UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number |
DWS Variable Series II
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue
New York, NY 10154-0004
(Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154-0004
(Name and Address of Agent for Service)
Date of fiscal year end: | 12/31 |
Date of reporting period: | 12/31/08 |
ITEM 1. REPORT TO STOCKHOLDERS
December 31, 2008
ANNUAL REPORT
DWS VARIABLE SERIES II
DWS Balanced VIP DWS Blue Chip VIP DWS Conservative Allocation VIP DWS Core Fixed Income VIP DWS Davis Venture Value VIP DWS Dreman 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 |
Contents
Information About Your Portfolio's Expenses, Management Summary, Portfolio Summary, Investment Portfolio, Financial Statements and Financial Highlights for:
4 DWS Balanced VIP 46 DWS Blue Chip VIP 60 DWS Conservative Allocation VIP 71 DWS Core Fixed Income VIP 85 DWS Davis Venture Value VIP 97 DWS Dreman High Return Equity VIP 108 DWS Dreman Small Mid Cap Value VIP 120 DWS Global Thematic VIP 132 DWS Government & Agency Securities VIP 143 DWS Growth Allocation VIP 154 DWS High Income VIP 171 DWS International Select Equity VIP 182 DWS Janus Growth & Income VIP 194 DWS Large Cap Value VIP 206 DWS Mid Cap Growth VIP 217 DWS Moderate Allocation VIP 228 DWS Money Market VIP 238 DWS Small Cap Growth VIP 249 DWS Strategic Income VIP 271 DWS Technology VIP 281 DWS Turner Mid Cap Growth VIP 293 Notes to Financial Statements 318 Report of Independent Registered Public Accounting Firm 319 Tax Information 320 Proxy Voting 321 Investment Management Agreement Approval 332 Summary of Management Fee Evaluation by Independent Fee Consultant 335 Summary of Administrative Fee Evaluation by Independent Fee Consultant 336 Board Members 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 Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
Performance Summary December 31, 2008
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, 2008 are 0.52% and 0.77% 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, 2008.
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. The Portfolio invests in derivatives seeking to hedge positions in certain securities and to generate income in order to enhance the Portfolio's returns. Derivatives can be more volatile and less liquid than traditional fixed-income securities. 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 [] Russell 1000® Index [] Barclays Capital 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 Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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
| $7,267 | $8,399 | $9,342 | $9,826 |
Average annual total return
| -27.33% | -5.65% | -1.35% | -.18% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,022 | $8,963 |
Average annual total return
| -37.60% | -8.66% | -2.04% | -1.09% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,552 | $17,297 |
Average annual total return
| 5.24% | 5.51% | 4.65% | 5.63% |
The growth of $10,000 is cumulative.
DWS Balanced VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $7,235 | $8,298 | $9,162 | $10,326 |
Average annual total return
| -27.65% | -6.03% | -1.74% | .49% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,022 | $10,532 |
Average annual total return
| -37.60% | -8.66% | -2.04% | .80% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,552 | $13,881 |
Average annual total return
| 5.24% | 5.51% | 4.65% | 5.17% |
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 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 760.70 | | $ 756.40 | |
Expenses Paid per $1,000*
| $ 2.88 | | $ 3.66 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,021.87 | | $ 1,020.96 | |
Expenses Paid per $1,000*
| $ 3.30 | | $ 4.22 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Balanced VIP
| .65% | | .83% | |
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, 2008
DWS Balanced VIP
For the 12 months ended December 31, 2008, the DWS Balanced VIP had a return of -27.33% (Class A shares, unadjusted for contract charges.) The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a negative return of -37.31% for the year. The Barclays Capital US Aggregate Index, the Portfolio's bond benchmark, which is considered indicative of broad bond market trends, returned 5.24% for the year. The Russell 1000® Index, the Portfolio's equity benchmark, returned -37.60%.
In December of 2007, the managers transitioned the Portfolio to a new strategic asset allocation, expanded the global tactical asset allocation overlay strategy, which the Advisor calls iGAP (integrated Global Alpha Platform), to 100% of the Portfolio's assets and increased diversification by adding more managers and investment styles. The full transition was completed in the beginning of April of 2008. The Portfolio's underperformance during 2008 was due to the underperformance of the underlying strategies, in particular the core fixed income strategy and the iGap strategy.
During 2008, in the large-cap US equity portion of the Portfolio, the quantitative strategy underperformed. Within the international portion of the Portfolio, the quantitative strategy outperformed. During this extremely volatile period, broad diversification in terms of asset classes as well as investment styles within asset classes has been more important than ever.
William Chepolis, CFA | Matthew F. MacDonald, CFA | Inna Okounkova | Gary Sullivan, CFA |
Robert Wang | Thomas Picciochi | James B. Francis, CFA3 | Julie Abbett |
Thomas Schuessler, PhD | John Brennan | J. Richard Robben, CFA | |
Joseph Axtell, CFA1 | Owen Fitzpatrick, CFA2 | Richard Shepley4 | |
Portfolio Managers, Deutsche Investment Management Americas Inc. |
Michael Sieghart, CFA5
Consultant, Deutsche Investment Management Americas Inc. |
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. 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 Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) is an unmanaged, market value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities. Index returns, unlike fund returns, do not include 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.
1 Mr. Axtell joined the Portfolio on August 19, 2008.2 Mr. Fitzpatrick joined the Portfolio on February 15, 2009.3 Mr. Francis joined the Portfolio on July 1, 2008.4 Mr. Shepley joined the Portfolio on January 9, 2009.5 Mr. Sieghart became consultant to the Advisor on August 19, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Balanced VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 59% | 59% |
Corporate Bonds | 12% | 7% |
Mortgage-Backed Securities Pass-Throughs | 9% | 1% |
Government & Agency Obligations | 6% | 5% |
Cash Equivalents | 5% | 5% |
Commercial and Non-Agency Mortgage-Backed Securities | 5% | 16% |
Collateralized Mortgage Obligations | 3% | 3% |
Asset Backed | 1% | 3% |
Loan Participations and Assignments | — | 1% |
| 100% | 100% |
Sector Diversification (Excludes Cash Equivalents and Securities Lending) | 12/31/08 | 12/31/07 |
| | |
Financials | 18% | 18% |
Health Care | 14% | 12% |
Information Technology | 12% | 12% |
Consumer Staples | 11% | 8% |
Energy | 11% | 12% |
Industrials | 10% | 12% |
Consumer Discretionary | 7% | 11% |
Utilities | 6% | 4% |
Telecommunication Services | 6% | 6% |
Materials | 5% | 5% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 8. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Balanced VIP
|
Shares
| Value ($) |
| |
Common Stocks 58.9% |
Consumer Discretionary 4.2% |
Auto Components 0.1% |
Aisin Seiki Co., Ltd. | 100 | 1,419 |
Autoliv, Inc. | 2,400 | 51,504 |
Bridgestone Corp. | 300 | 4,506 |
Compagnie Generale des Etablissements Michelin "B" | 105 | 5,506 |
Denso Corp. | 200 | 3,327 |
Fuel Systems Solutions, Inc.* | 500 | 16,380 |
GKN PLC | 897 | 1,270 |
Magna International, Inc. "A" | 400 | 11,908 |
Rieter Holding AG (Registered) | 16 | 2,587 |
Toyota Industries Corp. | 100 | 2,142 |
WABCO Holdings, Inc. | 11,300 | 178,427 |
| 278,976 |
Automobiles 0.1% |
Bayerische Motoren Werke (BMW) AG | 257 | 7,900 |
Daimler AG (Registered) | 552 | 20,974 |
Fiat SpA | 5,500 | 35,860 |
Honda Motor Co., Ltd. | 700 | 15,181 |
Isuzu Motors Ltd. | 1,000 | 1,283 |
Mazda Motor Corp. | 1,000 | 1,690 |
Mitsubishi Motors Corp.* | 2,000 | 2,745 |
Nissan Motor Co., Ltd. | 900 | 3,260 |
PSA Peugeot Citroen | 112 | 1,910 |
Renault SA | 129 | 3,365 |
Suzuki Motor Corp. | 200 | 2,765 |
Toyota Motor Corp. | 1,300 | 42,553 |
Volkswagen AG | 93 | 32,579 |
| 172,065 |
Distributors 0.2% |
Genuine Parts Co. | 13,625 | 515,842 |
Li & Fung Ltd. | 18,000 | 31,056 |
| 546,898 |
Diversified Consumer Services 0.0% |
Brink's Home Security Holdings, Inc.* | 3,700 | 81,104 |
Hotels Restaurants & Leisure 1.1% |
Accor SA | 151 | 7,431 |
Brinker International, Inc. | 7,500 | 79,050 |
Buffalo Wild Wings, Inc.* | 6,100 | 156,465 |
California Pizza Kitchen, Inc.* | 1,800 | 19,296 |
Carnival Corp. (Unit) | 15,059 | 366,235 |
Carnival PLC | 148 | 3,224 |
CEC Entertainment, Inc.* | 3,100 | 75,175 |
CKE Restaurants, Inc. | 1,700 | 14,756 |
Compass Group PLC | 2,000 | 9,925 |
Cracker Barrel Old Country Store, Inc. | 1,800 | 37,062 |
Crown Ltd. | 8,273 | 34,633 |
InterContinental Hotel Group PLC | 251 | 2,042 |
Ladbrokes PLC | 788 | 2,107 |
Lottomatica SpA | 498 | 12,296 |
McDonald's Corp. | 32,200 | 2,002,518 |
P.F. Chang's China Bistro, Inc.* | 6,300 | 131,922 |
|
Shares
| Value ($) |
| |
Panera Bread Co. "A"* | 3,700 | 193,288 |
Shangri-La Asia Ltd. | 12,000 | 13,870 |
Sodexo | 85 | 4,704 |
TABCORP Holding Ltd. | 6,752 | 33,051 |
Tatts Group Ltd. | 14,815 | 28,942 |
TUI AG | 155 | 1,768 |
Whitbread PLC | 229 | 3,029 |
WMS Industries, Inc.* | 5,900 | 158,710 |
| 3,391,499 |
Household Durables 0.1% |
Blyth, Inc. | 2,600 | 20,384 |
Centex Corp. | 8,600 | 91,504 |
CSS Industries, Inc. | 1,100 | 19,514 |
Electrolux AB "B" | 800 | 6,881 |
Husqvarna AB "B" | 900 | 4,769 |
M/I Homes, Inc. | 3,500 | 36,890 |
NVR, Inc.* | 200 | 91,250 |
Panasonic Corp. | 1,000 | 12,530 |
Ryland Group, Inc. | 3,400 | 60,078 |
Sony Corp. | 400 | 8,695 |
Taylor Wimpey PLC | 1,128 | 221 |
Tupperware Brands Corp. | 5,500 | 124,850 |
| 477,566 |
Internet & Catalog Retail 0.0% |
Amazon.com, Inc.* | 2,000 | 102,560 |
Home Retail Group PLC | 703 | 2,156 |
Stamps.com, Inc.* | 1,000 | 9,830 |
| 114,546 |
Leisure Equipment & Products 0.1% |
Hasbro, Inc. | 6,200 | 180,854 |
Polaris Industries, Inc. | 1,700 | 48,705 |
| 229,559 |
Media 0.9% |
British Sky Broadcasting Group PLC | 1,232 | 8,572 |
Comcast Corp. "A" | 70,200 | 1,184,976 |
DISH Network Corp. "A"* | 10,900 | 120,881 |
Fairfax Media Ltd. | 13,871 | 15,915 |
Gestevision Telecinco SA | 345 | 3,676 |
Global Sources Ltd.* | 5,361 | 29,217 |
Interpublic Group of Companies, Inc.* | 20,400 | 80,784 |
ITV PLC | 3,194 | 1,831 |
Lagardere SCA | 107 | 4,343 |
Liberty Media Corp. — Entertainment "A"* | 13,500 | 235,980 |
Marvel Entertainment, Inc.* | 5,900 | 181,425 |
Mediaset SpA | 5,320 | 30,381 |
Modern Times Group MTG AB "B" | 175 | 3,801 |
Morningstar, Inc.* | 3,100 | 110,050 |
Pearson PLC | 1,119 | 10,385 |
Publicis Groupe | 132 | 3,398 |
Reed Elsevier NV | 3,828 | 45,102 |
Reed Elsevier PLC | 1,779 | 12,967 |
SES "A" (FDR) | 184 | 3,542 |
Shaw Communications, Inc. "B" | 1,600 | 28,008 |
Singapore Press Holdings Ltd. | 78,000 | 168,896 |
Thomson Reuters Corp. | 1,800 | 51,908 |
|
Shares
| Value ($) |
| |
Thomson Reuters PLC | 285 | 6,303 |
Time Warner, Inc. | 12,300 | 123,738 |
United Business Media Ltd. | 388 | 2,856 |
Vertis Holdings, Inc.* | 1,645 | 0 |
Vivendi | 790 | 25,721 |
Walt Disney Co. | 7,200 | 163,368 |
Wolters Kluwer NV | 1,709 | 32,276 |
WPP PLC | 1,683 | 9,811 |
Yellow Pages Income Fund (Unit) | 400 | 2,187 |
| 2,702,298 |
Multiline Retail 0.3% |
Big Lots, Inc.* | 7,500 | 108,675 |
Canadian Tire Corp., Ltd. "A" | 300 | 10,559 |
Family Dollar Stores, Inc. | 8,300 | 216,381 |
Kohl's Corp.* | 13,680 | 495,216 |
Marks & Spencer Group PLC | 1,148 | 3,573 |
Next PLC | 169 | 2,646 |
PPR | 57 | 3,723 |
Sears Holdings Corp.* | 1,900 | 73,853 |
| 914,626 |
Specialty Retail 1.0% |
AutoNation, Inc.* | 4,900 | 48,412 |
Best Buy Co., Inc. | 3,800 | 106,818 |
Children's Place Retail Stores, Inc.* | 6,400 | 138,752 |
Coldwater Creek, Inc.* | 24,500 | 69,825 |
Esprit Holdings Ltd. | 8,400 | 47,880 |
Foot Locker, Inc. | 13,900 | 102,026 |
GameStop Corp. "A"* | 11,000 | 238,260 |
Hennes & Mauritz AB "B" | 1,525 | 59,591 |
Hot Topic, Inc.* | 13,200 | 122,364 |
Industria de Diseno Textil SA | 2,432 | 107,498 |
Jo-Ann Stores, Inc.* | 1,400 | 21,686 |
Jos. A. Bank Clothiers, Inc.* | 3,300 | 86,295 |
Kingfisher PLC | 1,961 | 3,835 |
Lowe's Companies, Inc. | 18,174 | 391,105 |
RadioShack Corp. | 22,100 | 263,874 |
Rent-A-Center, Inc.* | 8,100 | 142,965 |
Staples, Inc. | 22,710 | 406,963 |
The Buckle, Inc. | 4,800 | 104,736 |
The Gap, Inc. | 15,500 | 207,545 |
Tiffany & Co. | 7,400 | 174,862 |
Tractor Supply Co.* | 4,900 | 177,086 |
Yamada Denki Co., Ltd. | 50 | 3,471 |
| 3,025,849 |
Textiles, Apparel & Luxury Goods 0.3% |
Adidas AG | 129 | 4,961 |
Billabong International Ltd. | 204 | 1,141 |
Burberry Group PLC | 424 | 1,360 |
Carter's, Inc.* | 7,400 | 142,524 |
Christian Dior SA | 123 | 6,938 |
Compagnie Financiere Richemont SA "A" | 3,079 | 59,777 |
Fuqi International, Inc.* | 2,400 | 15,024 |
Gildan Activewear, Inc.* | 300 | 3,448 |
Hermes International | 54 | 7,543 |
Luxottica Group SpA | 492 | 8,795 |
LVMH Moet Hennessy Louis Vuitton SA | 165 | 11,086 |
NIKE, Inc. "B" | 6,400 | 326,400 |
Phillips-Van Heusen Corp. | 4,600 | 92,598 |
Swatch Group AG (Bearer) | 192 | 26,820 |
Swatch Group AG (Registered) | 356 | 9,732 |
|
Shares
| Value ($) |
| |
The Warnaco Group, Inc.* | 1,600 | 31,408 |
Timberland Co. "A"* | 3,200 | 36,960 |
True Religion Apparel, Inc.* | 4,800 | 59,712 |
UniFirst Corp. | 1,500 | 44,535 |
| 890,762 |
Consumer Staples 6.5% |
Beverages 1.1% |
Anheuser-Busch InBev NV | 1,563 | 36,237 |
Asahi Breweries Ltd. | 500 | 8,605 |
Boston Beer Co., Inc. "A"* | 900 | 25,560 |
Carlsberg AS "B" | 7,326 | 240,520 |
Coca-Cola Amatil Ltd. | 614 | 3,968 |
Coca-Cola Enterprises, Inc. | 8,700 | 104,661 |
Diageo PLC | 28,863 | 398,975 |
Foster's Group Ltd. | 4,320 | 16,620 |
Heineken NV | 407 | 12,505 |
Kirin Holdings Co., Ltd. | 1,000 | 13,182 |
Pepsi Bottling Group, Inc. | 19,800 | 445,698 |
PepsiCo, Inc. | 33,416 | 1,830,194 |
Pernod Ricard SA | 266 | 19,725 |
SABMiller PLC | 698 | 11,752 |
The Coca-Cola Co. | 1,600 | 72,432 |
| 3,240,634 |
Food & Staples Retailing 1.8% |
AEON Co., Ltd. | 1,200 | 12,019 |
BJ's Wholesale Club, Inc.* | 5,000 | 171,300 |
Carrefour SA | 847 | 32,527 |
Casino Guichard-Perrachon SA | 82 | 6,235 |
Colruyt SA | 81 | 17,347 |
CVS Caremark Corp. | 20,512 | 589,515 |
Delhaize Group | 449 | 27,705 |
George Weston Ltd. | 300 | 14,569 |
J Sainsbury PLC | 1,318 | 6,267 |
Kesko Oyj "B" | 133 | 3,333 |
Koninklijke Ahold NV | 2,426 | 29,817 |
Kroger Co. | 26,200 | 691,942 |
Lawson, Inc. | 100 | 5,767 |
Loblaw Companies Ltd. | 600 | 16,996 |
Metro AG | 770 | 31,211 |
Metro, Inc. "A" | 500 | 14,986 |
Nash Finch Co. | 400 | 17,956 |
Seven & I Holdings Co., Ltd. | 8,200 | 280,930 |
Shoppers Drug Mart Corp. | 7,000 | 272,459 |
Sysco Corp. | 23,800 | 545,972 |
Tesco PLC | 5,893 | 30,702 |
Wal-Mart Stores, Inc. | 39,500 | 2,214,370 |
Walgreen Co. | 19,910 | 491,180 |
Wesfarmers Ltd. | 1,325 | 16,732 |
Wesfarmers Ltd. (PPS) | 167 | 2,110 |
William Morrison Supermarkets PLC | 1,655 | 6,712 |
Woolworths Ltd. | 2,545 | 47,484 |
| 5,598,143 |
Food Products 1.6% |
Ajinomoto Co., Inc. | 1,000 | 10,894 |
Archer-Daniels-Midland Co. | 15,300 | 441,099 |
Aryzta AG* | 77 | 2,466 |
Bunge Ltd. | 11,700 | 605,709 |
Cadbury PLC | 1,029 | 9,008 |
Danisco AS | 796 | 32,443 |
Darling International, Inc.* | 18,700 | 102,663 |
Dean Foods Co.* | 10,160 | 182,575 |
|
Shares
| Value ($) |
| |
Diamond Foods, Inc. | 2,000 | 40,300 |
Fresh Del Monte Produce, Inc.* | 4,300 | 96,406 |
General Mills, Inc. | 14,250 | 865,687 |
Groupe DANONE | 6,347 | 381,169 |
H.J. Heinz Co. | 4,700 | 176,720 |
Kellogg Co. | 8,810 | 386,318 |
Kerry Group PLC "A" | 3,686 | 68,163 |
Kraft Foods, Inc. "A" | 20,797 | 558,399 |
Nestle SA (Registered) | 17,009 | 670,368 |
Nissin Foods Holdings Co., Ltd. | 100 | 3,507 |
Parmalat SpA | 2,981 | 4,886 |
Ralcorp Holdings, Inc.* | 3,300 | 192,720 |
Saputo, Inc. | 1,000 | 17,959 |
Tate & Lyle PLC | 461 | 2,678 |
Unilever NV (CVA) | 3,038 | 73,611 |
Unilever PLC | 966 | 21,953 |
Wilmar International Ltd. | 1,000 | 1,958 |
Yakult Honsha Co., Ltd. | 200 | 4,277 |
| 4,953,936 |
Household Products 1.0% |
Central Garden & Pet Co. "A"* | 1,400 | 8,260 |
Colgate-Palmolive Co. | 17,370 | 1,190,540 |
Henkel AG & Co. KGaA | 557 | 14,769 |
Kao Corp. | 1,000 | 30,283 |
Procter & Gamble Co. | 28,090 | 1,736,524 |
Reckitt Benckiser Group PLC | 343 | 12,778 |
Unicharm Corp. | 100 | 7,558 |
| 3,000,712 |
Personal Products 0.1% |
Beiersdorf AG | 570 | 33,910 |
Herbalife Ltd. | 11,500 | 249,320 |
L'Oreal SA | 362 | 31,456 |
Nu Skin Enterprises, Inc. "A" | 2,300 | 23,989 |
Shiseido Co., Ltd. | 1,000 | 20,471 |
| 359,146 |
Tobacco 0.9% |
Altria Group, Inc. | 54,553 | 821,568 |
British American Tobacco PLC | 1,617 | 42,015 |
Imperial Tobacco Group PLC | 10,530 | 281,289 |
Japan Tobacco, Inc. | 106 | 351,009 |
Philip Morris International, Inc. | 30,410 | 1,323,139 |
Swedish Match AB | 7,492 | 107,249 |
| 2,926,269 |
Energy 7.0% |
Energy Equipment & Services 1.1% |
Aker Solutions ASA | 700 | 4,627 |
AMEC PLC | 16,366 | 116,813 |
Compagnie Generale de Geophysique-Veritas* | 89 | 1,329 |
Complete Production Services, Inc.* | 5,600 | 45,640 |
ENSCO International, Inc. | 12,278 | 348,572 |
Fugro NV (CVA) | 1,159 | 33,274 |
Halliburton Co. | 41,382 | 752,325 |
ION Geophysical Corp.* | 37,000 | 126,910 |
National-Oilwell Varco, Inc.* | 10,273 | 251,072 |
Noble Corp. | 8,260 | 182,463 |
Oil States International, Inc.* | 10,400 | 194,376 |
ProSafe SE* | 300 | 1,144 |
RPC, Inc. | 14,200 | 138,592 |
Saipem SpA | 7,731 | 129,814 |
|
Shares
| Value ($) |
| |
SBM Offshore NV | 2,753 | 36,076 |
Schlumberger Ltd. | 6,860 | 290,384 |
Seadrill Ltd. | 800 | 6,521 |
Technip SA | 75 | 2,298 |
Tenaris SA | 434 | 4,488 |
Transocean Ltd.* | 16,014 | 756,661 |
WorleyParsons Ltd. | 564 | 5,619 |
| 3,428,998 |
Oil, Gas & Consumable Fuels 5.9% |
Alpha Natural Resources, Inc.* | 5,600 | 90,664 |
Anadarko Petroleum Corp. | 3,300 | 127,215 |
Apache Corp. | 8,100 | 603,693 |
BG Group PLC | 17,616 | 244,576 |
Bill Barrett Corp.* | 3,400 | 71,842 |
BP PLC | 5,158 | 39,522 |
Callon Petroleum Co.* | 6,900 | 17,940 |
Cameco Corp. | 100 | 1,705 |
Canadian Natural Resources Ltd. | 200 | 7,898 |
Canadian Oil Sands Trust (Unit) | 100 | 1,709 |
Chevron Corp. | 22,492 | 1,663,733 |
Cimarex Energy Co. | 11,300 | 302,614 |
Clayton Williams Energy, Inc.* | 3,900 | 177,216 |
ConocoPhillips | 25,281 | 1,309,556 |
Devon Energy Corp. | 16,263 | 1,068,642 |
El Paso Corp. | 14,300 | 111,969 |
Enbridge, Inc. | 100 | 3,205 |
EnCana Corp. | 300 | 13,842 |
Encore Acquisition Co.* | 22,200 | 566,544 |
Eni SpA | 2,945 | 69,784 |
EOG Resources, Inc. | 10,320 | 687,106 |
ExxonMobil Corp. | 42,604 | 3,401,077 |
Frontline Ltd. | 200 | 5,833 |
Gazprom (ADR)* | 11,850 | 169,846 |
Hess Corp. | 6,100 | 327,204 |
Husky Energy, Inc. | 100 | 2,501 |
Imperial Oil Ltd. | 300 | 9,961 |
INPEX Corp. | 4 | 31,602 |
James River Coal Co.* | 10,300 | 157,899 |
Knightsbridge Tankers Ltd. | 1,500 | 21,975 |
Marathon Oil Corp. | 28,692 | 785,013 |
Mariner Energy, Inc.* | 22,900 | 233,580 |
Massey Energy Co. | 11,900 | 164,101 |
Murphy Oil Corp. | 5,800 | 257,230 |
Neste Oil Oyj | 113 | 1,688 |
Nexen, Inc. | 19,184 | 333,331 |
Nippon Mining Holdings, Inc. | 3,500 | 15,039 |
Nippon Oil Corp. | 5,000 | 25,182 |
Noble Energy, Inc. | 11,112 | 546,933 |
Occidental Petroleum Corp. | 12,601 | 755,934 |
OMV AG | 2,811 | 74,938 |
Origin Energy Ltd. | 2,654 | 29,936 |
Petro-Canada | 200 | 4,329 |
Petroleo Brasileiro SA (ADR) | 7,300 | 178,777 |
PetroQuest Energy, Inc.* | 8,000 | 54,080 |
Repsol YPF SA | 7,373 | 157,034 |
Rosetta Resources, Inc.* | 600 | 4,248 |
Royal Dutch Shell PLC "A" | 756 | 19,762 |
Royal Dutch Shell PLC "B" | 877 | 22,072 |
Santos Ltd. | 1,792 | 18,728 |
Showa Shell Sekiyu KK | 1,100 | 10,853 |
StatoilHydro ASA | 20,850 | 343,405 |
Suncor Energy, Inc. | 19,485 | 374,390 |
Sunoco, Inc. | 17,900 | 777,934 |
|
Shares
| Value ($) |
| |
Swift Energy Co.* | 2,200 | 36,982 |
Talisman Energy, Inc. | 500 | 4,933 |
TonenGeneral Sekiyu KK | 1,000 | 10,010 |
Total SA | 10,408 | 567,420 |
VAALCO Energy, Inc.* | 10,800 | 80,352 |
Whiting Petroleum Corp.* | 6,100 | 204,106 |
Woodside Petroleum Ltd. | 1,342 | 34,633 |
World Fuel Services Corp. | 4,600 | 170,200 |
XTO Energy, Inc. | 14,920 | 526,228 |
| 18,132,254 |
Financials 7.7% |
Capital Markets 1.1% |
Affiliated Managers Group, Inc.* | 2,703 | 113,310 |
Ameriprise Financial, Inc. | 3,400 | 79,424 |
Bank of New York Mellon Corp. | 20,800 | 589,264 |
BGC Partners, Inc. "A" | 2,200 | 6,072 |
Charles Schwab Corp. | 33,800 | 546,546 |
Credit Suisse Group AG (Registered) | 825 | 22,613 |
Daiwa Securities Group, Inc. | 1,000 | 5,959 |
Eaton Vance Corp. | 6,190 | 130,052 |
IGM Financial, Inc. | 100 | 2,872 |
Jefferies Group, Inc. | 9,522 | 133,879 |
Julius Baer Holding AG (Registered) | 259 | 9,963 |
LaBranche & Co., Inc.* | 2,900 | 13,891 |
Macquarie Group Ltd. | 396 | 8,049 |
Man Group PLC | 485 | 1,674 |
Mediobanca SpA | 349 | 3,544 |
Nomura Holdings, Inc. | 900 | 7,422 |
Prospect Capital Corp. | 12,669 | 151,648 |
Reinet Investments SCA* | 213 | 2,074 |
State Street Corp. | 9,940 | 390,940 |
SWS Group, Inc. | 1,800 | 34,110 |
T. Rowe Price Group, Inc. | 8,700 | 308,328 |
TD Ameritrade Holding Corp.* | 17,368 | 247,494 |
The Goldman Sachs Group, Inc. | 4,200 | 354,438 |
thinkorswim Group, Inc.* | 7,400 | 41,588 |
UBS AG (Registered)* | 2,308 | 33,475 |
| 3,238,629 |
Commercial Banks 2.2% |
1st Source Corp. | 1,200 | 28,356 |
Allied Irish Banks PLC | 15,183 | 36,983 |
Anglo Irish Bank Corp. PLC | 14,896 | 3,577 |
Australia & New Zealand Banking Group Ltd. | 888 | 9,531 |
Banca Monte dei Paschi di Siena SpA | 915 | 1,972 |
Banca Popolare di Milano Scarl | 2,224 | 13,172 |
Banco Bilbao Vizcaya Argentaria SA | 2,168 | 26,603 |
Banco Comercial Portugues SA (Registered)* | 86,212 | 98,815 |
Banco Espirito Santo SA (Registered) | 8,338 | 78,376 |
Banco Latinoamericano de Exportaciones SA "E" | 8,400 | 120,624 |
Banco Popolare Societa Cooperativa | 1,432 | 10,032 |
Banco Popular Espanol SA | 560 | 4,862 |
Banco Santander SA | 4,119 | 39,753 |
Bank of East Asia Ltd. | 1,800 | 3,797 |
Bank of Montreal | 300 | 7,594 |
Bank of Nova Scotia | 500 | 13,491 |
|
Shares
| Value ($) |
| |
Barclays PLC | 1,486 | 3,350 |
BNP Paribas | 5,692 | 240,353 |
BOC Hong Kong (Holdings) Ltd. | 4,500 | 5,137 |
Canadian Imperial Bank of Commerce | 9,242 | 382,482 |
Chuo Mitsui Trust Holdings, Inc. | 1,000 | 4,887 |
Commerzbank AG | 1,202 | 11,458 |
Commonwealth Bank of Australia | 608 | 12,327 |
Community Bank System, Inc. | 2,800 | 68,292 |
Credit Agricole SA | 364 | 4,140 |
Danske Bank AS | 3,201 | 32,366 |
DBS Group Holdings Ltd. | 3,000 | 17,797 |
Deutsche Postbank AG | 64 | 1,415 |
Dexia SA | 2,958 | 13,314 |
DnB NOR ASA | 44,200 | 176,562 |
Erste Group Bank AG | 4,350 | 101,975 |
First Financial Bankshares, Inc. | 1,300 | 71,773 |
First Merchants Corp. | 1,000 | 22,210 |
FirstMerit Corp. | 6,600 | 135,894 |
FNB Corp. | 3,400 | 44,880 |
Governor and Co. of the Bank of Ireland | 18,141 | 21,375 |
Hang Seng Bank Ltd. | 1,100 | 14,528 |
HBOS PLC | 2,928 | 2,972 |
HSBC Holdings PLC | 16,707 | 159,907 |
Hypo Real Estate Holding AG | 816 | 3,590 |
International Bancshares Corp. | 2,700 | 58,941 |
Intesa Sanpaolo | 82,053 | 295,549 |
Intesa Sanpaolo (RSP) | 412 | 1,055 |
Jyske Bank AS (Registered)* | 375 | 8,833 |
KBC Groep NV | 895 | 27,033 |
Lakeland Bancorp., Inc. | 1,400 | 15,764 |
Lloyds TSB Group PLC | 1,300 | 2,379 |
Mitsubishi UFJ Financial Group, Inc. | 41,900 | 259,986 |
Mizuho Financial Group, Inc. | 6,000 | 17,719 |
National Australia Bank Ltd. | 790 | 11,582 |
National Bank of Canada | 100 | 2,536 |
National Penn Bancshares, Inc. | 10,700 | 155,257 |
NBT Bancorp., Inc. | 4,700 | 131,412 |
Nordea Bank AB | 3,800 | 26,749 |
Oriental Financial Group, Inc. | 1,000 | 6,050 |
Oversea-Chinese Banking Corp., Ltd. | 7,000 | 24,389 |
PNC Financial Services Group, Inc. | 12,164 | 596,036 |
PrivateBancorp., Inc. | 4,600 | 149,316 |
Raiffeisen International Bank-Holding AG | 1,134 | 31,737 |
Republic Bancorp., Inc. "A" | 700 | 19,040 |
Resona Holdings, Inc. | 300 | 4,719 |
Royal Bank of Canada | 700 | 20,470 |
Royal Bank of Scotland Group PLC | 7,868 | 5,688 |
S&T Bancorp., Inc. | 3,400 | 120,700 |
Santander BanCorp. | 5,000 | 62,450 |
Skandinaviska Enskilda Banken AB "A" | 900 | 7,230 |
Societe Generale | 5,903 | 298,972 |
Southside Bancshares, Inc. | 1,900 | 44,650 |
Standard Chartered PLC | 682 | 8,718 |
Sumitomo Mitsui Financial Group, Inc. | 300 | 13,078 |
Sumitomo Trust & Banking Co., Ltd. | 1,000 | 5,918 |
Susquehanna Bancshares, Inc. | 1,000 | 15,910 |
|
Shares
| Value ($) |
| |
SVB Financial Group* | 1,700 | 44,591 |
Svenska Handelsbanken AB "A" | 1,150 | 18,718 |
Swedbank AB "A" | 1,596 | 9,154 |
Sydbank AS | 400 | 4,956 |
Synovus Financial Corp. | 13,681 | 113,552 |
The Bank of Yokohama Ltd. | 1,000 | 5,915 |
Tompkins Financial Corp. | 1,600 | 92,720 |
Toronto-Dominion Bank | 200 | 7,039 |
UMB Financial Corp. | 2,900 | 142,506 |
UniCredit SpA | 8,775 | 21,846 |
Unione di Banche Italiane ScpA | 685 | 9,914 |
United Bankshares, Inc. | 2,400 | 79,728 |
United Overseas Bank Ltd. | 22,000 | 198,595 |
US Bancorp. | 17,500 | 437,675 |
Wells Fargo & Co. | 38,438 | 1,133,152 |
Westpac Banking Corp. | 1,387 | 16,517 |
| 6,836,966 |
Consumer Finance 0.1% |
Capital One Financial Corp. | 4,498 | 143,441 |
Cash America International, Inc. | 3,300 | 90,255 |
Credit Saison Co., Ltd. | 200 | 2,761 |
ORIX Corp. | 50 | 2,841 |
| 239,298 |
Diversified Financial Services 1.2% |
ASX Ltd. | 282 | 6,585 |
Bank of America Corp. | 39,252 | 552,668 |
CME Group, Inc. | 1,155 | 240,367 |
Compagnie Nationale a Portefeuille | 369 | 17,943 |
Deutsche Boerse AG | 4,725 | 344,133 |
Encore Capital Group, Inc.* | 2,000 | 14,400 |
Fortis | 13,670 | 18,143 |
Groupe Bruxelles Lambert SA | 473 | 37,640 |
Hong Kong Exchanges & Clearing Ltd. | 1,600 | 15,340 |
ING Groep NV (CVA) | 5,402 | 56,468 |
Interactive Brokers Group, Inc. "A"* | 1,100 | 19,679 |
Investor AB "B" | 600 | 9,029 |
JPMorgan Chase & Co. | 55,048 | 1,735,664 |
KBC Ancora | 49 | 844 |
NYSE Euronext | 11,488 | 314,541 |
Singapore Exchange Ltd. | 1,000 | 3,583 |
The NASDAQ OMX Group, Inc.* | 7,100 | 175,441 |
| 3,562,468 |
Insurance 2.1% |
ACE Ltd. | 8,791 | 465,220 |
Aegon NV | 3,859 | 24,626 |
Aflac, Inc. | 9,880 | 452,899 |
Alleanza Assicurazioni SpA | 232 | 1,890 |
Alleghany Corp.* | 575 | 162,150 |
Allianz SE (Registered) | 3,244 | 347,945 |
Allied World Assurance Co. Holdings Ltd. | 2,500 | 101,500 |
Allstate Corp. | 18,700 | 612,612 |
American Physicians Capital, Inc. | 600 | 28,860 |
AMP Ltd. | 965 | 3,668 |
AmTrust Financial Services, Inc. | 11,700 | 135,720 |
Aon Corp. | 11,726 | 535,644 |
Argo Group International Holdings Ltd.* | 4,500 | 152,640 |
Arthur J. Gallagher & Co. | 8,353 | 216,426 |
Assicurazioni Generali SpA | 1,167 | 31,992 |
|
Shares
| Value ($) |
| |
Assured Guaranty Ltd. | 1,100 | 12,540 |
Aviva PLC | 589 | 3,334 |
AXA Asia Pacific Holdings Ltd. | 529 | 1,834 |
AXA SA | 13,359 | 297,835 |
Baloise Holding AG (Registered) | 92 | 6,915 |
Brown & Brown, Inc. | 5,500 | 114,950 |
China Life Insurance Co., Ltd. "H" | 110,500 | 340,515 |
CNP Assurances | 24 | 1,737 |
Crawford & Co. "B"* | 3,000 | 43,620 |
Enstar Group Ltd.* | 600 | 35,484 |
First American Corp. | 6,100 | 176,229 |
Great-West Lifeco, Inc. | 100 | 1,677 |
Hallmark Financial Services, Inc.* | 2,000 | 17,540 |
Hartford Financial Services Group, Inc. | 9,515 | 156,236 |
Insurance Australia Group Ltd. | 1,063 | 2,900 |
Irish Life & Permanent PLC | 1,959 | 4,347 |
Legal & General Group PLC | 2,181 | 2,433 |
Lincoln National Corp. | 3,600 | 67,824 |
Manulife Financial Corp. | 800 | 13,479 |
MetLife, Inc. | 4,636 | 161,611 |
Mitsui Sumitomo Insurance Group Holdings, Inc. | 300 | 9,568 |
Muenchener Rueckversicherungs- Gesellschaft AG (Registered) | 2,369 | 372,281 |
Navigators Group, Inc.* | 2,700 | 148,257 |
Odyssey Re Holdings Corp. | 1,000 | 51,810 |
Old Mutual PLC | 9,082 | 7,256 |
PartnerRe Ltd. | 2,425 | 172,830 |
Power Corp. of Canada | 200 | 3,632 |
Power Financial Corp. | 100 | 1,936 |
Principal Financial Group, Inc. | 5,200 | 117,364 |
Progressive Corp. | 8,100 | 119,961 |
Prudential Financial, Inc. | 5,578 | 168,790 |
Prudential PLC | 566 | 3,446 |
QBE Insurance Group Ltd. | 387 | 7,035 |
Reinsurance Group of America, Inc. | 2,200 | 94,204 |
Sampo Oyj "A" | 4,681 | 87,433 |
Sompo Japan Insurance, Inc. | 1,000 | 7,323 |
State Auto Financial Corp. | 2,200 | 66,132 |
Sun Life Financial, Inc. | 300 | 6,911 |
Suncorp-Metway Ltd. | 457 | 2,698 |
Swiss Life Holding (Registered)* | 19 | 1,318 |
Swiss Re (Registered) | 190 | 9,230 |
T&D Holdings, Inc. | 100 | 4,193 |
Tokio Marine Holdings, Inc. | 300 | 8,791 |
Topdanmark AS* | 125 | 16,228 |
Trygvesta AS | 245 | 15,201 |
Unum Group | 10,600 | 197,160 |
Vienna Insurance Group | 895 | 30,877 |
Zurich Financial Services AG (Registered) | 118 | 25,615 |
| 6,494,312 |
Real Estate Investment Trusts 0.6% |
Annaly Capital Management, Inc. (REIT) | 4,200 | 66,654 |
Apartment Investment & Management Co. "A" (REIT) | 2,002 | 23,123 |
AvalonBay Communities, Inc. (REIT) | 1,100 | 66,638 |
BioMed Realty Trust, Inc. (REIT) | 2,200 | 25,784 |
Boston Properties, Inc. (REIT) | 1,900 | 104,500 |
CapitaMall Trust (REIT) | 3,000 | 3,340 |
Corio NV (REIT) | 72 | 3,301 |
|
Shares
| Value ($) |
| |
Corporate Office Properties Trust (REIT) | 2,500 | 76,750 |
Cousins Properties, Inc. (REIT) | 3,100 | 42,935 |
Equity Lifestyle Properties, Inc. (REIT) | 1,500 | 57,540 |
Equity Residential (REIT) | 3,600 | 107,352 |
First Industrial Realty Trust, Inc. (REIT) | 3,500 | 26,425 |
Franklin Street Properties Corp. (REIT) | 1,300 | 19,175 |
Glimcher Realty Trust (REIT) | 3,200 | 8,992 |
GPT Group (REIT) | 1,538 | 995 |
HCP, Inc. (REIT) | 1,800 | 49,986 |
Healthcare Realty Trust, Inc. (REIT) | 2,200 | 51,656 |
Home Properties, Inc. (REIT) | 2,000 | 81,200 |
Hospitality Properties Trust (REIT) | 3,000 | 44,610 |
Host Hotels & Resorts, Inc. (REIT) | 5,100 | 38,607 |
Kimco Realty Corp. (REIT) | 3,400 | 62,152 |
LaSalle Hotel Properties (REIT) | 4,800 | 53,040 |
Lexington Realty Trust (REIT) | 5,300 | 26,500 |
Link (REIT) | 2,500 | 4,156 |
Maguire Properties, Inc. (REIT) | 2,400 | 3,504 |
Mid-America Apartment Communities, Inc. (REIT) | 1,600 | 59,456 |
National Retail Properties, Inc. (REIT) | 4,700 | 80,793 |
OMEGA Healthcare Investors, Inc. (REIT) | 2,500 | 39,925 |
Parkway Properties, Inc. (REIT) | 2,300 | 41,400 |
Pennsylvania Real Estate Investment Trust (REIT) | 1,600 | 11,920 |
Potlatch Corp. (REIT) | 1,900 | 49,419 |
ProLogis (REIT) | 3,000 | 41,670 |
Realty Income Corp. (REIT) | 4,500 | 104,175 |
Redwood Trust, Inc. (REIT) | 1,100 | 16,401 |
Senior Housing Properties Trust (REIT) | 4,500 | 80,640 |
Simon Property Group, Inc. (REIT) | 2,300 | 122,199 |
Sovran Self Storage, Inc. (REIT) | 1,400 | 50,400 |
Stockland (REIT) | 923 | 2,671 |
Strategic Hotels & Resorts, Inc. (REIT) | 4,400 | 7,392 |
Sunstone Hotel Investors, Inc. (REIT) | 4,200 | 25,998 |
Unibail-Rodamco (REIT) | 40 | 5,958 |
Vornado Realty Trust (REIT) | 1,600 | 96,560 |
Washington Real Estate Investment Trust (REIT) | 2,600 | 73,580 |
Wereldhave NV (REIT) | 48 | 4,240 |
Westfield Group (REIT) | 891 | 8,209 |
| 1,971,921 |
Real Estate Management & Development 0.0% |
Atrium European Real Estate Ltd.* | 2,003 | 7,301 |
Brookfield Asset Management, Inc. "A" | 300 | 4,508 |
CapitaLand Ltd. | 5,000 | 10,985 |
Cheung Kong (Holdings) Ltd. | 2,000 | 19,068 |
City Developments Ltd. | 1,000 | 4,462 |
Hang Lung Properties Ltd. | 2,000 | 4,387 |
Henderson Land Development Co., Ltd. | 1,000 | 3,736 |
Hopewell Holdings Ltd. | 1,000 | 3,308 |
Kerry Properties Ltd. | 1,000 | 2,691 |
Lend Lease Corp., Ltd. | 287 | 1,451 |
Mitsubishi Estate Co., Ltd. | 1,000 | 16,491 |
|
Shares
| Value ($) |
| |
Mitsui Fudosan Co., Ltd. | 1,000 | 16,618 |
New World Development Co., Ltd. | 6,000 | 6,130 |
Sino Land Co., Ltd. | 6,000 | 6,271 |
Sun Hung Kai Properties Ltd. | 2,000 | 16,817 |
Swire Pacific Ltd. "A" | 1,000 | 6,934 |
Wharf Holdings Ltd. | 2,000 | 5,526 |
| 136,684 |
Thrifts & Mortgage Finance 0.4% |
Astoria Financial Corp. | 3,200 | 52,736 |
Capitol Federal Financial | 3,433 | 156,545 |
Dime Community Bancshares | 12,300 | 163,590 |
Doral Financial Corp.* | 7,500 | 56,250 |
Flushing Financial Corp. | 4,600 | 55,016 |
Hudson City Bancorp., Inc. | 29,800 | 475,608 |
Ocwen Financial Corp.* | 7,700 | 70,686 |
WSFS Financial Corp. | 700 | 33,593 |
| 1,064,024 |
Health Care 9.8% |
Biotechnology 1.6% |
Actelion Ltd. (Registered)* | 83 | 4,675 |
Alexion Pharmaceuticals, Inc.* | 800 | 28,952 |
Alnylam Pharmaceuticals, Inc.* | 6,700 | 165,691 |
Amgen, Inc.* | 11,200 | 646,800 |
Celgene Corp.* | 14,300 | 790,504 |
CSL Ltd. | 3,003 | 70,911 |
Cubist Pharmaceuticals, Inc.* | 6,900 | 166,704 |
CV Therapeutics, Inc.* | 17,100 | 157,491 |
Emergent Biosolutions, Inc.* | 700 | 18,277 |
Facet Biotech Corp.* | 2,600 | 24,934 |
Genentech, Inc.* | 5,990 | 496,631 |
Genomic Health, Inc.* | 1,300 | 25,324 |
Gilead Sciences, Inc.* | 32,880 | 1,681,483 |
Grifols SA | 301 | 5,228 |
Intercell AG* | 10,870 | 333,281 |
Myriad Genetics, Inc.* | 3,100 | 205,406 |
NPS Pharmaceuticals, Inc.* | 6,500 | 40,365 |
PDL BioPharma, Inc. | 25,500 | 157,590 |
| 5,020,247 |
Health Care Equipment & Supplies 2.0% |
ArthroCare Corp.* | 10,400 | 49,608 |
Baxter International, Inc. | 37,287 | 1,998,210 |
Becton, Dickinson & Co. | 18,822 | 1,287,237 |
C.R. Bard, Inc. | 7,850 | 661,441 |
Cochlear Ltd. | 314 | 12,362 |
Essilor International SA | 494 | 23,178 |
Getinge AB "B" | 200 | 2,397 |
Hologic, Inc.* | 9,900 | 129,393 |
Medtronic, Inc. | 25,700 | 807,494 |
Merit Medical Systems, Inc.* | 4,900 | 87,857 |
Nobel Biocare Holding AG (Bearer) | 155 | 3,175 |
Olympus Corp. | 1,000 | 20,081 |
Smith & Nephew PLC | 1,343 | 8,521 |
Sonova Holding AG (Registered) | 59 | 3,559 |
STERIS Corp. | 5,600 | 133,784 |
Synthes, Inc. | 35 | 4,424 |
Terumo Corp. | 5,100 | 238,838 |
Thoratec Corp.* | 5,900 | 191,691 |
Varian Medical Systems, Inc.* | 5,300 | 185,712 |
William Demant Holding AS* | 50 | 2,077 |
Zimmer Holdings, Inc.* | 7,490 | 302,746 |
| 6,153,785 |
|
Shares
| Value ($) |
| |
Health Care Providers & Services 1.4% |
Aetna, Inc. | 14,000 | 399,000 |
Alliance Imaging, Inc.* | 8,900 | 70,933 |
Celesio AG | 338 | 9,231 |
Centene Corp.* | 6,300 | 124,173 |
Community Health Systems, Inc.* | 5,700 | 83,106 |
CorVel Corp.* | 4,600 | 101,108 |
Emergency Medical Services Corp. "A"* | 4,100 | 150,101 |
Express Scripts, Inc.* | 3,200 | 175,936 |
Fresenius Medical Care AG & Co. KGaA | 5,993 | 281,031 |
Gentiva Health Services, Inc.* | 5,100 | 149,226 |
Healthspring, Inc.* | 1,500 | 29,955 |
Humana, Inc.* | 1,800 | 67,104 |
Kindred Healthcare, Inc.* | 5,800 | 75,516 |
Laboratory Corp. of America Holdings* | 5,800 | 373,578 |
Landauer, Inc. | 100 | 7,330 |
LHC Group, Inc.* | 4,500 | 162,000 |
LifePoint Hospitals, Inc.* | 10,700 | 244,388 |
Magellan Health Services, Inc.* | 2,000 | 78,320 |
McKesson Corp. | 1,800 | 69,714 |
Medco Health Solutions, Inc.* | 9,486 | 397,558 |
Mediceo Paltac Holdings Co., Ltd. | 400 | 4,821 |
Owens & Minor, Inc. | 3,000 | 112,950 |
RehabCare Group, Inc.* | 3,300 | 50,028 |
Sonic Healthcare Ltd. | 1,874 | 19,077 |
Suzuken Co., Ltd. | 200 | 6,026 |
Triple-S Management Corp. "B"* | 1,900 | 21,850 |
UnitedHealth Group, Inc. | 5,330 | 141,778 |
Universal Health Services, Inc. "B" | 4,800 | 180,336 |
WellPoint, Inc.* | 13,640 | 574,653 |
| 4,160,827 |
Life Sciences Tools & Services 0.6% |
Albany Molecular Research, Inc.* | 800 | 7,792 |
eResearchTechnology, Inc.* | 22,500 | 149,175 |
Gerresheimer AG | 7,449 | 204,221 |
Lonza Group AG (Registered) | 2,905 | 268,553 |
Luminex Corp.* | 7,900 | 168,744 |
Thermo Fisher Scientific, Inc.* | 26,745 | 911,202 |
| 1,709,687 |
Pharmaceuticals 4.2% |
Abbott Laboratories | 35,803 | 1,910,806 |
Astellas Pharma, Inc. | 7,700 | 313,324 |
AstraZeneca PLC | 1,584 | 64,182 |
Bayer AG | 9,255 | 543,683 |
Bristol-Myers Squibb Co. | 2,300 | 53,475 |
Caraco Pharmaceutical Laboratories Ltd.* | 8,700 | 51,504 |
Chugai Pharmaceutical Co., Ltd. | 600 | 11,614 |
Daiichi Sankyo Co., Ltd. | 1,700 | 40,408 |
Eisai Co., Ltd. | 700 | 29,008 |
Elan Corp. PLC* | 26,440 | 155,770 |
Eli Lilly & Co. | 23,820 | 959,231 |
GlaxoSmithKline PLC | 5,467 | 101,492 |
Hisamitsu Pharmaceutical Co., Inc. | 200 | 8,165 |
Johnson & Johnson | 33,682 | 2,015,194 |
Medicines Co.* | 3,100 | 45,663 |
Medicis Pharmaceutical Corp. "A" | 5,200 | 72,280 |
Merck & Co., Inc. | 31,601 | 960,670 |
Merck KGaA | 235 | 21,366 |
Mitsubishi Tanabe Pharma Corp. | 1,000 | 15,119 |
|
Shares
| Value ($) |
| |
Novartis AG (Registered) | 11,615 | 581,964 |
Novo Nordisk AS "B" | 9,474 | 482,126 |
Ono Pharmaceutical Co., Ltd. | 300 | 15,599 |
Perrigo Co. | 4,800 | 155,088 |
Pfizer, Inc. | 110,223 | 1,952,049 |
POZEN, Inc.* | 17,300 | 87,192 |
Roche Holding AG (Genusschein) | 4,024 | 619,429 |
Salix Pharmaceuticals Ltd.* | 4,400 | 38,852 |
Sanofi-Aventis | 2,661 | 169,011 |
Shionogi & Co., Ltd. | 1,000 | 25,685 |
Shire PLC | 640 | 9,359 |
Takeda Pharmaceutical Co., Ltd. | 1,800 | 93,370 |
Teva Pharmaceutical Industries Ltd. (ADR) | 15,295 | 651,108 |
UCB SA | 3,843 | 125,180 |
ViroPharma, Inc.* | 12,700 | 165,354 |
VIVUS, Inc.* | 3,300 | 17,556 |
Wyeth | 13,250 | 497,008 |
| 13,058,884 |
Industrials 6.7% |
Aerospace & Defense 1.6% |
BAE Systems PLC | 30,297 | 165,126 |
Bombardier, Inc. "B" | 3,500 | 12,616 |
CAE, Inc. | 700 | 4,593 |
Cobham PLC | 1,159 | 3,446 |
European Aeronautic Defence & Space Co. | 222 | 3,748 |
Finmeccanica SpA | 206 | 3,156 |
General Dynamics Corp. | 10,500 | 604,695 |
Goodrich Corp. | 11,400 | 422,028 |
Honeywell International, Inc. | 37,591 | 1,234,112 |
L-3 Communications Holdings, Inc. | 3,800 | 280,364 |
Lockheed Martin Corp. | 8,500 | 714,680 |
Northrop Grumman Corp. | 5,800 | 261,232 |
Precision Castparts Corp. | 1,400 | 83,272 |
Rolls-Royce Group PLC* | 1,977 | 9,685 |
Singapore Technologies Engineering Ltd. | 9,000 | 14,886 |
Teledyne Technologies, Inc.* | 1,600 | 71,280 |
Thales SA | 71 | 2,963 |
United Technologies Corp. | 20,033 | 1,073,769 |
| 4,965,651 |
Air Freight & Logistics 0.0% |
Atlas Air Worldwide Holdings, Inc.* | 1,300 | 24,570 |
Deutsche Post AG (Registered) | 825 | 13,957 |
TNT NV | 1,012 | 19,437 |
Toll Holdings Ltd. | 2,758 | 11,925 |
| 69,889 |
Airlines 0.1% |
Air France-KLM | 113 | 1,452 |
Allegiant Travel Co.* | 600 | 29,142 |
AMR Corp.* | 17,700 | 188,859 |
Deutsche Lufthansa AG (Registered) | 185 | 2,929 |
Hawaiian Holdings, Inc.* | 3,700 | 23,606 |
Iberia Lineas Aereas de Espana SA | 855 | 2,395 |
Qantas Airways Ltd. | 7,435 | 13,710 |
Singapore Airlines Ltd. | 3,000 | 23,550 |
| 285,643 |
Building Products 0.2% |
AAON, Inc. | 7,100 | 148,248 |
Ameron International Corp. | 1,100 | 69,212 |
|
Shares
| Value ($) |
| |
Apogee Enterprises, Inc. | 5,500 | 56,980 |
Asahi Glass Co., Ltd. | 1,000 | 5,680 |
Assa Abloy AB "B" | 400 | 4,538 |
Compagnie de Saint-Gobain | 180 | 8,490 |
Daikin Industries Ltd. | 100 | 2,637 |
Geberit AG (Registered) | 59 | 6,356 |
Gibraltar Industries, Inc. | 6,000 | 71,640 |
Insteel Industries, Inc. | 10,700 | 120,803 |
Wienerberger AG | 44 | 735 |
| 495,319 |
Commercial Services & Supplies 0.3% |
Babcock International Group PLC | 10,510 | 72,299 |
Brambles Ltd. | 7,108 | 36,934 |
Comfort Systems USA, Inc. | 13,900 | 148,174 |
Deluxe Corp. | 800 | 11,968 |
G4S PLC | 2,453 | 7,280 |
Knoll, Inc. | 13,700 | 123,574 |
Loomis AB "B"* | 80 | 496 |
Rentokil Initial PLC | 1,774 | 1,135 |
Ritchie Bros. Auctioneers, Inc. | 400 | 8,509 |
Secom Co., Ltd. | 100 | 5,151 |
Securitas AB "B" | 886 | 7,272 |
Serco Group PLC | 451 | 2,935 |
Standard Register Co. | 5,400 | 48,222 |
Sykes Enterprises, Inc.* | 8,300 | 158,696 |
The Brink's Co. | 15,200 | 408,576 |
| 1,041,221 |
Construction & Engineering 0.3% |
ACS, Actividades de Construccion y Servicios SA | 1,251 | 57,508 |
Balfour Beatty PLC | 491 | 2,339 |
Bouygues SA | 209 | 8,847 |
EMCOR Group, Inc.* | 9,300 | 208,599 |
FLSmidth & Co. AS | 306 | 10,648 |
Fluor Corp. | 1,700 | 76,279 |
Fomento de Construcciones y Contratas SA | 208 | 6,845 |
Grupo Ferrovial SA | 303 | 8,347 |
Hochtief AG | 208 | 10,552 |
Koninklijke Boskalis Westminster NV | 311 | 7,224 |
Leighton Holdings Ltd. | 669 | 13,012 |
MasTec, Inc.* | 3,300 | 38,214 |
Michael Baker Corp.* | 4,600 | 169,786 |
Perini Corp.* | 8,200 | 191,716 |
Shaw Group, Inc.* | 10,600 | 216,982 |
Skanska AB "B" | 600 | 5,981 |
SNC-Lavalin Group, Inc. | 400 | 12,860 |
Vinci SA | 266 | 11,202 |
YIT Oyj | 36 | 232 |
| 1,057,173 |
Electrical Equipment 0.7% |
ABB Ltd. (Registered)* | 21,314 | 321,292 |
Alstom SA | 2,873 | 169,659 |
AZZ, Inc.* | 200 | 5,020 |
Emerson Electric Co. | 38,662 | 1,415,416 |
Gamesa Corp. Tecnologica SA | 1,365 | 24,759 |
GrafTech International Ltd.* | 23,900 | 198,848 |
Mitsubishi Electric Corp. | 1,000 | 6,258 |
Q-Cells SE* | 123 | 4,464 |
Schneider Electric SA | 133 | 9,934 |
Solarworld AG | 59 | 1,284 |
|
Shares
| Value ($) |
| |
Sumitomo Electric Industries Ltd. | 400 | 3,075 |
Vestas Wind Systems AS* | 925 | 54,976 |
| 2,214,985 |
Industrial Conglomerates 0.4% |
3M Co. | 3,700 | 212,898 |
Carlisle Companies, Inc. | 2,700 | 55,890 |
CSR Ltd. | 3,192 | 3,940 |
Fraser & Neave Ltd. | 5,000 | 10,306 |
General Electric Co. | 45,900 | 743,580 |
Hutchison Whampoa Ltd. | 14,000 | 70,620 |
Keppel Corp., Ltd. | 11,000 | 33,340 |
Koninklijke (Royal) Philips Electronics NV | 2,376 | 46,211 |
Orkla ASA | 900 | 5,985 |
SembCorp Industries Ltd. | 12,000 | 19,497 |
Siemens AG (Registered) | 870 | 65,163 |
Smiths Group PLC | 412 | 5,305 |
Wendel | 118 | 5,862 |
| 1,278,597 |
Machinery 1.6% |
AGCO Corp.* | 11,600 | 273,644 |
Alfa Laval AB | 938 | 8,144 |
Ampco-Pittsburgh Corp. | 300 | 6,510 |
Atlas Copco AB "A" | 2,312 | 19,902 |
Atlas Copco AB "B" | 1,266 | 9,731 |
Caterpillar, Inc. | 5,770 | 257,746 |
Chart Industries, Inc.* | 14,600 | 155,198 |
CIRCOR International, Inc. | 5,000 | 137,500 |
Columbus McKinnon Corp.* | 2,500 | 34,125 |
Cummins, Inc. | 5,100 | 136,323 |
Dover Corp. | 18,549 | 610,633 |
EnPro Industries, Inc.* | 3,000 | 64,620 |
FANUC Ltd. | 100 | 7,112 |
Federal Signal Corp. | 10,400 | 85,384 |
Flowserve Corp. | 3,700 | 190,550 |
Force Protection, Inc.* | 23,700 | 141,726 |
Gardner Denver, Inc.* | 9,100 | 212,394 |
GEA Group AG | 285 | 4,887 |
Gorman-Rupp Co. | 400 | 12,448 |
Invensys PLC* | 823 | 2,073 |
Joy Global, Inc. | 6,700 | 153,363 |
KCI Konecranes Oyj | 84 | 1,439 |
Komatsu Ltd. | 400 | 5,067 |
Kone Oyj "B" | 1,749 | 38,349 |
Kubota Corp. | 1,000 | 7,188 |
MAN AG | 163 | 8,990 |
Manitowoc Co., Inc. | 9,600 | 83,136 |
Metso Oyj | 1,439 | 17,399 |
Mitsubishi Heavy Industries Ltd. | 2,000 | 8,924 |
Mueller Water Products, Inc. "A" | 1,400 | 11,760 |
Pall Corp. | 12,500 | 355,375 |
Parker Hannifin Corp. | 20,134 | 856,500 |
Robbins & Myers, Inc. | 3,600 | 58,212 |
Sandvik AB | 1,727 | 10,972 |
Sauer-Danfoss, Inc. | 9,000 | 78,750 |
Scania AB "B" | 839 | 8,397 |
Schindler Holding AG | 84 | 3,839 |
SembCorp Marine Ltd. | 2,000 | 2,357 |
SKF AB "B" | 600 | 5,973 |
Sulzer AG (Registered) | 40 | 2,306 |
Sun Hydraulics Corp. | 4,400 | 82,896 |
Terex Corp.* | 3,400 | 58,888 |
|
Shares
| Value ($) |
| |
Timken Co. | 15,000 | 294,450 |
Titan International, Inc. | 11,800 | 97,350 |
Trinity Industries, Inc. | 5,600 | 88,256 |
Vallourec SA | 33 | 3,753 |
Volvo AB "A" | 300 | 1,689 |
Volvo AB "B" | 1,864 | 10,299 |
Wartsila Oyj | 1,043 | 31,037 |
Xerium Technologies, Inc.* | 5,000 | 3,300 |
Zardoya Otis SA | 934 | 16,628 |
| 4,777,492 |
Marine 0.1% |
A P Moller-Maersk AS "A" | 2 | 10,855 |
A P Moller-Maersk AS "B" | 5 | 26,790 |
American Commercial Lines, Inc.* | 15,100 | 73,990 |
Kuehne & Nagel International AG (Registered) | 78 | 5,057 |
Mitsui O.S.K. Lines Ltd. | 1,000 | 6,141 |
Nippon Yusen Kabushiki Kaisha | 1,000 | 6,167 |
Pacific Basin Shipping Ltd. | 15,000 | 6,896 |
TBS International Ltd. "A"* | 16,800 | 168,504 |
| 304,400 |
Professional Services 0.1% |
Adecco SA (Registered) | 181 | 6,143 |
Capita Group PLC | 467 | 4,976 |
COMSYS IT Partners, Inc.* | 3,100 | 6,944 |
Experian PLC | 763 | 4,778 |
Exponent, Inc.* | 2,200 | 66,176 |
Manpower, Inc. | 4,900 | 166,551 |
Randstad Holdings NV | 312 | 6,334 |
SGS SA (Registered) | 7 | 7,329 |
| 269,231 |
Road & Rail 1.0% |
Burlington Northern Santa Fe Corp. | 6,300 | 476,973 |
Canadian National Railway Co. | 15,000 | 544,107 |
Canadian Pacific Railway Ltd. | 400 | 13,278 |
Central Japan Railway Co. | 1 | 8,643 |
ComfortDelGro Corp., Ltd. | 12,000 | 12,147 |
CSX Corp. | 8,000 | 259,760 |
DSV AS | 1,127 | 12,273 |
East Japan Railway Co. | 4,700 | 365,966 |
FirstGroup PLC | 431 | 2,696 |
Kintetsu Corp. | 1,000 | 4,595 |
Marten Transport Ltd.* | 1,000 | 18,960 |
MTR Corp., Ltd. | 9,000 | 20,985 |
Norfolk Southern Corp. | 18,200 | 856,310 |
Ryder System, Inc. | 11,300 | 438,214 |
Tokyu Corp. | 1,000 | 5,033 |
Werner Enterprises, Inc. | 8,100 | 140,454 |
West Japan Railway Co. | 1 | 4,550 |
| 3,184,944 |
Trading Companies & Distributors 0.2% |
Bunzl PLC | 366 | 3,124 |
Finning International, Inc. | 500 | 5,772 |
Itochu Corp. | 1,000 | 5,017 |
Marubeni Corp. | 1,000 | 3,811 |
Mitsubishi Corp. | 14,600 | 204,961 |
Mitsui & Co., Ltd. | 1,000 | 10,229 |
Noble Group Ltd. | 6,000 | 4,298 |
Sumitomo Corp. | 500 | 4,407 |
TAL International Group, Inc. | 5,100 | 71,910 |
United Rentals, Inc.* | 19,300 | 176,016 |
|
Shares
| Value ($) |
| |
Wolseley PLC | 527 | 2,938 |
| 492,483 |
Transportation Infrastructure 0.1% |
Abertis Infraestructuras SA | 1,697 | 30,198 |
Atlantia SpA | 186 | 3,420 |
Brisa | 14,625 | 109,277 |
Cintra Concesiones de Infraestructuras de Transporte SA | 1,277 | 9,608 |
Macquarie Infrastructure Group (Unit) | 11,784 | 14,134 |
Transurban Group (Unit) | 6,344 | 24,361 |
| 190,998 |
Information Technology 8.0% |
Communications Equipment 1.0% |
Alcatel-Lucent* | 9,271 | 20,018 |
Brocade Communications Systems, Inc.* | 137,721 | 385,619 |
Cisco Systems, Inc.* | 46,070 | 750,941 |
Comtech Telecommunications Corp.* | 1,600 | 73,312 |
DG Fastchannel, Inc.* | 4,800 | 59,904 |
Nokia Oyj | 16,623 | 257,705 |
Nokia Oyj (ADR) | 32,996 | 514,737 |
Plantronics, Inc. | 3,400 | 44,880 |
QUALCOMM, Inc. | 15,130 | 542,108 |
Research In Motion Ltd.* | 1,900 | 76,185 |
Tandberg ASA | 100 | 1,101 |
Tekelec* | 9,800 | 130,732 |
Telefonaktiebolaget LM Ericsson "B" | 11,141 | 85,446 |
| 2,942,688 |
Computers & Peripherals 1.9% |
Apple, Inc.* | 12,900 | 1,101,015 |
EMC Corp.* | 36,091 | 377,873 |
Fujitsu Ltd. | 1,000 | 4,834 |
Hewlett-Packard Co. | 49,900 | 1,810,871 |
International Business Machines Corp. | 21,640 | 1,821,223 |
Lexmark International, Inc. "A"* | 2,800 | 75,320 |
Logitech International SA (Registered)* | 13,814 | 215,658 |
NCR Corp.* | 6,700 | 94,738 |
NEC Corp. | 1,000 | 3,356 |
Synaptics, Inc.* | 7,400 | 122,544 |
Toshiba Corp. | 2,000 | 8,235 |
Western Digital Corp.* | 17,000 | 194,650 |
Wincor Nixdorf AG | 83 | 3,957 |
| 5,834,274 |
Electronic Equipment, Instruments & Components 0.5% |
Arrow Electronics, Inc.* | 3,300 | 62,172 |
Avnet, Inc.* | 17,600 | 320,496 |
Benchmark Electronics, Inc.* | 1,100 | 14,047 |
Daktronics, Inc. | 6,600 | 61,776 |
Electro Rent Corp. | 4,500 | 50,220 |
Electrocomponents PLC | 2,281 | 4,663 |
Fujifilm Holdings Corp. | 200 | 4,402 |
Hitachi Ltd. | 4,000 | 15,512 |
HOYA Corp. | 200 | 3,474 |
IBIDEN Co., Ltd. | 100 | 2,062 |
Jabil Circuit, Inc. | 75,300 | 508,275 |
Kyocera Corp. | 100 | 7,214 |
|
Shares
| Value ($) |
| |
Mettler-Toledo International, Inc.* | 5,500 | 370,700 |
Multi-Fineline Electronix, Inc.* | 11,600 | 135,604 |
Murata Manufacturing Co., Ltd. | 100 | 3,920 |
Nidec Corp. | 100 | 3,889 |
RadiSys Corp.* | 3,700 | 20,461 |
TDK Corp. | 100 | 3,673 |
Technitrol, Inc. | 11,000 | 38,280 |
| 1,630,840 |
Internet Software & Services 0.5% |
EarthLink, Inc.* | 7,100 | 47,996 |
eBay, Inc.* | 10,900 | 152,164 |
Google, Inc. "A"* | 2,915 | 896,800 |
GSI Commerce, Inc.* | 2,500 | 26,300 |
InfoSpace, Inc. | 2,400 | 18,120 |
Liquidity Services, Inc.* | 2,200 | 18,326 |
ModusLink Global Solutions, Inc.* | 5,300 | 15,317 |
SAVVIS, Inc.* | 16,000 | 110,240 |
United Internet AG (Registered) | 218 | 1,951 |
United Online, Inc. | 6,900 | 41,883 |
ValueClick, Inc.* | 5,500 | 37,620 |
Websense, Inc.* | 1,500 | 22,455 |
Yahoo! Japan Corp. | 9 | 3,682 |
Yahoo!, Inc.* | 9,800 | 119,560 |
| 1,512,414 |
IT Services 1.4% |
Accenture Ltd. "A" | 24,910 | 816,799 |
Alliance Data Systems Corp.* | 1,800 | 83,754 |
Atos Origin SA | 177 | 4,442 |
Automatic Data Processing, Inc. | 11,600 | 456,344 |
Broadridge Financial Solutions, Inc. | 12,100 | 151,734 |
Cap Gemini SA | 629 | 24,244 |
CGI Group, Inc. "A"* | 600 | 4,666 |
Computer Sciences Corp.* | 8,600 | 302,204 |
CSG Systems International, Inc.* | 9,300 | 162,471 |
Fiserv, Inc.* | 7,600 | 276,412 |
Gartner, Inc.* | 9,500 | 169,385 |
iGATE Corp.* | 12,300 | 80,073 |
Indra Sistemas SA | 8,986 | 204,180 |
Logica PLC | 24,583 | 24,552 |
ManTech International Corp. "A"* | 3,300 | 178,827 |
NTT Data Corp. | 1 | 4,014 |
SAIC, Inc.* | 28,000 | 545,440 |
Sapient Corp.* | 9,200 | 40,848 |
Syntel, Inc. | 1,000 | 23,120 |
TNS, Inc.* | 1,400 | 13,146 |
Visa, Inc. "A" | 11,300 | 592,685 |
| 4,159,340 |
Office Electronics 0.1% |
Canon, Inc. | 11,000 | 345,307 |
Konica Minolta Holdings, Inc. | 500 | 3,875 |
Neopost SA | 90 | 8,146 |
Ricoh Co., Ltd. | 1,000 | 12,735 |
| 370,063 |
Semiconductors & Semiconductor Equipment 1.2% |
Analog Devices, Inc. | 15,600 | 296,712 |
ARM Holdings PLC | 1,833 | 2,294 |
ASML Holding NV | 5,496 | 98,077 |
Broadcom Corp. "A"* | 14,640 | 248,441 |
Infineon Technologies AG* | 2,218 | 3,053 |
Intel Corp. | 95,131 | 1,394,620 |
IXYS Corp. | 2,400 | 19,824 |
|
Shares
| Value ($) |
| |
Linear Technology Corp. | 3,200 | 70,784 |
Microsemi Corp.* | 11,900 | 150,416 |
ROHM Co., Ltd. | 100 | 5,049 |
Skyworks Solutions, Inc.* | 25,800 | 142,932 |
STMicroelectronics NV | 2,700 | 18,029 |
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) | 67,097 | 530,066 |
Texas Instruments, Inc. | 33,700 | 523,024 |
Tokyo Electron Ltd. | 100 | 3,512 |
Ultratech, Inc.* | 4,800 | 57,408 |
Volterra Semiconductor Corp.* | 18,500 | 132,275 |
| 3,696,516 |
Software 1.4% |
ACI Worldwide, Inc.* | 10,300 | 163,770 |
Adobe Systems, Inc.* | 14,650 | 311,899 |
Advent Software, Inc.* | 700 | 13,979 |
Compuware Corp.* | 17,300 | 116,775 |
Dassault Systemes SA | 339 | 15,319 |
Electronic Arts, Inc.* | 8,100 | 129,924 |
i2 Technologies, Inc.* | 5,200 | 33,228 |
Intuit, Inc.* | 2,400 | 57,096 |
JDA Software Group, Inc.* | 7,700 | 101,101 |
Mentor Graphics Corp.* | 2,100 | 10,857 |
Microsoft Corp. | 120,568 | 2,343,842 |
Misys PLC | 1,295 | 1,860 |
Nintendo Co., Ltd. | 800 | 307,356 |
Oracle Corp.* | 18,850 | 334,210 |
Pegasystems, Inc. | 1,300 | 16,068 |
Renaissance Learning, Inc. | 1,600 | 14,384 |
SAP AG | 2,145 | 76,875 |
Symantec Corp.* | 3,300 | 44,616 |
The Sage Group PLC | 21,974 | 54,035 |
Tyler Technologies, Inc.* | 13,200 | 158,136 |
| 4,305,330 |
Materials 3.0% |
Chemicals 1.8% |
Agrium, Inc. | 100 | 3,359 |
Air Liquide SA | 303 | 27,723 |
Air Products & Chemicals, Inc. | 11,220 | 564,029 |
Airgas, Inc. | 3,300 | 128,667 |
Akzo Nobel NV | 1,417 | 58,433 |
Asahi Kasei Corp. | 1,000 | 4,395 |
Ashland, Inc. | 14,700 | 154,497 |
BASF SE | 8,127 | 321,135 |
CF Industries Holdings, Inc. | 2,800 | 137,648 |
Ecolab, Inc. | 15,850 | 557,128 |
GenTek, Inc.* | 1,600 | 24,080 |
Givaudan SA (Registered) | 8 | 6,302 |
Incitec Pivot Ltd. | 520 | 920 |
Innophos Holdings, Inc. | 8,200 | 162,442 |
JSR Corp. | 200 | 2,251 |
K&S AG | 221 | 12,688 |
Koninklijke DSM NV | 897 | 22,994 |
Kuraray Co., Ltd. | 500 | 3,892 |
Linde AG | 2,568 | 217,313 |
LSB Industries, Inc.* | 4,100 | 34,112 |
Mitsubishi Chemical Holdings Corp. | 1,000 | 4,413 |
Mitsubishi Gas Chemical Co., Inc. | 1,000 | 4,087 |
Mitsui Chemicals, Inc. | 1,000 | 3,696 |
Monsanto Co. | 14,700 | 1,034,145 |
Nitto Denko Corp. | 200 | 3,842 |
Novozymes AS "B" | 1,650 | 131,453 |
|
Shares
| Value ($) |
| |
Orica Ltd. | 1,199 | 11,772 |
Potash Corp. of Saskatchewan, Inc. | 1,901 | 137,867 |
Praxair, Inc. | 17,152 | 1,018,143 |
Shin-Etsu Chemical Co., Ltd. | 400 | 18,346 |
Showa Denko KK | 2,000 | 2,896 |
Solvay SA | 1,411 | 104,905 |
Sumitomo Chemical Co., Ltd. | 2,000 | 6,826 |
Syngenta AG (Registered) | 212 | 41,071 |
Teijin Ltd. | 1,000 | 2,827 |
Terra Industries, Inc. | 9,100 | 151,697 |
The Mosaic Co. | 2,300 | 79,580 |
Toray Industries, Inc. | 2,000 | 10,185 |
Ube Industries Ltd. | 1,000 | 2,807 |
Umicore | 3,028 | 59,747 |
Wacker Chemie AG | 47 | 4,998 |
Yara International ASA | 6,460 | 141,195 |
| 5,420,506 |
Construction Materials 0.1% |
CRH PLC | 13,831 | 349,062 |
Fletcher Building Ltd. | 4,252 | 14,348 |
Holcim Ltd. (Registered) | 403 | 23,204 |
Imerys SA | 73 | 3,320 |
Lafarge SA | 142 | 8,634 |
| 398,568 |
Containers & Packaging 0.2% |
Amcor Ltd. | 605 | 2,459 |
Rock-Tenn Co. "A" | 2,400 | 82,032 |
Sealed Air Corp. | 4,800 | 71,712 |
Sonoco Products Co. | 19,266 | 446,201 |
Toyo Seikan Kaisha Ltd. | 300 | 5,168 |
| 607,572 |
Metals & Mining 0.8% |
Acerinox SA | 5,793 | 92,992 |
Agnico-Eagle Mines Ltd. | 100 | 5,085 |
Alumina Ltd. | 738 | 722 |
Anglo American PLC | 997 | 22,773 |
ArcelorMittal | 7,371 | 177,665 |
Barrick Gold Corp. | 18,100 | 655,530 |
BHP Billiton Ltd. | 2,466 | 51,937 |
BHP Billiton PLC | 1,501 | 28,274 |
BlueScope Steel Ltd. | 470 | 1,154 |
Compass Minerals International, Inc. | 3,200 | 187,712 |
First Quantum Minerals Ltd. | 300 | 4,279 |
Fortescue Metals Group Ltd.* | 700 | 957 |
Freeport-McMoRan Copper & Gold, Inc. | 14,624 | 357,411 |
Goldcorp, Inc. | 700 | 21,842 |
JFE Holdings, Inc. | 600 | 15,870 |
Kinross Gold Corp. | 400 | 7,290 |
Kobe Steel Ltd. | 3,000 | 5,525 |
Mitsubishi Materials Corp. | 4,000 | 10,085 |
Newcrest Mining Ltd. | 264 | 6,261 |
Nippon Steel Corp. | 6,000 | 19,703 |
Nisshin Steel Co., Ltd. | 3,000 | 6,171 |
Norsk Hydro ASA | 22,600 | 91,273 |
OneSteel Ltd. | 1,038 | 1,797 |
Outokumpu Oyj | 1,187 | 13,947 |
OZ Minerals Ltd. | 1,031 | 395 |
Rautaruukki Oyj | 857 | 14,770 |
Reliance Steel & Aluminum Co. | 3,600 | 71,784 |
Rio Tinto Ltd. | 360 | 9,643 |
|
Shares
| Value ($) |
| |
Rio Tinto PLC | 696 | 15,080 |
Salzgitter AG | 31 | 2,448 |
Sherritt International Corp. | 500 | 1,270 |
SSAB Svenskt Stal AB "A" | 2,280 | 20,083 |
Steel Dynamics, Inc. | 25,400 | 283,972 |
Stillwater Mining Co.* | 6,300 | 31,122 |
Sumitomo Metal Industries Ltd. | 6,000 | 14,787 |
Sumitomo Metal Mining Co., Ltd. | 1,000 | 10,629 |
Teck Cominco Ltd. "B" | 324 | 1,580 |
ThyssenKrupp AG | 248 | 6,707 |
voestalpine AG | 341 | 7,311 |
Xstrata PLC | 20,368 | 189,883 |
Yamana Gold, Inc. | 300 | 2,296 |
| 2,470,015 |
Paper & Forest Products 0.1% |
Clearwater Paper Corp.* | 514 | 4,312 |
Oji Paper Co., Ltd. | 1,000 | 5,879 |
Stora Enso Oyj "R" | 7,986 | 62,341 |
Svenska Cellulosa AB "B" | 7,800 | 66,702 |
UPM-Kymmene Oyj | 6,191 | 78,498 |
| 217,732 |
Telecommunication Services 3.0% |
Diversified Telecommunication Services 2.4% |
AT&T, Inc. | 70,602 | 2,012,157 |
Atlantic Tele-Network, Inc. | 4,100 | 108,855 |
BCE, Inc. | 18,539 | 377,387 |
Belgacom SA | 541 | 20,636 |
BT Group PLC | 9,801 | 19,257 |
Cable & Wireless PLC | 3,199 | 7,236 |
Deutsche Telekom AG (Registered) | 31,007 | 471,107 |
Elisa Oyj | 491 | 8,499 |
France Telecom SA | 5,720 | 159,995 |
Global Crossing Ltd.* | 10,500 | 83,370 |
Koninklijke (Royal) KPN NV | 7,006 | 101,593 |
Nippon Telegraph & Telephone Corp. | 6,300 | 337,128 |
NTELOS Holdings Corp. | 1,400 | 34,524 |
Portugal Telecom SGPS SA (Registered) | 12,213 | 103,638 |
Premiere Global Services, Inc.* | 1,500 | 12,915 |
Singapore Telecommunications Ltd. | 129,000 | 229,687 |
Swisscom AG (Registered) | 357 | 115,251 |
Tele2 AB "B" | 1,500 | 13,333 |
Telecom Corp. of New Zealand Ltd. | 160,665 | 214,432 |
Telecom Italia SpA | 54,709 | 88,987 |
Telecom Italia SpA (RSP) | 27,168 | 30,316 |
Telefonica SA | 31,356 | 702,859 |
Telekom Austria AG | 6,774 | 97,912 |
Telenor ASA | 30,700 | 205,440 |
TeliaSonera AB | 12,473 | 62,082 |
Telstra Corp., Ltd. | 39,332 | 105,316 |
Telus Corp. | 100 | 3,011 |
Telus Corp. (Non-Voting Shares) | 400 | 11,308 |
Verizon Communications, Inc. | 46,787 | 1,586,079 |
Windstream Corp. | 6,300 | 57,960 |
| 7,382,270 |
Wireless Telecommunication Services 0.6% |
America Movil SAB de CV "L" (ADR) | 3,300 | 102,267 |
China Mobile Ltd. | 34,500 | 349,789 |
KDDI Corp. | 11 | 78,346 |
|
Shares
| Value ($) |
| |
Millicom International Cellular SA (SDR) | 451 | 20,868 |
Mobistar SA | 53 | 3,817 |
NTT DoCoMo, Inc. | 57 | 112,364 |
Rogers Communications, Inc. "B" | 1,400 | 41,495 |
Softbank Corp. | 2,900 | 52,518 |
Syniverse Holdings, Inc.* | 5,800 | 69,252 |
Telephone & Data Systems, Inc. | 14,300 | 454,025 |
USA Mobility, Inc.* | 13,700 | 158,509 |
Vodafone Group PLC | 263,053 | 529,556 |
| 1,972,806 |
Utilities 3.0% |
Electric Utilities 2.0% |
Acciona SA | 91 | 11,510 |
Allegheny Energy, Inc. | 20,001 | 677,234 |
American Electric Power Co., Inc. | 16,900 | 562,432 |
British Energy Group PLC | 2,200 | 24,502 |
Cheung Kong Infrastructure Holdings Ltd. | 1,000 | 3,773 |
Chubu Electric Power Co., Inc. | 1,300 | 39,510 |
Chugoku Electric Power Co., Inc. | 700 | 18,441 |
CLP Holdings Ltd. | 15,000 | 101,987 |
Duke Energy Corp. | 33,985 | 510,115 |
E.ON AG | 9,802 | 396,365 |
Edison International | 17,500 | 562,100 |
EDP — Energias de Portugal SA | 25,897 | 97,604 |
Electricite de France | 389 | 22,609 |
Enel SpA | 21,075 | 134,777 |
Entergy Corp. | 4,672 | 388,383 |
Exelon Corp. | 6,577 | 365,747 |
FirstEnergy Corp. | 12,301 | 597,583 |
Fortis, Inc. | 1,800 | 35,854 |
Fortum Oyj | 14,698 | 315,704 |
FPL Group, Inc. | 8,429 | 424,231 |
Hokkaido Electric Power Co., Inc. | 600 | 15,187 |
Hokuriku Electric Power Co. | 500 | 14,153 |
HongKong Electric Holdings Ltd. | 11,000 | 61,879 |
Iberdrola SA | 10,143 | 94,180 |
Kansai Electric Power Co., Inc. | 1,500 | 43,466 |
Kyushu Electric Power Co., Inc. | 800 | 21,279 |
Oesterreichische Elektrizitaetswirtschafts AG (Verbund) "A" | 68 | 3,120 |
PPL Corp. | 7,700 | 236,313 |
Red Electrica Corporacion SA | 229 | 11,602 |
Scottish & Southern Energy PLC | 1,783 | 31,395 |
Shikoku Electric Power Co., Inc. | 500 | 16,863 |
Southern Co. | 6,470 | 239,390 |
Terna-Rete Elettrica Nazionale SpA | 6,478 | 21,211 |
Tohoku Electric Power Co., Inc. | 1,000 | 27,066 |
Tokyo Electric Power Co., Inc. | 2,400 | 80,134 |
Union Fenosa SA | 861 | 21,280 |
| 6,228,979 |
Gas Utilities 0.3% |
Enagas | 311 | 6,823 |
Gas Natural SDG SA | 302 | 8,237 |
Hong Kong & China Gas Co., Ltd. | 29,500 | 44,723 |
New Jersey Resources Corp. | 4,800 | 188,880 |
ONEOK, Inc. | 5,900 | 171,808 |
Osaka Gas Co., Ltd. | 5,000 | 23,094 |
Snam Rete Gas SpA | 4,641 | 25,634 |
South Jersey Industries, Inc. | 1,900 | 75,715 |
The Laclede Group, Inc. | 3,100 | 145,204 |
|
Shares
| Value ($) |
| |
Tokyo Gas Co., Ltd. | 5,000 | 25,337 |
WGL Holdings, Inc. | 3,000 | 98,070 |
| 813,525 |
Independent Power Producers & Energy Traders 0.0% |
Drax Group PLC | 680 | 5,512 |
Electric Power Development Co., Ltd. | 400 | 15,712 |
Iberdrola Renovables SA* | 1,405 | 6,075 |
International Power PLC | 4,087 | 14,190 |
TransAlta Corp. | 2,300 | 45,273 |
| 86,762 |
Multi-Utilities 0.7% |
A2A SpA | 4,548 | 8,151 |
AGL Energy Ltd. | 22,035 | 235,172 |
Avista Corp. | 4,700 | 91,086 |
Canadian Utilities Ltd. "A" | 700 | 22,965 |
CenterPoint Energy, Inc. | 3,600 | 45,432 |
Centrica PLC | 8,869 | 34,081 |
Dominion Resources, Inc. | 4,600 | 164,864 |
GDF Suez | 2,156 | 106,780 |
National Grid PLC | 5,608 | 55,422 |
NiSource, Inc. | 6,800 | 74,596 |
PG&E Corp. | 21,059 | 815,194 |
RWE AG | 658 | 59,152 |
Sempra Energy | 4,000 | 170,520 |
Suez Environnement SA* | 342 | 5,767 |
TECO Energy, Inc. | 8,100 | 100,035 |
United Utilities Group PLC | 1,332 | 12,054 |
Veolia Environnement | 808 | 25,359 |
| 2,026,630 |
Water Utilities 0.0% |
California Water Service Group | 2,700 | 125,361 |
Severn Trent PLC | 474 | 8,208 |
| 133,569 |
Total Common Stocks (Cost $215,568,654) | 180,951,997 |
|
Preferred Stocks 0.0% |
Consumer Discretionary 0.0% |
Porsche Automobil Holding SE | 50 | 3,895 |
Volkswagen AG | 62 | 3,309 |
| 7,204 |
Consumer Staples 0.0% |
Henkel AG & Co. KGaA | 1,125 | 36,069 |
Financial 0.0% |
Preferred Blocker Inc., 144A, 9.0% | 28 | 7,996 |
Health Care 0.0% |
Fresenius SE | 338 | 19,806 |
Utilities 0.0% |
RWE AG | 22 | 1,663 |
Total Preferred Stocks (Cost $122,753) | 72,738 |
|
Convertible Preferred Stocks 0.0% |
Consumer Discretionary |
ION Media Networks, Inc., 144A, 12.0%* (Cost $8,344) | 60,000 | 0 |
|
|
Shares
| Value ($) |
| |
Rights 0.0% |
Financials |
DBS Group Holdings Ltd., Expiration Date 1/20/2009* | 1,500 | 3,123 |
Fortis, Expiration Date 7/4/2014* | 6,275 | 0 |
HBOS PLC, Expiration Date 1/9/2009* | 4,052 | 0 |
Lloyds TSB Group PLC, Expiration Date 1/12/2009* | 565 | 0 |
Total Rights (Cost $0) | 3,123 |
|
Warrants 0.0% |
Financials |
New ASAT (Finance) Ltd., Expiration Date 2/1/2011* (Cost $0) | 24,700 | 1,938 |
| Principal Amount ($)(a) | Value ($) |
| |
Corporate Bonds 11.7% |
Consumer Discretionary 0.9% |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 45,000 | 27,675 |
American Achievement Corp., 144A, 8.25%, 4/1/2012 | 15,000 | 11,550 |
American Achievement Group Holding Corp., 16.75%, 10/1/2012 (PIK) | 22,571 | 5,417 |
Asbury Automotive Group, Inc.: | | |
7.625%, 3/15/2017 | 35,000 | 16,275 |
8.0%, 3/15/2014 | 15,000 | 7,125 |
British Sky Broadcasting Group PLC, 144A, 9.5%, 11/15/2018 | 500,000 | 510,451 |
Cablevision Systems Corp., Series B, 8.334%***, 4/1/2009 | 15,000 | 14,962 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 | 25,000 | 9,500 |
Carrols Corp., 9.0%, 1/15/2013 | 15,000 | 10,125 |
Charter Communications Operating LLC, 144A, 10.875%, 9/15/2014 | 75,000 | 60,000 |
Comcast Corp., 6.4%, 5/15/2038 | 400,000 | 399,065 |
CSC Holdings, Inc.: | | |
6.75%, 4/15/2012 | 25,000 | 22,875 |
Series B, 8.125%, 7/15/2009 | 25,000 | 24,875 |
Series B, 8.125%, 8/15/2009 | 55,000 | 54,725 |
Denny's Holdings, Inc., 10.0%, 10/1/2012 | 10,000 | 6,925 |
DIRECTV Holdings LLC, 7.625%, 5/15/2016 | 70,000 | 67,900 |
Dollarama Group LP, 8.073%***, 8/15/2012 (b) | 24,000 | 15,240 |
EchoStar DBS Corp.: | | |
6.625%, 10/1/2014 | 40,000 | 33,400 |
7.125%, 2/1/2016 | 35,000 | 29,225 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 25,000 | 2,438 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 30,000 | 20,400 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 15,000 | 10,050 |
Hertz Corp., 8.875%, 1/1/2014 | 85,000 | 52,275 |
Idearc, Inc., 8.0%, 11/15/2016 | 55,000 | 4,125 |
| Principal Amount ($)(a) | Value ($) |
| |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 20,000 | 10,900 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 30,000 | 12,750 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 | 75,000 | 66,750 |
Lamar Media Corp., Series C, 6.625%, 8/15/2015 | 20,000 | 14,450 |
Liberty Media LLC, 5.7%, 5/15/2013 | 5,000 | 3,278 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 15,000 | 9,000 |
MGM MIRAGE: | | |
6.625%, 7/15/2015 | 25,000 | 15,250 |
8.375%, 2/1/2011 | 20,000 | 11,900 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 40,000 | 30,000 |
Norcraft Holdings LP, 9.75%, 9/1/2012 | 80,000 | 59,600 |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 50,000 | 23,250 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 20,000 | 15,800 |
Quebecor Media, Inc., 7.75%, 3/15/2016 | 20,000 | 13,500 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015** | 25,000 | 1,969 |
Reader's Digest Association, Inc., 9.0%, 2/15/2017 | 25,000 | 2,156 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 25,000 | 5,563 |
Seminole Hard Rock Entertainment, Inc., 144A, 4.496%***, 3/15/2014 | 30,000 | 15,225 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 25,000 | 12,500 |
