 |
DWS Small Cap Growth VIP | 142,983,423 | 220,401,619 |
DWS Strategic Income VIP excluding US Treasury Securities | 86,505,803 | 91,227,114 |
US Treasury Securities | 51,196,178 | 52,730,717 |
DWS Technology VIP | 146,486,157 | 187,649,687 |
DWS Turner Mid Cap Growth VIP | 177,348,567 | 216,098,292 |
For the year ended December 31, 2007, transactions for written options on swaps were as follows for DWS Balanced VIP:
| Number of Contracts | Premium |
Outstanding, beginning of period | — | $ — |
Options written | 1,160,000 | 1,740 |
Options closed | (870,000) | (1,378) |
Options expired | (290,000) | (362) |
Outstanding, end of period | — | $ — |
For the year ended December 31, 2007, transactions for written options on swaps were as follows for DWS Government & Agency Securities VIP:
| Number of Contracts | Premium |
Outstanding, beginning of period | — | $ — |
Options written | 1,480,000 | 2,220 |
Options closed | (1,110,000) | (1,758) |
Options expired | (370,000) | (462) |
Outstanding, end of period | — | $ — |
For the year ended December 31, 2007, transactions for written options on swaps were as follows for DWS Strategic Income VIP:
| Number of Contracts | Premium |
Outstanding, beginning of period | — | $ — |
Options written | 260,000 | 390 |
Options closed | (195,000) | (309) |
Options expired | (65,000) | (81) |
Outstanding, end of period | — | $ — |
For the year ended December 31, 2007, transactions for written options on securities were as follows for DWS Technology VIP:
| Number of Contracts | Premium |
Outstanding, beginning of period | 536 | $ 100,465 |
Options written | 1,405 | 204,956 |
Options closed | (1,767) | (259,833) |
Options expired | (174) | (45,588) |
Outstanding, end of period | — | $ — |
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of each Portfolio in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by each Portfolio or delegates such responsibility to each Portfolio's subadvisor. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Investment Management Agreement. Accordingly, for the year ended December 31, 2007, the fees pursuant to the Investment Management Agreement were equivalent to the annual rates shown below of each Portfolio's average daily net assets, computed and accrued daily and payable monthly:
Portfolio | Annual Management Fee Rate |
DWS Balanced VIP $0-$250 million | .470% |
next $750 million | .445% |
over $1 billion | .410% |
DWS Blue Chip VIP $0-$250 million | .650% |
next $750 million | .620% |
next $1.5 billion | .600% |
next $2.5 billion | .580% |
next $2.5 billion | .550% |
next $2.5 billion | .530% |
next $2.5 billion | .510% |
over $12.5 billion | .490% |
DWS Conservative Allocation VIP $0-$500 million | .150% |
next $500 million | .140% |
next $500 million | .130% |
next $1 billion | .120% |
over $2.5 billion | .110% |
DWS Core Fixed Income VIP $0-$250 million | .600% |
next $750 million | .570% |
next $1.5 billion | .550% |
next $2.5 billion | .530% |
next $2.5 billion | .500% |
next $2.5 billion | .480% |
next $2.5 billion | .460% |
over $12.5 billion | .440% |
DWS Davis Venture Value VIP $0-$250 million | .950% |
next $250 million | .925% |
next $500 million | .900% |
next $1.5 billion | .875% |
over $2.5 billion | .850% |
DWS Dreman High Return Equity VIP $0-$250 million | .750% |
next $750 million | .720% |
next $1.5 billion | .700% |
next $2.5 billion | .680% |
next $2.5 billion | .650% |
next $2.5 billion | .640% |
next $2.5 billion | .630% |
over $12.5 billion | .620% |
DWS Dreman Small Mid Cap Value VIP $0-$250 million | .750% |
next $750 million | .720% |
next $1.5 billion | .700% |
next $2.5 billion | .680% |
next $2.5 billion | .650% |
next $2.5 billion | .640% |
next $2.5 billion | .630% |
over $12.5 billion | .620% |
DWS Global Thematic VIP $0-$250 million | 1.000% |
next $500 million | .950% |
next $750 million | .900% |
next $1.5 billion | .850% |
over $3 billion | .800% |
DWS Government & Agency Securities VIP $0-$250 million | .550% |
next $750 million | .530% |
next $1.5 billion | .510% |
next $2.5 billion | .500% |
next $2.5 billion | .480% |
next $2.5 billion | .460% |
next $2.5 billion | .440% |
over $12.5 billion | .420% |
DWS Growth Allocation VIP $0-$500 million | .150% |
next $500 million | .140% |
next $500 million | .130% |
next $1 billion | .120% |
over $2.5 billion | .110% |
DWS High Income VIP $0-$250 million | .600% |
next $750 million | .570% |
next $1.5 billion | .550% |
next $2.5 billion | .530% |
next $2.5 billion | .500% |
next $2.5 billion | .480% |
next $2.5 billion | .460% |
over $12.5 billion | .440% |
DWS International Select Equity VIP $0-$1.5 billion | .750% |
next $1.75 billion | .735% |
next $1.75 billion | .720% |
over $5 billion | .705% |
DWS Janus Growth & Income VIP $0-$250 million | .750% |
next $750 million | .725% |
next $1.5 billion | .700% |
over $2.5 billion | .675% |
DWS Mid Cap Growth VIP $0-$250 million | .750% |
next $750 million | .720% |
next $1.5 billion | .700% |
next $2.5 billion | .680% |
next $2.5 billion | .650% |
next $2.5 billion | .640% |
next $2.5 billion | .630% |
over $12.5 billion | .620% |
DWS Moderate Allocation VIP $0-$500 million | .150% |
next $500 million | .140% |
next $500 million | .130% |
next $1 billion | .120% |
over $2.5 billion | .110% |
DWS Money Market VIP $0-$500 million | .385% |
next $500 million | .370% |
next $1.0 billion | .355% |
over $2.0 billion | .340% |
DWS Small Cap Growth VIP $0-$250 million | .650% |
next $750 million | .625% |
over $1 billion | .600% |
DWS Strategic Income VIP $0-$250 million | .650% |
next $750 million | .620% |
next $1.5 billion | .600% |
next $2.5 billion | .580% |
next $2.5 billion | .550% |
next $2.5 billion | .530% |
next $2.5 billion | .510% |
over $12.5 billion | .490% |
DWS Technology VIP $0-$250 million | .750% |
next $750 million | .720% |
next $1.5 billion | .700% |
next $2.5 billion | .680% |
next $2.5 billion | .650% |
next $2.5 billion | .640% |
next $2.5 billion | .630% |
over $12.5 billion | .620% |
DWS Turner Mid Cap Growth VIP $0-$250 million | .800% |
next $250 million | .785% |
next $500 million | .770% |
over $1 billion | .755% |
In addition, for the period from January 1, 2007 through April 10, 2007, the fee pursuant to the Investment Management Agreement was equivalent to the annual rates shown below of DWS Large Cap Value VIP's average daily net assets, accrued daily and payable monthly:
| Annual Management Fee Rate |
$0-$250 million | .750% |
next $750 million | .725% |
next $1.5 billion | .700% |
next $2.5 billion | .675% |
next $2.5 billion | .650% |
next $2.5 billion | .625% |
next $2.5 billion | .600% |
over $12.5 billion | .575% |
Effective April 11, 2007, the fee pursuant to the Investment Management Agreement was equivalent to the annual rates shown below of DWS Large Cap Value VIP's average daily net assets, accrued daily and payable monthly:
| Annual Management Fee Rate |
$0-$250 million | .650% |
next $750 million | .625% |
next $1.5 billion | .600% |
next $2.5 billion | .575% |
next $2.5 billion | .550% |
next $2.5 billion | .525% |
next $2.5 billion | .500% |
over $12.5 billion | .475% |
In addition, under a separate administrative services agreement between DWS Large Cap Value VIP and the Advisor, DWS Large Cap Value VIP pays the Advisor for providing most of the Portfolio's administrative services. (See Administration Fee below.)
Aberdeen Asset Management Inc. serves as subadvisor to DWS Core Fixed Income VIP and is paid by the Advisor for its services.