Simmons Co., Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 105,000 | 12,075 |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 | 26,000 | 19,565 |
Sirius XM Radio, Inc., 9.625%, 8/1/2013 | 55,000 | 10,244 |
Sonic Automotive,
Inc., Series B, 8.625%, 8/15/2013 | 30,000 | 11,175 |
TCI Communications, Inc., 8.75%, 8/1/2015 | 135,000 | 143,702 |
Time Warner Cable, Inc., 8.25%, 2/14/2014 | 750,000 | 760,849 |
Travelport LLC: | | |
6.828%***, 9/1/2014 | 20,000 | 5,900 |
9.875%, 9/1/2014 | 5,000 | 1,875 |
Trump Entertainment Resorts, Inc.,
8.5%, 6/1/2015** | 5,000 | 663 |
United Components, Inc., 9.375%, 6/15/2013 | 5,000 | 2,100 |
Unity Media GmbH, 144A, 8.75%, 2/15/2015 EUR | 50,000 | 54,559 |
Vertis, Inc., 13.5%,
4/1/2014 (PIK) | 32,999 | 7,699 |
Vitro SAB de CV,
9.125%, 2/1/2017 | 40,000 | 12,000 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 130,000 | 1,300 |
| 2,784,145 |
| Principal Amount ($)(a) | Value ($) |
| |
Consumer Staples 1.3% |
Alliance One International, Inc., 8.5%, 5/15/2012 | 15,000 | 11,025 |
Coca-Cola Enterprises, Inc., 7.375%, 3/3/2014 | 1,000,000 | 1,098,105 |
CVS Caremark Corp., 6.25%, 6/1/2027 | 750,000 | 697,351 |
Delhaize America, Inc.: | | |
8.05%, 4/15/2027 | 30,000 | 27,763 |
9.0%, 4/15/2031 | 56,000 | 56,634 |
General Nutrition Centers, Inc., 7.584%***, 3/15/2014 (PIK) | 15,000 | 8,400 |
Kroger Co., 6.15%, 1/15/2020 | 1,250,000 | 1,233,280 |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 108,750 | 59,813 |
Reynolds American, Inc., 7.75%, 6/1/2018 | 750,000 | 615,322 |
Smithfield Foods, Inc., 7.75%, 7/1/2017 | 5,000 | 2,850 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 480,000 | 312,000 |
| 4,122,543 |
Energy 0.3% |
Atlas Energy Resources LLC, 144A, 10.75%, 2/1/2018 | 55,000 | 33,550 |
Belden & Blake Corp., 8.75%, 7/15/2012 | 130,000 | 89,050 |
Bristow Group, Inc., 7.5%, 9/15/2017 | 30,000 | 20,100 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 40,000 | 8,000 |
Chesapeake Energy Corp.: | | |
6.25%, 1/15/2018 | 20,000 | 14,800 |
6.875%, 1/15/2016 | 90,000 | 72,000 |
7.5%, 6/15/2014 | 10,000 | 8,450 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 25,000 | 19,500 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 45,000 | 9,000 |
Dynegy Holdings, Inc., 6.875%, 4/1/2011 | 10,000 | 8,750 |
El Paso Corp., 7.25%, 6/1/2018 | 40,000 | 31,747 |
Forest Oil Corp., 144A, 7.25%, 6/15/2019 | 15,000 | 10,950 |
Frontier Oil Corp., 6.625%, 10/1/2011 | 20,000 | 18,100 |
KCS Energy, Inc., 7.125%, 4/1/2012 | 105,000 | 78,750 |
Mariner Energy, Inc.: | | |
7.5%, 4/15/2013 | 25,000 | 16,000 |
8.0%, 5/15/2017 | 20,000 | 10,400 |
Newfield Exploration Co., 7.125%, 5/15/2018 | 40,000 | 31,600 |
OPTI Canada, Inc.: | | |
7.875%, 12/15/2014 | 35,000 | 17,850 |
8.25%, 12/15/2014 | 70,000 | 37,800 |
Petrohawk Energy Corp., 144A, 7.875%, 6/1/2015 | 15,000 | 11,100 |
Plains Exploration & Production Co., 7.0%, 3/15/2017 | 15,000 | 10,275 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 70,000 | 37,450 |
Range Resources Corp., 7.25%, 5/1/2018 | 10,000 | 8,350 |
SandRidge Energy, Inc., 144A, 8.0%, 6/1/2018 | 20,000 | 11,100 |
| Principal Amount ($)(a) | Value ($) |
| |
Stone Energy Corp.: | | |
6.75%, 12/15/2014 | 40,000 | 19,600 |
8.25%, 12/15/2011 | 75,000 | 46,500 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 25,000 | 19,843 |
Tesoro Corp., 6.5%, 6/1/2017 | 25,000 | 13,719 |
Whiting Petroleum Corp.: | | |
7.0%, 2/1/2014 | 20,000 | 14,100 |
7.25%, 5/1/2012 | 50,000 | 37,250 |
Williams Companies, Inc.: | | |
8.125%, 3/15/2012 | 85,000 | 78,306 |
8.75%, 3/15/2032 | 50,000 | 37,250 |
Williams Partners LP, 7.25%, 2/1/2017 | 25,000 | 19,750 |
| 900,990 |
Financials 5.0% |
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 60,000 | 22,800 |
Ashton Woods USA LLC, 9.5%, 10/1/2015** | 70,000 | 14,000 |
BB&T Corp., 5.2%, 12/23/2015 | 1,000,000 | 950,420 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 15,000 | 3,000 |
Citigroup, Inc.: | | |
2.875%, 12/9/2011 | 3,000,000 | 3,093,516 |
6.125%, 5/15/2018 | 500,000 | 505,561 |
6.5%, 8/19/2013 | 530,000 | 534,816 |
Conproca SA de CV, REG S, 12.0%, 6/16/2010 | 279,855 | 284,752 |
Countrywide Home Loans, Inc., Series H, 6.25%, 4/15/2009 | 125,000 | 125,026 |
FIA Card Services NA, 144A, 7.125%, 11/15/2012 | 1,250,000 | 1,278,095 |
Ford Motor Credit Co., LLC: | | |
7.25%, 10/25/2011 | 155,000 | 113,229 |
7.875%, 6/15/2010 | 65,000 | 52,012 |
General Electric Capital Corp., Series A, 5.25%, 10/19/2012 | 1,250,000 | 1,259,014 |
GMAC LLC, 144A, 6.875%, 9/15/2011 | 132,000 | 94,324 |
Hawker Beechcraft Acquisition Co., LLC, 8.5%, 4/1/2015 | 65,000 | 26,650 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 20,000 | 5,700 |
Inmarsat Finance PLC, 10.375%, 11/15/2012 | 30,000 | 26,587 |
iPayment, Inc., 9.75%, 5/15/2014 | 25,000 | 12,500 |
JPMorgan Chase & Co., 4.75%, 5/1/2013 | 875,000 | 863,423 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 25,000 | 5,500 |
Merrill Lynch & Co., Inc., 6.875%, 4/25/2018 | 750,000 | 784,519 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 95,000 | 9,975 |
Orascom Telecom Finance SCA, 144A, 7.875%, 2/8/2014 | 100,000 | 53,000 |
PNC Bank NA, 6.875%, 4/1/2018 | 1,000,000 | 1,063,968 |
PNC Funding Corp., 2.3%, 6/22/2012 | 3,000,000 | 3,029,967 |
Qwest Capital Funding, Inc., 7.0%, 8/3/2009 | 25,000 | 24,500 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 4,000 | 3,560 |
SLM Corp., Series A, 4.5%, 7/26/2010 | 125,000 | 108,483 |
| Principal Amount ($)(a) | Value ($) |
| |
Sprint Capital Corp.: | | |
7.625%, 1/30/2011 | 20,000 | 16,700 |
8.375%, 3/15/2012 | 10,000 | 8,000 |
The Goldman Sachs Group, Inc., 6.15%, 4/1/2018 | 1,000,000 | 960,961 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014** | 75,000 | 750 |
UCI Holdco, Inc., 9.996%***, 12/15/2013 (PIK) | 34,934 | 5,939 |
Universal City Development Partners Ltd., 11.75%, 4/1/2010 | 125,000 | 80,625 |
| 15,421,872 |
Health Care 0.2% |
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 45,000 | 22,950 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 25,000 | 23,750 |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 185,000 | 170,200 |
HCA, Inc.: | | |
9.125%, 11/15/2014 | 35,000 | 32,463 |
9.25%, 11/15/2016 | 130,000 | 119,275 |
9.625%, 11/15/2016 (PIK) | 40,000 | 31,200 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 20,000 | 18,350 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 30,000 | 23,250 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 25,000 | 18,375 |
Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK) | 30,000 | 18,300 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 45,000 | 37,800 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 25,000 | 19,625 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 75,000 | 62,625 |
| 598,163 |
Industrials 0.6% |
Actuant Corp., 6.875%, 6/15/2017 | 20,000 | 15,050 |
ARAMARK Corp., 8.5%, 2/1/2015 | 10,000 | 9,050 |
Baldor Electric Co., 8.625%, 2/15/2017 | 25,000 | 18,625 |
BE Aerospace, Inc., 8.5%, 7/1/2018 | 50,000 | 45,000 |
Belden, Inc., 7.0%, 3/15/2017 | 25,000 | 18,750 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 75,000 | 61,873 |
Cenveo Corp., 144A, 10.5%, 8/15/2016 | 10,000 | 5,800 |
Congoleum Corp., 8.625%, 8/1/2008** | 190,000 | 142,500 |
DRS Technologies, Inc.: | | |
6.625%, 2/1/2016 | 10,000 | 10,000 |
6.875%, 11/1/2013 | 65,000 | 64,675 |
7.625%, 2/1/2018 | 80,000 | 80,000 |
Esco Corp., 144A, 8.625%, 12/15/2013 | 45,000 | 31,500 |
General Cable Corp., 7.125%, 4/1/2017 | 15,000 | 9,900 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 20,000 | 15,425 |
K. Hovnanian Enterprises, Inc., 8.875%, 4/1/2012 | 25,000 | 7,250 |
| Principal Amount ($)(a) | Value ($) |
| |
Kansas City Southern de Mexico SA de CV: | | |
7.375%, 6/1/2014 | 20,000 | 16,364 |
9.375%, 5/1/2012 | 60,000 | 54,900 |
Kansas City Southern Railway Co., 7.5%, 6/15/2009 | 20,000 | 20,050 |
Lockheed Martin Corp., 4.121%, 3/14/2013 | 500,000 | 487,411 |
Mobile Mini, Inc., 9.75%, 8/1/2014 | 25,000 | 17,750 |
Moog, Inc., 144A, 7.25%, 6/15/2018 | 10,000 | 8,000 |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 | 35,000 | 19,425 |
R.H. Donnelley Corp., Series A-4, 8.875%, 10/15/2017 | 75,000 | 11,250 |
RBS Global & Rexnord Corp., 9.5%, 8/1/2014 | 20,000 | 14,900 |
Seitel, Inc., 9.75%, 2/15/2014 | 15,000 | 5,400 |
Titan International, Inc., 8.0%, 1/15/2012 | 85,000 | 62,900 |
TransDigm, Inc., 7.75%, 7/15/2014 | 15,000 | 12,300 |
Union Pacific Corp., 5.7%, 8/15/2018 | 500,000 | 481,368 |
United Rentals North America, Inc.: | | |
6.5%, 2/15/2012 | 15,000 | 11,850 |
7.0%, 2/15/2014 | 65,000 | 39,650 |
US Concrete, Inc., 8.375%, 4/1/2014 | 30,000 | 16,200 |
| 1,815,116 |
Information Technology 0.4% |
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 20,000 | 9,025 |
L-3 Communications Corp.: | | |
5.875%, 1/15/2015 | 80,000 | 72,000 |
Series B, 6.375%, 10/15/2015 | 35,000 | 32,725 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 75,000 | 30,000 |
MasTec, Inc., 7.625%, 2/1/2017 | 35,000 | 26,293 |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 45,000 | 23,400 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 60,000 | 39,600 |
Vangent, Inc., 9.625%, 2/15/2015 | 15,000 | 8,719 |
Xerox Corp., 5.65%, 5/15/2013 | 1,300,000 | 1,020,344 |
| 1,262,106 |
Materials 0.5% |
Appleton Papers, Inc., Series B, 8.125%, 6/15/2011 | 15,000 | 10,350 |
ARCO Chemical Co., 9.8%, 2/1/2020 | 195,000 | 21,450 |
Cascades, Inc., 7.25%, 2/15/2013 | 57,000 | 29,070 |
Chemtura Corp., 6.875%, 6/1/2016 | 50,000 | 25,500 |
CPG International I, Inc., 10.5%, 7/1/2013 | 50,000 | 28,000 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 80,000 | 46,800 |
Freeport-McMoRan Copper & Gold, Inc.: | | |
8.25%, 4/1/2015 | 65,000 | 55,250 |
8.375%, 4/1/2017 | 120,000 | 98,400 |
GEO Specialty Chemicals, Inc.: | | |
144A, 7.5%***, 3/31/2015 (PIK) | 200,330 | 144,237 |
144A, 9.968%***, 12/31/2009 | 322,000 | 231,840 |
Georgia-Pacific LLC, 144A, 7.125%, 1/15/2017 | 15,000 | 12,600 |
Hexcel Corp., 6.75%, 2/1/2015 | 95,000 | 72,200 |
| Principal Amount ($)(a) | Value ($) |
| |
Huntsman LLC, 11.625%, 10/15/2010 | 122,000 | 106,750 |
Innophos, Inc., 8.875%, 8/15/2014 | 10,000 | 7,000 |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 | 30,000 | 5,100 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 70,000 | 54,250 |
Metals USA Holdings Corp., 10.883%***, 7/1/2012 (PIK) | 15,408 | 4,314 |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 | 15,000 | 7,500 |
Monsanto Co.,
5.875%, 4/15/2038 | 500,000 | 536,232 |
NewMarket Corp., 7.125%, 12/15/2016 | 65,000 | 48,750 |
Radnor Holdings Corp., 11.0%, 3/15/2010** | 40,000 | 50 |
Smurfit-Stone Container Enterprises, Inc., 8.0%, 3/15/2017 | 35,000 | 6,650 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 50,000 | 36,750 |
The Mosaic Co., 144A, 7.375%, 12/1/2014 | 40,000 | 32,800 |
Witco Corp.,
6.875%, 2/1/2026 | 60,000 | 16,800 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 40,000 | 32,200 |
| 1,670,843 |
Telecommunication Services 1.2% |
AT&T Mobility LLC, 6.5%, 12/15/2011 | 750,000 | 752,996 |
BCM Ireland Preferred Equity Ltd., 144A, 11.245%***, 2/15/2017 (PIK) EUR | 91,648 | 10,869 |
Cellco Partnership, 144A, 7.375%, 11/15/2013 | 750,000 | 791,310 |
Centennial
Communications Corp.: | | |
10.0%, 1/1/2013 | 15,000 | 15,525 |
10.125%, 6/15/2013 | 40,000 | 40,400 |
Cincinnati Bell, Inc.: | | |
7.25%, 7/15/2013 | 70,000 | 61,600 |
8.375%, 1/15/2014 | 25,000 | 19,250 |
Cricket Communications, Inc.: | | |
9.375%, 11/1/2014 | 55,000 | 49,500 |
144A, 10.0%, 7/15/2015 | 50,000 | 45,750 |
Intelsat Corp.: | | |
144A, 9.25%, 8/15/2014 | 10,000 | 9,300 |
144A, 9.25%, 6/15/2016 | 110,000 | 100,100 |
Intelsat Subsidiary Holding Co., Ltd., 144A, 8.875%, 1/15/2015 | 60,000 | 54,600 |
iPCS, Inc.,
5.318%***, 5/1/2013 | 10,000 | 7,100 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 60,000 | 53,700 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 80,000 | 72,000 |
Qwest Corp.: | | |
7.25%, 9/15/2025 | 10,000 | 6,700 |
7.875%, 9/1/2011 | 65,000 | 59,800 |
8.875%, 3/15/2012 | 15,000 | 13,875 |
| Principal Amount ($)(a) | Value ($) |
| |
Rogers Communications, Inc., 6.8%, 8/15/2018 | 500,000 | 505,216 |
Sprint Nextel Corp., 6.0%, 12/1/2016 | 25,000 | 17,625 |
Stratos Global Corp., 9.875%, 2/15/2013 | 15,000 | 14,175 |
Telesat Canada, 144A, 11.0%, 11/1/2015 | 225,000 | 160,875 |
Verizon Communications, Inc., 8.95%, 3/1/2039 | 500,000 | 645,845 |
Virgin Media Finance PLC: | | |
8.75%, 4/15/2014 | 55,000 | 41,250 |
8.75%, 4/15/2014 EUR | 45,000 | 44,099 |
Windstream Corp.: | | |
7.0%, 3/15/2019 | 25,000 | 19,250 |
8.625%, 8/1/2016 | 10,000 | 8,850 |
| 3,621,560 |
Utilities 1.3% |
AES Corp.: | | |
8.0%, 10/15/2017 | 45,000 | 36,900 |
144A, 8.0%, 6/1/2020 | 50,000 | 38,750 |
144A, 8.75%, 5/15/2013 | 152,000 | 145,920 |
9.5%, 6/1/2009 | 25,000 | 24,812 |
Allegheny Energy Supply Co., LLC, 144A, 8.25%, 4/15/2012 | 190,000 | 187,150 |
American Electric Power Co., Inc., Series C, 5.375%, 3/15/2010 | 1,000,000 | 992,662 |
Appalachian Power Co., 7.0%, 4/1/2038 | 750,000 | 741,881 |
CenterPoint Energy, Inc., 6.5%, 5/1/2018 | 750,000 | 612,754 |
CMS Energy Corp., 8.5%, 4/15/2011 | 110,000 | 108,329 |
DPL, Inc., 6.875%, 9/1/2011 | 500,000 | 491,989 |
Edison Mission Energy, 7.0%, 5/15/2017 | 50,000 | 43,500 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 | 70,000 | 49,700 |
Knight, Inc., 6.5%, 9/1/2012 | 15,000 | 12,675 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 45,000 | 43,650 |
Mirant North America LLC, 7.375%, 12/31/2013 | 20,000 | 19,200 |
NRG Energy, Inc.: | | |
7.25%, 2/1/2014 | 55,000 | 51,425 |
7.375%, 2/1/2016 | 50,000 | 46,500 |
7.375%, 1/15/2017 | 20,000 | 18,400 |
NV Energy, Inc.: | | |
6.75%, 8/15/2017 | 50,000 | 38,382 |
8.625%, 3/15/2014 | 8,000 | 7,213 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 31,000 | 21,235 |
Reliant Energy, Inc., 7.875%, 6/15/2017 | 55,000 | 44,550 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.5%, 11/1/2015 | 105,000 | 74,550 |
| 3,852,127 |
Total Corporate Bonds (Cost $39,552,234) | 36,049,465 |
|
| Principal Amount ($)(a) | Value ($) |
| |
Asset-Backed 0.8% |
Automobile Receivables 0.3% |
Capital Auto Receivables Asset Trust, "B",
Series 2006-1, 5.26%, 10/15/2010 | 566,000 | 552,324 |
Ford Credit Auto Owner Trust, "B", Series 2007-B, 5.69%, 11/15/2012 | 379,000 | 289,195 |
| 841,519 |
Home Equity Loans 0.5% |
Countrywide Asset-Backed Certificates, "1AF2", Series 2005-17, 5.363%, 5/25/2036 | 642,582 | 552,803 |
Credit-Based Asset Servicing and Securitization LLC, "AF2", Series 2006-CB2, 5.501%, 12/25/2036 | 1,135,415 | 941,923 |
| 1,494,726 |
Total Asset-Backed (Cost $2,722,798) | 2,336,245 |
|
Mortgage-Backed Securities Pass-Throughs 9.2% |
Federal Home Loan Mortgage Corp.: | | |
5.0%, 10/1/2035 | 2,383,295 | 2,433,381 |
5.5%, 4/1/2038 | 8,489,516 | 8,699,434 |
6.0%,with various maturities from 8/1/2035 until 3/1/2038 | 599,352 | 607,469 |
Federal National Mortgage Association: | | |
4.5%,with various maturities from 11/1/2028 until 9/1/2035 | 1,585,106 | 1,610,738 |
5.5%,with various maturities from 2/1/2037 until 4/1/2038 | 10,828,968 | 10,923,311 |
6.0%,with various maturities from 1/1/2024 until 8/1/2037 | 3,723,261 | 3,840,987 |
6.5%,with various maturities from 5/1/2017 until 1/1/2038 | 103,742 | 108,022 |
8.0%, 9/1/2015 | 119,491 | 126,892 |
Total Mortgage-Backed Securities Pass-Throughs (Cost $27,556,072) | 28,350,234 |
|
Commercial and Non-Agency Mortgage-Backed Securities 4.6% |
Adjustable Rate Mortgage Trust, "3A31", Series 2005-10, 5.414%***, 1/25/2036 | 1,000,000 | 484,222 |
Bear Stearns Adjustable Rate Mortgage Trust, "12A5", Series 2004-1, 4.565%***, 4/25/2034 | 1,443,377 | 883,840 |
Countrywide Alternative Loan Trust: | | |
"3A11", Series 2005-20CB, 0.771%***, 7/25/2035 | 1,075,677 | 740,674 |
"A1", Series 2004-1T1, 5.0%, 2/25/2034 | 337,717 | 284,482 |
"1A5", Series 2003-J1, 5.25%, 10/25/2033 | 379,183 | 329,186 |
"4A3", Series 2005-43, 5.67%***, 10/25/2035 | 636,605 | 243,474 |
| Principal Amount ($)(a) | Value ($) |
| |
"A1", Series 2004-35T2, 6.0%, 2/25/2035 | 379,811 | 331,574 |
"3A5", Series 2005-28CB, 6.0%, 8/25/2035 | 1,774,475 | 1,307,132 |
"1A4", Series 2006-43CB, 6.0%, 2/25/2037 | 995,512 | 618,878 |
First Horizon Alternative Mortgage Securities, "1A7", Series 2006-FA8, 6.0%, 2/25/2037 | 1,631,026 | 734,360 |
GS Mortgage Securities Corp. II, "AAB", Series 2006-GG8, 5.535%, 11/10/2039 | 1,800,000 | 1,362,765 |
LB-UBS Commercial Mortgage Trust, "A2", Series 2005-C2, 4.821%, 4/15/2030 | 127,801 | 121,350 |
Structured Adjustable Rate Mortgage Loan Trust: | | |
"6A3", Series 2005-21, 5.4%, 11/25/2035 | 900,000 | 373,509 |
"1A1", Series 2005-17, 5.701%***, 8/25/2035 | 1,094,538 | 727,641 |
Structured Asset Securities Corp., "4A1", Series 2005-6, 5.0%, 5/25/2035 | 127,667 | 107,360 |
Wachovia Bank Commercial Mortgage Trust: | | |
"APB", Series 2006-C23, 5.446%, 1/15/2045 | 2,100,000 | 1,615,115 |
"APB", Series 2007-C34, 5.617%, 5/15/2046 | 2,875,000 | 2,021,578 |
Wachovia Mortgage Loan Trust LLC, "1A1", Series 2006-A, 5.581%***, 5/20/2036 | 2,292,737 | 1,242,492 |
Washington Mutual Mortgage Pass-Through Certificates Trust: | | |
"A6", Series 2004-AR4, 3.792%***, 6/25/2034 | 190,000 | 182,419 |
"1A3", Series 2005-AR16, 5.102%***, 12/25/2035 | 1,005,000 | 536,138 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $22,084,515) | 14,248,189 |
|
Collateralized Mortgage Obligations 2.4% |
Fannie Mae Whole Loan, "1A1", Series 2004-W15, 6.0%, 8/25/2044 | 607,751 | 631,650 |
Federal Home Loan Mortgage Corp.: | | |
"OS", Series 3102, Principal Only, Zero Coupon, 1/15/2036 | 4,337,616 | 3,646,591 |
"H", Series 2278, 6.5%, 1/15/2031 | 17,882 | 18,504 |
Government National Mortgage Association, "CK", Series 2007-31, 5.0%, 5/16/2037 | 3,000,000 | 3,020,889 |
Total Collateralized Mortgage Obligations (Cost $6,658,744) | 7,317,634 |
|
Loan Participations and Assignments 0.2% |
Senior Loans*** |
Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 3.754%, 4/2/2014 | 15,528 | 10,118 |
| Principal Amount ($)(a) | Value ($) |
| |
Buffets, Inc.: | | |
Letter of Credit, LIBOR plus 7.25%, 9.254%, 5/1/2013 | 26,839 | 6,750 |
Term Loan B, LIBOR plus 7.25%, 9.254%, 11/1/2013 | 136,563 | 34,346 |
Term Loan DIP, LIBOR plus 7.25%, 9.254%, 1/22/2009 | 65,653 | 16,512 |
Energy Future Holdings Corp.: | | |
Term Loan B2, LIBOR plus 3.5%, 5.504%, 10/10/2014 | 212,675 | 148,873 |
Term Loan B3, LIBOR plus 3.5%, 5.504%, 10/10/2014 | 88,476 | 61,564 |
Essar Steel Algoma, Inc., Term Loan B, LIBOR plus 2.5%, 4.504%, 6/30/2013 | 19,949 | 12,369 |
Ford Motor Co., Term Loan B, LIBOR plus 3.0%, 5.004%, 12/16/2013 | 24,873 | 10,205 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 4.254%, 9/16/2013 | 14,849 | 9,949 |
Golden Nugget, Term Loan, 3.73%, 6/16/2014 | 35,000 | 3,675 |
Hawker Beechcraft, Inc.: | | |
Letter of Credit, LIBOR plus 2.0%, 4.004%, 3/26/2014 | 1,336 | 701 |
Term Loan B, LIBOR plus 2.0%, 4.004%, 3/26/2014 | 22,809 | 11,965 |
HCA, Inc., Term Loan A, LIBOR plus 1.5%, 3.504%, 11/17/2012 | 88,441 | 75,130 |
Hexion Specialty Chemicals: | | |
Term Loan C1, LIBOR plus 2.25%, 4.254%, 5/6/2013 | 72,654 | 30,805 |
Term Loan C2, LIBOR plus 2.25%, 4.254%, 5/6/2013 | 10,926 | 4,633 |
IASIS Healthcare LLC, Term Loan, LIBOR plus 5.25%, 7.254%, 6/15/2014 (PIK) | 80,660 | 46,379 |
Longview Power LLC: | | |
Demand Draw, 3.75%, 4/1/2014 | 26,667 | 16,667 |
Letter of Credit, 1.35%, 4/1/2014 | 13,333 | 8,333 |
Term Loan B, 4.25%, 4/1/2014 | 25,000 | 15,625 |
Sabre, Inc., Term Loan B, LIBOR plus 2.0%, 4.004%, 9/30/2014 | 23,027 | 10,049 |
Symbion, Inc.: | | |
Term Loan A, LIBOR plus 3.25%, 5.254%, 8/23/2013 | 10,171 | 6,357 |
Term Loan B, LIBOR plus 3.25%, 5.254%, 8/23/2014 | 10,171 | 6,357 |
Telesat Canada: | | |
Delayed Draw Term Loan, LIBOR plus 3.0%, 5.004%, 10/31/2014 | 6,283 | 4,307 |
Term Loan B, LIBOR plus 3.0%, 5.004%, 10/31/2014 | 73,148 | 50,143 |
Tribune Co., Tranche B, LIBOR plus 3.0%, 5.004%, 5/19/2014** | 49,152 | 14,184 |
Total Loan Participations and Assignments (Cost $1,117,706) | 615,996 |
|
| Principal Amount ($)(a) | Value ($) |
| |
Preferred Securities 0.1% |
Financials |
Citigroup, Inc., Series E, 8.4%, 4/30/2018 (c) | 35,000 | 23,110 |
Farm Credit Bank of Texas, Series 1, 7.561%, 12/15/2013 (c) | 218,000 | 115,570 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 15,000 | 10,243 |
Total Preferred Securities (Cost $276,067) | 148,923 |
|
Government & Agency Obligations 6.3% |
US Treasury Obligations |
US Treasury Bill, 0.17%****, 1/15/2009 (d) | 3,791,000 | 3,790,981 |
US Treasury Bonds: | | |
4.75%, 2/15/2037 | 500,000 | 696,719 |
8.125%, 8/15/2019 | 1,000,000 | 1,477,969 |
US Treasury Notes: | | |
2.75%, 10/31/2013 (e) | 6,000,000 | 6,378,750 |
3.75%, 11/15/2018 | 4,500,000 | 5,094,135 |
4.5%, 11/15/2015 | 1,500,000 | 1,778,908 |
Total Government & Agency Obligations (Cost $18,627,280) | 19,217,462 |
|
Units
| Value ($) |
| |
Other Investments 0.0% |
Materials |
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 (Cost $116,987) | 170,000 | 81,600 |
|
Shares
| Value ($) |
| |
Exchange Traded Fund 0.3% |
iShares MSCI Japan Index Fund (Cost $943,697) | 83,841 | 804,874 |
|
Securities Lending Collateral 1.8% |
Daily Assets Fund Institutional, 1.69% (f) (g) (Cost $5,493,750) | 5,493,750 | 5,493,750 |
|
Cash Equivalents 4.9% |
Cash Management QP Trust, 1.42% (f) (Cost $15,034,729) | 15,034,729 | 15,034,729 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $355,884,330)+ | 101.2 | 310,728,897 |
Other Assets and Liabilities, Net | (1.2) | (3,562,992) |
Net Assets | 100.0 | 307,165,905 |
* Non-income producing security.** Non-income producing security. Issuer has defaulted on the payment of principal or the interest or has filed for bankruptcy. The following table represents bonds that are in default:Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) |
Ashton Woods USA LLC
| 9.5% | 10/1/2015 | 70,000 | USD
| 63,467 | 14,000 |
Congoleum Corp.
| 8.625% | 8/1/2008 | 190,000 | USD
| 190,156 | 142,500 |
Quebecor World, Inc.
| 9.75% | 1/15/2015 | 25,000 | USD
| 25,000 | 1,969 |
Radnor Holdings Corp.
| 11.0% | 3/15/2010 | 40,000 | USD
| 25,775 | 50 |
Tribune Co.
| 5.004% | 5/19/2014 | 49,152 | USD
| 49,122 | 14,184 |
Tropicana Entertainment LLC
| 9.625% | 12/15/2014 | 75,000 | USD
| 55,245 | 750 |
Trump Entertainment Resorts, Inc.
| 8.5% | 6/1/2015 | 5,000 | USD
| 4,788 | 663 |
| | | |
| 413,553 | 174,116 |
*** 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, 2008.**** Annualized yield at time of purchase; not a coupon rate.+ The cost for federal income tax purposes was $362,091,444. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $51,362,547. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $13,170,091 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $64,532,638.(a) Principal amount is stated in US dollars unless otherwise noted.(b) Security has deferred its 6/15/2008 interest payment until 6/30/2009.(c) Date shown is call date; not a maturity date for the perpetual preferred securities.(d) At December 31, 2008, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.(e) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2008 amounted to $5,315,625, which is 1.7% of net assets.(f) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(g) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR: American Depositary Receipt
CVA: Certificaten van Aandelen
FDR: Fiduciary Depositary Receipt
LIBOR: Represents the London InterBank Offered Rate.
MSCI: Morgan Stanley Capital International
PIK: Denotes that all or a portion of the income is paid in-kind.
PPS: Price Protected Shares
Principal Only: Principal Only (PO) bonds represent the "principal only" portion of payments on a pool of underlying mortgage or mortgage-backed securities.
REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, US persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
REIT: Real Estate Investment Trust
RSP: Risparmio (Convertible Savings Shares)
SDR: Swedish Depositary Receipt
Included in the portfolio are investments in mortgage or asset-backed securities which are interests in separate pools of mortgages or assets. Effective maturities of these investments may be shorter than stated maturities due to prepayments. Some separate investments in the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. issues which have similar coupon rates have been aggregated for presentation purposes in this investment portfolio.
At December 31, 2008, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Australian Treasury Bond
| 3/16/2009 | 43 | 3,370,020 | 3,489,513 | 119,493 |
10 Year Canadian Government Bond
| 3/20/2009 | 44 | 4,244,640 | 4,517,975 | 273,335 |
2 Year US Treasury Note
| 3/31/2009 | 23 | 4,954,407 | 5,015,437 | 61,030 |
AEX Index
| 1/16/2009 | 24 | 1,650,941 | 1,643,705 | (7,236) |
ASX SPI 200 Index
| 3/19/2009 | 20 | 1,244,073 | 1,305,855 | 61,782 |
DAX Index
| 3/20/2009 | 2 | 330,022 | 336,010 | 5,988 |
DJ Euro Stoxx 50 Index
| 3/20/2009 | 19 | 641,782 | 647,068 | 5,286 |
Federal Republic of Germany Euro-Bund
| 3/6/2009 | 43 | 7,435,123 | 7,461,951 | 26,828 |
Federal Republic of Germany Euro-Schatz
| 3/6/2009 | 106 | 15,804,065 | 15,835,190 | 31,125 |
FTSE 100 Index
| 3/20/2009 | 1 | 60,683 | 63,117 | 2,434 |
Hang Seng Stock Index
| 1/29/2009 | 5 | 468,381 | 464,665 | (3,716) |
IBEX 35 Index
| 1/16/2009 | 1 | 125,868 | 126,675 | 807 |
Nikkei 225 Index
| 3/12/2009 | 1 | 43,479 | 45,700 | 2,221 |
Russell 2000 Mini Index
| 3/20/2009 | 71 | 3,336,412 | 3,535,090 | 198,678 |
S&P 500 E Mini Index
| 3/20/2009 | 49 | 2,167,523 | 2,205,245 | 37,722 |
S&P MIB
| 3/20/2009 | 4 | 533,247 | 539,951 | 6,704 |
United Kingdom Long Gilt Bond
| 3/27/2009 | 15 | 2,498,562 | 2,662,786 | 164,224 |
Total net unrealized appreciation | 986,705 |
At December 31, 2008, open futures contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Depreciation ($) |
10 Year Japanese Government Bond
| 3/11/2009 | 4 | 6,148,867 | 6,182,901 | (34,034) |
10 Year US Treasury Note
| 3/20/2009 | 110 | 13,411,739 | 13,832,500 | (420,761) |
CAC 40 Index
| 1/16/2009 | 25 | 1,117,009 | 1,119,337 | (2,328) |
FTSE 100 Index
| 3/20/2009 | 6 | 367,939 | 378,703 | (10,764) |
Nasdaq E-Mini 100 Index
| 3/20/2009 | 28 | 669,245 | 679,000 | (9,755) |
Russell 2000 Mini Index
| 3/20/2009 | 9 | 409,614 | 448,110 | (38,496) |
S&P 500 E Mini Index
| 3/20/2009 | 14 | 610,577 | 630,070 | (19,493) |
S&P TSE 60 Index
| 3/19/2009 | 5 | 414,843 | 437,343 | (22,500) |
TOPIX Index
| 3/13/2009 | 28 | 2,505,946 | 2,662,548 | (156,602) |
Total unrealized depreciation | (714,733) |
At December 31, 2008, open credit default swap contract purchased was as follows:
Effective/ Expiration Dates | Notional Amount ($) | Fixed Cash Flows Paid | Underlying Debt Obligation/Quality Rating (i) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ ($) |
5/2/2008
6/20/2013 | 25,0001 | 7.25% | ARCO Chemical Co.,
9/8%, 2/1/2020, D | 18,061 | — | 18,061 |
At December 31, 2008, open credit default swap contracts sold were as follows:
Effective/ Expiration Dates | Notional Amount ($) (h) | Fixed Cash Flows Received | Underlying Debt Obligation/Quality Rating (i) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
2/14/2008
3/20/2009 | 35,0001 | 3.8% | HCA, Inc.
6.375%, 1/15/2015, B- | (107) | — | (107) |
2/26/2008
3/20/2009 | 25,0001 | 5.0% | Tenet Healthcare Corp.,
7.375%, 2/1/2013, B | 51 | — | 51 |
Total net unrealized depreciation | | | (56) |
(h) The maximum potential amount of future undiscounted payments that the Portfolio could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Portfolio for the same referenced debt obligation.
(i) The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings.
Counterparty:
1 Merrill Lynch, Pierce, Fenner & Smith, Inc.
|
At December 31, 2008, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Appreciation ($) |
EUR
| 84,700 |
| USD
| 121,817 |
| 1/15/2009 |
| 4,161 |
GBP
| 4,812,000 |
| USD
| 7,047,174 |
| 1/21/2009 |
| 132,931 |
USD
| 5,319,009 |
| EUR
| 4,221,000 |
| 1/21/2009 |
| 542,654 |
USD
| 3,214,521 |
| CHF
| 3,896,000 |
| 1/21/2009 |
| 446,796 |
USD
| 204,580 |
| NZD
| 386,000 |
| 1/21/2009 |
| 20,214 |
USD
| 4,951,817 |
| SEK
| 41,417,000 |
| 1/21/2009 |
| 283,369 |
USD
| 8,703,630 |
| SGD
| 13,282,000 |
| 1/21/2009 |
| 508,466 |
Total unrealized appreciation | 1,938,591 |
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Depreciation ($) |
USD
| 15,965 |
| JPY
| 1,440,000 |
| 1/6/2009 |
| (77) |
AUD
| 604,000 |
| USD
| 388,438 |
| 1/21/2009 |
| (31,646) |
CAD
| 1,427,000 |
| USD
| 1,131,462 |
| 1/21/2009 |
| (24,052) |
JPY
| 360,226,000 |
| USD
| 3,898,550 |
| 1/21/2009 |
| (77,015) |
NOK
| 34,773,000 |
| USD
| 4,825,897 |
| 1/21/2009 |
| (131,932) |
Total unrealized depreciation | (264,722) |
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
|
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the tables below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Other Financial Instruments++ |
Level 1
| $ 151,137,200 | $ 271,972 |
Level 2
| 159,428,604 | 1,691,874 |
Level 3
| 163,093 | — |
Total | $ 310,728,897 | $ 1,963,846 |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures contracts, forward foreign currency exchange contracts and swap contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.The following is a reconciliation of the Portfolio's Level 3 investments for which significant unobservable inputs were used in determining value at December 31, 2008:
| Investments in Securities |
Balance as of January 1, 2008 | $ 109,579 |
Total realized gain (loss)
| (3,540) |
Change in unrealized appreciation (depreciation)
| (230,402) |
Amortization Premium/Discount
| 698 |
Net purchases (sales)
| (43,324) |
Net transfers in (out) of Level 3
| 330,082 |
Balance as of December 31, 2008 | $ 163,093 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $335,355,851) — including $5,315,625 of securities loaned | $ 290,200,418 |
Investment in Daily Assets Fund Institutional (cost $5,493,750)* | 5,493,750 |
Investment in Cash Management QP Trust (cost $15,034,729) | 15,034,729 |
Total investments, at value (cost $355,884,330)
| 310,728,897 |
Cash
| 117,254 |
Foreign currency, at value (cost $161,792)
| 165,282 |
Deposits with broker for open futures contracts
| 23,425 |
Receivable for investments sold
| 4,039,636 |
Dividends receivable
| 321,151 |
Interest receivable
| 937,710 |
Foreign taxes recoverable
| 25,834 |
Receivable for Portfolio shares sold
| 11,501 |
Receivable for variation margin on open futures contracts
| 463,472 |
Unrealized appreciation on forward foreign currency exchange contracts
| 1,938,591 |
Unrealized appreciation on credit default swap contracts
| 18,112 |
Other assets
| 11,030 |
Total assets
| 318,801,895 |
Liabilities |
Payable upon return of securities loaned
| 5,493,750 |
Payable for investments purchased
| 4,803,569 |
Payable for Portfolio shares redeemed
| 583,221 |
Payable for closed credit default swap contracts
| 3,926 |
Unrealized depreciation on forward foreign currency exchange contracts
| 264,722 |
Unrealized depreciation on credit default swap contracts
| 107 |
Accrued management fee
| 104,307 |
Other accrued expenses and payables
| 382,388 |
Total liabilities
| 11,635,990 |
Net assets, at value | $ 307,165,905 |
Net Assets Consist of |
Undistributed net investment income
| 10,418,830 |
Net unrealized appreciation (depreciation) on:
Investments | (45,155,433) |
Futures | 271,972 |
Credit default swap contracts | 18,005 |
Foreign currency | 1,675,785 |
Accumulated net realized gain (loss)
| (50,973,947) |
Paid-in capital
| 390,910,693 |
Net assets, at value | $ 307,165,905 |
Class A Net Asset Value, offering and redemption price per share ($307,119,228 ÷ 17,697,143 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 17.35 |
Class B Net Asset Value, offering and redemption price per share ($46,677 ÷ 2,694 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 17.33 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $158,065)
| $ 5,590,844 |
Interest
| 8,359,778 |
Interest — Cash Management QP Trust
| 848,791 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 90,758 |
Total Income
| 14,890,171 |
Expenses:
Management fee
| 1,716,044 |
Administration fee
| 267,755 |
Custodian fee
| 332,641 |
Services to shareholders
| 420 |
Distribution service fee (Class B)
| 5,567 |
Record keeping fees (Class B)
| 2,124 |
Professional fees
| 136,591 |
Trustees' fees and expenses
| 51,947 |
Reports to shareholders and shareholder meeting
| 150,922 |
Other
| 87,880 |
Total expenses before expense reductions
| 2,751,891 |
Expense reductions
| (77,536) |
Total expenses after expense reductions
| 2,674,355 |
Net investment income (loss) | 12,215,816 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (42,865,467) |
Futures
| (631,031) |
Credit default swap contracts
| (119,513) |
Foreign currency
| (3,763,540) |
Payments by affiliates (see Note I)
| 11,599 |
| (47,367,952) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (94,917,429) |
Futures
| (373,384) |
Credit default swap contracts
| 23,823 |
Unfunded loan commitments
| 545 |
Foreign currency
| 1,568,924 |
| (93,697,521) |
Net gain (loss) | (141,065,473) |
Net increase (decrease) in net assets resulting from operations | $ (128,849,657) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 12,215,816 | $ 17,503,276 |
Net realized gain (loss)
| (47,367,952) | 51,427,436 |
Change in net unrealized appreciation (depreciation)
| (93,697,521) | (39,914,299) |
Net increase (decrease) in net assets resulting from operations
| (128,849,657) | 29,016,413 |
Distributions to shareholders from:
Net investment income:
Class A | (17,655,048) | (18,973,533) |
Class B | (219,769) | (849,365) |
Total distributions
| (17,874,817) | (19,822,898) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 13,590,722 | 13,218,397 |
Reinvestment of distributions
| 17,655,048 | 18,973,533 |
Cost of shares redeemed
| (105,746,417) | (113,345,811) |
Net increase (decrease) in net assets from Class A share transactions
| (74,500,647) | (81,153,881) |
Class B Proceeds from shares sold
| 106,733 | 575,499 |
Reinvestment of distributions
| 219,769 | 849,365 |
Cost of shares redeemed
| (7,155,899) | (25,041,162) |
Net increase (decrease) in net assets from Class B share transactions
| (6,829,397) | (23,616,298) |
Increase (decrease) in net assets | (228,054,518) | (95,576,664) |
Net assets at beginning of period
| 535,220,423 | 630,797,087 |
Net assets at end of period (including undistributed net investment income of $10,418,830 and $17,895,386, respectively)
| $ 307,165,905 | $ 535,220,423 |
Other Information |
Class A Shares outstanding at beginning of period
| 21,278,440 | 24,544,133 |
Shares sold
| 607,834 | 536,248 |
Shares issued to shareholders in reinvestment of distributions
| 782,235 | 792,545 |
Shares redeemed
| (4,971,366) | (4,594,486) |
Net increase (decrease) in Class A shares
| (3,581,297) | (3,265,693) |
Shares outstanding at end of period
| 17,697,143 | 21,278,440 |
Class B Shares outstanding at beginning of period
| 293,818 | 1,244,941 |
Shares sold
| 4,568 | 23,371 |
Shares issued to shareholders in reinvestment of distributions
| 9,716 | 35,405 |
Shares redeemed
| (305,408) | (1,009,899) |
Net increase (decrease) in Class B shares
| (291,124) | (951,123) |
Shares outstanding at end of period
| 2,694 | 293,818 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 24.81 | $ 24.46 | $ 22.75 | $ 22.37 | $ 21.32 |
Income (loss) from investment operations: Net investment incomea | .61 | .74 | .69c | .59 | .47 |
Net realized and unrealized gain (loss) | (7.20) | .42 | 1.60 | .34 | .93 |
Total from investment operations | (6.59) | 1.16 | 2.29 | .93 | 1.40 |
Less distributions from: Net investment income | (.87) | (.81) | (.58) | (.55) | (.35) |
Net asset value, end of period | $ 17.35 | $ 24.81 | $ 24.46 | $ 22.75 | $ 22.37 |
Total Return (%)
| (27.33)b | 4.84b | 10.24b,c | 4.30b | 6.64 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 307 | 528 | 600 | 653 | 622 |
Ratio of expenses before expense reductions (%)
| .64 | .52 | .55 | .55 | .59 |
Ratio of expenses after expense reductions (%)
| .62 | .51 | .51 | .53 | .59 |
Ratio of net investment income (%)
| 2.83 | 3.00 | 2.99c | 2.66 | 2.18 |
Portfolio turnover rate (%)
| 263 | 199 | 108 | 122 | 140 |
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 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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 24.78 | $ 24.43 | $ 22.72 | $ 22.33 | $ 21.28 |
Income (loss) from investment operations: Net investment incomea | .53 | .65 | .60c | .51 | .39 |
Net realized and unrealized gain (loss) | (7.20) | .41 | 1.60 | .35 | .92 |
Total from investment operations | (6.67) | 1.06 | 2.20 | .86 | 1.31 |
Less distributions from: Net investment income | (.78) | (.71) | (.49) | (.47) | (.26) |
Net asset value, end of period | $ 17.33 | $ 24.78 | $ 24.43 | $ 22.72 | $ 22.33 |
Total Return (%)
| (27.65)b | 4.43b | 9.82b,c | 3.90b | 6.26 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .05 | 7 | 30 | 34 | 33 |
Ratio of expenses before expense reductions (%)
| .96 | .89 | .93 | .95 | .97 |
Ratio of expenses after expense reductions (%)
| .93 | .88 | .89 | .91 | .97 |
Ratio of net investment income (%)
| 2.52 | 2.63 | 2.61c | 2.28 | 1.80 |
Portfolio turnover rate (%)
| 263 | 199 | 108 | 122 | 140 |
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 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, 2008
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, 2008 are 0.71% and 0.96% 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, 2008.
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.
Portfolio returns shown during 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 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
| $6,151 | $7,362 | $9,402 | $9,054 |
Average annual total return
| -38.49% | -9.71% | -1.23% | -.99% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,022 | $8,963 |
Average annual total return
| -37.60% | -8.66% | -2.04% | -1.09% |
DWS Blue Chip VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $6,152 | $7,310 | 9,264 | $10,681 |
Average annual total return
| -38.48% | -9.92% | -1.52% | 1.02% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,022 | $10,532 |
Average annual total return
| -37.60% | -8.66% | -2.04% | .80% |
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 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. 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 691.80 | | $ 693.40 | |
Expenses Paid per $1,000*
| $ 3.27 | | $ 5.02 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,021.27 | | $ 1,019.20 | |
Expenses Paid per $1,000*
| $ 3.91 | | $ 5.99 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Blue Chip VIP
| .77% | | 1.18% | |
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, 2008
DWS Blue Chip VIP
The year just ended was the worst in many decades for the US equity markets. Essentially all equity indices posted negative returns for this period, as markets reflected economic problems including a housing slump, rising unemployment, a crisis of confidence and an extreme credit crunch. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a return of -37.31% for the 12 months ended December 31, 2008. With a return of -38.49% (Class A shares, unadjusted for contract charges), the Portfolio's return was in line with that of its benchmark, the Russell 1000® Index, which posted a return of -37.60%.
The major contributors to the Portfolio's performance were underweights and stock selection in the financials and consumer discretionary sectors.1 In the financials sector, the Portfolio's performance benefited from not owning many of the worst-performing stocks. In the consumer discretionary sector, performance benefited from overweight positions in The DIRECTV Group, Inc., AutoZone, Inc. and McDonald's Corp.
The major detractors from the Portfolio's performance relative to its benchmark were stock selection in the energy and materials sectors. In the energy sector, performance was hurt by an underweight position in ExxonMobil Corp., which was down less than the sector, and by overweights in coal producers Walter Industries, Inc. and Massey Energy Co. In the materials sector, overweight positions in Terra Industries, Inc. and CF Industries Holdings, Inc., both of which produce fertilizer and other agricultural products, detracted from performance.
Robert Wang, Julie Abbett and James B. Francis, CFA
Portfolio Managers, Deutsche Investment Management Americas Inc.
The Russell 3000 Index is an unmanaged index that 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 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 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.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Blue Chip VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 99% | 97% |
Government & Agency Obligation | 1% | — |
Cash Equivalents | — | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
|
| |
Health Care | 17% | 14% |
Information Technology | 16% | 15% |
Industrials | 14% | 13% |
Consumer Staples | 13% | 9% |
Energy | 11% | 14% |
Financials | 11% | 15% |
Consumer Discretionary | 10% | 11% |
Telecommunication Services | 4% | 4% |
Materials | 2% | 3% |
Utilities | 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 50. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Blue Chip VIP
| Shares | Value ($) |
| |
Common Stocks 99.1% |
Consumer Discretionary 9.8% |
Auto Components 0.1% |
Autoliv, Inc. | 3,100 | 66,526 |
Lear Corp.* | 22,900 | 32,289 |
| 98,815 |
Hotels Restaurants & Leisure 1.8% |
McDonald's Corp. | 22,300 | 1,386,837 |
Yum! Brands, Inc. | 15,200 | 478,800 |
| 1,865,637 |
Household Durables 0.3% |
Leggett & Platt, Inc. | 17,800 | 270,382 |
Internet & Catalog Retail 0.3% |
Amazon.com, Inc.* | 6,600 | 338,448 |
Leisure Equipment & Products 0.2% |
Hasbro, Inc. | 7,900 | 230,443 |
Media 3.6% |
Comcast Corp. "A" | 103,700 | 1,750,456 |
Comcast Corp., Special "A" | 27,600 | 445,740 |
DISH Network Corp. "A"* | 19,900 | 220,691 |
Liberty Media Corp. — Entertainment "A"* | 8,100 | 141,588 |
The DIRECTV Group, Inc.* | 57,600 | 1,319,616 |
| 3,878,091 |
Specialty Retail 3.4% |
AutoZone, Inc.* | 6,900 | 962,343 |
Best Buy Co., Inc. | 31,000 | 871,410 |
Children's Place Retail Stores, Inc.* | 3,100 | 67,208 |
RadioShack Corp. | 30,400 | 362,976 |
Rent-A-Center, Inc.* | 6,700 | 118,255 |
The Gap, Inc. | 33,800 | 452,582 |
TJX Companies, Inc. | 39,700 | 816,629 |
| 3,651,403 |
Textiles, Apparel & Luxury Goods 0.1% |
Quiksilver, Inc.* | 18,100 | 33,304 |
Wolverine World Wide, Inc. | 3,200 | 67,328 |
| 100,632 |
Consumer Staples 12.9% |
Beverages 1.5% |
Pepsi Bottling Group, Inc. | 10,300 | 231,853 |
PepsiCo, Inc. | 24,700 | 1,352,819 |
| 1,584,672 |
Food & Staples Retailing 4.0% |
Kroger Co. | 55,700 | 1,471,037 |
Pantry, Inc.* | 1,600 | 34,320 |
Sysco Corp. | 14,100 | 323,454 |
Wal-Mart Stores, Inc. (a) | 44,000 | 2,466,640 |
| 4,295,451 |
Food Products 1.7% |
Archer-Daniels-Midland Co. | 7,600 | 219,108 |
Bunge Ltd. (a) | 5,500 | 284,735 |
Chiquita Brands International, Inc.* | 15,000 | 221,700 |
Darling International, Inc.* | 10,400 | 57,096 |
Fresh Del Monte Produce, Inc.* | 11,100 | 248,862 |
General Mills, Inc. | 12,000 | 729,000 |
| 1,760,501 |
| Shares | Value ($) |
| |
Household Products 3.6% |
Church & Dwight Co., Inc. | 1,900 | 106,628 |
Colgate-Palmolive Co. | 30,900 | 2,117,886 |
Procter & Gamble Co. | 26,500 | 1,638,230 |
| 3,862,744 |
Personal Products 0.2% |
Herbalife Ltd. | 8,700 | 188,616 |
Tobacco 1.9% |
Altria Group, Inc. | 57,000 | 858,420 |
Philip Morris International, Inc. | 27,900 | 1,213,929 |
| 2,072,349 |
Energy 11.4% |
Oil, Gas & Consumable Fuels |
Alpha Natural Resources, Inc.* | 12,100 | 195,899 |
Apache Corp. | 26,500 | 1,975,045 |
Arch Coal, Inc. | 20,500 | 333,945 |
Chevron Corp. | 11,000 | 813,670 |
Cimarex Energy Co. | 18,700 | 500,786 |
ConocoPhillips | 5,300 | 274,540 |
Encore Acquisition Co.* | 23,900 | 609,928 |
ExxonMobil Corp. | 8,740 | 697,714 |
Frontline Ltd. (a) | 30,800 | 911,988 |
Hess Corp. | 31,200 | 1,673,568 |
Mariner Energy, Inc.* | 25,300 | 258,060 |
Massey Energy Co. | 27,600 | 380,604 |
McMoRan Exploration Co.* (a) | 31,000 | 303,800 |
Occidental Petroleum Corp. | 35,400 | 2,123,646 |
W&T Offshore, Inc. | 20,100 | 287,832 |
Walter Industries, Inc. | 44,900 | 786,199 |
| 12,127,224 |
Financials 11.3% |
Capital Markets 2.3% |
Bank of New York Mellon Corp. | 63,200 | 1,790,456 |
State Street Corp. | 18,200 | 715,806 |
| 2,506,262 |
Commercial Banks 2.1% |
Banco Itau Holding Financeira SA (ADR) (Preferred) | 27,500 | 319,000 |
Unibanco — Uniao de Bancos Brasileiros SA (GDR) | 6,900 | 445,878 |
Wells Fargo & Co. | 50,600 | 1,491,688 |
| 2,256,566 |
Consumer Finance 0.1% |
Cash America International, Inc. | 2,600 | 71,110 |
Diversified Financial Services 2.3% |
JPMorgan Chase & Co. | 77,600 | 2,446,728 |
Insurance 4.0% |
ACE Ltd. | 36,300 | 1,920,996 |
Aflac, Inc. | 6,300 | 288,792 |
Allied World Assurance Co. Holdings Ltd. | 2,500 | 101,500 |
Aon Corp. | 8,100 | 370,008 |
Arch Capital Group Ltd.* | 1,200 | 84,120 |
Arthur J. Gallagher & Co. | 2,900 | 75,139 |
Assurant, Inc. | 4,100 | 123,000 |
Berkshire Hathaway, Inc. "B"* | 200 | 642,800 |
The Travelers Companies, Inc. | 7,600 | 343,520 |
| Shares | Value ($) |
| |
Unum Group | 5,100 | 94,860 |
XL Capital Ltd. "A" (a) | 57,700 | 213,490 |
| 4,258,225 |
Real Estate Investment Trusts 0.5% |
Boston Properties, Inc. (REIT) | 1,800 | 99,000 |
Essex Property Trust, Inc. (REIT) | 2,100 | 161,175 |
Rayonier, Inc. (REIT) | 4,200 | 131,670 |
Simon Property Group, Inc. (REIT) | 1,900 | 100,947 |
| 492,792 |
Health Care 16.5% |
Biotechnology 2.7% |
Amgen, Inc.* | 2,500 | 144,375 |
Gilead Sciences, Inc.* | 40,300 | 2,060,942 |
OSI Pharmaceuticals, Inc.* | 17,800 | 695,090 |
| 2,900,407 |
Health Care Equipment & Supplies 2.9% |
Baxter International, Inc. | 29,600 | 1,586,264 |
Becton, Dickinson & Co. | 16,000 | 1,094,240 |
Covidien Ltd. | 6,800 | 246,432 |
Kinetic Concepts, Inc.* | 2,900 | 55,622 |
Varian Medical Systems, Inc.* | 1,500 | 52,560 |
| 3,035,118 |
Health Care Providers & Services 4.6% |
Aetna, Inc. | 60,200 | 1,715,700 |
Express Scripts, Inc.* | 27,600 | 1,517,448 |
Humana, Inc.* | 15,100 | 562,928 |
Kindred Healthcare, Inc.* | 6,100 | 79,422 |
Magellan Health Services, Inc.* | 800 | 31,328 |
Medco Health Solutions, Inc.* | 23,100 | 968,121 |
Universal Health Services, Inc. "B" | 1,800 | 67,626 |
| 4,942,573 |
Pharmaceuticals 6.3% |
Abbott Laboratories | 14,900 | 795,213 |
Eli Lilly & Co. | 48,500 | 1,953,095 |
Johnson & Johnson | 13,200 | 789,756 |
Merck & Co., Inc. | 28,200 | 857,280 |
Perrigo Co. | 1,300 | 42,003 |
Pfizer, Inc. | 32,400 | 573,804 |
Schering-Plough Corp. | 81,800 | 1,393,054 |
Sepracor, Inc.* | 7,700 | 84,546 |
Teva Pharmaceutical Industries Ltd. (ADR) | 3,900 | 166,023 |
| 6,654,774 |
Industrials 13.5% |
Aerospace & Defense 3.4% |
General Dynamics Corp. | 11,200 | 645,008 |
Goodrich Corp. | 11,200 | 414,624 |
Honeywell International, Inc. | 46,800 | 1,536,444 |
L-3 Communications Holdings, Inc. | 7,300 | 538,594 |
Lockheed Martin Corp. | 2,900 | 243,832 |
Northrop Grumman Corp. | 5,800 | 261,232 |
Spirit AeroSystems Holdings, Inc. "A"* | 4,200 | 42,714 |
| 3,682,448 |
Commercial Services & Supplies 0.3% |
The Brink's Co. | 11,700 | 314,496 |
Construction & Engineering 1.6% |
Chicago Bridge & Iron Co. NV (NY Registered Shares) | 3,400 | 34,170 |
EMCOR Group, Inc.* | 18,500 | 414,955 |
| Shares | Value ($) |
| |
Fluor Corp. | 12,900 | 578,823 |
Foster Wheeler Ltd.* | 17,300 | 404,474 |
Perini Corp.* | 10,700 | 250,166 |
| 1,682,588 |
Electrical Equipment 1.1% |
Acuity Brands, Inc. | 1,500 | 52,365 |
Energy Conversion Devices, Inc.* | 13,300 | 335,293 |
GrafTech International Ltd.* | 87,000 | 723,840 |
Woodward Governor Co. | 2,400 | 55,248 |
| 1,166,746 |
Industrial Conglomerates 0.1% |
General Electric Co. | 6,200 | 100,440 |
Machinery 4.3% |
AGCO Corp.* | 26,400 | 622,776 |
Caterpillar, Inc. | 27,800 | 1,241,826 |
CNH Global NV | 4,000 | 62,400 |
Cummins, Inc. | 23,900 | 638,847 |
Dover Corp. | 2,500 | 82,300 |
Flowserve Corp. | 7,300 | 375,950 |
Gardner Denver, Inc.* | 1,700 | 39,678 |
Joy Global, Inc. | 11,000 | 251,790 |
Parker Hannifin Corp. | 27,600 | 1,174,104 |
Trinity Industries, Inc. | 6,200 | 97,712 |
| 4,587,383 |
Road & Rail 2.7% |
Burlington Northern Santa Fe Corp. | 14,500 | 1,097,795 |
Norfolk Southern Corp. | 16,900 | 795,145 |
Ryder System, Inc. | 25,400 | 985,012 |
| 2,877,952 |
Information Technology 15.5% |
Communications Equipment 0.3% |
Cisco Systems, Inc.* | 20,900 | 340,670 |
Computers & Peripherals 6.7% |
Hewlett-Packard Co. | 61,900 | 2,246,351 |
International Business Machines Corp. | 27,600 | 2,322,816 |
Lexmark International, Inc. "A"* | 32,700 | 879,630 |
QLogic Corp.* | 43,000 | 577,920 |
Western Digital Corp.* | 93,200 | 1,067,140 |
| 7,093,857 |
Electronic Equipment, Instruments & Components 0.4% |
Dolby Laboratories, Inc. "A"* (a) | 3,600 | 117,936 |
Jabil Circuit, Inc. | 43,100 | 290,925 |
| 408,861 |
Internet Software & Services 1.5% |
eBay, Inc.* | 18,600 | 259,656 |
Google, Inc. "A"* | 4,000 | 1,230,600 |
Yahoo!, Inc.* | 4,700 | 57,340 |
| 1,547,596 |
IT Services 3.6% |
Accenture Ltd. "A" | 32,200 | 1,055,838 |
Automatic Data Processing, Inc. | 26,900 | 1,058,246 |
Computer Sciences Corp.* | 21,400 | 751,996 |
Visa, Inc. "A" | 18,100 | 949,345 |
| 3,815,425 |
Software 3.0% |
Microsoft Corp. | 157,300 | 3,057,912 |
Symantec Corp.* | 13,800 | 186,576 |
| 3,244,488 |
| Shares | Value ($) |
| |
Materials 2.4% |
Chemicals |
CF Industries Holdings, Inc. | 22,200 | 1,091,352 |
Terra Industries, Inc. | 82,000 | 1,366,940 |
The Mosaic Co. | 2,800 | 96,880 |
| 2,555,172 |
Telecommunication Services 4.0% |
Diversified Telecommunication Services |
AT&T, Inc. | 46,700 | 1,330,950 |
Embarq Corp. | 24,000 | 863,040 |
Verizon Communications, Inc. | 59,400 | 2,013,660 |
| 4,207,650 |
Utilities 1.8% |
Electric Utilities 0.6% |
Duke Energy Corp. | 3,000 | 45,030 |
Edison International | 9,300 | 298,716 |
Hawaiian Electric Industries, Inc. | 1,300 | 28,782 |
Pepco Holdings, Inc. | 5,700 | 101,232 |
Portland General Electric Co. | 1,700 | 33,099 |
Southern Co. | 4,300 | 159,100 |
| 665,959 |
Gas Utilities 0.3% |
Atmos Energy Corp. | 1,800 | 42,660 |
ONEOK, Inc. | 7,300 | 212,576 |
UGI Corp. | 1,500 | 36,630 |
| 291,866 |
Independent Power Producers & Energy Traders 0.4% |
AES Corp.* | 51,400 | 423,536 |
| Shares | Value ($) |
| |
Multi-Utilities 0.5% |
Dominion Resources, Inc. | 8,500 | 304,640 |
Integrys Energy Group, Inc. | 1,400 | 60,172 |
Sempra Energy | 3,000 | 127,891 |
TECO Energy, Inc. | 2,400 | 29,640 |
| 522,343 |
Total Common Stocks (Cost $137,138,756) | 105,419,439 |
| Principal Amount ($) | Value ($) |
| |
Government & Agency Obligation 0.5% |
US Treasury Obligation |
US Treasury Bill, 0.17%**, 1/15/2009 (b) (Cost $508,951) | 509,000 | 508,997 |
| Shares | Value ($) |
| |
Securities Lending Collateral 3.7% |
Daily Assets Fund Institutional, 1.69% (c) (d) (Cost $3,998,652) | 3,998,652 | 3,998,652 |
|
Cash Equivalents 0.4% |
Cash Management QP Trust, 1.42% (c) (Cost $391,004) | 391,004 | 391,004 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $142,037,363)+ | 103.7 | 110,318,092 |
Other Assets and Liabilities, Net | (3.7) | (3,950,560) |
Net Assets | 100.0 | 106,367,532 |
* Non-income producing security.** Annualized yield at time of purchase; not a coupon rate.+ The cost for federal income tax purposes was $145,284,545. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $34,966,453. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $4,176,823 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $39,143,276.(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, 2008 amounted to $3,967,514, which is 3.7% of net assets.(b) At December 31, 2008, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.(c) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(d) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.ADR: American Depositary Receipt
GDR: Global Depositary Receipt
REIT: Real Estate Investment Trust
At December 31, 2008, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation ($) |
S&P 500 Index
| 3/20/2009 | 18 | 796,812 | 810,090 | 13,278 |
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Other Financial Instruments++ |
Level 1
| $ 109,418,091 | $ 13,278 |
Level 2
| 900,001 | — |
Level 3
| — | — |
Total | $ 110,318,092 | $ 13,278 |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as future contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $137,647,707 — including $3,967,514 of securities loaned) | $ 105,928,436 |
Investment in Daily Assets Fund Institutional (cost $3,998,652)* | 3,998,652 |
Investment in Cash Management QP Trust (cost $391,004) | 391,004 |
Total investments, at value (cost $142,037,363)
| 110,318,092 |
Foreign currency, at value (cost $2,166)
| 1,799 |
Dividends receivable
| 166,218 |
Interest receivable
| 7,465 |
Receivable for Portfolio shares sold
| 138,879 |
Receivable for daily variation margin on open futures contracts
| 15,886 |
Other assets
| 4,951 |
Total assets
| 110,653,290 |
Liabilities |
Payable for Portfolio shares redeemed
| 130,960 |
Payable upon return of securities loaned
| 3,998,652 |
Accrued management fee
| 44,971 |
Other accrued expenses and payables
| 111,175 |
Total liabilities
| 4,285,758 |
Net assets, at value | $ 106,367,532 |
Net Assets Consist of |
Undistributed net investment income
| 1,989,745 |
Net unrealized appreciation (depreciation) on:
Investments | (31,719,271) |
Futures | 13,278 |
Foreign currency | (367) |
Accumulated net realized gain (loss)
| (42,126,808) |
Paid-in capital
| 178,210,955 |
Net assets, at value | $ 106,367,532 |
Class A Net Asset Value, offering and redemption price per share ($106,234,053 ÷ 14,644,836 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.25 |
Class B Net Asset Value, offering and redemption price per share ($133,479 ÷ 18,379 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.26 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $6,442)
| $ 3,198,442 |
Interest
| 11,205 |
Interest — Cash Management QP Trust
| 112,527 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 47,234 |
Total Income
| 3,369,408 |
Expenses:
Management fee
| 1,059,617 |
Administration fee
| 105,793 |
Custodian fee
| 21,180 |
Distribution service fee (Class B)
| 8,244 |
Record keeping fees (Class B)
| 4,171 |
Services to shareholders
| 611 |
Professional fees
| 68,734 |
Trustees' fees and expenses
| 22,463 |
Reports to shareholders and shareholder meeting
| 83,035 |
Other
| 11,869 |
Total expenses before expense reductions
| 1,385,717 |
Expense reductions
| (11,238) |
Total expenses after expense reductions
| 1,374,479 |
Net investment income (loss) | 1,994,929 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (34,670,300) |
Futures
| (1,922,293) |
Foreign currency
| 173 |
| (36,592,420) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (46,235,581) |
Futures
| 29,101 |
Foreign currency
| (379) |
| (46,206,859) |
Net gain (loss) | (82,799,279) |
Net increase (decrease) in net assets resulting from operations | $ (80,804,350) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Year Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 1,994,929 | $ 3,464,188 |
Net realized gain (loss)
| (36,592,420) | 33,055,813 |
Change in net unrealized appreciation (depreciation)
| (46,206,859) | (21,646,324) |
Net increase (decrease) in net assets resulting from operations
| (80,804,350) | 14,873,677 |
Distributions to shareholders from:
Net investment income:
Class A | (3,297,531) | (3,290,254) |
Class B | (117,139) | (315,334) |
Net realized gain:
Class A | (35,917,893) | (34,899,465) |
Class B | (1,664,515) | (5,204,548) |
Total distributions
| (40,997,078) | (43,709,601) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 5,194,608 | 16,482,598 |
Reinvestment of distributions
| 39,215,424 | 38,189,719 |
Cost of shares redeemed
| (60,894,125) | (100,561,920) |
Net increase (decrease) in net assets from Class A share transactions
| (16,484,093) | (45,889,603) |
Class B Proceeds from shares sold
| 238,193 | 5,401,154 |
Reinvestment of distributions
| 1,781,654 | 5,519,882 |
Cost of shares redeemed
| (10,423,558) | (42,573,159) |
Net increase (decrease) in net assets from Class B share transactions
| (8,403,711) | (31,652,123) |
Increase (decrease) in net assets | (146,689,232) | (106,377,650) |
Net assets at beginning of period
| 253,056,764 | 359,434,414 |
Net assets at end of period (including undistributed net investment income of $1,989,745 and $3,469,179, respectively)
| $ 106,367,532 | $ 253,056,764 |
Other Information |
Class A Shares outstanding at beginning of period
| 16,515,920 | 19,412,716 |
Shares sold
| 519,469 | 1,075,933 |
Shares issued to shareholders in reinvestment of distributions
| 3,731,248 | 2,657,601 |
Shares redeemed
| (6,121,801) | (6,630,330) |
Net increase (decrease) in Class A shares
| (1,871,084) | (2,896,796) |
Shares outstanding at end of period
| 14,644,836 | 16,515,920 |
Class B Shares outstanding at beginning of period
| 755,480 | 2,824,828 |
Shares sold
| 18,580 | 372,774 |
Shares issued to shareholders in reinvestment of distributions
| 169,520 | 384,392 |
Shares redeemed
| (925,201) | (2,826,514) |
Net increase (decrease) in Class B shares
| (737,101) | (2,069,348) |
Shares outstanding at end of period
| 18,379 | 755,480 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.65 | $ 16.17 | $ 14.88 | $ 13.65 | $ 11.84 |
Income (loss) from investment operations: Net investment incomea | .12 | .17 | .17c | .14 | .13 |
Net realized and unrealized gain (loss) | (4.97) | .36 | 2.07 | 1.22 | 1.76 |
Total from investment operations | (4.85) | .53 | 2.24 | 1.36 | 1.89 |
Less distributions from: Net investment income | (.21) | (.18) | (.14) | (.13) | (.08) |
Net realized gains | (2.34) | (1.87) | (.81) | — | — |
Total distributions | (2.55) | (2.05) | (.95) | (.13) | (.08) |
Net asset value, end of period | $ 7.25 | $ 14.65 | $ 16.17 | $ 14.88 | $ 13.65 |
Total Return (%)
| (38.49)b | 3.50 | 15.65c | 10.06 | 16.04 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 106 | 242 | 314 | 294 | 283 |
Ratio of expenses before expense reductions (%)
| .76 | .71 | .71 | .70 | .70 |
Ratio of expenses after expense reductions (%)
| .76 | .71 | .71 | .70 | .70 |
Ratio of net investment income (%)
| 1.12 | 1.13 | 1.12c | 1.00 | 1.08 |
Portfolio turnover rate (%)
| 127 | 275 | 226 | 288 | 249 |
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 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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.61 | $ 16.12 | $ 14.83 | $ 13.60 | $ 11.80 |
Income (loss) from investment operations: Net investment incomea | .04 | .11 | .11c | .09 | .09 |
Net realized and unrealized gain (loss) | (4.89) | .36 | 2.07 | 1.22 | 1.74 |
Total from investment operations | (4.85) | .47 | 2.18 | 1.31 | 1.83 |
Less distributions from: Net investment income | (.16) | (.11) | (.08) | (.08) | (.03) |
Net realized gains | (2.34) | (1.87) | (.81) | — | — |
Total distributions | (2.50) | (1.98) | (.89) | (.08) | (.03) |
Net asset value, end of period | $ 7.26 | $ 14.61 | $ 16.12 | $ 14.83 | $ 13.60 |
Total Return (%)
| (38.48)b | 3.15 | 15.19c | 9.68 | 15.55 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .13 | 11 | 46 | 44 | 37 |
Ratio of expenses before expense reductions (%)
| 1.22 | 1.09 | 1.09 | 1.09 | 1.08 |
Ratio of expenses after expense reductions (%)
| 1.21 | 1.09 | 1.09 | 1.09 | 1.08 |
Ratio of net investment income (%)
| .67 | .75 | .74c | .61 | .70 |
Portfolio turnover rate (%)
| 127 | 275 | 226 | 288 | 249 |
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 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, 2008
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, 2008 is 0.69% 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, 2008 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, 2008.
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 risks, 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 12/31/2008 |
[] DWS Conservative Allocation VIP — Class B [] Barclays Capital US Aggregate Index [] Russell 1000® Index | The Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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
| $7,712 | $8,784 | $9,774 |
Average annual total return
| -22.88% | -4.23% | -.52% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,178 |
Average annual total return
| 5.24% | 5.51% | 4.65% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,005 |
Average annual total return
| -37.60% | -8.66% | -2.39% |
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 and non-affiliated funds ("Underlying Portfolios") in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying Portfolios is based on the expense ratios from the Underlying Portfolios' 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 807.80 |
Expenses Paid per $1,000*
| | $ 3.09 |
Hypothetical 5% Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 1,021.72 |
Expenses Paid per $1,000*
| | $ 3.46 |
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, 2008 |
Actual Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 807.80 |
Expenses Paid per $1,000**
| | $ 6.18 |
Hypothetical 5% Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 1,018.30 |
Expenses Paid per $1,000**
| | $ 6.90 |
* Expenses are equal to the Portfolio's annualized expense ratio 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 366.** 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 366.Annualized Expense Ratios | | Class B |
Direct Portfolio Expense Ratio
| | .68% |
Acquired Portfolios (Underlying Portfolios) Fees and Expenses
| | .68% |
Net Annual Portfolio and Acquired Portfolios (Underlying Portfolios) Operating Expenses
| | 1.36% |
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, 2008
DWS Conservative Allocation VIP
For the 12 months ended December 31, 2008, the DWS Conservative Allocation VIP's Class B shares (unadjusted for contract charges) had a return of -22.88%. For the 12-month period, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a return of -37.31%. Since this Portfolio invests in stock and bond funds in several different categories, performance is analyzed by comparing the Portfolio's return with indexes that represent each asset class. The Portfolio's return was below that of its bond benchmark, the Barclays Capital US Aggregate Index, which returned 5.24%, but above the returns of its equity benchmark, the Russell 1000® Index, which returned -37.60%.
There are three major determinants of the Portfolio's performance: strategic asset allocation, tactical asset allocation and the performance of the underlying funds in which the Portfolio's assets are invested. During 2008, strategic asset allocation contributed to the Portfolio's performance relative to its peer group of comparable funds, while tactical asset allocation and performance of the underlying funds detracted.
Strategic asset allocation refers to the longer-term allocation among asset classes. The Portfolio's allocation between equity and fixed-income funds remained close to its target of 40% equity and 60% fixed income during 2008. Tactical allocation decisions are short-term underweights or overweights of particular asset classes relative to their longer-term strategic asset allocation targets.1 Overall tactical asset allocation, with an underweight of cash equivalents and investment-grade bonds balanced by an overweight in large-cap and international equities, detracted from performance, as fixed-income securities performed better than stocks.
Performance of each of the underlying funds is compared to a suitable benchmark for that particular fund's asset class and management style. The underlying funds as a group detracted from performance relative to their respective benchmarks. However, large-cap equity funds added value relative to their peers, as did high-yield funds, although these funds had negative absolute returns.
Inna Okounkova Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not include fees or expenses. It is not possible to invest directly into an index.
The Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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.
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 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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Conservative Allocation VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Fixed Income — Bond Funds | 56% | 46% |
Equity — Equity Funds | 35% | 43% |
Equity — Exchange Traded Funds | 5% | — |
Fixed Income — Money Market Funds | 4% | 11% |
| 100% | 100% |
Target Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Fixed Income | 60% | 60% |
Equity | 40% | 40% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 65. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Conservative Allocation VIP
| Shares | Value ($) |
| |
Equity — Equity Funds 35.3% |
DWS Blue Chip VIP "A" | 3,478 | 25,216 |
DWS Capital Growth VIP "A" | 18,954 | 256,833 |
DWS Communications Fund "Institutional" | 1,413 | 13,866 |
DWS Davis Venture Value VIP "A" | 60,842 | 456,920 |
DWS Dreman High Return Equity VIP "A" | 3,403 | 21,132 |
DWS Dreman Small Cap Value Fund "Institutional" | 2,240 | 54,314 |
DWS Dreman Small Mid Cap Value VIP "A" | 29,503 | 233,961 |
DWS Emerging Markets Equity Fund "Institutional" | 6,484 | 66,006 |
DWS Equity 500 Index VIP "A" | 15,256 | 145,693 |
DWS Global Opportunities VIP "A" | 23,488 | 182,971 |
DWS Global Thematic VIP "A" | 28,882 | 168,673 |
DWS Growth & Income VIP "A" | 121,911 | 624,186 |
DWS Health Care VIP "A" | 19,278 | 182,180 |
DWS International Select Equity VIP "A" | 3,974 | 24,720 |
DWS International VIP "A" | 53,261 | 347,260 |
DWS Janus Growth & Income VIP "A" | 12,884 | 87,483 |
DWS Japan Equity Fund "S" | 3,599 | 26,527 |
DWS Large Cap Value VIP "A" | 123,443 | 1,101,115 |
DWS Micro Cap Fund "Institutional" | 1,170 | 11,287 |
DWS Mid Cap Growth VIP "A" | 725 | 4,928 |
DWS RREEF Global Real Estate Securities Fund "Institutional" | 8,167 | 43,940 |
DWS RREEF Real Estate Securities Fund "Institutional" | 773 | 8,594 |
DWS Small Cap Core Fund "S" | 1,400 | 15,331 |
DWS Small Cap Growth VIP "A" | 12,250 | 93,220 |
DWS Small Cap Index VIP "A" | 12,905 | 111,370 |
DWS Technology VIP "A" | 28,582 | 164,633 |
Total Equity Funds (Cost $7,651,779) | 4,472,359 |
|
Equity — Exchange Traded Funds 4.6% |
Consumer Discretionary Select Sector SPDR Fund | 1,812 | 39,085 |
Consumer Staples Select Sector SPDR Fund | 2,203 | 52,586 |
| Shares | Value ($) |
| |
Energy Select Sector SPDR Fund | 600 | 28,704 |
Financial Select Sector SPDR Fund | 3,609 | 45,546 |
Industrial Select Sector SPDR Fund | 2,516 | 59,076 |
iShares MSCI Australia Index Fund | 2,719 | 38,093 |
iShares MSCI Canada Index Fund | 4,964 | 86,523 |
iShares MSCI EAFE Small Cap Index Fund | 934 | 24,013 |
iShares MSCI France Index Fund | 725 | 15,174 |
iShares MSCI Netherlands Investable Market Index Fund | 995 | 14,845 |
iShares MSCI Switzerland Index Fund | 3,821 | 70,841 |
iShares MSCI United Kingdom Index Fund | 7,596 | 93,051 |
Utilities Select Sector SPDR Fund | 547 | 15,879 |
Total Exchange Traded Funds (Cost $794,476) | 583,416 |
|
Fixed Income — Bond Funds 56.4% |
DWS Core Fixed Income VIP "A" | 250,081 | 2,225,721 |
DWS Emerging Markets Fixed Income Fund "Institutional" | 7,487 | 61,843 |
DWS Global Bond Fund "S" | 66,867 | 669,341 |
DWS Government & Agency Securities VIP "A" | 118,173 | 1,465,344 |
DWS High Income VIP "A" | 84,794 | 451,106 |
DWS Inflation Protected Plus Fund "Institutional" | 29,574 | 269,719 |
DWS Short Duration Plus Fund "Institutional" | 33,594 | 294,620 |
DWS US Bond Index Fund "Institutional" | 165,915 | 1,708,927 |
Total Fixed Income — Bond Funds (Cost $7,968,294) | 7,146,621 |
|
Fixed Income — Money Market Fund 4.0% |
Cash Management QP Trust (Cost $505,699) | 505,699 | 505,699 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $16,920,248)+ | 100.3 | 12,708,095 |
Other Assets and Liabilities, Net | (0.3) | (34,867) |
Net Assets | 100.0 | 12,673,228 |
+ The cost for federal income tax purposes was $16,977,704. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $4,269,609. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $62,844 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $4,332,453.EAFE: Europe, Australasia and Far East
MSCI: Morgan Stanley Capital International
SPDR: Standard & Poor's Depositary Receipt
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 12,202,396 |
Level 2
| 505,699 |
Level 3
| — |
Total | $ 12,708,095 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in Underlying Affiliated Portfolios, at value (cost $15,620,073) | $ 11,618,980 |
Investments in Non-affiliated funds (cost $794,476) | 583,416 |
Investment in Cash Management QP Trust (cost $505,699) | 505,699 |
Total investments, at value (cost $16,920,248)
| 12,708,095 |
Interest receivable
| 651 |
Dividends receivable
| 206 |
Due from Advisor
| 20,199 |
Other assets
| 484 |
Total assets
| 12,729,635 |
Liabilities |
Payable for Portfolio shares redeemed
| 661 |
Other accrued expenses and payables
| 55,746 |
Total liabilities
| 56,407 |
Net assets, at value | $ 12,673,228 |
Net Assets Consist of: |
Undistributed net investment income
| 1,032,166 |
Net unrealized appreciation (depreciation) on investments
| (4,212,153) |
Accumulated net realized gain (loss)
| (119,667) |
Paid-in capital
| 15,972,882 |
Net assets, at value | $ 12,673,228 |
Class B Net Asset Value, offering and redemption price per share ($12,673,228 ÷ 1,971,510 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.43 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Income distributions from Underlying Affiliated Portfolios
| $ 776,846 |
Dividends
| 12,482 |
Interest — Cash Management QP Trust
| 34,156 |
Total Income
| 823,484 |
Expenses:
Management fee
| 15,317 |
Administration fee
| 10,198 |
Services to shareholders
| 66 |
Custodian and accounting fees
| 20,998 |
Distribution service fee
| 39,976 |
Record keeping fees
| 16,607 |
Audit and tax fees
| 45,135 |
Legal
| 25,916 |
Trustees' fees and expenses
| 6,315 |
Reports to shareholders and shareholder meeting
| 14,715 |
Other
| 3,752 |
Total expenses before expense reductions
| 198,995 |
Expense reductions
| (86,963) |
Total expenses after expense reductions
| 112,032 |
Net investment income (loss) | 711,452 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from investments
| (1,181,605) |
Capital gain distributions from Underlying Affiliated Portfolios
| 1,411,975 |
| 230,370 |
Change in net unrealized appreciation (depreciation) on investments
| (4,886,046) |
Net gain (loss) | (4,655,676) |
Net increase (decrease) in net assets resulting from operations | $ (3,944,224) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Year Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 711,452 | $ 1,473,106 |
Net realized gain (loss)
| 230,370 | 3,969,944 |
Change in net unrealized appreciation (depreciation)
| (4,886,046) | (2,632,084) |
Net increase (decrease) in net assets resulting from operations
| (3,944,224) | 2,810,966 |
Distributions to shareholders from:
Net investment income:
Class B | (1,920,781) | (1,186,066) |
Net realized gains:
Class B | (3,261,704) | (1,601,633) |
Total distributions
| (5,182,485) | (2,787,699) |
Portfolio share transactions:
Class B Proceeds from shares sold
| 2,652,766 | 2,669,740 |
Reinvestment of distributions
| 5,182,485 | 2,787,699 |
Cost of shares redeemed
| (3,836,502) | (47,127,563) |
Net increase (decrease) in net assets from Class B share transactions
| 3,998,749 | (41,670,124) |
Increase (decrease) in net assets | (5,127,960) | (41,646,857) |
Net assets at beginning of period
| 17,801,188 | 59,448,045 |
Net assets at end of period (including undistributed net investment income of $1,032,166 and $1,914,850, respectively)
| $ 12,673,228 | $ 17,801,188 |
Other Information |
Class B Shares outstanding at beginning of period
| 1,504,098 | 5,014,229 |
Shares sold
| 291,401 | 226,057 |
Shares issued to shareholders in reinvestment of distributions
| 654,354 | 243,893 |
Shares redeemed
| (478,343) | (3,980,081) |
Net increase (decrease) in Class B shares
| 467,412 | (3,510,131) |
Shares outstanding at end of period
| 1,971,510 | 1,504,098 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004a |
Selected Per Share Data |
Net asset value, beginning of period | $ 11.84 | $ 11.86 | $ 11.10 | $ 10.66 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .37 | .31 | .22 | .19 | (.03) |
Net realized and unrealized gain (loss) | (2.46) | .23 | .74 | .28 | .69 |
Total from investment operations | (2.09) | .54 | .96 | .47 | .66 |
Less distributions from: Net investment income | (1.23) | (.24) | (.14) | — | — |
Net realized gain | (2.09) | (.32) | (.06) | (.03) | — |
Total distributions | (3.32) | (.56) | (.20) | (.03) | — |
Net asset value, end of period | $ 6.43 | $ 11.84 | $ 11.86 | $ 11.10 | $ 10.66 |
Total Return (%)c,d
| (22.88) | 4.68 | 8.81 | 4.38 | 6.60** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 13 | 18 | 59 | 46 | 14 |
Ratio of expenses before expense reductions (%)e
| 1.24 | .77 | .79 | .94 | 2.96* |
Ratio of expenses after expense reductions (%)e
| .70 | .71 | .74 | .75 | .75* |
Ratio of net investment income (loss) (%)
| 4.45 | 2.65 | 1.90 | 1.73 | (.67)* |
Portfolio turnover rate (%)
| 59 | 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 some Underlying Portfolios' expenses.
e The Portfolio invests in other DWS Portfolios and non-affiliated funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios and non-affiliated funds in which the Portfolio is invested. This ratio does not include these indirect fees and expenses.
* Annualized
** Not annualized
|
Performance Summary December 31, 2008
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, 2008 are 0.66% and 0.91% 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, 2008.
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. 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 risks, 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.
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 Core Fixed Income VIP |
[] DWS Core Fixed Income VIP — Class A [] Barclays Capital US Aggregate Index | The Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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
| $8,067 | $8,762 | $9,364 | $12,099 |
Average annual total return
| -19.33% | -4.31% | -1.31% | 1.92% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,552 | $17,297 |
Average annual total return
| 5.24% | 5.51% | 4.65% | 5.63% |
DWS Core Fixed Income VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $8,029 | $8,654 | $9,176 | $10,121 |
Average annual total return
| -19.71% | -4.70% | -1.70% | .18% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,552 | $13,881 |
Average annual total return
| 5.24% | 5.51% | 4.65% | 5.17% |
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. 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 825.60 | | $ 823.70 | |
Expenses Paid per $1,000*
| $ 3.07 | | $ 4.91 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,021.77 | | $ 1,019.76 | |
Expenses Paid per $1,000*
| $ 3.40 | | $ 5.43 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Core Fixed Income VIP
| .67% | | 1.07% | |
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, 2008
DWS Core Fixed Income VIP
Entering the year, banks were pulling back financing from the markets as they were forced to come to terms with losses related to the subprime mortgage crisis that had emerged in the summer of 2007. As 2008 progressed, ongoing fallout from the collapse in housing and mortgages led to the failure, forced merger or government bailout of a number of leading global financial institutions in both the US and Europe. The result was further tightening of credit that caused global economic growth to pull back sharply during the fourth quarter. Given this backdrop, investors' risk tolerance approached zero and liquidity all but evaporated. What ensued was a frantic "flight to quality" into the safe haven of US Treasuries and underperformance for all other segments of the bond market. As investor risk aversion peaked in October and November, even AAA-rated mortgage-backed issues experienced a collapse in demand.1 Over the 12-month period, the US Federal Reserve Board (the Fed) cut the benchmark federal funds rate (the overnight rate charged by banks when they borrow money from each other) from 4.25% to basically zero as it sought to provide market participants with liquidity, and Treasury yields fell dramatically.
During the 12-month period ended December 31, 2008, the Portfolio provided a total return of -19.33% (Class A shares, unadjusted for contract charges) compared with the 5.24% return of its benchmark, the Barclays Capital US Aggregate Index.
The portfolio's underperformance versus the benchmark is the result of our focus on fixed-income sectors that trade at a yield spread to Treasuries.2 The positive return of the benchmark is the result of extraordinary Treasury performance driven by the unprecedented flight to quality, and masks steep declines in other, credit-sensitive segments of the bond market. In particular, our holdings of commercial mortgage-backed securities and non-agency residential mortgage-backed securities suffered historically poor performance, especially late in the year. Entering 2009, yield spreads are at all-time highs in many sectors. We have repositioned the Portfolio to maximize the potential upside when the credit cycle ultimately turns for the better. This has meant selling the Portfolio's below-AAA-rated positions in favor of AAA-rated securities that are structured to provide a significant degree of protection against rising defaults. We believe the rapid deterioration in the outlook and pricing of AAA-rated bonds toward the end of the year has made this positioning very attractive at this time.
The following portfolio managers were responsible for the day-to-day management of the Portfolio for the period covered by this report. |
Gary W. Bartlett, CFA
Warren S. Davis, III | J. Christopher Gagnier
William T. Lissenden | Daniel R. Taylor, CFA
Timothy C. Vile, CFA | |
Portfolio Managers, Aberdeen Asset Management Inc., Subadvisor to the Portfolio |
Effective on or about February 27, 2009, Deutsche Investment Management Americas Inc. (the "Advisor") assumed all advisory responsibilities for the Portfolio that were previously delegated to the Portfolio's subadvisor. The following portfolio managers handle the day-to-day management of the Portfolio. |
Kenneth R. Bowling, CFA
Jamie Guenther, CFA | John Brennan
Bruce Harley, CFA | J. Richard Robben, CFA
David Vignolo, CFA | J. Kevin Horsley, CFA, CPA
Stephen Willer, CFA |
The Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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 Credit quality (credit rating) 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.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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Core Fixed Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Commercial and Non-Agency Mortgage-Backed Securities | 30% | 37% |
Corporate Bonds | 24% | 17% |
Mortgage-Backed Securities Pass-Throughs | 21% | 17% |
Collateralized Mortgage Obligations | 10% | 7% |
Government & Agency Obligations | 7% | 14% |
Municipal Bonds and Notes | 5% | 2% |
Asset-Backed | 2% | 3% |
Preferred Securities | 1% | 3% |
| 100% | 100% |
Bond Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Financials | 39% | 59% |
Utilities | 16% | 20% |
Consumer Discretionary | 12% | 2% |
Energy | 12% | 2% |
Consumer Staples | 6% | 6% |
Materials | 4% | 5% |
Telecommunication Services | 3% | 1% |
Industrials | 3% | 2% |
Information Technology | 3% | 3% |
Health Care | 2% | — |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
US Government and Agencies | 38% | 38% |
AAA* | 32% | 42% |
AA | 2% | 2% |
A | 9% | 7% |
BBB | 19% | 11% |
| 100% | 100% |
* Includes cash equivalentsEffective Maturity (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Under 1 year | 1% | 2% |
1-4.99 years | 44% | 48% |
5-9.99 years | 37% | 39% |
10-14.99 years | 4% | 1% |
15 years or greater | 14% | 10% |
| 100% | 100% |
Asset allocation, bond diversification, quality and effective maturity are subject to change.
Weighted average effective maturity: 7.9 years and 6.7 years, respectively.
The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Portfolio's quality does not remove market risk.
For more complete details about the Portfolio's investment portfolio, see page 75. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Core Fixed Income VIP
| Principal Amount ($) | Value ($) |
| |
Corporate Bonds 23.8% |
Consumer Discretionary 3.1% |
British Sky Broadcasting Group PLC, 144A, 9.5%, 11/15/2018 | 605,000 | 617,646 |
Comcast Cable Holdings LLC: | | |
7.875%, 8/1/2013 | 435,000 | 447,274 |
9.875%, 6/15/2022 | 250,000 | 296,884 |
10.125%, 4/15/2022 | 363,000 | 438,029 |
Comcast Corp., 6.5%, 1/15/2017 | 55,000 | 54,324 |
Grupo Televisa SA, 6.0%, 5/15/2018 | 600,000 | 504,540 |
Omnicom Group, Inc., Zero Coupon, 7/31/2032 | 197,000 | 187,889 |
Time Warner Cable, Inc., 6.75%, 7/1/2018 | 122,000 | 117,462 |
Time Warner Entertainment Co., LP, 10.15%, 5/1/2012 | 460,000 | 474,155 |
Time Warner, Inc.: | | |
7.625%, 4/15/2031 | 360,000 | 353,812 |
7.7%, 5/1/2032 | 325,000 | 325,401 |
Viacom, Inc.: | | |
6.25%, 4/30/2016 | 130,000 | 107,756 |
6.75%, 10/5/2037 | 550,000 | 423,931 |
| 4,349,103 |
Consumer Staples 1.5% |
CVS Caremark Corp., 6.302%, 6/1/2037 | 1,949,000 | 993,990 |
Kroger Co., 7.0%, 5/1/2018 (a) | 375,000 | 392,170 |
Miller Brewing Co., 144A, 5.5%, 8/15/2013 | 840,000 | 783,203 |
| 2,169,363 |
Energy 3.0% |
Energy Transfer Partners LP, 9.7%, 3/15/2019 | 735,000 | 757,352 |
Enterprise Products Operating LP, Series B, 5.6%, 10/15/2014 | 510,000 | 432,703 |
EOG Resources, Inc., 6.875%, 10/1/2018 (a) | 470,000 | 512,609 |
Northwest Pipeline GP, 6.05%, 6/15/2018 | 585,000 | 510,362 |
Petro-Canada, 6.8%, 5/15/2038 | 705,000 | 532,017 |
TransCanada PipeLines Ltd.: | | |
6.2%, 10/15/2037 | 435,000 | 377,860 |
6.35%, 5/15/2067 | 825,000 | 368,769 |
Transocean Ltd.: | | |
Series C, 1.5%, 12/15/2037 | 349,000 | 268,730 |
Series A, 1.625%, 12/15/2037 | 198,000 | 172,508 |
Valero Energy Corp., 7.5%, 4/15/2032 | 365,000 | 291,826 |
| 4,224,736 |
Financials 8.6% |
Banco Mercantil del Norte SA, 144A, 6.862%, 10/13/2021 | 355,000 | 213,000 |
Corp. Andina de Fomento: | | |
5.75%, 1/12/2017(a) | 295,000 | 246,706 |
6.875%, 3/15/2012 | 210,000 | 203,158 |
| Principal Amount ($) | Value ($) |
| |
Erac USA Finance Co.: | | |
144A, 5.8%, 10/15/2012 | 545,000 | 455,908 |
144A, 7.0%, 10/15/2037 | 1,285,000 | 707,747 |
144A, 8.0%, 1/15/2011 | 1,346,000 | 1,262,668 |
Farmers Insurance Exchange, 144A, 8.625%, 5/1/2024 | 940,000 | 628,185 |
FPL Group Capital, Inc.: | | |
Series D, 7.3%, 9/1/2067 | 135,000 | 75,600 |
7.875%, 12/15/2015 | 545,000 | 590,187 |
Glen Meadow Pass-Through Trust, 144A, 6.505%, 2/12/2067 | 445,000 | 198,956 |
HBOS PLC, 144A, 6.75%, 5/21/2018 | 195,000 | 171,619 |
HSBC Finance Corp., 5.25%, 1/15/2014 (a) | 390,000 | 369,637 |
International Lease Finance Corp.: | | |
6.375%, 3/25/2013 | 262,000 | 177,976 |
Series R, 6.625%, 11/15/2013 | 90,000 | 60,641 |
Merrill Lynch & Co., Inc.: | | |
6.22%, 9/15/2026 | 500,000 | 461,668 |
7.75%, 5/14/2038 | 410,000 | 451,689 |
Morgan Stanley, Series F, 6.0%, 4/28/2015 | 990,000 | 854,103 |
National Australia Bank Ltd., 144A, 5.35%, 6/12/2013 | 485,000 | 467,448 |
National Rural Utilities Cooperative Finance Corp., 10.375%, 11/1/2018 | 645,000 | 754,913 |
PartnerRe Finance II, 6.44%, 12/1/2066 | 697,000 | 277,067 |
Rio Tinto Finance (USA) Ltd.: | | |
5.875%, 7/15/2013 (a) | 675,000 | 537,646 |
6.5%, 7/15/2018 (a) | 315,000 | 230,949 |
StanCorp. Financial Group, Inc., 6.9%, 5/29/2067 | 940,000 | 512,696 |
Standard Chartered PLC, 144A, 7.014%, 12/30/2049 | 900,000 | 402,889 |
TNK-BP Finance SA, Series 5, 144A, 7.5%, 3/13/2013 | 245,000 | 151,900 |
UDR, Inc., Series E, (REIT), 3.9%, 3/15/2010 | 345,000 | 299,168 |
US Bancorp., 0.704%**, 12/11/2035 | 265,000 | 241,813 |
Woori Bank, 144A, 6.208%, 5/2/2037 | 165,000 | 65,809 |
Xstrata Finance Canada Ltd.: | | |
144A, 5.8%, 11/15/2016 | 940,000 | 593,403 |
144A, 6.9%, 11/15/2037 | 895,000 | 535,507 |
| 12,200,656 |
Health Care 0.5% |
Medco Health Solutions, Inc., 7.125%, 3/15/2018 | 740,000 | 683,829 |
Industrials 0.8% |
Rockies Express Pipeline LLC, 144A, 6.25%, 7/15/2013 | 1,175,000 | 1,156,856 |
Information Technology 0.8% |
Broadridge Financial Solutions, Inc., 6.125%, 6/1/2017 | 190,000 | 137,952 |
| Principal Amount ($) | Value ($) |
| |
Hewlett Packard Co., 6.125%, 3/1/2014 | 355,000 | 377,366 |
Tyco Electronics Group SA, 6.0%, 10/1/2012 | 695,000 | 626,962 |
| 1,142,280 |
Materials 1.0% |
ArcelorMittal, 5.375%, 6/1/2013 | 375,000 | 282,805 |
ArcelorMittal USA, 6.5%, 4/15/2014 (a) | 380,000 | 270,190 |
Barrick North America Finance LLC, 7.5%, 9/15/2038 | 605,000 | 528,994 |
Celulosa Arauco y Constitucion SA, 5.625%, 4/20/2015 (a) | 425,000 | 400,776 |
| 1,482,765 |
Telecommunication Services 0.8% |
British Telecommunications PLC, 8.625%, 12/15/2010 | 600,000 | 617,219 |
Qwest Corp., 7.625%, 6/15/2015 | 234,000 | 191,880 |
Telecom Italia Capital, 7.721%, 6/4/2038 (a) | 445,000 | 365,456 |
| 1,174,555 |
Utilities 3.7% |
Arizona Public Service Co., 6.875%, 8/1/2036 | 1,045,000 | 727,095 |
Commonwealth Edison Co., Series 98, 6.15%, 3/15/2012 | 685,000 | 667,622 |
Dominion Resources, Inc.: | | |
Series 06-B, 6.3%, 9/30/2066 | 560,000 | 252,000 |
7.5%, 6/30/2066 | 640,000 | 320,000 |
Integrys Energy Group, Inc., 6.11%, 12/1/2066 | 1,305,000 | 626,400 |
New York State Electric & Gas Corp., 144A, 6.15%, 12/15/2017 | 1,125,000 | 1,023,858 |
PPL Capital Funding, Inc., Series A, 6.7%, 3/30/2067 | 1,580,000 | 695,200 |
Southwestern Public Service Co., Series G, 8.75%, 12/1/2018 | 680,000 | 748,581 |
Union Electric Co., 6.7%, 2/1/2019 | 153,000 | 139,411 |
| 5,200,167 |
Total Corporate Bonds (Cost $42,852,839) | 33,784,310 |
|
Asset-Backed 1.8% |
Home Equity Loans |
Countrywide Asset-Backed Certificates: | | |
"A6", Series 2006-S6, 5.657%, 3/25/2034 | 1,840,000 | 804,646 |
"A6", Series 2006-15, 5.826%, 10/25/2046 | 640,000 | 372,802 |
"A1B", Series 2007-S1, 5.888%, 11/25/2036 | 677,617 | 437,983 |
"1AF6", Series 2006-11, 6.15%, 9/25/2046 | 1,830,000 | 900,009 |
Securitized Asset-Backed NIM Trust, "NIM", Series 2005-FR4, 144A, 6.0%, 1/25/2036* | 459,930 | 46 |
Total Asset-Backed (Cost $5,439,773) | 2,515,486 |
| Principal Amount ($) | Value ($) |
| |
Mortgage-Backed Securities Pass-Throughs 21.5% |
Federal Home Loan Mortgage Corp., 6.0%, 12/1/2034 | 898,996 | 928,389 |
Federal National Mortgage Association: | | |
4.5%, with various maturities from 8/1/2033 until 10/1/2033 | 2,735,458 | 2,779,804 |
5.0%, with various maturities from 8/1/2033 until 7/1/2037 | 1,319,523 | 1,351,530 |
5.166%**, 9/1/2038 | 686,964 | 696,238 |
5.5%, with various maturities from 2/1/2024 until 7/1/2037 | 16,876,562 | 17,295,591 |
6.0%, 4/1/2024 | 1,183,966 | 1,227,809 |
6.5%, with various maturities from 3/1/2017 until 4/1/2037 | 5,981,058 | 6,224,912 |
8.0%, 9/1/2015 | 21,523 | 22,856 |
Total Mortgage-Backed Securities Pass-Throughs (Cost $29,493,733) | 30,527,129 |
|
Commercial and Non-Agency Mortgage-Backed Securities 29.8% |
Adjustable Rate Mortgage Trust: | | |
"3A31", Series 2005-10, 5.414%**, 1/25/2036 | 1,265,000 | 612,540 |
"1A4", Series 2006-2, 5.751%**, 5/25/2036 | 1,705,000 | 735,355 |
Banc of America Commercial Mortgage, Inc.: | | |
"A4", Series 2007-1, 5.451%, 1/15/2049 | 855,000 | 634,999 |
"A2", Series 2007-2, 5.634%, 4/10/2049 | 1,050,000 | 823,084 |
"A4", Series 2007-3, 5.658%**, 6/10/2049 | 1,035,000 | 756,971 |
"A4", Series 2007-2, 5.689%**, 4/10/2049 | 675,000 | 512,824 |
"AM", Series 2007-4, 5.812%**, 2/10/2051 | 545,000 | 250,566 |
Banc of America Mortgage Securities, Inc., "1A20", Series 2005-3, 5.5%, 4/25/2035 | 1,840,000 | 1,535,740 |
Bear Stearns Adjustable Rate Mortgage Trust: | | |
"A1", Series 2006-1, 4.625%**, 2/25/2036 | 2,398,498 | 1,521,766 |
"22A1", Series 2007-4, 5.995%**, 6/25/2047 | 1,260,295 | 766,168 |
Chase Mortgage Finance Corp., "3A1", Series 2005-A1, 5.284%**, 12/25/2035 | 2,204,936 | 1,436,193 |
Citicorp Mortgage Securities, Inc., "1A1", Series 2004-8, 5.5%, 10/25/2034 | 876,307 | 738,955 |
Citigroup Mortgage Loan Trust, Inc.: | | |
"2A1", Series 2006-AR1, 4.7%**, 3/25/2036 | 1,117,873 | 671,337 |
"1A1", Series 2006-AR1, 4.9%**, 10/25/2035 | 366,159 | 231,147 |
"1A2", Series 2006-AR2, 5.521%**, 3/25/2036 | 1,710,326 | 921,377 |
"1CB2", Series 2004-NCM2, 6.75%, 8/25/2034 | 895,160 | 675,566 |
| Principal Amount ($) | Value ($) |
| |
Citigroup/Deutsche Bank Commercial Mortgage Trust, "A4", Series 2007-CD4, 5.322%, 12/11/2049 | 846,000 | 590,590 |
Countrywide Alternative Loan Trust: | | |
"A2", Series 2003-21T1, 5.25%, 12/25/2033 | 865,799 | 756,326 |
"A6", Series 2004-14T2, 5.5%, 8/25/2034 | 777,122 | 690,063 |
"7A1", Series 2004-J2, 6.0%, 12/25/2033 | 186,000 | 118,924 |
"1A1", Series 2004-J1, 6.0%, 2/25/2034 | 112,958 | 88,037 |
Greenwich Capital Commercial Funding Corp., "AM", Series 2007-GG9, 5.475%, 3/10/2039 | 600,000 | 304,058 |
GS Mortgage Securities Corp., "2A1", Series 2008-2R, 144A, 7.5%, 10/25/2036 | 999,074 | 649,398 |
GS Mortgage Securities Corp. II, "AM", Series 2007-GG10, 5.799%**, 8/10/2045 | 1,375,000 | 629,688 |
IndyMac Index Mortgage Loan Trust, "3A1", Series 2006-AR33, 5.766%**, 1/25/2037 | 1,218,603 | 793,814 |
JPMorgan Chase Commercial Mortgage Securities Corp.: | | |
"A2", Series 2007-LD11, 5.804%**, 6/15/2049 | 2,430,000 | 1,857,553 |
"ASB", Series 2007-LD11, 5.819%**, 6/15/2049 | 3,180,000 | 2,314,003 |
"A4", Series 2007-LD12, 5.882%, 2/15/2051 | 338,000 | 240,369 |
"AM", Series 2007-LD12, 6.062%**, 2/15/2051 | 900,000 | 422,635 |
JPMorgan Mortgage Trust: | | |
"2A4L", Series 2006-A6, 5.556%**, 10/25/2036 | 1,840,000 | 813,928 |
"2A4", Series 2006-A2, 5.754%**, 4/25/2036 | 2,565,000 | 1,104,921 |
LB-UBS Commercial Mortgage Trust, "A4", Series 2007-C6, 5.858%, 7/15/2040 | 940,000 | 668,830 |
Lehman Mortgage Trust, "3A3", Series 2006-1, 5.5%, 2/25/2036 | 1,587,268 | 1,291,070 |
MASTR Alternative Loans Trust: | | |
"5A1", Series 2005-1, 5.5%, 1/25/2020 | 460,248 | 356,692 |
"5A1", Series 2005-2, 6.5%, 12/25/2034 | 137,653 | 81,000 |
"8A1", Series 2004-3, 7.0%, 4/25/2034 | 28,167 | 20,976 |
MASTR Asset Securitization Trust, "2A7", Series 2003-9, 5.5%, 10/25/2033 | 1,025,659 | 794,885 |
Merrill Lynch Mortgage Investors Trust, "A2", Series 2005-A5, 4.566%, 6/25/2035 | 210,000 | 120,577 |
Merrill Lynch Mortgage Trust, "ASB", Series 2007-C1, 5.829%**, 6/12/2050 | 900,000 | 641,139 |
Morgan Stanley Capital I: | | |
"A2", Series 2007-HQ11, 5.359%, 2/12/2044 | 1,800,000 | 1,425,824 |
"AM", Series 2007-HQ12, 5.632%**, 4/12/2049 | 675,000 | 309,677 |
| Principal Amount ($) | Value ($) |
| |
"AAB", Series 2007-IQ14, 5.654%, 4/15/2049 | 1,845,000 | 1,312,513 |
Residential Accredit Loans, Inc., "CB", Series 2004-QS2, 5.75%, 2/25/2034 | 593,930 | 373,805 |
Sequoia Mortgage Trust, "2A1", Series 2007-1, 5.814%**, 2/20/2047 | 2,085,257 | 1,145,952 |
Structured Adjustable Rate Mortgage Loan Trust, "6A3", Series 2005-21, 5.4%, 11/25/2035 | 1,485,000 | 616,290 |
Structured Asset Securities Corp., "4A1", Series 2005-6, 5.0%, 5/25/2035 | 616,539 | 518,471 |
Wachovia Bank Commercial Mortgage Trust, "A3", Series 2007-C30, 5.246%, 12/15/2043 | 1,310,000 | 993,400 |
Wachovia Mortgage Loan Trust LLC, "3A1", Series 2005-B, 5.158%**, 10/20/2035 | 2,094,192 | 1,475,985 |
Washington Mutual Mortgage Pass-Through Certificates Trust: | | |
"1A3", Series 2005-AR16, 5.102%**, 12/25/2035 | 1,660,000 | 885,562 |
"1A1", Series 2006-AR16, 5.605%**, 12/25/2036 | 1,925,183 | 1,112,772 |
"1A1", Series 2007-HY2, 5.606%**, 12/25/2036 | 2,293,328 | 1,135,502 |
Wells Fargo Mortgage Backed Securities Trust: | | |
"A4", Series 2005-AR14, 5.387%**, 8/25/2035 | 1,700,000 | 870,570 |
"A1", Series 2006-3, 5.5%, 3/25/2036 | 1,637,025 | 1,315,864 |
"2A5", Series 2006-AR1, 5.548%**, 3/25/2036 | 1,700,000 | 681,565 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $65,085,627) | 42,347,816 |
|
Collateralized Mortgage Obligations 10.1% |
Fannie Mae Whole Loan, "1A1", Series 2004-W15, 6.0%, 8/25/2044 | 890,199 | 925,205 |
Federal Home Loan Mortgage Corp.: | | |
"LN", Series 3145, 4.5%, 10/15/2034 | 1,598,552 | 1,617,720 |
"ME", Series 2775, 5.0%, 12/15/2032 | 1,165,000 | 1,190,271 |
"PD", Series 2890, 5.0%, 3/15/2033 | 1,485,000 | 1,513,747 |
"OG", Series 2889, 5.0%, 5/15/2033 | 1,770,000 | 1,804,183 |
"XD", Series 2941, 5.0%, 5/15/2033 | 1,055,000 | 1,074,573 |
"BG", Series 2869, 5.0%, 7/15/2033 | 335,000 | 342,568 |
"PE", Series 2165, 6.0%, 6/15/2029 | 1,300,205 | 1,344,230 |
Federal National Mortgage Association: | | |
"QD", Series 2005-29, 5.0%, 8/25/2033 | 435,000 | 441,671 |
| Principal Amount ($) | Value ($) |
| |
"HE", Series 2005-22, 5.0%, 10/25/2033 | 1,540,000 | 1,563,566 |
"PG", Series 2002-3, 5.5%, 2/25/2017 | 424,841 | 434,090 |
"PH", Series 1999-19, 6.0%, 5/25/2029 | 1,287,572 | 1,334,923 |
"Z", Series 2001-14, 6.0%, 5/25/2031 | 819,913 | 844,350 |
Total Collateralized Mortgage Obligations (Cost $13,900,024) | 14,431,097 |
|
Municipal Bonds and Notes 4.8% |
Arizona, Salt River Project, Agricultural Improvement & Power District Electric Systems Revenue, Series A, 5.0%, 1/1/2038 | 480,000 | 461,539 |
Florida, State Board of Education, Capital Outlay 2006, Series E, 5.0%, 6/1/2035 | 500,000 | 475,375 |
Glendale, AZ, Municipal Property Corp., Excise Tax Revenue, Series B, 6.157%, 7/1/2033 (b) | 420,000 | 408,673 |
Jicarilla, NM, Sales & Special Tax Revenue, Apache Nation Revenue, 144A, 5.2%, 12/1/2013 | 945,000 | 965,450 |
Miami-Dade County, FL, Educational Facilities Authority Revenue, University of Miami, Series B, 6.1%, 4/1/2015 | 1,145,000 | 1,151,000 |
Michigan, Western Michigan University Revenue, 4.41%, 11/15/2014 (b) | 885,000 | 879,893 |
New Jersey, Economic Development Authority Revenue, Series B, 6.5%, 11/1/2014 (b) | 585,000 | 614,782 |
New Jersey, State Educational Facilities Authority Revenue, NJ City University, Series F, 6.85%, 7/1/2036 (b) | 395,000 | 409,212 |
Newark, NJ, Pension Obligation, 5.853%, 4/1/2022 (b) | 865,000 | 862,465 |
Texas, Pharr-San Juan-Alamo Independent School District, School Building, 5.0%, 2/1/2038 | 295,000 | 287,053 |
Texas, Eagle Mountain & Saginaw Independent School District, School Building, 5.0%, 8/15/2038 | 315,000 | 307,374 |
Total Municipal Bonds and Notes (Cost $6,843,223) | 6,822,816 |
|
Government & Agency Obligations 6.9% |
US Treasury Obligations |
US Treasury Bonds: | | |
4.5%, 5/15/2038 (a) | 1,298,000 | 1,771,568 |
5.5%, 8/15/2028 (a) | 2,901,000 | 3,920,881 |
| Principal Amount ($) | Value ($) |
| |
US Treasury Notes: | | |
1.5%, 12/31/2013 | 200,000 | 199,547 |
3.75%, 11/15/2018 (a) | 2,300,000 | 2,603,669 |
4.875%, 5/31/2011 (a) (c) | 500,000 | 549,649 |
5.125%, 5/15/2016 (a) | 643,000 | 778,582 |
Total Government & Agency Obligations (Cost $9,508,268) | 9,823,896 |
|
Preferred Securities 1.6% |
Financials |
Bank of America Corp.: | | |
Series K, 8.0%, 1/30/2018 (d) | 365,000 | 262,540 |
Series M, 8.125%, 5/15/2018 (d) | 10,000 | 7,480 |
Citigroup Capital XXI, 8.3%, 12/21/2057 | 500,000 | 385,619 |
Citigroup, Inc., Series E, 8.4%, 4/30/2018 (d) | 572,000 | 377,686 |
Dresdner Funding Trust I, 144A, 8.151%, 6/30/2031 | 400,000 | 158,396 |
Oil Insurance Ltd., 144A, 7.558%, 6/30/2011 (d) | 890,000 | 335,041 |
PNC Preferred Funding Trust I, 144A, 8.7%, 3/15/2013 (d) | 400,000 | 295,676 |
Royal Bank of Scotland Group PLC: | | |
144A, 6.99%, 10/5/2017 (d) | 430,000 | 201,040 |
Series U, 7.64%, 9/29/2017 (d) | 600,000 | 238,970 |
Stoneheath Re, 6.868%, 10/15/2011 (d) | 250,000 | 50,000 |
Total Preferred Securities (Cost $3,956,005) | 2,312,448 |
| Shares | Value ($) |
| |
Preferred Stocks 0.1% |
Financials |
XL Capital Ltd., Series C, 6.102% (Cost $354,186) | 14,400 | 147,119 |
|
Securities Lending Collateral 6.0% |
Daily Assets Fund Institutional, 1.69% (e) (f) (Cost $8,500,441) | 8,500,441 | 8,500,441 |
|
Cash Equivalents 0.0% |
Cash Management QP Trust, 1.42% (e) (Cost $20,720) | 20,720 | 20,720 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $185,954,839)+ | 106.4 | 151,233,278 |
Other Assets and Liabilities, Net | (6.4) | (9,142,606) |
Net Assets | 100.0 | 142,090,672 |
* Non-income producing security.** Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate. These securities are shown at their current rate as of December 31, 2008.+ The cost for federal income tax purposes was $185,975,228. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $34,741,950. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $3,032,806 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $37,774,756.(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, 2008 amounted to $8,124,165, which is 5.7% of net assets.(b) Bond is insured by one of these companies:Insurance Coverage | As a % of Total Investment Portfolio |
Ambac Financial Group, Inc.
| 0.6 |
Assured Guaranty Corp.
| 0.7 |
Financial Security Assurance, Inc.
| 0.8 |
(c) At December 31, 2008, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.(d) Date shown is call date; not a maturity date for the perpetual preferred securities.(e) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(f) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
REIT: Real Estate Investment Trust
At December 31, 2008, open future contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Appreciation ($) |
5 Year US Treasury Note
| 3/31/2009 | 157 | 18,051,752 | 18,691,586 | 639,834 |
At December 31, 2008, open future contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregated Face Value ($) | Value ($) | Unrealized Depreciation ($) |
10 Year US Treasury Note
| 3/20/2009 | 106 | 12,614,537 | 13,329,500 | (714,963) |
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.
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the tables below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Other Financial Instruments++ |
Level 1
| $ 8,500,441 | $ (75,129) |
Level 2
| 142,535,718 | — |
Level 3
| 197,119 | — |
Total | $ 151,233,278 | $ (75,129) |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as future contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.The following is a reconciliation of the Portfolio's Level 3 investments for which significant unobservable inputs were used in determining value at December 31, 2008:
| Investments in Securities |
Balance as of January 1, 2008 | $ 249,925 |
Total realized gain (loss)
| (558,566) |
Change in unrealized appreciation (depreciation)
| (406,992) |
Amortization Premium/Discount
| — |
Net purchases (sales)
| 912,752 |
Net transfers in (out) of Level 3
| — |
Balance as of December 31, 2008 | $ 197,119 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $177,433,678) — including $8,124,165 of securities loaned | $ 142,712,117 |
Investment in Daily Assets Fund Institutional (cost $8,500,441)* | 8,500,441 |
Investment in Cash Management QP Trust (cost $20,720) | 20,720 |
Total investments, at value (cost $185,954,839)
| 151,233,278 |
Cash
| 4,578 |
Receivable for investments sold
| 278,913 |
Receivable for Portfolio shares sold
| 191,165 |
Interest receivable
| 1,403,440 |
Foreign taxes recoverable
| 1,181 |
Receivable for daily variation margin on open futures
| 80,563 |
Other assets
| 6,566 |
Total assets
| 153,199,684 |
Liabilities |
Notes payable
| 250,000 |
Payable upon return of securities loaned
| 8,500,441 |
Payable for investments purchased
| 1,420,499 |
Payable for Portfolio shares redeemed
| 670,992 |
Accrued management fee
| 63,928 |
Other accrued expenses and payables
| 203,152 |
Total liabilities
| 11,109,012 |
Net assets, at value | $ 142,090,672 |
Net Assets Consist of |
Undistributed net investment income
| 11,316,317 |
Net unrealized appreciation (depreciation) on investments
| (34,721,561) |
Futures
| (75,129) |
Accumulated net realized gain (loss)
| (24,351,413) |
Paid-in capital
| 189,922,458 |
Net assets, at value | $ 142,090,672 |
Class A Net Asset Value, offering and redemption price per share ($109,869,522 ÷ 12,351,718 outstanding shares of beneficial interest, $.01 par value, 24,7742,586 shares authorized)
| $ 8.90 |
Class B Net Asset Value, offering and redemption price per share ($32,221,150 ÷ 3,628,194 outstanding shares of beneficial interest, $.01 par value, 7,316,641 shares authorized)
| $ 8.88 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends
| $ 50,445 |
Interest (net of foreign taxes withheld of $1,638)
| 12,678,538 |
Interest — Cash Management QP Trust
| 74,465 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 216,337 |
Total Income
| 13,019,785 |
Expenses:
Management fee
| 1,158,767 |
Administration fee
| 129,626 |
Services to shareholders
| 486 |
Custodian fee
| 16,926 |
Distribution service fee (Class B)
| 126,837 |
Record keeping fees (Class B)
| 73,477 |
Professional fees
| 72,391 |
Trustees' fees and expenses
| 25,735 |
Reports to shareholders and shareholder meeting
| 75,742 |
Interest expense
| 8,024 |
Other
| 20,919 |
Total expenses before expense reductions
| 1,708,930 |
Expense reductions
| (13,880) |
Total expenses after expense reductions
| 1,695,050 |
Net investment income (loss) | 11,324,735 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (19,913,074) |
Futures
| 184,428 |
| (19,728,646) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (31,725,239) |
Futures
| (75,129) |
| (31,800,368) |
Net gain (loss) | (51,529,014) |
Net increase (decrease) in net assets resulting from operations | $ (40,204,279) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income
| $ 11,324,735 | $ 16,962,355 |
Net realized gain (loss)
| (19,728,646) | (784,875) |
Change in net unrealized appreciation (depreciation)
| (31,800,368) | (1,784,782) |
Net increase (decrease) in net assets resulting from operations
| (40,204,279) | 14,392,698 |
Distributions to shareholders from:
Net investment income:
Class A | (12,658,879) | (12,441,885) |
Class B | (4,079,055) | (3,150,565) |
Total distributions
| (16,737,934) | (15,592,450) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 25,960,265 | 84,886,024 |
Reinvestment of distributions
| 12,658,879 | 12,441,885 |
Cost of shares redeemed
| (71,653,396) | (187,114,199) |
Net increase (decrease) in net assets from Class A share transactions
| (33,034,252) | (89,786,290) |
Class B Proceeds from shares sold
| 1,828,386 | 2,831,011 |
Reinvestment of distributions
| 4,079,055 | 3,150,565 |
Cost of shares redeemed
| (29,114,932) | (19,070,128) |
Net increase (decrease) in net assets from Class B share transactions
| (23,207,491) | (13,088,552) |
Increase (decrease) in net assets | (113,183,956) | (104,074,594) |
Net assets at beginning of period
| 255,274,628 | 359,349,222 |
Net assets at end of period (including undistributed net investment income of $11,316,317 and $16,731,325, respectively)
| $ 142,090,672 | $ 255,274,628 |
Other Information |
Class A Shares outstanding at beginning of period
| 15,754,867 | 23,346,010 |
Shares sold
| 2,332,157 | 7,294,758 |
Shares issued to shareholders in reinvestment of distributions
| 1,171,035 | 1,080,025 |
Shares redeemed
| (6,906,341) | (15,965,926) |
Net increase (decrease) in Class A shares
| (3,403,149) | (7,591,143) |
Shares outstanding at end of period
| 12,351,718 | 15,754,867 |
Class B Shares outstanding at beginning of period
| 5,850,161 | 6,968,915 |
Shares sold
| 159,817 | 242,748 |
Shares issued to shareholders in reinvestment of distributions
| 376,992 | 273,249 |
Shares redeemed
| (2,758,776) | (1,634,751) |
Net increase (decrease) in Class B shares
| (2,221,967) | (1,118,754) |
Shares outstanding at end of period
| 3,628,194 | 5,850,161 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Date |
Net asset value, beginning of period | $ 11.82 | $ 11.86 | $ 11.81 | $ 12.07 | $ 12.16 |
Income (loss) from investment operations: Net investment incomea | .57 | .56 | .53 | .47 | .50 |
Net realized and unrealized gain (loss) | (2.72) | (.08) | (.05) | (.21) | .05 |
Total from investment operations | (2.15) | .48 | .48 | .26 | .55 |
Less distributions from: Net investment income | (.77) | (.52) | (.43) | (.41) | (.43) |
Net realized gains | — | — | (.00)* | (.11) | (.21) |
Total distributions | (.77) | (.52) | (.43) | (.52) | (.64) |
Net asset value, end of period | $ 8.90 | $ 11.82 | $ 11.86 | $ 11.81 | $ 12.07 |
Total Return (%)
| (19.33)b | 4.17 | 4.26 | 2.25 | 4.53 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 110 | 186 | 277 | 252 | 210 |
Ratio of expenses before expense reductions (%)
| .70 | .66 | .68 | .67 | .66 |
Ratio of expenses after expense reductions (%)
| .70 | .66 | .68 | .67 | .66 |
Ratio of net investment income (loss) (%)
| 5.36 | 4.78 | 4.56 | 3.96 | 4.18 |
Portfolio turnover rate (%)
| 215 | 209 | 198 | 241 | 176 |
a Based on average shares outstanding during the period.
b Total returns would have been lower had certain expenses not been reduced.
* Amount is less than $.005.
|
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 11.80 | $ 11.84 | $ 11.78 | $ 12.04 | $ 12.13 |
Income (loss) from investment operations: Net investment incomea | .53 | .51 | .49 | .42 | .45 |
Net realized and unrealized gain (loss) | (2.73) | (.08) | (.05) | (.21) | .05 |
Total from investment operations | (2.20) | .43 | .44 | .21 | .50 |
Less distributions from: Net investment income | (.72) | (.47) | (.38) | (.36) | (.38) |
Net realized gains | — | — | (.00)* | (.11) | (.21) |
Total distributions | (.72) | (.47) | (.38) | (.47) | (.59) |
Net asset value, end of period | $ 8.88 | $ 11.80 | $ 11.84 | $ 11.78 | $ 12.04 |
Total Return (%)
| (19.71)b | 3.75 | 3.89 | 1.85 | 4.10 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 32 | 69 | 82 | 89 | 88 |
Ratio of expenses before expense reductions (%)
| 1.10 | 1.05 | 1.07 | 1.07 | 1.03 |
Ratio of expenses after expense reductions (%)
| 1.09 | 1.05 | 1.07 | 1.07 | 1.03 |
Ratio of net investment income (loss) (%)
| 4.97 | 4.39 | 4.17 | 3.56 | 3.81 |
Portfolio turnover rate (%)
| 215 | 209 | 198 | 241 | 176 |
a Based on average shares outstanding during the period.
b Total returns would have been lower had certain expenses not been reduced.
* Amount is less than $.005.
|
Performance Summary December 31, 2008
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, 2008 are 1.02% and 1.27% 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, 2008.
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 risks 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 12/31/2008 |
[] DWS Davis Venture Value VIP — Class A [] Russell 1000® Value Index | 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. |
 | |
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
| $5,977 | $7,170 | $8,791 | $9,132 |
Average annual total return
| -40.23% | -10.50% | -2.54% | -1.18% |
Russell 1000 Value Index
| Growth of $10,000
| $6,315 | $7,707 | $9,611 | $10,092 |
Average annual total return
| -36.85% | -8.32% | -.79% | .12% |
DWS Davis Venture Value VIP | 1-Year | 3-Year | 5-Year | Life of Class** |
Class B | Growth of $10,000
| $5,922 | $7,052 | $8,582 | $10,402 |
Average annual total return
| -40.78% | -10.99% | -3.01% | .61% |
Russell 1000 Value Index
| Growth of $10,000
| $6,315 | $7,707 | $9,611 | $11,087 |
Average annual total return
| -36.85% | -8.32% | -.79% | 1.60% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 676.00 | | $ 674.50 | |
Expenses Paid per $1,000*
| $ 3.88 | | $ 4.92 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.51 | | $ 1,019.25 | |
Expenses Paid per $1,000*
| $ 4.67 | | $ 5.94 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Davis Venture Value VIP
| .92% | | 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, 2008
DWS Davis Venture Value VIP
For the year ended December 31, 2008, Class A shares of DWS Davis Venture Value VIP returned -40.23% (unadjusted for contract charges), compared to its benchmark, the Russell 1000® Value Index, which returned - -36.85%.
The Portfolio's financial companies outperformed the corresponding sector within the index (-49% versus -52% for the index), but were still the largest detractors from performance. A higher relative average weighting in this sector (32% versus 27% for the index) detracted from both absolute and relative performance. American International Group, Inc., American Express Co., Merrill Lynch & Co., Inc., Berkshire Hathaway, Inc., Loews Companies, Inc., Wachovia Corp. and JPMorgan Chase & Co. were among the top detractors from performance. Two financial companies, Wells Fargo & Co. and Hartford Financial Services Group, Inc., were among the top contributors to the Portfolio's performance.
The second-largest detractors from performance were energy companies. The Portfolio's energy companies underperformed the corresponding sector within the index (-36% versus -27%). A higher relative average weighting in this sector (18% versus 17% for the index) also detracted from performance. ConocoPhillips was among the top detractors.
Individual companies among the largest contributors to performance over the year included H&R Block, Inc. (a consumer discretionary company) and Wal-Mart Stores (a consumer staples company). The Portfolio no longer owns Wal-Mart Stores.
The Portfolio held 12% of net assets in foreign companies at year-end December 31, 2008. As a whole, these companies underperformed the domestic companies held by the Portfolio.
Christopher C. Davis
Kenneth Charles Feinberg
Portfolio Managers, Davis Selected Advisers, L.P., Subadvisor to the Portfolio
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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Davis Venture Value VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 99% | 100% |
Cash Equivalents | 1% | — |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks and Corporate Bonds) | 12/31/08 | 12/31/07 |
| | |
Financials | 30% | 33% |
Energy | 18% | 16% |
Consumer Staples | 16% | 16% |
Consumer Discretionary | 11% | 10% |
Information Technology | 8% | 9% |
Industrials | 7% | 7% |
Materials | 5% | 4% |
Health Care | 5% | 4% |
Telecommunication Services | — | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 89. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Davis Venture Value VIP
|
Shares
| Value ($) |
| |
Common Stocks 98.1% |
Consumer Discretionary 10.3% |
Automobiles 0.8% |
Harley-Davidson, Inc. (a) | 60,610 | 1,028,552 |
Diversified Consumer Services 1.6% |
H&R Block, Inc. | 94,650 | 2,150,448 |
Household Durables 0.2% |
Garmin Ltd. (a) | 8,315 | 159,398 |
Hunter Douglas NV | 6,062 | 199,411 |
| 358,809 |
Internet & Catalog Retail 0.6% |
Amazon.com, Inc.* | 13,010 | 667,153 |
Liberty Media Corp. — Interactive "A"* | 31,670 | 98,810 |
| 765,963 |
Media 5.1% |
Comcast Corp. Special "A" (a) | 199,410 | 3,220,471 |
Grupo Televisa SA (ADR) | 96,490 | 1,441,561 |
Liberty Media Corp. — Entertainment "A"* | 25,270 | 441,720 |
News Corp. "A" | 172,750 | 1,570,297 |
WPP PLC (ADR) | 1,100 | 32,549 |
| 6,706,598 |
Multiline Retail 0.1% |
Sears Holdings Corp.* (a) | 2,100 | 81,627 |
Specialty Retail 1.9% |
Bed Bath & Beyond, Inc.* (a) | 48,000 | 1,220,160 |
CarMax, Inc.* (a) | 65,900 | 519,292 |
Lowe's Companies, Inc. | 33,915 | 729,851 |
| 2,469,303 |
Consumer Staples 15.3% |
Beverages 2.4% |
Diageo PLC (ADR) | 34,920 | 1,981,361 |
Heineken Holding NV | 41,200 | 1,179,504 |
| 3,160,865 |
Food & Staples Retailing 7.3% |
Costco Wholesale Corp. | 128,340 | 6,737,850 |
CVS Caremark Corp. | 98,519 | 2,831,436 |
Whole Foods Market, Inc. | 12,600 | 118,944 |
| 9,688,230 |
Food Products 0.2% |
The Hershey Co. (a) | 9,460 | 328,640 |
Household Products 1.7% |
Procter & Gamble Co. | 36,050 | 2,228,611 |
Personal Products 0.3% |
Avon Products, Inc. | 16,800 | 403,704 |
Tobacco 3.4% |
Altria Group, Inc. | 5,150 | 77,559 |
Philip Morris International, Inc. | 100,090 | 4,354,916 |
| 4,432,475 |
|
Shares
| Value ($) |
| |
Energy 17.7% |
Energy Equipment & Services 0.5% |
Transocean Ltd.* | 15,141 | 715,412 |
Oil, Gas & Consumable Fuels 17.2% |
Canadian Natural Resources Ltd. | 50,620 | 2,023,788 |
China Coal Energy Co. "H" | 934,200 | 754,933 |
ConocoPhillips | 111,320 | 5,766,376 |
Devon Energy Corp. | 67,690 | 4,447,910 |
EOG Resources, Inc. | 57,955 | 3,858,644 |
Occidental Petroleum Corp. | 92,800 | 5,567,072 |
OGX Petroleo e Gas Participacoes SA* | 800 | 182,497 |
| 22,601,220 |
Financials 29.8% |
Capital Markets 3.5% |
Ameriprise Financial, Inc. | 30,220 | 705,939 |
Bank of New York Mellon Corp. | 89,205 | 2,527,178 |
E*TRADE Financial Corp.* (a) | 13,200 | 15,180 |
Merrill Lynch & Co., Inc. | 54,702 | 636,731 |
Morgan Stanley | 6,300 | 101,052 |
State Street Corp. | 5,100 | 200,583 |
The Goldman Sachs Group, Inc. | 5,260 | 443,892 |
| 4,630,555 |
Commercial Banks 4.8% |
Wachovia Corp. | 44,537 | 246,735 |
Wells Fargo & Co. | 204,180 | 6,019,226 |
| 6,265,961 |
Consumer Finance 2.5% |
American Express Co. (a) | 173,200 | 3,212,860 |
Discover Financial Services | 9,650 | 91,964 |
| 3,304,824 |
Diversified Financial Services 5.2% |
Citigroup, Inc. | 42,900 | 287,859 |
JPMorgan Chase & Co. | 180,124 | 5,679,310 |
Moody's Corp. | 42,200 | 847,798 |
| 6,814,967 |
Insurance 12.8% |
American International Group, Inc. (a) | 174,570 | 274,075 |
Berkshire Hathaway, Inc. "B"* | 2,109 | 6,778,326 |
Hartford Financial Services Group, Inc. | 28,600 | 469,612 |
Loews Corp. | 106,650 | 3,012,863 |
Markel Corp.* (a) | 400 | 119,600 |
MBIA, Inc.* (a) | 10,920 | 44,444 |
NIPPONKOA Insurance Co., Ltd. | 196,200 | 1,525,239 |
Principal Financial Group, Inc. (a) | 12,000 | 270,840 |
Progressive Corp. | 187,292 | 2,773,795 |
Sun Life Financial, Inc. (a) | 7,370 | 170,542 |
Transatlantic Holdings, Inc. | 35,973 | 1,441,078 |
| 16,880,414 |
|
Shares
| Value ($) |
| |
Real Estate Management & Development 1.0% |
Brookfield Asset Management Inc. "A" | 43,500 | 664,245 |
Hang Lung Group Ltd. | 223,000 | 680,657 |
| 1,344,902 |
Health Care 4.5% |
Health Care Providers & Services 2.7% |
Cardinal Health, Inc. | 29,440 | 1,014,797 |
Express Scripts, Inc.* | 22,445 | 1,234,026 |
UnitedHealth Group, Inc. | 47,600 | 1,266,160 |
| 3,514,983 |
Pharmaceuticals 1.8% |
Johnson & Johnson | 13,790 | 825,056 |
Schering-Plough Corp. | 93,800 | 1,597,414 |
| 2,422,470 |
Industrials 7.1% |
Air Freight & Logistics 0.6% |
United Parcel Service, Inc. "B" | 13,500 | 744,660 |
Commercial Services & Supplies 1.8% |
Iron Mountain, Inc.* (a) | 97,282 | 2,405,784 |
Electrical Equipment 0.2% |
ABB Ltd. (ADR) (Registered) | 12,980 | 194,830 |
Industrial Conglomerates 1.1% |
Siemens AG (Registered) | 8,340 | 624,670 |
Tyco International Ltd. | 36,950 | 798,120 |
| 1,422,790 |
Machinery 0.3% |
PACCAR, Inc. (a) | 15,060 | 430,716 |
Marine 0.8% |
China Shipping Development Co., Ltd. "H" | 400,000 | 402,603 |
Kuehne & Nagel International AG (Registered) | 9,620 | 623,724 |
| 1,026,327 |
Professional Services 1.3% |
Dun & Bradstreet Corp. | 22,500 | 1,737,000 |
Transportation Infrastructure 1.0% |
China Merchants Holdings International Co., Ltd. | 519,223 | 1,023,160 |
Cosco Pacific Ltd. | 320,600 | 330,070 |
| 1,353,230 |
Information Technology 7.8% |
Communications Equipment 0.5% |
Cisco Systems, Inc.* | 45,500 | 741,650 |
Computers & Peripherals 1.5% |
Dell, Inc.* (a) | 42,440 | 434,586 |
Hewlett-Packard Co. | 41,220 | 1,495,874 |
| 1,930,460 |
Electronic Equipment, Instruments & Components 1.2% |
Agilent Technologies, Inc.* | 63,330 | 989,848 |
Tyco Electronics Ltd. | 36,950 | 598,959 |
| 1,588,807 |
|
Shares
| Value ($) |
| |
Internet Software & Services 1.0% |
eBay, Inc.* | 18,455 | 257,632 |
Google, Inc. "A"* | 3,297 | 1,014,322 |
| 1,271,954 |
IT Services 0.2% |
Visa, Inc. "A" (a) | 5,240 | 274,838 |
Semiconductors & Semiconductor Equipment 1.4% |
Texas Instruments, Inc. | 117,700 | 1,826,704 |
Software 2.0% |
Microsoft Corp. | 135,400 | 2,632,176 |
Materials 5.2% |
Chemicals 0.5% |
Monsanto Co. | 9,450 | 664,807 |
Construction Materials 2.1% |
Martin Marietta Materials, Inc. (a) | 17,000 | 1,650,360 |
Vulcan Materials Co. (a) | 16,860 | 1,173,119 |
| 2,823,479 |
Containers & Packaging 1.6% |
Sealed Air Corp. | 142,900 | 2,134,926 |
Metals & Mining 0.5% |
BHP Billiton PLC | 24,750 | 466,213 |
Rio Tinto PLC | 8,800 | 190,668 |
| 656,881 |
Paper & Forest Products 0.5% |
Sino-Forest Corp.* | 78,600 | 628,418 |
Telecommunication Services 0.2% |
Wireless Telecommunication Services |
Sprint Nextel Corp.* | 141,270 | 258,524 |
Utilities 0.2% |
Independent Power Producers & Energy Traders |
AES Corp.* (a) | 34,400 | 283,456 |
Total Common Stocks (Cost $135,496,146) | 129,331,950 |
| Principal Amount ($) | Value ($) |
| |
Corporate Bonds 0.2% |
Materials |
Sino-Forest Corp., 144A, 5.0%, 8/1/2013 (Cost $340,000) | 340,000 | 243,100 |
|
Shares
| Value ($) |
| |
Securities Lending Collateral 10.7% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $14,051,468) | 14,051,468 | 14,051,468 |
|
Cash Equivalents 1.3% |
Cash Management QP Trust, 1.42% (b) (Cost $1,731,005) | 1,731,005 | 1,731,005 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $151,618,619)+ | 110.3 | 145,357,523 |
Other Assets and Liabilities, Net | (10.3) | (13,564,866) |
Net Assets | 100.0 | 131,792,657 |
* Non-income producing security.+ The cost for federal income tax purposes was $152,071,271. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $6,713,748. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $30,817,617 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $37,531,365.(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, 2008 amounted to $14,060,943, which is 10.7% 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
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 135,382,566 |
Level 2
| 9,974,957 |
Level 3
| — |
Total | $ 145,357,523 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $135,836,146) — including $14,060,943 of securities loaned | $ 129,575,050 |
Investment in Daily Assets Fund Institutional (cost $14,051,468)* | 14,051,468 |
Investment in Cash Management QP Trust (cost $1,731,005) | 1,731,005 |
Total investments in securities, at value (cost $151,618,619)
| 145,357,523 |
Cash
| 7,101 |
Receivable for investments sold
| 640,095 |
Receivable for Portfolio shares sold
| 7,625 |
Dividends receivable
| 127,232 |
Interest receivable
| 40,953 |
Foreign taxes recoverable
| 14,422 |
Due from Advisor
| 1,309 |
Other assets
| 6,597 |
Total assets
| 146,202,857 |
Liabilities |
Payable upon return of securities loaned
| 14,051,468 |
Payable for Portfolio shares redeemed
| 112,899 |
Accrued management fee
| 119,563 |
Other accrued expenses and payables
| 126,270 |
Total liabilities
| 14,410,200 |
Net assets, at value | $ 131,792,657 |
Net Assets Consist of |
Undistributed net investment income
| 2,432,744 |
Net unrealized appreciation (depreciation) on:
Investments | (6,261,096) |
Foreign currency | 1,020 |
Accumulated net realized gain (loss)
| 10,222,749 |
Paid-in capital
| 125,397,240 |
Net assets, at value | $ 131,792,657 |
Class A Net Asset Value, offering and redemption price per share ($131,579,381 ÷ 17,516,923 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.51 |
Class B Net Asset Value, offering and redemption price per share ($213,276 ÷ 28,559 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.47 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $34,007)
| $ 4,161,878 |
Interest
| 6,633 |
Interest — Cash Management QP Trust
| 68,642 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 411,543 |
Total Income
| 4,648,696 |
Expenses:
Management fee
| 2,136,001 |
Administrative fee
| 140,451 |
Custodian and accounting fees
| 80,597 |
Distribution service fee (Class B)
| 17,012 |
Record keeping fees (Class B)
| 9,985 |
Services to shareholders
| 506 |
Professional fees
| 71,353 |
Trustees' fees and expenses
| 32,179 |
Reports to shareholders and shareholder meeting
| 55,465 |
Other
| 25,316 |
Total expenses before expense reductions
| 2,568,865 |
Expense reductions
| (392,699) |
Total expenses after expense reductions
| 2,176,166 |
Net investment income (loss) | 2,472,530 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| 10,438,043 |
Foreign currency
| (32,097) |
| 10,405,946 |
Change in net unrealized appreciation (depreciation) on:
Investments
| (123,229,979) |
Foreign currency
| 1,349 |
| (123,228,630) |
Net gain (loss) | (112,822,684) |
Net increase (decrease) in net assets resulting from operations | $ (110,350,154) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 2,472,530 | $ 3,809,524 |
Net realized gain (loss)
| 10,405,946 | 36,053,016 |
Change in net unrealized appreciation (depreciation)
| (123,228,630) | (20,326,582) |
Net increase (decrease) in net assets resulting from operations
| (110,350,154) | 19,535,958 |
Distributions to shareholders from:
Net investment income:
Class A | (3,580,646) | (2,451,514) |
Class B | (190,630) | (255,608) |
Net realized gains:
Class A | (33,139,891) | (4,403,063) |
Class B | (2,425,280) | (989,328) |
Total distributions
| (39,336,447) | (8,099,513) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 3,164,462 | 14,075,726 |
Reinvestment of distributions
| 36,720,537 | 6,854,577 |
Cost of shares redeemed
| (69,334,956) | (68,408,104) |
Net increase (decrease) in net assets from Class A share transactions
| (29,449,957) | (47,477,801) |
Class B Proceeds from shares sold
| 988,175 | 4,124,041 |
Reinvestment of distributions
| 2,615,910 | 1,244,936 |
Cost of shares redeemed
| (22,494,892) | (65,157,088) |
Net increase (decrease) in net assets from Class B share transactions
| (18,890,807) | (59,788,111) |
Increase (decrease) in net assets | (198,027,365) | (95,829,467) |
Net assets at beginning of period
| 329,820,022 | 425,649,489 |
Net assets at end of period (including undistributed net investment income of $2,432,744 and $3,748,514, respectively)
| $ 131,792,657 | $ 329,820,022 |
Other Information |
Class A Shares outstanding at beginning of period
| 21,062,118 | 24,284,177 |
Shares sold
| 291,614 | 967,409 |
Shares issued to shareholders in reinvestment of distributions
| 3,209,837 | 490,313 |
Shares redeemed
| (7,046,646) | (4,679,781) |
Net increase (decrease) in Class A shares
| (3,545,195) | (3,222,059) |
Shares outstanding at end of period
| 17,516,923 | 21,062,118 |
Class B Shares outstanding at beginning of period
| 1,546,251 | 5,597,014 |
Shares sold
| 73,239 | 287,676 |
Shares issued to shareholders in reinvestment of distributions
| 228,264 | 88,987 |
Shares redeemed
| (1,819,195) | (4,427,426) |
Net increase (decrease) in Class B shares
| (1,517,692) | (4,050,763) |
Shares outstanding at end of period
| 28,559 | 1,546,251 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.59 | $ 14.25 | $ 12.49 | $ 11.48 | $ 10.31 |
Income (loss) from investment operations: Net investment income (loss)a | .12 | .15 | .10 | .09 | .08 |
Net realized and unrealized gain (loss) | (5.36) | .47 | 1.74 | 1.01 | 1.14 |
Total from investment operations | (5.24) | .62 | 1.84 | 1.10 | 1.22 |
Less distributions from: Net investment income | (.18) | (.10) | (.08) | (.09) | (.05) |
Net realized gains | (1.66) | (.18) | — | — | — |
Total distributions | (1.84) | (.28) | (.08) | (.09) | (.05) |
Net asset value, end of period | $ 7.51 | $ 14.59 | $ 14.25 | $ 12.49 | $ 11.48 |
Total Return (%)
| (40.23)b | 4.46b | 14.84b | 9.64b | 11.83 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 132 | 307 | 346 | 309 | 268 |
Ratio of expenses before expense reductions (%)
| 1.07 | 1.02 | 1.02 | 1.02 | 1.05 |
Ratio of expenses after expense reductions (%)
| .90 | .88 | .85 | .96 | 1.05 |
Ratio of net investment income (%)
| 1.05 | 1.01 | .77 | .78 | .74 |
Portfolio turnover rate (%)
| 17 | 9 | 16 | 8 | 3 |
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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.57 | $ 14.22 | $ 12.47 | $ 11.46 | $ 10.29 |
Income (loss) from investment operations: Net investment income (loss)a | .04 | .09 | .05 | .04 | .04 |
Net realized and unrealized gain (loss) | (5.35) | .49 | 1.73 | 1.01 | 1.13 |
Total from investment operations | (5.31) | .58 | 1.78 | 1.05 | 1.17 |
Less distributions from: Net investment income | (.13) | (.05) | (.03) | (.04) | (.00)* |
Net realized gains | (1.66) | (.18) | — | — | — |
Total distributions | (1.79) | (.23) | (.03) | (.04) | (.00)* |
Net asset value, end of period | $ 7.47 | $ 14.57 | $ 14.22 | $ 12.47 | $ 11.46 |
Total Return (%)
| (40.78)b | 4.14b | 14.34b | 9.23b | 11.42 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .21 | 23 | 80 | 78 | 66 |
Ratio of expenses before expense reductions (%)
| 1.53 | 1.39 | 1.40 | 1.41 | 1.44 |
Ratio of expenses after expense reductions (%)
| 1.32 | 1.25 | 1.23 | 1.34 | 1.44 |
Ratio of net investment income (%)
| .63 | .64 | .39 | .40 | .36 |
Portfolio turnover rate (%)
| 17 | 9 | 16 | 8 | 3 |
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, 2008
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, 2008 are 0.78% and 1.13% 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, 2008.
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. In addition, 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 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 |
[] 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 | 10-Year |
Class A | Growth of $10,000
| $5,402 | $6,295 | $7,741 | $9,879 |
Average annual total return
| -45.98% | -14.30% | -4.99% | -.12% |
S&P 500 Index
| Growth of $10,000
| $6,300 | $7,696 | $8,953 | $8,700 |
Average annual total return
| -37.00% | -8.36% | -2.19% | -1.38% |
DWS Dreman High Return Equity VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $5,384 | $6,225 | $7,598 | $9,143 |
Average annual total return
| -46.16% | -14.61% | -5.34% | -1.37% |
S&P 500 Index
| Growth of $10,000
| $6,300 | $7,696 | $8,953 | $10,335 |
Average annual total return
| -37.00% | -8.36% | -2.19% | .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 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; 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 652.30 | | $ 651.30 | |
Expenses Paid per $1,000*
| $ 3.36 | | $ 4.77 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,021.06 | | $ 1,019.36 | |
Expenses Paid per $1,000*
| $ 4.12 | | $ 5.84 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Dreman High Return Equity VIP
| .81% | | 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.
Management Summary December 31, 2008
DWS Dreman High Return Equity VIP
The year just ended was the worst in many decades for the US equity markets. Essentially all equity indices posted negative returns for this period, as markets reflected economic problems including a housing slump, rising unemployment, a crisis of confidence and an extreme credit crunch. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a negative return of -37.31% for the 12 months ended December 31, 2008. With a return of -45.98% (Class A shares, unadjusted for contract charges), DWS Dreman High Return Equity VIP underperformed its benchmark, the Standard & Poor's® 500 (S&P 500) Index, which posted a return of -37.00%.
The Portfolio's underperformance relative to the benchmark resulted mainly from a significant overweight and stock selection in the financial sector. Large positions that performed poorly included Washington Mutual, Inc., Fannie Mae, Freddie Mac and Wachovia Corp.; all of these except Washington Mutual have been eliminated from the Portfolio, and the overweight position in financials has been reduced.1 Severe liquidity problems throughout the financial industry have caused essentially all financial stocks to perform poorly.
An overweight position in energy contributed to performance relative to the benchmark. We find this sector attractive because we believe there is likely to be substantial long-term growth in worldwide demand for energy. Other positives were positions in retailer Lowe's Companies, Inc. and UST, Inc., a producer of smokeless tobacco products, which was acquired by Altria Group, Inc. after the end of the period.
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
The Russell 3000 Index is an unmanaged index that 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 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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Dreman High Return Equity VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Energy | 29% | 26% |
Financials | 20% | 30% |
Health Care | 19% | 16% |
Industrials | 10% | 8% |
Consumer Discretionary | 10% | 6% |
Consumer Staples | 7% | 12% |
Materials | 3% | — |
Telecommunication Services | 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 101. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Dreman High Return Equity VIP
|
Shares
| Value ($) |
| |
Common Stocks 99.6% |
Consumer Discretionary 10.2% |
Hotels Restaurants & Leisure 1.2% |
Carnival Corp. (Unit) | 152,305 | 3,704,057 |
Media 1.7% |
Walt Disney Co. (a) | 239,830 | 5,441,743 |
Multiline Retail 0.2% |
Macy's, Inc. | 51,730 | 535,405 |
Specialty Retail 7.1% |
Lowe's Companies, Inc. | 408,367 | 8,788,058 |
Staples, Inc. | 741,165 | 13,281,677 |
| 22,069,735 |
Consumer Staples 6.8% |
Tobacco |
Altria Group, Inc. | 960,227 | 14,461,019 |
Philip Morris International, Inc. | 119,594 | 5,203,535 |
UST, Inc. | 21,840 | 1,515,259 |
| 21,179,813 |
Energy 28.6% |
Oil, Gas & Consumable Fuels |
Anadarko Petroleum Corp. | 332,690 | 12,825,200 |
Apache Corp. | 166,530 | 12,411,481 |
Chesapeake Energy Corp. | 388,790 | 6,286,734 |
Chevron Corp. | 138,165 | 10,220,065 |
ConocoPhillips | 386,204 | 20,005,367 |
Devon Energy Corp. | 260,380 | 17,109,570 |
Occidental Petroleum Corp. | 96,990 | 5,818,430 |
Valero Energy Corp. | 184,820 | 3,999,505 |
| 88,676,352 |
Financials 19.7% |
Capital Markets 1.9% |
The Goldman Sachs Group, Inc. | 69,375 | 5,854,556 |
Commercial Banks 6.0% |
KeyCorp. | 113,610 | 967,957 |
PNC Financial Services Group, Inc. | 148,851 | 7,293,699 |
SunTrust Banks, Inc. | 135,600 | 4,005,624 |
US Bancorp. (a) | 175,595 | 4,391,631 |
Wells Fargo & Co. | 62,625 | 1,846,185 |
| 18,505,096 |
Consumer Finance 1.2% |
American Express Co. | 207,434 | 3,847,901 |
Diversified Financial Services 7.1% |
Bank of America Corp. | 723,434 | 10,185,951 |
Citigroup, Inc. (a) | 559,155 | 3,751,930 |
JPMorgan Chase & Co. | 254,750 | 8,032,267 |
| 21,970,148 |
Insurance 3.5% |
Allstate Corp. | 76,414 | 2,503,323 |
Chubb Corp. | 77,931 | 3,974,481 |
Hartford Financial Services Group, Inc. (a) | 68,918 | 1,131,633 |
The Travelers Companies, Inc. | 72,065 | 3,257,338 |
| 10,866,775 |
|
Shares
| Value ($) |
| |
Thrifts & Mortgage Finance 0.0% |
Washington Mutual, Inc. | 1,394,944 | 29,992 |
Health Care 19.0% |
Biotechnology 0.6% |
Amgen, Inc.* | 30,550 | 1,764,263 |
Health Care Providers & Services 9.3% |
Aetna, Inc. | 352,405 | 10,043,542 |
UnitedHealth Group, Inc. | 706,855 | 18,802,343 |
| 28,845,885 |
Pharmaceuticals 9.1% |
Eli Lilly & Co. | 73,055 | 2,941,925 |
Pfizer, Inc. | 884,036 | 15,656,278 |
Wyeth | 259,950 | 9,750,724 |
| 28,348,927 |
Industrials 10.3% |
Aerospace & Defense 4.3% |
Northrop Grumman Corp. | 111,278 | 5,011,961 |
United Technologies Corp. | 157,795 | 8,457,812 |
| 13,469,773 |
Air Freight & Logistics 1.3% |
FedEx Corp. | 64,010 | 4,106,242 |
Industrial Conglomerates 3.1% |
3M Co. | 29,606 | 1,703,529 |
General Electric Co. | 477,690 | 7,738,578 |
| 9,442,107 |
Machinery 1.6% |
Caterpillar, Inc. | 65,595 | 2,930,129 |
Eaton Corp. | 37,795 | 1,878,789 |
| 4,808,918 |
Materials 3.2% |
Metals & Mining |
BHP Billiton Ltd. (ADR) (a) | 187,105 | 8,026,804 |
Newmont Mining Corp. | 49,315 | 2,007,121 |
| 10,033,925 |
Telecommunication Services 1.8% |
Diversified Telecommunication Services |
Verizon Communications, Inc. | 165,450 | 5,608,755 |
Total Common Stocks (Cost $345,053,205) | 309,110,368 |
|
Securities Lending Collateral 4.3% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $13,251,485) | 13,251,485 | 13,251,485 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $358,304,690)+ | 103.9 | 322,361,853 |
Other Assets and Liabilities, Net | (3.9) | (12,059,253) |
Net Assets | 100.0 | 310,302,600 |
* Non-income producing security.+ The cost for federal income tax purposes was $359,927,600. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $37,565,747. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $48,500,450 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $86,066,197.(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, 2008 amounted to $12,970,979, which is 4.2% 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.ADR: American Depositary Receipt
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 322,361,853 |
Level 2
| — |
Level 3
| — |
Total | $ 322,361,853 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $345,053,205) — including $12,970,979 of securities loaned | $ 309,110,368 |
Investment in Daily Assets Fund Institutional (cost $13,251,485)* | 13,251,485 |
Total investments at value (cost $358,304,690)
| 322,361,853 |
Cash
| 25,087 |
Dividends receivable
| 874,284 |
Receivable for investments sold
| 1,714,667 |
Receivable for Portfolio shares sold
| 25,285 |
Interest receivable
| 13,652 |
Other assets
| 12,226 |
Total assets
| 325,027,054 |
Liabilities |
Payable upon return of securities loaned
| 13,251,485 |
Payable for investments purchased
| 600,306 |
Payable for Portfolio shares redeemed
| 63,822 |
Accrued management fee
| 169,463 |
Note payable
| 450,000 |
Other accrued expenses and payables
| 189,378 |
Total liabilities
| 14,724,454 |
Net assets, at value | $ 310,302,600 |
Net Assets Consist of |
Undistributed net investment income
| 12,673,806 |
Net unrealized appreciation (depreciation) on investments
| (35,942,837) |
Accumulated net realized gain (loss)
| (148,694,230) |
Paid-in capital
| 482,265,861 |
Net assets, at value | $ 310,302,600 |
Class A Net Asset Value, offering and redemption price per share ($308,264,855 ÷ 49,642,073 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.21 |
Class B Net Asset Value, offering and redemption price per share ($2,037,745 ÷ 327,546 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.22 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $186)
| $ 17,082,533 |
Interest
| 220 |
Interest — Cash Management QP Trust
| 32,930 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 258,210 |
Total Income
| 17,373,893 |
Expenses:
Management fee
| 3,949,911 |
Administration fee
| 331,580 |
Custodian and accounting fees
| 68,023 |
Distribution service fee (Class B)
| 31,412 |
Services to shareholders
| 1,051 |
Record keeping fees (Class B)
| 11,164 |
Professional fees
| 87,307 |
Trustees' fees and expenses
| 57,333 |
Reports to shareholders and shareholder meeting
| 145,448 |
Interest expense
| 15,847 |
Other
| 27,545 |
Total expenses before expense reductions
| 4,726,621 |
Expense reductions
| (41,375) |
Total expenses after expense reductions
| 4,685,246 |
Net investment income (loss) | 12,688,647 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (145,580,587) |
Futures
| (102,946) |
| (145,683,533) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (192,880,861) |
| (192,880,861) |
Net gain (loss) | (338,564,394) |
Net increase (decrease) in net assets resulting from operations | $ (325,875,747) |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 12,688,647 | $ 19,420,427 |
Net realized gain (loss)
| (145,683,533) | 122,846,409 |
Change in net unrealized appreciation (depreciation)
| (192,880,861) | (150,271,931) |
Net increase (decrease) in net assets resulting from operations
| (325,875,747) | (8,005,095) |
Distributions to shareholders from:
Net investment income:
Class A | (18,513,153) | (13,677,685) |
Class B | (745,822) | (1,939,768) |
Net realized gains:
Class A | (116,884,417) | (7,925,978) |
Class B | (5,393,183) | (1,537,591) |
Total distributions
| (141,536,575) | (25,081,022) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 14,533,917 | 30,297,612 |
Reinvestment of distributions
| 135,397,570 | 21,603,663 |
Cost of shares redeemed
| (175,333,071) | (218,373,492) |
Net increase (decrease) in net assets from Class A share transactions
| (25,401,584) | (166,472,217) |
Class B Proceeds from shares sold
| 1,441,659 | 4,409,581 |
Reinvestment of distributions
| 6,139,005 | 3,477,359 |
Cost of shares redeemed
| (32,996,043) | (163,138,034) |
Net increase (decrease) in net assets from Class B share transactions
| (25,415,379) | (155,251,094) |
Increase (decrease) in net assets | (518,229,285) | (354,809,428) |
Net assets at beginning of period
| 828,531,885 | 1,183,341,313 |
Net assets at end of period (including undistributed net investment income of $12,673,806 and $19,200,356, respectively)
| $ 310,302,600 | $ 828,531,885 |
Other Information |
Class A Shares outstanding at beginning of period
| 54,976,574 | 66,083,197 |
Shares sold
| 1,441,589 | 2,028,711 |
Shares issued to shareholders in reinvestment of distributions
| 13,132,645 | 1,492,997 |
Shares redeemed
| (19,908,735) | (14,628,331) |
Net increase (decrease) in Class A shares
| (5,334,501) | (11,106,623) |
Shares outstanding at end of period
| 49,642,073 | 54,976,574 |
Class B Shares outstanding at beginning of period
| 2,551,709 | 12,713,676 |
Shares sold
| 160,248 | 292,792 |
Shares issued to shareholders in reinvestment of distributions
| 593,141 | 239,488 |
Shares redeemed
| (2,977,552) | (10,694,247) |
Net increase (decrease) in Class B shares
| (2,224,163) | (10,161,967) |
Shares outstanding at end of period
| 327,546 | 2,551,709 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.40 | $ 15.02 | $ 13.41 | $ 12.65 | $ 11.29 |
Income (loss) from investment operations: Net investment income (loss)a | .22 | .29 | .27 | .24 | .23 |
Net realized and unrealized gain (loss) | (5.80) | (.56) | 2.21 | .75 | 1.32 |
Total from investment operations | (5.58) | (.27) | 2.48 | .99 | 1.55 |
Less distributions from: Net investment income | (.36) | (.22) | (.28) | (.23) | (.19) |
Net realized gains | (2.25) | (.13) | (.59) | — | — |
Total distributions | (2.61) | (.35) | (.87) | (.23) | (.19) |
Net asset value, end of period | $ 6.21 | $ 14.40 | $ 15.02 | $ 13.41 | $ 12.65 |
Total Return (%)
| (45.98)b | (1.86) | 18.74 | 7.92 | 13.95 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 308 | 792 | 992 | 785 | 747 |
Ratio of expenses before expense reductions (%)
| .81 | .78 | .77 | .78 | .78 |
Ratio of expenses after expense reductions(%)
| .80 | .78 | .77 | .78 | .78 |
Ratio of net investment income (%)
| 2.21 | 1.94 | 1.87 | 1.84 | 1.96 |
Portfolio turnover rate (%)
| 28 | 27 | 20 | 10 | 9 |
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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.41 | $ 15.02 | $ 13.39 | $ 12.63 | $ 11.27 |
Income (loss) from investment operations: Net investment income (loss)a | .16 | .24 | .22 | .19 | .18 |
Net realized and unrealized gain (loss) | (5.79) | (.56) | 2.19 | .75 | 1.33 |
Total from investment operations | (5.63) | (.32) | 2.41 | .94 | 1.51 |
Less distributions from: Net investment income | (.31) | (.16) | (.19) | (.18) | (.15) |
Net realized gains | (2.25) | (.13) | (.59) | — | — |
Total distributions | (2.56) | (.29) | (.78) | (.18) | (.15) |
Net asset value, end of period | $ 6.22 | $ 14.41 | $ 15.02 | $ 13.39 | $ 12.63 |
Total Return (%)
| (46.16)b | (2.19)b | 18.21b | 7.51 | 13.53 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 2 | 37 | 191 | 135 | 117 |
Ratio of expenses before expense reduction (%)
| 1.21 | 1.15 | 1.16 | 1.17 | 1.16 |
Ratio of expenses after expense reduction (%)
| 1.17 | 1.13 | 1.16 | 1.17 | 1.16 |
Ratio of net investment income (%)
| 1.84 | 1.59 | 1.48 | 1.45 | 1.58 |
Portfolio turnover rate (%)
| 28 | 27 | 20 | 10 | 9 |
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, 2008
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, 2008 are 0.78% and 1.17% 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, 2008.
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.
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 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
| $6,658 | $8,581 | $11,923 | $18,894 |
Average annual total return
| -33.42% | -4.97% | 3.58% | 6.57% |
Russell 2500 Value Index
| Growth of $10,000
| $6,801 | $7,579 | $9,928 | $17,445 |
Average annual total return
| -31.99% | -8.83% | -.15% | 5.72% |
DWS Dreman Small Mid Cap Value VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $6,633 | $8,484 | $11,691 | $13,920 |
Average annual total return
| -33.67% | -5.33% | 3.17% | 5.22% |
Russell 2500 Value Index
| Growth of $10,000
| $6,801 | $7,579 | $9,928 | $12,383 |
Average annual total return
| -31.99% | -8.83% | -.15% | 3.34% |
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. 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 735.60 | | $ 734.00 | |
Expenses Paid per $1,000*
| $ 3.62 | | $ 5.10 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.96 | | $ 1,019.25 | |
Expenses Paid per $1,000*
| $ 4.22 | | $ 5.94 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Dreman Small Mid Cap Value VIP
| .83% | | 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, 2008
DWS Dreman Small Mid Cap Value VIP
The year just ended was the worst in many decades for the US equity markets. Essentially all equity indices posted negative returns for this period, as markets reflected economic problems including a housing slump, rising unemployment, a crisis of confidence and an extreme credit crunch. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a return of -37.31% for the 12 months ended December 31, 2008. Small-cap stocks, as measured by the Russell 2000® Index, were slightly stronger than large-cap, as measured by the Russell 1000® Index. Mid-cap stocks were the weakest category, as measured by the Russell Midcap® Index, which returned -41.46%. Within the Portfolio's capitalization range, value stocks were stronger than growth stocks: the Russell 2500 Value™ Index returned -31.99%, while the Russell 2500™ Growth Index returned -41.50%. The DWS Dreman Small Mid Cap VIP (Class A shares, unadjusted for contract charges) returned -33.42% for 2008, underperforming its benchmark, the Russell 2500 Value Index.