Dreman Value Management, L.L.C. serves as subadvisor to DWS Dreman High Return Equity VIP and DWS Dreman Small Mid Cap Value VIP and is paid by the Advisor for its services.
Janus Capital Management, LLC serves as subadvisor to DWS Janus Growth & Income VIP and is paid by the Advisor for its services.
Turner Investment Partners, Inc. serves as subadvisor to DWS Turner Mid Cap Growth VIP and is paid by the Advisor for its services.
Davis Selected Advisers, L.P., serves as subadvisor to DWS Davis Venture Value VIP and is paid by the Advisor for its services.
Effective February 5, 2007, Deutsche Asset Management International GmbH ("DeAMi") serves as subadvisor to DWS Large Cap Value VIP and is paid by the Advisor for its services.
For the year ended December 31, 2007, the Advisor has agreed to waive 0.05% of the monthly management fee based on average daily net assets of Class B of DWS Conservative Allocation VIP, DWS Growth Allocation VIP and DWS Moderate Allocation VIP.
For the period from January 1, 2007 through January 31, 2007, the Advisor, the underwriter and accounting agent contractually had agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) as follows:
Portfolio | Annual Rate |
DWS Davis Venture Value VIP Class A | .85% |
Class B | 1.25% |
DWS Global Thematic VIP Class A | 1.05% |
Class B | 1.49% |
DWS Mid Cap Growth VIP Class A | .86% |
Class B | 1.26% |
For the period from January 1, 2007 through May 6, 2007, the Advisor, the underwriter and the accounting agent contractually had agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) as follows:
Portfolio | Annual Rate |
DWS Dreman High Return Equity VIP Class B | 1.15% |
DWS Money Market VIP Class B | .81% |
For the period from May 7, 2007 through April 30, 2010, the Advisor, the underwriter and the accounting agent contractually have agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expenses) as follows:
Portfolio | Annual Rate |
DWS Dreman High Return Equity VIP Class B | 1.11% |
DWS Money Market VIP Class B | .79% |
For the period from January 1, 2007 through September 30, 2007, the Advisor, the underwriter and accounting agent contractually had agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) as follows:
Portfolio | Annual Rate |
DWS Conservative Allocation VIP Class B | .75% |
DWS Growth Allocation VIP Class B | .75% |
DWS Moderate Allocation VIP Class B | .75% |
For the period from January 1, 2007 through April 30, 2008, the Advisor, the underwriter and accounting agent contractually have agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) as follows:
Portfolio | Annual Rate |
DWS Balanced VIP Class A | .51% |
Class B | .89% |
DWS Small Cap Growth VIP Class A | .72% |
Class B | 1.09% |
For the period from January 1, 2007 through April 30, 2010, the Advisor, the underwriter and accounting agent contractually have agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expenses) as follows:
Portfolio | Annual Rate |
DWS Dreman High Return Equity VIP Class A | .78% |
DWS Money Market VIP Class A | .44% |
For the period from February 1, 2007 through September 30, 2007, the Advisor, the underwriter and accounting agent contractually had agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expenses) as follows:
Portfolio | Annual Rate |
DWS Davis Venture Value VIP Class A | .89% |
Class B | 1.29% |
DWS Global Thematic VIP Class A | 1.12% |
Class B | 1.52% |
DWS Mid Cap Growth VIP Class A | .90% |
Class B | 1.30% |
For the period from February 1, 2007 through April 30, 2008, the Advisor, the underwriter and accounting agent contractually had agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses) as follows:
Portfolio | Annual Rate |
DWS Government & Agency Securities VIP Class A | .63% |
Effective October 1, 2007 through April 30, 2008, the Advisor, the underwriter and accounting agent have contractually agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) as follows:
Portfolio | Annual Rate |
DWS Davis Venture Value VIP Class A | .86% |
Class B | 1.26% |
Effective October 1, 2007 through September 30, 2008, the Advisor, the underwriter and accounting agent have contractually agreed to waive all or a portion of their respective fees and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of each class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) as follows:
Portfolio | Annual Rate |
DWS Conservative Allocation VIP Class B | .70% |
DWS Core Fixed Income VIP Class A | .70% |
DWS Global Thematic VIP Class A | 1.05% |
Class B | 1.45% |
DWS Government & Agency Securities VIP |
|
Class B | 1.04% |
DWS Growth Allocation VIP Class B | .70% |
DWS Mid Cap Growth VIP Class A | .94% |
Class B | 1.34% |
DWS Moderate Allocation VIP Class B | .70% |
DWS Strategic Income VIP Class A | .83% |
Class B | 1.23% |
DWS Turner Mid Cap Growth VIP Class A | .94% |
Class B | 1.34% |
Accordingly, for the year ended December 31, 2007, the total management fees charged, management fees waived and effective management fees are as follows:
Portfolio | Total Aggregated ($) | Waived ($) | Annual Effective Rate |
DWS Balanced VIP | 2,666,534 | 30,062 | .45% |
DWS Blue Chip VIP | 2,018,922 | — | .64% |
DWS Conservative Allocation VIP | 83,535 | 27,845 | .10% |
DWS Core Fixed Income VIP | 2,144,122 | — | .59% |
DWS Davis Venture Value VIP | 3,682,130 | 573,807 | .79% |
DWS Dreman High Return Equity VIP | 7,381,802 | — | .73% |
DWS Dreman Small Mid Cap Value VIP | 4,418,373 | — | .74% |
DWS Global Thematic VIP | 1,732,290 | 578,480 | .67% |
DWS Government & Agency Securities VIP | 1,209,630 | 41,529 | .53% |
DWS Growth Allocation VIP | 296,674 | 98,891 | .10% |
DWS High Income VIP | 1,912,439 | — | .59% |
DWS International Select Equity VIP | 2,007,490 | — | .75% |
DWS Janus Growth & Income VIP | 1,474,026 | — | .75% |
DWS Large Cap Value VIP | 1,950,386 | — | .68% |
DWS Mid Cap Growth VIP | 435,886 | 83,897 | .61% |
DWS Moderate Allocation VIP | 254,334 | 84,778 | .10% |
DWS Money Market VIP | 1,392,290 | 23,928 | .38% |
DWS Small Cap Growth VIP | 1,413,741 | 54,596 | .62% |
DWS Strategic Income VIP | 697,461 | — | .65% |
DWS Technology VIP | 1,237,197 | — | .75% |
DWS Turner Mid Cap Growth VIP | 1,067,206 | — | .80% |
In addition, for the year ended December 31, 2007, the Advisor waived record keeping expenses of Class B shares of each Portfolio as follows:
Portfolio | Waived ($) |
DWS Conservative Allocation VIP | 2,430 |
DWS Dreman High Return Equity VIP | 21,420 |
DWS Global Thematic VIP | 225 |
DWS Mid Cap Growth VIP | 240 |
DWS Money Market VIP | 4,857 |
DWS Small Cap Growth VIP | 1,632 |
DWS Conservative Allocation VIP, DWS Growth Allocation VIP and DWS Moderate 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, 2007, the Portfolios held the following percentage of the Underlying Portfolios' outstanding shares as follows:
Underlying Portfolio | DWS Conservative Allocation VIP | DWS Growth Allocation VIP | DWS Moderate Allocation VIP |
DWS Core Fixed Income VIP "A" | NA | NA | 6% |
DWS RREEF Real Estate Securities VIP "A" | 14% | 46% | 40% |
N/A represents investments less than 5%.