In this very difficult market environment, the Portfolio's performance benefited from avoiding some of the worst-performing stocks, particularly in information technology and health care. Holdings with positive returns included IPC Holdings Ltd., a provider of catastrophe reinsurance, and Healthspring, Inc., a managed care organization focused on Medicare. An overweight and stock selection in the energy sector detracted from performance; stock selection in financials also detracted.1 Positions that performed particularly well included Walter Industries, Inc., a company with a diversified line of products and services, including coal and natural gas, furnace and foundry coke and slag fiber, mortgage financing and home construction; and Superior Energy Services, Inc., a provider of specialized oilfield services and equipment. Positions that detracted from performance included Protective Life Corp.*, a life insurance company; CommScope, Inc., which provides infrastructure solutions for communications networks; and General Cable Corp., which produces copper, aluminum and fiber optic wire and cable products.
David N. Dreman E. Clifton Hoover, Jr. Mark Roach
Lead Portfolio Manager Portfolio Managers
Dreman Value Management, L.L.C., Subadvisor to the Portfolio
The Russell 3000 Index is an unmanaged index that 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 2000 Index is an unmanaged, capitalization-weighted measure of approximately 2,000 of the smallest companies in the Russell 3000 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.The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represents approximately 25% of the total market capitalization of the Russell 1000 Index.The Russell 2500 Value Index is an unmanaged index of those securities in the Russell 3000 Index with a lower price-to-book ratio and lower forecasted growth values.
The Russell 2500 Growth Index is an unmanaged index of those securities with high price-to-book 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.* Not held in the Portfolio as of December 31, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Dreman Small Mid Cap Value VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 99% | 97% |
Cash Equivalents | 1% | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Industrials | 23% | 20% |
Financials | 22% | 25% |
Consumer Staples | 12% | 12% |
Health Care | 11% | 8% |
Information Technology | 9% | 7% |
Energy | 6% | 12% |
Consumer Discretionary | 6% | 7% |
Utilities | 5% | 4% |
Materials | 4% | 4% |
Telecommunications Services | 2% | 1% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 112. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Dreman Small Mid Cap Value VIP
|
Shares
| Value ($) |
| |
Common Stocks 98.8% |
Consumer Discretionary 6.0% |
Auto Components 0.8% |
Autoliv, Inc. | 92,900 | 1,993,634 |
Diversified Consumer Services 1.4% |
Regis Corp. | 238,650 | 3,467,585 |
Leisure Equipment & Products 1.8% |
Mattel, Inc. (a) | 274,000 | 4,384,000 |
Specialty Retail 0.8% |
The Men's Wearhouse, Inc. (a) | 153,150 | 2,073,651 |
Textiles, Apparel & Luxury Goods 1.2% |
Hanesbrands, Inc.* (a) | 236,600 | 3,016,650 |
Consumer Staples 12.1% |
Food & Staples Retailing 3.5% |
Ruddick Corp. (a) | 152,250 | 4,209,712 |
Weis Markets, Inc. | 133,817 | 4,500,266 |
| 8,709,978 |
Food Products 6.9% |
Del Monte Foods Co. | 716,350 | 5,114,739 |
Ralcorp Holdings, Inc.* | 98,150 | 5,731,960 |
Sanderson Farms, Inc. (a) | 74,400 | 2,571,264 |
The J.M. Smucker Co. | 80,400 | 3,486,144 |
| 16,904,107 |
Tobacco 1.7% |
Vector Group Ltd. (a) | 310,260 | 4,225,741 |
Energy 6.2% |
Energy Equipment & Services 2.6% |
Atwood Oceanics, Inc.* (a) | 103,500 | 1,581,480 |
Hercules Offshore, Inc.* (a) | 200,100 | 950,475 |
Key Energy Services, Inc.* (a) | 406,250 | 1,791,563 |
Superior Energy Services, Inc.* | 129,650 | 2,065,324 |
| 6,388,842 |
Oil, Gas & Consumable Fuels 3.6% |
Arch Coal, Inc. (a) | 150,400 | 2,450,016 |
Cimarex Energy Co. (a) | 90,600 | 2,426,268 |
Pinnacle Gas Resources, Inc. 144A* | 241,000 | 74,710 |
St. Mary Land & Exploration Co. (a) | 150,850 | 3,063,764 |
Walter Industries, Inc. (a) | 53,900 | 943,789 |
| 8,958,547 |
Financials 22.0% |
Capital Markets 0.2% |
FBR Capital Markets Corp. 144A* | 95,600 | 464,616 |
Commercial Banks 2.6% |
Boston Private Financial Holdings, Inc. (a) | 233,200 | 1,595,088 |
MB Financial, Inc. (a) | 178,100 | 4,977,895 |
| 6,572,983 |
Insurance 16.5% |
Arch Capital Group Ltd.* (a) | 73,300 | 5,138,330 |
Argo Group International Holdings Ltd.* | 182,188 | 6,179,817 |
Endurance Specialty Holdings Ltd. | 220,250 | 6,724,232 |
|
Shares
| Value ($) |
| |
Hanover Insurance Group, Inc. | 110,000 | 4,726,700 |
HCC Insurance Holdings, Inc. (a) | 226,550 | 6,060,213 |
IPC Holdings Ltd. | 186,900 | 5,588,310 |
Platinum Underwriters Holdings Ltd. | 143,550 | 5,179,284 |
Willis Group Holdings Ltd. (a) | 47,159 | 1,173,316 |
| 40,770,202 |
Real Estate Investment Trusts 2.7% |
Hospitality Properties Trust (REIT) (a) | 199,200 | 2,962,104 |
Ventas, Inc. (REIT) (a) | 109,600 | 3,679,272 |
| 6,641,376 |
Health Care 10.8% |
Health Care Equipment & Supplies 1.1% |
Teleflex, Inc. | 54,600 | 2,735,460 |
Health Care Providers & Services 9.7% |
Amedisys, Inc.* (a) | 98,200 | 4,059,588 |
AmSurg Corp.* | 199,800 | 4,663,332 |
Healthspring, Inc.* (a) | 330,400 | 6,598,088 |
LifePoint Hospitals, Inc.* (a) | 137,200 | 3,133,648 |
Lincare Holdings, Inc.* (a) | 209,300 | 5,636,449 |
| 24,091,105 |
Industrials 22.7% |
Aerospace & Defense 3.7% |
Alliant Techsystems, Inc.* (a) | 65,700 | 5,634,432 |
Curtiss-Wright Corp. (a) | 105,100 | 3,509,289 |
| 9,143,721 |
Commercial Services & Supplies 2.5% |
Republic Services, Inc. | 103,455 | 2,564,649 |
The Brink's Co. | 135,900 | 3,652,992 |
| 6,217,641 |
Construction & Engineering 1.8% |
URS Corp.* | 110,000 | 4,484,700 |
Electrical Equipment 5.7% |
General Cable Corp.* (a) | 112,300 | 1,986,587 |
Hubbell, Inc. "B" (a) | 168,500 | 5,506,580 |
Regal-Beloit Corp. (a) | 173,900 | 6,606,461 |
| 14,099,628 |
Machinery 5.7% |
Barnes Group, Inc. (a) | 261,450 | 3,791,025 |
Joy Global, Inc. (a) | 117,700 | 2,694,153 |
Kennametal, Inc. | 195,000 | 4,327,050 |
Mueller Water Products, Inc. "A" (a) | 406,650 | 3,415,860 |
| 14,228,088 |
Professional Services 1.7% |
Kelly Services, Inc. "A" (a) | 326,250 | 4,244,513 |
Road & Rail 0.8% |
Ryder System, Inc. | 51,686 | 2,004,383 |
Trading Companies & Distributors 0.8% |
WESCO International, Inc.* | 99,600 | 1,915,308 |
Information Technology 8.5% |
Communications Equipment 0.9% |
CommScope, Inc.* (a) | 149,000 | 2,315,460 |
|
Shares
| Value ($) |
| |
Electronic Equipment, Instruments & Components 3.3% |
Anixter International, Inc.* (a) | 105,700 | 3,183,684 |
Arrow Electronics, Inc.* | 163,000 | 3,070,920 |
Jabil Circuit, Inc. | 284,600 | 1,921,050 |
| 8,175,654 |
IT Services 1.7% |
Affiliated Computer Services, Inc. "A"* (a) | 88,500 | 4,066,575 |
Software 2.6% |
Jack Henry & Associates, Inc. | 332,750 | 6,458,677 |
Materials 4.1% |
Chemicals 0.9% |
Ashland, Inc. | 1,278 | 13,432 |
CF Industries Holdings, Inc. | 46,300 | 2,276,108 |
| 2,289,540 |
Metals & Mining 3.2% |
IAMGOLD Corp. | 602,900 | 3,683,719 |
Reliance Steel & Aluminum Co. | 141,700 | 2,825,498 |
RTI International Metals, Inc.* (a) | 92,650 | 1,325,821 |
| 7,835,038 |
Telecommunication Services 1.4% |
Diversified Telecommunication Services |
Windstream Corp. (a) | 375,800 | 3,457,360 |
|
Shares
| Value ($) |
| |
Utilities 5.0% |
Electric Utilities 3.4% |
ALLETE, Inc. | 109,850 | 3,544,860 |
IDACORP, Inc. (a) | 170,650 | 5,025,642 |
| 8,570,502 |
Multi-Utilities 1.6% |
Integrys Energy Group, Inc. (a) | 90,600 | 3,893,988 |
Total Common Stocks (Cost $328,312,064) | 244,799,253 |
|
Securities Lending Collateral 29.1% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $72,016,899) | 72,016,899 | 72,016,899 |
|
Cash Equivalents 1.3% |
Cash Management QP Trust, 1.42% (b) (Cost $3,330,639) | 3,330,639 | 3,330,639 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $403,659,602)+ | 129.2 | 320,146,791 |
Other Assets and Liabilities, Net | (29.2) | (72,386,703) |
Net Assets | 100.0 | 247,760,088 |
* Non-income producing security.+ The cost for federal income tax purposes was $405,384,576. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $85,237,785. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $8,914,929 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $94,152,714.(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, 2008 amounted to $72,442,673, which is 29.2% 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.
REIT: Real Estate Investment Trust
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 316,816,152 |
Level 2
| 3,330,639 |
Level 3
| — |
Total | $ 320,146,791 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $328,312,064 — including $72,442,673 of securities loaned) | $ 244,799,253 |
Investment in Daily Assets Fund Institutional (cost $72,016,899)* | 72,016,899 |
Investment in Cash Management QP Trust (cost $3,330,639) | 3,330,639 |
Total investments, at value (cost $403,659,602)
| 320,146,791 |
Dividends receivable
| 299,612 |
Interest receivable
| 79,231 |
Receivable for Portfolio shares sold
| 25,581 |
Other assets
| 11,517 |
Total assets
| 320,562,732 |
Liabilities |
Payable upon return of securities loaned
| 72,016,899 |
Payable for Portfolio shares redeemed
| 436,489 |
Payable for investments purchased
| 13,053 |
Accrued management fee
| 142,277 |
Other accrued expenses and payables
| 193,926 |
Total liabilities
| 72,802,644 |
Net assets, at value | $ 247,760,088 |
Net Assets Consist of: |
Undistributed net investment income
| 4,324,008 |
Net unrealized appreciation (depreciation) on:
Investments | (83,512,811) |
Foreign currency | (320) |
Accumulated net realized gain (loss)
| (64,286,752) |
Paid-in capital
| 391,235,963 |
Net assets, at value | $ 247,760,088 |
Class A Net Asset Value, offering and redemption price per share ($223,409,162 ÷ 28,178,465 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.93 |
Class B Net Asset Value, offering and redemption price per share ($24,350,926 ÷ 3,073,371 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.92 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $4,441)
| $ 6,673,749 |
Interest — Cash Management QP Trust
| 507,598 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 448,109 |
Total Income
| 7,629,456 |
Expenses:
Management fee
| 2,646,998 |
Administration fee
| 244,036 |
Custodian fee
| 19,117 |
Distribution service fee (Class B)
| 83,016 |
Record keeping fees (Class B)
| 35,202 |
Services to shareholders
| 1,069 |
Professional fees
| 74,382 |
Trustees' fees and expenses
| 33,021 |
Reports to shareholders and shareholder meeting
| 205,868 |
Other
| 14,891 |
Total expenses before expense reductions
| 3,357,600 |
Expense reductions
| (23,067) |
Total expenses after expense reductions
| 3,334,533 |
Net investment income (loss) | 4,294,923 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from investments
| (64,286,752) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (96,934,851) |
Foreign currency
| (772) |
| (96,935,623) |
Net gain (loss) | (161,222,375) |
Net increase (decrease) in net assets resulting from operations | $ (156,927,452) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 4,294,923 | $ 4,898,627 |
Net realized gain (loss)
| (64,286,752) | 173,994,914 |
Change in net unrealized appreciation (depreciation)
| (96,935,623) | (153,503,878) |
Net increase (decrease) in net assets resulting from operations
| (156,927,452) | 25,389,663 |
Distributions to shareholders from:
Net investment income:
Class A | (6,363,604) | (5,615,367) |
Class B | (427,114) | (521,975) |
Distributions to shareholders from:
Net realized gains:
Class A | (155,713,279) | (79,369,510) |
Class B | (13,714,537) | (12,524,743) |
Total distributions | (176,218,534) | (98,031,595) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 37,425,632 | 42,602,597 |
Reinvestment of distributions
| 162,076,883 | 84,984,877 |
Cost of shares redeemed
| (139,030,105) | (156,265,470) |
Net increase (decrease) in net assets from Class A share transactions
| 60,472,410 | (28,677,996) |
Class B Proceeds from shares sold
| 14,371,044 | 12,637,109 |
Reinvestment of distributions
| 14,141,651 | 13,046,718 |
Cost of shares redeemed
| (9,977,946) | (74,159,545) |
Net increase (decrease) in net assets from Class B share transactions
| 18,534,749 | (48,475,718) |
Increase (decrease) in net assets | (254,138,827) | (149,795,646) |
Net assets at beginning of period
| 501,898,915 | 651,694,561 |
Net assets at end of period (including undistributed net investment income of $4,324,008 and $6,809,899, respectively)
| $ 247,760,088 | $ 501,898,915 |
Other Information |
Class A Shares outstanding at beginning of period
| 23,283,418 | 24,500,577 |
Shares sold
| 3,355,802 | 1,968,230 |
Shares issued to shareholders in reinvestment of distributions
| 15,105,022 | 4,200,933 |
Shares redeemed
| (13,565,777) | (7,386,322) |
Net increase (decrease) in Class A shares
| 4,895,047 | (1,217,159) |
Shares outstanding at end of period
| 28,178,465 | 23,283,418 |
Class B Shares outstanding at beginning of period
| 1,669,556 | 3,927,983 |
Shares sold
| 1,078,541 | 603,769 |
Shares issued to shareholders in reinvestment of distributions
| 1,315,502 | 644,282 |
Shares redeemed
| (990,228) | (3,506,478) |
Net increase (decrease) in Class B shares
| 1,403,815 | (2,258,427) |
Shares outstanding at end of period
| 3,073,371 | 1,669,556 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 20.12 | $ 22.93 | $ 19.98 | $ 20.05 | $ 16.06 |
Income (loss) from investment operations: Net investment income (loss)a | .13 | .18 | .15 | .19 | .17 |
Net realized and unrealized gain (loss) | (4.92) | .54 | 4.69 | 1.67 | 3.98 |
Total from investment operations | (4.79) | .72 | 4.84 | 1.86 | 4.15 |
Less distributions from: Net investment income | (.29) | (.23) | (.18) | (.15) | (.16) |
Net realized gains | (7.11) | (3.30) | (1.71) | (1.78) | — |
Total distributions | (7.40) | (3.53) | (1.89) | (1.93) | (.16) |
Net asset value, end of period | $ 7.93 | $ 20.12 | $ 22.93 | $ 19.98 | $ 20.05 |
Total Return (%)
| (33.42)b | 3.06 | 25.06 | 10.25 | 26.03 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 223 | 468 | 562 | 493 | 467 |
Ratio of expenses before expense reductions (%)
| .83 | .78 | .79 | .79 | .79 |
Ratio of expenses after expense reductions (%)
| .82 | .78 | .79 | .79 | .79 |
Ratio of net investment income (%)
| 1.13 | .85 | .71 | .96 | .96 |
Portfolio turnover rate (%)
| 49 | 110 | 52 | 61 | 73 |
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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 20.08 | $ 22.88 | $ 19.93 | $ 20.01 | $ 16.03 |
Income (loss) from investment operations: Net investment income (loss)a | .09 | .10 | .07 | .11 | .10 |
Net realized and unrealized gain (loss) | (4.92) | .54 | 4.67 | 1.66 | 3.97 |
Total from investment operations | (4.83) | .64 | 4.74 | 1.77 | 4.07 |
Less distributions from: Net investment income | (.22) | (.14) | (.08) | (.07) | (.09) |
Net realized gains | (7.11) | (3.30) | (1.71) | (1.78) | — |
Total distributions | (7.33) | (3.44) | (1.79) | (1.85) | (.09) |
Net asset value, end of period | $ 7.92 | $ 20.08 | $ 22.88 | $ 19.93 | $ 20.01 |
Total Return (%)
| (33.67)b | 2.67 | 24.59 | 9.78 | 25.52 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 24 | 34 | 90 | 83 | 71 |
Ratio of expenses before expense reductions (%)
| 1.18 | 1.16 | 1.17 | 1.19 | 1.16 |
Ratio of expenses after expense reductions (%)
| 1.17 | 1.16 | 1.17 | 1.19 | 1.16 |
Ratio of net investment income (%)
| .78 | .47 | .33 | .56 | .59 |
Portfolio turnover rate (%)
| 49 | 110 | 52 | 61 | 73 |
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, 2008
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, 2008 are 1.33% and 1.68% 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, 2008.
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 risks, 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 |
[] 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 | 10-Year |
Class A | Growth of $10,000
| $5,225 | $7,228 | $10,198 | $11,480 |
Average annual total return
| -47.75% | -10.26% | .39% | 1.39% |
MSCI World Index
| Growth of $10,000
| $5,929 | $7,762 | $9,749 | $9,379 |
Average annual total return
| -40.71% | -8.10% | -.51% | -.64% |
DWS Global Thematic VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $5,213 | $7,153 | $10,018 | $11,596 |
Average annual total return
| -47.87% | -10.57% | .04% | 2.30% |
MSCI World Index
| Growth of $10,000
| $5,929 | $7,762 | $9,749 | $11,401 |
Average annual total return
| -40.71% | -8.10% | -.51% | 2.04% |
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 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 594.10 | | $ 593.30 | |
Expenses Paid per $1,000*
| $ 4.41 | | $ 5.85 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,019.61 | | $ 1,017.80 | |
Expenses Paid per $1,000*
| $ 5.58 | | $ 7.41 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Global Thematic VIP
| 1.10% | | 1.46% | |
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, 2008
DWS Global Thematic VIP
Global equities performed poorly during 2008, the worst perfomance in many decades, reflecting an environment characterized by slowing economic growth, the evolution of the financial and credit crises, and elevated risk aversion among investors. The Class A shares of the Portfolio (unadjusted for contract charges) returned -47.75%, underperforming the -40.71% return of the MSCI World Index.
In managing the Portfolio, 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 can benefit as these themes unfold. During the past year, our themes related to global agribusiness, energy and basic materials led us to hold above-market weightings in these sectors — a negative for performance at a time of sharply slowing global growth.1 Among the leading individual detractors in these sectors were the Russian energy company Gazprom, the Brazilian port operator Santos Brasil Participacoes SA and the food company Bunge Ltd.* On the plus side, we added value through themes that invest in health care stocks, including Mylan, Inc., and gold mining companies, such as Newmont Mining Corp.* and Barrick Gold Corp.*
We remain committed to investing in high-quality franchises with unique competitive advantages. Specifically, we want to own those companies that can expand their assets with little leverage and, in most cases, also grow their earnings despite the difficult environment. We continue to believe that emerging markets and global agribusiness are among the best opportunities over the next three to five years. In our view, current valuations reflect a selling panic that is inconsistent with the outstanding growth potential in both areas.
Oliver Kratz
Portfolio Manager, Deutsche Investment Management Americas Inc.
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.
1 Above market weightings means the Portfolio holds a higher weighting in a given sector or security than the benchmark.* Not held in the Portfolio as of December 31, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Global Thematic VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 95% | 92% |
Exchange Traded Funds | 2% | 2% |
Cash Equivalents | 1% | 4% |
Preferred Stocks | 1% | 2% |
Participatory Notes | 1% | — |
| 100% | 100% |
Sector Diversification (As a % of Common, Preferred Stocks and Participatory Notes) | 12/31/08 | 12/31/07 |
| | |
Health Care | 18% | 11% |
Industrials | 16% | 21% |
Financials | 16% | 24% |
Consumer Staples | 13% | 8% |
Energy | 11% | 4% |
Consumer Discretionary | 8% | 13% |
Materials | 7% | 5% |
Information Technology | 6% | 11% |
Telecommunication Services | 5% | 3% |
| 100% | 100% |
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
United States | 40% | 28% |
Continental Europe | 24% | 39% |
Asia (excluding Japan) | 11% | 12% |
Latin America | 9% | 7% |
United Kingdom | 5% | 3% |
Japan | 5% | 6% |
Canada | 2% | 1% |
Middle East | 2% | 2% |
Bermuda | 1% | — |
Africa | — | 2% |
Other | 1% | — |
| 100% | 100% |
Asset allocation, sector and geographical diversifications are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 124. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Global Thematic VIP
|
Shares
| Value ($) |
| |
Common Stocks 96.9% |
Australia 0.7% |
Australian Wealth Management Ltd. (Cost $1,052,743) | 572,100 | 442,742 |
Austria 1.3% |
Flughafen Wien AG (Cost $1,970,009) | 19,000 | 849,541 |
Bermuda 1.4% |
Lazard Ltd. "A" (Cost $977,909) | 29,200 | 868,408 |
Brazil 5.6% |
BM&F BOVESPA SA | 119,200 | 313,665 |
Companhia de Bebidas das Americas (ADR) (Preferred) (a) | 14,500 | 642,495 |
Companhia Vale do Rio Doce (ADR) | 81,400 | 985,754 |
Petroleo Brasileiro SA (ADR) | 26,000 | 636,740 |
Santos Brasil Participacoes SA (Unit) | 166,100 | 461,824 |
SLC Agricola SA | 74,600 | 454,790 |
(Cost $5,112,410) | 3,495,268 |
Canada 1.7% |
Canadian National Railway Co. | 19,000 | 698,446 |
Viterra, Inc.* | 47,000 | 361,685 |
(Cost $1,349,636) | 1,060,131 |
Cayman Islands 0.7% |
Fresh Del Monte Produce, Inc.* (Cost $452,414) | 18,900 | 423,738 |
China 2.8% |
Industrial & Commercial Bank of China Ltd. "H" | 602,000 | 319,944 |
Ping An Insurance (Group) Co. of China Ltd. "H" | 295,000 | 1,441,618 |
Sunshine Holdings Ltd.* | 1,571,000 | 32,893 |
(Cost $2,431,245) | 1,794,455 |
France 2.1% |
BNP Paribas | 6,819 | 287,942 |
Compagnie de Saint-Gobain | 8,820 | 415,996 |
Total SA | 11,373 | 620,029 |
(Cost $1,469,545) | 1,323,967 |
Germany 7.4% |
Axel Springer AG | 6,302 | 456,065 |
BASF SE | 10,000 | 395,145 |
Daimler AG (Registered) | 10,100 | 383,762 |
Deutsche Post AG (Registered) | 51,600 | 872,969 |
Deutsche Postbank AG (a) | 16,800 | 371,530 |
Fraport AG | 10,200 | 445,451 |
Hamburger Hafen und Logistik AG | 13,200 | 439,644 |
Siemens AG (Registered) | 7,000 | 524,303 |
Stada Arzneimittel AG | 26,900 | 786,770 |
(Cost $5,871,696) | 4,675,639 |
Hong Kong 3.4% |
Cheung Kong (Holdings) Ltd. | 49,000 | 467,164 |
China Mobile Ltd. | 44,500 | 451,177 |
China Water Affairs Group Ltd.* | 1,001,700 | 123,686 |
|
Shares
| Value ($) |
| |
CNOOC Ltd. (ADR) | 3,800 | 361,912 |
GOME Electrical Appliances Holdings Ltd. | 2,135,000 | 344,346 |
Hongkong & Shanghai Hotels Ltd. | 553,242 | 416,666 |
(Cost $3,968,474) | 2,164,951 |
India 2.1% |
Bharti Airtel Ltd.* (Cost $1,743,974) | 89,547 | 1,318,856 |
Indonesia 0.2% |
PT Bumi Resources Tbk (Cost $1,153,255) | 1,406,100 | 121,329 |
Israel 1.6% |
Teva Pharmaceutical Industries Ltd. (ADR) (a) (Cost $961,694) | 23,400 | 996,138 |
Italy 0.4% |
Gemina SpA* (Cost $861,060) | 518,706 | 269,639 |
Japan 4.9% |
Central Japan Railway Co. | 41 | 354,358 |
Mitsui Fudosan Co., Ltd. | 76,000 | 1,262,962 |
Mizuho Financial Group, Inc. | 206,000 | 608,360 |
Toyota Motor Corp. | 26,600 | 870,693 |
(Cost $3,504,101) | 3,096,373 |
Kazakhstan 0.2% |
Kazakhstan Kagazy PLC (GDR) 144A* | 181,200 | 52,548 |
Steppe Cement Ltd.* | 124,003 | 50,980 |
(Cost $1,577,114) | 103,528 |
Korea 1.0% |
Daesang Corp. | 17,036 | 80,128 |
Samsung Electronics Co., Ltd. | 1,595 | 579,173 |
(Cost $704,403) | 659,301 |
Luxembourg 0.5% |
ArcelorMittal (Cost $309,618) | 13,046 | 308,288 |
Malaysia 0.8% |
AMMB Holdings Bhd. (Cost $531,235) | 698,200 | 500,769 |
Mexico 4.1% |
America Movil SAB de CV "L" (ADR) | 27,950 | 866,171 |
Cemex SAB de CV (ADR)* | 34,400 | 314,416 |
Grupo Aeroportuario del Pacifico SAB de CV "B" (ADR) | 33,400 | 768,868 |
Grupo Financiero Banorte SAB de CV "O" | 163,100 | 294,436 |
Grupo Televisa SA (ADR) | 21,600 | 322,704 |
(Cost $3,035,401) | 2,566,595 |
Netherlands 2.2% |
QIAGEN NV* (a) (Cost $1,330,113) | 78,800 | 1,377,068 |
Russia 2.3% |
Far Eastern Shipping Co.* | 689,000 | 199,810 |
Gazprom (ADR)* | 38,682 | 554,371 |
Globaltrans Investment PLC (GDR) 144A* | 47,000 | 65,800 |
|
Shares
| Value ($) |
| |
Novorossiysk Sea Trade Port (GDR) 144A | 36,300 | 245,025 |
Rosneft Oil Co. (GDR)* | 43,350 | 162,563 |
Vimpel-Communications (ADR) | 27,500 | 196,900 |
(Cost $3,164,746) | 1,424,469 |
Singapore 0.3% |
Food Empire Holdings Ltd. (Cost $362,240) | 715,000 | 169,083 |
Sweden 0.4% |
Autoliv, Inc. (Cost $227,818) | 11,400 | 244,644 |
Switzerland 6.1% |
Julius Baer Holding AG (Registered) | 14,716 | 566,091 |
Nestle SA (Registered) | 17,743 | 699,297 |
Roche Holding AG (Genusschein) | 12,671 | 1,950,494 |
Swiss Re (Registered) | 12,179 | 591,672 |
(Cost $3,759,520) | 3,807,554 |
Thailand 0.3% |
Seamico Securities PCL (Foreign Registered) | 1,852,800 | 69,254 |
Siam City Bank PCL (Foreign Registered)* | 523,300 | 106,074 |
(Cost $459,041) | 175,328 |
United Kingdom 5.4% |
Aberdeen Asset Management PLC | 391,046 | 680,192 |
Anglo American PLC | 22,619 | 516,653 |
BHP Billiton PLC | 16,759 | 315,687 |
G4S PLC | 462,639 | 1,373,041 |
GlaxoSmithKline PLC | 28,850 | 535,583 |
Tesco PLC | 625 | 3,256 |
(Cost $4,527,355) | 3,424,412 |
United States 37.0% |
AGCO Corp.* | 17,300 | 408,107 |
Altria Group, Inc. | 46,900 | 706,314 |
Anadarko Petroleum Corp. | 12,000 | 462,600 |
Apache Corp. | 4,100 | 305,573 |
Berkshire Hathaway, Inc. "A"* | 3 | 289,800 |
Campbell Soup Co. | 15,000 | 450,150 |
ConocoPhillips | 10,100 | 523,180 |
CSX Corp. | 13,500 | 438,345 |
CVS Caremark Corp. | 42,400 | 1,218,576 |
Expedia, Inc.* | 29,000 | 238,960 |
ExxonMobil Corp. | 19,500 | 1,556,685 |
General Mills, Inc. | 13,900 | 844,425 |
Google, Inc. "A"* | 2,000 | 615,300 |
Hess Corp. | 2,900 | 155,556 |
Intrepid Potash, Inc.* | 13,500 | 280,395 |
Johnson & Johnson | 9,650 | 577,360 |
Laboratory Corp. of America Holdings* | 11,700 | 753,597 |
Liberty Media Corp. — Entertainment "A"* | 23,200 | 405,536 |
Life Technologies Corp.* | 20,900 | 487,179 |
Marathon Oil Corp. | 5,900 | 161,424 |
Mattel, Inc. | 56,700 | 907,200 |
McCormick & Co., Inc. | 7,500 | 238,950 |
Microsoft Corp. | 60,100 | 1,168,344 |
Monster Worldwide, Inc.* | 31,700 | 383,253 |
Mylan, Inc.* (a) | 144,950 | 1,433,555 |
|
Shares
| Value ($) |
| |
National-Oilwell Varco, Inc.* | 14,200 | 347,048 |
Oracle Corp.* | 37,800 | 670,194 |
Owens-Illinois, Inc.* | 41,000 | 1,120,530 |
Pfizer, Inc. | 105,575 | 1,869,733 |
Philip Morris International, Inc. | 9,700 | 422,047 |
Schlumberger Ltd. | 11,100 | 469,863 |
Stryker Corp. (a) | 14,300 | 571,285 |
The J.M. Smucker Co. | 4,100 | 177,776 |
Union Pacific Corp. | 11,100 | 530,580 |
Wal-Mart Stores, Inc. | 15,700 | 880,142 |
XTO Energy, Inc. | 9,300 | 328,011 |
Yahoo!, Inc.* | 71,300 | 869,861 |
(Cost $26,138,535) | 23,267,434 |
Total Common Stocks (Cost $79,007,304) | 60,929,648 |
|
Preferred Stock 0.6% |
Germany |
Porsche Automobil Holding SE (Cost $334,815) | 4,850 | 377,839 |
|
Participatory Note 0.6% |
United States |
Merrill Lynch Frontier Index Trust (issuer Merrill Lynch International & Co.), Expiration Date 2/27/2009 (Cost $1,023,048) | 10,000 | 368,200 |
|
Exchange Traded Fund 2.8% |
United States |
iShares Nasdaq Biotechnology Index Fund (a) (Cost $1,750,455) | 24,725 | 1,756,711 |
|
Call Options Purchased 0.0% |
United States |
General Electric Co., Expiration Date 1/16/2010, Strike Price $30.0 (Cost $212,772) | 510 | 9,180 |
|
Securities Lending Collateral 10.2% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $6,423,337) | 6,423,337 | 6,423,337 |
|
Cash Equivalents 0.8% |
Cash Management QP Trust, 1.42% (b) (Cost $460,549) | 460,549 | 460,549 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $89,212,280)+ | 111.9 | 70,325,464 |
Other Assets and Liabilities, Net (a) | (11.9) | (7,458,656) |
Net Assets | 100.0 | 62,866,808 |
* Non-income producing security.+ The cost for federal income tax purposes was $92,552,472. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $22,227,008 This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $1,966,217 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $24,193,225.(a) All or a portion of these securities were on loan amounting to $6,151,506. In addition, included in other assets and liabilities, net is a pending sale, amounting to $147,815, that is also on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2008 amounted to $6,299,321, which is 10.0% 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.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
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the tables below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 42,755,529 |
Level 2
| 27,225,589 |
Level 3
| 344,346 |
Total | $ 70,325,464 |
The following is a reconciliation of the Portfolio's Level 3 investments for which significant unobservable inputs were used in determining value at December 31, 2008:
| Investments in Securities |
Balance as of January 1, 2008 | $ — |
Total realized gain (loss)
| (436,550) |
Change in unrealized appreciation (depreciation)
| (997,618) |
Amortization Premium/Discount
| — |
Net purchases (sales)
| 172,439 |
Net transfers in (out) of Level 3
| 1,606,075 |
Balance as of December 31, 2008 | $ 344,346 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $82,328,394) — including $6,151,506 of securities loaned | $ 63,441,578 |
Investment in Daily Assets Fund Institutional (cost $6,423,337)* | 6,423,337 |
Investment in Cash Management QP Trust (cost $460,549) | 460,549 |
Total investments, at value (cost $89,212,280)
| 70,325,464 |
Cash
| 2,867 |
Foreign currency, at value (cost $313,212)
| 320,297 |
Receivable for investments sold
| 1,771,811 |
Receivable for Portfolio shares sold
| 7,761 |
Dividends receivable
| 127,876 |
Interest receivable
| 7,483 |
Foreign taxes recoverable
| 23,641 |
Due from Advisor
| 69 |
Other assets
| 3,515 |
Total assets
| 72,590,784 |
Liabilities |
Payable for investments purchased
| 3,059,019 |
Payable upon return of securities loaned
| 6,423,337 |
Payable for Portfolio shares redeemed
| 13,150 |
Accrued management fee
| 38,168 |
Other accrued expenses and payables
| 190,302 |
Total liabilities
| 9,723,976 |
Net assets, at value | $ 62,866,808 |
Net Assets Consist of |
Undistributed net investment income
| 932,658 |
Net unrealized appreciation (depreciation) on:
Investments | (18,886,816) |
Foreign currency | (2,555) |
Accumulated net realized gain (loss)
| (57,628,318) |
Paid-in capital
| 138,451,839 |
Net assets, at value | $ 62,866,808 |
Class A Net Asset Value, offering and redemption price per share ($58,760,432 ÷ 10,056,541 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.84 |
Class B Net Asset Value, offering and redemption price per share ($4,106,376 ÷ 702,064 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.85 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $170,729)
| $ 2,339,060 |
Interest
| 2,853 |
Interest — Cash Management QP Trust
| 75,228 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 198,312 |
Total Income
| 2,615,453 |
Expenses:
Management fee
| 1,138,988 |
Administration fee
| 72,094 |
Services to shareholders
| 671 |
Custodian and accounting fees
| 326,276 |
Distribution service fee (Class B)
| 17,747 |
Record keeping fees (Class B)
| 7,067 |
Professional fees
| 77,893 |
Trustees' fees and expenses
| 17,002 |
Reports to shareholders and shareholder meeting
| 93,163 |
Other
| 34,109 |
Total expenses before expense reductions
| 1,785,010 |
Expense reductions
| (448,802) |
Total expenses after expense reductions
| 1,336,208 |
Net investment income (loss) | 1,279,245 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments (including foreign taxes of $924)
| (55,515,117) |
Foreign currency
| (248,995) |
| (55,764,112) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (16,917,301) |
Foreign currency
| (5,809) |
| (16,923,110) |
Net gain (loss) | (72,687,222) |
Net increase (decrease) in net assets resulting from operations | $ (71,407,977) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 1,279,245 | $ 1,371,727 |
Net realized gain (loss)
| (55,764,112) | 38,322,515 |
Change in net unrealized appreciation (depreciation)
| (16,923,110) | (28,184,790) |
Net increase (decrease) in net assets resulting from operations
| (71,407,977) | 11,509,452 |
Distributions to shareholders from:
Net investment income:
Class A | (1,766,760) | (976,630) |
Class B | (79,972) | (67,864) |
Net realized gains:
Class A | (36,684,662) | (22,498,351) |
Class B | (2,286,851) | (3,879,598) |
Total distributions
| (40,818,245) | (27,422,443) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 9,403,619 | 32,962,118 |
Reinvestment of distributions
| 38,451,422 | 23,474,981 |
Cost of shares redeemed
| (34,733,222) | (33,544,797) |
Net increase (decrease) in net assets from Class A share transactions
| 13,121,819 | 22,892,302 |
Class B Proceeds from shares sold
| 925,746 | 5,026,580 |
Reinvestment of distributions
| 2,366,823 | 3,947,462 |
Cost of shares redeemed
| (2,548,724) | (22,340,318) |
Net increase (decrease) in net assets from Class B share transactions
| 743,845 | (13,366,276) |
Increase (decrease) in net assets | (98,360,558) | (6,386,965) |
Net assets at beginning of period
| 161,227,366 | 167,614,331 |
Net assets at end of period (including undistributed net investment income of $932,658 and $1,638,227, respectively)
| $ 62,866,808 | $ 161,227,366 |
Other Information |
Class A Shares outstanding at beginning of period
| 9,660,413 | 8,197,243 |
Shares sold
| 875,157 | 1,983,290 |
Shares issued to shareholders in reinvestment of distributions
| 3,769,747 | 1,533,310 |
Shares redeemed
| (4,248,776) | (2,053,430) |
Net increase (decrease) in Class A shares
| 396,128 | 1,463,170 |
Shares outstanding at end of period
| 10,056,541 | 9,660,413 |
Class B Shares outstanding at beginning of period
| 632,933 | 1,443,479 |
Shares sold
| 95,557 | 302,846 |
Shares issued to shareholders in reinvestment of distributions
| 231,135 | 257,164 |
Shares redeemed
| (257,561) | (1,370,556) |
Net increase (decrease) in Class B shares
| 69,131 | (810,546) |
Shares outstanding at end of period
| 702,064 | 632,933 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 15.66 | $ 17.39 | $ 14.44 | $ 11.78 | $ 10.39 |
Income (loss) from investment operations: Net investment income (loss)a | .11 | .14 | .15c | .12 | .04 |
Net realized and unrealized gain (loss) | (5.83) | .88 | 4.02 | 2.58 | 1.48 |
Total from investment operations | (5.72) | 1.02 | 4.17 | 2.70 | 1.52 |
Less distributions from: Net investment income | (.19) | (.11) | (.09) | (.04) | (.13) |
Net realized gains | (3.91) | (2.64) | (1.13) | — | — |
Total distributions | (4.10) | (2.75) | (1.22) | (.04) | (.13) |
Net asset value, end of period | $ 5.84 | $ 15.66 | $ 17.39 | $ 14.44 | $ 11.78 |
Total Return (%)b
| (47.75) | 6.29 | 30.14c | 22.94 | 14.76 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 59 | 151 | 143 | 85 | 63 |
Ratio of expenses before expense reductions (%)
| 1.47 | 1.44 | 1.38 | 1.41 | 1.44 |
Ratio of expenses after expense reductions (%)
| 1.09 | 1.11 | 1.04 | 1.28 | 1.43 |
Ratio of net investment income (%)
| 1.09 | .82 | .92c | .98 | .38 |
Portfolio turnover rate (%)
| 229 | 191 | 136 | 95 | 81 |
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 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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 15.66 | $ 17.38 | $ 14.43 | $ 11.78 | $ 10.38 |
Income (loss) from investment operations: Net investment income (loss)a | .07 | .07 | .09c | .07 | .00d |
Net realized and unrealized gain (loss) | (5.83) | .90 | 4.02 | 2.58 | 1.48 |
Total from investment operations | (5.76) | .97 | 4.11 | 2.65 | 1.48 |
Less distributions from: Net investment income | (.14) | (.05) | (.03) | — | (.08) |
Net realized gains | (3.91) | (2.64) | (1.13) | — | — |
Total distributions | (4.05) | (2.69) | (1.16) | — | (.08) |
Net asset value, end of period | $ 5.85 | $ 15.66 | $ 17.38 | $ 14.43 | $ 11.78 |
Total Return (%)b
| (47.87) | 5.84 | 29.65c | 22.50 | 14.33 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 4 | 10 | 25 | 20 | 13 |
Ratio of expenses before expense reductions (%)
| 1.82 | 1.81 | 1.76 | 1.79 | 1.84 |
Ratio of expenses after expense reductions (%)
| 1.45 | 1.47 | 1.43 | 1.65 | 1.83 |
Ratio of net investment income (%)
| .73 | .46 | .53c | .61 | .02 |
Portfolio turnover rate (%)
| 229 | 191 | 136 | 95 | 81 |
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 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, 2008
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, 2008 are 0.66% and 1.04% 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, 2008.
Risk Considerations
The guarantee on US Government Guaranteed Securities 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 [] Barclays Capital GNMA Index | The Barclays Capital GNMA Index (name changed from Lehman Brothers GNMA Index, effective November 3, 2008) 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
| $10,493 | $11,581 | $12,325 | $16,347 |
Average annual total return
| 4.93% | 5.01% | 4.27% | 5.04% |
Barclays Capital GNMA Index
| Growth of $10,000
| $10,787 | $12,072 | $13,001 | $17,812 |
Average annual total return
| 7.87% | 6.48% | 5.39% | 5.94% |
DWS Government & Agency Securities VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $10,460 | $11,441 | $12,090 | $12,770 |
Average annual total return
| 4.60% | 4.59% | 3.87% | 3.83% |
Barclays Capital GNMA Index
| Growth of $10,000
| $10,787 | $12,072 | $13,001 | $13,928 |
Average annual total return
| 7.87% | 6.48% | 5.39% | 5.23% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,032.50 | | $ 1,030.80 | |
Expenses Paid per $1,000*
| $ 3.32 | | $ 5.00 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,021.87 | | $ 1,020.21 | |
Expenses Paid per $1,000*
| $ 3.30 | | $ 4.98 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Government & Agency Securities VIP
| .65% | | .98% | |
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, 2008
DWS Government & Agency Securities VIP
Throughout 2008, the fixed-income markets continued to deal with the fallout from the housing and credit crises, which led to the outright failure or forced mergers of numerous financial institutions in both the United States and Europe. In the first half of September alone, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) were placed into conservatorship by the government, leading investment bank Lehman Brothers failed and global insurance conglomerate AIG was bailed out by the US Treasury. This was followed shortly by the conversion of Morgan Stanley and Goldman Sachs to bank holding companies as they sought shelter from the credit market storm, and the Federal Deposit Insurance Corporation (FDIC) seizure and sale of certain operations to JPMorgan Chase of giant thrift Washington Mutual. As these events unfolded, the Bush administration won approval of a mammoth rescue package designed to unfreeze the credit markets. This failed, however, to prevent a credit crunch from spurring a dramatic slowdown in global economic growth late in the year. In this environment, investors' risk appetites evaporated and liquidity all but disappeared. This led to a frantic "flight to quality" into the safe haven of US Treasuries. Over the 12-month period, the US Federal Reserve Board (the Fed) cut the benchmark federal funds rate (the overnight rate banks charge when they borrow money from each other) from 4.25% to basically zero as it sought to provide market participants with liquidity.
During the 12-month period ended December 31, 2008, the Portfolio provided a total return of 4.93% (Class A shares, unadjusted for contract charges) compared with the 7.87% return of its benchmark, the Barclays Capital GNMA Index.
The Portfolio's underweight position of 15-year mortgages and relatively long-duration profile helped performance in a declining rate environment.1 Concentration on lower-coupon mortgage-backed securities was the principal constraint on performance during the year. We purchased these lower coupons, expecting falling interest rates to result in a pickup in prepayments on higher-coupon issues. The Portfolio's modest exposure to Fannie Mae and Freddie Mac securities also held back performance to a degree, as risk-averse investors favored the explicit government guarantee offered by GNMAs. As the period progressed, the Portfolio's holdings of securities selling at a discount to their par value began to add to performance as falling market interest rates caused previously issued mortgage-backed securities to trade at a premium. Late in the year, our focus on lower coupons and managing prepayment risk began to be rewarded as well. We believe the Portfolio is well positioned going into the new fiscal period given the Fed's focus on lowering borrowing rates. 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 Matthew F. MacDonald, CFA
Co-Managers, Deutsche Investment Management Americas Inc.
The Barclays Capital GNMA Index (name changed from Lehman Brothers GNMA Index, effective November 3, 2008) 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.
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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Government & Agency Securities VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Mortgage-Backed Securities Pass-Throughs | 65% | 72% |
Collateralized Mortgage Obligation | 17% | 13% |
Government & Agency Obligations | 14% | 13% |
Cash Equivalents | 4% | 2% |
| 100% | 100% |
Credit Quality | 12/31/08 | 12/31/07 |
| | |
US Government and Agencies | 92% | 97% |
AAA* | 6% | — |
Not Rated | 2% | 3% |
* Includes cash equivalentsInterest Rate Sensitivity | 12/31/08 | 12/31/07 |
| | |
Effective Maturity | 3.4 years | 5.9 years |
Average Duration | 1.0 years | 3.5 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 136. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Government & Agency Securities VIP
| Principal Amount ($) | Value ($) |
| |
Mortgage-Backed Securities Pass-Throughs 69.2% |
Federal Home Loan Mortgage Corp.: | | |
4.5%, 5/1/2019 | 44,621 | 45,844 |
5.0%, 1/1/2034 (c) | 20,000,000 | 20,404,688 |
5.5%, 2/1/2017 | 37,677 | 38,903 |
6.5%, 9/1/2032 | 189,450 | 145,633 |
7.0%, with various maturities from 6/1/2032 until 8/1/2035 | 504,374 | 515,104 |
8.5%, 7/1/2030 | 2,336 | 2,520 |
Federal National Mortgage Association: | | |
5.0%, 10/1/2033 | 574,489 | 588,291 |
6.0%, 2/1/2035 | 20,000,000 | 20,604,688 |
6.5%, 1/1/2038 | 1,808,719 | 1,882,128 |
7.0%, 9/1/2013 | 443 | 456 |
8.0%, 12/1/2024 | 11,264 | 11,923 |
Government National Mortgage Association: | | |
4.5%, 1/1/2033 (c) | 2,000,000 | 2,025,625 |
5.0%, with various maturities from 5/20/2023 until 8/20/2035 (c) | 5,664,211 | 5,862,401 |
5.5%, with various maturities from 10/15/2032 until 3/15/2038 (c) | 35,855,560 | 37,140,094 |
6.0%, with various maturities from 4/15/2013 until 10/15/2038 (c) | 41,366,311 | 42,859,746 |
6.5%, with various maturities from 3/15/2014 until 6/15/2038 | 9,644,836 | 10,081,964 |
7.0%, with various maturities from 10/15/2026 until 11/15/2038 | 7,393,887 | 7,727,443 |
7.5%, with various maturities from 4/15/2026 until 1/15/2037 | 1,811,941 | 1,905,820 |
9.5%, with various maturities from 7/15/2016 until 12/15/2022 | 49,601 | 55,217 |
10.0%, with various maturities from 2/15/2016 until 3/15/2016 | 15,141 | 17,008 |
Total Mortgage-Backed Securities Pass-Throughs (Cost $148,889,475) | 151,915,496 |
|
Collateralized Mortgage Obligations 18.4% |
FannieMae Grantor Trust, "A2", Series 2001-T10, 7.5%, 12/25/2041 | 250,961 | 258,352 |
FannieMae Whole Loan, "3A", Series 2004-W8, 7.5%, 6/25/2044 | 965,400 | 997,563 |
Federal Home Loan Mortgage Corp.: | | |
"AF", Series 2892, 1.495%*, 5/15/2021 | 951,179 | 942,110 |
"FT", Series 3346, 1.545%*, 10/15/2033 | 2,553,325 | 2,447,389 |
"FA", Series 3237, 1.545%*, 11/15/2036 | 779,088 | 752,295 |
| Principal Amount ($) | Value ($) |
| |
"FP", Series 3069, 1.695%*, 6/15/2035 | 888,343 | 865,495 |
"GZ", Series 2906, 5.0%, 9/15/2034 | 1,526,119 | 1,451,696 |
"SL", Series 2882, Interest Only, 6.005%**, 10/15/2034 | 1,198,123 | 122,709 |
"1A1", Series T-59, 6.5%, 10/25/2043 | 1,851,610 | 1,882,639 |
"ST", Series 2411, Interest Only, 7.328%**, 6/15/2021 | 4,075,291 | 382,489 |
Federal National Mortgage Association: | | |
"LO", Series 2005-50, Principal Only, Zero Coupon, 6/25/2035 | 1,077,541 | 998,804 |
"ZA", Series 2008-24, 5.0%, 4/25/2038 | 545,024 | 499,220 |
"AN", Series 2007-108, 8.897%*, 11/25/2037 | 2,384,358 | 2,531,881 |
Government National Mortgage Association: | | |
"OD", Series 2006-36, Principal Only, Zero Coupon, 7/16/2036 | 446,272 | 388,427 |
"FH", Series 2007-33, 0.808%*, 6/20/2037 | 889,933 | 888,011 |
"FH", Series 1999-18, 1.29%*, 5/16/2029 | 2,422,481 | 2,299,383 |
"FE", Series 2003-57, 1.34%*, 3/16/2033 | 151,058 | 147,481 |
"FB", Series 2001-28, 1.54%*, 6/16/2031 | 669,043 | 654,816 |
"GD", Series 2004-26, 5.0%, 11/16/2032 | 2,184,000 | 2,226,696 |
"LG", Series 2003-70, 5.0%, 8/20/2033 | 4,000,000 | 3,945,196 |
"KE", Series 2004-19, 5.0%, 3/16/2034 | 500,000 | 492,666 |
"ZM", Series 2004-24, 5.0%, 4/20/2034 | 1,893,285 | 1,820,810 |
"LE", Series 2004-87, 5.0%, 10/20/2034 | 1,000,000 | 974,975 |
"ZB", Series 2005-15, 5.0%, 2/16/2035 | 1,331,863 | 1,273,383 |
"CK", Series 2007-31, 5.0%, 5/16/2037 | 1,000,000 | 1,006,963 |
"SF", Series 2002-63, Interest Only, 5.24%**, 9/16/2032 | 2,876,291 | 275,938 |
"SP", Series 2005-61, Interest Only, 5.24%**, 8/16/2035 | 1,354,699 | 89,702 |
"ZB", Series 2003-85, 5.5%, 10/20/2033 | 2,537,410 | 2,382,871 |
"B", Series 2005-88, 5.5%, 11/20/2035 | 1,804,000 | 1,781,773 |
"ZA", Series 2006-7, 5.5%, 2/20/2036 | 1,985,966 | 1,890,512 |
"SA", Series 2002-65, Interest Only, 5.743%**, 9/20/2032 | 4,298,014 | 490,845 |
"SB", Series 2008-36, Interest Only, 5.763%**, 4/20/2038 | 2,593,928 | 112,725 |
"PH" Series 2002- 84, 6.0%, 11/16/2032 | 500,000 | 507,573 |
"SY", Series 2004-47, Interest Only, 6.02%**, 1/16/2034 | 1,125,608 | 101,382 |
"NS", Series 2007-72, Interest Only, 6.023%**, 11/20/2037 | 731,067 | 29,374 |
"SJ", Series 2004-22, Interest Only, 6.093%**, 4/20/2034 | 6,328,976 | 331,472 |
| Principal Amount ($) | Value ($) |
| |
"SN", Series 2005-68, Interest Only, 6.239%**, 1/17/2034 | 4,461,935 | 258,385 |
"GS", Series 2006-16, Interest Only, 6.483%**, 4/20/2036 | 1,392,668 | 111,770 |
"KS", Series 2004-96, Interest Only, 6.493%**, 7/20/2034 | 725,086 | 49,040 |
"PB", Series 2001-53, 6.5%, 11/20/2031 | 1,500,000 | 1,590,274 |
"QS", Series 2003-34, Interest Only, 6.643%**, 3/20/2033 | 573,654 | 58,086 |
"SJ", Series 1999-43, Interest Only, 6.96%**, 11/16/2029 | 334,974 | 35,423 |
Total Collateralized Mortgage Obligations (Cost $38,952,258) | 40,348,594 |
|
Government & Agency Obligations 15.3% |
US Government Sponsored Agencies 10.6% |
Federal Home Loan Bank, 3.625%, 9/16/2011 | 20,000,000 | 21,162,160 |
Federal National Mortgage Association, 8.45%*, 2/27/2023 | 2,000,000 | 2,000,000 |
| 23,162,160 |
| Principal Amount ($) | Value ($) |
| |
US Treasury Obligations 4.7% |
US Treasury Bill: | | |
0.04%***, 5/21/2009 (a) | 75,000 | 74,978 |
0.17%***, 1/15/2009 (a) | 912,000 | 911,996 |
US Treasury Inflation-Indexed Notes: | | |
0.625%, 4/15/2013 | 1,024,970 | 979,968 |
3.875%, 1/15/2009 | 7,926,000 | 7,864,700 |
US Treasury Note, 3.375%, 7/31/2013 | 500,000 | 546,133 |
| 10,377,775 |
Total Government & Agency Obligations (Cost $33,377,285) | 33,539,935 |
| Shares | Value ($) |
| |
Cash Equivalents 4.9% |
Cash Management QP Trust, 1.42% (b) (Cost $10,642,753) | 10,642,753 | 10,642,753 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $231,861,771)+ | 107.8 | 236,446,778 |
Other Assets and Liabilities, Net | (7.8) | (17,185,662) |
Net Assets | 100.0 | 219,261,116 |
* 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, 2008.** These securities are shown at their current rate as of December 31, 2008.*** Annualized yield at time of purchase; not a coupon rate.+ The cost for federal income tax purposes was $231,862,148. At December 31, 2008, net unrealized appreciation for all securities based on tax cost was $4,584,630. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $5,175,130 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $590,500.(a) At December 31, 2008, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(c) When-issued or delayed delivery securities included.Interest Only: Interest Only (IO) bonds represent the "interest only" portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.
Principal Only: Principal Only (PO) bonds represent the "principal only" portion of payments on a pool of underlying mortgages or mortgage-backed securities.
At December 31, 2008, open futures contracts purchased were as follows:
Futures | Expiration
Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation ($) |
2 Year US Treasury Note
| 3/31/2009 | 78 | 16,743,406 | 17,008,875 | 265,469 |
At December 31, 2008, open futures contracts sold were as follows:
Futures | Expiration
Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation/
(Depreciation) ($) |
10 Year US Treasury Note
| 3/20/2009 | 428 | 50,187,097 | 53,821,000 | (3,633,903) |
5 Year US Treasury Note
| 3/31/2009 | 19 | 2,280,244 | 2,262,039 | 18,205 |
Total net unrealized depreciation | (3,615,698) |
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.
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Other Financial Instruments++ |
Level 1
| $ — | $ (3,350,229) |
Level 2
| 236,446,778 | — |
Level 3
| — | — |
Total | $ 236,446,778 | $ (3,350,229) |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments
Investments in securities, at value (cost $221,219,018) | $ 225,804,025 |
Investments in Cash Management QP Trust (cost $10,642,753) | 10,642,753 |
Total investments, at value (cost $231,861,771)
| 236,446,778 |
Cash
| 2,011,444 |
Receivable for investments sold
| 71,866,161 |
Receivable for daily variation margin on open futures contracts
| 669,720 |
Interest receivable
| 1,359,903 |
Other assets
| 5,882 |
Total assets
| 312,359,888 |
Liabilities |
Payable for when-issued and delayed delivery securities purchased
| 68,551,647 |
Payable for investments purchased
| 23,239,470 |
Payable for Portfolio shares redeemed
| 993,689 |
Accrued management fee
| 77,681 |
Other accrued expenses and payables
| 236,285 |
Total liabilities
| 93,098,772 |
Net assets, at value | $ 219,261,116 |
Net Assets Consist of |
Undistributed net investment income
| 9,842,645 |
Net unrealized appreciation (depreciation) on:
Investments | 4,585,007 |
Futures | (3,350,229) |
Accumulated net realized gain (loss)
| (3,129,170) |
Paid-in capital
| 211,312,863 |
Net assets, at value | $ 219,261,116 |
Class A Net Asset Value, offering and redemption price per share ($211,348,740 ÷ 17,044,556 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 12.40 |
Class B Net Asset Value, offering and redemption price per share ($7,912,376 ÷ 639,523 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 12.37 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Interest
| $ 11,096,939 |
Interest — Cash Management QP Trust
| 202,323 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 11,566 |
Total Income
| 11,310,828 |
Expenses:
Management fee
| 1,045,390 |
Administration fee
| 143,349 |
Custodian fee
| 18,692 |
Distribution service fee (Class B)
| 18,374 |
Services to shareholders
| 674 |
Record keeping fees (Class B)
| 7,043 |
Professional fees
| 85,762 |
Trustees' fees and expenses
| 18,411 |
Reports to shareholders and shareholder meeting
| 105,985 |
Other
| 15,728 |
Total expenses before expense reductions
| 1,459,408 |
Expense reductions
| (21,069) |
Total expenses after expense reductions
| 1,438,339 |
Net investment income | 9,872,489 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| 2,090,535 |
Futures
| (2,538,655) |
| (448,120) |
Change in net unrealized appreciation (depreciation) on:
Investments
| 3,918,330 |
Futures
| (3,141,054) |
| 777,276 |
Net gain (loss) | 329,156 |
Net increase (decrease) in net assets resulting from operations | $ 10,201,645 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income
| $ 9,872,489 | $ 10,439,394 |
Net realized gain (loss)
| (448,120) | (1,286,321) |
Change in net unrealized appreciation (depreciation)
| 777,276 | 3,273,665 |
Net increase (decrease) in net assets resulting from operations
| 10,201,645 | 12,426,738 |
Distributions to shareholders from:
Net investment income:
Class A | (9,943,580) | (10,212,645) |
Class B | (313,588) | (1,469,899) |
Total distributions
| (10,257,168) | (11,682,544) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 78,211,163 | 30,397,968 |
Reinvestment of distributions
| 9,943,580 | 10,212,645 |
Cost of shares redeemed
| (75,825,560) | (53,955,468) |
Net increase (decrease) in net assets from Class A share transactions
| 12,329,183 | (13,344,855) |
Class B Proceeds from shares sold
| 7,001,909 | 9,440,856 |
Reinvestment of distributions
| 313,588 | 1,469,899 |
Cost of shares redeemed
| (4,358,212) | (38,336,134) |
Net increase (decrease) in net assets from Class B share transactions
| 2,957,285 | (27,425,379) |
Increase (decrease) in net assets | 15,230,945 | (40,026,040) |
Net assets at beginning of period
| 204,030,171 | 244,056,211 |
Net assets at end of period (including undistributed net investment income of $9,842,645 and $10,227,324, respectively)
| $ 219,261,116 | $ 204,030,171 |
Other Information |
Class A Shares outstanding at beginning of period
| 16,080,508 | 17,174,275 |
Shares sold
| 6,375,775 | 2,509,518 |
Shares issued to shareholders in reinvestment of distributions
| 823,144 | 862,554 |
Shares redeemed
| (6,234,871) | (4,465,839) |
Net increase (decrease) in Class A shares
| 964,048 | (1,093,767) |
Shares outstanding at end of period
| 17,044,556 | 16,080,508 |
Class B Shares outstanding at beginning of period
| 403,813 | 2,706,547 |
Shares sold
| 569,092 | 788,569 |
Shares issued to shareholders in reinvestment of distributions
| 25,938 | 124,042 |
Shares redeemed
| (359,320) | (3,215,345) |
Net increase (decrease) in Class B shares
| 235,710 | (2,302,734) |
Shares outstanding at end of period
| 639,523 | 403,813 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.38 | $ 12.28 | $ 12.26 | $ 12.55 | $ 12.54 |
Income (loss) from investment operations: Net investment incomea | .56 | .58 | .55 | .51 | .44 |
Net realized and unrealized gain (loss) | .04 | .12 | (.06) | (.20) | .03 |
Total from investment operations | .60 | .70 | .49 | .31 | .47 |
Less distributions from: Net investment income | (.58) | (.60) | (.47) | (.50) | (.35) |
Net realized gains | — | — | — | (.10) | (.11) |
Total distributions | (.58) | (.60) | (.47) | (.60) | (.46) |
Net asset value, end of period | $ 12.40 | $ 12.38 | $ 12.28 | $ 12.26 | $ 12.55 |
Total Return (%)
| 4.93b | 5.95b | 4.16 | 2.57 | 3.75 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 211 | 199 | 211 | 243 | 280 |
Ratio of expenses before expense reductions (%)
| .66 | .66 | .67 | .63 | .61 |
Ratio of expenses after expense reductions (%)
| .65 | .63 | .67 | .63 | .61 |
Ratio of net investment income (loss) (%)
| 4.58 | 4.77 | 4.56 | 4.17 | 3.59 |
Portfolio turnover rate (%)
| 543 | 465 | 241 | 191 | 226 |
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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.35 | $ 12.25 | $ 12.23 | $ 12.52 | $ 12.51 |
Income (loss) from investment operations: Net investment incomea | .52 | .53 | .50 | .47 | .40 |
Net realized and unrealized gain (loss) | .03 | .12 | (.06) | (.21) | .02 |
Total from investment operations | .55 | .65 | .44 | .26 | .42 |
Less distributions from: Net investment income | (.53) | (.55) | (.42) | (.45) | (.30) |
Net realized gains | — | — | — | (.10) | (.11) |
Total distributions | (.53) | (.55) | (.42) | (.55) | (.41) |
Net asset value, end of period | $ 12.37 | $ 12.35 | $ 12.25 | $ 12.23 | $ 12.52 |
Total Return (%)
| 4.60b | 5.43b | 3.74 | 2.24 | 3.36 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 8 | 5 | 33 | 47 | 49 |
Ratio of expenses before expense reductions (%)
| 1.00 | 1.04 | 1.07 | 1.02 | 1.00 |
Ratio of expenses after expense reductions (%)
| 1.00 | 1.01 | 1.07 | 1.02 | 1.00 |
Ratio of net investment income (%)
| 4.24 | 4.39 | 4.16 | 3.78 | 3.21 |
Portfolio turnover rate (%)
| 543 | 465 | 241 | 191 | 226 |
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, 2008
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, 2008 is 0.59% 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, 2008 is 1.32% 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, 2008.
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 risks, 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 12/31/2008 |
[] DWS Growth Allocation VIP — Class B [] Russell 1000® Index [] Barclays Capital 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 Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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
| $6,545 | $7,784 | $9,103 |
Average annual total return
| -34.55% | -8.01% | -2.13% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,005 |
Average annual total return
| -37.60% | -8.66% | -2.39% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,178 |
Average annual total return
| 5.24% | 5.51% | 4.65% |
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 and non-affiliated funds ("Underlying Portfolios") in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying Portfolios is based on the expense ratios from the Underlying Portfolios' 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 703.40 |
Expenses Paid per $1,000*
| | $ 3.00 |
Hypothetical 5% Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 1,021.62 |
Expenses Paid per $1,000*
| | $ 3.56 |
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, 2008 |
Actual Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 703.40 |
Expenses Paid per $1,000**
| | $ 6.38 |
Hypothetical 5% Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 1,017.65 |
Expenses Paid per $1,000**
| | $ 7.56 |
* Expenses are equal to the Portfolio's annualized expense ratio, 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 366.** 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 366.Annualized Expense Ratios | | Class B |
Direct Portfolio Expense Ratio
| | .70% |
Acquired Portfolios (Underlying Portfolios) Fees and Expenses
| | .79% |
Net Annual Portfolio and Acquired Portfolios (Underlying Portfolios) Operating Expenses
| | 1.49% |
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, 2008
DWS Growth Allocation VIP
For the 12 months ended December 31, 2008, the DWS Growth Allocation VIP's Class B shares (unadjusted for contract charges) had a return of -34.55%. For the 12-month period, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a return of -37.31%. Since this Portfolio invests in stock and bond funds in several different categories, performance is analyzed by comparing the Portfolio's return with indexes that represent each asset class. The Portfolio's return was below that of its bond benchmark, the Barclays Capital US Aggregate Index, which returned 5.24%, but above the returns of its equity benchmark, the Russell 1000® Index, which returned -37.60%.
There are three major determinants of the Portfolio's performance; strategic asset allocation, tactical asset allocation and the performance of the underlying funds in which the Portfolio's assets are invested. During 2008, strategic asset allocation contributed to the Portfolio's performance relative to its peer group of comparable funds, while tactical asset allocation and performance of the underlying funds detracted.
Strategic asset allocation refers to the longer-term allocation among asset classes. The Portfolio's allocation between equity and fixed-income funds remained close to its target of 75% equity and 25% fixed income during 2008. Tactical allocation decisions are short-term underweights or overweights of particular asset classes relative to their longer-term strategic asset allocation targets.1 Overall tactical asset allocation, with an underweight of cash equivalents and investment-grade bonds balanced by an overweight in large-cap and international equities, detracted from performance, as fixed-income securities performed better than stocks.
Performance of each of the underlying funds is compared to a suitable benchmark for that particular fund's asset class and management style. The underlying funds as a group detracted from performance relative to their respective benchmarks. However, large-cap equity funds added value relative to their peers, as did high-yield funds, although these funds had negative absolute returns.
Inna Okounkova Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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 Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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.
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 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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Growth Allocation VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Equity — Equity Funds | 69% | 79% |
Fixed Income — Bond Funds | 21% | 19% |
Equity — Exchange Traded Funds | 6% | — |
Fixed Income — Money Market Funds | 4% | 2% |
| 100% | 100% |
Target Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Equity | 75% | 75% |
Fixed Income | 25% | 25% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 148. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Growth Allocation VIP
| Shares | Value ($) |
| |
Equity — Equity Funds 69.5% |
DWS Blue Chip VIP "A" | 2,917 | 21,146 |
DWS Capital Growth VIP "A" | 49,840 | 675,325 |
DWS Communications Fund "Institutional" | 1,885 | 18,488 |
DWS Davis Venture Value VIP "A" | 209,326 | 1,572,035 |
DWS Dreman High Return Equity VIP "A" | 7,233 | 44,917 |
DWS Dreman Small Cap Value Fund "Institutional" | 3,015 | 73,115 |
DWS Dreman Small Mid Cap Value VIP "A" | 92,671 | 734,881 |
DWS Emerging Markets Equity Fund "Institutional" | 29,790 | 303,266 |
DWS Equity 500 Index VIP "A" | 30,487 | 291,155 |
DWS Global Opportunities VIP "A" | 65,537 | 510,537 |
DWS Global Thematic VIP "A" | 85,098 | 496,972 |
DWS Growth & Income VIP "A" | 358,443 | 1,835,226 |
DWS Health Care VIP "A" | 66,930 | 632,487 |
DWS International Select Equity VIP "A" | 4,324 | 26,897 |
DWS International VIP "A" | 160,952 | 1,049,410 |
DWS Janus Growth & Income VIP "A" | 7,182 | 48,766 |
DWS Japan Equity Fund "S" | 12,101 | 89,181 |
DWS Large Cap Value VIP "A" | 433,360 | 3,865,573 |
DWS Mid Cap Growth VIP "A" | 1,913 | 13,006 |
DWS RREEF Global Real Estate Securities Fund "Institutional" | 24,586 | 132,272 |
DWS Small Cap Core Fund "S" | 4,953 | 54,236 |
DWS Small Cap Growth VIP "A" | 48,514 | 369,193 |
DWS Small Cap Index VIP "A" | 25,295 | 218,294 |
DWS Technology VIP "A" | 113,981 | 656,533 |
Total Equity Funds (Cost $24,398,892) | 13,732,911 |
|
Equity — Exchange Traded Funds 5.7% |
Consumer Discretionary Select Sector SPDR Fund | 899 | 19,391 |
Consumer Staples Select Sector SPDR Fund | 3,802 | 90,754 |
Energy Select Sector SPDR Fund | 653 | 31,240 |
Financial Select Sector SPDR Fund | 4,001 | 50,493 |
| Shares | Value ($) |
| |
Industrial Select Sector SPDR Fund | 2,950 | 69,266 |
iShares MSCI Australia Index Fund | 6,895 | 96,599 |
iShares MSCI Canada Index Fund | 12,936 | 225,475 |
iShares MSCI EAFE Small Cap Index Fund | 3,385 | 87,028 |
iShares MSCI France Index Fund | 3,379 | 70,722 |
iShares MSCI Switzerland Index Fund | 3,383 | 62,721 |
iShares MSCI United Kingdom Index Fund | 26,556 | 325,311 |
Total Exchange Traded Funds (Cost $1,635,831) | 1,129,000 |
|
Fixed Income — Bond Funds 20.9% |
DWS Core Fixed Income VIP "A" | 215,420 | 1,917,235 |
DWS Emerging Markets Fixed Income Fund "Institutional" | 6,676 | 55,143 |
DWS Global Bond Fund "S" | 66,328 | 663,941 |
DWS Government & Agency Securities VIP "A" | 67,071 | 831,678 |
DWS High Income VIP "A" | 37,200 | 197,907 |
DWS Inflation Protected Plus Fund "Institutional" | 22,522 | 205,402 |
DWS Short Duration Plus Fund "Institutional" | 19,017 | 166,778 |
DWS US Bond Index Fund "Institutional" | 8,191 | 84,363 |
Total Fixed Income — Bond Funds (Cost $4,788,205) | 4,122,447 |
|
Fixed Income — Money Market Fund 4.2% |
Cash Management QP Trust (Cost $828,709) | 828,709 | 828,709 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $31,651,637)+ | 100.3 | 19,813,067 |
Other Assets and Liabilities, Net | (0.3) | (53,717) |
Net Assets | 100.0 | 19,759,350 |
+ The cost for federal income tax purposes was $31,711,314. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $11,898,247. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $23,939 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $11,922,186.EAFE: Europe, Australasia and Far East
MSCI: Morgan Stanley Capital International
SPDR: Standard & Poor's Depositary Receipt
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 18,984,358 |
Level 2
| 828,709 |
Level 3
| — |
Total | $ 19,813,067 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in Underlying Affiliated Portfolios, at value (cost $29,187,097) | $ 17,855,358 |
Investments in Non-affiliated funds (cost $1,635,831) | 1,129,000 |
Investment in Cash Management QP Trust (cost $828,709) | 828,709 |
Total investments, at value (cost $31,651,637)
| 19,813,067 |
Interest receivable
| 1,049 |
Due from Advisor
| 19,773 |
Other assets
| 787 |
Total assets
| 19,834,676 |
Liabilities |
Payable for Portfolio shares redeemed
| 4,017 |
Accrued management fee
| 572 |
Other accrued expenses and payables
| 70,737 |
Total liabilities
| 75,326 |
Net assets, at value | $ 19,759,350 |
Net Assets Consist of |
Undistributed net investment income
| 1,559,705 |
Net unrealized appreciation (depreciation) on investments
| (11,838,570) |
Accumulated net realized gain (loss)
| 1,022,942 |
Paid-in capital
| 29,015,273 |
Net assets, at value | $ 19,759,350 |
Class B Net Asset Value, offering and redemption price per share ($19,759,350 ÷ 3,154,766 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.26 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Income distributions from Underlying Affiliated Portfolios
| $ 804,522 |
Dividends
| 28,715 |
Interest — Cash Management QP Trust
| 13,268 |
Total Income
| 846,505 |
Expenses:
Management fee
| 26,040 |
Administration fee
| 16,931 |
Services to shareholders
| 48 |
Custodian and accounting fees
| 21,109 |
Distribution service fee
| 67,386 |
Record keeping fees
| 28,321 |
Audit and tax fees
| 44,645 |
Legal
| 27,214 |
Trustees' fees and expenses
| 8,731 |
Reports to shareholders and shareholder meeting
| 22,121 |
Other
| 5,942 |
Total expenses before expense reductions
| 268,488 |
Expense reductions
| (76,513) |
Total expenses after expense reductions
| 191,975 |
Net investment income (loss) | 654,530 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from investments
| (2,360,576) |
Capital gain distributions from Underlying Affiliated Portfolios
| 4,298,081 |
| 1,937,505 |
Change in net unrealized appreciation (depreciation) on investments
| (13,298,575) |
Net gain (loss) | (11,361,070) |
Net increase (decrease) in net assets resulting from operations | $ (10,706,540) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 654,530 | $ 3,174,829 |
Net realized gain (loss)
| 1,937,505 | 26,468,783 |
Change in net unrealized appreciation (depreciation)
| (13,298,575) | (16,832,031) |
Net increase (decrease) in net assets resulting from operations
| (10,706,540) | 12,811,581 |
Distributions to shareholders from:
Net investment income:
Class B | (1,288,633) | (4,126,872) |
Net realized gains:
Class B | (5,948,945) | (10,532,122) |
Total share distributions
| (7,237,578) | (14,658,994) |
Portfolio share transactions:
Class B Proceeds from shares sold
| 1,876,798 | 5,915,221 |
Reinvestment of distributions
| 7,237,578 | 14,658,994 |
Cost of shares redeemed
| (4,325,172) | (194,804,275) |
Net increase (decrease) in net assets from Class B share transactions
| 4,789,204 | (174,230,060) |
Increase (decrease) in net assets | (13,154,914) | (176,077,473) |
Net assets at beginning of period
| 32,914,264 | 208,991,737 |
Net assets at end of period (including undistributed net investment income of $1,559,705 and $5,144,244, respectively)
| $ 19,759,350 | $ 32,914,264 |
Other Information |
Class B Shares outstanding at beginning of period
| 2,590,950 | 16,154,379 |
Shares sold
| 227,845 | 462,860 |
Shares issued to shareholders in reinvestment of distributions
| 820,587 | 1,205,509 |
Shares redeemed
| (484,616) | (15,231,798) |
Net increase (decrease) in Class B shares
| 563,816 | (13,563,429) |
Shares outstanding at end of period
| 3,154,766 | 2,590,950 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004a |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.70 | $ 12.94 | $ 11.67 | $ 11.03 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .21 | .21 | .14 | .11 | (.03) |
Net realized and unrealized gain (loss) | (3.76) | .47 | 1.33 | .55 | 1.06 |
Total from investment operations | (3.55) | .68 | 1.47 | .66 | 1.03 |
Less distributions from: Net investment income | (.51) | (.26) | (.10) | — | — |
Net realized gains | (2.38) | (.66) | (.10) | (.02) | — |
Total distributions | (2.89) | (.92) | (.20) | (.02) | — |
Net asset value, end of period | $ 6.26 | $ 12.70 | $ 12.94 | $ 11.67 | $ 11.03 |
Total Return (%)c,d
| (34.55) | 5.58 | 12.66 | 6.02 | 10.30** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 20 | 33 | 209 | 197 | 47 |
Ratio of expenses before expense reductions (%)e
| 1.00 | .63 | .62 | .65 | 1.38* |
Ratio of expenses after expense reductions (%)e
| .71 | .58 | .57 | .60 | 0.75* |
Ratio of net investment income (loss) (%)
| 2.43 | 1.60 | 1.20 | 1.01 | (0.69)* |
Portfolio turnover rate (%)
| 45 | 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 some Underlying Portfolios' expenses.
e The Portfolio invests in other DWS Portfolios and non-affiliated funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios and non-affiliated funds in which the Portfolio is invested. This ratio does not include these indirect fees and expenses.
* Annualized
** Not annualized
|
Performance Summary December 31, 2008
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, 2008 are 0.69% and 0.94% 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, 2008.
Risk Considerations
Investing in foreign securities presents certain risks, 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.
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 High Income VIP |
[] DWS High Income VIP — Class A [] Credit Suisse High Yield Index | The Credit Suisse High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the global high-yield debt 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 High Income VIP | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | Growth of $10,000
| $7,606 | $8,483 | $9,907 | $11,784 |
Average annual total return
| -23.94% | -5.34% | -.19% | 1.66% |
Credit Suisse High Yield Index
| Growth of $10,000
| $7,383 | $8,481 | $9,710 | $13,266 |
Average annual total return
| -26.17% | -5.34% | -.59% | 2.87% |
DWS High Income VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $7,587 | $8,400 | $9,736 | $12,388 |
Average annual total return
| -24.13% | -5.65% | -.53% | 3.35% |
Credit Suisse High Yield Index
| Growth of $10,000
| $7,383 | $8,481 | $9,710 | $12,787 |
Average annual total return
| -26.17% | -5.34% | -.59% | 3.85% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 771.00 | | $ 771.30 | |
Expenses Paid per $1,000*
| $ 3.52 | | $ 4.59 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,021.17 | | $ 1,019.96 | |
Expenses Paid per $1,000*
| $ 4.01 | | $ 5.23 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS High Income VIP
| .79% | | 1.03% | |
For more information, please refer to the Portfolio's prospectus.
These tables do not reflect charges and fees ("contract charges") associated with the separate account that invests in the Portfolio or any variable life insurance policy or variable annuity contract for which the Portfolio is an investment option.
Management Summary December 31, 2008
DWS High Income VIP
High-yield bonds were particularly vulnerable to the crosscurrents affecting the broader financial system in 2008, producing a negative absolute return and underperforming the broader bond market by a wide margin. First, concerns about a sharp economic slowdown fueled speculation that the high-yield default rate would move considerably higher. Second, the financial crisis caused a number of corporations to lose access to credit — at least temporarily — an issue of particular importance for companies in the high-yield sector. And third, forced selling by institutional investors put additional pressure on bond prices. While the market recovered somewhat in December, the Credit Suisse High Yield Index, the Portfolio's benchmark, finished the year with a return of - -26.17%. Class A shares of the Portfolio outperformed its benchmark with a return of -23.94% (unadjusted for contract charges).
From a sector standpoint, the Portfolio benefited from its above-benchmark weightings in less cyclical groups such as health care, utilities and wireless telecommunication. Among individual securities, some of the leading contributors to performance were Charter Communications Operating LLC; Kansas City Southern Railway Co.; and DRS Technologies, Inc., a defense-related firm that was bid for by the investment-grade-rated company Finmeccanica SpA. Notable detractors included Lyondell Chemical Co.*, Young Broadcasting, Inc. and Hawker Beechcraft Acquisition Co., LLC.
We believe a cautious investment approach remains necessary in the current environment. Given the uncertainty in the global financial markets, we believe that the key to outperformance throughout 2009 will be the avoidance of individual credit defaults. We continue to focus carefully on research and the fundamental credit strength of issuers in the Portfolio in order to minimize default risk to the greatest extent possible.
Gary Sullivan, CFA
Portfolio Manager, Deutsche Investment Management Americas Inc.