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, except DWS Large Cap Value VIP effective April 11, 2007 (see Administration Fee below). DWS-SFAC receives no fee for its services to each Portfolio, other than the Portfolios noted below. In turn, DWS-SFAC has delegated certain fund accounting functions to a third-party service provider. For the year ended December 31, 2007, DWS-SFAC received a fee for its services as follows:
Portfolio | Total Aggregated ($) | Unpaid at December 31, 2007 ($) |
DWS Conservative Allocation VIP | 40,652 | 3,396 |
DWS Davis Venture Value VIP | 95,992 | 7,253 |
DWS Dreman High Return Equity VIP | 141,319 | 12,245 |
DWS Global Thematic VIP | 242,233 | 17,944 |
DWS Growth Allocation VIP | 45,339 | 3,774 |
DWS Janus Growth & Income VIP | 81,055 | 4,563 |
DWS Mid Cap Growth VIP | 60,283 | 4,696 |
DWS Moderate Allocation VIP | 42,640 | 3,563 |
DWS Technology VIP | 59,280 | 5,390 |
DWS Turner Mid Cap Growth VIP | 81,746 | 8,809 |
DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for each Portfolio. Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DWS-SISC compensates DST out of the shareholder servicing fee it receives from each Portfolio. For the year ended December 31, 2007, the amounts charged to each Portfolio by DWS-SISC were as follows:
Portfolio | Total Aggregated ($) | Waived ($) | Unpaid at December 31, 2007 ($) |
DWS Balanced VIP Class A | 453 | 453 | — |
DWS Balanced VIP Class B | 160 | — | 38 |
DWS Blue Chip VIP Class A | 348 | — | 57 |
DWS Blue Chip VIP Class B | 102 | — | 30 |
DWS Conservative Allocation VIP Class B | 76 | 76 | — |
DWS Core Fixed Income VIP Class A | 206 | — | 37 |
DWS Core Fixed Income VIP Class B | 162 | — | 28 |
DWS Davis Venture Value VIP Class A | 184 | 184 | — |
DWS Davis Venture Value VIP Class B | 102 | — | 30 |
DWS Dreman High Return Equity VIP Class A | 682 | — | 128 |
DWS Dreman High Return Equity VIP Class B | 313 | 313 | — |
DWS Dreman Small Mid Cap Value VIP Class A | 712 | — | 169 |
DWS Dreman Small Mid Cap Value VIP Class B | 301 | — | 75 |
DWS Global Thematic VIP Class A | 313 | 313 | — |
DWS Global Thematic VIP Class B | 153 | 153 | — |
DWS Government & Agency Securities VIP Class A | 918 | 918 | — |
DWS Government & Agency Securities VIP Class B | 96 | — | 16 |
DWS Growth Allocation VIP Class B | 76 | — | 14 |
DWS High Income VIP Class A | 375 | — | 63 |
DWS High Income VIP Class B | 173 | — | 51 |
DWS International Select Equity VIP Class A | 247 | — | 74 |
DWS International Select Equity VIP Class B | 104 | — | 32 |
DWS Janus Growth & Income VIP Class A | 128 | — | 24 |
DWS Janus Growth & Income VIP Class B | 86 | — | 14 |
DWS Large Cap Value VIP Class A | 332 | — | 60 |
DWS Large Cap Value VIP Class B | 146 | — | 33 |
DWS Mid Cap Growth VIP Class A | 237 | 237 | — |
DWS Mid Cap Growth VIP Class B | 102 | 102 | — |
DWS Moderate Allocation VIP Class B | 76 | — | 14 |
DWS Money Market VIP Class A | 690 | 690 | — |
DWS Money Market VIP Class B | 87 | 87 | — |
DWS Small Cap Growth VIP Class A | 365 | 365 | — |
DWS Small Cap Growth VIP Class B | 118 | 118 | — |
DWS Strategic Income VIP Class A | 255 | — | 186 |
DWS Strategic Income VIP Class B | 89 | — | 75 |
DWS Technology VIP Class A | 258 | — | 50 |
DWS Technology VIP Class B | 232 | — | 57 |
DWS Turner Mid Cap Growth VIP Class A | 104 | — | 19 |
DWS Turner Mid Cap Growth VIP Class B | 86 | — | 72 |
Administration Fee. Effective April 11, 2007, DWS Large Cap Value VIP entered into an Administrative Services Agreement with DIMA, pursuant to which the Advisor provides most administrative services to the Portfolio. For all services provided under the Administrative Services Agreement, the Portfolio pays DIMA an annual fee ("Administration Fee") of 0.10% of the Portfolio's average daily net assets, computed and accrued daily and payable monthly. For the period from April 11, 2007 through December 31, 2007, DIMA received an Administration Fee of $197,410, of which $21,671 is unpaid.
Distribution Service Agreement. Under the Portfolios' Class B 12b-1 plans, DWS Scudder Distributors, Inc. ("DWS-SDI") receives a fee ("Distribution Service Fee") of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2007, the Distribution Service Fee was as follows:
Portfolio | Total Aggregated ($) | Unpaid at December 31, 2007 ($) |
DWS Balanced VIP | 38,042 | 1,423 |
DWS Blue Chip VIP | 58,995 | 2,225 |
DWS Conservative Allocation VIP | 139,224 | 6,822 |
DWS Core Fixed Income VIP | 189,948 | 14,316 |
DWS Davis Venture Value VIP | 106,162 | 4,357 |
DWS Dreman High Return Equity VIP | 224,891 | 7,211 |
DWS Dreman Small Mid Cap Value VIP | 129,482 | 6,434 |
DWS Global Thematic VIP | 38,519 | 1,954 |
DWS Government & Agency Securities VIP | 38,854 | 1,180 |
DWS Growth Allocation VIP | 494,456 | 20,752 |
DWS High Income VIP | 63,359 | 1,923 |
DWS International Select Equity VIP | 87,237 | 2,827 |
DWS Janus Growth & Income VIP | 34,879 | 875 |
DWS Large Cap Value VIP | 46,834 | 1,509 |
DWS Mid Cap Growth VIP | 10,285 | 441 |
DWS Moderate Allocation VIP | 423,890 | 17,820 |
DWS Money Market VIP | 88,694 | 4,890 |
DWS Small Cap Growth VIP | 43,093 | 1,302 |
DWS Strategic Income VIP | 36,164 | 1,205 |
DWS Technology VIP | 17,126 | 725 |
DWS Turner Mid Cap Growth VIP | 30,511 | 993 |
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to each Portfolio. For the year ended December 31, 2007, the amount charged to each Portfolio by DIMA included in the Statement of Operations under "reports to shareholders" was as follows:
Portfolio | Amount ($) | Unpaid at December 31, 2007 ($) |
DWS Balanced VIP | 6,646 | 1,175 |
DWS Blue Chip VIP | 7,397 | 1,593 |
DWS Conservative Allocation VIP | 5,256 | 1,866 |
DWS Core Fixed Income VIP | 4,960 | 672 |
DWS Davis Venture Value VIP | 6,052 | 1,588 |
DWS Dreman High Return Equity VIP | 5,884 | 1,450 |
DWS Dreman Small Mid Cap Value VIP | 4,722 | 700 |
DWS Global Thematic VIP | 6,619 | 2,001 |
DWS Government & Agency Securities VIP | 5,473 | 1,147 |
DWS Growth Allocation VIP | 5,469 | 1,863 |
DWS High Income VIP | 6,825 | 2,382 |
DWS International Select Equity VIP | 8,950 | 3,311 |
DWS Janus Growth & Income VIP | 11,073 | 6,296 |
DWS Large Cap Value VIP | 5,423 | 1,081 |
DWS Mid Cap Growth VIP | 6,038 | 1,943 |
DWS Moderate Allocation VIP | 5,495 | 1,889 |
DWS Money Market VIP | 4,700 | 175 |
DWS Small Cap Growth VIP | 11,801 | 6,277 |
DWS Strategic Income VIP | 11,400 | 7,063 |
DWS Technology VIP | 6,352 | 1,909 |
DWS Turner Mid Cap Growth VIP | 5,335 | 1,085 |
Trustees' Fees and Expenses. The Portfolios paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, each Portfolio 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 pay interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high yield securities may be less liquid 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 or delayed settlements and may have prices more volatile than those of comparable securities of issuers in the United States of America.