The Credit Suisse High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the global high-yield debt market. Index returns, unlike portfolio returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
* Not held in the Portfolio as of December 31, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS High Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Corporate Bonds | 84% | 89% |
Cash Equivalents | 9% | 3% |
Loan Participations and Assignments | 7% | 7% |
Other Investments | — | 1% |
| 100% | 100% |
Sector Diversification (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Energy | 15% | 11% |
Consumer Discretionary | 13% | 22% |
Materials | 12% | 11% |
Telecommunication Services | 12% | 8% |
Utilities | 11% | 7% |
Financials | 10% | 14% |
Industrials | 10% | 13% |
Health Care | 9% | 6% |
Consumer Staples | 4% | 4% |
Information Technology | 4% | 4% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Cash Equivalents | 8% | 3% |
BBB | 12% | 4% |
BB | 35% | 29% |
B | 31% | 51% |
CCC | 7% | 13% |
CC | 3% | — |
D | 1% | — |
Not Rated | 3% | — |
| 100% | 100% |
Effective Maturity (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Under 1 year | 5% | 6% |
1-4.99 years | 41% | 32% |
5-9.99 years | 50% | 56% |
10-14.99 years | 1% | 2% |
15 years or greater | 3% | 4% |
| 100% | 100% |
Interest Rate Sensitivity | 12/31/08 | 12/31/07 |
| | |
Effective maturity | 5.6 years | 6.2 years |
Average duration | 3.7 years | 4.1 years |
Asset allocation, sector diversification, quality, effective maturity and interest rate sensitivity are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 158. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS High Income VIP
| Principal Amount ($)(a) | Value ($) |
| |
Corporate Bonds 81.9% |
Consumer Discretionary 10.8% |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 740,000 | 455,100 |
American Achievement Corp., 144A, 8.25%, 4/1/2012 | 255,000 | 196,350 |
American Achievement Group Holding Corp., 16.75%, 10/1/2012 (PIK) | 404,107 | 96,986 |
Asbury Automotive Group, Inc.: | | |
7.625%, 3/15/2017 | 590,000 | 274,350 |
8.0%, 3/15/2014 | 250,000 | 118,750 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 | 380,000 | 199,500 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 | 340,000 | 129,200 |
Carrols Corp., 9.0%, 1/15/2013 | 225,000 | 151,875 |
Charter Communications Operating LLC, 144A, 10.875%, 9/15/2014 | 1,085,000 | 868,000 |
CSC Holdings, Inc.: | | |
6.75%, 4/15/2012 | 355,000 | 324,825 |
Series B, 7.625%, 4/1/2011 | 355,000 | 334,587 |
Series B, 8.125%, 7/15/2009 | 125,000 | 124,375 |
Series B, 8.125%, 8/15/2009 | 345,000 | 343,275 |
Denny's Holdings, Inc., 10.0%, 10/1/2012 | 165,000 | 114,263 |
DIRECTV Holdings LLC, 7.625%, 5/15/2016 | 1,055,000 | 1,023,350 |
Dollarama Group LP, 8.073%***, 8/15/2012 (b) | 347,000 | 220,345 |
EchoStar DBS Corp.: | | |
6.375%, 10/1/2011 | 555,000 | 516,150 |
6.625%, 10/1/2014 | 665,000 | 555,275 |
7.125%, 2/1/2016 | 465,000 | 388,275 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 490,000 | 47,775 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 505,000 | 343,400 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 250,000 | 167,500 |
Hertz Corp., 8.875%, 1/1/2014 | 1,340,000 | 824,100 |
Idearc, Inc., 8.0%, 11/15/2016 | 920,000 | 69,000 |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 330,000 | 179,850 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 425,000 | 180,625 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 | 620,000 | 551,800 |
Lamar Media Corp., Series C, 6.625%, 8/15/2015 | 295,000 | 213,137 |
Liberty Media LLC, 5.7%, 5/15/2013 | 95,000 | 62,280 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 255,000 | 153,000 |
MGM MIRAGE: | | |
6.625%, 7/15/2015 | 410,000 | 250,100 |
8.375%, 2/1/2011 | 425,000 | 252,875 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 630,000 | 472,500 |
Norcraft Holdings LP, 9.75%, 9/1/2012 | 1,385,000 | 1,031,825 |
| Principal Amount ($)(a) | Value ($) |
| |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 905,000 | 420,825 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 300,000 | 237,000 |
Quebecor Media, Inc., 7.75%, 3/15/2016 | 290,000 | 195,750 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015** | 420,000 | 33,075 |
Quiksilver, Inc.,
6.875%, 4/15/2015 | 405,000 | 130,613 |
Reader's Digest Association, Inc., 9.0%, 2/15/2017 | 350,000 | 30,188 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 460,000 | 102,350 |
Seminole Hard Rock Entertainment, Inc., 144A, 4.496%***, 3/15/2014 | 590,000 | 299,425 |
Shaw Communications, Inc., 8.25%, 4/11/2010 | 605,000 | 595,925 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 370,000 | 185,000 |
Simmons Co., Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 1,655,000 | 190,325 |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 (c) | 367,000 | 276,167 |
Sirius XM Radio, Inc., 9.625%, 8/1/2013 | 860,000 | 160,175 |
Sonic Automotive,
Inc., Series B,
8.625%, 8/15/2013 | 490,000 | 182,525 |
Travelport LLC: | | |
6.828%***, 9/1/2014 | 390,000 | 115,050 |
9.875%, 9/1/2014 | 65,000 | 24,375 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 | 105,000 | 13,913 |
United Components, Inc., 9.375%, 6/15/2013 | 80,000 | 33,600 |
Unity Media GmbH: | | |
144A, 8.75%, 2/15/2015 EUR | 785,000 | 856,583 |
144A, 10.375%, 2/15/2015 | 255,000 | 198,262 |
UPC Holding BV: | | |
144A, 7.75%, 1/15/2014 EUR | 365,000 | 388,136 |
144A, 8.0%, 11/1/2016 EUR | 190,000 | 183,556 |
Vertis, Inc.,
13.5%, 4/1/2014 (PIK) | 200,357 | 46,743 |
Vitro SAB de CV,
9.125%, 2/1/2017 | 1,470,000 | 441,000 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 2,040,000 | 20,400 |
| 16,595,559 |
Consumer Staples 3.4% |
Alliance One International, Inc., 8.5%, 5/15/2012 | 250,000 | 183,750 |
Altria Group, Inc.: | | |
8.5%, 11/10/2013 | 330,000 | 341,796 |
9.7%, 11/10/2018 | 165,000 | 178,337 |
Delhaize America, Inc.: | | |
8.05%, 4/15/2027 | 190,000 | 175,829 |
9.0%, 4/15/2031 | 917,000 | 927,381 |
General Nutrition Centers, Inc., 7.584%***, 3/15/2014 (PIK) | 280,000 | 156,800 |
| Principal Amount ($)(a) | Value ($) |
| |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 2,081,750 | 1,144,963 |
Smithfield Foods, Inc., 7.75%, 7/1/2017 | 145,000 | 82,650 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 3,100,000 | 2,015,000 |
| 5,206,506 |
Energy 11.1% |
Atlas Energy Resources LLC, 144A, 10.75%, 2/1/2018 | 845,000 | 515,450 |
Belden & Blake Corp., 8.75%, 7/15/2012 | 2,050,000 | 1,404,250 |
Bristow Group, Inc., 7.5%, 9/15/2017 | 450,000 | 301,500 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 600,000 | 120,000 |
Chesapeake Energy Corp.: | | |
6.25%, 1/15/2018 | 525,000 | 388,500 |
6.875%, 1/15/2016 | 1,166,000 | 932,800 |
7.25%, 12/15/2018 | 800,000 | 624,000 |
7.5%, 6/15/2014 | 180,000 | 152,100 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 370,000 | 288,600 |
Colorado Interstate Gas Co., 6.8%, 11/15/2015 | 220,000 | 189,528 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 715,000 | 143,000 |
Dynegy Holdings, Inc., 6.875%, 4/1/2011 | 195,000 | 170,625 |
El Paso Corp.: | | |
7.25%, 6/1/2018 | 985,000 | 781,767 |
7.75%, 6/15/2010 | 165,000 | 152,950 |
9.625%, 5/15/2012 | 320,000 | 271,715 |
EXCO Resources, Inc., 7.25%, 1/15/2011 | 580,000 | 452,400 |
Forest Oil Corp., 144A, 7.25%, 6/15/2019 | 210,000 | 153,300 |
Frontier Oil Corp.: | | |
6.625%, 10/1/2011 | 330,000 | 298,650 |
8.5%, 9/15/2016 | 575,000 | 507,437 |
GulfSouth Pipeline Co., LP, 144A, 5.75%, 8/15/2012 | 100,000 | 89,398 |
KCS Energy, Inc., 7.125%, 4/1/2012 | 1,495,000 | 1,121,250 |
Mariner Energy, Inc.: | | |
7.5%, 4/15/2013 | 305,000 | 195,200 |
8.0%, 5/15/2017 | 470,000 | 244,400 |
Newfield Exploration Co., 7.125%, 5/15/2018 | 640,000 | 505,600 |
OPTI Canada, Inc., 8.25%, 12/15/2014 | 1,025,000 | 553,500 |
Petrohawk Energy Corp.: | | |
144A, 7.875%, 6/1/2015 | 220,000 | 162,800 |
9.125%, 7/15/2013 | 450,000 | 364,500 |
Plains Exploration & Production Co.: | | |
7.0%, 3/15/2017 | 220,000 | 150,700 |
7.625%, 6/1/2018 | 720,000 | 493,200 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 1,040,000 | 556,400 |
Range Resources Corp., 7.25%, 5/1/2018 | 65,000 | 54,275 |
SandRidge Energy, Inc., 144A, 8.0%, 6/1/2018 | 285,000 | 158,175 |
Southwestern Energy Co., 144A, 7.5%, 2/1/2018 | 585,000 | 511,875 |
| Principal Amount ($)(a) | Value ($) |
| |
Stone Energy Corp.: | | |
6.75%, 12/15/2014 | 590,000 | 289,100 |
8.25%, 12/15/2011 | 1,285,000 | 796,700 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 165,000 | 130,968 |
Tesoro Corp., 6.5%, 6/1/2017 | 425,000 | 233,219 |
Whiting Petroleum Corp.: | | |
7.0%, 2/1/2014 | 500,000 | 352,500 |
7.25%, 5/1/2012 | 545,000 | 406,025 |
7.25%, 5/1/2013 | 140,000 | 99,400 |
Williams Companies, Inc.: | | |
8.125%, 3/15/2012 | 1,040,000 | 958,100 |
8.75%, 3/15/2032 | 810,000 | 603,450 |
Williams Partners LP, 7.25%, 2/1/2017 | 420,000 | 331,800 |
| 17,211,107 |
Financials 8.1% |
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 925,000 | 351,500 |
Ashton Woods USA LLC, 9.5%, 10/1/2015** | 1,370,000 | 274,000 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 250,000 | 50,000 |
Conproca SA de CV, REG S, 12.0%, 6/16/2010 | 1,648,035 | 1,676,876 |
Ford Motor Credit Co., LLC: | | |
7.25%, 10/25/2011 | 2,665,000 | 1,946,806 |
7.875%, 6/15/2010 | 1,015,000 | 812,183 |
GMAC LLC, 144A, 6.875%, 9/15/2011 | 2,118,000 | 1,513,459 |
Hawker Beechcraft Acquisition Co., LLC: | | |
8.5%, 4/1/2015 | 1,035,000 | 424,350 |
8.875%, 4/1/2015 (PIK) | 895,000 | 304,300 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 205,000 | 58,425 |
Inmarsat Finance PLC, 10.375%, 11/15/2012 | 820,000 | 726,725 |
iPayment, Inc.,
9.75%, 5/15/2014 | 475,000 | 237,500 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 430,000 | 94,600 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 575,000 | 60,375 |
NiSource Finance Corp.: | | |
6.15%, 3/1/2013 | 50,000 | 38,527 |
7.875%, 11/15/2010 | 745,000 | 681,742 |
Orascom Telecom Finance SCA, 144A, 7.875%, 2/8/2014 | 370,000 | 196,100 |
Qwest Capital Funding, Inc., 7.0%, 8/3/2009 | 355,000 | 347,900 |
Rainbow National Services LLC, 144A, 10.375%, 9/1/2014 | 112,000 | 99,680 |
Sprint Capital Corp.: | | |
7.625%, 1/30/2011 | 360,000 | 300,600 |
8.375%, 3/15/2012 | 145,000 | 116,000 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014** | 1,220,000 | 12,200 |
UCI Holdco, Inc., 9.996%***, 12/15/2013 (PIK) | 639,775 | 108,762 |
Universal City Development Partners, 11.75%, 4/1/2010 | 2,125,000 | 1,370,625 |
Wind Acquisition Finance SA: | | |
144A, 9.75%, 12/1/2015 EUR | 570,000 | 645,747 |
144A, 10.75%, 12/1/2015 | 85,000 | 73,100 |
| 12,522,082 |
| Principal Amount ($)(a) | Value ($) |
| |
Health Care 6.4% |
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 560,000 | 285,600 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 520,000 | 494,000 |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 2,865,000 | 2,635,800 |
HCA, Inc.: | | |
9.125%, 11/15/2014 | 760,000 | 704,900 |
9.25%, 11/15/2016 | 2,040,000 | 1,871,700 |
9.625%, 11/15/2016 (PIK) | 770,000 | 600,600 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 290,000 | 266,075 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 525,000 | 406,875 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 420,000 | 308,700 |
Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK) | 515,000 | 314,150 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 840,000 | 705,600 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 455,000 | 357,175 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 1,095,000 | 914,325 |
| 9,865,500 |
Industrials 9.1% |
Actuant Corp., 6.875%, 6/15/2017 | 300,000 | 225,750 |
Allied Waste North America, Inc., 6.5%, 11/15/2010 | 250,000 | 241,250 |
ARAMARK Corp., 8.5%, 2/1/2015 (c) | 140,000 | 126,700 |
Baldor Electric Co., 8.625%, 2/15/2017 (c) | 380,000 | 283,100 |
BE Aerospace, Inc., 8.5%, 7/1/2018 | 300,000 | 270,000 |
Belden, Inc., 7.0%, 3/15/2017 | 420,000 | 315,000 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 1,405,000 | 1,159,080 |
Congoleum Corp., 8.625%, 8/1/2008** | 1,200,000 | 900,000 |
DRS Technologies, Inc.: | | |
6.625%, 2/1/2016 | 45,000 | 45,000 |
6.875%, 11/1/2013 | 590,000 | 587,050 |
7.625%, 2/1/2018 | 1,450,000 | 1,450,000 |
Esco Corp.: | | |
144A, 5.871%***, 12/15/2013 | 430,000 | 275,200 |
144A, 8.625%, 12/15/2013 | 610,000 | 427,000 |
General Cable Corp.: | | |
6.258%***, 4/1/2015 | 505,000 | 236,087 |
7.125%, 4/1/2017 | 400,000 | 264,000 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 300,000 | 231,375 |
K. Hovnanian Enterprises, Inc., 8.875%, 4/1/2012 | 435,000 | 126,150 |
Kansas City Southern de Mexico SA de CV: | | |
7.375%, 6/1/2014 | 500,000 | 409,100 |
7.625%, 12/1/2013 | 1,085,000 | 889,700 |
9.375%, 5/1/2012 | 1,075,000 | 983,625 |
Kansas City Southern Railway Co., 8.0%, 6/1/2015 | 655,000 | 517,450 |
Mobile Mini, Inc., 9.75%, 8/1/2014 | 420,000 | 298,200 |
Moog, Inc., 144A, 7.25%, 6/15/2018 | 140,000 | 112,000 |
| Principal Amount ($)(a) | Value ($) |
| |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 | 605,000 | 335,775 |
Ply Gem Industries, Inc., 11.75%, 6/15/2013 (c) | 250,000 | 135,000 |
R.H. Donnelley Corp., Series A-4, 8.875%, 10/15/2017 | 1,185,000 | 177,750 |
RBS Global, Inc. & Rexnord Corp., 9.5%, 8/1/2014 | 335,000 | 249,575 |
Seitel, Inc., 9.75%, 2/15/2014 | 210,000 | 75,600 |
Titan International, Inc., 8.0%, 1/15/2012 | 1,190,000 | 880,600 |
TransDigm, Inc., 7.75%, 7/15/2014 | 260,000 | 213,200 |
United Rentals North America, Inc.: | | |
6.5%, 2/15/2012 | 735,000 | 580,650 |
7.0%, 2/15/2014 | 985,000 | 600,850 |
US Concrete, Inc., 8.375%, 4/1/2014 | 470,000 | 253,800 |
Vought Aircraft Industries, Inc., 8.0%, 7/15/2011 | 250,000 | 168,750 |
| 14,044,367 |
Information Technology 3.4% |
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 390,000 | 175,988 |
L-3 Communications Corp.: | | |
5.875%, 1/15/2015 | 1,280,000 | 1,152,000 |
Series B, 6.375%, 10/15/2015 | 705,000 | 659,175 |
7.625%, 6/15/2012 | 1,055,000 | 1,031,262 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 1,185,000 | 474,000 |
MasTec, Inc., 7.625%, 2/1/2017 | 610,000 | 458,262 |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 | 720,000 | 374,400 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 980,000 | 646,800 |
Vangent, Inc., 9.625%, 2/15/2015 | 350,000 | 203,438 |
| 5,175,325 |
Materials 10.1% |
Appleton Papers, Inc., Series B, 8.125%, 6/15/2011 | 235,000 | 162,150 |
ARCO Chemical Co., 9.8%, 2/1/2020** | 3,270,000 | 359,700 |
Cascades, Inc., 7.25%, 2/15/2013 | 1,096,000 | 558,960 |
Chemtura Corp., 6.875%, 6/1/2016 | 705,000 | 359,550 |
Clondalkin Acquisition BV, 144A, 3.996%***, 12/15/2013 | 540,000 | 272,700 |
CPG International I, Inc., 10.5%, 7/1/2013 | 880,000 | 492,800 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 1,415,000 | 827,775 |
Freeport-McMoRan Copper & Gold, Inc.: | | |
6.875%, 2/1/2014 | 80,000 | 72,000 |
8.25%, 4/1/2015 | 1,005,000 | 854,250 |
8.375%, 4/1/2017 | 1,965,000 | 1,611,300 |
GEO Specialty Chemicals, Inc.: | | |
144A, 7.5%***, 3/31/2015 (PIK) | 1,242,271 | 894,433 |
144A, 9.968%***, 12/31/2009 | 1,996,000 | 1,437,120 |
Georgia-Pacific LLC: | | |
144A, 7.125%, 1/15/2017 | 260,000 | 218,400 |
9.5%, 12/1/2011 | 330,000 | 311,850 |
Hexcel Corp., 6.75%, 2/1/2015 | 1,560,000 | 1,185,600 |
Huntsman LLC, 11.625%, 10/15/2010 | 1,277,000 | 1,117,375 |
Innophos, Inc., 8.875%, 8/15/2014 | 170,000 | 119,000 |
| Principal Amount ($)(a) | Value ($) |
| |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 | 460,000 | 78,200 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 1,030,000 | 798,250 |
Metals USA Holdings Corp., 10.883%***, 7/1/2012 (PIK) | 261,937 | 73,343 |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 | 200,000 | 100,000 |
NewMarket Corp., 7.125%, 12/15/2016 | 1,005,000 | 753,750 |
OI European Group BV, 144A, 6.875%, 3/31/2017 EUR | 475,000 | 482,000 |
Pliant Corp., 11.85%, 6/15/2009 (PIK) | 11 | 6 |
Radnor Holdings Corp., 11.0%, 3/15/2010** | 265,000 | 331 |
Rhodia SA, 144A, 8.068%***, 10/15/2013 EUR | 475,000 | 330,137 |
Smurfit-Stone Container Enterprises, Inc., 8.0%, 3/15/2017 | 550,000 | 104,500 |
Steel Dynamics, Inc., 7.375%, 11/1/2012 | 70,000 | 51,100 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 815,000 | 599,025 |
The Mosaic Co., 144A, 7.375%, 12/1/2014 | 680,000 | 557,600 |
Witco Corp., 6.875%, 2/1/2026 | 360,000 | 100,800 |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 770,000 | 619,850 |
| 15,503,855 |
Telecommunication Services 9.1% |
BCM Ireland Preferred Equity Ltd., 144A, 11.245%***, 2/15/2017 (PIK) EUR | 539,588 | 63,994 |
Centennial
Communications Corp.: | | |
10.0%, 1/1/2013 | 290,000 | 300,150 |
10.125%, 6/15/2013 | 625,000 | 631,250 |
Cincinnati Bell, Inc.: | | |
7.25%, 7/15/2013 | 1,030,000 | 906,400 |
8.375%, 1/15/2014(c) | 450,000 | 346,500 |
Cricket Communications, Inc.: | | |
9.375%, 11/1/2014 | 730,000 | 657,000 |
144A, 10.0%, 7/15/2015 | 780,000 | 713,700 |
Frontier Communications Corp.: | | |
6.25%, 1/15/2013 | 430,000 | 365,500 |
9.25%, 5/15/2011 | 255,000 | 242,250 |
Grupo Iusacell Celular SA de CV, 10.0%, 3/31/2012 | 274,071 | 180,887 |
Hellas Telecommunications Luxembourg V, 144A, 8.818%***, 10/15/2012 EUR | 230,000 | 188,630 |
Intelsat Corp.: | | |
144A, 9.25%, 8/15/2014 | 160,000 | 148,800 |
144A, 9.25%, 6/15/2016 | 1,735,000 | 1,578,850 |
Intelsat Subsidiary Holding Co., Ltd., 144A, 8.875%, 1/15/2015 | 960,000 | 873,600 |
iPCS, Inc.,
5.318%***, 5/1/2013 | 200,000 | 142,000 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 875,000 | 783,125 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 1,530,000 | 1,377,000 |
| Principal Amount ($)(a) | Value ($) |
| |
Qwest Corp.: | | |
7.25%, 9/15/2025 | 145,000 | 97,150 |
7.875%, 9/1/2011 | 995,000 | 915,400 |
8.875%, 3/15/2012 | 215,000 | 198,875 |
Sprint Nextel Corp., 6.0%, 12/1/2016 | 530,000 | 373,650 |
Stratos Global Corp., 9.875%, 2/15/2013 | 330,000 | 311,850 |
Telesat Canada, 144A, 11.0%, 11/1/2015 | 1,285,000 | 918,775 |
Virgin Media Finance PLC: | | |
8.75%, 4/15/2014 | 820,000 | 615,000 |
8.75%, 4/15/2014 EUR | 700,000 | 685,989 |
Windstream Corp.: | | |
7.0%, 3/15/2019 | 430,000 | 331,100 |
8.625%, 8/1/2016 | 70,000 | 61,950 |
| 14,009,375 |
Utilities 10.4% |
AES Corp.: | | |
8.0%, 10/15/2017 | 415,000 | 340,300 |
144A, 8.0%, 6/1/2020 | 790,000 | 612,250 |
144A, 8.75%, 5/15/2013 | 2,519,000 | 2,418,240 |
9.5%, 6/1/2009 | 540,000 | 535,950 |
Allegheny Energy Supply Co., LLC, 144A, 8.25%, 4/15/2012 | 3,080,000 | 3,033,800 |
CMS Energy Corp., 8.5%, 4/15/2011 | 925,000 | 910,946 |
Edison Mission Energy, 7.0%, 5/15/2017 | 685,000 | 595,950 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 | 1,115,000 | 791,650 |
Knight, Inc., 6.5%, 9/1/2012 | 215,000 | 181,675 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 550,000 | 533,500 |
Mirant North America LLC, 7.375%, 12/31/2013 | 270,000 | 259,200 |
NRG Energy, Inc.: | | |
7.25%, 2/1/2014 | 915,000 | 855,525 |
7.375%, 2/1/2016 | 755,000 | 702,150 |
7.375%, 1/15/2017 | 660,000 | 607,200 |
NV Energy, Inc.: | | |
6.75%, 8/15/2017 | 855,000 | 656,333 |
8.625%, 3/15/2014 | 200,000 | 180,315 |
Oncor Electric Delivery Co., 7.0%, 9/1/2022 | 320,000 | 299,011 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 515,000 | 352,775 |
Reliant Energy, Inc., 7.875%, 6/15/2017 | 830,000 | 672,300 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.5%, 11/1/2015 | 1,965,000 | 1,395,150 |
| 15,934,220 |
Total Corporate Bonds (Cost $182,713,458) | 126,067,896 |
|
Loan Participations and Assignments 6.4% |
Senior Loans*** |
Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 3.754%, 4/2/2014 | 244,396 | 159,265 |
Alliance Mortgage Cycle Loan, Term Loan A, LIBOR plus 7.25%, 9.254%, 6/1/2010** | 700,000 | 0 |
| Principal Amount ($)(a) | Value ($) |
| |
Alltel Communications, Inc., Term Loan B1, LIBOR plus 2.75%, 4.754%, 5/15/2015 | 675,000 | 669,657 |
Buffets, Inc.: | | |
Letter of Credit, LIBOR plus 7.25%, 9.254%, 5/1/2013 | 147,030 | 36,978 |
Term Loan B, LIBOR plus 7.25%, 9.254%, 11/1/2013 | 748,130 | 188,155 |
Term Loan DIP, LIBOR plus 7.25%, 9.254%, 1/22/2009 | 359,663 | 90,455 |
Charter Communications Operating LLC: | | |
Incremental Term Loan, LIBOR plus 5.0%, 7.004%, 3/6/2014 | 751,225 | 596,289 |
Term Loan, LIBOR plus 2.0%, 4.004%, 3/6/2014 | 704,675 | 521,706 |
Energy Future Holdings Corp.: | | |
Term Loan B2, LIBOR plus 3.5%, 5.504%, 10/10/2014 | 3,766,950 | 2,636,865 |
Term Loan B3, LIBOR plus 3.5%, 5.504%, 10/10/2014 | 365,250 | 254,154 |
Essor Steel Algoma, Inc., Term Loan B, LIBOR plus 2.5%, 4.504%, 6/30/2013 | 284,280 | 176,254 |
Ford Motor Co., Term Loan B, LIBOR plus 3.0%, 5.004%, 12/16/2013 | 368,122 | 151,031 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 4.254%, 9/16/2013 | 247,487 | 165,817 |
Golden Nugget, Term Loan, 3.73%, 6/16/2014 | 460,000 | 48,300 |
Hawker Beechcraft, Inc.: | | |
Letter of Credit, LIBOR plus 2.0%, 4.004%, 3/26/2014 | 12,291 | 6,447 |
Term Loan B, LIBOR plus 2.0%, 4.004%, 3/26/2014 | 209,843 | 110,081 |
HCA, Inc., Term Loan A, LIBOR plus 1.5%, 3.504%, 11/17/2012 | 1,816,113 | 1,542,788 |
Hexion Specialty Chemicals: | | |
Term Loan C1, LIBOR plus 2.25%, 4.254%, 5/6/2013 | 1,100,615 | 466,661 |
Term Loan C2, LIBOR plus 2.25%, 4.254%, 5/6/2013 | 258,110 | 109,438 |
IASIS Healthcare LLC, Term Loan, LIBOR plus 5.25%, 7.254%, 6/15/2014 (PIK) | 521,196 | 299,688 |
Longview Power LLC: | | |
Letter of Credit, 1.35%, 4/1/2014 | 30,000 | 18,750 |
Demand Draw, 3.75%, 4/1/2014 | 105,000 | 65,625 |
Term Loan B, 4.25%, 4/1/2014 | 90,000 | 56,250 |
Sabre, Inc., Term Loan B, LIBOR plus 2.0%, 4.004%, 9/30/2014 | 412,595 | 180,069 |
Symbion, Inc.: | | |
Term Loan A, LIBOR plus 3.25%, 5.254%, 8/23/2013 | 169,253 | 105,783 |
Term Loan B, LIBOR plus 3.25%, 5.254%, 8/23/2014 | 169,253 | 105,783 |
Telesat Canada: | | |
Delayed Draw Term Loan, LIBOR plus 3.0%, 5.004%, 10/31/2014 | 97,377 | 66,752 |
Term Loan B, LIBOR plus 3.0%, 5.004%, 10/31/2014 | 1,133,795 | 777,216 |
Tribune Co., Tranche B, LIBOR plus 3.0%, 5.004%, 5/19/2014** | 829,426 | 239,347 |
Total Loan Participations and Assignments (Cost $16,197,151) | 9,845,604 |
| Principal Amount ($)(a) | Value ($) |
| |
Preferred Securities 0.4% |
Financials |
Citigroup, Inc., Series E, 8.4%, 4/30/2018 (d) | 575,000 | 379,667 |
Xerox Capital Trust I, 8.0%, 2/1/2027 | 315,000 | 215,110 |
Total Preferred Securities (Cost $831,609) | 594,777 |
|
Shares
| Value ($) |
| |
Warrants 0.0% |
Financials 0.0% |
New ASAT (Finance) Ltd., Expiration Date 2/1/2011* | 149,500 | 11,730 |
Industrials 0.0% |
Dayton Superior Corp., 144A, Expiration Date 6/15/2009* | 95 | 0 |
Total Warrants (Cost $1) | 11,730 |
|
Units
| Value ($) |
| |
Other Investments 0.3% |
Materials |
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 (Cost $945,336) | 1,100,000 | 528,000 |
|
Shares
| Value ($) |
| |
Common Stocks 0.0% |
Consumer Discretionary 0.0% |
Vertis Holdings, Inc.* | 9,993 | 0 |
Materials 0.0% |
GEO Specialty Chemicals, Inc.* | 24,225 | 20,591 |
GEO Specialty Chemicals, Inc. 144A* | 2,206 | 1,875 |
Total Common Stocks (Cost $290,952) | 22,466 |
|
Preferred Stocks 0.1% |
Consumer Discretionary 0.0% |
ION Media Networks, Inc.: | | |
144A, 12.0%* | 2 | 0 |
Series AI, 144A, 12.0%* | 30,000 | 0 |
Series B, 12.0%* | 5,000 | 0 |
| 0 |
Financials 0.1% |
Preferred Blocker Inc., 144A, 9.0% | 449 | 128,209 |
Total Preferred Stocks (Cost $174,228) | 128,209 |
|
Securities Lending Collateral 0.7% |
Daily Assets Fund Institutional, 1.69% (e) (f) (Cost $1,127,073) | 1,127,073 | 1,127,073 |
|
Cash Equivalents 8.7% |
Cash Management QP Trust, 1.42% (e) (Cost $13,321,871) | 13,321,871 | 13,321,871 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $215,601,679)+ | 98.5 | 151,647,626 |
Other Assets and Liabilities, Net | 1.5 | 2,231,587 |
Net Assets | 100.0 | 153,879,213 |
* Non-income producing security.** Non-income producing security. Issuer has defaulted on the payment of principal or interest or has filed for bankruptcy. The following table represents bonds that are in default:Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) |
Alliance Mortgage Cycle Loan
| 9.254% | 6/1/2010 | 700,000 | USD
| 700,000 | 0 |
Ashton Woods USA LLC
| 9.5% | 10/1/2015 | 1,370,000 | USD
| 1,292,830 | 274,000 |
Congoleum Corp.
| 8.625% | 8/1/2008 | 1,200,000 | USD
| 1,021,050 | 900,000 |
Quebecor World, Inc.
| 9.75% | 1/15/2015 | 420,000 | USD
| 420,000 | 33,075 |
Radnor Holdings Corp.
| 11.0% | 3/15/2010 | 265,000 | USD
| 234,313 | 331 |
Tribune Co.
| 5.004% | 5/19/2014 | 829,426 | USD
| 828,907 | 239,347 |
Trump Entertainment Resorts, Inc.
| 8.5% | 6/1/2015 | 105,000 | USD
| 107,100 | 13,913 |
Tropicana Entertainment LLC
| 9.625% | 12/15/2014 | 1,220,000 | USD
| 959,601 | 12,200 |
| | | |
| 5,563,801 | 1,472,866 |
*** 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, 2008.+ The cost for federal income tax purposes was $215,921,526. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $64,273,900. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $234,812 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $64,508,712.(a) Principal amount stated in US dollars unless otherwise noted.(b) Security has deferred its 6/15/2008 interest payment until 6/30/2009.(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, 2008 amounted to $1,052,835, which is 0.7% of net assets.(d) Date shown is call date; not a maturity date for the perpetual preferred securities.(e) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(f) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
LIBOR: Represents the London InterBank Offered Rate.
PIK: Denotes that all or a portion of the income is paid in-kind.
REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, US persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
At December 31, 2008, open credit default swap contracts purchased were as follows:
Effective/
Expiration Date | Notional Amount ($) (g) | Fixed Cash Flows Paid by the Portfolio | Underlying Debt Obligation/Quality Rating (h) | Value ($) | Upfront Premiums Paid/(Received) ($) | Unrealized Appreciation ($) |
5/2/2008
6/20/2013 | 400,0001 | 7.25% | ARCO Chemical Co., 9.8%, 2/1/2020, D | 289,930 | — | 288,963 |
At December 31, 2008, open credit default swap contracts sold were as follows:
Effective/
Expiration Date | Notional Amount ($) (g) | Fixed Cash Flows Received by the Portfolio | Underlying Debt Obligation/Quality Rating (h) | Value ($) | Upfront Premiums Paid/(Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
2/14/2008
3/20/2009 | 405,0001 | 3.8% | HCA, Inc., 6.375%, 1/15/2015, B- | (1,746) | — | (1,276) |
2/26/2008
3/20/2009 | 430,0001 | 5.0% | Tenet Healthcare Corp., 7.375%, 2/1/2013, B | 152 | — | 869 |
Total net unrealized depreciation | (407) |
Counterparty:
1 Merrill Lynch, Pierce, Fenner & Smith, Inc.
|
(g) The maximum potential amount of future undiscounted payments that the Portfolio could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Portfolio for the same referenced debt obligation.(h) The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings.At December 31, 2008, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Appreciation ($) |
EUR
| 2,656,100 |
| USD
| 3,824,293 |
| 1/15/2009 |
| 134,761 |
EUR
| 62,100 |
| USD
| 86,729 |
| 1/15/2009 |
| 467 |
Total unrealized appreciation | 135,228 |
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Depreciation ($) |
EUR
| 37,600 |
| USD
| 52,036 |
| 1/15/2009 |
| (194) |
Currency Abbreviations |
EUR Euro
USD United States Dollar
|
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the tables below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Other Financial Instruments++ |
Level 1
| $ 1,127,073 | $ — |
Level 2
| 148,519,776 | 423,590 |
Level 3
| 2,000,777 | — |
Total | $ 151,647,626 | $ 423,590 |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as forward foreign currency exchange contracts and credit default swap contacts, which are valued at the unrealized appreciation (depreciation) on the instrument.The following is a reconciliation of the Portfolio's Level 3 investments for which significant unobservable inputs were used in determining value at December 31, 2008:
| Investments in Securities |
Balance as of January 1, 2008 | $ 999,801 |
Total realized gain (loss)
| (2,252) |
Change in unrealized appreciation (depreciation)
| (1,853,276) |
Amortization Premium/Discount
| 12,609 |
Net purchases (sales)
| 975,542 |
Net transfers in (out) of Level 3
| 1,868,353 |
Balance as of December 31, 2008 | $ 2,000,777 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $201,152,735) — including $1,052,835 of securities loaned | $ 137,198,682 |
Investments in Daily Assets Fund Institutional (cost $1,127,073)* | 1,127,073 |
Investment in Cash Management QP Trust (cost $13,321,871) | 13,321,871 |
Total investments, at value (cost $215,601,679)
| 151,647,626 |
Cash
| 707,087 |
Foreign currency, at value (cost $3,164)
| 3,164 |
Receivable for investments sold
| 157,215 |
Receivable for Portfolio shares sold
| 3,325 |
Receivable for closed credit default swaps contracts
| 3,333 |
Interest receivable
| 4,019,470 |
Unrealized appreciation on forward foreign currency exchange contracts
| 135,228 |
Foreign taxes recoverable
| 3,029 |
Unrealized appreciation on credit default swaps contracts
| 289,832 |
Other assets
| 21,463 |
Total assets
| 156,990,772 |
Liabilities |
Payable for investments purchased
| 1,457,397 |
Payable for Portfolio shares redeemed
| 184,954 |
Payable upon return of securities loaned
| 1,127,073 |
Payable for closed credit default swap contracts
| 14,344 |
Unrealized depreciation on forward foreign currency exchange contracts
| 194 |
Unrealized depreciation on credit default swaps contracts
| 1,276 |
Accrued management fee
| 58,941 |
Other accrued expenses and payables
| 267,380 |
Total liabilities
| 3,111,559 |
Net assets, at value | $ 153,879,213 |
Net Assets Consist of |
Undistributed net investment income
| 18,004,319 |
Net unrealized appreciation (depreciation) on:
Investments | (63,954,053) |
Credit default swap contracts | 288,556 |
Foreign currency | 140,514 |
Accumulated net realized gain (loss)
| (120,784,149) |
Paid-in capital
| 320,184,026 |
Net assets, at value | $ 153,879,213 |
Class A Net Asset Value, offering and redemption price per share ($153,745,043 ÷ 29,000,230 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.30 |
Class B Net Asset Value, offering and redemption price per share ($134,170 ÷ 25,274 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.31 |
* Represents collateral on securities loaned.Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Interest
| $ 19,150,527 |
Dividends
| 1,289 |
Interest — Cash Management QP Trust
| 285,007 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 64,421 |
Total Income
| 19,501,244 |
Expenses:
Management fee
| 1,139,273 |
Administration fee
| 131,305 |
Custodian fee
| 22,297 |
Distribution service fee (Class B)
| 8,000 |
Services to shareholders
| 476 |
Record keeping fees (Class B)
| 2,935 |
Professional fees
| 96,073 |
Trustees' fees and expenses
| 25,367 |
Reports to shareholders and shareholder meeting
| 203,799 |
Other
| 77,978 |
Total expenses before expense reductions
| 1,707,503 |
Expense reductions
| (14,024) |
Total expenses after expense reductions
| 1,693,479 |
Net investment income (loss) | 17,807,765 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (22,491,277) |
Credit default swap contracts
| (251,669) |
Foreign currency
| 275,339 |
Payments by affiliates (see Note I)
| 6 |
| (22,467,601) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (46,404,643) |
Credit default swap contracts
| 322,027 |
Unfunded loan commitments
| 495 |
Foreign currency
| 45,110 |
| (46,037,011) |
Net gain (loss) | (68,504,612) |
Net increase (decrease) in net assets resulting from operations | $ (50,696,847) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income
| $ 17,807,765 | $ 25,179,014 |
Net realized gain (loss)
| (22,467,601) | (2,365,006) |
Change in net unrealized appreciation (depreciation)
| (46,037,011) | (17,331,415) |
Net increase (decrease) in net assets resulting from operations
| (50,696,847) | 5,482,593 |
Distributions to shareholders from:
Net investment income:
Class A | (23.705,161) | (24,698,902) |
Class B | (925,654) | (3,765,571) |
Total distributions
| (24,630,815) | (28,464,473) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 34,048,144 | 39,622,315 |
Reinvestment of distributions
| 23,705,161 | 24,698,902 |
Cost of shares redeemed
| (77,354,304) | (117,470,499) |
Net increase (decrease) in net assets from Class A share transactions
| (19,600,999) | (53,149,282) |
Class B Proceeds from shares sold
| 76,767 | 3,273,156 |
Reinvestment of distributions
| 925,654 | 3,765,571 |
Cost of shares redeemed
| (9,671,811) | (48,245,391) |
Net increase (decrease) in net assets from Class B share transactions
| (8,669,390) | (41,206,664) |
Increase (decrease) in net assets | (103,598,051) | (117,337,826) |
Net assets at beginning of period
| 257,477,264 | 374,815,090 |
Net assets at end of period (including undistributed net investment income of $18,004,319 and $24,527,293, respectively)
| $ 153,879,213 | $ 257,477,264 |
Other Information |
Class A Shares outstanding at beginning of period
| 31,702,335 | 38,357,993 |
Shares sold
| 5,474,310 | 4,945,319 |
Shares issued to shareholders in reinvestment of distributions
| 3,511,876 | 3,110,693 |
Shares redeemed
| (11,688,291) | (14,711,670) |
Net increase (decrease) in Class A shares
| (2,702,105) | (6,655,658) |
Shares outstanding at end of period
| 29,000,230 | 31,702,335 |
Class B Shares outstanding at beginning of period
| 1,262,331 | 6,354,214 |
Shares sold
| 10,281 | 397,938 |
Shares issued to shareholders in reinvestment of distributions
| 136,728 | 473,062 |
Shares redeemed
| (1,384,066) | (5,962,883) |
Net increase (decrease) in Class B shares
| (1,237,057) | (5,091,883) |
Shares outstanding at end of period
| 25,274 | 1,262,331 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 7.81 | $ 8.38 | $ 8.23 | $ 8.78 | $ 8.43 |
Income (loss) from investment operations: Net investment incomea | .57 | .63 | .62 | .68 | .67 |
Net realized and unrealized gain (loss) | (2.29) | (.54) | .19 | (.38) | .31 |
Total from investment operations | (1.72) | .09 | .81 | .30 | .98 |
Less distributions from: Net investment income | (.79) | (.66) | (.66) | (.85) | (.63) |
Net asset value, end of period | $ 5.30 | $ 7.81 | $ 8.38 | $ 8.23 | $ 8.78 |
Total Return (%)
| (23.94)b | .96 | 10.47 | 3.89 | 12.42 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 154 | 248 | 322 | 344 | 393 |
Ratio of expenses before expense reductions (%)
| .80 | .69 | .71 | .70 | .66 |
Ratio of expenses after expense reductions (%)
| .79 | .69 | .71 | .70 | .66 |
Ratio of net investment income (%)
| 8.42 | 7.84 | 7.73 | 8.27 | 8.11 |
Portfolio turnover rate (%)
| 38 | 61 | 93 | 100 | 162 |
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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 7.81 | $ 8.38 | $ 8.22 | $ 8.77 | $ 8.41 |
Income (loss) from investment operations: Net investment incomea | .53 | .60 | .59 | .65 | .64 |
Net realized and unrealized gain (loss) | (2.27) | (.54) | .20 | (.39) | .32 |
Total from investment operations | (1.74) | .06 | .79 | .26 | .96 |
Less distributions from: Net investment income | (.76) | (.63) | (.63) | (.81) | (.60) |
Net asset value, end of period | $ 5.31 | $ 7.81 | $ 8.38 | $ 8.22 | $ 8.77 |
Total Return (%)
| (24.13)b | .54 | 10.11 | 3.41 | 12.08 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .1 | 10 | 53 | 56 | 57 |
Ratio of expenses before expense reductions (%)
| 1.25 | 1.08 | 1.10 | 1.10 | 1.06 |
Ratio of expenses after expense reductions (%)
| 1.23 | 1.08 | 1.10 | 1.10 | 1.06 |
Ratio of net investment income (%)
| 7.98 | 7.45 | 7.34 | 7.87 | 7.71 |
Portfolio turnover rate (%)
| 38 | 61 | 93 | 100 | 162 |
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, 2008
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, 2008 are 0.93% and 1.18% 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, 2008.
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 risks, 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 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
| $5,119 | $7,502 | $10,157 | $9,990 |
Average annual total return
| -48.81% | -9.14% | .31% | -.01% |
MSCI EAFE + EMF Index
| Growth of $10,000
| $5,476 | $8,136 | $11,485 | $12,162 |
Average annual total return
| -45.24% | -6.64% | 2.81% | 1.98% |
DWS International Select Equity VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $5,093 | $7,402 | $9,943 | $11,378 |
Average annual total return
| -49.07% | -9.54% | -.12% | 2.00% |
MSCI EAFE + EMF Index
| Growth of $10,000
| $5,476 | $8,136 | $11,485 | $13,910 |
Average annual total return
| -45.24% | -6.64% | 2.81% | 5.21% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 544.70 | | $ 543.90 | |
Expenses Paid per $1,000*
| $ 4.04 | | $ 5.05 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,019.91 | | $ 1,018.60 | |
Expenses Paid per $1,000*
| $ 5.28 | | $ 6.60 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS International Select Equity VIP
| 1.04% | | 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, 2008
DWS International Select Equity VIP
The MSCI EAFE® + EMF Index (the Portfolio's benchmark) returned -45.24% during 2008, a year that was characterized by the rapid expansion of the global financial crisis, slowing economic growth and sharply elevated investor risk aversion. Class A shares of the Portfolio returned -48.81% (unadjusted for contract charges), underperforming the index. The primary reason for underperformance was that the Portfolio held a substantial exposure to higher-risk stocks coming into the autumn downturn. Upon taking over for the previous management team in mid-August, we sought to reduce risk by decreasing the Portfolio's weightings in higher-risk areas such as mid- and small-caps, emerging-market stocks, and cyclicals. Unfortunately, we did not make these changes quickly enough to prevent underperformance.
For the full year, the Portfolio's return was helped by an underweight in financials and favorable stock selection in the information technology and health care sectors, but this was offset by weaker stock selection in the consumer staples and consumer discretionary sectors.1 The leading contributors to performance included iShares MSCI Japan Index Fund, Telefonica SA and BASF SE. The most significant detractors were the Russian gas company Gazprom and the brewer Carlsberg AS.
Believing that recovery in the global economy will likely occur slowly, we are maintaining a defensive positioning in the Portfolio. We are favoring sectors with high cash flows, stable earnings, and a low sensitivity to economic trends, such as health care and telecommunications. At the same time, the Portfolio is underweight in areas that are more dependent on economic growth, such as industrials, financials and the consumer discretionary sector. Although defensive for now, we are also keeping a close eye on stock-specific opportunities given that dividend yields are attractive and price-to-book values are at their lowest level of the past 10-15 years.
Joseph Axtell, CFA
Lead Portfolio Manager, Deutsche Investment Management Americas Inc.
Michael Sieghart, CFA
Consultant, Deutsche Investment Management Americas Inc.
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.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS International Select Equity VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 95% | 94% |
Exchange Traded Fund | 5% | — |
Cash Equivalents | — | 3% |
Preferred Stocks | — | 3% |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks) | 12/31/08 | 12/31/07 |
| | |
Health Care | 21% | 5% |
Financials | 19% | 23% |
Telecommunications Services | 14% | 6% |
Energy | 11% | 5% |
Consumer Staples | 10% | 7% |
Industrials | 8% | 18% |
Materials | 7% | 9% |
Information Technology | 6% | 5% |
Utilities | 4% | 6% |
Consumer Discretionary | — | 16% |
| 100% | 100% |
Geographical Diversification (As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Continental Europe | 59% | 52% |
Japan | 24% | 15% |
United Kingdom | 7% | 12% |
Asia (excluding Japan) | 6% | 9% |
Latin America | 2% | 2% |
Russia | 1% | 4% |
Canada | 1% | — |
Middle East | — | 2% |
Australia | — | 2% |
Africa | — | 2% |
| 100% | 100% |
Asset allocation, geographical and sector diversifications are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 175. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS International Select Equity VIP
|
Shares
| Value ($) |
| |
Common Stocks 94.5% |
Austria 2.0% |
Intercell AG* (Cost $1,671,371) | 59,154 | 1,813,698 |
Brazil 1.1% |
Petroleo Brasileiro SA (ADR) (Cost $2,014,976) | 38,800 | 950,212 |
Canada 0.9% |
Potash Corp. of Saskatchewan, Inc. (Cost $1,412,403) | 11,514 | 835,132 |
China 2.5% |
China Life Insurance Co., Ltd. "H" (Cost $2,758,208) | 720,000 | 2,218,739 |
Denmark 5.1% |
Carlsberg AS "B" (a) | 49,700 | 1,631,700 |
Novo Nordisk AS "B" | 59,200 | 3,012,651 |
(Cost $9,081,105) | 4,644,351 |
Finland 2.9% |
Fortum Oyj | 73,400 | 1,576,587 |
Nokia Oyj | 69,500 | 1,077,454 |
(Cost $4,785,260) | 2,654,041 |
France 7.6% |
Alstom SA | 15,592 | 920,752 |
Axa | 53,845 | 1,200,458 |
BNP Paribas | 22,803 | 962,888 |
Societe Generale | 31,059 | 1,573,061 |
Total SA | 41,180 | 2,245,038 |
(Cost $8,605,296) | 6,902,197 |
Germany 17.5% |
Allianz SE (Registered) | 13,941 | 1,495,285 |
BASF SE | 41,600 | 1,643,804 |
Bayer AG (a) | 61,711 | 3,625,197 |
Deutsche Boerse AG | 24,800 | 1,806,241 |
Deutsche Telekom AG (Registered) (a) | 141,100 | 2,143,812 |
E.ON AG | 38,414 | 1,553,353 |
Linde AG | 20,100 | 1,700,932 |
Muenchener Rueckversicherungs-
Gesellschaft AG (Registered) | 12,300 | 1,932,908 |
(Cost $14,041,948) | 15,901,532 |
Hong Kong 2.1% |
China Mobile Ltd. (Cost $1,972,181) | 186,000 | 1,885,818 |
Italy 1.5% |
Intesa Sanpaolo (Cost $2,309,847) | 373,100 | 1,322,643 |
Japan 18.6% |
Astellas Pharma, Inc. | 27,500 | 1,119,013 |
Canon, Inc. | 75,400 | 2,366,922 |
East Japan Railway Co. | 23,200 | 1,806,470 |
Japan Tobacco, Inc. | 638 | 2,112,675 |
Mitsubishi Corp. | 121,000 | 1,698,651 |
Mitsubishi UFJ Financial Group, Inc. | 235,000 | 1,458,157 |
Nintendo Co., Ltd. | 4,500 | 1,728,877 |
|
Shares
| Value ($) |
| |
Nippon Telegraph & Telephone Corp. | 25,900 | 1,385,971 |
Seven & I Holdings Co., Ltd. | 41,000 | 1,404,649 |
Terumo Corp. | 37,200 | 1,742,114 |
(Cost $19,296,964) | 16,823,499 |
Luxembourg 0.9% |
ArcelorMittal (Cost $2,080,196) | 35,343 | 851,880 |
Mexico 0.9% |
America Movil SAB de CV "L" (ADR) (Cost $1,493,798) | 26,600 | 824,334 |
Norway 2.8% |
DnB NOR ASA | 121,500 | 485,345 |
StatoilHydro ASA | 125,400 | 2,065,372 |
(Cost $4,959,643) | 2,550,717 |
Russia 1.2% |
Gazprom (ADR)* (Cost $2,976,319) | 76,300 | 1,092,177 |
Singapore 1.5% |
United Overseas Bank Ltd. (Cost $2,089,882) | 146,000 | 1,317,951 |
Spain 3.9% |
Telefonica SA (Cost $2,826,342) | 157,364 | 3,527,387 |
Switzerland 14.1% |
ABB Ltd. (Registered)* | 100,988 | 1,522,315 |
Lonza Group AG (Registered) | 20,203 | 1,867,666 |
Nestle SA (Registered) | 83,883 | 3,306,045 |
Novartis AG (Registered) | 44,409 | 2,225,090 |
Roche Holding AG (Genusschein) | 18,265 | 2,811,599 |
Xstrata PLC | 116,412 | 1,085,266 |
(Cost $14,213,473) | 12,817,981 |
United Kingdom 7.4% |
AMEC PLC | 127,649 | 911,098 |
Babcock International Group PLC | 80,802 | 555,838 |
BG Group PLC | 151,093 | 2,097,740 |
HSBC Holdings PLC | 91,303 | 873,882 |
Vodafone Group PLC | 1,125,872 | 2,266,508 |
(Cost $9,179,092) | 6,705,066 |
Total Common Stocks (Cost $107,768,304) | 85,639,355 |
|
Exchange Traded Fund 4.9% |
Japan |
iShares MSCI Japan Index Fund (a) (Cost $5,387,329) | 463,726 | 4,451,770 |
|
Securities Lending Collateral 9.6% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $8,690,918) | 8,690,918 | 8,690,918 |
|
Cash Equivalents 0.4% |
Cash Management QP Trust, 1.42% (b) (Cost $369,189) | 369,189 | 369,189 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $122,215,740)+ | 109.4 | 99,151,232 |
Other Assets and Liabilities, Net | (9.4) | (8,502,160) |
Net Assets | 100.0 | 90,649,072 |
* Non-income producing security.+ The cost for federal income tax purposes was $123,010,114. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $23,858,882. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $6,936,104 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $30,794,986.(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, 2008 amounted to $8,315,612, which is 9.2% 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.ADR: American Depositary Receipt
MSCI: Morgan Stanley Capital International
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 16,844,543 |
Level 2
| 82,306,689 |
Level 3
| — |
Total | $ 99,151,232 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $113,155,633) — including $8,315,612 of securities loaned | $ 90,091,125 |
Investment in Daily Assets Fund Institutional (cost $8,690,918)* | 8,690,918 |
Investment in Cash Management QP Trust (cost $369,189) | 369,189 |
Total investments, at value (cost $122,215,740)
| 99,151,232 |
Foreign currency, at value (cost $209,574)
| 209,614 |
Dividends receivable
| 177,391 |
Interest receivable
| 10,536 |
Foreign taxes recoverable
| 145,889 |
Other assets
| 3,602 |
Total assets
| 99,698,264 |
Liabilities |
Payable for Portfolio shares redeemed
| 84,094 |
Payable upon return of securities loaned
| 8,690,918 |
Accrued management fee
| 59,652 |
Other accrued expenses and payables
| 214,528 |
Total liabilities
| 9,049,192 |
Net assets, at value | $ 90,649,072 |
Net Assets Consist of |
Undistributed net investment income
| 5,131,928 |
Net unrealized appreciation (depreciation) on:
Investments | (23,064,508) |
Foreign currency | 13,407 |
Accumulated net realized gain (loss)
| (48,835,637) |
Paid-in capital
| 157,403,882 |
Net assets, at value | $ 90,649,072 |
Class A Net Asset Value, offering and redemption price per share ($90,552,029 ÷ 14,554,587 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.22 |
Class B Net Asset Value, offering and redemption price per share ($97,043 ÷ 15,672 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.19 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $485,492)
| $ 6,904,106 |
Interest
| 23,025 |
Interest — Cash Management QP Trust
| 111,832 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 254,593 |
Total Income
| 7,293,556 |
Expenses:
Management fee
| 1,244,991 |
Administration fee
| 105,669 |
Custodian fee
| 275,682 |
Distribution service fee (Class B)
| 11,230 |
Services to shareholders
| 219 |
Record keeping fees (Class B)
| 6,257 |
Professional fees
| 82,959 |
Trustees' fees and expenses
| 18,554 |
Reports to shareholders and shareholder meeting
| 78,226 |
Other
| 29,970 |
Total expenses before expense reductions
| 1,853,757 |
Expense reductions
| (11,048) |
Total expenses after expense reductions
| 1,842,709 |
Net investment income (loss) | 5,450,847 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (48,344,004) |
Foreign currency
| (316,140) |
Payments by affiliates (see Note I)
| 354,782 |
| (48,305,362) |
Change in net unrealized appreciation (depreciation) on:
Investments (including deferred foreign tax credit of $15,499)
| (62,634,390) |
Foreign currency
| (2,735) |
| (62,637,125) |
Net gain (loss) on investment transactions | (110,942,487) |
Net increase (decrease) in net assets resulting from operations | $ (105,491,640) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 5,450,847 | $ 3,970,300 |
Net realized gain (loss)
| (48,305,362) | 62,491,196 |
Change in net unrealized appreciation (depreciation)
| (62,637,125) | (23,087,118) |
Net increase (decrease) in net assets resulting from operations
| (105,491,640) | 43,374,378 |
Distributions to shareholders from:
Net investment income:
Class A | (1,777,801) | (6,153,181) |
Class B | (65,124) | (1,706,211) |
Net realized gains:
Class A | (55,032,003) | (21,172,091) |
Class B | (3,550,840) | (6,853,490) |
Total distributions
| (60,425,768) | (35,884,973) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 11,757,062 | 26,016,717 |
Reinvestment of distributions
| 56,809,804 | 27,325,272 |
Cost of shares redeemed
| (52,019,794) | (48,603,167) |
Net increase (decrease) in net assets from Class A share transactions
| 16,547,072 | 4,738,822 |
Class B Proceeds from shares sold
| 830,161 | 3,741,916 |
Reinvestment of distributions
| 3,615,964 | 8,559,701 |
Cost of shares redeemed
| (15,396,520) | (69,011,239) |
Net increase (decrease) in net assets from Class B share transactions
| (10,950,395) | (56,709,622) |
Increase (decrease) in net assets | (160,320,731) | (44,481,395) |
Net assets at beginning of period
| 250,969,803 | 295,451,198 |
Net assets at end of period (including undistributed net investment income of $5,131,928 and $1,838,472, respectively)
| $ 90,649,072 | $ 250,969,803 |
Other Information |
Class A Shares outstanding at beginning of period
| 14,064,172 | 13,653,834 |
Shares sold
| 1,040,380 | 1,594,102 |
Shares issued to shareholders in reinvestment of distributions
| 5,131,870 | 1,820,471 |
Shares redeemed
| (5,681,835) | (3,004,235) |
Net increase (decrease) in Class A shares
| 490,415 | 410,338 |
Shares outstanding at end of period
| 14,554,587 | 14,064,172 |
Class B Shares outstanding at beginning of period
| 912,661 | 4,475,081 |
Shares sold
| 60,348 | 229,248 |
Shares issued to shareholders in reinvestment of distributions
| 326,645 | 570,267 |
Shares redeemed
| (1,283,982) | (4,361,935) |
Net increase (decrease) in Class B shares
| (896,989) | (3,562,420) |
Shares outstanding at end of period
| 15,672 | 912,661 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 16.76 | $ 16.31 | $ 13.25 | $ 11.91 | $ 10.18 |
Income (loss) from investment operations: Net investment incomea | .33d | .25 | .24b | .20 | .17 |
Net realized and unrealized gain (loss) | (6.67) | 2.24 | 3.11 | 1.48 | 1.67 |
Total from investment operations | (6.34) | 2.49 | 3.35 | 1.68 | 1.84 |
Less distributions from: Net investment income | (.13) | (.46) | (.29) | (.34) | (.11) |
Net realized gains | (4.07) | (1.58) | — | — | — |
Total distributions | (4.20) | (2.04) | (.29) | (.34) | (.11) |
Net asset value, end of period | $ 6.22 | $ 16.76 | $ 16.31 | $ 13.25 | $ 11.91 |
Total Return (%)
| (48.81)c,e | 16.71 | 25.56 | 14.51 | 18.25 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 91 | 236 | 223 | 196 | 184 |
Ratio of expenses before expense reductions (%)
| 1.02 | .93 | .88 | .87 | .89 |
Ratio of expenses after expense reductions (%)
| 1.01 | .93 | .88 | .87 | .89 |
Ratio of net investment income (%)
| 3.04d | 1.53 | 1.65b | 1.59 | 1.58 |
Portfolio turnover rate (%)
| 132 | 117 | 122 | 93 | 88 |
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.
c Total return would have been lower had certain expenses not been reimbursed.
d Net investment income per share and ratio of net investment income include non-recurring dividend income amounting to $0.16 per share and 1.49% of average daily net assets, respectively.
e Includes a reimbursement from the Advisor to reimburse the effect of losses incurred as the result of certain operation errors during the period. Excluding this reimbursement, total return would have been 0.14% lower.
|
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 16.70 | $ 16.26 | $ 13.21 | $ 11.88 | $ 10.15 |
Income (loss) from investment operations: Net investment incomea | .24d | .19 | .19b | .15 | .13 |
Net realized and unrealized gain (loss) | (6.61) | 2.22 | 3.09 | 1.47 | 1.67 |
Total from investment operations | (6.37) | 2.41 | 3.28 | 1.62 | 1.80 |
Less distributions from: Net investment income | (.07) | (.39) | (.23) | (.29) | (.07) |
Net realized gains | (4.07) | (1.58) | — | — | — |
Total distributions | (4.14) | (1.97) | (.23) | (.29) | (.07) |
Net asset value, end of period | $ 6.19 | $ 16.70 | $ 16.26 | $ 13.21 | $ 11.88 |
Total Return (%)
| (49.07)c,e | 16.20 | 25.06 | 14.00 | 17.84 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .1 | 15 | 73 | 62 | 47 |
Ratio of expenses before expense reductions (%)
| 1.39 | 1.30 | 1.26 | 1.26 | 1.28 |
Ratio of expenses after expense reductions (%)
| 1.38 | 1.30 | 1.26 | 1.26 | 1.28 |
Ratio of net investment income (%)
| 2.67d | 1.16 | 1.27b | 1.20 | 1.19 |
Portfolio turnover rate (%)
| 132 | 117 | 122 | 93 | 88 |
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.
c Total return would have been lower had certain expenses not been reimbursed.
d Net investment income per share and ratio of net investment income include non-recurring dividend income amounting to $0.16 per share and 1.49% of average daily net assets, respectively.
e Includes a reimbursement from the Advisor to reimburse the effect of losses incurred as the result of certain operation errors during the period. Excluding this reimbursement, total return would have been 0.14% lower.
|
Performance Summary December 31, 2008
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 ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated May 1, 2008 is 0.90% for Class A 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, 2008.
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.
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 Janus Growth & Income VIP from 10/29/1999 to 12/31/2008 |
[] 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
| $5,871 | $6,786 | $8,483 | $7,707 |
Average annual total return
| -41.29% | -12.13% | -3.24% | -2.80% |
Russell 1000 Growth Index
| Growth of $10,000
| $6,156 | $7,508 | $8,401 | $5,647 |
Average annual total return
| -38.44% | -9.11% | -3.42% | -6.04% |
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 if the Portfolio's expenses were not maintained.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 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | |
Beginning Account Value 7/1/08
| $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 662.40 | |
Expenses Paid per $1,000*
| $ 3.55 | |
Hypothetical 5% Portfolio Return | Class A | |
Beginning Account Value 7/1/08
| $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.86 | |
Expenses Paid per $1,000*
| $ 4.32 | |
* Expenses are equal to the Portfolio's annualized expense ratio, 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 366.Annualized Expense Ratios | Class A | |
DWS Variable Series II — DWS Janus Growth & Income VIP
| .85% | |
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, 2008
DWS Janus Growth & Income VIP
Continuing turmoil from the credit crisis and concerns over a prolonged recession characterized US equity markets during the 12-month period ending December 31, 2008. For that same period, the Portfolio's Class A shares (unadjusted for contract charges) returned -41.29%, while its benchmark, the Russell 1000® Growth Index, returned -38.44%.
Holdings within the consumer discretionary and information technology sectors were the main laggards during the period. In terms of contributors, select materials names coupled with a significant underweight in financials aided relative performance.1
Google, Inc. has been impacted by investor worries that the current Internet advertising climate favors advertisers who can pay less for clicks. Given the difficult economic climate, we chose to exit the position during the fourth quarter. Hess Corp., an exploration and production company and a key contributor to the Portfolio in 2008, was impacted by the steep decline in oil prices during the second half of the year.
Yahoo! Inc. was one of the top contributors to performance for the year. We sold the Portfolio's position in the Internet software company early in the period after Microsoft Corp. made an offer to buy the company. Genentech, Inc., a California-based biotechnology leader, moved ahead during the second half of the year after receiving a take-out bid from Swiss-based Roche, which already owned a majority share of the company.
The magnitude of the economic and financial downturn in 2008 caught many of us by surprise. While we recognize the potential for a long series of negative economic data points hitting financial markets, we believe there is ample reason to be optimistic, recognizing that valuations are at historically low levels by any measure and that the market typically discounts an eventual economic recovery prior to it showing up in the data.
Marc Pinto, CFA
Portfolio Manager, Janus Capital Management LLC, Subadvisor to the Portfolio
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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Janus Growth & Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 91% | 95% |
Government & Agency Obligations | 7% | — |
Cash Equivalents | 1% | 1% |
Corporate Bonds | 1% | — |
Preferred Stocks | — | 1% |
Participatory Notes | — | 2% |
Equity Linked Structured Notes | — | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common and Preferred Stocks and Corporate Bonds) | 12/31/08 | 12/31/07 |
| | |
Information Technology | 24% | 25% |
Consumer Staples | 22% | 14% |
Health Care | 17% | 11% |
Energy | 13% | 16% |
Consumer Discretionary | 10% | 14% |
Industrials | 5% | 8% |
Financials | 5% | 10% |
Materials | 4% | 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. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Janus Growth & Income VIP
|
Shares
| Value ($) |
| |
Common Stocks 90.9% |
Consumer Discretionary 8.4% |
Hotels Restaurants & Leisure 3.1% |
Crown Ltd. (a) | 37,830 | 158,361 |
MGM MIRAGE* (a) | 57,340 | 788,998 |
Starwood Hotels & Resorts Worldwide, Inc. (a) | 27,005 | 483,390 |
Wynn Resorts Ltd.* (a) | 18,875 | 797,658 |
| 2,228,407 |
Internet & Catalog Retail 0.0% |
Liberty Media Corp. — Interactive "A"* (a) | 11,640 | 36,317 |
Media 1.1% |
The DIRECTV Group, Inc.* (a) | 33,515 | 767,829 |
Specialty Retail 2.8% |
Esprit Holdings Ltd. | 264,025 | 1,504,951 |
Tiffany & Co. (a) | 22,250 | 525,767 |
| 2,030,718 |
Textiles, Apparel & Luxury Goods 1.4% |
NIKE, Inc. "B" | 20,425 | 1,041,675 |
Consumer Staples 20.2% |
Beverages 5.0% |
Anheuser-Busch InBev NV (a) | 155,601 | 3,607,505 |
Anheuser-Busch InBev NV (VVPR Strip)* | 88,376 | 492 |
| 3,607,997 |
Food & Staples Retailing 4.0% |
CVS Caremark Corp. | 101,200 | 2,908,488 |
Food Products 6.2% |
Nestle SA (ADR) (Registered) | 44,982 | 1,785,785 |
Nestle SA (Registered) | 68,430 | 2,697,003 |
| 4,482,788 |
Household Products 1.7% |
Reckitt Benckiser Group PLC | 33,918 | 1,263,596 |
Tobacco 3.3% |
Altria Group, Inc. | 41,620 | 626,797 |
Philip Morris International, Inc. | 41,620 | 1,810,886 |
| 2,437,683 |
Energy 11.6% |
Oil, Gas & Consumable Fuels |
ConocoPhillips | 45,000 | 2,331,000 |
EnCana Corp. | 45,668 | 2,122,648 |
EOG Resources, Inc. | 17,195 | 1,144,843 |
Hess Corp. | 53,259 | 2,856,813 |
| 8,455,304 |
Financials 4.2% |
Capital Markets 3.7% |
Credit Suisse Group AG (ADR) | 27,295 | 771,356 |
Morgan Stanley | 70,720 | 1,134,349 |
The Goldman Sachs Group, Inc. | 9,315 | 786,093 |
| 2,691,798 |
|
Shares
| Value ($) |
| |
Real Estate Management & Development 0.5% |
Hang Lung Properties Ltd. | 140,725 | 308,694 |
Health Care 15.7% |
Biotechnology 2.3% |
Celgene Corp.* | 11,295 | 624,388 |
Genentech, Inc.* | 12,210 | 1,012,331 |
| 1,636,719 |
Health Care Equipment & Supplies 3.4% |
Alcon, Inc. | 13,505 | 1,204,511 |
Baxter International, Inc. | 13,245 | 709,799 |
Covidien Ltd. | 16,345 | 592,343 |
| 2,506,653 |
Health Care Providers & Services 2.7% |
UnitedHealth Group, Inc. | 75,070 | 1,996,862 |
Pharmaceuticals 7.3% |
Allergan, Inc. | 24,635 | 993,283 |
Bristol-Myers Squibb Co. | 27,660 | 643,095 |
Merck & Co., Inc. | 45,490 | 1,382,896 |
Roche Holding AG (Genusschein) | 8,737 | 1,344,919 |
Wyeth | 24,865 | 932,686 |
| 5,296,879 |
Industrials 5.1% |
Aerospace & Defense 3.3% |
BAE Systems PLC (ADR) | 17,805 | 397,230 |
Boeing Co. | 28,590 | 1,219,935 |
Empresa Brasiliera de Aeronautica SA (ADR) | 50,013 | 810,711 |
| 2,427,876 |
Electrical Equipment 0.7% |
JA Solar Holdings Co., Ltd. (ADR)* (a) | 52,345 | 228,748 |
Suntech Power Holdings Co., Ltd. (ADR)* (a) | 24,612 | 287,960 |
| 516,708 |
Machinery 1.1% |
Danaher Corp. (a) | 13,820 | 782,350 |
Information Technology 21.9% |
Communications Equipment 6.9% |
Cisco Systems, Inc.* | 35,285 | 575,146 |
Corning, Inc. (a) | 149,242 | 1,422,276 |
Nokia Oyj (ADR) (a) | 43,038 | 671,393 |
QUALCOMM, Inc. | 36,645 | 1,312,990 |
Research In Motion Ltd.* | 26,135 | 1,060,558 |
| 5,042,363 |
Computers & Peripherals 4.0% |
Apple, Inc.* | 23,694 | 2,022,283 |
EMC Corp.* | 80,680 | 844,720 |
| 2,867,003 |
Electronic Equipment, Instruments & Components 0.4% |
Amphenol Corp. "A" | 11,845 | 284,043 |
Internet Software & Services 0.8% |
eBay, Inc.* | 39,690 | 554,072 |
|
Shares
| Value ($) |
| |
IT Services 1.9% |
Visa, Inc. "A" (a) | 9,960 | 522,402 |
Western Union Co. | 61,260 | 878,469 |
| 1,400,871 |
Software 7.9% |
Citrix Systems, Inc.* | 11,845 | 279,187 |
Microsoft Corp. | 53,575 | 1,041,498 |
Nintendo Co., Ltd. (ADR) (a) | 21,100 | 1,007,525 |
Oracle Corp.* | 192,650 | 3,415,684 |
| 5,743,894 |
Materials 3.8% |
Chemicals |
Monsanto Co. | 5,455 | 383,759 |
Praxair, Inc. | 8,530 | 506,341 |
Syngenta AG (ADR) | 48,250 | 1,888,505 |
| 2,778,605 |
Total Common Stocks (Cost $81,633,867) | 66,096,192 |
|
Preferred Stock 0.4% |
Financials |
Citigroup, Inc., Series AA, 8.125% (Cost $413,997) | 18,325 | 292,284 |
| Principal Amount ($) | Value ($) |
| |
Corporate Bonds 0.7% |
Consumer Discretionary 0.4% |
MGM MIRAGE, 8.5%, 9/15/2010 | 346,000 | 290,640 |
| Principal Amount ($) | Value ($) |
| |
Energy 0.3% |
Suntech Power Holdings Co., Ltd., 144A, 3.0%, 3/15/2013 | 623,000 | 249,979 |
Total Corporate Bonds (Cost $850,506) | 540,619 |
|
Government & Agency Obligations 7.3% |
US Treasury Obligations |
US Treasury Notes: | | |
1.5%, 10/31/2010 (a) | 844,000 | 856,594 |
2.125%, 1/31/2010 (a) | 2,326,000 | 2,368,612 |
2.75%, 7/31/2010 | 646,000 | 669,216 |
3.375%, 7/31/2013 (a) | 646,000 | 705,604 |
4.875%, 7/31/2011 (a) | 646,000 | 712,972 |
Total Government & Agency Obligations (Cost $5,164,642) | 5,312,998 |
|
Shares
| Value ($) |
| |
Securities Lending Collateral 14.8% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $10,735,723) | 10,735,723 | 10,735,723 |
|
Cash Equivalents 0.9% |
Cash Management QP Trust, 1.42% (b) (Cost $646,439) | 646,439 | 646,439 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $99,445,174)+ | 115.0 | 83,624,255 |
Other Assets and Liabilities, Net | (15.0) | (10,876,343) |
Net Assets | 100.0 | 72,747,912 |
* Non-income producing security.+ The cost for federal income tax purposes was $99,875,076. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $16,250,821. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $5,338,897 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $21,589,718.(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, 2008 amounted to $10,631,296, which is 14.6% of net assets.(b) Affiliated Fund is managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(c) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
ADR: American Depositary Receipt
At December 31, 2008, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Appreciation ($) |
GBP
| 500,000 |
| USD
| 786,000 |
| 1/23/2009 |
| 68,204 |
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Depreciation ($) |
CHF
| 925,000 |
| USD
| 787,858 |
| 1/23/2009 |
| (81,443) |
EUR
| 480,000 |
| USD
| 610,668 |
| 1/23/2009 |
| (55,841) |
CHF
| 1,355,000 |
| USD
| 1,189,118 |
| 2/6/2009 |
| (84,474) |
EUR
| 770,000 |
| USD
| 1,060,752 |
| 2/6/2009 |
| (7,918) |
Total unrealized depreciation | (229,676) |
Currency Abbreviations |
CHF Swiss Franc
EUR Euro
GBP British Pound
USD United States Dollar
|
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Other Financial Instruments++ |
Level 1
| $ 66,238,678 | $ — |
Level 2
| 17,385,577 | (161,472) |
Level 3
| — | — |
Total | $ 83,624,255 | $ (161,472) |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as forward foreign currency exchange contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $88,063,012) — including $10,631,788 of securities loaned | $ 72,242,093 |
Investments in Daily Assets Fund Institutional, (cost $10,735,723)* | 10,735,723 |
Investment in Cash Management QP Trust (cost $646,439) | 646,439 |
Total investments, at value (cost $99,445,174)
| 83,624,255 |
Dividends receivable
| 106,629 |
Interest receivable
| 95,582 |
Foreign taxes recoverable
| 15,115 |
Net receivable on closed forward foreign currency exchange contracts
| 2,696 |
Unrealized appreciation on forward foreign currency exchange contracts
| 68,204 |
Other assets
| 3,827 |
Total assets
| 83,916,308 |
Liabilities |
Foreign cash overdraft
| 42,545 |
Payable upon return of securities loaned
| 10,735,723 |
Payable for Portfolio shares redeemed
| 33,280 |
Unrealized depreciation on forward foreign currency exchange contracts
| 229,676 |
Accrued management fee
| 32,488 |
Other accrued expenses and payables
| 94,684 |
Total liabilities
| 11,168,396 |
Net assets, at value | $ 72,747,912 |
Net Assets Consist of |
Undistributed net investment income
| 1,451,246 |
Net unrealized appreciation (depreciation) on:
Investments | (15,820,919) |
Foreign currency | (166,440) |
Accumulated net realized gain (loss)
| (16,266,163) |
Paid-in capital
| 103,550,188 |
Net assets, at value | $ 72,747,912 |
Class A Net Asset Value, offering and redemption price per share ($72,747,912 ÷ 10,707,778 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.79 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $92,750)
| $ 2,151,856 |
Interest — Cash Management QP Trust
| 54,714 |
Interest
| 123,457 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 241,363 |
Total Income
| 2,571,390 |
Expenses:
Management fee
| 897,800 |
Administration fee
| 76,972 |
Services to shareholders
| 50 |
Custodian and accounting fees
| 58,454 |
Distribution service fee (Class B)
| 3,511 |
Record keeping fees (Class B)
| 1,388 |
Professional fees
| 69,314 |
Trustees' fees and expenses
| 19,156 |
Reports to shareholders and shareholder meeting
| 26,734 |
Other
| 17,765 |
Total expenses before expense reductions
| 1,171,144 |
Expense reductions
| (7,973) |
Total expenses after expense reductions
| 1,163,171 |
Net investment income (loss) | 1,408,219 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (15,768,982) |
Foreign currency
| 72,581 |
| (15,696,401) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (48,908,666) |
Foreign currency
| (170,089) |
| (49,078,755) |
Net gain (loss) | (64,775,156) |
Net increase (decrease) in net assets resulting from operations | $ (63,366,937) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 1,408,219 | $ 1,783,281 |
Net realized gain (loss)
| (15,696,401) | 26,158,518 |
Change in net unrealized appreciation (depreciation)
| (49,078,755) | (14,652,159) |
Net increase (decrease) in net assets resulting from operations
| (63,366,937) | 13,289,640 |
Distributions to shareholders from:
Net investment income:
Class A | (1,498,719) | (1,085,636) |
Class B | (26,339) | (60,241) |
Net realized gains:
Class A | (10,758,388) | — |
Class B | (307,896) | — |
Total distributions
| (12,591,342) | (1,145,877) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 3,988,301 | 3,234,514 |
Reinvestment of distributions
| 12,257,107 | 1,085,636 |
Cost of shares redeemed
| (36,686,072) | (39,897,035) |
Net increase (decrease) in net assets from Class A share transactions
| (20,440,664) | (35,576,885) |
Class B* Proceeds from shares sold
| 34,143 | 923,888 |
Reinvestment of distributions
| 334,235 | 60,241 |
Cost of shares redeemed
| (4,769,414) | (29,091,879) |
Net increase (decrease) in net assets from Class B share transactions
| (4,401,036) | (28,107,750) |
Increase (decrease) in net assets | (100,799,979) | (51,540,872) |
Net assets at beginning of period
| 173,547,891 | 225,088,763 |
Net assets at end of period (including undistributed net investment income of $1,451,246 and $1,499,729, respectively)
| $ 72,747,912 | $ 173,547,891 |
Other Information |
Class A Shares outstanding at beginning of period
| 13,362,156 | 16,236,105 |
Shares sold
| 377,805 | 261,428 |
Shares issued to shareholders in reinvestment of distributions
| 1,171,808 | 92,159 |
Shares redeemed
| (4,203,991) | (3,227,536) |
Net increase (decrease) in Class A shares
| (2,654,378) | (2,873,949) |
Shares outstanding at end of period
| 10,707,778 | 13,362,156 |
Class B* Shares outstanding at beginning of period
| 392,971 | 2,676,871 |
Shares sold
| 3,098 | 77,171 |
Shares issued to shareholders in reinvestment of distributions
| 32,107 | 5,135 |
Shares redeemed
| (428,176) | (2,366,206) |
Net increase (decrease) in Class B shares
| (392,971) | (2,283,900) |
Shares outstanding at end of period
| — | 392,971 |
* On July 31, 2008, Class B shares were liquidated.The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.62 | $ 11.91 | $ 11.05 | $ 9.88 | $ 8.86 |
Income (loss) from investment operations: Net investment income (loss)a | .11 | .12 | .07 | .05 | .03 |
Net realized and unrealized gain (loss) | (4.98) | .66 | .86 | 1.14 | .99 |
Total from investment operations | (4.87) | .78 | .93 | 1.19 | 1.02 |
Less distributions from: Net investment income | (.12) | (.07) | (.07) | (.02) | — |
Net realized and unrealized gain (loss) on investment transactions | (.84) | — | — | — | — |
Total distributions | (.96) | (.07) | (.07) | (.02) | — |
Net asset value, end of period | $ 6.79 | $ 12.62 | $ 11.91 | $ 11.05 | $ 9.88 |
Total Return (%)
| (41.29)b | 6.59 | 8.43 | 12.11 | 11.51 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 73 | 169 | 193 | 195 | 187 |
Ratio of expenses before expense reductions (%)
| .91 | .90 | .85 | .92 | 1.06 |
Ratio of expenses after expense reductions (%)
| .90 | .90 | .85 | .92 | 1.06 |
Ratio of net investment income (loss) (%)
| 1.10 | .93 | .68 | .45 | .34 |
Portfolio turnover rate (%)
| 58 | 73 | 44 | 32 | 52 |
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, 2008
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, 2008 are 0.83% 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, 2008.
Risk Considerations
The Portfolio is subject to stock market risk. The Portfolio may focus its investments on certain economic sectors, thereby increasing its vulnerability to any single economic, political or regulatory development. This may result in greater share price volatility. Please read this Portfolio's prospectus for specific details regarding its investments and risk profile.
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
| $6,360 | $8,306 | $9,322 | $11,161 |
Average annual total return
| -36.40% | -6.00% | -1.39% | 1.10% |
Russell 1000 Value Index
| Growth of $10,000
| $6,315 | $7,707 | $9,611 | $11,450 |
Average annual total return
| -36.85% | -8.32% | -.79% | 1.36% |
DWS Large Cap Value VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $6,336 | $8,213 | $9,148 | $10,634 |
Average annual total return
| -36.64% | -6.35% | -1.77% | .95% |
Russell 1000 Value Index
| Growth of $10,000
| $6,315 | $7,707 | $9,611 | $11,087 |
Average annual total return
| -36.85% | -8.32% | -.79% | 1.60% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 658.30 | | $ 657.30 | |
Expenses Paid per $1,000*
| $ 3.54 | | $ 5.00 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.86 | | $ 1,019.10 | |
Expenses Paid per $1,000*
| $ 4.32 | | $ 6.09 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Large Cap Value VIP
| .85% | | 1.20% | |
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, 2008
DWS Large Cap Value VIP
The year just ended was the worst in many decades for the US equity markets. Essentially all equity indices posted negative returns for this period, as markets reflected economic problems including a housing slump, rising unemployment, a crisis of confidence and an extreme credit crunch. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a negative return of -37.31% for the 12 months ended December 31, 2008. Value stocks, as measured by the Russell 1000® Value index, performed somewhat better than growth stocks, as measured by the Russell 1000® Growth Index. With a return of -36.40% (Class A shares, unadjusted for contract charges), the Portfolio's performance was in line with that of its benchmark, the Russell 1000 Value Index, which had a return of -36.85%.
The major contributor to performance relative to the benchmark was an underweight and stock selection in the financials sector, where the Portfolio benefited from avoiding many of the worst-performing stocks.1 Also positive was a position in PG&E Corp. in the utilities sector, a regulated company with an attractive yield.
Performance relative to the benchmark was hurt by an overweight and stock selection in the energy sector, which weakened significantly as oil prices dropped. Energy positions that detracted from performance include Suncor Energy, Inc. and Transocean Ltd.
Thomas Schuessler, Ph.D.
Portfolio Manager, Deutsche Asset Management International GmbH, Subadvisor to the Portfolio
The Russell 3000 Index is an unmanaged index that 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 is an unmanaged, capitalization-weighted index which consists of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values.
The 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.
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.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Large Cap Value VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Energy | 18% | 26% |
Health Care | 16% | 8% |
Financials | 14% | 20% |
Utilities | 11% | 13% |
Consumer Staples | 9% | 9% |
Information Technology | 9% | 6% |
Industrials | 9% | 6% |
Materials | 5% | 4% |
Telecommunication Services | 5% | 4% |
Consumer Discretionary | 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 198. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Large Cap Value VIP
|
Shares
| Value ($) |
| |
Common Stocks 102.1% |
Consumer Discretionary 4.1% |
Distributors 1.7% |
Genuine Parts Co. | 51,928 | 1,965,994 |
Hotels Restaurants & Leisure 1.2% |
Carnival Corp. (Unit) | 57,115 | 1,389,037 |
Specialty Retail 1.2% |
Lowe's Companies, Inc. | 68,098 | 1,465,469 |
Consumer Staples 9.5% |
Beverages 1.1% |
PepsiCo, Inc. | 23,443 | 1,283,973 |
Food & Staples Retailing 1.9% |
CVS Caremark Corp. | 76,599 | 2,201,456 |
Food Products 2.8% |
General Mills, Inc. | 20,353 | 1,236,445 |
Kraft Foods, Inc. "A" | 78,857 | 2,117,310 |
| 3,353,755 |
Tobacco 3.7% |
Altria Group, Inc. | 139,619 | 2,102,662 |
Philip Morris International, Inc. | 51,700 | 2,249,467 |
| 4,352,129 |
Energy 18.2% |
Energy Equipment & Services 5.0% |
ENSCO International, Inc. | 46,040 | 1,307,076 |
Halliburton Co. | 105,501 | 1,918,008 |
National-Oilwell Varco, Inc.* | 37,711 | 921,657 |
Transocean Ltd.* | 38,072 | 1,798,902 |
| 5,945,643 |
Oil, Gas & Consumable Fuels 13.2% |
Chevron Corp. | 31,711 | 2,345,663 |
ConocoPhillips | 41,604 | 2,155,087 |
Devon Energy Corp. | 20,747 | 1,363,285 |
ExxonMobil Corp. | 30,352 | 2,423,000 |
Marathon Oil Corp. | 73,580 | 2,013,149 |
Nexen, Inc. (a) | 71,738 | 1,261,154 |
Noble Energy, Inc. | 31,753 | 1,562,883 |
Occidental Petroleum Corp. | 18,231 | 1,093,678 |
Suncor Energy, Inc. | 72,463 | 1,413,028 |
| 15,630,927 |
Financials 14.3% |
Capital Markets 1.7% |
Affiliated Managers Group, Inc.* | 9,927 | 416,140 |
Eaton Vance Corp. | 22,730 | 477,557 |
Jefferies Group, Inc. | 34,968 | 491,650 |
TD Ameritrade Holding Corp.* | 47,617 | 678,542 |
| 2,063,889 |
Commercial Banks 3.0% |
Canadian Imperial Bank of Commerce | 34,343 | 1,433,820 |
PNC Financial Services Group, Inc. | 9,553 | 468,097 |
Synovus Financial Corp. (a) | 49,923 | 414,361 |
Wells Fargo & Co. | 39,979 | 1,178,581 |
| 3,494,859 |
|
Shares
| Value ($) |
| |
Consumer Finance 0.5% |
Capital One Financial Corp. | 16,821 | 536,422 |
Diversified Financial Services 2.8% |
Bank of America Corp. | 40,787 | 574,281 |
JPMorgan Chase & Co. | 49,502 | 1,560,798 |
NYSE Euronext | 42,876 | 1,173,945 |
| 3,309,024 |
Insurance 5.8% |
ACE Ltd. | 32,384 | 1,713,761 |
Alleghany Corp.* | 2,115 | 596,430 |
Aon Corp. | 29,703 | 1,356,833 |
Arthur J. Gallagher & Co. | 30,672 | 794,711 |
Hartford Financial Services Group, Inc. | 34,747 | 570,546 |
MetLife, Inc. | 17,060 | 594,712 |
PartnerRe Ltd. | 9,029 | 643,497 |
Prudential Financial, Inc. | 20,352 | 615,851 |
| 6,886,341 |
Thrifts & Mortgage Finance 0.5% |
Capitol Federal Financial (a) | 12,711 | 579,622 |
Health Care 15.7% |
Health Care Equipment & Supplies 3.6% |
Baxter International, Inc. | 31,401 | 1,682,780 |
Becton, Dickinson & Co. | 37,318 | 2,552,178 |
| 4,234,958 |
Health Care Providers & Services 2.5% |
Medco Health Solutions, Inc.* | 35,335 | 1,480,890 |
WellPoint, Inc.* | 35,879 | 1,511,582 |
| 2,992,472 |
Life Sciences Tools & Services 1.7% |
Thermo Fisher Scientific, Inc.* | 59,544 | 2,028,664 |
Pharmaceuticals 7.9% |
Abbott Laboratories | 11,304 | 603,294 |
Merck & Co., Inc. | 64,802 | 1,969,981 |
Pfizer, Inc. | 136,969 | 2,425,721 |
Teva Pharmaceutical Industries Ltd. (ADR) (a) | 56,283 | 2,395,967 |
Wyeth | 50,317 | 1,887,391 |
| 9,282,354 |
Industrials 8.7% |
Aerospace & Defense 3.4% |
Honeywell International, Inc. | 66,304 | 2,176,760 |
United Technologies Corp. | 33,943 | 1,819,345 |
| 3,996,105 |
Electrical Equipment 2.2% |
Emerson Electric Co. | 72,781 | 2,664,512 |
Machinery 3.1% |
Dover Corp. | 53,823 | 1,771,853 |
Parker Hannifin Corp. | 43,642 | 1,856,531 |
| 3,628,384 |
|
Shares
| Value ($) |
| |
Information Technology 9.4% |
Communications Equipment 2.4% |
Brocade Communications Systems, Inc.* | 328,090 | 918,652 |
Nokia Oyj (ADR) | 123,145 | 1,921,062 |
| 2,839,714 |
Computers & Peripherals 0.5% |
EMC Corp.* | 57,391 | 600,884 |
Semiconductors & Semiconductor Equipment 3.8% |
Intel Corp. | 129,198 | 1,894,043 |
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) | 253,605 | 2,003,479 |
Texas Instruments, Inc. | 37,000 | 574,240 |
| 4,471,762 |
Software 2.7% |
Microsoft Corp. | 102,252 | 1,987,779 |
Oracle Corp.* | 71,205 | 1,262,464 |
| 3,250,243 |
Materials 5.5% |
Chemicals 3.4% |
Air Products & Chemicals, Inc. | 41,508 | 2,086,607 |
Praxair, Inc. | 32,038 | 1,901,776 |
| 3,988,383 |
Containers & Packaging 1.4% |
Sonoco Products Co. | 72,823 | 1,686,581 |
Metals & Mining 0.7% |
Freeport-McMoRan Copper & Gold, Inc. | 35,566 | 869,233 |
Telecommunication Services 5.3% |
Diversified Telecommunication Services |
AT&T, Inc. | 119,781 | 3,413,758 |
|
Shares
| Value ($) |
| |
BCE, Inc. | 62,667 | 1,284,047 |
Verizon Communications, Inc. | 45,999 | 1,559,366 |
| 6,257,171 |
Utilities 11.4% |
Electric Utilities 9.1% |
Allegheny Energy, Inc. | 59,022 | 1,998,485 |
Duke Energy Corp. | 128,716 | 1,932,027 |
Entergy Corp. | 13,720 | 1,140,544 |
Exelon Corp. | 15,863 | 882,141 |
FirstEnergy Corp. | 46,472 | 2,257,610 |
FPL Group, Inc. | 31,324 | 1,576,537 |
Southern Co. | 23,997 | 887,889 |
| 10,675,233 |
Multi-Utilities 2.3% |
PG&E Corp. | 71,041 | 2,749,998 |
Total Common Stocks (Cost $139,608,097) | 120,675,191 |
|
Securities Lending Collateral 2.0% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $2,379,975) | 2,379,975 | 2,379,975 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $141,988,072)+ | 104.1 | 123,055,166 |
Other Assets and Liabilities, Net | (4.1) | (4,818,822) |
Net Assets | 100.0 | 118,236,344 |
* Non-income producing security.+ The cost for federal income tax purposes was $145,375,182. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $22,320,016. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $5,597,260 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $27,917,276.(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, 2008 amounted to $2,357,044 which is 2.0% 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
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 123,055,166 |
Level 2
| — |
Level 3
| — |
Total | $ 123,055,166 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $139,608,097) — including $2,357,044 of securities loaned | $ 120,675,191 |
Investment in Daily Assets Fund Institutional (cost $2,379,975)* | 2,379,975 |
Total investments, at value (cost $141,988,072)
| 123,055,166 |
Cash
| 39,788 |
Dividends receivable
| 274,190 |
Interest receivable
| 4,062 |
Receivable for Portfolio shares sold
| 1,133,615 |
Due from Advisor
| 154 |
Other assets
| 5,215 |
Total assets
| 124,512,190 |
Liabilities |
Notes payable
| 750,000 |
Payable upon return of securities loaned
| 2,379,975 |
Payable for Portfolio shares redeemed
| 297,616 |
Payable for investments purchased
| 2,615,687 |
Accrued management fee
| 61,803 |
Other accrued expenses and payables
| 170,765 |
Total liabilities
| 6,275,846 |
Net assets, at value | $ 118,236,344 |
Net Assets Consist of |
Undistributed net investment income
| 2,799,366 |
Net unrealized appreciation (depreciation) on:
Investments | (18,932,906) |
Foreign currency | (366) |
Accumulated net realized gain (loss)
| (28,851,060) |
Paid-in capital
| 163,221,310 |
Net assets, at value | $ 118,236,344 |
Class A Net Asset Value, offering and redemption price per share ($117,944,074 ÷ 13,220,277 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 8.92 |
Class B Net Asset Value, offering and redemption price per share ($292,270 ÷ 32,776 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 8.92 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $60,124)
| $ 4,272,348 |
Interest — Cash Management QP Trust
| 261,072 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 49,531 |
Total Income
| 4,582,951 |
Expenses:
Management fee
| 1,214,541 |
Administration fee
| 186,852 |
Services to shareholders
| 297 |
Custodian fee
| 15,698 |
Professional fees
| 63,000 |
Distribution service fee (Class B)
| 6,151 |
Record keeping fees (Class B)
| 2,582 |
Trustees' fees and expenses
| 20,856 |
Reports to shareholders and shareholder meeting
| 115,320 |
Interest expense
| 197 |
Other
| 6,781 |
Total expenses before expense reductions
| 1,632,275 |
Expense reductions
| (11,364) |
Total expenses after expense reductions
| 1,620,911 |
Net investment income (loss) | 2,962,040 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (26,827,361) |
Foreign currency
| (13,387) |
| (26,840,748) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (52,635,232) |
Foreign currency
| (430) |
| (52,635,662) |
Net gain (loss) | (79,476,410) |
Net increase (decrease) in net assets resulting from operations | $ (76,514,370) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 2,962,040 | $ 4,055,644 |
Net realized gain (loss)
| (26,840,748) | 52,371,462 |
Change in net unrealized appreciation (depreciation)
| (52,635,662) | (20,593,300) |
Net increase (decrease) in net assets resulting from operations
| (76,514,370) | 35,833,806 |
Distributions to shareholders from:
Net investment income:
Class A | (3,899,692) | (4,770,707) |
Class B | (108,225) | (538,814) |
Net realized gains:
Class A | (50,886,890) | (9,924,139) |
Class B | (1,761,177) | (1,431,558) |
Total Distributions
| $ (56,655,984) | $ (16,665,218) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 23,340,147 | 14,988,182 |
Reinvestment of distributions
| 54,786,582 | 14,694,846 |
Cost of shares redeemed
| (58,393,451) | (93,544,614) |
Net increase (decrease) in net assets from Class A share transactions
| 19,733,278 | (63,861,586) |
Class B Proceeds from shares sold
| 480,950 | 699,209 |
Reinvestment of distributions
| 1,869,402 | 1,970,372 |
Cost of shares redeemed
| (7,955,451) | (35,609,682) |
Net increase (decrease) in net assets from Class B share transactions
| (5,605,099) | (32,940,101) |
Increase (decrease) in net assets | (119,042,175) | (77,633,099) |
Net assets at beginning of period
| 237,278,519 | 314,911,618 |
Net assets at end of period (including undistributed net investment income of $2,799,366 and $3,977,565, respectively)
| $ 118,236,344 | $ 237,278,519 |
Other Information |
Class A Shares outstanding at beginning of period
| 11,941,625 | 15,303,964 |
Shares sold
| 1,675,530 | 804,074 |
Shares issued to shareholders in reinvestment of distributions
| 4,201,425 | 857,842 |
Shares redeemed
| (4,598,303) | (5,024,255) |
Net increase (decrease) in Class A shares
| 1,278,652 | (3,362,339) |
Shares outstanding at end of period
| 13,220,277 | 11,941,625 |
Class B Shares outstanding at beginning of period
| 412,771 | 2,232,310 |
Shares sold
| 38,113 | 38,354 |
Shares issued to shareholders in reinvestment of distributions
| 143,030 | 114,823 |
Shares redeemed
| (561,138) | (1,972,716) |
Net increase (decrease) in Class B shares
| (379,995) | (1,819,539) |
Shares outstanding at end of period
| 32,776 | 412,771 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 19.21 | $ 17.96 | $ 15.81 | $ 15.79 | $ 14.57 |
Income (loss) from investment operations: Net investment income (loss)a | .21 | .26 | .29c | .26 | .27 |
Net realized and unrealized gain (loss) | (5.68) | 1.98 | 2.12 | .04 | 1.18 |
Total from investment operations | (5.47) | 2.24 | 2.41 | .30 | 1.45 |
Less distributions from: Net investment income | (.34) | (.32) | (.26) | (.28) | (.23) |
Net realized gains | (4.48) | (.67) | — | — | — |
Total Distributions | (4.82) | (.99) | (.26) | (.28) | (.23) |
Net asset value, end of period | $ 8.92 | $ 19.21 | $ 17.96 | $ 15.81 | $ 15.79 |
Total Return (%)
| (36.40)b | 13.15b,d | 15.41c | 1.97b | 10.07 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 118 | 229 | 275 | 268 | 274 |
Ratio of expenses before expense reductions (%)
| .87 | .83 | .83 | .80 | .80 |
Ratio of expenses after expense reductions (%)
| .86 | .82 | .83 | .80 | .80 |
Ratio of net investment income (loss) (%)
| 1.59 | 1.43 | 1.73c | 1.64 | 1.84 |
Portfolio turnover rate (%)
| 97 | 103 | 76 | 64 | 40 |
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 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 to reimburse the effect of losses incurred as the result of certain operation errors during the period. Excluding this reimbursement, total return would have been 0.04% lower.
|
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 19.20 | $ 17.94 | $ 15.79 | $ 15.77 | $ 14.55 |
Income (loss) from investment operations: Net investment income (loss)a | .12 | .19 | .23c | .19 | .22 |
Net realized and unrealized gain (loss) | (5.64) | 1.99 | 2.11 | .05 | 1.17 |
Total from investment operations | (5.52) | 2.18 | 2.34 | .24 | 1.39 |
Less distributions from: Net investment income | (.28) | (.25) | (.19) | (.22) | (.17) |
Net realized gains | (4.48) | (.67) | — | — | — |
Total Distributions | (4.76) | (.92) | (.19) | (.22) | (.17) |
Net asset value, end of period | $ 8.92 | $ 19.20 | $ 17.94 | $ 15.79 | $ 15.77 |
Total Return (%)
| (36.64)b | 12.77b,d | 14.96c | 1.58b | 9.65 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .29 | 8 | 40 | 40 | 40 |
Ratio of expenses before expense reductions (%)
| 1.28 | 1.21 | 1.21 | 1.21 | 1.18 |
Ratio of expenses after expense reductions (%)
| 1.26 | 1.20 | 1.21 | 1.20 | 1.18 |
Ratio of net investment income (loss) (%)
| 1.20 | 1.06 | 1.35c | 1.24 | 1.46 |
Portfolio turnover rate (%)
| 97 | 103 | 76 | 64 | 40 |
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 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 to reimburse the effect of losses incurred as the result of certain operation errors during the period. Excluding this reimbursement, total return would have been 0.04% lower.
|
Performance Summary December 31, 2008
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, 2008 are 0.95% 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, 2008.
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.
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 12/31/2008 |
[] 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
| $4,996 | $6,007 | $7,181 | $6,947 |
Average annual total return
| -50.04% | -15.62% | -6.41% | -3.70% |
Russell Midcap Growth Index
| Growth of $10,000
| $5,568 | $6,865 | $8,887 | $9,077 |
Average annual total return
| -44.32% | -11.79% | -2.33% | -1.00% |
DWS Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Class** |
Class B | Growth of $10,000
| $4,974 | $5,934 | $7,049 | $8,937 |
Average annual total return
| -50.04% | -15.97% | -6.76% | -1.71% |
Russell Midcap Growth Index
| Growth of $10,000
| $5,568 | $6,865 | $8,887 | $11,466 |
Average annual total return
| -44.32% | -11.79% | -2.33% | 2.13% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 554.20 | | $ 552.00 | |
Expenses Paid per $1,000*
| $ 4.06 | | $ 6.20 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,019.91 | | $ 1,017.14 | |
Expenses Paid per $1,000*
| $ 5.28 | | $ 8.06 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Mid Cap Growth VIP
| 1.04% | | 1.59% | |
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, 2008
DWS Mid Cap Growth VIP
The past year has proven to be the most difficult period for global financial markets since the 1930s, with virtually all market indices posting decisively negative results. The bursting of the US housing market bubble set in motion a chain of events that culminated late last summer in the near paralysis of the global financial system. These events led to a widening in credit spreads and a complete seize-up of credit-related activity.1 As the crisis grew, and market volatility hit an all-time high, the federal government intervened to prevent the failure of once venerable institutions such as AIG, Fannie Mae and Freddie Mac. The growing inability of businesses and consumers to access credit led to a sharp contraction in global economic activity by the fourth quarter. Central banks around the world cut key interest rates in an effort to jump-start economic activity. Determined not to repeat the policy errors that led to the Great Depression, the US Federal Reserve Board (the Fed) gradually lowered its target for short-term interest rates to a range between 0% and 0.25%, and has aggressively used its balance sheet to provide credit market liquidity. President-elect Obama has called the revival of the economy his first priority, and the new administration intends to implement a huge fiscal stimulus plan.
For the 12-month period ended December 31, 2008, the Portfolio returned -50.04% (Class A shares, unadjusted for contract charges), compared with the -44.32% return of the Russell Midcap® Growth Index.
Positive contributors to performance for the 12-month period included an overweight position in telecom services and underweight positions in utilities and materials.2 Stock selection was positive in the energy and utilities sectors but was offset by unfavorable stock selection within financials, industrials, health care and consumer staples. Individual detractors from performance included Affiliated Managers Group, Inc.* in the financials sector, and BE Aerospace, Inc.* from the industrials sector. Within the energy and utilities sectors, respectively, the Portfolio's holdings in Southwestern Energy Co. and Constellation Energy Group, Inc.* contributed to performance. We continue to maintain a long-term perspective, investing in quality mid-cap growth stocks.
Joseph Axtell, CFA Rafaelina M. Lee Jeffrey Saeger, CFA
Portfolio Managers, Deutsche Investment Management Americas Inc.
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 Credit spread is the additional yield provided by non-Treasury fixed-income securities versus Treasury securities.2 "Overweight" means the portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the portfolio holds a lower weighting.* Not held in the Portfolio as of December 31, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Mid Cap Growth VIP
Asset Allocation (As a% of Investment Portfolio Excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 97% | 99% |
Cash Equivalents | 3% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Information Technology | 22% | 26% |
Health Care | 17% | 12% |
Consumer Discretionary | 17% | 14% |
Industrials | 13% | 18% |
Energy | 10% | 11% |
Financials | 8% | 9% |
Materials | 4% | 3% |
Consumer Staples | 4% | 2% |
Telecommunication Services | 3% | 5% |
Utilities | 2% | — |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 210. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Mid Cap Growth VIP
| Shares | Value ($) |
| |
Common Stocks 97.1% |
Consumer Discretionary 16.5% |
Diversified Consumer Services 1.1% |
Strayer Education, Inc. (a) | 900 | 192,969 |
Hotels Restaurants & Leisure 1.6% |
Darden Restaurants, Inc. (a) | 10,200 | 287,436 |
Internet & Catalog Retail 1.5% |
Priceline.com, Inc.* (a) | 3,850 | 283,552 |
Specialty Retail 9.9% |
American Eagle Outfitters, Inc. (a) | 21,000 | 196,560 |
Children's Place Retail Stores, Inc.* (a) | 17,500 | 379,400 |
Guess?, Inc. | 28,400 | 435,940 |
Limited Brands, Inc. | 17,800 | 178,712 |
Tiffany & Co. (a) | 5,600 | 132,328 |
Urban Outfitters, Inc.* (a) | 33,300 | 498,834 |
| 1,821,774 |
Textiles, Apparel & Luxury Goods 2.4% |
Deckers Outdoor Corp.* | 2,500 | 199,675 |
Lululemon Athletica, Inc.* (a) | 12,500 | 99,125 |
Polo Ralph Lauren Corp. (a) | 3,000 | 136,230 |
| 435,030 |
Consumer Staples 3.6% |
Personal Products |
Herbalife Ltd. | 22,500 | 487,800 |
NBTY, Inc.* | 10,500 | 164,325 |
| 652,125 |
Energy 10.1% |
Energy Equipment & Services 3.1% |
Cameron International Corp.* | 9,000 | 184,500 |
CARBO Ceramics, Inc. (a) | 6,100 | 216,733 |
FMC Technologies, Inc.* | 7,500 | 178,725 |
| 579,958 |
Oil, Gas & Consumable Fuels 7.0% |
Alpha Natural Resources, Inc.* | 5,600 | 90,664 |
Petrohawk Energy Corp.* | 16,500 | 257,895 |
Range Resources Corp. | 7,500 | 257,925 |
Southwestern Energy Co.* | 13,000 | 376,610 |
Ultra Petroleum Corp.* (a) | 8,530 | 294,370 |
| 1,277,464 |
Financials 7.3% |
Capital Markets 5.5% |
Northern Trust Corp. | 3,500 | 182,490 |
T. Rowe Price Group, Inc. (a) | 9,700 | 343,768 |
TD Ameritrade Holding Corp.* (a) | 19,100 | 272,175 |
Waddell & Reed Financial, Inc. "A" | 13,700 | 211,802 |
| 1,010,235 |
Diversified Financial Services 1.8% |
MSCI, Inc. "A"* | 18,164 | 322,593 |
| Shares | Value ($) |
| |
Health Care 16.9% |
Biotechnology 2.6% |
Alexion Pharmaceuticals, Inc.* (a) | 1,200 | 43,428 |
BioMarin Pharmaceutical, Inc.* (a) | 3,000 | 53,400 |
Cephalon, Inc.* (a) | 3,700 | 285,048 |
Genzyme Corp.* | 1,400 | 92,918 |
| 474,794 |
Health Care Providers & Services 5.7% |
AMERIGROUP Corp.* | 10,700 | 315,864 |
Humana, Inc.* | 4,700 | 175,216 |
McKesson Corp. | 7,500 | 290,475 |
Pediatrix Medical Group, Inc.* (a) | 8,400 | 266,280 |
| 1,047,835 |
Life Sciences Tools & Services 4.4% |
Covance, Inc.* | 4,900 | 225,547 |
Pharmaceutical Product Development, Inc. | 20,100 | 583,101 |
| 808,648 |
Pharmaceuticals 4.2% |
Mylan, Inc.* (a) | 56,700 | 560,763 |
Shire PLC (ADR) (a) | 4,800 | 214,944 |
| 775,707 |
Industrials 12.5% |
Aerospace & Defense 1.5% |
Curtiss-Wright Corp. | 8,400 | 280,476 |
Construction & Engineering 0.8% |
Aecom Technology Corp.* | 4,700 | 144,431 |
Electrical Equipment 3.3% |
First Solar, Inc.* (a) | 1,500 | 206,940 |
Roper Industries, Inc. (a) | 9,150 | 397,202 |
| 604,142 |
Machinery 2.3% |
Harsco Corp. | 8,600 | 238,048 |
Joy Global, Inc. (a) | 8,000 | 183,120 |
| 421,168 |
Professional Services 4.6% |
FTI Consulting, Inc.* (a) | 2,900 | 129,572 |
Huron Consulting Group, Inc.* (a) | 7,000 | 400,890 |
Robert Half International, Inc. (a) | 15,200 | 316,464 |
| 846,926 |
Information Technology 21.3% |
Communications Equipment 5.3% |
Ciena Corp.* (a) | 43,800 | 293,460 |
F5 Networks, Inc.* (a) | 16,200 | 370,332 |
Juniper Networks, Inc.* (a) | 17,800 | 311,678 |
| 975,470 |
Electronic Equipment, Instruments & Components 1.7% |
Itron, Inc.* (a) | 4,850 | 309,139 |
Internet Software & Services 2.7% |
Omniture, Inc.* (a) | 23,000 | 244,720 |
VeriSign, Inc.* | 13,200 | 251,856 |
| 496,576 |
| Shares | Value ($) |
| |
IT Services 0.5% |
ManTech International Corp. "A"* | 1,800 | 97,542 |
Semiconductors & Semiconductor Equipment 4.5% |
Broadcom Corp. "A"* | 19,000 | 322,430 |
Marvell Technology Group Ltd.* | 27,600 | 184,092 |
Microchip Technology, Inc. (a) | 8,900 | 173,817 |
Tessera Technologies, Inc.* | 12,000 | 142,560 |
| 822,899 |
Software 6.6% |
Adobe Systems, Inc.* | 8,300 | 176,707 |
Autodesk, Inc.* | 10,600 | 208,290 |
Blackboard, Inc.* (a) | 11,300 | 296,399 |
Concur Technologies, Inc.* (a) | 6,300 | 206,766 |
Electronic Arts, Inc.* | 8,000 | 128,320 |
Salesforce.com, Inc.* (a) | 6,000 | 192,060 |
| 1,208,542 |
Materials 4.1% |
Chemicals 0.9% |
Intrepid Potash, Inc.* (a) | 8,200 | 170,314 |
Construction Materials 0.7% |
Martin Marietta Materials, Inc. (a) | 1,400 | 135,912 |
Containers & Packaging 1.0% |
Owens-Illinois, Inc.* | 6,800 | 185,844 |
Metals & Mining 1.5% |
Gerdau Ameristeel Corp. | 44,000 | 266,640 |
| Shares | Value ($) |
| |
Telecommunication Services 2.8% |
Wireless Telecommunication Services |
American Tower Corp. "A"* | 17,200 | 504,304 |
Utilities 2.0% |
Electric Utilities |
Allegheny Energy, Inc. | 11,100 | 375,846 |
Total Common Stocks (Cost $23,178,904) | 17,816,291 |
|
Securities Lending Collateral 30.3% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $5,559,666) | 5,559,666 | 5,559,666 |
|
Cash Equivalents 2.9% |
Cash Management QP Trust, 1.42% (b) (Cost $528,882) | 528,882 | 528,882 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $29,267,452)+ | 130.3 | 23,904,839 |
Other Assets and Liabilities, Net (a) | (30.3) | (5,556,900) |
Net Assets | 100.0 | 18,347,939 |
* Non-income producing security.+ The cost for federal income tax purposes was $29,521,967. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $5,617,128. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $798,063 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $6,415,191.(a) All or a portion of these securities were on loan amounting to $5,557,998 (see Notes to Financial Statements). In addition, included in other assets and liabilities, net is a pending sale, amounting to $13,097, that is also on loan. The value of all securities loaned at December 31, 2008 amounted to $5,571,095, which is 30.4% 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
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 23,375,957 |
Level 2
| 528,882 |
Level 3
| — |
Total | $ 23,904,839 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $23,178,904) — including $5,557,998 of securities loaned | $ 17,816,291 |
Investment in Daily Assets Fund Institutional (cost $5,559,666)* | 5,559,666 |
Investment in Cash Management QP Trust (cost $528,882) | 528,882 |
Total investments, at value (cost $29,267,452)
| 23,904,839 |
Cash
| 4,522 |
Receivable for investments sold
| 46,802 |
Receivable for Portfolio shares sold
| 28,503 |
Dividends receivable
| 10,780 |
Interest receivable
| 8,020 |
Due from Advisor
| 92 |
Other assets
| 1,117 |
Total assets
| 24,004,675 |
Liabilities |
Payable for Portfolio shares redeemed
| 1,063 |
Payable upon return of securities loaned
| 5,559,666 |
Accrued management fee
| 13,397 |
Other accrued expenses and payables
| 82,610 |
Total liabilities
| 5,656,736 |
Net assets, at value | $ 18,347,939 |
Net Assets Consist of |
Accumulated net investment loss
| (4,978) |
Net unrealized appreciation (depreciation) on
investments
| (5,362,613) |
Accumulated net realized gain (loss)
| (24,846,885) |
Paid-in capital
| 48,562,415 |
Net assets, at value | $ 18,347,939 |
Class A Net Asset Value, offering and redemption price per share ($18,326,779 ÷ 2,694,618 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.80 |
Class B Net Asset Value, offering and redemption price per share ($21,160 ÷ 3,171 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 6.67 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Dividends (net of foreign taxes withheld of $3,370)
| $ 183,829 |
Interest — Cash Management QP Trust
| 18,417 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 97,401 |
Total Income
| 299,647 |
Expenses:
Management fee
| 252,379 |
Administration fee
| 21,460 |
Services to shareholders
| 154 |
Custodian and accounting fees
| 30,531 |
Distribution service fee (Class B)
| 1,412 |
Record keeping fees (Class B)
| 571 |
Legal
| 11,231 |
Audit and tax fees
| 50,159 |
Trustees' fees and expenses
| 6,241 |
Reports to shareholders and shareholder meeting
| 47,095 |
Other
| 2,891 |
Total expenses before expense reductions
| 424,124 |
Expense reductions
| (54,105) |
Total expenses after expense reductions
| 370,019 |
Net investment income (loss) | (70,372) |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from investments
| (4,292,837) |
Change in net unrealized appreciation (depreciation) on investments
| (17,648,743) |
Net gain (loss) | (21,941,580) |
Net increase (decrease) in net assets resulting from operations | $ (22,011,952) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ (70,372) | $ (238,874) |
Net realized gain (loss)
| (4,292,837) | 8,021,447 |
Change in net unrealized appreciation (depreciation)
| (17,648,743) | (2,652,715) |
Net increase (decrease) in net assets resulting from operations
| (22,011,952) | 5,129,858 |
Portfolio share transactions:
Class A Proceeds from shares sold
| 3,106,392 | 7,675,878 |
Cost of shares redeemed
| (13,526,182) | (14,497,003) |
Net increase (decrease) in net assets from Class A share transactions
| (10,419,790) | (6,821,125) |
Class B Proceeds from shares sold
| 46,809 | 1,053,940 |
Cost of shares redeemed
| (1,840,021) | (7,779,098) |
Net increase (decrease) in net assets from Class B share transactions
| (1,793,212) | (6,725,158) |
Increase (decrease) in net assets | (34,224,954) | (8,416,425) |
Net assets at beginning of period
| 52,572,893 | 60,989,318 |
Net assets at end of period (including accumulated net investment loss of $4,978 and $6,766, respectively)
| $ 18,347,939 | $ 52,572,893 |
Other Information |
Class A Shares outstanding at beginning of period
| 3,720,929 | 4,226,008 |
Shares sold
| 300,045 | 567,035 |
Shares redeemed
| (1,326,356) | (1,072,114) |
Net increase (decrease) in Class A shares
| (1,026,311) | (505,079) |
Shares outstanding at end of period
| 2,694,618 | 3,720,929 |
Class B Shares outstanding at beginning of period
| 145,552 | 640,328 |
Shares sold
| 4,043 | 79,290 |
Shares redeemed
| (146,424) | (574,066) |
Net increase (decrease) in Class B shares
| (142,381) | (494,776) |
Shares outstanding at end of period
| 3,171 | 145,552 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 13.61 | $ 12.56 | $ 11.32 | $ 9.84 | $ 9.46 |
Income (loss) from investment operations: Net investment income (loss)a | (.02) | (.05) | (.06)c | (.05) | (.01) |
Net realized and unrealized gain (loss) | (6.79) | 1.10 | 1.30 | 1.53 | .39 |
Total from investment operations | (6.81) | 1.05 | 1.24 | 1.48 | .38 |
Net asset value, end of period | $ 6.80 | $ 13.61 | $ 12.56 | $ 11.32 | $ 9.84 |
Total Return (%)b
| (50.04) | 8.36 | 10.95c | 15.04 | 4.02 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 18 | 51 | 53 | 57 | 53 |
Ratio of expenses before expense reductions (%)
| 1.17 | 1.05 | 1.03 | 1.01 | 1.02 |
Ratio of expenses after expense reductions (%)
| 1.02 | .90 | .93 | .95 | .95 |
Ratio of net investment income (loss) (%)
| (.19) | (.38) | (.51)c | (.45) | (.11) |
Portfolio turnover rate (%)
| 82 | 68 | 46 | 104 | 103 |
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 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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 13.35 | $ 12.37 | $ 11.19 | $ 9.76 | $ 9.42 |
Income (loss) from investment operations: Net investment income (loss)a | (.09) | (.10) | (.10)c | (.09) | (.05) |
Net realized and unrealized gain (loss) | (6.59) | 1.08 | 1.28 | 1.52 | .39 |
Total from investment operations | (6.68) | .98 | 1.18 | 1.43 | .34 |
Net asset value, end of period | $ 6.67 | $ 13.35 | $ 12.37 | $ 11.19 | $ 9.76 |
Total Return (%)b
| (50.04) | 7.92 | 10.55c | 14.65 | 3.61 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .02 | 2 | 8 | 7 | 6 |
Ratio of expenses before expense reductions (%)
| 1.68 | 1.43 | 1.42 | 1.40 | 1.41 |
Ratio of expenses after expense reductions (%)
| 1.49 | 1.28 | 1.29 | 1.32 | 1.34 |
Ratio of net investment income (loss) (%)
| (.66) | (.76) | (.87)c | (.82) | (.50) |
Portfolio turnover rate (%)
| 82 | 68 | 46 | 104 | 103 |
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 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, 2008
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, 2008 is 0.59% 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, 2008 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, 2008.
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 risks, 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 12/31/2008 |
[] DWS Moderate Allocation VIP — Class B [] Russell 1000® Index [] Barclays Capital 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 Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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
| $6,964 | $8,119 | $9,246 |
Average annual total return
| -30.36% | -6.71% | -1.78% |
Russell 1000 Index
| Growth of $10,000
| $6,240 | $7,621 | $9,005 |
Average annual total return
| -37.60% | -8.66% | -2.39% |
Barclays Capital US Aggregate Index
| Growth of $10,000
| $10,524 | $11,745 | $12,178 |
Average annual total return
| 5.24% | 5.51% | 4.65% |
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 and non-affiliated funds ("Underlying Portfolios") in which the Portfolio invests. The Portfolio's estimated indirect expense from investing in the Underlying Portfolios is based on the expense ratios from the Underlying Portfolios' 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 741.80 |
Expenses Paid per $1,000*
| | $ 3.02 |
Hypothetical 5% Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 1,021.67 |
Expenses Paid per $1,000*
| | $ 3.51 |
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, 2008 |
Actual Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 741.80 |
Expenses Paid per $1,000**
| | $ 6.30 |
Hypothetical 5% Portfolio Return | | Class B |
Beginning Account Value 7/1/08
| | $ 1,000.00 |
Ending Account Value 12/31/08
| | $ 1,017.90 |
Expenses Paid per $1,000**
| | $ 7.30 |
* Expenses are equal to the Portfolio's annualized expense ratio 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 366.** 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 366.Annualized Expense Ratios | | Class B |
Direct Portfolio Expense Ratio
| | .69% |
Acquired Portfolios (Underlying Portfolios) Fees and Expenses
| | .75% |
Net Annual Portfolio and Acquired Portfolios (Underlying Portfolios) Operating Expenses
| | 1.44% |
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, 2008
DWS Moderate Allocation VIP
For the 12 months ended December 31, 2008, the DWS Moderate Allocation VIP's Class B shares (unadjusted for contract charges) had a return of -30.36%. For the 12-month period, the Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, had a return of -37.31%. Since this Portfolio invests in stock and bond funds in several different categories, performance is analyzed by comparing the Portfolio's return with indexes that represent each asset class. The Portfolio's return was below that of its bond benchmark, the Barclays Capital US Aggregate Index, which returned 5.24%, but above the returns of its equity benchmark, the Russell 1000® Index, which returned -37.60%.
There are three major determinants of the Portfolio's performance: strategic asset allocation, tactical asset allocation and the performance of the underlying funds in which the Portfolio's assets are invested. During 2008, strategic asset allocation, tactical asset allocation and performance of the underlying funds detracted from the Portfolio's performance relative to its peer group of comparable funds.
Strategic asset allocation refers to the longer-term allocation among asset classes. The Portfolio's allocation between equity and fixed-income funds remained close to its target of 60% equity and 40% fixed income during 2008. Tactical allocation decisions are short-term underweights or overweights of particular asset classes relative to their longer-term strategic asset allocation targets.1 Overall tactical asset allocation, with an underweight of cash equivalents and investment-grade bonds balanced by an overweight in large-cap and international equities, detracted from performance, as fixed-income securities performed better than stocks.
Performance of each of the underlying funds is compared to a suitable benchmark for that particular fund's asset class and management style. The underlying funds as a group detracted from performance relative to their respective benchmarks. However, large-cap equity funds added value relative to their peers, as did high-yield funds, although these funds had negative absolute returns.
Inna Okounkova Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
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. Index returns assume reinvestment of dividends and, unlike portfolio returns, do not include fees or expenses. It is not possible to invest directly into an index.
The Barclays Capital US Aggregate Index (name changed from Lehman Brothers US Aggregate Index, effective November 3, 2008) 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.
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 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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Moderate Allocation VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Equity — Equity Funds | 57% | 63% |
Fixed Income — Bond Funds | 34% | 33% |
Equity — Exchange Traded Funds | 5% | — |
Fixed Income — Money Market Funds | 4% | 4% |
| 100% | 100% |
Target Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Equity | 60% | 60% |
Fixed Income | 40% | 40% |
Asset allocation is subject to change.
For more complete details about the Portfolio's investment portfolio, see page 222. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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.
Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Investment Portfolio December 31, 2008
DWS Moderate Allocation VIP
| Shares | Value ($) |
| |
Equity — Equity Funds 57.5% |
DWS Blue Chip VIP "A" | 3,203 | 23,219 |
DWS Capital Growth VIP "A" | 61,085 | 827,707 |
DWS Communications Fund "Institutional" | 4,349 | 42,659 |
DWS Davis Venture Value VIP "A" | 196,526 | 1,475,912 |
DWS Dreman High Return Equity VIP "A" | 7,583 | 47,092 |
DWS Dreman Small Cap Value Fund "Institutional" | 3,446 | 83,562 |
DWS Dreman Small Mid Cap Value VIP "A" | 74,771 | 592,933 |
DWS Emerging Markets Equity Fund "Institutional" | 29,285 | 298,118 |
DWS Equity 500 Index VIP "A" | 89,178 | 851,647 |
DWS Global Opportunities VIP "A" | 58,730 | 457,505 |
DWS Global Thematic VIP "A" | 83,474 | 487,489 |
DWS Growth & Income VIP "A" | 331,283 | 1,696,168 |
DWS Health Care VIP "A" | 79,131 | 747,784 |
DWS International Select Equity VIP "A" | 8,589 | 53,422 |
DWS International VIP "A" | 131,635 | 858,259 |
DWS Janus Growth & Income VIP "A" | 19,855 | 134,817 |
DWS Japan Equity Fund "S" | 7,928 | 58,426 |
DWS Large Cap Value VIP "A" | 355,284 | 3,169,137 |
DWS Mid Cap Growth VIP "A" | 1,310 | 8,910 |
DWS RREEF Global Real Estate Securities Fund "Institutional" | 16,218 | 87,254 |
DWS RREEF Real Estate Securities Fund "Institutional" | 4,637 | 51,566 |
DWS Small Cap Core Fund "S" | 5,030 | 55,075 |
DWS Small Cap Growth VIP "A" | 35,381 | 269,249 |
DWS Small Cap Index VIP "A" | 22,978 | 198,304 |
DWS Technology VIP "A" | 103,645 | 596,992 |
Total Equity Funds (Cost $22,483,023) | 13,173,206 |
|
Equity — Exchange Traded Funds 4.8% |
Consumer Discretionary Select Sector SPDR Fund | 2,199 | 47,432 |
Consumer Staples Select Sector SPDR Fund | 2,741 | 65,428 |
Energy Select Sector SPDR Fund | 1,018 | 48,701 |
| Shares | Value ($) |
| |
Financial Select Sector SPDR Fund | 3,788 | 47,805 |
Industrial Select Sector SPDR Fund | 2,893 | 67,928 |
iShares MSCI Australia Index Fund | 7,328 | 102,665 |
iShares MSCI Canada Index Fund | 12,485 | 217,614 |
iShares MSCI EAFE Small Cap Index Fund | 3,852 | 99,035 |
iShares MSCI France Index Fund | 967 | 20,239 |
iShares MSCI Switzerland Index Fund | 6,492 | 120,362 |
iShares MSCI United Kingdom Index Fund | 20,377 | 249,618 |
Utilities Select Sector SPDR Fund | 912 | 26,475 |
Total Exchange Traded Funds (Cost $1,614,219) | 1,113,302 |
|
Fixed Income — Bond Funds 34.1% |
DWS Core Fixed Income VIP "A" | 323,621 | 2,880,224 |
DWS Emerging Markets Fixed Income Fund "Institutional" | 14,479 | 119,597 |
DWS Global Bond Fund "S" | 118,913 | 1,190,320 |
DWS Government & Agency Securities VIP "A" | 114,852 | 1,424,161 |
DWS High Income VIP "A" | 154,656 | 822,772 |
DWS Inflation Protected Plus Fund "Institutional" | 39,087 | 356,469 |
DWS Short Duration Plus Fund "Institutional" | 32,164 | 282,074 |
DWS US Bond Index Fund "Institutional" | 71,293 | 734,320 |
Total Fixed Income — Bond Funds (Cost $9,057,326) | 7,809,937 |
|
Fixed Income — Money Market Fund 3.7% |
Cash Management QP Trust (Cost $857,478) | 857,478 | 857,478 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $34,012,046)+ | 100.1 | 22,953,923 |
Other Assets and Liabilities, Net | (0.1) | (32,066) |
Net Assets | 100.0 | 22,921,857 |
+ The cost for federal income tax purposes was $34,344,751. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $11,390,828. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $44,346 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $11,435,174.EAFE: Europe, Australasia and Far East
MSCI: Morgan Stanley Capital International
SPDR: Standard & Poor's Depositary Receipt
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 22,096,445 |
Level 2
| 857,478 |
Level 3
| — |
Total | $ 22,953,923 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in Underlying Affiliated Portfolios, at value (cost $31,540,349) | $ 20,983,143 |
Investments in Non-affiliated funds (cost $1,614,219) | 1,113,302 |
Investment in Cash Management QP Trust (cost $857,478) | 857,478 |
Total investments, at value (cost $34,012,046)
| 22,953,923 |
Interest receivable
| 1,126 |
Due from Advisor
| 35,206 |
Other assets
| 881 |
Total assets
| 22,991,136 |
Liabilities |
Payable for Portfolio shares redeemed
| 1,233 |
Other accrued expenses and payables
| 68,046 |
Total liabilities
| 69,279 |
Net assets, at value | $ 22,921,857 |
Net Assets Consist of |
Undistributed net investment income
| 2,003,565 |
Net unrealized appreciation (depreciation) on investments
| (11,058,123) |
Accumulated net realized gain (loss)
| 147,678 |
Paid-in capital
| 31,828,737 |
Net assets, at value | $ 22,921,857 |
Class B Net Asset Value, offering and redemption price per share ($22,921,857 ÷ 3,167,493 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.24 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Income distributions from Underlying Affiliated Portfolios
| 1,267,672 |
Dividends
| 27,502 |
Interest — Cash Management QP Trust
| 19,499 |
Total Income
| 1,314,673 |
Expenses:
Management fee
| 30,022 |
Administration fee
| 19,414 |
Services to shareholders
| 48 |
Custodian and accounting fees
| 21,064 |
Distribution service fee
| 77,539 |
Record keeping fees
| 32,491 |
Audit and tax fees
| 44,641 |
Legal
| 27,425 |
Trustees' fees and expenses
| 8,705 |
Reports to shareholders and shareholder meeting
| 26,476 |
Other
| 7,160 |
Total expenses before expense reductions
| 294,985 |
Expense reductions
| (75,771) |
Total expenses after expense reductions
| 219,214 |
Net investment income (loss) | 1,095,459 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from investments
| (3,008,065) |
Capital gain distributions from Underlying Affiliated Portfolios
| 4,088,752 |
Payments by affiliates (see Note I)
| 2,194 |
| 1,082,881 |
Change in net unrealized appreciation (depreciation) on investments
| (12,690,829) |
Net gain (loss) | (11,607,948) |
Net increase (decrease) in net assets resulting from operations | $ (10,512,489) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ 1,095,459 | $ 3,570,896 |
Net realized gain (loss)
| 1,082,881 | 18,433,740 |
Change in net unrealized appreciation (depreciation)
| (12,690,829) | (12,317,475) |
Net increase (decrease) in net assets resulting from operations
| (10,512,489) | 9,687,161 |
Distributions to shareholders from:
Net investment income:
Class B | (1,275,845) | (3,955,828) |
Net realized gains:
Class B | (4,026,048) | (6,545,482) |
Total distributions
| (5,301,893) | (10,501,310) |
Portfolio share transactions:
Class B Proceeds from shares sold
| 7,398,819 | 4,472,231 |
Reinvestment of distributions
| 5,301,893 | 10,501,310 |
Cost of shares redeemed
| (8,175,397) | (158,853,998) |
Net increase (decrease) in net assets from Class B share transactions
| 4,525,315 | (143,880,457) |
Increase (decrease) in net assets | (11,289,067) | (144,694,606) |
Net assets at beginning of period
| 34,210,924 | 178,905,530 |
Net assets at end of period (including undistributed net investment income of $2,003,565 and $5,098,423, respectively)
| $ 22,921,857 | $ 34,210,924 |
Other Information |
Class B Shares outstanding at beginning of period
| 2,785,245 | 14,409,131 |
Shares sold
| 678,400 | 363,437 |
Shares issued to shareholders in reinvestment of distributions
| 546,587 | 888,436 |
Shares redeemed
| (842,739) | (12,875,759) |
Net increase (decrease) in Class B shares
| 382,248 | (11,623,886) |
Shares outstanding at end of period
| 3,167,493 | 2,785,245 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004a |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.28 | $ 12.42 | $ 11.37 | $ 10.84 | $ 10.00 |
Income (loss) from investment operations: Net investment income (loss)b | .34 | .26 | .19 | .12 | (.03) |
Net realized and unrealized gain (loss) | (3.63) | .34 | 1.04 | .43 | .87 |
Total from investment operations | (3.29) | .60 | 1.23 | .55 | .84 |
Less distributions from: Net investment income | (.42) | (.28) | (.10) | — | — |
Net realized gains | (1.33) | (.46) | (.08) | (.02) | — |
Total distributions | (1.75) | (.74) | (.18) | (.02) | — |
Net asset value, end of period | $ 7.24 | $ 12.28 | $ 12.42 | $ 11.37 | $ 10.84 |
Total Return (%)c,d
| (30.36) | 5.09 | 10.93 | 5.06 | 8.40** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 23 | 34 | 179 | 171 | 39 |
Ratio of expenses before expense reductions (%)e
| .95 | .63 | .62 | .66 | 1.53* |
Ratio of expenses after expense reductions (%)e
| .71 | .58 | .57 | .61 | .75* |
Ratio of net investment income (loss) (%)
| 3.53 | 2.11 | 1.65 | 1.15 | (.68)* |
Portfolio turnover rate (%)
| 59 | 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 some Underlying Portfolios' expenses.
e The Portfolio invests in other DWS Portfolios and non-affiliated funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying DWS Portfolios and non-affiliated funds 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,011.50 | | $ 1,010.30 | |
Expenses Paid per $1,000*
| $ 2.58 | | $ 3.59 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,022.57 | | $ 1,021.57 | |
Expenses Paid per $1,000*
| $ 2.59 | | $ 3.61 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Money Market VIP
| .51% | | .71% | |
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, 2008
DWS Money Market VIP
Over the course of 2008, we witnessed unprecedented events in the money markets as well as in financial markets worldwide. The massive credit crunch that originated with problems in the US subprime mortgage market as well as securitized mortgages eventually brought down several financial firms, including Bear Stearns and Lehman Brothers, and transformed Wall Street. September in particular was a traumatic month for the financial industry as severe losses and the general liquidity squeeze forced major financial companies such as Merrill Lynch, AIG, Washington Mutual and Wachovia to seek a rescue through government bailout or merger. In response to a general freeze-up in money market liquidity, the US government created new lending facilities for commercial paper and asset-backed commercial paper, as well for the money markets. The government also issued new short-term Treasury instruments to meet strong investor demand. By the fourth quarter, these new government programs seemed to be restoring some measure of liquidity in the money markets, though we believe it will take some time for normalcy to be restored.
During the 12-month period ended December 31, 2008, the Portfolio provided a total return of 2.64% (Class A shares, unadjusted for contract charges) compared with the 2.23% average return for the 106 funds in the Lipper Money Market Variable Annuity Funds category for the same period, according to Lipper Inc. The 7-day current yield as of December 31, 2008 was 1.59%. The investment advisor has agreed to waive certain fees/reimburse expenses. Without such fee waivers/expense reimbursements, the 7-day current yield would have been 1.31% as of December 31, 2008.
Given the difficult situation throughout the investment markets, and understanding that the credit crunch would not be a short-term phenomenon, our strategy for DWS Money Market VIP during the earlier part of 2008 was to emphasize liquidity and high credit quality while looking for ways to maximize yield potential when opportunities presented themselves. In mid-September, when conditions in the money markets worsened drastically, we enacted a significantly more defensive strategy for the Portfolio, holding more overnight securities in the form of repurchase agreements.1 We also purchased Treasury and agency instruments as well as corporate commercial paper, seeking the highest quality portfolio given the extremely difficult market conditions. As market conditions eased, we extended maturity with the highest quality securities.
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.
1 Repurchase Agreements (Repos) — an agreement between a seller and a buyer, usually of government securities, where the seller agrees to repurchase the securities at a given price and usually at a stated time. Repos are widely used money market instruments that serve as an interest-bearing, short-term "parking place" for large sums of money.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Money Market VIP
Asset Allocation (As a % of Investment Portfolio) | 12/31/08 | 12/31/07 |
| | |
Commercial Paper | 41% | 46% |
Government & Agency Obligations | 17% | 4% |
Certificates of Deposit and Bank Notes | 16% | 20% |
Short-Term Notes | 14% | 22% |
Repurchase Agreements | 6% | 2% |
Time Deposit | 4% | 1% |
Master Notes | 2% | 2% |
Promissory Notes | — | 2% |
Asset Backed | — | 1% |
| 100% | 100% |
Weighted Average Maturity* | | |
| | |
DWS Variable Series II — DWS Money Market VIP | 61 days | 41 days |
First Tier Retail Money Fund Average | 42 days | 41 days |
* The Portfolio is compared to its respective iMoneyNet Category: First Tier Retail Money Fund Average — Category includes a widely-recognized composite of money market funds that invest in only first tier (highest rating) securities. Portfolio Holdings of First Tier funds include US Treasury, US Other, Repos, Time Deposits, Domestic Bank Obligations, Foreign Bank Obligations, First Tier Commercial Paper, Floating Rate Notes and Asset Backed Commercial Paper.Asset allocation and weighted average maturity are subject to change.
For more complete details about the Portfolio's investment portfolio, see page 232. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Money Market VIP
| Principal Amount ($) | Value ($) |
| |
Certificates of Deposit and Bank Notes 16.2% |
Banco Bilbao Vizcaya Argentaria SA: | | |
3.09%, 3/9/2009 | 3,900,000 | 3,900,036 |
3.155%, 1/5/2009 | 2,600,000 | 2,600,001 |
Bank of America NA, 2.35%, 5/5/2009 | 3,500,000 | 3,500,000 |
Bank of Nova Scotia, 3.35%, 1/23/2009 | 4,500,000 | 4,500,000 |
Bank of Tokyo-Mitsubishi UFJ Ltd., 1.85%, 2/12/2009 | 4,500,000 | 4,500,000 |
BNP Paribas, 2.29%, 2/10/2009 | 2,000,000 | 2,000,022 |
Calyon, 2.2%, 3/11/2009 | 5,000,000 | 5,006,774 |
DNB NOR Bank ASA, 3.7%, 1/23/2009 | 5,000,000 | 5,000,000 |
Metropolitan Life Global Funding I, 144A, 3.8%, 1/20/2009 | 750,000 | 750,000 |
Mizuho Corporate Bank Ltd., 1.21%, 3/23/2009 | 6,500,000 | 6,500,146 |
Nordea Bank Finland PLC, 3.76%, 1/21/2009 | 6,250,000 | 6,251,812 |
Rabobank Nederland NV, 3.0%, 2/26/2009 | 3,000,000 | 3,000,000 |
Svenska Handelsbanken AB, 2.0%, 3/12/2009 | 6,500,000 | 6,500,000 |
Toronto-Dominion Bank: | | |
2.0%, 5/12/2009 | 3,000,000 | 3,000,000 |
2.52%, 5/12/2009 | 2,200,000 | 2,200,155 |
Westpac Banking Corp., 1.2%, 4/13/2009 | 5,000,000 | 5,000,000 |
Total Certificates of Deposit and Bank Notes (Cost $64,208,946) | 64,208,946 |
|
Commercial Paper 40.8% |
Issued at Discount** |
ASB Finance Ltd., 3.1%, 3/6/2009 | 1,500,000 | 1,491,733 |
Australia & New Zealand Banking Group Ltd., 2.2%, 2/6/2009 | 4,500,000 | 4,490,100 |
Bank of America Corp.: | | |
3.1%, 2/12/2009 | 3,500,000 | 3,487,342 |
3.22%, 2/6/2009 | 4,300,000 | 4,286,154 |
BP Capital Markets PLC, 1.285%, 3/5/2009 | 5,000,000 | 4,988,756 |
CBA (Delaware) Finance, Inc., 1.0%, 2/17/2009 | 4,879,000 | 4,874,541 |
Danske Corp., 3.81%, 1/28/2009 | 4,300,000 | 4,287,713 |
DNB NOR Bank ASA, 2.0%, 3/13/2009 | 5,000,000 | 4,980,278 |
European Investment Bank: | | |
0.85%, 6/11/2009 | 2,500,000 | 2,490,496 |
1.775%, 3/6/2009 | 4,000,000 | 3,987,378 |
2.13%, 5/5/2009 | 3,500,000 | 3,474,322 |
General Electric Co., 3.35%, 4/20/2009 | 4,000,000 | 3,959,428 |
Greenwich Capital Markets, Inc., 3.1%, 3/9/2009 | 3,500,000 | 3,479,807 |
Hewlett-Packard Co., 0.38%, 2/13/2009 | 5,800,000 | 5,797,367 |
Kingdom of Denmark, 0.75%, 4/22/2009 | 4,000,000 | 3,990,750 |
Liberty Street Funding LLC, 4.6%, 1/16/2009 | 6,000,000 | 5,988,500 |
| Principal Amount ($) | Value ($) |
| |
Nieuw Amsterdam Receivables Corp., 1.7%, 1/15/2009 | 4,000,000 | 3,997,356 |
Nissan Motor Acceptance Corp., 6.0%, 1/6/2009 | 3,000,000 | 2,997,500 |
Old Line Funding LLC, 4.25%, 1/15/2009 | 7,000,000 | 6,988,430 |
Pfizer, Inc.: | | |
0.5%, 5/11/2009 | 4,000,000 | 3,992,778 |
1.15%, 4/6/2009 | 2,000,000 | 1,993,931 |
1.2%, 3/19/2009 | 4,000,000 | 3,989,733 |
1.3%, 4/15/2009 | 3,000,000 | 2,988,733 |
2.52%, 3/2/2009 | 2,950,000 | 2,937,610 |
Procter & Gamble International Funding SCA: | | |
1.4%, 3/4/2009 | 4,000,000 | 3,990,356 |
2.23%, 2/12/2009 | 2,000,000 | 1,994,797 |
Shell International Finance BV: | | |
2.4%, 5/11/2009 | 2,000,000 | 1,982,667 |
2.5%, 3/9/2009 | 5,200,000 | 5,175,806 |
Starbird Funding Corp.: | | |
1.85%, 3/23/2009 | 5,000,000 | 4,979,187 |
3.2%, 2/6/2009 | 4,000,000 | 3,987,200 |
4.1%, 1/20/2009 | 6,400,000 | 6,386,151 |
Swedbank AB, 3.22%, 3/3/2009 | 2,000,000 | 1,989,088 |
Thunder Bay Funding LLC, 4.15%, 4/20/2009 | 4,000,000 | 3,949,739 |
Toyota Motor Credit Corp.: | | |
0.75%, 2/3/2009 | 5,000,000 | 4,996,562 |
2.1%, 4/1/2009 | 5,000,000 | 4,973,750 |
2.35%, 3/6/2009 | 4,000,000 | 3,983,289 |
3.4%, 1/26/2009 | 4,200,000 | 4,190,083 |
Victory Receivables Corp., 3.9%, 1/16/2009 | 6,400,000 | 6,389,600 |
Wal-Mart Stores, Inc., 0.75%, 9/8/2009 | 2,000,000 | 1,989,583 |
Westpac Banking Corp., 2.25%, 3/9/2009 | 5,500,000 | 5,476,969 |
Total Commercial Paper (Cost $162,375,563) | 162,375,563 |
|
Short-Term Notes* 14.2% |
Abbey National Treasury Services PLC: | | |
0.881%, 4/24/2009 | 1,500,000 | 1,500,000 |
2.417%, 2/20/2009 | 2,000,000 | 2,000,000 |
Allied Irish Banks North America, Inc., 2.463%, 3/11/2009 | 3,000,000 | 3,000,000 |
Australia & New Zealand Banking Group Ltd.: | | |
144A, 2.409%, 7/10/2009 | 1,000,000 | 1,000,000 |
144A, 2.426%, 7/2/2009 | 2,000,000 | 2,000,000 |
Bank of America NA, 144A, 4.35%, 7/6/2009 | 1,900,000 | 1,900,000 |
Bank of Nova Scotia, 3.056%, 5/6/2009 | 3,300,000 | 3,300,000 |
Bank of Scotland PLC, 2.916%, 6/5/2009 | 1,200,000 | 1,200,000 |
Barclays Bank PLC, 0.097%, 2/27/2009 | 3,000,000 | 3,000,000 |
BNP Paribas, 2.445%, 5/13/2009 | 1,500,000 | 1,500,000 |
Credit Agricole SA, 144A, 1.775%, 7/22/2009 | 2,500,000 | 2,500,000 |
| Principal Amount ($) | Value ($) |
| |
General Electric Co., 0.501%, 9/24/2009 | 10,000,000 | 10,000,000 |
ING Bank NV, 144A, 1.716%, 3/26/2009 | 750,000 | 750,000 |
Intesa Sanpaolo SpA: | | |
1.695%, 5/13/2009 | 2,800,000 | 2,800,000 |
2.451%, 3/5/2009 | 3,000,000 | 3,000,000 |
JPMorgan Chase & Co., 4.19%, 4/3/2009 | 4,000,000 | 3,999,949 |
Metropolitan Life Global Funding I, 144A, 4.57%, 5/11/2009 | 750,000 | 750,000 |
National Australia Bank Ltd.: | | |
144A, 2.438%, 2/19/2009 | 2,000,000 | 2,000,000 |
4.543%, 4/7/2009 | 1,250,000 | 1,250,000 |
Natixis, 2.442%, 4/6/2009 | 3,000,000 | 3,000,000 |
Procter & Gamble International Funding SCA, 2.308%, 2/19/2009 | 750,000 | 750,000 |
Rabobank Nederland NV, 144A, 2.577%, 10/9/2009 | 2,000,000 | 2,000,000 |
Royal Bank of Canada, 144A, 1.595%, 7/15/2009 | 1,800,000 | 1,800,000 |
Svenska Handelsbanken AB, 144A, 3.885%, 5/26/2009 | 1,500,000 | 1,500,000 |
Total Short-Term Notes (Cost $56,499,949) | 56,499,949 |
|
Master Notes 2.0% |
Citigroup Global Markets, Inc., 0.19%*, 1/2/2009 (a) (Cost $8,000,000) | 8,000,000 | 8,000,000 |
|
Time Deposit 4.0% |
Canadian Imperial Bank of Commerce, 0.01%, 1/2/2009 (Cost $15,937,000) | 15,937,000 | 15,937,000 |
|
Government & Agency Obligations 16.6% |
US Government Sponsored Agencies 16.1% |
Federal Home Loan Bank: | | |
0.39%*, 4/3/2009 | 1,200,000 | 1,200,000 |
2.35%**, 2/11/2009 | 1,800,000 | 1,795,182 |
| Principal Amount ($) | Value ($) |
| |
2.36%**, 5/12/2009 | 1,250,000 | 1,239,265 |
2.5%**, 4/14/2009 | 5,200,000 | 5,162,805 |
2.53%**, 1/26/2009 | 3,500,000 | 3,493,851 |
2.73%**, 1/20/2009 | 4,000,000 | 3,994,237 |
2.74%**, 2/24/2009 | 1,750,000 | 1,742,807 |
3.0%**, 4/20/2009 | 2,000,000 | 1,981,833 |
Federal Home Loan Mortgage Corp.: | | |
0.55%**, 8/3/2009 | 5,000,000 | 4,983,653 |
1.3%**, 4/2/2009 | 5,000,000 | 4,983,569 |
1.75%**, 5/27/2009 | 2,000,000 | 1,985,806 |
2.41%**, 3/19/2009 | 2,000,000 | 1,989,691 |
Federal National Mortgage Association: | | |
0.45%**, 5/20/2009 | 4,500,000 | 4,492,181 |
1.25%**, 6/11/2009 | 4,000,000 | 3,977,639 |
1.7%**, 6/30/2009 | 2,500,000 | 2,478,750 |
1.75%**, 5/29/2009 | 4,300,000 | 4,269,064 |
1.9%**, 7/27/2009 | 8,000,000 | 7,912,600 |
2.46%**, 3/19/2009 | 2,000,000 | 1,989,477 |
2.75%**, 3/16/2009 | 4,250,000 | 4,225,976 |
| 63,898,386 |
US Treasury Obligation 0.5% |
US Treasury Bill, 0.99%**, 5/15/2009 | 2,200,000 | 2,191,893 |
Total Government & Agency Obligations (Cost $66,090,279) | 66,090,279 |
|
Repurchase Agreements 6.3% |
JPMorgan Securities, Inc., 0.04%, dated 12/31/2008, to be repurchased at $25,000,056 on 1/2/2009 (b) (Cost $25,000,000) | 25,000,000 | 25,000,000 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $398,111,737)+ | 100.1 | 398,111,737 |
Other Assets and Liabilities, Net | (0.1) | (320,742) |
Net Assets | 100.0 | 397,790,995 |
+ The cost for federal income tax purposes was $398,111,737.* 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, 2008.** Annualized yield at time of purchase; not a coupon rate.(a) Reset date; not a maturity date.(b) Collateralized by $24,644,933 Federal National Mortgage Association, with various coupon rates from 5.0-6.0%, with various maturity dates of 6/1/2018-10/1/2038, with a value of $25,500,681.144A: 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.
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ — |
Level 2
| 398,111,737 |
Level 3
| — |
Total | $ 398,111,737 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investment in securities, valued at amortized cost | $ 398,111,737 |
Cash
| 176,048 |
Interest receivable
| 481,504 |
Receivable for Portfolio shares sold
| 169,537 |
Due from Advisor
| 127 |
Other assets
| 65,592 |
Total assets
| 399,004,545 |
Liabilities |
Payable for Portfolio shares redeemed
| 643,663 |
Distributions payable
| 293,151 |
Accrued management fee
| 25,489 |
Other accrued expenses and payables
| 251,247 |
Total liabilities
| 1,213,550 |
Net assets, at value | $ 397,790,995 |
Net Assets Consist of |
Distributions in excess of net investment income
| (130,622) |
Paid-in capital
| 397,921,617 |
Net assets, at value | $ 397,790,995 |
Class A Net Asset Value, offering and redemption price per share ($397,749,879 ÷ 397,868,262 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 ($41,116 ÷ 41,037 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 1.00 |
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Interest
| $ 11,982,120 |
Expenses:
Management fee
| 1,247,502 |
Administration fee
| 263,770 |
Services to shareholders
| 763 |
Custodian fee
| 39,912 |
Distribution service fee (Class B)
| 10,318 |
Professional fees
| 76,177 |
Record keeping fees (Class B)
| 4,081 |
Trustees' fee and expenses
| 37,309 |
Reports to shareholders and shareholder meeting
| 326,625 |
Other
| 56,419 |
Total expenses, before expense reductions
| 2,062,876 |
Expense reductions
| (95,999) |
Total expenses, after expense reductions
| 1,966,877 |
Net investment income | 10,015,243 |
Net realized gain (loss) | 109,674 |
Net increase (decrease) in net assets resulting from operations | $ 10,124,917 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income
| $ 10,015,243 | $ 17,547,804 |
Net realized gain (loss)
| 109,674 | 15,068 |
Net increase (decrease) in net assets resulting from operations
| 10,124,917 | 17,562,872 |
Distributions to shareholders from:
Net investment income:
Class A | (10,103,886) | (15,932,890) |
Class B | (127,775) | (1,617,257) |
Total distributions
| $ (10,231,661) | $ (17,550,147) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 264,441,713 | 266,620,495 |
Reinvestment of distributions
| 10,438,782 | 15,863,609 |
Cost of shares redeemed
| (232,250,984) | (221,020,237) |
Net increase (decrease) in net assets from Class A share transactions
| 42,629,511 | 61,463,867 |
Class B Proceeds from shares sold
| 4,026,431 | 36,113,440 |
Reinvestment of distributions
| 158,921 | 1,612,484 |
Cost of shares redeemed
| (28,403,441) | (71,843,157) |
Net increase (decrease) in net assets from Class B share transactions
| (24,218,089) | (34,117,233) |
Increase (decrease) in net assets | 18,304,678 | 27,359,359 |
Net assets at beginning of period
| 379,486,317 | 352,126,958 |
Net assets at end of period (including distributions in excess of net investment income of $130,622 and $23,878, respectively)
| $ 397,790,995 | $ 379,486,317 |
Other Information |
Class A Shares outstanding at beginning of period
| 355,238,751 | 293,774,884 |
Shares sold
| 264,441,713 | 266,620,495 |
Shares issued to shareholders in reinvestment of distributions
| 10,438,782 | 15,863,609 |
Shares redeemed
| (232,250,984) | (221,020,237) |
Net increase (decrease) in Class A shares
| 42,629,511 | 61,463,867 |
Shares outstanding at end of period
| 397,868,262 | 355,238,751 |
Class B Shares outstanding at beginning of period
| 24,259,126 | 58,376,359 |
Shares sold
| 4,026,431 | 36,113,440 |
Shares issued to shareholders in reinvestment of distributions
| 158,921 | 1,612,484 |
Shares redeemed
| (28,403,441) | (71,843,157) |
Net increase (decrease) in Class B shares
| (24,218,089) | (34,117,233) |
Shares outstanding at end of period
| 41,037 | 24,259,126 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
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 | .026 | .049 | .046 | .028 | .009 |
Total from investment operations | .026 | .049 | .046 | .028 | .009 |
Less distributions from: Net investment income | (.026) | (.049) | (.046) | (.028) | (.009) |
Net asset value, end of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Total Return (%)
| 2.64a | 5.00a | 4.65a | 2.80 | .91 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 398 | 355 | 294 | 235 | 241 |
Ratio of expenses before expense reductions (%)
| .52 | .46 | .52 | .52 | .53 |
Ratio of expenses after expense reductions (%)
| .50 | .45 | .51 | .52 | .53 |
Ratio of net investment income (%)
| 2.56 | 4.88 | 4.58 | 2.77 | .88 |
a Total return would have been lower had certain expenses not been reduced.
|
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
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 | .023 | .046 | .042 | .024 | .005 |
Total from investment operations | .023 | .046 | .042 | .024 | .005 |
Less distributions from: Net investment income | (.023) | (.046) | (.042) | (.024) | (.005) |
Net asset value, end of period | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 | $ 1.000 |
Total Return (%)
| 2.34a | 4.65a | 4.25a | 2.42 | .52 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .04 | 24 | 58 | 58 | 53 |
Ratio of expenses before expense reductions (%)
| .93 | .82 | .90 | .89 | .91 |
Ratio of expenses after expense reductions (%)
| .88 | .80 | .89 | .89 | .91 |
Ratio of net investment income (%)
| 2.17 | 4.53 | 4.20 | 2.40 | .50 |
a Total return would have been lower had certain expenses not been reduced.
|
Performance Summary December 31, 2008
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, 2008 are 0.75% and 1.00% 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, 2008.
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.
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 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 measure of 2,000 of the smallest capitalized US companies with a greater-than-average growth orientation and whose common stocks trade on the NYSE, NYSE Alternext US (formerly known as the American Stock Exchange (AMEX)) and Nasdaq. 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
| $5,050 | $5,645 | $6,711 | $5,078 |
Average annual total return
| -49.50% | -17.35% | -7.67% | -6.55% |
Russell 2000 Growth Index
| Growth of $10,000
| $6,146 | $7,457 | $8,878 | $9,266 |
Average annual total return
| -38.54% | -9.32% | -2.35% | -.76% |
DWS Small Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $5,098 | $5,653 | $6,670 | $8,019 |
Average annual total return
| -49.09% | -17.31% | -7.78% | -3.34% |
Russell 2000 Growth Index
| Growth of $10,000
| $6,146 | $7,457 | $8,878 | $11,127 |
Average annual total return
| -38.54% | -9.32% | -2.35% | 1.66% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 602.10 | | $ 614.70 | |
Expenses Paid per $1,000*
| $ 3.58 | | $ 5.07 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.66 | | $ 1,018.85 | |
Expenses Paid per $1,000*
| $ 4.52 | | $ 6.34 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Small Cap Growth VIP
| .89% | | 1.25% | |
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, 2008
DWS Small Cap Growth VIP
The past year has proven to be the most difficult period for global financial markets since the 1930s, with virtually all market indices posting decisively negative results. The bursting of the US housing market bubble set in motion a chain of events that culminated late last summer in the near paralysis of the global financial system. This led to a widening in credit spreads and a complete seize-up of credit-related activity.1 As the crisis grew, and market volatility hit an all-time high, the federal government intervened to prevent the failure of once venerable institutions such as AIG, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). The growing inability of businesses and consumers to access credit led to a sharp contraction in global economic activity by the fourth quarter. Central banks around the world cut key interest rates in an effort to jump-start economic activity. Determined not to repeat the policy errors that led to the Great Depression, the US Federal Reserve Board (the Fed) gradually lowered its target for short-term interest rates to a range between 0% and 0.25%, and has aggressively used its balance sheet to provide credit market liquidity. President-elect Obama has called the revival of the economy his first priority, and the new administration intends to implement a huge fiscal stimulus plan that could reach $1 trillion.
For the 12-month period ended December 31, 2008, the Portfolio returned -49.50% (Class A shares, unadjusted for contract charges) compared with the -38.54% return of the Russell 2000® Growth Index.
Positive contributors to performance over the 12-month period included an overweight position in consumer staples, and underweights to telecom services, utilities and materials.2 Stock selection was positive within the consumer staples sector, and contributions to performance from the sector came from Green Mountain Coffee Roasters, Inc. and Pantry, Inc. Detractors from performance included unfavorable stock selection in health care, financials and energy. Individual detractors from returns included positions in the energy company Tesco Corp. and from financials, E*TRADE Financial Corp. Overweight positions in consumer discretionary and information technology also subtracted from returns, as did an underweight to health care. We continue to maintain a long-term perspective, investing in quality small-cap growth stocks.
Joseph Axtell, CFA Rafaelina M. Lee Jeffrey Saeger, CFA
Portfolio Managers, Deutsche Investment Management Americas Inc.
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 Credit spread is the additional yield provided by non-Treasury fixed-income securities versus Treasury securities.2 "Overweight" means the portfolio holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the portfolio holds a lower weighting.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Small Cap Growth VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 94% | 98% |
Cash Equivalents | 6% | 2% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Information Technology | 33% | 29% |
Health Care | 18% | 13% |
Consumer Discretionary | 16% | 20% |
Industrials | 11% | 15% |
Financials | 9% | 8% |
Energy | 8% | 11% |
Consumer Staples | 5% | 2% |
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 242. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Small Cap Growth VIP
| Shares | Value ($) |
| |
Common Stocks 95.0% |
Consumer Discretionary 15.4% |
Diversified Consumer Services 1.4% |
Capella Education Co.* | 17,000 | 998,920 |
Hotels Restaurants & Leisure 4.3% |
Buffalo Wild Wings, Inc.* (a) | 115,200 | 2,954,880 |
Specialty Retail 9.7% |
bebe stores, inc. | 207,600 | 1,550,772 |
Children's Place Retail Stores, Inc.* (a) | 70,700 | 1,532,776 |
Citi Trends, Inc.* | 53,600 | 788,992 |
Guess?, Inc. | 142,300 | 2,184,305 |
Zumiez, Inc.* (a) | 90,000 | 670,500 |
| 6,727,345 |
Consumer Staples 5.0% |
Food & Staples Retailing 2.2% |
Casey's General Stores, Inc. | 30,000 | 683,100 |
Pantry, Inc.* | 37,700 | 808,665 |
| 1,491,765 |
Food Products 1.1% |
Green Mountain Coffee Roasters, Inc.* (a) | 18,000 | 696,600 |
Zhongpin, Inc.* | 4,800 | 57,600 |
| 754,200 |
Personal Products 1.7% |
Chattem, Inc.* | 9,900 | 708,147 |
NBTY, Inc.* | 31,000 | 485,150 |
| 1,193,297 |
Energy 8.1% |
Energy Equipment & Services 2.4% |
CARBO Ceramics, Inc. | 17,800 | 632,434 |
Dril-Quip, Inc.* | 40,900 | 838,859 |
T-3 Energy Services, Inc.* | 19,000 | 179,360 |
| 1,650,653 |
Oil, Gas & Consumable Fuels 5.7% |
Arena Resources, Inc.* | 28,700 | 806,183 |
BPZ Resources, Inc.* (a) | 169,200 | 1,082,880 |
Carrizo Oil & Gas, Inc.* (a) | 59,800 | 962,780 |
EXCO Resources, Inc.* | 48,500 | 439,410 |
Goodrich Petroleum Corp.* | 22,400 | 670,880 |
| 3,962,133 |
Financials 8.1% |
Capital Markets 2.2% |
Riskmetrics Group, Inc.* | 60,200 | 896,378 |
Waddell & Reed Financial, Inc. "A" | 39,500 | 610,670 |
| 1,507,048 |
Commercial Banks 1.0% |
PrivateBancorp., Inc. | 22,200 | 720,612 |
Diversified Financial Services 2.5% |
Portfolio Recovery Associates, Inc.* (a) | 52,120 | 1,763,741 |
| Shares | Value ($) |
| |
Insurance 2.4% |
eHealth, Inc.* | 124,300 | 1,650,704 |
Health Care 17.0% |
Biotechnology 2.8% |
Alexion Pharmaceuticals, Inc.* | 18,500 | 669,515 |
Celera Corp.* | 15,200 | 169,176 |
Regeneron Pharmaceuticals, Inc.* | 20,700 | 380,052 |
United Therapeutics Corp.* | 11,900 | 744,345 |
| 1,963,088 |
Health Care Equipment & Supplies 2.0% |
Masimo Corp.* | 12,900 | 384,807 |
NuVasive, Inc.* | 19,100 | 661,815 |
Thoratec Corp.* | 11,100 | 360,639 |
| 1,407,261 |
Health Care Providers & Services 11.5% |
AMERIGROUP Corp.* | 39,000 | 1,151,280 |
Centene Corp.* | 60,400 | 1,190,484 |
Genoptix, Inc.* | 44,600 | 1,519,968 |
Gentiva Health Services, Inc.* | 55,400 | 1,621,004 |
Pediatrix Medical Group, Inc.* | 29,500 | 935,150 |
Psychiatric Solutions, Inc.* (a) | 56,500 | 1,573,525 |
| 7,991,411 |
Life Sciences Tools & Services 0.7% |
ICON PLC (ADR)* | 23,600 | 464,684 |
Industrials 10.1% |
Aerospace & Defense 2.8% |
BE Aerospace, Inc.* | 122,800 | 944,332 |
Curtiss-Wright Corp. | 29,800 | 995,022 |
| 1,939,354 |
Commercial Services & Supplies 1.5% |
Team, Inc.* | 37,300 | 1,033,210 |
Electrical Equipment 1.0% |
Baldor Electric Co. | 39,600 | 706,860 |
Machinery 0.9% |
Astec Industries, Inc.* | 20,700 | 648,531 |
Professional Services 3.0% |
Huron Consulting Group, Inc.* | 25,100 | 1,437,477 |
Korn/Ferry International* | 55,100 | 629,242 |
| 2,066,719 |
Road & Rail 0.9% |
Old Dominion Freight Line, Inc.* | 22,200 | 631,812 |
Information Technology 31.3% |
Communications Equipment 1.1% |
Ciena Corp.* | 112,400 | 753,080 |
Electronic Equipment, Instruments & Components 4.0% |
Itron, Inc.* (a) | 43,200 | 2,753,568 |
Internet Software & Services 5.7% |
Bankrate, Inc.* (a) | 38,900 | 1,478,200 |
LoopNet, Inc.* (a) | 235,200 | 1,604,064 |
Omniture, Inc.* | 80,300 | 854,392 |
| 3,936,656 |
| Shares | Value ($) |
| |
IT Services 6.0% |
CyberSource Corp.* (a) | 200,500 | 2,403,995 |
Forrester Research, Inc.* | 62,900 | 1,774,409 |
| 4,178,404 |
Semiconductors & Semiconductor Equipment 7.2% |
Atheros Communications* | 92,100 | 1,317,951 |
Cavium Networks, Inc.* (a) | 77,100 | 810,321 |
Microsemi Corp.* | 47,400 | 599,136 |
Netlogic Microsystems, Inc.* | 56,000 | 1,232,560 |
Tessera Technologies, Inc.* | 90,600 | 1,076,328 |
| 5,036,296 |
Software 7.3% |
Blackboard, Inc.* | 67,300 | 1,765,279 |
Concur Technologies, Inc.* (a) | 33,100 | 1,086,342 |
FalconStor Software, Inc.* (a) | 190,300 | 529,034 |
Fundtech Ltd.* | 93,585 | 649,480 |
Informatica Corp.* | 32,000 | 439,360 |
Ultimate Software Group, Inc.* (a) | 43,100 | 629,260 |
| 5,098,755 |
Total Common Stocks (Cost $91,009,942) | 65,984,987 |
| Shares | Value ($) |
| |
Securities Lending Collateral 21.6% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $14,998,940) | 14,998,940 | 14,998,940 |
|
Cash Equivalents 6.5% |
Cash Management QP Trust, 1.42% (b) (Cost $4,508,380) | 4,508,380 | 4,508,380 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $110,517,262)+ | 123.1 | 85,492,307 |
Other Assets and Liabilities, Net (a) | (23.1) | (16,062,595) |
Net Assets | 100.0 | 69,429,712 |
|
* Non-income producing security.+ The cost for federal income tax purposes was $110,551,428. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $25,059,121. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $4,803,766 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $29,862,887.(a) All or a portion of these securities were on loan amounting to $14,779,614. In addition, included in other assets and liabilities, net is a pending sale, amounting to $147,346 that is also on loan (see Notes to Financial Statements). The value of all securities loaned at December 31, 2008 amounted to $14,926,960, which is 21.5% 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.ADR: American Depositary Receipt
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 80,983,927 |
Level 2
| 4,508,380 |
Level 3
| — |
Total | $ 85,492,307 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $91,009,942) — including $14,779,614 of securities loaned | $ 65,984,987 |
Investment in Daily Assets Fund Institutional (cost $14,998,940)* | 14,998,940 |
Investment in Cash Management QP Trust (cost $4,508,380) | 4,508,380 |
Total investments, at value (cost $110,517,262)
| 85,492,307 |
Receivable for investments sold
| 207,998 |
Cash
| 25,618 |
Dividends receivable
| 11,171 |
Interest receivable
| 35,960 |
Receivable for Portfolio shares sold
| 142,705 |
Other assets
| 4,009 |
Total assets
| 85,919,768 |
Liabilities |
Payable for Portfolio shares redeemed
| 50,296 |
Payable upon return of securities loaned
| 14,998,940 |
Payable for investments purchased
| 1,243,640 |
Accrued management fee
| 31,186 |
Other accrued expenses and payables
| 165,994 |
Total liabilities
| 16,490,056 |
Net assets, at value | $ 69,429,712 |
Net Assets Consist of |
Accumulated net investment loss
| (16,609) |
Net unrealized appreciation (depreciation) on investments
| (25,024,955) |
Accumulated net realized gain (loss)
| (110,019,530) |
Paid-in capital
| 204,490,806 |
Net assets, at value | $ 69,429,712 |
Class A Net Asset Value, offering and redemption price per share ($69,415,664 ÷ 9,122,504 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.61 |
Class B Net Asset Value, offering and redemption price per share ($14,048 ÷ 1,867 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 7.52 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends
| $ 287,746 |
Interest — Cash Management QP Trust
| 71,575 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 645,012 |
Total Income
| 1,004,333 |
Expenses:
Management fee
| 733,616 |
Administration fee
| 74,373 |
Services to shareholders
| 316 |
Custodian fee
| 13,605 |
Distribution service fee (Class B)
| 4,740 |
Record keeping fees (Class B)
| 2,687 |
Legal fees
| 15,482 |
Audit and tax fees
| 63,831 |
Trustees' fees and expenses
| 20,529 |
Reports to shareholders and shareholder meeting
| 171,117 |
Other
| 5,375 |
Total expenses before expense reductions
| 1,105,671 |
Expense reductions
| (37,746) |
Total expenses after expense reductions
| 1,067,925 |
Net investment income (loss) | (63,592) |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from investments
| (22,641,797) |
Change in net unrealized appreciation (depreciation) on investments
| (56,010,791) |
Net gain (loss) | (78,652,588) |
Net increase (decrease) in net assets resulting from operations | $ (78,716,180) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ (63,592) | $ (266,680) |
Net realized gain (loss)
| (22,641,797) | 29,911,986 |
Change in net unrealized appreciation (depreciation)
| (56,010,791) | (13,909,833) |
Net increase (decrease) in net assets resulting from operations
| (78,716,180) | 15,735,473 |
Portfolio share transactions:
Class A Proceeds from shares sold
| 5,995,281 | 7,088,648 |
Cost of shares redeemed
| (32,499,758) | (54,833,999) |
Net increase (decrease) in net assets from Class A share transactions
| (26,504,477) | (47,745,351) |
Class B Proceeds from shares sold
| 210,787 | 890,860 |
Cost of shares redeemed
| (6,249,807) | (33,397,002) |
Net increase (decrease) in net assets from Class B share transactions
| (6,039,020) | (32,506,142) |
Increase (decrease) in net assets | (111,259,677) | (64,516,020) |
Net assets at beginning of period
| 180,689,389 | 245,205,409 |
Net assets at end of period (including accumulated net investment loss of $16,609 and $16,875, respectively)
| $ 69,429,712 | $ 180,689,389 |
Other Information |
Class A Shares outstanding at beginning of period
| 11,529,906 | 14,686,087 |
Shares sold
| 539,106 | 469,331 |
Shares redeemed
| (2,946,508) | (3,625,512) |
Net increase (decrease) in Class A shares
| (2,407,402) | (3,156,181) |
Shares outstanding at end of period
| 9,122,504 | 11,529,906 |
Class B Shares outstanding at beginning of period
| 468,018 | 2,636,495 |
Shares sold
| 16,827 | 59,404 |
Shares redeemed
| (482,978) | (2,227,881) |
Net increase (decrease) in Class B shares
| (466,151) | (2,168,477) |
Shares outstanding at end of period
| 1,867 | 468,018 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 15.07 | $ 14.19 | $ 13.48 | $ 12.59 | $ 11.34 |
Income (loss) from investment operations: Net investment income (loss)a | (.01) | (.01) | (.04)d | (.06) | (.05) |
Net realized and unrealized gain (loss) | (7.45) | .89 | .75 | .95 | 1.30 |
Total from investment operations | (7.46) | .88 | .71 | .89 | 1.25 |
Net asset value, end of period | $ 7.61 | $ 15.07 | $ 14.19 | $ 13.48 | $ 12.59 |
Total Return (%)
| (49.50)b | 6.20b | 5.27b,d | 7.07c | 11.02 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 69 | 174 | 208 | 243 | 210 |
Ratio of expenses before expense reductions (%)
| .88 | .75 | .73 | .72 | .71 |
Ratio of expenses after expense reductions (%)
| .85 | .72 | .72 | .72 | .71 |
Ratio of net investment income (loss) (%)
| (.04) | (.09) | (.32)d | (.47) | (.47) |
Portfolio turnover rate (%)
| 67 | 67 | 73 | 94 | 117 |
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 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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 14.77 | $ 13.96 | $ 13.32 | $ 12.48 | $ 11.29 |
Income (loss) from investment operations: Net investment income (loss)a | (.07) | (.07) | (.09)d | (.11) | (.10) |
Net realized and unrealized gain (loss) | (7.18) | .88 | .73 | .95 | 1.29 |
Total from investment operations | (7.25) | .81 | .64 | .84 | 1.19 |
Net asset value, end of period | $ 7.52 | $ 14.77 | $ 13.96 | $ 13.32 | $ 12.48 |
Total Return (%)b
| (49.09) | 5.80 | 4.80d | 6.73c | 10.54 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .01 | 7 | 37 | 39 | 28 |
Ratio of expenses before expense reductions (%)
| 1.39 | 1.13 | 1.12 | 1.12 | 1.10 |
Ratio of expenses after expense reductions (%)
| 1.29 | 1.09 | 1.09 | 1.09 | 1.09 |
Ratio of net investment income (loss) (%)
| (.48) | (.46) | (.69)d | (.84) | (.85) |
Portfolio turnover rate (%)
| 67 | 67 | 73 | 94 | 117 |
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 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, 2008
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, 2008 are 0.89% and 1.14% 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, 2008.
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. The Portfolio invests in derivatives seeking to hedge positions in certain securities and to generate income in order to enhance the Portfolio's returns. Derivatives can be more volatile and less liquid than traditional fixed-income securities. Finally, investing in foreign securities presents certain risks, 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 Index Plus [] Credit Suisse High Yield Index [] Barclays Capital 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 Index Plus 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 Credit Suisse High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the global high-yield debt market. The Barclays Capital US Treasury Index (name changed from Lehman Brothers US Treasury Index, effective November 3, 2008) 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
| $9,225 | $10,600 | $11,786 | $14,377 |
Average annual total return
| -7.75% | 1.96% | 3.34% | 3.70% |
Citigroup World Government Bond Index
| Growth of $10,000
| $11,089 | $13,056 | $13,416 | $17,739 |
Average annual total return
| 10.89% | 9.30% | 6.05% | 5.90% |
JP Morgan Emerging Markets Bond Index Plus
| Growth of $10,000
| $9,030 | $10,620 | $13,278 | $28,249 |
Average annual total return
| -9.70% | 2.03% | 5.83% | 10.94% |
Credit Suisse High Yield Index
| Growth of $10,000
| $7,383 | $8,481 | $9,710 | $13,266 |
Average annual total return
| -26.17% | -5.34% | -.59% | 2.87% |
Barclays Capital US Treasury Index
| Growth of $10,000
| $11,374 | $12,781 | $13,602 | $18,358 |
Average annual total return
| 13.74% | 8.52% | 6.35% | 6.26% |
The growth of $10,000 is cumulative.
Comparative Results |
DWS Strategic Income VIP | 1-Year | 3-Year | 5-Year | Life of Class* |
Class B | Growth of $10,000
| $9,200 | $10,512 | $11,600 | $11,945 |
Average annual total return
| -8.00% | 1.68% | 3.01% | 3.18% |
Citigroup World Government Bond Index
| Growth of $10,000
| $11,089 | $13,056 | $13,416 | $14,775 |
Average annual total return
| 10.89% | 9.30% | 6.05% | 7.13% |
JP Morgan Emerging Markets Bond Index Plus
| Growth of $10,000
| $9,030 | $10,620 | $13,278 | $14,965 |
Average annual total return
| -9.70% | 2.03% | 5.83% | 7.37% |
Credit Suisse High Yield Index
| Growth of $10,000
| $7,383 | $8,481 | $9,710 | $11,056 |
Average annual total return
| -26.17% | -5.34% | -.59% | 1.78% |
Barclays Capital US Treasury Index
| Growth of $10,000
| $11,374 | $12,781 | $13,602 | $13,707 |
Average annual total return
| 13.74% | 8.52% | 6.35% | 5.72% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 920.90 | | $ 932.60 | |
Expenses Paid per $1,000*
| $ 4.15 | | $ 5.49 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.81 | | $ 1,019.46 | |
Expenses Paid per $1,000*
| $ 4.37 | | $ 5.74 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Strategic Income VIP
| .86% | | 1.13% | |
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, 2008
DWS Strategic Income VIP
While the rapid swings and overall decline in stock prices garnered most of the headlines during the past 12 months, the bond market also had its share of volatility. The cause of this volatility was the ongoing fallout from the housing and credit crises, which led to the outright failure or forced mergers of numerous financial institutions in both the United States and Europe. The resulting credit crunch led to a slowdown in global economic growth, which accelerated late in the period. In this environment, investors' risk appetites evaporated and liquidity all but disappeared. This led to a frantic "flight to quality" into the safe haven of US Treasuries and underperformance for virtually all other segments of the bond market. Lower-quality issues — most notably corporate bonds with the lowest credit ratings — underperformed the broader bond market by a wide margin. The situation was largely the same overseas, where the best performance was generated by the government bond markets of the developed economies.
The Portfolio posted a -7.75% return for the period ending December 31, 2008 (Class A shares, unadjusted for contract charges). This compares with the Portfolio benchmarks' returns of -9.70% for the JPMorgan Emerging Markets Bond Index Plus, -26.17% for the Credit Suisse High Yield Index, 13.74% for the Barclays Capital US Treasury Index and 10.89% for the Citigroup World Government Bond Index.
In the past, the Portfolio's broad exposure to a wide range of fixed-income asset classes has been one of the most important factors in its strong long-term track record. During the past year, however, the severe underperformance of the non-government segments of the bond market made such diversification a liability. During the year, we maintained significant exposure to both high-yield and emerging-markets bonds. This positioning had a negative impact on the Portfolio's relative return for the period, as both asset classes were down sharply. On the positive side, the Portfolio's relatively long overall duration during the year aided performance in a declining interest rate environment.1 Over the second half of the year, we began shifting the Portfolio to a higher-quality profile in view of the continued weak outlook for the global economy, trimming our exposure to high-yield and emerging-markets bonds. In addition, we have been seeking to increase exposure to the Eurozone, UK and Canada, where central banks have more room to lower rates than in the US.
In addition to the main investment strategy, we employ a global tactical asset allocation strategy. This strategy, which the Advisor calls iGAP (integrated Global Alpha Platform) detracted from the Portfolio's return.
Gary Sullivan, CFA William Chepolis, CFA
Matthew F. MacDonald, CFA Thomas Picciochi
Robert Wang
Portfolio Managers, Deutsche Investment Management Americas Inc.
The JPMorgan Emerging Markets Bond Index Plus 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.
Credit Suisse High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the global high-yield debt market.