F. Fee Reductions
For the year ended December 31, 2007, the Advisor agreed to reimburse the Portfolios 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 | 8,172 |
DWS Blue Chip VIP | 5,501 |
DWS Core Fixed Income VIP | 5,372 |
DWS Davis Venture Value VIP | 6,100 |
DWS Dreman High Return Equity VIP | 13,717 |
DWS Dreman Small Mid Cap Value VIP | 8,419 |
DWS Global Thematic VIP | 3,314 |
DWS Government & Agency Securities VIP | 4,017 |
DWS High Income VIP | 5,271 |
DWS International Select Equity VIP | 4,657 |
DWS Janus Growth & Income VIP | 3,731 |
DWS Large Cap Value VIP | 1,544 |
DWS Mid Cap Growth VIP | 1,902 |
DWS Money Market VIP | 5,017 |
DWS Small Cap Growth VIP | 4,036 |
DWS Strategic Income VIP | 2,515 |
DWS Technology VIP | 3,431 |
DWS Turner Mid Cap Growth VIP | 3,111 |
In addition, the Portfolios have entered into an arrangement 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, 2007, the Portfolios' custodian fee was reduced under the arrangement as follows:
Portfolio | Amount ($) |
DWS Balanced VIP | 2,906 |
DWS Blue Chip VIP | 236 |
DWS Core Fixed Income VIP | 604 |
DWS Davis Venture Value VIP | 276 |
DWS Dreman High Return Equity VIP | 354 |
DWS Dreman Small Mid Cap Value VIP | 658 |
DWS Government & Agency Securities VIP | 2,159 |
DWS High Income VIP | 1,549 |
DWS Janus Growth & Income VIP | 1,481 |
DWS Large Cap Value VIP | 16,517 |
DWS Mid Cap Growth VIP | 165 |
DWS Money Market VIP | 754 |
DWS Small Cap Growth VIP | 91 |
DWS Strategic Income VIP | 8,030 |
DWS Technology VIP | 131 |
DWS Turner Mid Cap Growth VIP | 273 |
G. Ownership of the Portfolios
At December 31, 2007, the beneficial ownership in each Portfolio 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%, 24% 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 98%.
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 61% and 33%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 98%.
DWS Conservative Allocation VIP: One Participating Insurance Company was owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 100%.
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 41%, 32% 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 79% and 21%.
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 77% and 20%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 98%.
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 25%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 89%.
DWS Dreman Small Mid 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 58%, 23% and 11%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the Portfolio, each owning 53% and 37%.
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 71% and 27%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 100%.
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%, 37% and 14%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 95%.
DWS Growth Allocation VIP: One Participating Insurance Company was owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 100%.
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 34%, 33% and 26%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 97%.
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 53%, 24% and 22%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 99%.
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 73% and 26%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 100%.
DWS Large 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 43%, 31% 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 99%.
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 69% and 29%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 98%.
DWS Moderate Allocation VIP: One Participating Insurance Company was owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 100%.
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 41%, 22% 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 100%.
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 50%, 23% and 20%. One Participating Insurance Company was the owner of record of 10% or more of the total outstanding Class B shares of the Portfolio, owning 100%.
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 64% and 34%. One Participating Insurance Company was the owner of record of 10% or more of the outstanding Class B shares of the Portfolio, owning 99%.
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 31%. One Participating Insurance Company was the owner of record of 10% or more of the outstanding Class B shares of the Portfolio, owning 93%.
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 83% 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 99%.
H. Line of Credit
The Trust and other affiliated funds (the "Participants") share in a $750 million revolving credit facility administered by JPMorgan Chase Bank N.A. for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.35 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 | 33% |
DWS Core Fixed Income VIP | 33% |
DWS Davis Venture Value VIP | 33% |
DWS Dreman High Return Equity VIP | 33% |
DWS Dreman Small Mid Cap Value VIP | 33% |
DWS Global Thematic VIP | 33% |
DWS Government & Agency Securities VIP | 33% |
DWS Growth Allocation VIP | 33% |
DWS High Income VIP | 33% |
DWS International Select Equity VIP | 33% |
DWS Janus Growth & Income VIP | 33% |
DWS Large Cap Value VIP | 33% |
DWS Mid Cap Growth VIP | 33% |
DWS Moderate Allocation VIP | 33% |
DWS Money Market VIP | 33% |
DWS Small Cap Growth VIP | 33% |
DWS Strategic Income VIP | 33% |
DWS Technology VIP | 5% |
DWS Turner Mid Cap Growth VIP | 33% |
I. Payments Made by Affiliates
During the year ended December 31, 2007, the Advisor fully reimbursed DWS Balanced VIP and DWS Strategic Income VIP $11,348 and $3,963, respectively, for losses incurred on trades executed incorrectly.
The amounts of the losses were less than 0.01% of each Portfolio's average net assets, thus having no impact on each Portfolio's total return.
In addition, during the year ended December 31, 2007, the Advisor fully reimbursed DWS Large Cap Value VIP $92,456 for losses on certain operation errors during the period.
J. Acquisition of Assets
On September 15, 2006, DWS Conservative Allocation VIP acquired all of the net assets of DWS Income Allocation VIP pursuant to a plan of reorganization approved by shareholders on August 24, 2006. The acquisition was accomplished by a tax-free exchange of 1,263,254 Class B shares of DWS Income Allocation VIP for 1,177,592 Class B shares of DWS Conservative Allocation VIP outstanding on September 15, 2006. DWS Income Allocation VIP's net assets at that date of $13,389,187, including $205,220 of net unrealized appreciation, were combined with those of DWS Conservative Allocation VIP. The aggregate net assets of DWS Conservative Allocation VIP immediately before the acquisition were $49,279,295. The combined net assets of DWS Conservative Allocation VIP immediately following the acquisition were $62,668,482.
On September 15, 2006, DWS Dreman High Return Equity VIP acquired all of the net assets of DWS Dreman Financial Services VIP and DWS MFS Strategic Value VIP pursuant to a plan of reorganization approved by shareholders on August 24, 2006. The acquisition was accomplished by a tax-free exchange of 9,878,311 Class A shares and 1,552,231 Class B shares of DWS Dreman Financial Services VIP and 2,714,688 Class A shares and 2,857,615 Class B shares of DWS MFS Strategic Value VIP, respectively, for 7,492,130 Class A shares and 1,180,445 Class B shares and 1,965,950 Class A shares and 2,075,811 Class B shares of DWS Dreman High Return Equity VIP, respectively, outstanding on September 15, 2006. DWS Dreman Financial Services VIP and DWS MFS Strategic Value VIP's net assets at that date of $125,823,288 and $58,623,028, respectively, including $13,177,547 and $2,482,671, respectively, of net unrealized appreciation, were combined with those of DWS Dreman High Return Equity VIP. The aggregate net assets of DWS Dreman High Return Equity VIP immediately before the acquisition were $950,803,547. The combined net assets of DWS Dreman High Return Equity VIP immediately following the acquisition were $1,135,249,863.
On November 3, 2006, DWS Money Market VIP acquired all of the net assets of Money Market VIP pursuant to a plan of reorganization approved by shareholders on October 19, 2006. The acquisition was accomplished by a tax-free exchange of 56,959,609 Class A shares of the Money Market VIP for 56,959,609 Class A shares of DWS Money Market VIP outstanding on November 3, 2006. Money Market VIP's net assets at that date of $56,965,779 were combined with those of DWS Money Market VIP. The aggregate net assets of DWS Money Market VIP immediately before the acquisition were $317,440,879. The combined net assets of DWS Money Market VIP immediately following the acquisition were $374,406,658.
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 the DWS Blue Chip VIP, DWS Conservative Allocation VIP, DWS Core Fixed Income VIP, DWS Davis Venture Value VIP, DWS Dreman High Return Equity VIP, DWS Dreman Small Mid Cap Value VIP, DWS Global Thematic VIP, DWS Government & Agency Securities VIP, DWS Growth Allocation VIP, DWS International Select Equity VIP, DWS Janus Growth & Income VIP, DWS Large Cap Value VIP, DWS Mid Cap Growth VIP, DWS Moderate Allocation VIP, DWS Money Market VIP, DWS Small Cap Growth VIP, DWS Technology VIP and DWS Turner Mid Cap Growth VIP, eighteen of the portfolios constituting the DWS Variable Series II (the "Trust"), including the investment portfolios, as of December 31, 2007, 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, 2007, 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, 2007, 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 14, 2008
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 the DWS Balanced VIP, DWS High Income VIP and DWS Strategic Income VIP, three of the portfolios constituting the DWS Variable Series II (the "Trust"), including the investment portfolios, as of December 31, 2007, 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, 2007, 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, 2007, 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 21, 2008
The following Portfolios paid distributions from net long-term capital gains during the year ended December 31, 2007 as follows:
Portfolio | Distribution Per Share ($) | % Representing 15% Rate Gains |
DWS Blue Chip VIP | .68 | 100 |
DWS Conservative Allocation VIP | .32 | 100 |
DWS Davis Venture Value VIP | .18 | 100 |
DWS Dreman High Return Equity VIP | .13 | 100 |
DWS Dreman Small Mid Cap Value VIP | 2.47 | 100 |
DWS Global Thematic VIP | 1.25 | 100 |
DWS Growth Allocation VIP | .55 | 100 |
DWS International Select Equity VIP | 1.36 | 100 |
DWS Large Cap Value VIP | .52 | 100 |
DWS Moderate Allocation VIP | .46 | 100 |
DWS Turner Mid Cap Growth VIP | .97 | 100 |
The following Portfolios designated as capital gain dividends for their year ended December 31, 2007:
Portfolio | Capital Gain ($) | % Representing 15% Rate Gains |
DWS Blue Chip VIP | 20,232,000 | 100 |
DWS Conservative Allocation VIP | 3,546,000 | 100 |
DWS Davis Venture Value VIP | 34,693,000 | 100 |
DWS Dreman High Return Equity VIP | 106,251,000 | 100 |
DWS Dreman Small Mid Cap Value VIP | 148,104,000 | 100 |
DWS Global Thematic VIP | 22,659,000 | 100 |
DWS Growth Allocation VIP | 25,628,000 | 100 |
DWS International Select Equity VIP | 34,342,000 | 100 |
DWS Janus Growth & Income VIP | 12,172,000 | 100 |
DWS Large Cap Value VIP | 44,400,000 | 100 |
DWS Moderate Allocation VIP | 17,446,000 | 100 |
DWS Strategic Income VIP | 999,000 | 100 |
DWS Turner Mid Cap Growth VIP | 20,038,000 | 100 |
For corporate shareholders, the following percentage of income dividends paid during the following Portfolios' fiscal year ended December 31, 2007 qualified for the dividends received deduction:
Portfolio | Dividends Received % |
DWS Balanced VIP | 28 |
DWS Blue Chip VIP | 16 |
DWS Conservative Allocation VIP | 44 |
DWS Davis Venture Value VIP | 100 |
DWS Dreman High Return Equity VIP | 100 |
DWS Dreman Small Mid Cap Value VIP | 21 |
DWS Global Thematic VIP | 5 |
DWS Growth Allocation VIP | 56 |
DWS Janus Growth & Income VIP | 100 |
DWS Large Cap Value VIP | 70 |
DWS Moderate Allocation VIP | 58 |
DWS Global Thematic VIP paid foreign taxes of $266,820 and earned $2,259,870 of foreign source income during the year ended December 31, 2007. Pursuant to section 853 of the Internal Revenue Code, the Portfolio designates $0.03 per share as foreign taxes paid and $0.10 per share as income earned from foreign sources for the year ended December 31, 2007.
DWS International Select Equity VIP paid foreign taxes of $474,771 and earned $3,624,407 of foreign source income during the year ended December 31, 2007. Pursuant to Section 853 of the Internal Revenue Code, the Portfolio designates $0.03 per share as foreign taxes paid and $0.24 per share as income earned from foreign sources for the year ended December 31, 2007.
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 (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the Trust's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.
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" and collectively, the "Agreements") with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor") in September 2007. 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. These materials included an analysis of each Portfolio's performance, fees and expenses, and profitability compiled by an independent fee consultant. The Board also received extensive information throughout the year regarding performance and operating results of each Portfolio. Based on their evaluation of the information provided, 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. Throughout their consideration of the Agreements, the Independent Trustees were advised by their independent legal counsel and by an independent fee consultant.
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 adviser 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. 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 Portfolios, 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 universes compiled by Lipper Inc. ("Lipper"). 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 benchmark or a peer group compiled by Lipper), 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 the 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 and supplemented by the independent fee consultant. The information provided to the Board is discussed in greater detail below for each Portfolio. 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 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 other comparable funds, the Board considered differences in fund and fee structures among the funds. 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 Scudder organization with respect to all fund services in totality and by fund. The Board reviewed DIMA's methodology in allocating its costs to the management of 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 DIMA in connection with the management of each Portfolio were not unreasonable. For DWS Mid Cap Growth VIP, DWS High Income VIP, DWS Strategic Income VIP and DWS Technology VIP, the Board noted that, based on the information provided, the Advisor operated each Portfolio at a loss. For DWS Growth Allocation VIP, DWS Moderate Allocation VIP and DWS Conservative Allocation VIP, 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.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of each Portfolio and whether a 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 each Portfolio included breakpoints designed to share economies of scale with Portfolio shareholders. The Board concluded that each management fee schedule reflects an appropriate level of sharing of any economies of scale.
Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by the Advisor for administrative services provided to each Portfolio and any fees received by an affiliate of the Advisor for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA related to DWS Funds advertising and cross-selling opportunities among DeAM products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.
In connection with the factors described above, the Board considered factors specific to a particular Portfolio, as discussed below.
DWS Mid Cap Growth VIP
Nature, Quality and Extent of Services. The Board noted the relative long-term underperformance of the Portfolio, and took into account the factors contributing to such performance and steps being taken by the Advisor to improve performance. The Board noted that, effective October 28, 2005, the Portfolio adopted a new investment objective and strategy and changed its name from Aggressive Growth Portfolio to Mid Cap Growth Portfolio and that the performance of the Portfolio since this change has been positive.
Fees and Expenses. The information provided to the Board, which included the effect of an expense cap that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 19th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 54th percentile for Class A shares and the 55th percentile for Class B shares.
To address the potential effect of the expiring expense caps on total expenses for Class A and Class B shares, the Board recommended caps on total expenses through September 30, 2008 as follows: 0.94% for Class A shares and 1.34% for Class B shares. The Board noted that, although total expense ratios for each share class were above the median of the peer universe, such total expense ratios (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 Blue Chip VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 13th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 23rd percentile for Class A shares and the 23rd percentile for Class B shares.
DWS Davis Venture Value VIP
Fees and Expenses. The information provided to the Board, which included the effect of an expense cap that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 94th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 76th percentile for Class A shares and the 76th percentile for Class B shares.
To address the potential effect of the expiring expense caps on total expenses for each share class, the Board recommended continuing the existing caps on total expenses through September 30, 2008 as follows: 0.89% for Class A shares and 1.29% for Class B shares. The Board noted that, although the Portfolio's management fee rate was above the median of the peer group and total expense ratios for each share class were above the median of 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, including the favorable performance of the Portfolio.
DWS Dreman High Return Equity VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 45th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 41st percentile for Class A shares and the 41st percentile for Class B shares. The Board took into account the Advisor's commitment to cap total expenses for each share class until May 1, 2010.
DWS Dreman Small Mid Cap Value VIP
Nature, Quality and Extent of Services. The Board considered that it approved a change, effective in November 2006, in the Portfolio's investment policies to invest in small and mid-size U.S. companies.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 18th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 8th percentile for Class A shares and the 8th percentile for Class B shares.
DWS Global Thematic VIP
Fees and Expenses. The information provided to the Board, which included the effect of an expense cap for Class A and Class B shares that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 62nd percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 82nd percentile for Class A shares and the 82nd percentile for Class B shares.
In light of the expense rankings, the Board recommended caps on total expenses through September 30, 2008 as follows: 1.05% for Class A shares and 1.45% for Class B shares. The Board noted that although, the Portfolio's management fee rate was above the median of the peer group and total expense ratios for each share class were above the median of the peer universe, such management fee rate and total expense ratios (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 International Select Equity VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 7th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 26th percentile for Class A shares and the 26th percentile for Class B shares.
DWS Janus Growth and Income VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 65th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 67th percentile for Class A shares and the 67th percentile for Class B shares.
The Board noted that, although the Portfolio's management fee rate was above the median of the peer group and total expense ratios for each share class were above the median of the peer universe, such management fee rate and total expense ratios 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 Large Cap Value VIP
Nature, Quality and Extent of Services. The Board noted that, under the Agreement, which shareholders recently approved in April 2007, DIMA provides portfolio management services to the Portfolio and that, pursuant to a separate Administrative Services Agreement, DIMA provides administrative services to the Portfolio. The Board also noted that shareholders approved a new sub-advisory agreement in April 2007 pursuant to which DIMA has delegated day-to-day portfolio management responsibility to Deutsche Asset Management International GmbH, an affiliate of the Advisor.