The Barclays Capital US Treasury Index (name changed from Lehman Brothers US Treasury Index, effective November 3, 2008) is an unmanaged index reflecting the performance of all public obligations and does not focus on one particular segment of the Treasury market.
The Citigroup World Government Bond Index is an unmanaged index comprised of government bonds from 22 developed countries, including the US, with maturities greater than one year.
Index returns, unlike portfolio returns, do not reflect fees or expenses. It is not possible to invest directly into an index.
1 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, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Strategic Income VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Government & Agency Obligations | 42% | 44% |
Corporate Bonds | 42% | 34% |
Cash Equivalents | 6% | 13% |
Mortgage-Backed Securities Pass-Throughs | 3% | — |
Commercial and Non-Agency Mortgage-Backed Securities | 2% | 5% |
Loan Participations and Assignments | 2% | 3% |
Municipal Bonds and Notes | 1% | — |
Collateralized Mortgage Obligations | 1% | — |
Asset Backed | 1% | 1% |
| 100% | 100% |
Quality (Excludes Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Cash Equivalents | 5% | 15% |
AAA | 31% | 17% |
AA | 1% | 1% |
A | 15% | 5% |
BBB | 8% | 7% |
BB | 15% | 20% |
B | 15% | 16% |
CCC | 3% | 4% |
Below CCC | 1% | — |
Not Rated | 6% | 15% |
| 100% | 100% |
Effective Maturity (Excludes Cash Equivalents and Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Under 1 year | — | — |
1-4.99 years | 46% | 52% |
5-9.99 years | 35% | 33% |
10-14.99 years | 6% | 2% |
15 years or greater | 13% | 13% |
| 100% | 100% |
Interest Rate Sensitivity | 12/31/08 | 12/31/07 |
| | |
Effective maturity | 7.4 years | 6.6 years |
Average duration | 5.1 years | 3.5 years |
Asset allocation, quality, effective maturity 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 254. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Strategic Income VIP
| Principal Amount ($)(a) | Value ($) |
| |
Corporate Bonds 41.5% |
Consumer Discretionary 3.9% |
AMC Entertainment, Inc., 8.0%, 3/1/2014 | 105,000 | 64,575 |
American Achievement Corp., 144A, 8.25%, 4/1/2012 | 30,000 | 23,100 |
American Achievement Group Holding Corp., 16.75%, 10/1/2012 (PIK) | 54,911 | 13,179 |
Asbury Automotive Group, Inc.: | | |
7.625%, 3/15/2017 | 65,000 | 30,225 |
8.0%, 3/15/2014 | 30,000 | 14,250 |
Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015 | 120,000 | 63,000 |
Cablevision Systems Corp., Series B, 8.334%***, 4/1/2009 | 25,000 | 24,937 |
CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015 | 50,000 | 19,000 |
Carrols Corp., 9.0%, 1/15/2013 | 30,000 | 20,250 |
Charter Communications Operating LLC, 144A, 10.875%, 9/15/2014 | 160,000 | 128,000 |
Cox Communications, Inc., 144A, 9.375%, 1/15/2019 | 400,000 | 418,520 |
CSC Holdings, Inc.: | | |
6.75%, 4/15/2012 (b) | 50,000 | 45,750 |
Series B, 7.625%, 4/1/2011 (b) | 55,000 | 51,837 |
Series B, 8.125%, 7/15/2009 | 55,000 | 54,725 |
Series B, 8.125%, 8/15/2009 | 110,000 | 109,450 |
Denny's Holdings, Inc., 10.0%, 10/1/2012 | 20,000 | 13,850 |
DIRECTV Holdings LLC, 7.625%, 5/15/2016 (b) | 145,000 | 140,650 |
Dollarama Group LP, 8.073%***, 8/15/2012 (c) | 52,000 | 33,020 |
EchoStar DBS Corp.: | | |
6.375%, 10/1/2011 | 100,000 | 93,000 |
6.625%, 10/1/2014 | 65,000 | 54,275 |
7.125%, 2/1/2016 (b) | 80,000 | 66,800 |
Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015 | 65,000 | 6,338 |
Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015 | 55,000 | 37,400 |
Group 1 Automotive, Inc., 8.25%, 8/15/2013 | 30,000 | 20,100 |
Hertz Corp., 8.875%, 1/1/2014 (b) | 115,000 | 70,725 |
Idearc, Inc., 8.0%, 11/15/2016 | 125,000 | 9,375 |
Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012 | 40,000 | 21,800 |
Isle of Capri Casinos, Inc., 7.0%, 3/1/2014 | 70,000 | 29,750 |
Kabel Deutschland GmbH, 10.625%, 7/1/2014 | 150,000 | 133,500 |
Lamar Media Corp., Series C, 6.625%, 8/15/2015 (b) | 40,000 | 28,900 |
Liberty Media LLC, 5.7%, 5/15/2013 | 10,000 | 6,556 |
MediMedia USA, Inc., 144A, 11.375%, 11/15/2014 | 30,000 | 18,000 |
MGM MIRAGE: | | |
6.625%, 7/15/2015 (b) | 65,000 | 39,650 |
8.375%, 2/1/2011 | 65,000 | 38,675 |
MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010 | 85,000 | 63,750 |
| Principal Amount ($)(a) | Value ($) |
| |
Norcraft Holdings LP, 9.75%, 9/1/2012 | 155,000 | 115,475 |
Penske Automotive Group, Inc., 7.75%, 12/15/2016 | 125,000 | 58,125 |
Pinnacle Entertainment, Inc., 8.75%, 10/1/2013 | 40,000 | 31,600 |
Quebecor Media, Inc., 7.75%, 3/15/2016 | 40,000 | 27,000 |
Quebecor World, Inc., 144A, 9.75%, 1/15/2015** | 45,000 | 3,544 |
Reader's Digest Association, Inc., 9.0%, 2/15/2017 | 50,000 | 4,313 |
Sabre Holdings Corp., 8.35%, 3/15/2016 | 50,000 | 11,125 |
Seminole Hard Rock Entertainment, Inc., 144A, 4.496%***, 3/15/2014 | 65,000 | 32,987 |
Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015 | 50,000 | 25,000 |
Simmons Co., Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014 | 185,000 | 21,275 |
Sinclair Television Group, Inc., 8.0%, 3/15/2012 (b) | 49,000 | 36,872 |
Sirius XM Radio, Inc., 9.625%, 8/1/2013 | 120,000 | 22,350 |
Sonic Automotive,
Inc., Series B, 8.625%, 8/15/2013 | 55,000 | 20,488 |
Travelport LLC: | | |
6.828%***, 9/1/2014 | 45,000 | 13,275 |
9.875%, 9/1/2014 | 10,000 | 3,750 |
Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015 | 15,000 | 1,988 |
United Components, Inc., 9.375%, 6/15/2013 | 10,000 | 4,200 |
Unity Media GmbH, 144A, 8.75%, 2/15/2015 EUR | 150,000 | 163,678 |
UPC Holding BV: | | |
144A, 7.75%, 1/15/2014 EUR | 100,000 | 106,339 |
144A, 8.0%, 11/1/2016 EUR | 50,000 | 48,304 |
Vertis, Inc.,
13.5%, 4/1/2014 (PIK) | 18,857 | 4,399 |
Vitro SAB de CV,
9.125%, 2/1/2017 | 220,000 | 66,000 |
Young Broadcasting, Inc., 8.75%, 1/15/2014 | 275,000 | 2,750 |
| 2,831,749 |
Consumer Staples 1.4% |
Alliance One International, Inc., 8.5%, 5/15/2012 | 20,000 | 14,700 |
Altria Group, Inc.: | | |
8.5%, 11/10/2013 | 45,000 | 46,609 |
9.7%, 11/10/2018 | 25,000 | 27,021 |
Delhaize America, Inc.: | | |
8.05%, 4/15/2027 | 20,000 | 18,508 |
9.0%, 4/15/2031 | 132,000 | 133,494 |
General Nutrition Centers, Inc., 7.584%***, 3/15/2014 (PIK) | 40,000 | 22,400 |
North Atlantic Trading Co., 144A, 10.0%, 3/1/2012 | 223,000 | 122,650 |
Reynolds American, Inc., 6.75%, 6/15/2017 | 600,000 | 476,272 |
| Principal Amount ($)(a) | Value ($) |
| |
Smithfield Foods, Inc., 7.75%, 7/1/2017 | 20,000 | 11,400 |
Viskase Companies, Inc., 11.5%, 6/15/2011 | 225,000 | 146,250 |
| 1,019,304 |
Energy 4.4% |
Atlas Energy Resources LLC, 144A, 10.75%, 2/1/2018 | 115,000 | 70,150 |
Belden & Blake Corp., 8.75%, 7/15/2012 | 310,000 | 212,350 |
Bristow Group, Inc., 7.5%, 9/15/2017 | 70,000 | 46,900 |
Chaparral Energy, Inc., 8.5%, 12/1/2015 | 110,000 | 22,000 |
Chesapeake Energy Corp.: | | |
6.25%, 1/15/2018 | 75,000 | 55,500 |
6.875%, 1/15/2016 | 170,000 | 136,000 |
7.25%, 12/15/2018 (b) | 110,000 | 85,800 |
7.5%, 6/15/2014 | 25,000 | 21,125 |
Cimarex Energy Co., 7.125%, 5/1/2017 | 45,000 | 35,100 |
Colorado Interstate Gas Co., 6.8%, 11/15/2015 | 30,000 | 25,845 |
Delta Petroleum Corp., 7.0%, 4/1/2015 | 100,000 | 20,000 |
Dynegy Holdings, Inc., 6.875%, 4/1/2011 (b) | 15,000 | 13,125 |
El Paso Corp.: | | |
7.25%, 6/1/2018 (b) | 140,000 | 111,114 |
9.625%, 5/15/2012 | 50,000 | 42,455 |
EXCO Resources, Inc., 7.25%, 1/15/2011 | 95,000 | 74,100 |
Forest Oil Corp., 144A, 7.25%, 6/15/2019 | 35,000 | 25,550 |
Frontier Oil Corp.: | | |
6.625%, 10/1/2011 | 40,000 | 36,200 |
8.5%, 9/15/2016 | 80,000 | 70,600 |
GAZ Capital (Gazprom), 144A, 6.51%, 3/7/2022 | 130,000 | 77,350 |
GulfSouth Pipeline Co., LP, 144A, 5.75%, 8/15/2012 | 15,000 | 13,410 |
KCS Energy, Inc., 7.125%, 4/1/2012 | 240,000 | 180,000 |
Kinder Morgan Energy Partners LP, 9.0%, 2/1/2019 | 155,000 | 161,717 |
Mariner Energy, Inc.: | | |
7.5%, 4/15/2013 | 60,000 | 38,400 |
8.0%, 5/15/2017 | 95,000 | 49,400 |
Newfield Exploration Co., 7.125%, 5/15/2018 | 90,000 | 71,100 |
OPTI Canada, Inc.: | | |
7.875%, 12/15/2014 | 90,000 | 45,900 |
8.25%, 12/15/2014 (b) | 160,000 | 86,400 |
Pemex Project Funding Master Trust, 144A, 5.75%, 3/1/2018 | 460,000 | 405,950 |
Petrohawk Energy Corp.: | | |
144A, 7.875%, 6/1/2015 | 30,000 | 22,200 |
9.125%, 7/15/2013 | 65,000 | 52,650 |
Plains Exploration & Production Co.: | | |
7.0%, 3/15/2017 | 60,000 | 41,100 |
7.625%, 6/1/2018 | 110,000 | 75,350 |
Quicksilver Resources, Inc., 7.125%, 4/1/2016 | 170,000 | 90,950 |
Range Resources Corp., 7.25%, 5/1/2018 | 10,000 | 8,350 |
| Principal Amount ($)(a) | Value ($) |
| |
SandRidge Energy, Inc., 144A, 8.0%, 6/1/2018 | 45,000 | 24,975 |
Southwestern Energy Co., 144A, 7.5%, 2/1/2018 | 85,000 | 74,375 |
Stone Energy Corp.: | | |
6.75%, 12/15/2014 | 105,000 | 51,450 |
8.25%, 12/15/2011 | 160,000 | 99,200 |
Tennessee Gas Pipeline Co., 7.625%, 4/1/2037 | 25,000 | 19,843 |
Tesoro Corp., 6.5%, 6/1/2017 | 60,000 | 32,925 |
Whiting Petroleum Corp.: | | |
7.25%, 5/1/2012 | 125,000 | 93,125 |
7.25%, 5/1/2013 | 20,000 | 14,200 |
Williams Companies, Inc.: | | |
8.125%, 3/15/2012 | 180,000 | 165,825 |
8.75%, 3/15/2032 | 115,000 | 85,675 |
Williams Partners LP, 7.25%, 2/1/2017 | 45,000 | 35,550 |
| 3,221,284 |
Financials 14.7% |
Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015 | 125,000 | 47,500 |
Ashton Woods USA LLC, 9.5%, 10/1/2015** | 145,000 | 29,000 |
Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014 | 30,000 | 6,000 |
CIT Group, Inc.,
5.4%, 2/13/2012 | 400,000 | 322,723 |
Citigroup, Inc.,
6.5%, 8/19/2013 | 70,000 | 70,636 |
Commonwealth Bank
of Australia,
8.7%***, 7/21/2016 | 1,000,000 | 987,190 |
Conproca SA de CV, REG S, 12.0%, 6/16/2010 | 207,300 | 210,928 |
Depfa ACS Bank, 144A, 9.5%***, 10/6/2023 | 1,000,000 | 920,000 |
Ford Motor Credit Co., LLC: | | |
7.25%, 10/25/2011 | 125,000 | 91,314 |
7.875%, 6/15/2010 | 140,000 | 112,025 |
GMAC LLC, 144A, 6.875%, 9/15/2011 | 297,000 | 212,227 |
Hawker Beechcraft Acquisition Co., LLC: | | |
8.5%, 4/1/2015 | 145,000 | 59,450 |
8.875%, 4/1/2015 (PIK) | 100,000 | 34,000 |
Hexion US Finance Corp., 9.75%, 11/15/2014 | 35,000 | 9,975 |
Inmarsat Finance PLC, 10.375%, 11/15/2012 | 135,000 | 119,644 |
iPayment, Inc.,
9.75%, 5/15/2014 | 45,000 | 22,500 |
Kreditanstalt fuer
Wiederaufbau: | | |
2.05%, 2/16/2026 JPY | 300,000,000 | 3,206,178 |
5.0%, 7/4/2011 EUR | 2,350,000 | 3,442,905 |
Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK) | 50,000 | 11,000 |
New ASAT (Finance) Ltd., 9.25%, 2/1/2011 | 90,000 | 9,450 |
NiSource Finance Corp.: | | |
6.15%, 3/1/2013 | 10,000 | 7,705 |
7.875%, 11/15/2010 | 75,000 | 68,632 |
Orascom Telecom Finance SCA, 144A, 7.875%, 2/8/2014 | 100,000 | 53,000 |
| Principal Amount ($)(a) | Value ($) |
| |
Qwest Capital Funding, Inc., 7.0%, 8/3/2009 | 50,000 | 49,000 |
Rainbow National Services LLC, 144A,
10.375%, 9/1/2014 | 13,000 | 11,570 |
Sprint Capital Corp.: | | |
7.625%, 1/30/2011 | 50,000 | 41,750 |
8.375%, 3/15/2012 (b) | 20,000 | 16,000 |
Tropicana Entertainment LLC, 9.625%, 12/15/2014** | 150,000 | 1,500 |
UCI Holdco, Inc., 9.996%***, 12/15/2013 (PIK) | 69,429 | 11,803 |
Universal City Development Partners, 11.75%, 4/1/2010 | 235,000 | 151,575 |
Wachovia Corp., 3.625%, 2/17/2009 | 250,000 | 248,974 |
Williams Companies, Inc., Credit Linked Certificate
Trust, 144A,
6.75%, 4/15/2009 | 10,000 | 9,912 |
Wind Acquisition Finance SA, 144A, 9.75%, 12/1/2015 EUR | 100,000 | 113,289 |
| 10,709,355 |
Health Care 1.9% |
Advanced Medical Optics, Inc., 7.5%, 5/1/2017 | 90,000 | 45,900 |
Boston Scientific Corp., 6.0%, 6/15/2011 | 75,000 | 71,250 |
Community Health Systems, Inc., 8.875%, 7/15/2015 | 400,000 | 368,000 |
HCA, Inc.: | | |
9.125%, 11/15/2014 (b) | 95,000 | 88,113 |
9.25%, 11/15/2016 | 290,000 | 266,075 |
9.625%, 11/15/2016 (PIK) | 145,000 | 113,100 |
HEALTHSOUTH Corp., 10.75%, 6/15/2016 | 50,000 | 45,875 |
IASIS Healthcare LLC, 8.75%, 6/15/2014 | 75,000 | 58,125 |
Psychiatric Solutions, Inc., 7.75%, 7/15/2015 | 60,000 | 44,100 |
Surgical Care Affiliates, Inc., 144A, 8.875%,
7/15/2015 (PIK) | 55,000 | 33,550 |
The Cooper Companies, Inc., 7.125%, 2/15/2015 | 95,000 | 79,800 |
Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 75,000 | 58,875 |
Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014 | 150,000 | 125,250 |
| 1,398,013 |
Industrials 3.6% |
Actuant Corp.,
6.875%, 6/15/2017 | 40,000 | 30,100 |
Allied Waste North America, Inc., 6.5%, 11/15/2010 | 40,000 | 38,600 |
ARAMARK Corp., 8.5%, 2/1/2015 (b) | 20,000 | 18,100 |
Baldor Electric Co., 8.625%, 2/15/2017 (b) | 45,000 | 33,525 |
BE Aerospace, Inc., 8.5%, 7/1/2018 (b) | 105,000 | 94,500 |
Belden, Inc., 7.0%, 3/15/2017 | 45,000 | 33,750 |
Bombardier, Inc., 144A, 6.75%, 5/1/2012 | 100,000 | 88,750 |
Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 | 165,000 | 136,120 |
| Principal Amount ($)(a) | Value ($) |
| |
Cenveo Corp., 144A, 10.5%, 8/15/2016 | 55,000 | 31,900 |
Congoleum Corp., 8.625%, 8/1/2008** | 125,000 | 93,750 |
DRS Technologies, Inc.: | | |
6.625%, 2/1/2016 | 135,000 | 135,000 |
6.875%, 11/1/2013 | 195,000 | 194,025 |
7.625%, 2/1/2018 | 165,000 | 165,000 |
Esco Corp., 144A, 8.625%, 12/15/2013 | 95,000 | 66,500 |
General Cable Corp.: | | |
6.258%***, 4/1/2015 | 55,000 | 25,713 |
7.125%, 4/1/2017 | 55,000 | 36,300 |
Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013 | 50,000 | 38,562 |
K. Hovnanian Enterprises, Inc., 8.875%, 4/1/2012 | 55,000 | 15,950 |
Kansas City Southern de Mexico SA de CV: | | |
7.375%, 6/1/2014 | 95,000 | 77,729 |
7.625%, 12/1/2013 | 155,000 | 127,100 |
9.375%, 5/1/2012 | 150,000 | 137,250 |
Kansas City Southern Railway Co.: | | |
7.5%, 6/15/2009 | 45,000 | 45,112 |
8.0%, 6/1/2015 (b) | 100,000 | 79,000 |
Mobile Mini, Inc., 9.75%, 8/1/2014 | 65,000 | 46,150 |
Moog, Inc., 144A, 7.25%, 6/15/2018 | 20,000 | 16,000 |
Navios Maritime Holdings, Inc., 9.5%, 12/15/2014 | 75,000 | 41,625 |
Ply Gem Industries, Inc., 11.75%, 6/15/2013 | 40,000 | 21,600 |
R.H. Donnelley Corp., Series A-4, 8.875%, 10/15/2017 | 165,000 | 24,750 |
RBS Global & Rexnord Corp., 9.5%, 8/1/2014 | 45,000 | 33,525 |
Seitel, Inc., 9.75%, 2/15/2014 | 35,000 | 12,600 |
Titan International, Inc., 8.0%, 1/15/2012 | 195,000 | 144,300 |
TransDigm, Inc., 7.75%, 7/15/2014 | 30,000 | 24,600 |
United Rentals North America, Inc.: | | |
6.5%, 2/15/2012 | 125,000 | 98,750 |
7.0%, 2/15/2014 | 175,000 | 106,750 |
United Technologies Corp., 6.125%, 2/1/2019 | 235,000 | 251,425 |
US Concrete, Inc., 8.375%, 4/1/2014 | 55,000 | 29,700 |
Vought Aircraft Industries, Inc., 8.0%, 7/15/2011 | 35,000 | 23,625 |
| 2,617,736 |
Information Technology 1.0% |
Alion Science & Technology Corp., 10.25%, 2/1/2015 | 40,000 | 18,050 |
L-3 Communications Corp.: | | |
5.875%, 1/15/2015 | 160,000 | 144,000 |
Series B, 6.375%, 10/15/2015 | 80,000 | 74,800 |
7.625%, 6/15/2012 | 195,000 | 190,613 |
Lucent Technologies, Inc., 6.45%, 3/15/2029 | 165,000 | 66,000 |
MasTec, Inc., 7.625%, 2/1/2017 | 65,000 | 48,831 |
Seagate Technology HDD Holdings, 6.8%, 10/1/2016 (b) | 90,000 | 46,800 |
SunGard Data Systems, Inc., 10.25%, 8/15/2015 | 135,000 | 89,100 |
Vangent, Inc., 9.625%, 2/15/2015 | 35,000 | 20,344 |
| 698,538 |
| Principal Amount ($)(a) | Value ($) |
| |
Materials 3.2% |
Appleton Papers,
Inc., Series B, 8.125%, 6/15/2011 | 25,000 | 17,250 |
ARCO Chemical Co., 9.8%, 2/1/2020** | 405,000 | 44,550 |
Cascades, Inc.,
7.25%, 2/15/2013 | 130,000 | 66,300 |
Chemtura Corp.,
6.875%, 6/1/2016 | 115,000 | 58,650 |
Clondalkin Acquisition
BV, 144A,
3.996%***, 12/15/2013 | 75,000 | 37,875 |
CPG International I, Inc., 10.5%, 7/1/2013 | 130,000 | 72,800 |
Exopack Holding Corp., 11.25%, 2/1/2014 | 160,000 | 93,600 |
Freeport-McMoRan Copper & Gold, Inc.: | | |
6.875%, 2/1/2014 (b) | 10,000 | 9,000 |
8.25%, 4/1/2015 (b) | 145,000 | 123,250 |
8.375%, 4/1/2017 | 280,000 | 229,600 |
GEO Specialty Chemicals, Inc.: | | |
144A, 7.5%***,
3/31/2015 (PIK) | 115,036 | 82,826 |
144A, 9.968%***,
12/31/2009 | 186,000 | 133,920 |
Georgia-Pacific LLC: | | |
144A, 7.125%, 1/15/2017 | 35,000 | 29,400 |
9.5%, 12/1/2011 | 50,000 | 47,250 |
Hexcel Corp., 6.75%, 2/1/2015 | 195,000 | 148,200 |
Huntsman LLC, 11.625%, 10/15/2010 | 243,000 | 212,625 |
Innophos, Inc.,
8.875%, 8/15/2014 | 35,000 | 24,500 |
International Paper Co., 7.4%, 6/15/2014 | 400,000 | 327,884 |
Jefferson Smurfit Corp., 8.25%, 10/1/2012 | 65,000 | 11,050 |
Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014 | 130,000 | 100,750 |
Metals USA Holdings
Corp., 10.883%***, 7/1/2012 (PIK) | 35,952 | 10,067 |
Millar Western Forest Products Ltd., 7.75%, 11/15/2013 | 35,000 | 17,500 |
NewMarket Corp., 7.125%, 12/15/2016 | 110,000 | 82,500 |
NewPage Corp., 10.0%, 5/1/2012 (b) | 110,000 | 48,400 |
OI European Group BV, 144A, 6.875%, 3/31/2017 EUR | 65,000 | 65,958 |
Pliant Corp., 11.85%, 6/15/2009 (PIK) | 10 | 5 |
Radnor Holdings Corp., 11.0%, 3/15/2010** | 25,000 | 31 |
Smurfit-Stone Container Enterprises, Inc., 8.0%, 3/15/2017 | 75,000 | 14,250 |
Steel Dynamics, Inc., 7.375%, 11/1/2012 | 10,000 | 7,300 |
Terra Capital, Inc., Series B, 7.0%, 2/1/2017 | 110,000 | 80,850 |
The Mosaic Co., 144A, 7.375%, 12/1/2014 | 85,000 | 69,700 |
Witco Corp., 6.875%, 2/1/2026 | 35,000 | 9,800 |
| Principal Amount ($)(a) | Value ($) |
| |
Wolverine Tube, Inc., 10.5%, 4/1/2009 | 85,000 | 68,733 |
| 2,346,374 |
Telecommunication Services 2.9% |
BCM Ireland Preferred Equity Ltd., 144A, 11.245%***, 2/15/2017 (PIK) EUR | 67,207 | 7,971 |
Centennial
Communications Corp.: | | |
10.0%, 1/1/2013 | 40,000 | 41,400 |
10.125%, 6/15/2013 | 90,000 | 90,900 |
Cincinnati Bell, Inc.: | | |
7.25%, 7/15/2013 | 145,000 | 127,600 |
8.375%, 1/15/2014 (b) | 55,000 | 42,350 |
Cricket Communications, Inc.: | | |
9.375%, 11/1/2014 | 120,000 | 108,000 |
144A, 10.0%, 7/15/2015 | 100,000 | 91,500 |
Frontier Communications Corp.: | | |
6.25%, 1/15/2013 | 45,000 | 38,250 |
9.25%, 5/15/2011 | 35,000 | 33,250 |
Grupo Iusacell Celular SA de CV, 10.0%, 3/31/2012 | 28,848 | 19,039 |
Hellas Telecommunications Luxembourg V, 144A, 8.818%***, 10/15/2012 EUR | 200,000 | 164,026 |
Intelsat Corp.: | | |
144A, 9.25%, 8/15/2014 | 25,000 | 23,250 |
144A, 9.25%, 6/15/2016 | 250,000 | 227,500 |
Intelsat Subsidiary Holding Co., Ltd., 144A, 8.875%, 1/15/2015 | 130,000 | 118,300 |
iPCS, Inc.,
5.318%***, 5/1/2013 | 35,000 | 24,850 |
MetroPCS Wireless, Inc., 9.25%, 11/1/2014 | 150,000 | 134,250 |
Millicom International Cellular SA, 10.0%, 12/1/2013 | 265,000 | 238,500 |
Qwest Corp.: | | |
7.25%, 9/15/2025 | 20,000 | 13,400 |
7.875%, 9/1/2011 | 135,000 | 124,200 |
8.875%, 3/15/2012 | 30,000 | 27,750 |
Sprint Nextel Corp., 6.0%, 12/1/2016 | 75,000 | 52,875 |
Stratos Global Corp., 9.875%, 2/15/2013 | 30,000 | 28,350 |
Telesat Canada, 144A, 11.0%, 11/1/2015 | 170,000 | 121,550 |
Virgin Media Finance PLC: | | |
8.75%, 4/15/2014 | 120,000 | 90,000 |
8.75%, 4/15/2014 EUR | 85,000 | 83,299 |
Windstream Corp.: | | |
7.0%, 3/15/2019 | 60,000 | 46,200 |
8.625%, 8/1/2016 | 10,000 | 8,850 |
| 2,127,410 |
Utilities 4.5% |
AES Corp.: | | |
8.0%, 10/15/2017 | 100,000 | 82,000 |
144A, 8.0%, 6/1/2020 | 110,000 | 85,250 |
144A, 8.75%, 5/15/2013 | 315,000 | 302,400 |
9.5%, 6/1/2009 | 75,000 | 74,438 |
Allegheny Energy Supply
Co., LLC, 144A, 8.25%, 4/15/2012 | 470,000 | 462,950 |
CMS Energy Corp., 8.5%, 4/15/2011 | 225,000 | 221,581 |
| Principal Amount ($)(a) | Value ($) |
| |
Dominion Resources, Inc., Series D, 8.875%, 1/15/2019 | 500,000 | 539,195 |
Edison Mission Energy, 7.0%, 5/15/2017 | 105,000 | 91,350 |
Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017 | 150,000 | 106,500 |
Intergas Finance BV, REG S, 6.875%, 11/4/2011 | 275,000 | 214,500 |
Knight, Inc., 6.5%, 9/1/2012 | 90,000 | 76,050 |
Mirant Americas Generation LLC, 8.3%, 5/1/2011 | 130,000 | 126,100 |
Mirant North America LLC, 7.375%, 12/31/2013 | 60,000 | 57,600 |
NRG Energy, Inc.: | | |
7.25%, 2/1/2014 | 125,000 | 116,875 |
7.375%, 2/1/2016 | 105,000 | 97,650 |
7.375%, 1/15/2017 | 90,000 | 82,800 |
NV Energy, Inc.: | | |
6.75%, 8/15/2017 | 105,000 | 80,602 |
8.625%, 3/15/2014 | 25,000 | 22,539 |
Oncor Electric Delivery Co., 7.0%, 9/1/2022 | 45,000 | 42,048 |
Regency Energy Partners LP, 8.375%, 12/15/2013 | 80,000 | 54,800 |
Reliant Energy, Inc., 7.875%, 6/15/2017 | 125,000 | 101,250 |
Texas Competitive Electric Holdings Co., LLC, 144A, 10.5%, 11/1/2015 | 275,000 | 195,250 |
| 3,233,728 |
Total Corporate Bonds (Cost $37,279,304) | 30,203,491 |
|
Commercial and Non-Agency Mortgage-Backed Securities 1.9% |
Credit Suisse Mortgage Capital Certificates Trust, "A2", Series 2007-C1, 5.268%, 2/15/2040 | 814,000 | 623,318 |
JPMorgan Chase Commercial Mortgage Securities Corp., "F", Series 2004-LN2, 144A, 5.448%***, 7/15/2041 | 500,000 | 133,537 |
Wachovia Bank Commercial Mortgage Trust, "A2", Series 2007-C32, 5.736%***, 6/15/2049 | 780,000 | 610,032 |
Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $1,955,101) | 1,366,887 |
|
Collateralized Mortgage Obligations 1.5% |
FannieMae Grantor Trust, "1A4", Series 2004-T2, 7.5%, 11/25/2043 (Cost $1,041,071) | 1,003,544 | 1,056,544 |
|
Asset-Backed 1.0% |
Credit Card Receivables |
Washington Mutual Master Note Trust, "C1", Series 2007-C1, 144A, 1.595%***, 5/15/2014 (Cost $954,141) | 1,000,000 | 742,280 |
|
| Principal Amount ($)(a) | Value ($) |
| |
Mortgage-Backed Securities Pass-Throughs 2.8% |
Government National Mortgage Association: | | |
4.5%, 12/1/2033 (i) | 1,000,000 | 1,012,812 |
5.0%, 6/1/2034 (i) | 1,000,000 | 1,026,250 |
Total Mortgage-Backed Securities Pass-Throughs (Cost $2,023,867) | 2,039,062 |
|
Government & Agency Obligations 42.2% |
Sovereign Bonds 34.0% |
Aries Vermogensverwaltung GmbH, Series C, REG S, 9.6%, 10/25/2014 | 250,000 | 315,950 |
Dominican Republic, REG S, 9.5%, 9/27/2011 | 135,694 | 115,340 |
Federal Republic of Germany, Series 06, 4.0%, 7/4/2016 EUR | 1,700,000 | 2,546,412 |
Federative Republic of Brazil: | | |
8.875%, 10/14/2019 | 715,000 | 872,300 |
12.5%, 1/5/2016 BRL | 250,000 | 106,013 |
Government of Canada, 4.5%, 6/1/2015 CAD | 900,000 | 831,747 |
Kingdom of Spain, 3.15%, 1/31/2016 EUR | 1,300,000 | 1,753,069 |
Province of Quebec, Series PO, 1.6%, 5/9/2013 JPY | 600,000,000 | 6,847,632 |
Republic of Argentina, 5.83%, 12/31/2033 (PIK) ARS | 436 | 61 |
Republic of Colombia: | | |
8.25%, 12/22/2014 | 170,000 | 183,175 |
10.0%, 1/23/2012 (b) | 238,000 | 265,965 |
Republic of El Salvador, 144A, 7.65%, 6/15/2035 | 541,000 | 343,535 |
Republic of Greece: | | |
3.6%, 7/20/2016 EUR | 1,400,000 | 1,768,938 |
4.5%, 9/20/2037 EUR | 1,750,000 | 1,960,387 |
Republic of Indonesia, 144A, 6.875%, 3/9/2017 | 340,000 | 278,800 |
Republic of Panama: | | |
7.125%, 1/29/2026 | 166,000 | 156,455 |
9.375%, 1/16/2023 | 500,000 | 520,000 |
Republic of Peru: | | |
6.55%, 3/14/2037 (b) | 470,000 | 419,475 |
7.35%, 7/21/2025 | 815,000 | 810,925 |
Republic of Philippines, 8.375%, 2/15/2011 | 20,000 | 20,800 |
Republic of Turkey: | | |
7.0%, 9/26/2016 | 305,000 | 297,375 |
7.25%, 3/15/2015 | 80,000 | 79,600 |
11.75%, 6/15/2010 | 475,000 | 508,250 |
Republic of Uruguay: | | |
7.625%, 3/21/2036 | 60,000 | 50,400 |
9.25%, 5/17/2017 | 105,000 | 107,100 |
Republic of Venezuela, 10.75%, 9/19/2013 | 605,000 | 396,275 |
Russian Federation, REG S, 7.5%, 3/31/2030 | 656,600 | 572,660 |
Socialist Republic of Vietnam, 144A, 6.875%, 1/15/2016 | 510,000 | 423,300 |
United Kingdom Treasury Bond, 4.75%, 9/7/2015 GBP | 1,250,000 | 1,991,176 |
United Mexican States,
Series A, 5.875%, 1/15/2014 | 220,000 | 224,950 |
| 24,768,065 |
| Principal Amount ($)(a) | Value ($) |
| |
US Government Sponsored Agencies 1.1% |
Federal Home Loan Bank, 7.45%***, 10/16/2023 | 600,000 | 594,000 |
Federal National Mortgage Association, 8.45%***, 2/27/2023 | 250,000 | 250,000 |
| 844,000 |
|
US Treasury Obligations 7.1% |
US Treasury Bills: | | |
0.04%****, 5/21/2009 (d) | 41,000 | 40,988 |
0.17%****, 1/15/2009 (d) | 736,000 | 735,996 |
US Treasury Bonds, 4.375%, 2/15/2038 | 1,010,000 | 1,352,769 |
US Treasury Notes: | | |
2.75%, 10/31/2013 | 1,050,000 | 1,116,281 |
3.75%, 11/15/2018 | 1,665,000 | 1,884,830 |
| 5,130,864 |
Total Government & Agency Obligations (Cost $30,914,463) | 30,742,929 |
|
Loan Participations and Assignments 1.8% |
Senior Loans*** 1.7% |
Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 3.754%, 4/2/2014 | 29,333 | 19,116 |
Buffets, Inc.: | | |
Letter of Credit, LIBOR plus 7.25%, 9.254%, 5/1/2013 | 18,670 | 4,695 |
Term Loan B, LIBOR plus 7.25%, 9.254%, 11/1/2013 | 95,001 | 23,893 |
Term Loan DIP, LIBOR plus 7.25%, 9.254%, 11/1/2013 | 45,671 | 11,486 |
Charter Communications Operating LLC: | | |
Term Loan, LIBOR plus 2.0%, 4.004%, 3/6/2014 | 104,213 | 77,154 |
Incremental Term Loan, LIBOR plus 5.0%, 7.004%, 3/6/2014 | 114,425 | 90,825 |
Energy Future Holdings Corp.: | | |
Term Loan B2, LIBOR plus 3.5%, 5.504%, 10/10/2014 | 460,350 | 322,245 |
Term Loan B3, LIBOR plus 3.5%, 5.504%, 10/10/2014 | 192,000 | 133,600 |
Essar Steel Algoma, Inc., Term Loan B, LIBOR plus 2.5%, 4.504%, 6/30/2013 | 37,664 | 23,352 |
Ford Motor Co., Term Loan B, LIBOR plus 3.0%, 5.004%, 12/16/2013 | 49,746 | 20,410 |
General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 4.254%, 9/16/2013 | 29,698 | 19,898 |
Golden Nugget, Term Loan, 3.73%, 6/16/2014 | 55,000 | 5,775 |
Hawker Beechcraft, Inc.: | | |
Letter of Credit, LIBOR plus 2.0%, 4.004%, 3/26/2014 | 2,405 | 1,262 |
Term Loan B, LIBOR plus 2.0%, 4.004%, 3/26/2014 | 41,056 | 21,538 |
HCA, Inc., Term Loan A, LIBOR plus 1.5%, 3.504%, 11/17/2012 | 161,125 | 136,876 |
| Principal Amount ($)(a) | Value ($) |
| |
Hexion Specialty Chemicals: | | |
Term Loan C1, LIBOR plus 2.25%, 4.254%, 5/6/2013 | 152,345 | 64,595 |
Term Loan C2, LIBOR plus 2.25%, 4.254%, 5/6/2013 | 41,335 | 17,526 |
IASIS Healthcare LLC, Term Loan, LIBOR plus 5.25%, 7.254%, 6/15/2014 (PIK) | 72,913 | 41,925 |
Longview Power LLC: | | |
Letter of Credit, 1.35%, 4/1/2014 | 4,000 | 2,500 |
Demand Draw, 3.75%, 4/1/2014 | 14,000 | 8,750 |
Term Loan B, 4.25%, 4/1/2014 | 12,000 | 7,500 |
NewPage Corp., Term Loan, LIBOR plus 3.75%, 5.754%, 12/19/2014 | 14,888 | 9,664 |
Sabre, Inc., Term Loan B, LIBOR plus 2.0%, 4.004%, 9/30/2014 | 48,590 | 21,206 |
Symbion, Inc.: | | |
Term Loan A, LIBOR plus 3.25%, 5.254%, 8/23/2013 | 23,650 | 14,781 |
Term Loan B, LIBOR plus 3.25%, 5.254%, 8/23/2014 | 23,650 | 14,781 |
Telesat Canada: | | |
Delayed Draw Term Loan, LIBOR plus 3.0%, 5.004%, 10/31/2014 | 11,780 | 8,075 |
Term Loan B, LIBOR plus 3.0%, 5.004%, 10/31/2014 | 137,153 | 94,018 |
Tribune Co., Tranche B, LIBOR plus 3.0%, 5.004%, 5/19/2014** | 88,875 | 25,647 |
| 1,243,093 |
Sovereign Loans 0.1% |
CSFB International (Exim Ukraine), 6.8%, 10/4/2012 | 105,000 | 42,000 |
Total Loan Participations and Assignments (Cost $2,117,171) | 1,285,093 |
|
Municipal Bonds and Notes 1.5% |
Tacoma, WA, Electric System Revenue, Series A, Prerefunded, 5.75%, 1/1/2020 (e) (Cost $1,069,209) | 1,000,000 | 1,093,240 |
|
Preferred Securities 0.1% |
Financials |
Citigroup, Inc., Series E, 8.4%, 4/30/2018 (f) | 80,000 | 52,823 |
Xerox Capital Trust I, 8.0%, 2/1/2027 (b) | 35,000 | 23,901 |
Total Preferred Securities (Cost $106,681) | 76,724 |
|
Preferred Stock 0.0% |
Financial |
Preferred Blocker Inc., 144A, 9.0% | 63 | 17,989 |
Total Preferred Stocks (Cost $17,989) | 17,989 |
|
Shares
| Value ($) |
| |
Warrants 0.0% |
Financials 0.0% |
New ASAT (Finance) Ltd., Expiration Date 2/1/2011* | 15,600 | 1,224 |
Industrials 0.0% |
Dayton Superior Corp., 144A, Expiration Date 6/15/2009* | 10 | 0 |
Total Warrants (Cost $0) | 1,224 |
|
Units
| Value ($) |
| |
Other Investments 0.1% |
Materials |
Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 (Cost $67,414) | 85,000 | 40,800 |
|
Shares
| Value ($) |
| |
Common Stocks 0.0% |
Consumer Discretionary 0.0% |
Vertis Holdings, Inc.* | 940 | 0 |
Materials 0.0% |
GEO Specialty Chemicals, Inc.* | 2,058 | 1,749 |
Total Common Stocks (Cost $19,822) | 1,749 |
|
Shares
| Value ($) |
| |
Convertible Preferred Stocks 0.0% Consumer Discretionary |
ION Media Networks, Inc. | | |
144A, 12.0%* | 10,000 | 0 |
Series AI, 144A, 12.0%* | 20,000 | 0 |
Total Convertible Preferred Stocks (Cost $4,191) | 0 |
|
Securities Lending Collateral 2.6% |
Daily Assets Fund Institutional, 1.69% (g) (h) (Cost $1,898,503) | 1,898,503 | 1,898,503 |
|
Cash Equivalents 6.0% |
Cash Management QP Trust, 1.42% (g) (Cost $4,357,924) | 4,357,924 | 4,357,924 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $83,826,851)+ | 103.0 | 74,924,439 |
Other Assets and Liabilities, Net | (3.0) | (2,161,774) |
Net Assets | 100.0 | 72,762,665 |
* Non-income producing security.** Non-income producing security. Issuer has defaulted on the payment of principal or interest or has filed for bankruptcy. The following table represents bonds that are in default:Securities | Coupon | Maturity Date | Principal Amount | Acquisition Cost ($) | Value ($) |
Ashton Woods USA LLC
| 9.5% | 10/1/2015 | 145,000 | USD
| 132,667 | 29,000 |
Congoleum Corp.
| 8.625% | 8/1/2008 | 125,000 | USD
| 105,994 | 93,750 |
Quebecor World, Inc.
| 9.75% | 1/15/2015 | 45,000 | USD
| 45,000 | 3,544 |
Radnor Holdings Corp.
| 11.0% | 3/15/2010 | 25,000 | USD
| 15,888 | 31 |
Tribune Co.
| 5.004% | 5/19/2014 | 88,875 | USD
| 88,819 | 25,647 |
Tropicana Entertainment LLC
| 9.625% | 12/15/2014 | 150,000 | USD
| 122,979 | 1,500 |
Trump Entertainment Resorts, Inc.
| 8.5% | 6/1/2015 | 15,000 | USD
| 10,838 | 1,988 |
| | | |
| 522,185 | 155,460 |
*** 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, 2008.**** Annualized yield at time of purchase; not a coupon rate.+ The cost for federal income tax purposes was $83,894,744. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $8,970,305. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,592,990 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $11,563,295.(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, 2008 amounted to $1,822,255, which is 2.5% of net assets.(c) Security has deferred its 6/15/2008 interest payment until 6/30/2009.(d) At December 31, 2008, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.(e) Bond is insured by one of these companies:Insurance Coverage | As a % of Total Investment Portfolio |
Financial Security Assurance, Inc.
| 1.5 |
(f) Date shown is call date; not a maturity date for the perpetual preferred securities.(g) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.(h) Represents collateral held in connection with securities lending. Income earned by the Portfolio is net of borrower rebates.(i) When-issued or delayed delivery securities included.144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
LIBOR: Represents the London InterBank Offered Rate.
PIK: Denotes that all or a portion of the income is paid in-kind.
Prerefunded: Bonds which are prerefunded are collateralized usually by US Treasury securities which are held in escrow and used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date.
REG S: Securities sold under Regulation S may not be offered, sold or delivered within the United States or to, or for the account or benefit of, US persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
At December 31, 2008, open futures contracts purchased were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) |
10 Year Australian Treasury Bond
| 3/16/2009 | 16 | 1,253,954 | 1,298,423 | 44,469 |
10 Year Canadian Government Bond
| 3/20/2009 | 9 | 868,246 | 924,131 | 55,885 |
2 Year US Treasury Note
| 3/31/2009 | 7 | 1,507,863 | 1,526,438 | 18,575 |
AEX Index
| 1/16/2009 | 8 | 550,314 | 547,902 | (2,412) |
ASX SPI 200 Index
| 3/19/2009 | 6 | 373,259 | 391,757 | 18,498 |
DAX Index
| 3/20/2009 | 1 | 165,124 | 168,005 | 2,881 |
DJ Euro Stoxx 50 Index
| 3/20/2009 | 1 | 33,865 | 34,056 | 191 |
Federal Republic of Germany Euro-Bund
| 3/6/2009 | 11 | 1,902,012 | 1,908,871 | 6,859 |
Federal Republic of Germany Euro-Schatz
| 3/6/2009 | 28 | 4,174,657 | 4,182,880 | 8,223 |
Hang Seng Index
| 1/29/2009 | 1 | 93,676 | 92,933 | (743) |
S&P MIB Index
| 3/20/2009 | 1 | 133,312 | 134,988 | 1,676 |
Swiss Market Index
| 3/20/2009 | 9 | 461,381 | 460,929 | (452) |
United Kingdom Long Gilt Bond
| 3/27/2009 | 7 | 1,163,841 | 1,242,633 | 78,792 |
Total net unrealized appreciation | 232,442 |
At December 31, 2008, open futures contracts sold were as follows:
Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Unrealized Depreciation ($) |
10 Year Japanese Government Bond
| 3/11/2009 | 1 | 1,537,216 | 1,545,725 | (8,509) |
10 Year US Treasury Note
| 3/20/2009 | 34 | 4,130,092 | 4,275,500 | (145,408) |
CAC 40 Index
| 1/16/2009 | 10 | 446,804 | 447,735 | (931) |
FTSE 100 Index
| 3/20/2009 | 2 | 122,656 | 126,235 | (3,579) |
NASDAQ E-Mini 100 Index
| 3/20/2009 | 7 | 167,312 | 169,750 | (2,438) |
Russell E Mini 2000 Index
| 3/20/2009 | 2 | 91,025 | 99,580 | (8,555) |
S&P E-Mini 500 Index
| 3/20/2009 | 7 | 305,289 | 315,035 | (9,746) |
S&P TSE 60 Index
| 3/19/2009 | 2 | 165,937 | 174,937 | (9,000) |
TOPIX Index
| 3/13/2009 | 9 | 805,483 | 855,819 | (50,336) |
Total net unrealized depreciation | (238,502) |
At December 31, 2008, open written options contracts were as follows:
Written Options | Contract Amount | Expiration Date | Value ($) |
Call Options Option on an interest rate swap for the obligation to receive a fixed rate of 2.7% versus the one-year LIBOR expiring on October 13, 2010
| 3,000,000 | 10/13/2009 | 36,742 |
Option on an interest rate swap for the obligation to receive a fixed rate of 3.12% versus the one-year LIBOR expiring on September 18, 2010
| 3,000,000 | 9/18/2009 | 1,395 |
Total Call Options (Premiums received $35,475) | 38,137 |
Put Options Option on an interest rate swap for the obligation to pay a fixed rate of 2.7% versus the one-year LIBOR expiring on October 13, 2010
| 3,000,000 | 10/13/2009 | 2,852 |
Option on an interest rate swap for the obligation to pay a fixed rate of 3.12% versus the one-year LIBOR expiring on September 18, 2010
| 3,000,000 | 9/18/2009 | 77,716 |
Total Put Options (Premiums received $35,475) | 80,568 |
Total Written Options (Premiums received $70,950) | 118,705 |
At December 31, 2008, open credit default swap contracts purchased were as follows:
Effective/Expiration Date | Notional Amount ($) | Fixed
Cash Flows Paid | Underlying Debt Obligation/Quality Rating (k) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
5/2/2008
6/20/2013 | 50,0001 | 7.25% | ARCO Chemical Co., 9.8%, 2/1/2020, D | 36,120 | — | 36,120 |
8/14/2008
9/20/2013 | 200,0002 | 3.0% | Expedia, Inc., 7.456%, 8/15/2018, BB | 25,151 | — | 25,151 |
9/29/2008
12/20/2013 | 400,0002 | 2.2% | Darden Restaurants, Inc., 6.0%, 8/15/2035, BBB | 6,998 | — | 6,998 |
10/8/2008
12/20/2013 | 200,0005 | 0.87% | Arrow Electronics, Inc., 6.875%, 6/1/2018, BBB- | 10,443 | — | 10,443 |
10/17/2008
12/20/2013 | 400,0004 | 0.75% | Walt Disney Co., 5.625%, 9/15/2016, A | 2,144 | — | 2,144 |
11/20/2008
12/20/2013 | 160,0004 | 1.25% | ACE INA Holdings, Inc., 8.875%, 8/15/2029, A- | (1,926) | — | (1,926) |
11/21/2008
12/20/2013 | 320,0003 | 3.5% | Kohl's Corp., 6.25%, 12/15/2017, BBB+ | (9,424) | — | (9,424) |
11/20/2008
12/22/2013 | 160,0004 | 3.15% | Allstate Corp., 6.75%, 5/15/2018, A+ | (8,641) | — | (8,641) |
12/3/2008
6/20/2014 | 300,0005 | 4.4% | International Paper Co., 5.3%, 4/1/2015, BBB | 10,379 | — | 10,379 |
12/31/2008
3/20/2014 | 160,0002 | 5.5% | Limited Brands, Inc., 6.9%, 7/15/2017, BB+ | 0 | — | 0 |
12/31/2008
3/20/2014 | 160,0003 | 7.0% | Macy's Retail Holdings, Inc., 7.45%, 7/15/2017, BBB- | 0 | — | 0 |
12/31/2008
3/20/2014 | 160,0002 | 5.25% | Nordstrom, Inc., 6.95%, 5/15/2028, A- | 0 | — | 0 |
Total net unrealized appreciation | 71,244 |
At December 31, 2008, open credit default swap contracts sold were as follows:
Effective/Expiration Date | Notional Amount ($) (j) | Fixed
Cash Flows Received | Underlying Debt Obligation/
Quality Rating (k) | Value ($) | Upfront Premiums Paid/ (Received) ($) | Unrealized Appreciation/ (Depreciation) ($) |
2/26/2008
3/20/2009 | 150,0001 | 5.0% | Tenet Healthcare Corp., 7.375%, 2/1/2013, B | 303 | — | 303 |
2/14/2008
3/20/2009 | 190,0001 | 3.8% | HCA, Inc., 6.375%, 1/15/2015, B- | (578) | — | (578) |
Total net unrealized depreciation |
|
| (275) |
(j) The maximum potential amount of future undiscounted payments that the Portfolio could be required to make under a credit default swap contract would be the notional amount of the contract. These potential amounts would be partially offset by any recovery values of the referenced debt obligation or net amounts received from the settlement of buy protection credit default swap contracts entered into by the Portfolio for the same referenced debt obligation.(k) The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings.At December 31, 2008, open total return swap contracts were as follows:
Effective/Expiration Date | Notional Amount ($) | Fixed Cash Flows Paid | Reference Entity | Value ($) | Upfront Premiums Paid/(Received) ($) | Unrealized Appreciation ($) |
12/1/2008
12/1/2010 | 1,900,0003 | 0.35% | Citi Global Interest Rate Strategy Index | 89,237 | 3,800 | 85,437 |
Counterparties:
1 Merrill Lynch, Pierce, Fenner & Smith, Inc.
2 JPMorgan Chase Securities, Inc.
3 Citigroup, Inc.
4 Bank of America
5 The Goldman Sachs & Co.
|
At December 31, 2008, the Portfolio had the following open forward foreign currency exchange contracts:
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Appreciation ($) |
CHF
| 5,490 |
| USD
| 5,180 |
| 1/5/2009 |
| 21 |
EUR
| 12,300 |
| USD
| 17,178 |
| 1/15/2009 |
| 92 |
EUR
| 520,200 |
| USD
| 748,992 |
| 1/15/2009 |
| 26,393 |
EUR
| 1,323,000 |
| USD
| 1,667,152 |
| 1/21/2009 |
| 170,086 |
GBP
| 1,464,000 |
| USD
| 2,144,028 |
| 1/21/2009 |
| 40,443 |
USD
| 28,620 |
| NZD
| 54,000 |
| 1/21/2009 |
| 2,828 |
USD
| 1,452,654 |
| SEK
| 12,150,000 |
| 1/21/2009 |
| 83,128 |
USD
| 1,009,901 |
| CHF
| 1,224,000 |
| 1/21/2009 |
| 140,369 |
USD
| 2,552,374 |
| SGD
| 3,895,000 |
| 1/21/2009 |
| 149,110 |
Total unrealized appreciation | 612,470 |
Contracts to Deliver | | In Exchange For | | Settlement Date | | Unrealized Depreciation ($) |
USD
| 6,188 |
| JPY
| 560,000 |
| 1/5/2009 |
| (10) |
AUD
| 17,298 |
| USD
| 11,939 |
| 1/6/2009 |
| (112) |
EUR
| 5,300 |
| USD
| 7,335 |
| 1/15/2009 |
| (27) |
AUD
| 103,000 |
| USD
| 66,240 |
| 1/21/2009 |
| (5,397) |
CAD
| 398,000 |
| USD
| 315,572 |
| 1/21/2009 |
| (6,708) |
JPY
| 99,512,000 |
| USD
| 1,076,970 |
| 1/21/2009 |
| (21,275) |
NOK
| 9,780,000 |
| USD
| 1,357,297 |
| 1/21/2009 |
| (37,106) |
USD
| 941,300 |
| GBP
| 650,000 |
| 1/30/2009 |
| (7,418) |
USD
| 141,358 |
| EUR
| 100,000 |
| 1/30/2009 |
| (2,510) |
JPY
| 25,000,000 |
| USD
| 270,140 |
| 2/4/2009 |
| (5,814) |
Total unrealized depreciation | (86,377) |
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
NOK Norwegian Krone
NZD New Zealand Dollar
SEK Swedish Krona
SGD Singapore Dollar
USD United States Dollar
|
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the tables below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities | Options Written, at value | Other Financial Instruments++ |
Level 1
| $ 1,916,492 | $ — | $ (6,060) |
Level 2
| 71,130,364 | (118,705) | 682,499 |
Level 3
| 1,877,583 | — | — |
Total | $ 74,924,439 | $ (118,705) | $ 676,439 |
++ Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures contracts, forward foreign exchange contracts, credit default and total return swap contracts, which are valued at the unrealized appreciation (depreciation) on the instrument.The following is a reconciliation of the Portfolio's Level 3 investments for which significant unobservable inputs were used in determining value at December 31, 2008:
| Investments in Securities |
Balance as of January 1, 2008 | $ 533,240 |
Net realized gain (loss)
| (10,075) |
Change in unrealized appreciation (depreciation)
| (370,181) |
Amortization Premium/Discount
| (32) |
Net purchases (sales)
| 1,546,583 |
Net transfers in (out) of Level 3
| 178,048 |
Balance as of December 31, 2008 | $ 1,877,583 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $77,570,424) — including $1,822,255 of securities loaned | $ 68,668,012 |
Investment in Daily Assets Fund Institutional (cost $1,898,503)* | 1,898,503 |
Investment in Cash Management QP Trust (cost $4,357,924) | 4,357,924 |
Total investments, at value (cost $83,826,851)
| 74,924,439 |
Cash
| 99,351 |
Foreign currency, at value (cost $227,366)
| 220,632 |
Receivable for investments sold
| 1,036,730 |
Interest receivable
| 1,243,610 |
Receivable for variation margin on open futures contracts
| 59,336 |
Unrealized appreciation on forward foreign currency exchange contracts
| 612,470 |
Unrealized appreciation on swap contracts
| 176,975 |
Other assets
| 2,259 |
Total assets
| 78,375,802 |
Liabilities |
Payable for when-issued and delayed delivery securities purchased
| 3,048,810 |
Payable upon return of securities loaned
| 1,898,503 |
Payable for Portfolio shares redeemed
| 211,040 |
Options written, at value (premiums received $70,950)
| 118,705 |
Net payable on closed forward foreign currency exchange contracts
| 72,505 |
Unrealized depreciation on forward foreign currency exchange contracts
| 86,377 |
Unrealized depreciation on swap contracts
| 20,569 |
Accrued management fee
| 36,651 |
Other accrued expenses and payables
| 119,977 |
Total liabilities
| 5,613,137 |
Net assets, at value | $ 72,762,665 |
Net Assets Consist of |
Undistributed net investment income
| 3,179,356 |
Net unrealized appreciation (depreciation) on:
Investments | (8,902,412) |
Written options | (47,755) |
Swaps contracts | 156,406 |
Futures | (6,060) |
Foreign currency | 525,454 |
Accumulated net realized gain (loss)
| (2,959,925) |
Paid-in capital
| 80,817,601 |
Net assets, at value | $ 72,762,665 |
Class A Net Asset Value, offering and redemption price per share ($72,716,859 ÷ 7,250,530 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 10.03 |
Class B Net Asset Value, offering and redemption price per share ($45,806 ÷ 4,594 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 9.97 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Interest
| $ 5,513,843 |
Interest — Cash Management QP Trust
| 275,559 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 55,140 |
Total Income
| 5,844,542 |
Expenses:
Management fee
| 578,416 |
Administration fee
| 62,261 |
Services to shareholders
| 185 |
Custodian fee
| 29,661 |
Distribution service fee (Class B)
| 7,116 |
Record keeping fees (Class B)
| 2,761 |
Legal fees
| 25,538 |
Audit and tax fees
| 68,559 |
Trustees' fees and expenses
| 18,555 |
Reports to shareholders and shareholder meeting
| 47,693 |
Other
| 43,660 |
Total expenses before expense reductions
| 884,405 |
Expense reductions
| (19,768) |
Total expenses after expense reductions
| 864,637 |
Net investment income (loss) | 4,979,905 |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (3,639,982) |
Swap contracts
| (16,443) |
Futures
| 212,011 |
Foreign currency
| (1,528,113) |
Payments by affiliates (see Note I)
| 1,022 |
| (4,971,505) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (9,102,978) |
Unfunded loan commitments
| 21 |
Swap contracts
| 160,383 |
Written options
| (47,755) |
Futures
| (144,864) |
Foreign currency
| 649,132 |
| (8,486,061) |
Net gain (loss) | (13,457,566) |
Net increase (decrease) in net assets resulting from operations | $ (8,477,661) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income
| $ 4,979,905 | $ 5,848,274 |
Net realized gain (loss)
| (4,971,505) | 2,363,743 |
Change in net unrealized appreciation (depreciation)
| (8,486,061) | (2,405,723) |
Net increase (decrease) in net assets resulting from operations
| (8,477,661) | 5,806,294 |
Distributions to shareholders from:
Net investment income:
Class A | (6,041,956) | (5,451,249) |
Class B | (489,657) | (1,430,805) |
Net realized gains:
Class A | (1,320,099) | — |
Class B | (114,923) | — |
Total distributions
| (7,966,635) | (6,882,054) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 22,468,946 | 27,023,346 |
Reinvestment of distributions
| 7,362,055 | 5,451,249 |
Cost of shares redeemed
| (41,402,528) | (17,567,946) |
Net increase (decrease) in net assets from Class A share transactions
| (11,571,527) | 14,906,649 |
Class B Proceeds from shares sold
| 755,481 | 2,524,276 |
Reinvestment of distributions
| 604,580 | 1,430,805 |
Cost of shares redeemed
| (9,329,944) | (19,503,873) |
Net increase (decrease) in net assets from Class B share transactions
| (7,969,883) | (15,548,792) |
Increase (decrease) in net assets | (35,985,706) | (1,717,903) |
Net assets at beginning of period
| 108,748,371 | 110,466,274 |
Net assets at end of period (including undistributed net investment income of $3,179,356 and $6,660,644, respectively)
| $ 72,762,665 | $ 108,748,371 |
Other Information |
Class A Shares outstanding at beginning of period
| 8,561,326 | 7,267,545 |
Shares sold
| 2,033,447 | 2,337,780 |
Shares issued to shareholders in reinvestment of distributions
| 674,181 | 483,267 |
Shares redeemed
| (4,018,424) | (1,527,266) |
Net increase (decrease) in Class A shares
| (1,310,796) | 1,293,781 |
Shares outstanding at end of period
| 7,250,530 | 8,561,326 |
Class B Shares outstanding at beginning of period
| 737,068 | 2,104,567 |
Shares sold
| 66,046 | 219,518 |
Shares issued to shareholders in reinvestment of distributions
| 55,517 | 127,295 |
Shares redeemed
| (854,037) | (1,714,312) |
Net increase (decrease) in Class B shares
| (732,474) | (1,367,499) |
Shares outstanding at end of period
| 4,594 | 737,068 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 11.70 | $ 11.80 | $ 11.50 | $ 12.25 | $ 11.82 |
Income (loss) from investment operations: Net investment incomea | .55 | .63 | .62 | .65 | .58 |
Net realized and unrealized gain (loss) | (1.38) | (.01) | .36 | (.39) | .39 |
Total from investment operations | (.83) | .62 | .98 | .26 | .97 |
Less distributions from: Net investment income | (.69) | (.72) | (.57) | (.98) | — |
Net realized gains | (.15) | — | (.11) | (.03) | (.54) |
Total distributions | (.84) | (.72) | (.68) | (1.01) | (.54) |
Net asset value, end of period | $ 10.03 | $ 11.70 | $ 11.80 | $ 11.50 | $ 12.25 |
Total Return (%)
| (7.75)b | 5.43b | 8.98 | 2.38 | 8.60 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 73 | 100 | 86 | 71 | 62 |
Ratio of expenses before expense reductions (%)
| .89 | .84 | .85 | .88 | .84 |
Ratio of expenses after expense reductions (%)
| .87 | .83 | .85 | .88 | .84 |
Ratio of net investment income (loss) (%)
| 5.06 | 5.50 | 5.47 | 5.61 | 4.99 |
Portfolio turnover rate (%)
| 234 | 147 | 143 | 120 | 210 |
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, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 11.64 | $ 11.74 | $ 11.44 | $ 12.17 | $ 11.78 |
Income (loss) from investment operations: Net investment incomea | .49 | .59 | .59 | .61 | .53 |
Net realized and unrealized gain (loss) | (1.36) | (.01) | .35 | (.38) | .40 |
Total from investment operations | (.87) | .58 | .94 | .23 | .93 |
Less distributions from: Net investment income | (.65) | (.68) | (.53) | (.93) | — |
Net realized gains | (.15) | — | (.11) | (.03) | (.54) |
Total distributions | (.80) | (.68) | (.64) | (.96) | (.54) |
Net asset value, end of period | $ 9.97 | $ 11.64 | $ 11.74 | $ 11.44 | $ 12.17 |
Total Return (%)
| (8.00)b | 5.07b | 8.75b | 1.92b | 8.27 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .05 | 9 | 25 | 26 | 21 |
Ratio of expenses before expense reductions (%)
| 1.30 | 1.21 | 1.24 | 1.25 | 1.22 |
Ratio of expenses after expense reductions (%)
| 1.28 | 1.20 | 1.18 | 1.21 | 1.22 |
Ratio of net investment income (loss) (%)
| 4.65 | 5.13 | 5.14 | 5.28 | 4.61 |
Portfolio turnover rate (%)
| 234 | 147 | 143 | 120 | 210 |
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, 2008
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, 2008 are 0.91% and 1.29% 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, 2008.
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. 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.
Portfolio returns shown during 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 Technology VIP from 5/1/1999 to 12/31/2008 |
[] 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
| $5,378 | $6,194 | $6,549 | $5,833 |
Average annual total return
| -46.22% | -14.76% | -8.12% | -5.42% |
Russell 1000 Growth Index
| Growth of $10,000
| $6,156 | $7,508 | $8,401 | $6,068 |
Average annual total return
| -38.44% | -9.11% | -3.42% | -5.04% |
S&P Goldman Sachs Technology Index
| Growth of $10,000
| $5,667 | $7,221 | $7,583 | $5,120 |
Average annual total return
| -43.33% | -10.28% | -5.38% | -6.69% |
DWS Technology VIP | 1-Year | 3-Year | 5-Year | Life of Class** |
Class B | Growth of $10,000
| $5,356 | $6,124 | $6,417 | $8,935 |
Average annual total return
| -46.44% | -15.08% | -8.49% | -1.72% |
Russell 1000 Growth Index
| Growth of $10,000
| $6,156 | $7,508 | $8,401 | $9,923 |
Average annual total return
| -38.44% | -9.11% | -3.42% | -.12% |
S&P Goldman Sachs Technology Index
| Growth of $10,000
| $5,667 | $7,221 | $7,583 | $10,421 |
Average annual total return
| -43.33% | -10.28% | -5.38% | .64% |
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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 636.50 | | $ 634.40 | |
Expenses Paid per $1,000*
| $ 4.03 | | $ 5.42 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,020.21 | | $ 1,018.50 | |
Expenses Paid per $1,000*
| $ 4.98 | | $ 6.70 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Technology VIP
| .98% | | 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, 2008
DWS Technology VIP
Technology stocks produced a negative absolute return and underperformed the broader market during 2008. Slowing economic growth led to reduced spending by both consumers and corporations, causing sharp reductions to the earnings estimates for tech companies. With this as the backdrop, the Portfolio's benchmarks, the S&P® Goldman Sachs Technology Index and the Russell 1000® Growth Index returned -43.33% and -38.44 respectively, during the annual period. Class A shares of DWS Technology VIP (unadjusted for contract charges) returned -46.22%. Key contributors to relative performance were positions in Foundry Networks* (which was bid for by Brocade Communications Systems in July), Taiwan Semiconductor Manufacturing Co. Ltd. and Visa, Inc. Notable detractors were Ciena Corp., Nvidia Corp.* and an underweight in International Business Machines Corp.1
The fund's management team changed on November 21, 2008. While many features of the previous approach remain intact, such as an emphasis on looking for investment ideas across the entire market capitalization spectrum, there is now also a thematic component to the Portfolio's strategy. Among the investment themes that we will focus on are the growing need for firms to use technology to meet their compliance and regulation requirements, server/storage/desktop virtualization, technologies that help increase network bandwidth capacity, and continued growth in e-commerce and Internet traffic.
While we remain cautious on the near-term outlook for technology stocks, we believe much of the bad news has already been factored into stock prices. As a result, we are finding compelling values among stocks with rising market share, strong product and/or service offerings, and healthy balance sheets. We will continue to focus our bottom-up research efforts on unearthing these opportunities in the year ahead.
Kelly P. Davis Clark Chang
Lead Portfolio Manager Portfolio Manager, Deutsche Investment Management Americas Inc.
The S&P Goldman Sachs Technology Index is an unmanaged, capitalization-weighted index based on a universe of technology-related stocks.
The Russell 1000 Growth Index is an unmanaged index that consists of those stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values.
Index returns assume reinvestment of 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.* Not held in the Portfolio as of December 31, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Technology VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 98% | 99% |
Cash Equivalents | 2% | 1% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Information Technology: | | |
Communications Equipment | 23% | 16% |
Semiconductors & Semiconductor Equipment | 22% | 16% |
Software | 18% | 21% |
Computers & Peripherals | 18% | 24% |
Internet Software & Services | 10% | 14% |
IT Services | 6% | 5% |
Electronic Equipment & Instruments | 1% | 2% |
Industrials | 1% | 1% |
Consumer Discretionary | 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 275. A complete list of portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Technology VIP
|
Shares
| Value ($) |
| |
Common Stocks 98.4% |
Consumer Discretionary 1.1% |
Media |
Grupo Televisa SA (ADR) | 43,100 | 643,914 |
Financials 0.1% |
Real Estate Investment Trusts |
DuPont Fabros Technology, Inc. (REIT) (a) | 37,100 | 76,797 |
Industrials 0.6% |
Electrical Equipment |
First Solar, Inc.* (a) | 2,800 | 386,288 |
Information Technology 96.6% |
Communications Equipment 22.2% |
Ciena Corp.* (a) | 60,600 | 406,020 |
Cisco Systems, Inc.* | 185,800 | 3,028,540 |
F5 Networks, Inc.* (a) | 25,600 | 585,216 |
Harris Corp. | 12,000 | 456,600 |
Infinera Corp.* (a) | 28,500 | 255,360 |
Juniper Networks, Inc.* | 142,000 | 2,486,420 |
Nokia Oyj (ADR) | 84,600 | 1,319,760 |
Polycom, Inc.* | 84,800 | 1,145,648 |
QUALCOMM, Inc. | 97,616 | 3,497,581 |
Sonus Networks, Inc.* (a) | 256,400 | 405,112 |
| 13,586,257 |
Computers & Peripherals 18.0% |
Apple, Inc.* | 36,500 | 3,115,275 |
EMC Corp.* | 76,200 | 797,814 |
Hewlett-Packard Co. | 94,500 | 3,429,405 |
International Business Machines Corp. | 34,000 | 2,861,440 |
SanDisk Corp.* (a) | 22,700 | 217,920 |
Synaptics, Inc.* (a) | 35,450 | 587,052 |
| 11,008,906 |
Electronic Equipment, Instruments & Components 0.5% |
Hon Hai Precision Industry Co., Ltd. | 173,876 | 342,789 |
Internet Software & Services 10.3% |
eBay, Inc.* | 83,700 | 1,168,452 |
Equinix, Inc.* | 6,200 | 329,778 |
Google, Inc. "A"* | 15,600 | 4,799,340 |
| 6,297,570 |
IT Services 6.3% |
Cognizant Technology Solutions Corp. "A"* | 53,500 | 966,210 |
Fiserv, Inc.* (a) | 29,200 | 1,062,004 |
Global Payments, Inc. | 28,600 | 937,794 |
MasterCard, Inc. "A" (a) | 2,300 | 328,739 |
Visa, Inc. "A" (a) | 10,600 | 555,970 |
| 3,850,717 |
Semiconductors & Semiconductor Equipment 21.6% |
Applied Materials, Inc. | 29,900 | 302,887 |
ASML Holding NV (NY Registered Shares) (a) | 32,300 | 583,661 |
|
Shares
| Value ($) |
| |
Broadcom Corp. "A"* (a) | 66,800 | 1,133,596 |
Cymer, Inc.* (a) | 17,900 | 392,189 |
FormFactor, Inc.* (a) | 22,600 | 329,960 |
Integrated Device Technology, Inc.* | 55,700 | 312,477 |
Intel Corp. | 228,289 | 3,346,717 |
KLA-Tencor Corp. (a) | 22,200 | 483,738 |
Marvell Technology Group Ltd.* | 69,100 | 460,897 |
MediaTek, Inc. | 59,287 | 400,496 |
MEMC Electronic Materials, Inc.* | 9,100 | 129,948 |
Microchip Technology, Inc. (a) | 57,900 | 1,130,787 |
Microsemi Corp.* | 29,800 | 376,672 |
MKS Instruments, Inc.* (a) | 12,700 | 187,833 |
National Semiconductor Corp. (a) | 67,700 | 681,739 |
Netlogic Microsystems, Inc.* | 32,000 | 704,320 |
Taiwan Semiconductor Manufacturing Co., Ltd. (ADR) | 60,007 | 474,056 |
Texas Instruments, Inc. | 91,400 | 1,418,528 |
Varian Semiconductor Equipment Associates, Inc.* (a) | 20,900 | 378,708 |
| 13,229,209 |
Software 17.7% |
Activision Blizzard, Inc.* | 67,800 | 585,792 |
Adobe Systems, Inc.* | 61,900 | 1,317,851 |
Amdocs Ltd.* | 17,200 | 314,588 |
Citrix Systems, Inc.* | 24,700 | 582,179 |
Electronic Arts, Inc.* | 14,100 | 226,164 |
Informatica Corp.* | 40,400 | 554,692 |
McAfee, Inc.* | 17,700 | 611,889 |
Microsoft Corp. | 123,400 | 2,398,896 |
Nintendo Co., Ltd. | 1,300 | 499,453 |
Oracle Corp.* | 159,100 | 2,820,843 |
Salesforce.com, Inc.* (a) | 7,100 | 227,271 |
Symantec Corp.* | 31,300 | 423,176 |
VanceInfo Technologies, Inc. (ADR)* | 51,600 | 245,100 |
| 10,807,894 |
Total Common Stocks (Cost $77,464,466) | 60,230,341 |
|
Securities Lending Collateral 13.7% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $8,358,135) | 8,358,135 | 8,358,135 |
|
Cash Equivalents 1.7% |
Cash Management QP Trust, 1.42% (b) (Cost $1,044,313) | 1,044,313 | 1,044,313 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $86,866,914)+ | 113.8 | 69,632,789 |
Other Assets and Liabilities, Net | (13.8) | (8,438,502) |
Net Assets | 100.0 | 61,194,287 |
* Non-income producing security.+ The cost for federal income tax purposes was $93,123,829. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $23,491,040. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $3,949,503 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $27,440,543.(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, 2008 amounted to $8,327,493, which is 13.6% 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
REIT: Real Estate Investment Trust
Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 67,345,738 |
Level 2
| 2,287,051 |
Level 3
| — |
Total | $ 69,632,789 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $77,464,466) — including $8,327,493 of securities loaned | $ 60,230,341 |
Investment in Daily Assets Fund Institutional (cost $8,358,135)* | 8,358,135 |
Investment in Cash Management QP Trust (cost $1,044,313) | 1,044,313 |
Total investments, at value (cost $86,866,914)
| 69,632,789 |
Foreign currency, at value (cost $25,795)
| 28,123 |
Interest receivable
| 13,050 |
Dividends receivable
| 25,922 |
Receivable for Portfolio shares sold
| 39,110 |
Other assets
| 3,267 |
Total assets
| 69,742,261 |
Liabilities |
Payable for Portfolio shares redeemed
| 17,204 |
Payable upon return of securities loaned
| 8,358,135 |
Accrued management fee
| 33,801 |
Other accrued expenses and payables
| 138,834 |
Total liabilities
| 8,547,974 |
Net assets, at value | $ 61,194,287 |
Net Assets Consist of |
Accumulated net investment loss
| (4,837) |
Net unrealized appreciation (depreciation) on:
Investments | (17,234,125) |
Foreign currency | 2,328 |
Accumulated net realized gain (loss)
| (263,873,272) |
Paid-in capital
| 342,304,193 |
Net assets, at value | $ 61,194,287 |
Class A Net Asset Value, offering and redemption price per share ($59,556,510 ÷ 10,336,451 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.76 |
Class B Net Asset Value, offering and redemption price per share ($1,637,777 ÷ 290,168 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.64 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $45,450)
| $ 847,965 |
Interest — Cash Management QP Trust
| 77,951 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 162,024 |
Total Income
| 1,087,940 |
Expenses:
Management fee
| 762,698 |
Administration fee
| 66,748 |
Custodian and accounting fees
| 43,157 |
Distribution service fee (Class B)
| 6,303 |
Record keeping fees (Class B)
| 2,335 |
Services to shareholders
| 468 |
Professional fees
| 62,902 |
Trustees' fees and expenses
| 14,753 |
Reports to shareholders and shareholder meeting
| 112,255 |
Other
| 37,821 |
Total expenses before expense reductions
| 1,109,440 |
Expense reductions
| (6,385) |
Total expenses after expense reductions
| 1,103,055 |
Net investment income (loss) | (15,115) |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments (net of foreign tax of $4,535)
| (17,630,579) |
Written options
| 213,987 |
Foreign currency
| (193,319) |
| (17,609,911) |
Change in net unrealized appreciation (depreciation) on:
Investments
| (45,865,658) |
Foreign currency
| 2,337 |
| (45,863,321) |
Net gain (loss) | (63,473,232) |
Net increase (decrease) in net assets resulting from operations | $ (63,488,347) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ (15,115) | $ (274,509) |
Net realized gain (loss)
| (17,609,911) | 19,041,595 |
Net unrealized appreciation (depreciation)
| (45,863,321) | 2,725,297 |
Net increase (decrease) in net assets resulting from operations
| (63,488,347) | 21,492,383 |
Portfolio share transactions:
Class A Proceeds from shares sold
| 4,037,835 | 10,492,529 |
Cost of shares redeemed
| (35,554,956) | (42,815,094) |
Net increase (decrease) in net assets from Class A share transactions
| (31,517,121) | (32,322,565) |
Class B Proceeds from shares sold
| 405,112 | 1,326,815 |
Cost of shares redeemed
| (691,475) | (12,807,358) |
Net increase (decrease) in net assets from Class B share transactions
| (286,363) | (11,480,543) |
Increase (decrease) in net assets | (95,291,831) | (22,310,725) |
Net assets at beginning of period
| 156,486,118 | 178,796,843 |
Net assets at end of period (including accumulated net investment loss of $4,837 and $5,235, respectively)
| $ 61,194,287 | $ 156,486,118 |
Other Information |
Class A Shares outstanding at beginning of period
| 14,290,167 | 17,575,288 |
Shares sold
| 484,042 | 994,111 |
Shares redeemed
| (4,437,758) | (4,279,232) |
Net increase (decrease) in Class A shares
| (3,953,716) | (3,285,121) |
Shares outstanding at end of period
| 10,336,451 | 14,290,167 |
Class B Shares outstanding at beginning of period
| 325,361 | 1,525,054 |
Shares sold
| 46,978 | 127,903 |
Shares redeemed
| (82,171) | (1,327,596) |
Net increase (decrease) in Class B shares
| (35,193) | (1,199,693) |
Shares outstanding at end of period
| 290,168 | 325,361 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.71 | $ 9.37 | $ 9.30 | $ 9.01 | $ 8.84 |
Income (loss) from investment operations: Net investment income (loss)a | (.00)* | (.02) | (.01)c | (.03) | .04 |
Net realized and unrealized gain (loss) | (4.95) | 1.36 | .08 | .36 | .13 |
Total from investment operations | (4.95) | 1.34 | .07 | .33 | .17 |
Less distributions from: Net investment income | — | — | — | (.04) | — |
Net asset value, end of period | $ 5.76 | $ 10.71 | $ 9.37 | $ 9.30 | $ 9.01 |
Total Return (%)
| (46.22)b | 14.30 | .75c | 3.74 | 1.92 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 60 | 153 | 165 | 199 | 230 |
Ratio of expenses before expense reductions (%)
| 1.01 | .91 | .89 | .86 | .83 |
Ratio of expenses after expense redctions (%)
| 1.00 | .91 | .89 | .86 | .83 |
Ratio of net investment income (loss) (%)
| (.01) | (.15) | (.12)c | (.36) | .43 |
Portfolio turnover rate (%)
| 71 | 91 | 49 | 135 | 112 |
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 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.
* Amount is less than $0.005.
|
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.53 | $ 9.25 | $ 9.21 | $ 8.93 | $ 8.80 |
Income (loss) from investment operations: Net investment income (loss)a | (.03) | (.05) | (.04)c | (.07) | .01 |
Net realized and unrealized gain (loss) | (4.86) | 1.33 | .08 | .36 | .12 |
Total from investment operations | (4.89) | 1.28 | .04 | .29 | .13 |
Less distributions from: Net investment income | — | — | — | (.01) | — |
Net asset value, end of period | $ 5.64 | $ 10.53 | $ 9.25 | $ 9.21 | $ 8.93 |
Total Return (%)
| (46.44)b | 13.84 | .43c | 3.27 | 1.48b |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 2 | 3 | 14 | 16 | 16 |
Ratio of expenses before expense reductions (%)
| 1.35 | 1.29 | 1.28 | 1.26 | 1.22 |
Ratio of expenses after expense reductions (%)
| 1.35 | 1.29 | 1.28 | 1.26 | 1.21 |
Ratio of net investment income (loss) (%)
| (.35) | (.53) | (.51)c | (.76) | .05 |
Portfolio turnover rate (%)
| 71 | 91 | 49 | 135 | 112 |
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 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, 2008
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, 2008 are 0.91% and 1.16% 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, 2008.
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.
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 Turner Mid Cap Growth VIP from 5/1/2001 to 12/31/2008 |
[] 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
| $5,051 | $6,766 | $8,396 | $7,456 |
Average annual total return
| -49.49% | -12.21% | -3.44% | -3.76% |
Russell Midcap Growth Index
| Growth of $10,000
| $5,568 | $6,865 | $8,887 | $8,411 |
Average annual total return
| -44.32% | -11.79% | -2.33% | -2.23% |
DWS Turner Mid Cap Growth VIP | 1-Year | 3-Year | 5-Year | Life of Class** |
Class B | Growth of $10,000
| $4,946 | $6,573 | $8,090 | $10,836 |
Average annual total return
| -50.54% | -13.05% | -4.15% | 1.24% |
Russell Midcap Growth Index
| Growth of $10,000
| $5,568 | $6,865 | $8,887 | $11,466 |
Average annual total return
| -44.32% | -11.79% | -2.33% | 2.13% |
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. 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, 2008 to December 31, 2008).
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, 2008 |
Actual Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 556.00 | | $ 541.70 | |
Expenses Paid per $1,000*
| $ 4.11 | | $ 4.84 | |
Hypothetical 5% Portfolio Return | Class A | | Class B | |
Beginning Account Value 7/1/08
| $ 1,000.00 | | $ 1,000.00 | |
Ending Account Value 12/31/08
| $ 1,019.86 | | $ 1,018.85 | |
Expenses Paid per $1,000*
| $ 5.33 | | $ 6.34 | |
* Expenses are equal to the Portfolio's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.Annualized Expense Ratios | Class A | | Class B | |
DWS Variable Series II — DWS Turner Mid Cap Growth VIP
| 1.05% | | 1.25% | |
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, 2008
DWS Turner Mid Cap Growth VIP
Faced with one of the most challenging markets that many have not seen in their lifetimes, DWS Turner Mid Cap Growth VIP, which emphasizes earnings growth, returned -49.49% during the period ending December 31, 2008 (Class A shares, unadjusted for contract charges). This trailed the results of the Russell Midcap® Growth Index, the Portfolio's benchmark, which returned -44.32% for the same period. The Portfolio underperformed in part due to relative weak results in the consumer discretionary, health care and technology sectors. Alternatively, the financial services sector contributed the most to results, helped in part by our general avoidance of credit-sensitive companies.
The consumer discretionary sector continued to be an area of concern, as most consumer-sensitive industries (apparel, gaming, restaurants) detracted meaningfully from relative results. Guess? Inc., the apparel retailer and wholesaler, was negatively affected by a beaten-down retail environment and was forced to lower its outlook for 2008. Casino operator Wynn Resorts Ltd. fell substantially, as its Las Vegas casino/hotel could not overcome a cautious consumer faced with numerous recessionary forces.
The health care sector was the second-largest detractor for the year, and our stock selection contributed to the Portfolio's underperformance versus the benchmark. Shares in Charles River Labs*, a drug discovery and development company, fell during the holding period, as the economy was negatively impacting its core client base: biotech and major pharmaceutical companies. United Therapeutics Corp., a biotechnology company, traded lower on the news of a failed trial for its oral version of the blood pressure drug Remodulin.
As was the case in 2007, the financial services sector again played a pivotal role in the equity markets this past year and is largely responsible for the current economic condition. From a Portfolio perspective, our stance on avoiding credit-sensitive companies continues to be the key to the relative outperformance of the financial services sector of the Portfolio. Two areas of the sector that had a positive impact on performance were insurance brokers (AON Corp.) and savings banks (Hudson City Bancorp, Inc.).
Christopher K. McHugh Tara Hedlund Jason Schrotberger
Lead Manager Portfolio Managers, Turner Investment Partners, Inc., Subadvisor to the Portfolio
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 into an index.
* Not held in the Portfolio as of December 31, 2008.Portfolio management market commentary is as of December 31, 2008, 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. Current and future portfolio holdings are subject to risk.
Portfolio Summary
DWS Turner Mid Cap Growth VIP
Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) | 12/31/08 | 12/31/07 |
| | |
Common Stocks | 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 12/31/08 | 12/31/07 |
| | |
Consumer Discretionary | 22% | 11% |
Information Technology | 21% | 23% |
Industrials | 13% | 19% |
Health Care | 13% | 12% |
Financials | 10% | 9% |
Energy | 8% | 12% |
Materials | 6% | 5% |
Consumer Staples | 3% | 4% |
Telecommunication Services | 2% | 2% |
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 285. A complete list of the portfolio holdings of the portfolio is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com.