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 taken by the Advisor to improve performance, including the change in portfolio manager.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 47th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 56th percentile for Class A shares and the 56th percentile for Class B shares.
The Board noted that, although total expense ratios for each share class were above the median of the peer universe, such total expense ratios 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
Nature, Quality and Extent of Services. 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 recent changes in investment personnel.
Fees and Expenses. The information provided to the Board, which included the effect of an expense cap for Class A and Class B shares that expires May 1, 2008, showed that the Portfolio's management fee rate was at the 1st percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 9th percentile for Class A shares and the 8th percentile for Class B shares. The Board took into account the Advisor's commitment to cap total expenses until May 1, 2008.
DWS Technology VIP
Nature, Quality and Extent of Services. The Board noted the relative underperformance of the Portfolio, and took into account the factors contributing to such performance and steps taken by the Advisor to improve performance, including the introduction of a new lead portfolio manager and a shift in the Portfolio's investment focus.
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 36th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 35th percentile for Class A shares and the 35th percentile for Class B shares.
DWS Balanced VIP
Nature, Quality and Extent of Services. The Board noted the relative underperformance of the Portfolio, and took into account the factors contributing to such performance, including the Portfolio's lower exposure to international equities relative to its peers, and steps being taken by the Advisor to improve performance.
Fees and Expenses. The information provided to the Board, which included the effect of an expense cap for Class A and Class B shares that expires on May 1, 2008, showed that the Portfolio's management fee rate was at the 36th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 12th percentile for Class A shares and the 9th percentile for Class B shares. The Board took into account the Advisor's commitment to cap total expenses for each share class until May 1, 2008.
DWS Turner Mid Cap Growth VIP
Nature, Quality and Extent of Services. The Board noted the relative underperformance of the Portfolio, and took into account the factors contributing to such performance, and the 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 at the 47th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 77th percentile for Class A shares and the 78th percentile for Class B shares.
In light of the expense rankings, the Board recommended a cap on total expenses through September 30, 2008 as follows: 0.94% for Class A shares and 1.34% for Class B shares. The Board noted that, although total expense ratios for each share class were above the median of the peer universe, such total expense ratios (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 Conservative Allocation VIP
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 reviewed the Portfolio's performance over the one-year period, noting that comparative performance information for longer-term periods was not available due to the limited operating history of the Portfolio.
Fees and Expenses. The Board noted the Advisor's representation that while the funds in the peer group and peer universe are comparable to the Fund, expense structures among the peer funds vary widely. The Board also noted that a majority of the peer funds were part of another investment company complex and that many of these funds had all their expenses subsidized by their investment manager. As a result, the information provided to the Board, which included the effect of a management fee waiver that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 50th percentile of the peer group, and that the Portfolio's total expense ratio (excluding any 12b-1 and recordkeeping fees) was at the 100th percentile of the peer universe. Based upon questions from the Independent Trustees, the Advisor produced additional customized information on the peer universe. The Board also took into account the Advisor's commitment to cap the Portfolio's direct operating expenses until May 1, 2010.
Given that the Portfolio's total expense ratio was impacted by a management fee waiver, the Board recommended that the Advisor continue the management fee waiver through September 30, 2008 or until the Advisor introduces the Global Asset Allocation strategy to the Board and the Board approves the strategy. The Board also recommended that the existing expense cap on the Portfolio's direct operating expenses be lowered to 0.70% through September 30, 2008. The Board noted that, although the total expense ratio was above the median of the peer universe, such total expense ratio (after the recommended management fee waiver and 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 Moderate Allocation VIP
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 reviewed the Portfolio's performance over the one-year period, noting that comparative performance information for longer-term periods was not available due to the limited operating history of the Portfolio.
Fees and Expenses. The Board noted the Advisor's representation that while the funds in the peer group and peer universe are comparable to the Fund, expense structures among the peer funds vary widely. The Board also noted that a majority of the peer funds were part of another investment company complex and that many of these funds had all their expenses subsidized by their investment manager. As a result, the information provided to the Board, which included the effect of a management fee waiver that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 33rd percentile of the peer group, and that the Portfolio's total expense ratio (excluding any 12b-1 and recordkeeping fees) was at the 82nd percentile of the peer universe. Based upon questions from the Independent Trustees, the Advisor produced additional customized information on the peer universe. The Board also took into account that the Advisor's commitment to cap the Portfolio's direct operating expenses would expire on October 1, 2007.
Given that the Portfolio's total expense ratio was impacted by a management fee waiver, the Board recommended that the Advisor continue the management fee waiver through September 30, 2008 or until the Advisor introduces the Global Asset Allocation strategy to the Board and the Board approves the strategy. The Board also recommended a cap on the Portfolio's direct operating expenses at 0.70% through September 30, 2008. The Board noted that, although the total expense ratio was above the median of the peer universe, such total expense ratio (after the recommended management fee waiver and 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 Growth Allocation VIP
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 reviewed the Portfolio's performance over the one-year period, noting that comparative performance information for longer-term periods was not available due to the limited operating history of the Portfolio.
Fees and Expenses. The Board noted the Advisor's representation that while the funds in the peer group and peer universe are comparable to the Fund, expense structures among the peer funds vary widely. The Board also noted that a majority of the peer funds were part of another investment company complex and that many of these funds had all their expenses subsidized by their investment manager. As a result, the information provided to the Board, which included the effect of a management fee waiver that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 33rd percentile of the peer group, and that the Portfolio's total expense ratio (excluding any 12b-1 and recordkeeping fees) was at the 84th percentile of the peer universe. Based upon questions from the Independent Trustees, the Advisor produced additional customized information on the peer universe. The Board also took into account that the Advisor's commitment to cap the Portfolio's direct operating expenses would expire on October 1, 2007.
Given that the Portfolio's total expense ratio was impacted by a management fee waiver, the Board recommended that the Advisor continue the management fee waiver through September 30, 2008 or until the Advisor introduces the Global Asset Allocation strategy to the Board and the Board approves the strategy. The Board also recommended a cap on the Portfolio's direct operating expenses at 0.70% through September 30, 2008. The Board noted that, although the total expense ratio was above the median of the peer universe, such total expense ratio (after the recommended management fee waiver and 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 Core Fixed Income VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 44th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 76th percentile for Class A shares and the 54th percentile for Class B shares.
In light of the expense rankings for Class A shares, the Board recommended a cap on total expenses for Class A shares at 0.70% through September 30, 2008. The Board noted that, although total expense ratios for each share class were above the median of the peer universe, such total expense ratios (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 Government & Agency Securities VIP
Fees and Expenses. The information provided to the Board, which included the effect of an expense cap for Class A shares that expired on October 1, 2007, showed that the Portfolio's management fee rate was at the 40th percentile for the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 69th percentile for Class A shares and the 69th percentile for Class B shares.
To address the potential effect of the expiring expense cap on total expenses for Class A shares, the Board recommended a cap on total expenses through September 30, 2008 as follows: 0.64% for Class A shares and 1.04% for Class B shares. The Board noted that, although total expense ratios for each share class were above the median of the peer universe, such total expense ratios (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 High Income VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 33rd percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 39th percentile for Class A shares and the 39th percentile for Class B shares.
DWS Strategic Income VIP
Fees and Expenses. The information provided to the Board showed that the Portfolio's management fee rate was at the 42nd percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 70th percentile for Class A shares and the 70th percentile for Class B shares.
In light of the expense rankings, the Board recommended a cap on total expenses through September 30, 2008 as follows: 0.83% for Class A shares and 1.23% for Class B shares. The Board noted that, although total expense ratios for each share class were above the median of the peer universe, such total expense ratios (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 Money Market VIP
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 peer universe performance measures, 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, which included the effect of an expense cap for each class that expires on May 1, 2010, showed that the Portfolio's management fee rate was at the 17th percentile of the peer group, and that the Portfolio's total expense ratios (excluding any 12b-1 and recordkeeping fees) were at the following percentiles of the peer universe: the 26th percentile for Class A shares and the 52nd percentile for Class B shares. The Board took into account the Advisor's commitment to cap total expenses until May 1, 2010.
The Board noted that, although the total expense ratio for Class B shares was above the median of the peer universe, such total expense 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.
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 Mid Cap Value VIP
DWS Core Fixed Income VIP
DWS Janus Growth and Income VIP
DWS Large Cap 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 (each a "Sub-Advisory Agreement" and collectively, the "Sub-Advisory Agreements") between Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor") and each Portfolio's sub-advisor (each a "Sub-Advisor") in September 2007. With respect to DWS Large Cap Value VIP, the Board noted that the Sub-Advisory Agreement was approved by shareholders in April 2007 and that the approval of the Sub-Advisory Agreement allowed DIMA to complete a change in the portfolio manager of the Portfolio. 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 and the Fixed-Income Oversight Committee, as applicable, 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 Dreman Small Mid Cap Value VIP, the Board considered that it approved a change, effective in November 2006, in the Portfolio's investment policies to invest in small and mid-size U.S. companies. With respect to DWS Turner Mid Cap Growth VIP, the Board noted the relative underperformance of the Portfolio, and took into account the factors contributing to such performance, and the steps being taken by the Sub-Advisor to improve performance. With respect to DWS Large Cap Value VIP, the Board noted that the performance information did not include the period during which the Sub-Advisor managed the Portfolio.
Fees; Profitability and Economies of Scale. The Board considered the sub-advisory fee rate under each Sub-Advisory Agreement and how it related to the overall management fee structure of the Portfolio.
The Board considered that for each unaffiliated Sub-Advisor the sub-advisory fee rate was negotiated at arm's length between the Advisor and Sub-Advisor and that the Advisor compensates each Sub-Advisor from its fees. With respect to DWS Davis Venture Value VIP, DWS Dreman High Return Equity VIP, DWS Dreman Small Mid Cap Value VIP, DWS Janus Growth & Income VIP, DWS Core Fixed Income VIP and DWS Turner Mid Cap Growth VIP, the Board also considered the estimated profitability of the Sub-Advisor based on revenues and expenses, as provided by the Sub-Advisor, and concluded that the estimated profitability realized by the Sub-Advisor in connection with the management of the Portfolio was not unreasonable. With respect to DWS Large Cap Value VIP, the Board noted that it did not receive an estimate of the Sub-Advisor's profitability in connection with the management of the Portfolio, but noted that the Advisor compensates the Sub-Advisor from its fees. The Board also considered that the Sub-Advisor for DWS Large Cap Value VIP is an affiliate of the Advisor and noted its consideration of the estimated profitability of the Advisor.
As part of its review of the investment management agreement with DIMA, 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. The Board noted that each investment management agreement with DIMA 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 its affiliates. 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.
Board Considerations of the Amended and Restated Investment Management Agreements for each Portfolio except DWS Large Cap Value VIP
On November 14, 2007, the Board, including all the Independent Trustees, approved an Amended and Restated Investment Management Agreement (the "Amended Management Agreement") with respect to each Portfolio. The Board also unanimously agreed to recommend that the Amended Management Agreement be approved by each Portfolio's shareholders. The Amended Management Agreement and an Administrative Services Agreement were presented to the Board and considered by it as part of a broader program initiated by DIMA to simplify and standardize the expense structures and related contracts for the DWS Funds.
The Board conducted a thorough review of the potential implications of the Amended Management Agreement and Administrative Services Agreement on each Portfolio's shareholders. The Independent Trustees met on several occasions to review and discuss the Amended Management Agreement and Administrative Services Agreement, both among themselves and with representatives of DIMA. They were assisted in this review by their independent legal counsel.
In approving the Amended Management Agreement, the Board considered the following factors, among others:
The proposed arrangements would facilitate uniformity and conform management and administrative fee structures across all DWS Funds.
The standardization and simplification of contract provisions and fees charged to the DWS Funds would reduce the risks of operational and compliance errors.
With the exception of DWS Dreman High Return Equity VIP, the aggregate fee paid by each Portfolio to DIMA was expected to remain the same or be reduced under the Amended Management Agreement and Administrative Services Agreement. The Board noted that because the fund accounting fee for DWS Dreman High Return Equity VIP is currently below 0.015% of average daily net assets, the aggregate fees for the Portfolio are expected to be slightly higher (i.e., by 0.005%) under the Amended Management Agreement and Administrative Services Agreement; however, the Board considered that DIMA represented that the difference in estimated fees is less than one basis point and likely would be immaterial. The Board also considered DIMA's further representation, that the difference in estimated fees could vary slightly over time, depending on the time periods during which the current and estimated fees are compared. (For example, if the current fees and estimated fees were compared as of December 31, 2006, rather than as of October 31, 2007, the difference is 0.002%.) In addition, the separation of the investment management services and general administrative services provided by DIMA into two separate contracts, as is currently the case for certain other DWS Funds, would provide greater flexibility in the future to adjust the administrative services arrangements of the Portfolios, including increasing the fees paid for administrative services, without incurring the cost of a shareholder meeting.
The overall scope of the services being provided by DIMA and the standard of care applicable to those services would not be reduced as a result of restructuring the agreements.
The current expense limitation agreements would remain in place until at least September 30, 2008, the normal contract renewal period for the Portfolios.
The Board also considered that it renewed the Agreement for each Portfolio as part of its annual contract renewal process in September 2007 as described above. In connection with its review of the Amended Management Agreement, the Board considered DIMA's representation that the Board may rely on and take into account the information provided in connection with the renewal of the Agreement for each Portfolio. Accordingly, the Board took note of the factors it considered and the conclusions it reached in approving the renewal of the Agreement for each Portfolio.
Based on all of the information considered and the conclusions reached, the Board determined that the terms of the Amended Management Agreement are fair and reasonable and that the approval of the Amended Management Agreement is in the best interests of each Portfolio. No single factor was determinative in the Board's analysis.
Board Considerations of a Sub-Advisory Agreement for DWS Balanced VIP with Deutsche Asset Management International GmbH ("DeAMi")
The Board, including the Independent Trustees, approved a Sub-Advisory Agreement (the "Sub-Advisory Agreement") between DIMA and DeAMi with respect to DWS Balanced VIP (the "Portfolio") at a meeting held on November 14, 2007. The Board also unanimously agreed to recommend that the Sub-Advisory Agreement be approved by the Portfolio's shareholders. As part of its review process, the Board requested and evaluated all information it deemed reasonably necessary to evaluate the Sub-Advisory Agreement. In connection with the approval of the Sub-Advisory Agreement, the Board considered the factors described below, among others.
Nature, Quality and Extent of Services. The Board considered the nature, quality and extent of services to be provided under the Sub-Advisory Agreement. The Board noted that the Sub-Advisory Agreement was being recommended by DIMA to allow for the transitioning of portfolio management of the large cap value portion of the Portfolio to DeAMi. The Board considered the background and qualifications of DeAMi's personnel, noting that it had recently approved new sub-advisory agreements for two other DWS Funds between DIMA and DeAMi. The Board noted that these other funds are large cap value funds and that their performance has been positive since DeAMi was appointed subadviser. The Board noted that it had previously met with and received a presentation from Dr. Thomas Schuessler, the proposed new portfolio manager for the Portfolio, and noted its previous consideration of Dr. Schuessler's investment philosophy and stock selection process. The Board considered the organization of DeAMi and also reviewed DeAMi's compliance program.
On the basis of its evaluation of all the information presented, the Board concluded that the nature, quality and extent of services to be provided by DeAMi is expected to be satisfactory.
Fees; Profitability and Economies of Scale. The Board considered the sub-advisory fee structure under the Sub-Advisory Agreement and how it related to the overall management fee structure of the Portfolio, noting that the overall investment management fee will not change. The Board noted that DeAMi did not provide an estimate of profitability in connection with the management of the Portfolio, but noted that DIMA compensates DeAMi from its fees.
As part of its approval of the investment management agreement with DIMA, the Board considered whether there will be economies of scale with respect to the overall fee structure of the Portfolio and whether the Portfolio will benefit from any economies of scale. The Board noted that the investment management agreement with DIMA included two breakpoints and concluded that the overall structure was designed to share economies of scale with shareholders.
Other Benefits to DeAMi. The Board also considered the character and amount of other incidental benefits received by DeAMi and its affiliates (including DIMA). The Board noted that under the current soft dollar policies, DeAMi may not use Portfolio brokerage transactions to pay for research services generated by parties other than the executing broker-dealer ("third-party research"), although, they may obtain proprietary research prepared by an executing broker-dealer in connection with a transaction through that broker-dealer. The Board, however, may in the future, permit DeAMi to allocate brokerage to acquire third-party research. 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 the Sub-Advisory Agreement are fair and reasonable and that the approval of the Sub-Advisory Agreement is in the best interests of the Portfolio. No single factor was determinative in the Board's analysis.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 26, 2007
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Scudder Funds. My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2007, including my qualifications, the evaluation process for each of the DWS Scudder Funds, consideration of certain complex-level factors, and my conclusions.
Qualifications
For more than 30 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past several years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University; and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds, serve on the board of directors of a private market research company, and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Scudder Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 136 Fund portfolios in the DWS Scudder Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper, Strategic Insight, and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Scudder Fund. These similar products included the other DWS Scudder Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Scudder Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Scudder funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Scudder Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Scudder Funds are reasonable.
Thomas H. Mack
The following table presents certain information regarding the Board Members and Officers of the Trust as of December 31, 2007. 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 Board Member's term of office extends until the next shareholders' meeting called for the purpose of electing such Board Members and until the election and qualification of a successor, or until such Board Member sooner dies, retires, resigns or is removed as provided in the governing documents of the Trust.
Independent Board Members | ||
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 |
Paul K. Freeman (1950) Chairperson since 2007, and Board Member, 2002-present | 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) | 59 |
John W. Ballantine (1946) Board Member, 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: Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC (private equity). Former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank | 59 |
Donald L. Dunaway (1937) Board Member, 1980-present | Retired; formerly, Executive Vice President, A.O. Smith Corporation (diversified manufacturer) (1963-1994) | 59 |
James R. Edgar (1946) Board Member, 1999-present | Distinguished Fellow, University of Illinois, Institute of Government and Public Affairs (1999-present); formerly, Governor, State of Illinois (1991-1999). Directorships: 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) | 59 |
Robert B. Hoffman (1936) Board Member, 1981-present | Retired; formerly, Chairman, Harnischfeger Industries, Inc. (machinery for the mining and paper industries) (1999-2001); 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) | 59 |
William McClayton (1944) Board Member, 2004-present | Chief Administrative Officer, Diamond Management & Technology Consultants, Inc. (global management consulting firm) (2001-present); formerly, Senior Partner, Arthur Andersen LLP (accounting) (1966-2001). Directorship: Board of Managers, YMCA of Metropolitan Chicago. Formerly, Trustee, Ravinia Festival. | 59 |
Shirley D. Peterson (1941) Board Member, 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. | 59 |
Robert H. Wadsworth (1940) Board Member, 2004-present | President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present). Formerly, Trustee of New York Board DWS Funds. | 62 |
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 |
Michael G. Clark4 (1965) President, 2006-present | Managing Director3, Deutsche Asset Management (2006-present); President of DWS family of funds; Director, ICI Mutual Insurance Company (since October 2007); formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000) |
Philip J. Collora (1945) Vice President and Assistant Secretary, 1986-present | Director3, Deutsche Asset Management |
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) |
John Millette5 (1962) Secretary, 2001-present | Director3, Deutsche Asset Management |
Patricia DeFilippis4 (1963) Assistant Secretary, 2005-present | Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003) |
Elisa D. Metzger4, (1962) Assistant Secretary 2005-present | Director3, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005) |
Caroline Pearson5 (1962) Assistant Secretary, 1998-present | Managing Director3, Deutsche Asset Management |
Paul Antosca5 (1957) Assistant Treasurer, 2007-present | Director3, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006) |
Kathleen Sullivan D'Eramo5 (1957) Assistant Treasurer, 2003-present | Director3, Deutsche Asset Management |
Jason Vazquez4 (1972) Anti-Money Laundering Compliance Officer, 2007-present | Vice President, Deutsche Asset Management (since 2006); formerly, AML Operations Manager for Bear Stearns (2004-2006), Supervising Compliance Principal and Operations Manager for AXA Financial (1999-2004) |
Robert Kloby4 (1962) Chief Compliance Officer, 2006-present | Managing Director3, Deutsche Asset Management (2004-present); formerly, Chief Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988) |
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.
The Trust's Statement of Additional Information ("SAI") includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 621-1048.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by individual investors.
DWS Scudder Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 778-1482
VS2-2 (53319 2/08)
ITEM 2. | CODE OF ETHICS |
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| As of the end of the period, December 31, 2007, DWS Variable Series II has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
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ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
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| 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. William McClayton, Mr. Donald Dunaway and Mr. Robert Hoffman. Each of these audit committee members 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. |
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ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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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 Fund’s Independent Registered Public Accountant, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund’s Independent Registered Public Accountant Billed to the Fund
Fiscal Year | Audit Fees Billed to Fund | Audit-Related | Tax Fees Billed to Fund | All |
2007 | $955,331 | $0 | $130,272 | $0 |
2006 | $947,520 | $0 | $123,207 | $0 |
The above "Tax Fees" were billed for professional services rendered for tax return preparation.
Services that the Fund’s Independent Registered Public Accountant Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
Fiscal Year | Audit-Related | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All |
2007 | $250,000 | $486,614 | $0 |
2006 | $80,000 | $316,254 | $0 |
The “Audit-Related Fees” were billed for services in connection with agreed upon procedures related to fund mergers and the above “Tax Fees” were billed in connection with tax compliance services and agreed upon procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y’s independence.
Fiscal Year | Total (A) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) | Total of (A), (B) |
2007 | $130,272 | $486,614 | $1,215,526 | $1,832,412 |
2006 | $123,207 | $316,254 | $530,385 | $969,846 |
All other engagement fees were billed for services in connection with internal control reviews, agreed upon procedures and tax compliance for DeIM and other related entities that provide support for the operations of the fund.
***
In connection with the audit of the 2006 and 2007 financial statements, the Fund entered into an engagement letter with E&Y. The terms of the engagement letter required by E&Y, and agreed to by the Audit Committee, include provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury and an exclusion of punitive damages.
***
E&Y recently advised the Fund’s Audit Committee that certain arrangements between the Ernst & Young member firm in Germany (“E&Y Germany”) and Deutsche Bank AG (“DB”) had been determined to be inconsistent with the SEC auditor independence rules. DB is within the “Investment Company Complex” (as defined by SEC rules) and therefore covered by the SEC auditor independence rules applicable to the Fund. In 2006 and 2007, DB provided standard overdraft protection on a depository account and a guarantee of certain lease deposits to E&Y Germany. E&Y advised the Audit Committee that while neither of these arrangements was ever utilized by E&Y Germany, they could constitute lending type arrangements in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)(1)(ii)(A) provides that an accountant is not independent when an accounting firm has a loan to or from an audit client.) E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audits of the Fund. In reaching this conclusion, E&Y noted a number of factors, including that neither of the arrangements was ever utilized and, accordingly, E&Y Germany never had amounts outstanding to DB, these arrangements were immaterial to E&Y Germany and DB and the E&Y professionals responsible for the Fund’s audits were not aware of these arrangements. E&Y informed the Audit Committee that E&Y Germany has cancelled the overdraft arrangements and has terminated the guarantee on the lease deposits.
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ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
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| Not Applicable |
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ITEM 6. | SCHEDULE OF INVESTMENTS |
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| Not Applicable |
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ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
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ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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| Not applicable. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
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| Not Applicable. |
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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| The 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. |
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ITEM 11. | CONTROLS AND PROCEDURES |
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| (a) The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
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| (b) There have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last half-year (the registrant’s second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
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ITEM 12. | EXHIBITS |
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| (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
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| (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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| (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | DWS Variable Series II |
By: | /s/Michael G. Clark |
| Michael G. Clark |
President
Date: | February 25, 2008 |
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/Michael G. Clark |
| Michael G. Clark |
President
Date: | February 25, 2008 |
By: | /s/Paul Schubert |
| Paul Schubert |
Chief Financial Officer and Treasurer
Date: | February 25, 2008 |