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, 2008
DWS Turner Mid Cap Growth VIP
| Shares | Value ($) |
| |
Common Stocks 100.3% |
Consumer Discretionary 21.7% |
Diversified Consumer Services 2.8% |
Apollo Group, Inc. "A"* | 12,030 | 921,739 |
ITT Educational Services, Inc.* (a) | 4,610 | 437,858 |
| 1,359,597 |
Hotels Restaurants & Leisure 5.4% |
Darden Restaurants, Inc. | 13,980 | 393,956 |
WMS Industries, Inc.* (a) | 24,675 | 663,758 |
Wynn Resorts Ltd.* (a) | 16,340 | 690,528 |
Yum! Brands, Inc. | 28,160 | 887,040 |
| 2,635,282 |
Household Durables 3.0% |
Pulte Homes, Inc. (a) | 72,930 | 797,125 |
Toll Brothers, Inc.* (a) | 30,500 | 653,615 |
| 1,450,740 |
Media 0.8% |
Cablevision Systems Corp. (New York Group) "A" (a) | 22,000 | 370,480 |
Multiline Retail 2.5% |
Dollar Tree, Inc.* (a) | 7,860 | 328,548 |
Kohl's Corp.* | 25,300 | 915,860 |
| 1,244,408 |
Specialty Retail 5.9% |
GameStop Corp. "A"* | 27,850 | 603,231 |
Guess?, Inc. | 32,860 | 504,401 |
Staples, Inc. | 28,520 | 511,078 |
The Sherwin-Williams Co. (a) | 10,700 | 639,325 |
Urban Outfitters, Inc.* (a) | 39,860 | 597,103 |
| 2,855,138 |
Textiles, Apparel & Luxury Goods 1.3% |
Deckers Outdoor Corp.* (a) | 7,860 | 627,778 |
Consumer Staples 3.2% |
Beverages 0.6% |
Hansen Natural Corp.* | 9,320 | 312,500 |
Household Products 1.3% |
Church & Dwight Co., Inc. | 2,630 | 147,595 |
Clorox Co. | 8,400 | 466,704 |
| 614,299 |
Personal Products 1.3% |
Alberto-Culver Co. | 25,940 | 635,789 |
Energy 8.2% |
Energy Equipment & Services 3.0% |
Cameron International Corp.* | 26,150 | 536,075 |
Dresser-Rand Group, Inc.* | 21,650 | 373,463 |
Smith International, Inc. | 24,350 | 557,371 |
| 1,466,909 |
Oil, Gas & Consumable Fuels 5.2% |
CONSOL Energy, Inc. | 27,360 | 781,949 |
Goodrich Petroleum Corp.* (a) | 17,560 | 525,922 |
Range Resources Corp. | 16,234 | 558,287 |
Southwestern Energy Co.* | 23,140 | 670,366 |
| 2,536,524 |
| Shares | Value ($) |
| |
Financials 10.3% |
Capital Markets 4.9% |
BlackRock, Inc. (a) | 2,140 | 287,081 |
Lazard Ltd. "A" (a) | 19,020 | 565,655 |
Northern Trust Corp. | 13,550 | 706,497 |
T. Rowe Price Group, Inc. (a) | 23,500 | 832,840 |
| 2,392,073 |
Diversified Financial Services 1.2% |
IntercontinentalExchange, Inc.* | 7,050 | 581,202 |
Insurance 2.0% |
Aon Corp. | 11,950 | 545,876 |
W.R. Berkley Corp. | 14,820 | 459,420 |
| 1,005,296 |
Thrifts & Mortgage Finance 2.2% |
Hudson City Bancorp., Inc. | 39,180 | 625,313 |
People's United Financial, Inc. | 24,070 | 429,168 |
| 1,054,481 |
Health Care 12.5% |
Biotechnology 2.8% |
Alexion Pharmaceuticals, Inc.* (a) | 17,380 | 628,982 |
Myriad Genetics, Inc.* (a) | 6,170 | 408,824 |
United Therapeutics Corp.* (a) | 5,610 | 350,906 |
| 1,388,712 |
Health Care Equipment & Supplies 1.6% |
DENTSPLY International, Inc. (a) | 13,130 | 370,791 |
Intuitive Surgical, Inc.* (a) | 3,070 | 389,859 |
| 760,650 |
Health Care Providers & Services 5.4% |
Aetna, Inc. | 12,740 | 363,090 |
DaVita, Inc.* | 9,700 | 480,829 |
Express Scripts, Inc.* | 20,090 | 1,104,548 |
Henry Schein, Inc.* (a) | 9,630 | 353,325 |
Omnicare, Inc. | 11,200 | 310,912 |
| 2,612,704 |
Life Sciences Tools & Services 1.8% |
Covance, Inc.* (a) | 7,380 | 339,701 |
Illumina, Inc.* (a) | 21,400 | 557,470 |
| 897,171 |
Pharmaceuticals 0.9% |
Allergan, Inc. | 10,880 | 438,682 |
Industrials 12.9% |
Aerospace & Defense 1.1% |
Precision Castparts Corp. | 9,350 | 556,138 |
Air Freight & Logistics 1.5% |
C.H. Robinson Worldwide, Inc. | 13,110 | 721,443 |
Airlines 1.1% |
Continental Airlines, Inc. "B"* (a) | 28,510 | 514,891 |
Commercial Services & Supplies 3.4% |
Clean Harbors, Inc.* | 6,170 | 391,425 |
Covanta Holding Corp.* (a) | 22,360 | 491,025 |
Stericycle, Inc.* (a) | 14,550 | 757,764 |
| 1,640,214 |
| Shares | Value ($) |
| |
Construction & Engineering 1.6% |
Jacobs Engineering Group, Inc.* | 7,930 | 381,433 |
Quanta Services, Inc.* (a) | 20,500 | 405,900 |
| 787,333 |
Electrical Equipment 1.5% |
AMETEK, Inc. | 13,780 | 416,294 |
First Solar, Inc.* (a) | 2,270 | 313,169 |
| 729,463 |
Professional Services 2.0% |
FTI Consulting, Inc.* (a) | 7,420 | 331,526 |
Robert Half International, Inc. (a) | 30,600 | 637,092 |
| 968,618 |
Road & Rail 0.7% |
J.B. Hunt Transport Services, Inc. (a) | 13,130 | 344,925 |
Information Technology 21.2% |
Communications Equipment 4.0% |
F5 Networks, Inc.* (a) | 31,500 | 720,090 |
Juniper Networks, Inc.* | 58,070 | 1,016,806 |
Polycom, Inc.* | 15,640 | 211,296 |
| 1,948,192 |
Computers & Peripherals 0.8% |
SanDisk Corp.* (a) | 37,570 | 360,672 |
Internet Software & Services 1.0% |
Omniture, Inc.* (a) | 28,500 | 303,240 |
VistaPrint Ltd.* (a) | 10,830 | 201,546 |
| 504,786 |
Semiconductors & Semiconductor Equipment 9.3% |
Altera Corp. (a) | 42,580 | 711,512 |
Atheros Communications* (a) | 26,330 | 376,782 |
Broadcom Corp. "A"* | 55,180 | 936,405 |
Cavium Networks, Inc.* (a) | 25,400 | 266,954 |
KLA-Tencor Corp. (a) | 23,960 | 522,088 |
Lam Research Corp.* (a) | 33,290 | 708,411 |
PMC-Sierra, Inc.* (a) | 91,200 | 443,232 |
Varian Semiconductor Equipment Associates, Inc.* (a) | 31,320 | 567,519 |
| 4,532,903 |
Software 6.1% |
Activision Blizzard, Inc.* | 61,860 | 534,471 |
Adobe Systems, Inc.* | 15,810 | 336,595 |
Citrix Systems, Inc.* | 21,020 | 495,441 |
| Shares | Value ($) |
| |
Intuit, Inc.* | 18,960 | 451,058 |
McAfee, Inc.* | 33,440 | 1,156,021 |
| 2,973,586 |
Materials 5.7% |
Chemicals 2.7% |
Airgas, Inc. (a) | 11,640 | 453,844 |
Ecolab, Inc. | 15,050 | 529,007 |
Sigma-Aldrich Corp. (a) | 7,900 | 333,696 |
| 1,316,547 |
Construction Materials 0.8% |
Martin Marietta Materials, Inc. (a) | 4,020 | 390,262 |
Containers & Packaging 1.0% |
Pactiv Corp.* | 20,350 | 506,308 |
Metals & Mining 1.2% |
Cliffs Natural Resources, Inc. | 9,200 | 235,612 |
Compass Minerals International, Inc. (a) | 5,700 | 334,362 |
| 569,974 |
Telecommunication Services 2.4% |
Wireless Telecommunication Services |
American Tower Corp. "A"* | 20,190 | 591,971 |
MetroPCS Communications, Inc.* (a) | 38,040 | 564,894 |
| 1,156,865 |
Utilities 2.2% |
Electric Utilities 1.0% |
PPL Corp. | 17,020 | 522,344 |
Gas Utilities 1.2% |
Questar Corp. | 17,480 | 571,420 |
Total Common Stocks (Cost $57,490,443) | 48,857,299 |
|
Securities Lending Collateral 28.1% |
Daily Assets Fund Institutional, 1.69% (b) (c) (Cost $13,671,806) | 13,671,806 | 13,671,806 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $71,162,249)+ | 128.4 | 62,529,105 |
Other Assets and Liabilities, Net | (28.4) | (13,836,700) |
Net Assets | 100.0 | 48,692,405 |
* Non-income producing security.+ The cost for federal income tax purposes was $72,195,203. At December 31, 2008, net unrealized depreciation for all securities based on tax cost was $9,666,098. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $3,245,475 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $12,911,573.(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, 2008 amounted to $13,623,057, which is 28.0% 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.Fair Value Measurements
The following is a summary of the inputs used as of December 31, 2008 in valuing the Portfolio's investments. For information on the Portfolio's policy regarding the valuation of investments and of the valuation inputs, and the aggregate levels used in the table below, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
Valuation Inputs | Investments in Securities |
Level 1
| $ 62,529,105 |
Level 2
| — |
Level 3
| — |
Total | $ 62,529,105 |
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of December 31, 2008
|
Assets |
Investments:
Investments in securities, at value (cost $57,490,443) — including $13,623,057 of securities loaned | $ 48,857,299 |
Investment in Daily Assets Fund Institutional (cost $13,671,806)* | 13,671,806 |
Total investments, at value (cost $71,162,249)
| 62,529,105 |
Dividends receivable
| 25,366 |
Interest receivable
| 26,967 |
Other assets
| 2,905 |
Total assets
| 62,584,343 |
Liabilities |
Payable upon return of securities loaned
| 13,671,806 |
Cash overdraft
| 47,692 |
Payable for Portfolio shares redeemed
| 8,249 |
Accrued management fee
| 32,328 |
Other accrued expenses and payables
| 131,863 |
Total liabilities
| 13,891,938 |
Net assets, at value | $ 48,692,405 |
Net Assets Consist of |
Accumulated net investment loss
| (5,550) |
Net unrealized appreciation (depreciation) on investments
| (8,633,144) |
Accumulated net realized gain (loss)
| (17,538,318) |
Paid-in capital
| 74,869,417 |
Net assets, at value | $ 48,692,405 |
Class A Net Asset Value, offering and redemption price per share ($48,686,132 ÷ 9,629,198 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 5.06 |
Class B Net Asset Value, offering and redemption price per share ($6,273 ÷ 1,306 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)
| $ 4.80 |
* Represents collateral on securities loaned.The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended December 31, 2008
|
Investment Income |
Income:
Dividends (net of foreign taxes withheld of $3,576)
| $ 540,150 |
Interest — Cash Management QP Trust
| 36,830 |
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates
| 277,363 |
Total Income
| 854,343 |
Expenses:
Management fee
| 737,881 |
Administration fee
| 59,597 |
Services to shareholders
| 363 |
Custodian and accounting fees
| 36,384 |
Distribution service fee (Class B)
| 3,805 |
Record keeping fees (Class B)
| 1,485 |
Professional fees
| 68,759 |
Trustees' fees and expenses
| 34,451 |
Reports to shareholders and shareholder meeting
| 64,427 |
Other
| 11,034 |
Total expenses before expense reductions
| 1,018,186 |
Expense reductions
| (22,326) |
Total expenses after expense reductions
| 995,860 |
Net investment income (loss) | (141,517) |
Realized and Unrealized Gain (Loss) |
Net realized gain (loss) from:
Investments
| (17,418,447) |
Change in net unrealized appreciation (depreciation) on investments
| (43,114,819) |
Net gain (loss) | (60,533,266) |
Net increase (decrease) in net assets resulting from operations | $ (60,674,783) |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
| Years Ended December 31, |
Increase (Decrease) in Net Assets | 2008 | 2007 |
Operations:
Net investment income (loss)
| $ (141,517) | $ (528,074) |
Net realized gain (loss)
| (17,418,447) | 23,736,292 |
Change in net unrealized appreciation (depreciation)
| (43,114,819) | 7,277,206 |
Net increase (decrease) in net assets resulting from operations
| (60,674,783) | 30,485,424 |
Distributions to shareholders from:
Net realized gains:
Class A | (22,224,763) | (9,828,253) |
Class B | (923,048) | (2,183,905) |
Tax return of capital:
Class A | (10,487) | — |
Class B | (436) | — |
Total distributions
| (23,158,734) | (12,012,158) |
Portfolio share transactions:
Class A Proceeds from shares sold
| 13,243,891 | 17,681,217 |
Reinvestment of distributions
| 22,235,250 | 9,828,253 |
Cost of shares redeemed
| (33,004,175) | (33,144,770) |
Net increase (decrease) in net assets from Class A share transactions
| 2,474,966 | (5,635,300) |
Class B Proceeds from shares sold
| 232,736 | 706,509 |
Reinvestment of distributions
| 923,484 | 2,183,905 |
Cost of shares redeemed
| (5,170,159) | (24,376,442) |
Net increase (decrease) in net assets from Class B share transactions
| (4,013,939) | (21,486,028) |
Increase (decrease) in net assets | (85,372,490) | (8,648,062) |
Net assets at beginning of period
| 134,064,895 | 142,712,957 |
Net assets at end of period (including accumulated net investment loss of $5,550 and $4,298, respectively)
| $ 48,692,405 | $ 134,064,895 |
Other Information |
Class A Shares outstanding at beginning of period
| 10,261,710 | 10,696,292 |
Shares sold
| 1,439,377 | 1,504,234 |
Shares issued to shareholders in reinvestment of distributions
| 2,558,716 | 950,508 |
Shares redeemed
| (4,630,605) | (2,889,324) |
Net increase (decrease) in Class A shares
| (632,512) | (434,582) |
Shares outstanding at end of period
| 9,629,198 | 10,261,710 |
Class B Shares outstanding at beginning of period
| 432,386 | 2,410,110 |
Shares sold
| 21,851 | 61,336 |
Shares issued to shareholders in reinvestment of distributions
| 109,548 | 215,587 |
Shares redeemed
| (562,479) | (2,254,647) |
Net increase (decrease) in Class B shares
| (431,080) | (1,977,724) |
Shares outstanding at end of period
| 1,306 | 432,386 |
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.55 | $ 10.92 | $ 11.02 | $ 9.86 | $ 8.88 |
Income (loss) from investment operations: Net investment income (loss)a | (.01) | (.04) | (.01) | (.05) | (.07) |
Net realized and unrealized gain (loss) | (5.28) | 2.64 | .77 | 1.21 | 1.05 |
Total from investment operations | (5.29) | 2.60 | .76 | 1.16 | .98 |
Less distributions from:
Net realized gains | (2.20) | (.97) | (.86) | — | — |
Tax return of capital | (.00)* | — | — | — | — |
Total distributions | (2.20) | (.97) | (.86) | — | — |
Net asset value, end of period | $ 5.06 | $ 12.55 | $ 10.92 | $ 11.02 | $ 9.86 |
Total Return (%)
| (49.49)b | 25.75 | 6.52 | 11.76 | 11.04 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| 49 | 129 | 117 | 122 | 118 |
Ratio of expenses before expense reductions (%)
| 1.03 | .95 | .97 | 1.11 | 1.19 |
Ratio of expenses after expense reductions (%)
| 1.00 | .95 | .97 | 1.11 | 1.19 |
Ratio of net investment income (loss) (%)
| (.14) | (.36) | (.06) | (.56) | (.82) |
Portfolio turnover rate (%)
| 156 | 133 | 148 | 151 | 174 |
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.
|
Class B Years Ended December 31, | 2008 | 2007 | 2006 | 2005 | 2004 |
Selected Per Share Data |
Net asset value, beginning of period | $ 12.26 | $ 10.73 | $ 10.88 | $ 9.78 | $ 8.84 |
Income (loss) from investment operations: Net investment income (loss)a | (.07) | (.08) | (.05) | (.09) | (.10) |
Net realized and unrealized gain (loss) | (5.19) | 2.58 | .76 | 1.19 | 1.04 |
Total from investment operations | (5.26) | 2.50 | .71 | 1.10 | .94 |
Less distributions from:
Net realized gains | (2.20) | (.97) | (.86) | — | — |
Tax return of capital | (.00)* | — | — | — | — |
Total distributions | (2.20) | (.97) | (.86) | — | — |
Net asset value, end of period | $ 4.80 | $ 12.26 | $ 10.73 | $ 10.88 | $ 9.78 |
Total Return (%)
| (50.54)b | 25.13 | 6.21 | 11.25b | 10.63 |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions)
| .01 | 5 | 26 | 27 | 23 |
Ratio of expenses before expense reductions (%)
| 1.45 | 1.34 | 1.37 | 1.51 | 1.56 |
Ratio of expenses after expense reductions (%)
| 1.42 | 1.34 | 1.37 | 1.48 | 1.56 |
Ratio of net investment income (loss) (%)
| (.55) | (.75) | (.46) | (.93) | (1.19) |
Portfolio turnover rate (%)
| 156 | 133 | 148 | 151 | 174 |
a Based on an average shares outstanding during the period.
b Total return would have been lower had certain expenses not been reduced.
* Amount is less than $.005.
|
Notes to Financial Statements
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 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 and DWS Funds ("Underlying Portfolios") and non-affiliated investment management companies (e.g., Exchange Traded Funds). Each Portfolio (except DWS Technology VIP) is classified as a diversified open-end management investment company. DWS Technology VIP is classified as a non-diversified, open-end management investment company. 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. Effective July 31, 2008, Class B shares of DWS Janus Growth & Income VIP were liquidated. 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 Rule 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.
Exchange traded funds ("ETFs") are valued at the most recent sale price or official closing price reported on the exchange on which the ETFs are traded most extensively. ETFs 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 one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
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.
Each Portfolio adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), effective at the beginning of each Portfolio's fiscal year. FAS 157 establishes a three-tier hierarchy for measuring fair value and requires additional disclosure about the classification of fair value measurements.
Various inputs are used in determining the value of each Portfolio's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including each Portfolio's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Securities held by a money market fund are reflected as Level 2 because the securities are valued at amortized cost (which approximates fair value) and, accordingly, the inputs used to determine value are not quoted prices in an active market.
The aggregate value by input level, as of December 31, 2008, for each Portfolio's investments, as well as a reconciliation of Level 3 assets for which significant unobservable inputs were used in determining value, is included at the end of each Portfolio's Investment Portfolio.
New Accounting Pronouncement. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("FAS 161"), "Disclosures about Derivative Instruments and Hedging Activities". FAS 161 requires enhanced disclosure about an entity's derivative and hedging activities including qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management is currently reviewing the enhanced disclosure requirements for the adoption of FAS 161.
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. When the collateral falls below specified amounts, the lending agents will use their best efforts to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. 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. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Portfolio is also subject to all investment risks associated with the reinvestment 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 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 agrees 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 agrees 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 are 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 on the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by a board approved pricing vendor 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 pre-defined credit events for the reference entity. 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, to gain exposure to an underlying issuer's credit quality characteristics without directly investing in that issuer, or to hedge the risk of default on Portfolio securities. As a seller in the credit default swap contract, the Portfolio is required to pay the par (or other agreed-upon) value of the referenced entity to the counterparty with the occurrence of a credit event by a third party, such as a US or foreign corporate issuer, on the reference entity, which would likely result in a loss to the Portfolio. In return, the Portfolio receives from the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Portfolio keeps the stream of payments with no payment obligations. The Portfolio may also buy credit default swap contracts in order to hedge against the risk of a credit event on debt securities, in which case the Portfolio functions as the counterparty referenced above. This involves the risk that the contract may expire worthless. It also involves counterparty risk — that the seller may fail to satisfy its payment obligations to the Portfolio with the occurrence of a credit event. 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 reference entities for all outstanding credit default swap contracts sold by the Portfolio.
Credit default swap contracts are marked to market daily based upon quotations from a board approved pricing vendor 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 quarterly payments 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.
The Portfolio adopted FASB Staff Position (FSP) FAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No.133 and FASB Interpretation No. 45", effective November 30, 2008. The amendments to FAS 133 include required disclosure for (i) the nature and terms of the credit derivative, reasons for entering into the credit derivative, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative, (ii) the undiscounted maximum potential amount of future payments the seller could be required to make under the credit derivative, (iii) the fair value of the credit derivative, and (iv) the nature of any recourse provisions and assets held either as collateral or by third parties.
The amendments to FIN 45 require additional disclosure about the current status of the payment/performance risk of a guarantee. All changes to accounting policies have been made in accordance with the FSP and incorporated for the current period in this note and at the end of the Portfolio's Investment Portfolio.
Total Return Swap Contracts. Total return swaps involve commitments to pay interest in exchange for a market-linked return based on a notional amount. DWS Strategic Income VIP may enter into total return swap transactions to hedge against market and interest rate risk or to enhance returns. To the extent the total return of the reference security or index underlying the total return swap exceeds or falls short of the offsetting interest rate obligation, the Portfolio will receive a payment or make a payment to the counterparty, respectively. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in the value of underlying reference security or index. Payments received or made at the end of each measurement period are recorded as realized gain or loss on the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by a board approved pricing vendor and the change in value is recorded as unrealized appreciation or depreciation.
Options. An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices, will require cash settlement by the 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. DWS Balanced VIP and DWS Strategic Income VIP may also enter into futures contracts as part of each Portfolio's global tactical asset allocation strategy.
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. Risk of loss may exceed amounts recognized on the Statement of Assets and Liabilities.
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. DWS Balanced VIP and DWS Strategic Income VIP may enter into forward currency contracts as part of each Portfolio's global tactical asset allocation strategy.
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.
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, 2008, 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
Date | Capital Loss Carryforward Utilized ($) | Capital Loss Carryforward Expired ($) |
DWS Balanced VIP
| 1,789,000 | 12/31/2010 | — | — |
| 1,366,000 | 12/31/2011 | — | — |
| 21,426,000 | 12/31/2016 | — | — |
DWS Blue Chip VIP
| 26,695,000 | 12/31/2016 | — | — |
DWS Core Fixed Income VIP
| 3,813,000 | 12/31/2014 | — | — |
| 50,000 | 12/31/2015 | — | — |
| 6,143,000 | 12/31/2016 | — | — |
DWS Dreman High Return Equity VIP
| 68,443,000 | 12/31/2016 | — | — |
DWS Dreman Small Mid Cap Value VIP
| 40,231,000 | 12/31/2016 | — | — |
DWS Global Thematic VIP
| 42,028,000 | 12/31/2016 | — | — |
DWS Government & Agency Securities VIP
| 930,000 | 12/31/2014 | 421,000 | — |
| 924,000 | 12/31/2015 | — | — |
DWS High Income VIP
| 22,935,000 | 12/31/2009 | — | 16,113,000 |
| 55,108,000 | 12/31/2010 | — | — |
| 13,877,000 | 12/31/2011 | — | — |
| 3,844,000 | 12/31/2014 | — | — |
| 858,000 | 12/31/2015 | — | — |
| 17,301,000 | 12/31/2016 | — | — |
DWS International Select Equity VIP
| 32,933,000 | 12/31/2016 | — | — |
DWS Janus Growth & Income VIP
| 8,636,000 | 12/31/2016 | — | — |
DWS Large Cap Value VIP
| 17,185,000 | 12/31/2016 | — | — |
DWS Mid Cap Growth VIP
| 20,154,000 | 12/31/2011 | — | — |
| 936,000 | 12/31/2016 | — | — |
DWS Small Cap Growth VIP
| 11,291,000 | 12/31/2009 | — | — |
| 71,888,000 | 12/31/2010 | — | — |
| 4,155,000 | 12/31/2011 | — | — |
| 8,113,000 | 12/31/2016 | — | — |
DWS Strategic Income VIP
| 1,611,000 | 12/31/2016 | — | — |
DWS Technology VIP
| 73,057,000 | 12/31/2009 | — | — |
| 93,499,000 | 12/31/2010 | — | — |
| 71,516,000 | 12/31/2011 | — | — |
| 13,148,000 | 12/31/2016 | — | — |
DWS Turner Mid Cap Growth VIP
| 6,753,000 | 12/31/2016 | — | — |
In addition, from November 1, 2008 through December 31, 2008, 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, 2009.
Portfolio | |
DWS Balanced VIP
| $ 20,377,000 |
DWS Blue Chip VIP
| 12,172,000 |
DWS Conservative Allocation VIP
| 244,000 |
DWS Core Fixed Income VIP
| 14,342,000 |
DWS Davis Venture Value VIP
| 1,077,000 |
DWS Dreman High Return Equity VIP
| 78,628,000 |
DWS Dreman Small Mid Cap Value VIP
| 22,331,000 |
DWS Global Thematic VIP
| 12,260,000 |
DWS Government & Agency Securities VIP
| 4,625,000 |
DWS Growth Allocation VIP
| 575,000 |
DWS High Income VIP
| 6,542,000 |
DWS International Select Equity VIP
| 15,109,000 |
DWS Janus Growth & Income VIP
| 7,200,000 |
DWS Large Cap Value VIP
| 8,279,000 |
DWS Mid Cap Growth VIP
| 3,503,000 |
DWS Moderate Allocation VIP
| 265,000 |
DWS Small Cap Growth VIP
| 14,538,000 |
DWS Strategic Income VIP
| 1,428,000 |
DWS Technology VIP
| 6,328,000 |
DWS Turner Mid Cap Growth VIP
| 9,753,000 |
The Portfolios have reviewed the tax positions for the open tax years as of December 31, 2008 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 remain 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. Net investment income of DWS Money Market VIP is declared as a daily dividend and is distributed to shareholders monthly. DWS Money Market VIP may take into account capital gains and losses in its daily dividend declarations. DWS Money Market VIP may also make additional distributions for tax purposes if necessary.
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, 2008, 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
| 11,623,050 | — | (24,581,000) | (51,362,547) |
DWS Blue Chip VIP
| 1,995,128 | — | (26,695,000) | (34,966,453) |
DWS Conservative Allocation VIP
| 1,035,788 | 181,442 | — | (4,269,609) |
DWS Core Fixed Income VIP
| 11,325,686 | — | (10,006,000) | (34,741,950) |
DWS Davis Venture Value VIP
| 2,441,329 | 11,752,162 | — | (6,713,748) |
DWS Dreman High Return Equity VIP
| 12,689,174 | — | (68,443,000) | (37,565,747) |
DWS Dreman Small Mid Cap Value VIP
| 4,331,470 | — | (40,231,000) | (85,237,785) |
DWS Global Thematic VIP
| 929,329 | — | (42,028,000) | (22,227,008) |
DWS Government & Agency Securities VIP
| 9,857,609 | �� | (1,854,000) | 4,584,630 |
DWS Growth Allocation VIP
| 1,565,273 | 1,657,565 | — | (11,898,247) |
DWS High Income VIP
| 18,558,806 | — | (113,923,000) | (64,273,900) |
DWS International Select Equity VIP
| 5,138,636 | — | (32,933,000) | (23,858,882) |
DWS Janus Growth & Income VIP
| 1,300,772 | — | (8,636,000) | (16,250,821) |
DWS Large Cap Value VIP
| 2,810,754 | — | (17,185,000) | (22,320,016) |
DWS Mid Cap Growth VIP
| — | — | (21,090,000) | (5,617,128) |
DWS Moderate Allocation VIP
| 2,008,897 | 745,862 | — | (11,390,828) |
DWS Small Cap Growth VIP
| — | — | (95,447,000) | (25,059,121) |
DWS Strategic Income VIP
| 3,657,462 | — | (1,611,000) | (8,970,305) |
DWS Technology VIP
| — | — | (251,220,000) | (23,491,040) |
DWS Turner Mid Cap Growth VIP
| — | — | (6,753,000) | (9,666,098) |
In addition, the tax character of distributions paid by the Portfolios is summarized as follows:
| Distributions from ordinary income ($)* | Distributions from long-term capital gains ($) | Tax return of capital ($) |
| Years Ended December 31, | Years Ended December 31, | Years Ended December 31, |
Portfolio | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
DWS Balanced VIP
| 17,874,817 | 19,822,898 | — | — | — | — |
DWS Blue Chip VIP
| 22,693,300 | 29,126,324 | 18,303,778 | 14,583,277 | — | — |
DWS Conservative Allocation VIP
| 1,973,217 | 1,232,404 | 3,209,268 | 1,555,295 | — | — |
DWS Core Fixed Income VIP
| 16,737,934 | 15,592,450 | — | — | — | — |
DWS Davis Venture Value VIP
| 7,868,190 | 2,795,861 | 31,468,257 | 5,303,652 | — | — |
DWS Dreman High Return Equity VIP
| 45,076,905 | 15,617,453 | 96,459,670 | 9,463,569 | — | — |
DWS Dreman Small Mid Cap Value VIP
| 41,897,747 | 29,285,554 | 134,320,787 | 68,746,041 | — | — |
DWS Global Thematic VIP
| 21,140,061 | 14,911,083 | 19,678,184 | 12,511,360 | — | — |
DWS Government & Agency Securities VIP
| 10,257,168 | 11,682,544 | — | — | — | — |
DWS Growth Allocation VIP
| 1,425,082 | 5,836,849 | 5,812,496 | 8,822,145 | — | — |
DWS High Income VIP
| 24,630,815 | 28,464,473 | — | — | — | — |
DWS International Select Equity VIP
| 31,101,295 | 11,746,411 | 29,324,473 | 24,138,562 | — | — |
DWS Janus Growth & Income VIP
| 1,526,587 | 1,145,877 | 11,064,755 | — | — | — |
DWS Large Cap Value VIP
| 16,375,766 | 7,889,590 | 40,280,218 | 8,775,628 | — | — |
DWS Moderate Allocation VIP
| 1,368,162 | 3,978,433 | 3,933,731 | 6,522,877 | — | — |
DWS Money Market VIP
| 10,231,661 | 17,550,147 | — | — | — | — |
DWS Strategic Income VIP
| 7,058,174 | 6,882,054 | 908,461 | — | — | — |
DWS Turner Mid Cap Growth VIP
| 5,018,188 | — | 18,129,623 | 12,012,158 | 10,923 | — |
* For tax purposes, short-term capital gain distributions are considered ordinary income distributions.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 Portfolios' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Portfolios that have not yet been made. However, based on experience, the Portfolios expect the risk of loss to be remote.
Real Estate Investment Trusts. DWS Balanced VIP and DWS Dreman Small Mid Cap Value VIP periodically recharacterize distributions received from a Real Estate Investment Trust ("REIT") investment based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from a REIT, the recharacterization will be estimated and a recharacterization will be made in the following year when such information becomes available. Distributions received from REITs in excess of income are recorded as either a reduction of cost of investments or realized gains. The Portfolios distinguish between dividends on a tax basis and a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital.
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 and non-affiliated investment management companies are recorded on the ex-dividend date.
B. Purchases and Sales of Securities
During the year ended December 31, 2008, purchases and sales of investment transactions (excluding short-term investments) were as follows:
Portfolio | Purchases ($) | Sales ($) |
DWS Balanced VIP
excluding US Treasury Obligations | 813,891,432 | 883,115,897 |
US Treasury Obligations | 250,216,900 | 254,136,016 |
DWS Blue Chip VIP
| 224,979,664 | 283,841,847 |
DWS Conservative Allocation VIP
| 11,133,264 | 8,709,336 |
DWS Core Fixed Income VIP
excluding US Treasury Obligations | 110,882,243 | 138,529,428 |
US Treasury Obligations | 341,692,001 | 368,373,444 |
DWS Davis Venture Value VIP
| 40,237,723 | 127,433,637 |
DWS Dreman High Return Equity VIP
| 165,789,364 | 344,342,570 |
DWS Dreman Small Mid Cap Value VIP
| 185,488,147 | 262,937,061 |
DWS Global Thematic VIP
| 271,826,694 | 292,124,323 |
DWS Government & Agency Securities VIP
excluding US Treasury Obligations | 1,274,131,660 | 1,282,924,652 |
US Treasury Obligations | 60,202,794 | 54,014,477 |
DWS Growth Allocation VIP
| 14,243,444 | 11,969,882 |
DWS High Income VIP
| 75,675,370 | 116,290,066 |
DWS International Select Equity VIP
| 231,765,481 | 270,812,787 |
DWS Janus Growth & Income VIP
excluding US Treasury Obligations | 67,764,101 | 107,157,122 |
US Treasury Obligations | 6,019,069 | — |
DWS Large Cap Value VIP
| 173,390,197 | 193,408,495 |
DWS Mid Cap Growth VIP
| 29,333,339 | 41,619,618 |
DWS Moderate Allocation VIP
| 22,445,725 | 17,792,893 |
DWS Small Cap Growth VIP
| 82,223,324 | 113,783,168 |
DWS Strategic Income VIP
excluding US Treasury Obligations | 119,878,953 | 118,622,071 |
US Treasury Obligations | 88,088,711 | 100,086,294 |
DWS Technology VIP
| 75,845,500 | 108,429,050 |
DWS Turner Mid Cap Growth VIP
| 153,306,708 | 178,375,782 |
For the year ended December 31, 2008, transactions for written options on interest rate swaps were as follows for DWS Strategic Income VIP:
| Contract Amount | Premiums |
Outstanding, beginning of period
| — | $ — |
Options written
| 12,000,000 | 70,950 |
Outstanding, end of period
| 12,000,000 | $ 70,950 |
For the year ended December 31, 2008, transactions for written options on securities were as follows for DWS Technology VIP:
| Number of Contracts | Premiums |
Outstanding, beginning of period
| — | $ — |
Options written
| 2,161 | 225,556 |
Options closed
| (557) | (66,840) |
Options expired
| (1,604) | (158,716) |
Outstanding, end of period
| — | $ — |
C. Related Parties
Management Agreement. Under the Amended and Restated 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.
Prior to May 1, 2008, in addition to portfolio management services, the Advisor provided certain administrative services in accordance with the Investment Management Agreement. For the period from January 1, 2008 through April 30, 2008, 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% |
Effective May 1, 2008, under the Amended and Restated Investment Management Agreement with the Advisor, the fees are 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 | .370% |
next $750 million | .345% |
over $1 billion | .310% |
DWS Blue Chip VIP
$0-$250 million | .550% |
next $750 million | .520% |
next $1.5 billion | .500% |
next $2.5 billion | .480% |
next $2.5 billion | .450% |
next $2.5 billion | .430% |
next $2.5 billion | .410% |
over $12.5 billion | .390% |
DWS Conservative Allocation VIP
$0-$500 million | .065% |
next $500 million | .055% |
next $500 million | .045% |
next $1 billion | .035% |
over $2.5 billion | .025% |
DWS Core Fixed Income VIP
$0-$250 million | .500% |
next $750 million | .470% |
next $1.5 billion | .450% |
next $2.5 billion | .430% |
next $2.5 billion | .400% |
next $2.5 billion | .380% |
next $2.5 billion | .360% |
over $12.5 billion | .340% |
DWS Davis Venture Value VIP
$0-$250 million | .865% |
next $250 million | .840% |
next $500 million | .815% |
next $1.5 billion | .790% |
over $2.5 billion | .765% |
DWS Dreman High Return Equity VIP
$0-$250 million | .665% |
next $750 million | .635% |
next $1.5 billion | .615% |
next $2.5 billion | .595% |
next $2.5 billion | .565% |
next $2.5 billion | .555% |
next $2.5 billion | .545% |
over $12.5 billion | .535% |
DWS Dreman Small Mid Cap Value 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 | .540% |
next $2.5 billion | .530% |
over $12.5 billion | .520% |
DWS Global Thematic VIP
$0-$250 million | .915% |
next $500 million | .865% |
next $750 million | .815% |
next $1.5 billion | .765% |
over $3 billion | .715% |
DWS Government & Agency Securities VIP
$0-$250 million | .450% |
next $750 million | .430% |
next $1.5 billion | .410% |
next $2.5 billion | .400% |
next $2.5 billion | .380% |
next $2.5 billion | .360% |
next $2.5 billion | .340% |
over $12.5 billion | .320% |
DWS Growth Allocation VIP
$0-$500 million | .065% |
next $500 million | .055% |
next $500 million | .045% |
next $1 billion | .035% |
over $2.5 billion | .025% |
DWS High Income VIP
$0-$250 million | .500% |
next $750 million | .470% |
next $1.5 billion | .450% |
next $2.5 billion | .430% |
next $2.5 billion | .400% |
next $2.5 billion | .380% |
next $2.5 billion | .360% |
over $12.5 billion | .340% |
DWS International Select Equity VIP
$0-$1.5 billion | .650% |
next $1.75 billion | .635% |
next $1.75 billion | .620% |
over $5 billion | .605% |
DWS Janus Growth & Income VIP
$0-$250 million | .665% |
next $750 million | .640% |
next $1.5 billion | .615% |
over $2.5 billion | .590% |
DWS Mid Cap Growth VIP
$0-$250 million | .665% |
next $750 million | .635% |
next $1.5 billion | .615% |
next $2.5 billion | .595% |
next $2.5 billion | .565% |
next $2.5 billion | .555% |
next $2.5 billion | .545% |
over $12.5 billion | .535% |
DWS Moderate Allocation VIP
$0-$500 million | .065% |
next $500 million | .055% |
next $500 million | .045% |
next $1 billion | .035% |
over $2.5 billion | .025% |
DWS Money Market VIP
$0-$500 million | .285% |
next $500 million | .270% |
next $1.0 billion | .255% |
over $2.0 billion | .240% |
DWS Small Cap Growth VIP
$0-$250 million | .550% |
next $750 million | .525% |
over $1 billion | .500% |
DWS Strategic Income VIP
$0-$250 million | .550% |
next $750 million | .520% |
next $1.5 billion | .500% |
next $2.5 billion | .480% |
next $2.5 billion | .450% |
next $2.5 billion | .430% |
next $2.5 billion | .410% |
over $12.5 billion | .390% |
DWS Technology VIP
$0-$250 million | .665% |
next $750 million | .635% |
next $1.5 billion | .615% |
next $2.5 billion | .595% |
next $2.5 billion | .565% |
next $2.5 billion | .555% |
next $2.5 billion | .545% |
over $12.5 billion | .535% |
DWS Turner Mid Cap Growth VIP
$0-$250 million | .715% |
next $250 million | .700% |
next $500 million | .685% |
over $1 billion | .670% |
The fee pursuant to the Investment Management Agreement is 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% |
Aberdeen Asset Management Inc. ("AAMI") 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.
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, 2008, 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, 2008 through April 30, 2008, the Advisor had contractually agreed to waive all or a portion of its fee 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) as follows:
Portfolio | Annual Rate |
DWS Balanced VIP
Class A | .51% |
Class B | .89% |
DWS Davis Venture Value VIP
Class A | .86% |
Class B | 1.26% |
DWS Government & Agency Securities VIP
Class A | .63% |
DWS Small Cap Growth VIP
Class A | .72% |
Class B | 1.09% |
For the period from January 1, 2008 through September 30, 2008, the Advisor had contractually agreed to waive all or a portion of its fee 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 Government & Agency Securities VIP
| |
Class B | 1.04% |
DWS Growth Allocation VIP
Class B | .70% |
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% |
For the period from January 1, 2008 through April 30, 2009, the Advisor has contractually agreed to waive all or a portion of its fee 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 Global Thematic VIP
Class A | 1.05% |
Class B | 1.45% |
DWS Mid Cap Growth VIP
Class A | .94% |
For the period from January 1, 2008 through September 30, 2009, the Advisor has contractually agreed to waive all or a portion of its fee and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of the class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) as follows:
Portfolio | Annual Rate |
DWS Mid Cap Growth VIP
Class B | 1.34% |
For the period from January 1, 2008 through April 30, 2010, the Advisor has contractually agreed to waive all or a portion of its fee 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% |
Class B | 1.11% |
DWS Money Market VIP
Class A | .44% |
Class B | .79% |
For the period from April 28, 2008 through July 31, 2008, the Advisor had voluntarily agreed to waive its fee or and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of the class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) as follows:
Portfolio | Portfolio Annual Rate |
DWS Janus Growth & Income VIP
Class B | 1.15% |
For the period from May 1, 2008 through September 30, 2008, the Advisor had contractually agreed to waive all or a portion of its fee 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 | .89% |
Class B | 1.29% |
DWS Government & Agency Securities VIP
| |
Class A | .64% |
For the period from May 1, 2008 through September 30, 2008, the Advisor had voluntarily agreed to waive their fees or and reimburse or pay certain operating expenses to the extent necessary to maintain the operating expenses of the class for the period (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest expense) as follows:
Portfolio | Annual Rate |
DWS Small Cap Growth VIP
Class B | 1.09% |
For the period from October 1, 2008 through September 30, 2009, the Advisor has contractually agreed to waive all or a portion of its fee 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 Balanced VIP
| |
Class B | 1.22% |
DWS Blue Chip VIP
| |
Class B | 1.25% |
DWS Conservative Allocation VIP
| |
Class B | .62% |
DWS Davis Venture Value VIP
Class A | .88% |
Class B | 1.28% |
DWS Government & Agency Securities VIP
Class A | .65% |
Class B | 1.05% |
DWS Growth Allocation VIP
| |
Class B | .63% |
DWS High Income VIP
| |
Class B | 1.18% |
DWS International Select Equity VIP
| |
Class B | 1.40% |
DWS Janus Growth & Income VIP
| |
Class A | .86% |
DWS Large Cap Value VIP
| |
Class B | 1.25% |
DWS Moderate Allocation VIP
| |
Class B | .62% |
DWS Small Cap Growth VIP
| |
Class B | 1.41% |
DWS Strategic Income VIP
Class A | .82% |
Class B | 1.22% |
DWS Technology VIP
| |
Class B | 1.48% |
DWS Turner Mid Cap Growth VIP
| |
Class B | 1.34% |
Accordingly, for the year ended December 31, 2008, the total management fees charged, management fees waived and effective management fees are as follows:
Portfolio | Total Aggregated ($) | Waived ($) | Annual Effective Rate |
DWS Balanced VIP
| 1,716,044 | 48,022 | .39% |
DWS Blue Chip VIP
| 1,059,617 | — | .59% |
DWS Conservative Allocation VIP
| 15,317 | 15,317 | .00% |
DWS Core Fixed Income VIP
| 1,158,767 | — | .54% |
DWS Davis Venture Value VIP
| 2,136,001 | 377,471 | .74% |
DWS Dreman High Return Equity VIP
| 3,949,911 | — | .68% |
DWS Dreman Small Mid Cap Value VIP
| 2,646,998 | — | .68% |
DWS Global Thematic VIP
| 1,138,988 | 441,223 | .58% |
DWS Government & Agency Securities VIP
| 1,045,390 | 9,385 | .48% |
DWS Growth Allocation VIP
| 26,040 | 13,477 | .05% |
DWS High Income VIP
| 1,139,273 | — | .54% |
DWS International Select Equity VIP
| 1,244,991 | — | .69% |
DWS Janus Growth & Income VIP
| 897,800 | — | .70% |
DWS Large Cap Value VIP
| 1,214,541 | — | .65% |
DWS Mid Cap Growth VIP
| 252,379 | 51,613 | .56% |
DWS Moderate Allocation VIP
| 30,022 | 15,508 | .05% |
DWS Money Market VIP
| 1,247,502 | 74,810 | .30% |
DWS Small Cap Growth VIP
| 733,616 | 29,376 | .57% |
DWS Strategic Income VIP
| 578,416 | 12,958 | .57% |
DWS Technology VIP
| 762,698 | — | .70% |
DWS Turner Mid Cap Growth VIP
| 737,881 | 16,056 | .73% |
In addition, for the year ended December 31, 2008, the Advisor waived record keeping expenses of Class B shares of each Portfolio as follows:
Portfolio | Waived ($) |
DWS Conservative Allocation VIP
| 16,607 |
DWS Dreman High Return Equity VIP
| 2,522 |
DWS Growth Allocation VIP
| 28,321 |
DWS Large Cap Value VIP
| 94 |
DWS Moderate Allocation VIP
| 32,491 |
DWS Money Market VIP
| 129 |
DWS Small Cap Growth VIP
| 468 |
In addition, for the year ended December 31, 2008, the Advisor waived $3,955 of other expenses for DWS Conservative Allocation VIP.
Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to DWS Large Cap Value VIP. For all services provided under the Administrative Services Agreement, the Portfolio pays DIMA an annual fee ("Administration Fee") of 0.10% of the Portfolio's average daily net assets, computed and accrued daily and payable monthly. For the year ended December 31, 2008, DIMA received an Administration Fee of $186,852, of which $9,823 is unpaid.
Effective May 1, 2008, the Portfolios noted below entered into an Administrative Services Agreement with DIMA, pursuant to which the Advisor provides most administrative services to the Portfolios. For all services provided under the Administrative Services Agreement, the Portfolios pay DIMA an annual fee ("Administration Fee") of 0.10% of the Portfolios' average daily net assets, computed and accrued daily and payable monthly. For the period from May 1, 2008 through December 31, 2008, the Administration Fee was as follows:
Portfolio | Total Aggregated ($) | Waived ($) | Unpaid at December 31, 2008 ($) |
DWS Balanced VIP
| 267,755 | — | 25,322 |
DWS Blue Chip VIP
| 105,793 | — | 8,763 |
DWS Conservative Allocation VIP
| 10,198 | 10,198 | — |
DWS Core Fixed Income VIP
| 129,626 | — | 12,210 |
DWS Davis Venture Value VIP
| 140,451 | — | 11,062 |
DWS Dreman High Return Equity VIP
| 331,580 | — | 25,687 |
DWS Dreman Small Mid Cap Value VIP
| 244,036 | — | 19,791 |
DWS Global Thematic VIP
| 72,094 | — | 5,163 |
DWS Government & Agency Securities VIP
| 143,349 | — | 18,783 |
DWS Growth Allocation VIP
| 16,931 | — | 1,613 |
DWS High Income VIP
| 131,305 | — | 11,897 |
DWS International Select Equity VIP
| 105,669 | — | 7,530 |
DWS Janus Growth & Income VIP
| 76,972 | — | 5,967 |
DWS Mid Cap Growth VIP
| 21,460 | — | 1,508 |
DWS Moderate Allocation VIP
| 19,414 | — | 1,881 |
DWS Money Market VIP
| 263,770 | — | 35,124 |
DWS Small Cap Growth VIP
| 74,373 | — | 5,571 |
DWS Strategic Income VIP
| 62,261 | — | 6,079 |
DWS Technology VIP
| 66,748 | — | 5,183 |
DWS Turner Mid Cap Growth VIP
| 59,597 | — | 4,070 |
Service Provider Fees. DWS Investments Fund Accounting Corporation ("DIFA"), 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. DIFA receives no fee for its services to each Portfolio, other than the Portfolios noted below. In turn, DIFA has delegated certain fund accounting functions to a third-party service provider. Effective May 1, 2008, these fees are now paid under the Administrative Services Agreement. For the period from January 1, 2008 through April 30, 2008, DIFA received a fee for its services as follows:
Portfolio | Total Aggregated ($) |
DWS Conservative Allocation VIP
| 13,737 |
DWS Davis Venture Value VIP
| 37,943 |
DWS Dreman High Return Equity VIP
| 40,370 |
DWS Growth Allocation VIP
| 13,664 |
DWS Global Thematic VIP
| 69,550 |
DWS Janus Growth & Income VIP
| 25,585 |
DWS Mid Cap Growth VIP
| 20,790 |
DWS Moderate Allocation VIP
| 13,852 |
DWS Technology VIP
| 21,129 |
DWS Turner Mid Cap Growth VIP
| 22,504 |
DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for each Portfolio. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from each Portfolio. For the year ended December 31, 2008, the amounts charged to each Portfolio by DISC were as follows:
Portfolio | Total Aggregated ($) | Waived ($) | Unpaid at December 31, 2008 ($) |
DWS Balanced VIP Class A
| 221 | 221 | — |
DWS Balanced VIP Class B
| 47 | — | 7 |
DWS Blue Chip VIP Class A
| 361 | — | 73 |
DWS Blue Chip VIP Class B
| 22 | — | 3 |
DWS Conservative Allocation VIP Class B
| 48 | 48 | — |
DWS Core Fixed Income VIP Class A
| 259 | — | 116 |
DWS Core Fixed Income VIP Class B
| 82 | — | 13 |
DWS Davis Venture Value VIP Class A
| 163 | 163 | — |
DWS Davis Venture Value VIP Class B
| 26 | — | 26 |
DWS Dreman High Return Equity VIP Class A
| 604 | — | 129 |
DWS Dreman High Return Equity VIP Class B
| 243 | 243 | — |
DWS Dreman Small Mid Cap Value VIP Class A
| 706 | — | 155 |
DWS Dreman Small Mid Cap Value VIP Class B
| 289 | — | 72 |
DWS Global Thematic VIP Class A
| 488 | 488 | — |
DWS Global Thematic VIP Class B
| 112 | — | 25 |
DWS Government & Agency Securities VIP Class A
| 552 | 552 | — |
DWS Government & Agency Securities VIP Class B
| 71 | — | 17 |
DWS Growth Allocation VIP Class B
| 48 | 48 | — |
DWS High Income VIP Class A
| 399 | — | 91 |
DWS High Income VIP Class B
| 33 | — | 7 |
DWS International Select Equity VIP Class A
| 152 | — | 45 |
DWS International Select Equity VIP Class B
| 23 | — | 6 |
DWS Janus Growth & Income VIP Class A
| 163 | — | 42 |
DWS Janus Growth & Income VIP Class B
| 40 | 10 | 6 |
DWS Large Cap Value VIP Class A
| 312 | — | — |
DWS Large Cap Value VIP Class B
| 60 | 60 | — |
DWS Mid Cap Growth VIP Class A
| 208 | 208 | — |
DWS Mid Cap Growth VIP Class B
| 26 | — | 7 |
DWS Moderate Allocation VIP Class B
| 48 | 48 | — |
DWS Money Market VIP Class A
| 711 | 711 | — |
DWS Money Market VIP Class B
| 52 | 52 | — |
DWS Small Cap Growth VIP Class A
| 387 | 151 | 236 |
DWS Small Cap Growth VIP Class B
| — | — | — |
DWS Strategic Income VIP Class A
| 147 | — | 147 |
DWS Strategic Income VIP Class B
| 38 | 6 | 6 |
DWS Technology VIP Class A
| 233 | — | 59 |
DWS Technology VIP Class B
| 142 | — | 37 |
DWS Turner Mid Cap Growth VIP Class A
| 93 | 93 | — |
DWS Turner Mid Cap Growth VIP Class B
| 41 | — | 6 |
Distribution Service Agreement. Under the Portfolios' Class B 12b-1 plans, DWS Investments Distributors, Inc. ("DIDI") receives a fee ("Distribution Service Fee") of 0.25% of average daily net assets of Class B shares. For the year ended December 31, 2008, the Distribution Service Fee was as follows:
Portfolio | Total Aggregated ($) | Waived ($) | Unpaid at December 31, 2008 ($) |
DWS Balanced VIP
| 5,567 | — | — |
DWS Blue Chip VIP
| 8,244 | — | 188 |
DWS Conservative Allocation VIP
| 39,976 | 39,976 | — |
DWS Core Fixed Income VIP
| 126,837 | — | 6,729 |
DWS Davis Venture Value VIP
| 17,012 | — | 454 |
DWS Dreman High Return Equity VIP
| 31,412 | — | 431 |
DWS Dreman Small Mid Cap Value VIP
| 83,016 | — | 4,823 |
DWS Global Thematic VIP
| 17,747 | — | 827 |
DWS Government & Agency Securities VIP
| 18,374 | — | 1,739 |
DWS Growth Allocation VIP
| 67,386 | 33,153 | — |
DWS High Income VIP
| 8,000 | — | 34 |
DWS International Select Equity VIP
| 11,230 | — | 20 |
DWS Janus Growth & Income VIP
| 3,511 | — | — |
DWS Large Cap Value VIP
| 6,151 | — | — |
DWS Mid Cap Growth VIP
| 1,412 | — | 4 |
DWS Moderate Allocation VIP
| 77,539 | 25,955 | — |
DWS Money Market VIP
| 10,318 | 255 | — |
DWS Small Cap Growth VIP
| 4,740 | 1 | 125 |
DWS Strategic Income VIP
| 7,116 | — | — |
DWS Technology VIP
| 6,303 | — | 329 |
DWS Turner Mid Cap Growth VIP
| 3,805 | — | 139 |
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to each Portfolio. For the year ended December 31, 2008, the amount charged to each Portfolio by DIMA included in the Statement of Operations under "reports to shareholders and shareholder meeting" was as follows:
Portfolio | Amount ($) | Unpaid at December 31, 2008 ($) |
DWS Balanced VIP
| 9,085 | 2,627 |
DWS Blue Chip VIP
| 7,848 | 2,198 |
DWS Conservative Allocation VIP
| 6,654 | 1,794 |
DWS Core Fixed Income VIP
| 9,615 | 2,794 |
DWS Davis Venture Value VIP
| 7,271 | 1,707 |
DWS Dreman High Return Equity VIP
| 8,655 | 2,932 |
DWS Dreman Small Mid Cap Value VIP
| 9,568 | 2,764 |
DWS Global Thematic VIP
| 9,231 | 4,038 |
DWS Government & Agency Securities VIP
| 11,181 | 4,835 |
DWS Growth Allocation VIP
| 7,064 | 2,239 |
DWS High Income VIP
| 7,418 | 2,270 |
DWS International Select Equity VIP
| 6,038 | 1,896 |
DWS Janus Growth & Income VIP
| 4,627 | 3,720 |
DWS Large Cap Value VIP
| 13,957 | 2,999 |
DWS Mid Cap Growth VIP
| 7,548 | 2,319 |
DWS Moderate Allocation VIP
| 7,067 | 2,240 |
DWS Money Market VIP
| 10,512 | 3,096 |
DWS Small Cap Growth VIP
| 4,350 | 3,044 |
DWS Strategic Income VIP
| 2,888 | 2,578 |
DWS Technology VIP
| 7,767 | 2,253 |
DWS Turner Mid Cap Growth VIP
| 8,870 | 2,802 |
Trustees' Fees and Expenses. The Portfolios paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson and Vice Chairperson.
In connection with the board consolidation on April 1, 2008, of the two DWS Funds Boards of Trustees, certain Independent Board Members retired prior to their normal retirement date, and received a one-time retirement benefit. DIMA has agreed to reimburse the Portfolios for the cost of this benefit. During the period ended December 31, 2008, each Portfolio paid its allocated portion, as follows, of the retirement benefit to the non-continuing Independent Board Members, and each Portfolio was reimbursed by DIMA for this payment.
Portfolio | Amount ($) |
DWS Balanced VIP
| 24,750 |
DWS Blue Chip VIP
| 11,186 |
DWS Conservative Allocation VIP
| 862 |
DWS Core Fixed Income VIP
| 12,990 |
DWS Davis Venture Value VIP
| 14,728 |
DWS Dreman High Return Equity VIP
| 37,816 |
DWS Dreman Small Mid Cap Value VIP
| 22,361 |
DWS Global Thematic VIP
| 7,091 |
DWS Government & Agency Securities VIP
| 10,950 |
DWS Growth Allocation VIP
| 1,514 |
DWS High Income VIP
| 11,933 |
DWS International Select Equity VIP
| 11,048 |
DWS Janus Growth & Income VIP
| 7,668 |
DWS Large Cap Value VIP
| 10,691 |
DWS Mid Cap Growth VIP
| 2,216 |
DWS Moderate Allocation VIP
| 1,769 |
DWS Money Market VIP
| 19,388 |
DWS Small Cap Growth VIP
| 7,592 |
DWS Strategic Income VIP
| 5,355 |
DWS Technology VIP
| 6,311 |
DWS Turner Mid Cap Growth VIP
| 5,807 |
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
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, 2008, the Portfolios' custodian fee was reduced under the arrangement as follows:
Portfolio | Amount ($) |
DWS Balanced VIP
| 4,543 |
DWS Blue Chip VIP
| 52 |
DWS Core Fixed Income VIP
| 890 |
DWS Davis Venture Value VIP
| 337 |
DWS Dreman High Return Equity VIP
| 794 |
DWS Dreman Small Mid Cap Value VIP
| 706 |
DWS Government & Agency Securities VIP
| 182 |
DWS High Income VIP
| 2,091 |
DWS Janus Growth & Income VIP
| 295 |
DWS Large Cap Value VIP
| 519 |
DWS Mid Cap Growth VIP
| 68 |
DWS Money Market VIP
| 654 |
DWS Small Cap Growth VIP
| 158 |
DWS Strategic Income VIP
| 1,449 |
DWS Technology VIP
| 74 |
DWS Turner Mid Cap Growth VIP
| 370 |
G. Ownership of the Portfolios
At December 31, 2008, 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 42%, 23% and 16%. 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 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 58% and 36%. 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 Conservative Allocation VIP: 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 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 42%, 38% and 12%. 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 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 74% and 23%. 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 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 62% and 27%. Four Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the Portfolio, each owning 27%, 21%, 14% and 12%.
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 49%, 25% and 13%. Four Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the Portfolio, each owning 40%, 17%, 17% and 11%.
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 65% and 30%. 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 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 43%, 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 97%.
DWS Growth Allocation VIP: 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 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%, 30% 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 100%.
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 49%, 26% 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 100%.
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 70% and 29%.
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 42%, 29% and 17%. Two Participating Insurance Companies were owners of record of 10% or more of the total outstanding Class B shares of the Portfolio, each owning 77% and 23%.
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 63% and 35%. 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 Moderate Allocation VIP: 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 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 43%, 20% and 12%. 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 46%, 24% and 24%. 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 100%.
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 59% 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 92%.
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 81% and 19%. 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%.
H. Line of Credit
The Trust and other affiliated funds (the "Participants") share in a $490 million revolving credit facility provided by a syndication of banks. The Portfolios may borrow 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 on 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 percentage 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% |
At December 31, 2008, DWS Core Fixed Income VIP had a $250,000 outstanding loan. Interest expense incurred on the borrowing was $8,024 for the year ended December 31, 2008. The average dollar amount of the borrowings was $1,772,936, the weighted average interest rate on these borrowings was 1.49% and the Portfolio had a loan outstanding for 109 days throughout the period.
At December 31, 2008, DWS Dreman High Return Equity VIP had a $450,000 outstanding loan. Interest expense incurred on the borrowing was $15,847 for the year ended December 31, 2008. The average dollar amount of the borrowings was $1,566,583, the weighted average interest rate on these borrowings was 1.82% and the Portfolio had a loan outstanding for 199 days throughout the period.
At December 31, 2008, DWS Large Cap Value VIP had a $750,000 outstanding loan. Interest expense incurred on the borrowing was $197 for the year ended December 31, 2008. The average dollar amount of the borrowings was $520,588, the weighted average interest rate on these borrowings was 0.80% and the Portfolio had a loan outstanding for 17 days throughout the period.
I. Payments Made by Affiliates
During the year ended December 31, 2008, the Advisor fully reimbursed DWS Balanced VIP, DWS High Income VIP and DWS Strategic Income VIP $11,599, $6 and $1,022, respectively, for losses incurred on trades executed incorrectly. The Advisor also fully reimbursed DWS Moderate Allocation VIP $2,194 for a loss incurred in violation of investment restrictions. 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, 2008, the Advisor fully reimbursed DWS International Select Equity VIP $354,782 for losses incurred on trades executed incorrectly.
J. Participation in the Treasury's Temporary Guarantee Program
The U.S. Department of the Treasury (the "Treasury") has established a Temporary Guarantee Program for Money Market Funds (the "Program"). DWS Money Market VIP is participating in the Program.
The Program is designed to protect the value of accounts in the Portfolio as of the close of business on September 19, 2008. According to the terms of the Program, any investment made by a shareholder after September 19, 2008 in excess of the amount held in the account as of the close of business on that date will not be covered by the Program. Any purchase of shares of the Portfolio for an account opened after September 19, 2008 will also not be covered under the Program. The Program guarantee will apply to the lesser of (i) the number of shares held in an account as of the close of business on September 19, 2008, or (ii) the number of shares held in the account on the date the Program guarantee is triggered. Subject to certain conditions and limitations, the Program guarantee is triggered if the Portfolio's net asset value falls below $0.995 and the Portfolio is liquidated. Guarantee payments under the Program will not exceed the amount available within the Treasury's Exchange Stabilization Fund ("ESF") on the date of payment. As of the date of this report, ESF assets are approximately $52 billion. The Treasury and the Secretary of the Treasury have the authority to use assets from the ESF for purposes other than those of the Program.
The Portfolio bears the expenses of participating in the Program. The expense is determined by the product of (i) the number of shares outstanding of each class as of September 19, 2008 valued at $1.00; and (ii) the applicable Program participation fee rate, which is based upon the market-based net asset value outstanding of each share class as of September 19, 2008. For the initial period ending December 18, 2008, the Program participation fee was equal to 0.010%. For the coverage under the Program beginning on December 19, 2008 and ending on April 30, 2009, the Program participation fee is equal to 0.015%. This expense is being amortized over the length of the participation in the Program and is included in "Other" expense on the Statement of Operations. Through December 31, 2008, the Portfolio has accrued $45,679. The Program is set to terminate on April 30, 2009, unless extended by the Treasury. The Treasury may extend the program through the close of business on September 18, 2009. If the Program is extended beyond April 30, 2009, the Portfolio would need to pay an additional fee and there can be no assurances that the Portfolio would continue to participate. This expense is borne by the Portfolio without regard to any expense limitation currently in effect for the Portfolio.
Neither the Portfolio nor Deutsche Investment Management Americas Inc., the Portfolio's investment advisor, are in any manner approved, endorsed, sponsored or authorized by the Treasury.
K. Subsequent Event
The Board of Trustees has approved the termination of AAMI as the subadvisor for DWS Core Fixed Income VIP. Effective on or about February 27, 2009, DIMA will assume all day-to-day advisory responsibilities for the Portfolio that were previously delegated to AAMI.
L. Mergers
On November 21, 2008, the Board of Trustees of the Portfolios approved, in principle, the mergers of the DWS Davis Venture Value VIP (the "Acquired Portfolio") into the DWS Large Cap Value VIP and DWS Janus Growth & Income VIP (the "Acquired Portfolio") into the DWS Capital Growth VIP.
Completion of the mergers is subject to a number of conditions, including approval by shareholders of the Acquired Portfolios at the shareholder meeting expected to be held on or about April 20, 2009.
The Board of Trustees of the Trust has also approved the combination of the Class B shares of DWS Balanced VIP, DWS International Select Equity VIP, DWS Mid Cap Growth VIP, DWS Money Market VIP, DWS Small Cap Growth VIP, DWS Strategic Income VIP and DWS Turner Mid Cap Growth VIP into the Class A shares of the same Portfolio. The combinations are scheduled to become effective on or about March 6, 2009 (effective February 3, 2009 for the DWS Money Market VIP).
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of DWS Variable Series II:
We have audited the accompanying statements of assets and liabilities of DWS Variable Series II (the "Trust"), comprising the 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 and DWS Turner Mid Cap Growth VIP, including the investment portfolios, as of December 31, 2008, 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, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the aforementioned portfolios of the DWS Variable Series II at December 31, 2008, 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 13, 2009
Tax Information (Unaudited)
The following Portfolios paid distributions from net long-term capital gains during the year ended December 31, 2008 as follows:
Portfolio | Distribution Per Share ($) | % Representing 15% Rate Gains |
DWS Blue Chip VIP
| 1.14 | 100 |
DWS Conservative Allocation VIP
| 2.05 | 100 |
DWS Davis Venture Value VIP
| 1.47 | 100 |
DWS Dreman High Return Equity VIP
| 1.77 | 100 |
DWS Dreman Small Mid Cap Value VIP
| 5.64 | 100 |
DWS Global Thematic VIP
| 1.98 | 100 |
DWS Growth Allocation VIP
| 2.32 | 100 |
DWS International Select Equity VIP
| 2.04 | 100 |
DWS Janus Growth & Income VIP
| .84 | 100 |
DWS Large Cap Value VIP
| 3.43 | 100 |
DWS Moderate Allocation VIP
| 1.30 | 100 |
DWS Strategic Income VIP
| .10 | 100 |
DWS Turner Mid Cap Growth VIP
| 1.72 | 100 |
The following Portfolios designated as capital gain dividends for their year ended December 31, 2008:
Portfolio | Capital Gain ($) | % Representing 15% Rate Gains |
DWS Davis Venture Value VIP
| 12,927,000 | 100 |
DWS Growth Allocation VIP
| 1,823,000 | 100 |
DWS Moderate Allocation VIP
| 820,000 | 100 |
For corporate shareholders, the following percentage of income dividends paid during the following Portfolios' fiscal year ended December 31, 2008 qualified for the dividends received deduction:
Portfolio | Dividends Received % |
DWS Balanced VIP
| 20 |
DWS Blue Chip VIP
| 84 |
DWS Conservative Allocation VIP
| 13 |
DWS Davis Venture Value VIP
| 89 |
DWS Dreman High Return Equity VIP
| 88 |
DWS Dreman Small Mid Cap Value VIP
| 83 |
DWS Global Thematic VIP
| 22 |
DWS Growth Allocation VIP
| 59 |
DWS Janus Growth & Income VIP
| 35 |
DWS Large Cap Value VIP
| 93 |
DWS Moderate Allocation VIP
| 100 |
DWS Global Thematic VIP paid foreign taxes of $158,191 and earned $659,182 of foreign source income during the year ended December 31, 2008. Pursuant to section 853 of the Internal Revenue Code, the Portfolio designates $0.01 per share as foreign taxes paid and $0.06 per share as income earned from foreign sources for the year ended December 31, 2008.
DWS International Select Equity VIP paid foreign taxes of $454,368 and earned $5,467,917 of foreign source income during the year ended December 31, 2008. Pursuant to Section 853 of the Internal Revenue Code, the Portfolio designates $0.03 per share as foreign taxes paid and $0.38 per share as income earned from foreign sources for the year ended December 31, 2008.
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.
Proxy Voting
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 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the 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 Fund's investment management agreement (the "Investment Management Agreements") with Deutsche Investment Management Americas Inc. ("DIMA") and, for each sub-advised Fund, the sub-advisory agreement (the "Sub-Advisory Agreements," and together with the Investment Management Agreements, the "Agreements") between DIMA and the sub-advisor (the "Sub-Advisors") in September 2008.1
1 The Sub-Advisors are: Davis Selected Advisers, L.P. (DWS Davis Venture Value VIP); Dreman Value Management L.L.C. (DWS Dreman Small Mid Cap Value VIP and DWS Dreman High Return Equity VIP); Aberdeen Asset Management, Inc. (DWS Core Fixed Income VIP); Janus Capital Management LLC (DWS Janus Growth & Income VIP); Turner Investment Partners, Inc. (DWS Turner Mid Cap Growth VIP); and Deutsche Asset Management International GmbH, an affiliate of DIMA (DWS Large Cap Value VIP and DWS Balanced VIP).In terms of the process that the Board followed prior to approving the Agreements, shareholders should know that:
• At the present time, all but one of the Funds' Trustees are independent of DIMA and its affiliates.
• The Trustees meet frequently to discuss fund matters. Each year, the Trustees dedicate part or all of several meetings to contract review matters. Over the course of several months, the Board's Contract Committee, in coordination with the Board's Equity Oversight Committee and Fixed Income and Quant Oversight Committee, reviewed comprehensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of each Fund's performance, fees and expenses, and profitability compiled by the Funds' independent fee consultant. The Board also received extensive information throughout the year regarding performance of each Fund.
• The Independent Trustees regularly meet privately with their independent counsel (and, as needed, other advisors) to discuss contract review and other matters. In addition, the Independent Trustees were also advised by the Funds' independent fee consultant in the course of their review of each Fund's contractual arrangements and considered a comprehensive report prepared by the independent fee consultant in connection with their deliberations (the "IFC Report").
• In connection with reviewing the Agreements, the Board also reviewed the terms of each Fund's Rule 12b-1 plan (as applicable), distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.
• Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Independent Trustees as a group. The Independent Trustees reviewed the Contract Committee's findings and recommendations and presented their recommendations to the full Board.
In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed each Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of each Fund. The Board considered, generally, that shareholders chose to invest or remain invested in each Fund knowing that DIMA managed the Fund, and that the Agreements were approved by the Fund's shareholders at a special meeting held in 2008. DIMA is part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Board believes that there are significant advantages to being part of a global asset management business that offers a wide range of investing expertise and resources, including hundreds of portfolio managers and analysts with research capabilities in many countries throughout the world.
While shareholders may focus primarily on fund performance and fees, the Board considers these and many other factors, including the quality and integrity of DIMA's and the Sub-Advisors' personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.
Nature, Quality and Extent of Services. The Board considered the terms of the Agreements, including the scope of advisory services provided under the Agreements. The Board noted that, under the Agreements, DIMA and the Sub-Advisors provide portfolio management services to the Funds and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Funds. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of DIMA and the Sub-Advisors to attract and retain high-quality personnel, and the organizational depth and stability of DIMA and the Sub-Advisors. The Board reviewed each Fund's performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market indices and a peer universe compiled by the independent fee consultant using information supplied by Lipper Inc. ("Lipper"). The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer group compiled by Lipper), and receives more frequent reporting and information from DIMA regarding such funds, along with DIMA's remedial plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds.
On the basis of this evaluation and the ongoing review of investment results by the Board, the Board concluded that the nature, quality and extent of services provided by DIMA and the Sub-Advisors historically have been and continue to be satisfactory.
Fees and Expenses. The Board considered each Fund's investment management fee schedule, operating expenses, and total expense ratios, and comparative information provided by Lipper and the independent fee consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). The Board considered each Fund's management fee rate as compared to fees charged by DIMA and certain of its affiliates for comparable mutual funds and considered differences in fund and fee structures between the DWS Funds. The Board also considered how each Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size).
On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and the Sub-Advisors.
Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Investment Management Agreements. The Board considered the estimated costs and pre-tax profits realized by DIMA from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing each Fund in particular, except for DWS Conservative Allocation VIP, DWS Growth Allocation VIP and DWS Moderate Allocation VIP. For DWS Conservative Allocation VIP, DWS Growth Allocation VIP and DWS Moderate Allocation VIP, the Board did not receive profitability information with respect to the Funds, but did receive such information with respect to the funds in which each Fund invests. The Board also received information regarding the estimated enterprise-wide profitability of the DWS Investments organization with respect to all fund services in totality and by fund. The Board reviewed DIMA's methodology in allocating its costs to the management of each Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of each Fund were not unreasonable. The Board also reviewed information regarding the profitability of certain similar investment management firms. The Board noted that while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates' overall profitability with respect to the DWS Investments fund complex (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of many comparable firms for which such data was available. The Board also considered the estimated profitability of the Sub-Advisors based on revenues and expenses provided by the Sub-Advisors and concluded that the estimated profitability realized by each Sub-Advisor in connection with the management of its respective Fund(s) was not unreasonable.
Economies of Scale. The Board considered whether there are economies of scale with respect to the management of each Fund and whether each Fund benefits from any economies of scale. The Board noted that each Fund's management fee schedule includes fee breakpoints. The Board concluded that each Fund's fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.
Other Benefits to DIMA and the Sub-Advisors and Their Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and the Sub-Advisors and their affiliates, including any fees received by DIMA for administrative services provided to each Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA and the Sub-Advisors related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA and the Sub-Advisors related to DWS Funds advertising and cross-selling opportunities among DWS Investments products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.
Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of DIMA's chief compliance officer; (ii) the large number of compliance personnel who report to DIMA's chief compliance officer; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.
In connection with the factors described above, the Board considered factors specific to each Fund, as discussed below.
DWS Mid Cap Growth VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 3rd quartile and 4th quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one- and five-year periods ended December 31, 2007 and outperformed its benchmark in the three-year period ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Blue Chip VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 3rd quartile, 2nd quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-year period ended December 31, 2007 and outperformed its benchmark in each of the three- and five-year periods ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Davis Venture Value VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 3rd quartile, 2nd quartile and 1st quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in each of the one- and three-year periods ended December 31, 2007 and underperformed it benchmark in the five-year period ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (4th quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (4th quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Dreman High Return Equity VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 4th quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one- and three-year periods ended December 31, 2007 and outperformed its benchmark in the five-year period ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA and the Sub-Advisor the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA and the Sub-Advisor have made significant changes in investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Dreman Small Mid Cap Value VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 1st quartile of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (1st quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses.
DWS Global Thematic VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 1st quartile and 1st quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-year period ended December 31, 2007 and outperformed its benchmark in each of the three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (4th quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS International Select Equity VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 1st quartile, 1st quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in each of the one- and three-year periods ended December 31, 2007 and underperformed its benchmark in the five-year period ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be equal to the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Janus Growth & Income VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 3rd quartile and 3rd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in the one-year period ended December 31, 2007 and outperformed its benchmark in each of the three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA and the Sub-Advisor the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA and the Sub-Advisor have made significant changes in investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (3rd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees). The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Large Cap Value VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 1st quartile of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in each of the one- and three-year periods ended December 31, 2007 and underperformed its benchmark in the five-year period ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (3rd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Small Cap Growth VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 3rd quartile, 4th quartile and 4th quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (1st quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Technology VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance, including the introduction of a new portfolio management team in 2006.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (1st quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Balanced VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 3rd quartile, 3rd quartile and 4th quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first six months of 2008. The Board recognized that DIMA has made significant changes in its investment personnel and processes in the past year, including adding DeAMi as sub-advisor for a portion of the large cap value allocation of the Fund, in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (1st quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Turner Mid Cap Growth VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 1st quartile, 2nd quartile and 1st quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Conservative Allocation VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one- and three-year periods ended December 31, 2007, the Fund's performance (Class B shares) was in the 4th quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one- and three-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class B shares' total (net) operating expenses (excluding 12b-1 fees) were expected to be higher than the median (4th quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class B expenses less any applicable 12b-1 fees). The Board considered DIMA's representation that there were significant limitations to the usefulness of the comparative data provided by Lipper, noting 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. Based upon questions from the Independent Trustees, the independent fee consultant produced additional customized information on the peer universe. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Moderate Allocation VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one- and three-year periods ended December 31, 2007, the Fund's performance (Class B shares) was in the 3rd quartile and 3rd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one- and three-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class B shares' total (net) operating expenses (excluding 12b-1 fees) were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class B expenses less any applicable 12b-1 fees). The Board considered DIMA's representation that there were significant limitations to the usefulness of the comparative data provided by Lipper, noting 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. Based upon questions from the Independent Trustees, the independent fee consultant produced additional customized information on the peer universe. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Growth Allocation VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one- and three-year periods ended December 31, 2007, the Fund's performance (Class B shares) was in the 3rd quartile of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has performed equal to its benchmark in the one-year period ended December 31, 2007 and underperformed its benchmark in the three-year period ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first six months of 2008. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class B shares' total (net) operating expenses (excluding 12b-1 fees) were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class B expenses less any applicable 12b-1 fees). The Board considered DIMA's representation that there were significant limitations to the usefulness of the comparative data provided by Lipper, noting 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. Based upon questions from the Independent Trustees, the independent fee consultant produced additional customized information on the peer universe. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Core Fixed Income VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 4th quartile and 3rd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA and the Sub-Advisor the factors contributing to such underperformance and actions being taken to improve performance. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to the Sub-Advisor, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses.
DWS Government & Agency Securities VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 1st quartile of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (3rd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS High Income VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 3rd quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first six months of 2008. The Board recognized that DIMA has made significant changes in its investment personnel and processes in recent years in an effort to improve long-term performance.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Strategic Income VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 3rd quartile, 1st quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007.
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
DWS Money Market VIP
Nature, Quality and Extent of Services. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 2nd quartile of the applicable iMoneyNet universe (the 1st quartile being the best performers and the 4th quartile being the worst performers).
Fees and Expenses. With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses were expected to be lower than the median (2nd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Trustees) determined that the continuation of the Agreements is in the best interests of each Fund. In making this determination the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and their counsel present. It is possible that individual Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreements.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 24, 2008
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 Funds (formerly 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 2008, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007.
Qualifications
For more than 35 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 ten 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 Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 129 Fund portfolios in the DWS 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 Fund. These similar products included the other DWS 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 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 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 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 Funds are reasonable.
Thomas H. Mack
Summary of Administrative Fee Evaluation by Independent Fee Consultant
September 29, 2008
Pursuant to an Order entered into by Deutsche Asset Management (DeAM) with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds and have as part of my duties evaluated the reasonableness of the proposed management fees to be charged by DeAM to the DWS Funds, taking onto account a proposal to pass through to the funds certain fund accounting-related charges in connection with new regulatory requirements. My evaluation considered the following:
• While the proposal would alter the services to be provided under the Administration Agreement, which I consider to be part of fund management under the Order, it is my opinion that the change in services is slight and that the scope of prospective services under the combination of the Advisory and Administration Agreements continues to be comparable with those typically provided to competitive funds under their management agreements.
• While the proposal would increase fund expenses, according to a pro forma analysis performed by management, the prospective effect is less than .01% for all but seven of the DeAM Funds' 438 active share classes, and in all cases the effect is less than .03% and overall expenses would remain reasonable in my opinion.
Based on the foregoing considerations, in my opinion the fees and expenses for all of the DWS Funds will remain reasonable if the Directors adopt this proposal.
Thomas H. Mack
Board Members and Officers
The following table presents certain information regarding the Board Members and Officers of the Trust as of December 31, 2008. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex. The Length of Time Served represents the year in which the Board Member joined the board of one or more DWS funds now overseen by the Board.
Independent Board Members |
Name, Year of Birth, Position with the Fund and Length of Time Served1 | Business Experience and Directorships During the Past Five Years | Number of Funds in DWS Fund Complex Overseen |
Paul K. Freeman (1950)
Chairperson since 20092
Board Member since 1993
| Consultant, World Bank/Inter-American Development Bank; Governing Council of the Independent Directors Council (governance, executive committees); formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998)
| 134 |
Dawn-Marie Driscoll (1946)
Board Member since 1987
| President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley University; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: Trustee of 20 open-end mutual funds managed by Sun Capital Advisers, Inc. (since 2007); Director of ICI Mutual Insurance Company (since 2007); Advisory Board, Center for Business Ethics, Bentley University; Trustee, Southwest Florida Community Foundation (charitable organization). Former Directorships: Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)
| 134 |
John W. Ballantine (1946)
Board Member since 1999
| Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC (private equity). Former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank
| 134 |
Henry P. Becton, Jr. (1943)
Board Member since 1990
| Vice Chair, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Becton Dickinson and Company3 (medical technology company); Belo Corporation3 (media company); Boston Museum of Science; Public Radio International; PRX, The Public Radio Exchange; The PBS Foundation. Former Directorships: American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service
| 134 |
Keith R. Fox (1954)
Board Member since 1996
| Managing General Partner, Exeter Capital Partners (a series of private investment funds). Directorships: Progressive Holding Corporation (kitchen goods importer and distributor); Box Top Media Inc. (advertising); The Kennel Shop (retailer)
| 134 |
Kenneth C. Froewiss (1945)
Board Member since 2001
| Clinical Professor of Finance, NYU Stern School of Business (1997-present); Member, Finance Committee, Association for Asian Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US) (2004-present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)
| 134 |
Richard J. Herring (1946)
Board Member since 1990
| Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center (since July 2000); Director, Japan Equity Fund, Inc. (since September 2007), Thai Capital Fund, Inc. (since September 2007), Singapore Fund, Inc. (since September 2007). Formerly, Vice Dean and Director, Wharton Undergraduate Division (July 1995-June 2000); Director, Lauder Institute of International Management Studies (July 2000-June 2006)
| 134 |
William McClayton (1944)
Board Member since 2004
| Managing Director, Diamond Management & Technology Consultants, Inc. (global management consulting firm) (2001-present); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966-2001); Trustee, Ravinia Festival
| 134 |
Rebecca W. Rimel (1951)
Board Member since 1995
| President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 to present); Trustee, Thomas Jefferson Foundation (charitable organization) (1994 to present); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001-2007); Trustee, Pro Publica (2007-present) (charitable organization). Formerly, Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983-2004); Board Member, Investor Education (charitable organization) (2004-2005); Director, Viasys Health Care3 (January 2007-June 2007)
| 134 |
William N. Searcy, Jr. (1946)
Board Member since 1993
| Private investor since October 2003; Trustee of 20 open-end mutual funds managed by Sun Capital Advisers, Inc. (since October 1998). Formerly, Pension & Savings Trust Officer, Sprint Corporation3 (telecommunications) (November 1989-September 2003)
| 134 |
Jean Gleason Stromberg (1943)
Board Member since 1997
| Retired. Formerly, Consultant (1997-2001); Director, US Government Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation; Business Leadership Council, Wellesley College. Former Directorships: Service Source, Inc., Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and 1994-1996)
| 134 |
Robert H. Wadsworth
(1940)
Board Member since 1999
| President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present); Director, The Phoenix Boys Choir Association
| 137 |
Interested Board Member |
Name, Year of Birth, Position with the Fund and Length of Time Served1 | Business Experience and Directorships During the Past Five Years | Number of Funds in Fund Complex Overseen |
Axel Schwarzer4 (1958)
Board Member since 2006
| Managing Director5, Deutsche Asset Management; Head of Deutsche Asset Management Americas; CEO of DWS Investments; formerly, board member of DWS Investments, Germany (1999-2005); formerly, Head of Sales and Product Management for the Retail and Private Banking Division of Deutsche Bank in Germany (1997-1999); formerly, various strategic and operational positions for Deutsche Bank Germany Retail and Private Banking Division in the field of investment funds, tax driven instruments and asset management for corporates (1989-1996)
| 134 |
Officers6 |
Name, Year of Birth, Position with the Fund and Length of Time Served7 | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Michael G. Clark8 (1965)
President, 2006-present
| Managing Director5, Deutsche Asset Management (2006-present); President of DWS family of funds; Director, ICI Mutual Insurance Company (since October 2007); formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000)
|
John Millette9 (1962)
Vice President and Secretary, 1999-present
| Director5, Deutsche Asset Management
|
Paul H. Schubert8 (1963)
Chief Financial Officer, 2004-present
Treasurer, 2005-present
| Managing Director5, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998)
|
Caroline Pearson9 (1962)
Assistant Secretary, 1997-present
| Managing Director5, Deutsche Asset Management
|
Rita Rubin10 (1970)
Assistant Secretary, 2009-present
| Vice President and Counsel, Deutsche Asset Management (since October 2007); formerly, Vice President, Morgan Stanley Investment Management (2004-2007); Attorney, Shearman & Sterling LLP (2004); Vice President and Associate General Counsel, UBS Global Asset Management (2001-2004)
|
Paul Antosca9 (1957)
Assistant Treasurer, 2007-present
| Director5, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)
|
Jack Clark9 (1967)
Assistant Treasurer, 2007-present
| Director5, Deutsche Asset Management (since 2007); formerly, Vice President, State Street Corporation (2002-2007)
|
Diane Kenneally9 (1966)
Assistant Treasurer, 2007-present
| Director5, Deutsche Asset Management
|
Jason Vazquez10 (1972)
Anti-Money Laundering Compliance Officer, 2007-present
| Vice President, Deutsche Asset Management (since 2006); formerly, AML Operations Manager for Bear Stearns (2004-2006), Supervising Compliance Principal and Operations Manager for AXA Financial (1999-2004)
|
Robert Kloby10 (1962)
Chief Compliance Officer, 2006-present
| Managing Director5, Deutsche Asset Management (2004-present); formerly, Chief Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988)
|
J. Christopher Jackson10 (1951)
Chief Legal Officer, 2006-present
| Director5, Deutsche Asset Management (2006-present); formerly, Director, Senior Vice President, General Counsel and Assistant Secretary, Hansberger Global Investors, Inc. (1996-2006); Director, National Society of Compliance Professionals (2002-2005) (2006-2009)
|
1 The length of time served represents the year in which the Board Member joined the board of one or more DWS funds currently overseen by the Board.2 Mr. Freeman assumed the Chairperson role as of January 1, 2009. Prior to that Ms. Driscoll served as Chairperson of certain DWS funds since 2004.3 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.4 The mailing address of Axel Schwarzer is c/o Deutsche Investment Management Americas Inc., 345 Park Avenue, New York, New York 10154. Mr. Schwarzer is an interested Board Member by virtue of his positions with Deutsche Asset Management. As an interested person, Mr. Schwarzer receives no compensation from the fund.5 Executive title, not a board directorship.6 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.7 The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.8 Address: 345 Park Avenue, New York, New York 10154.9 Address: One Beacon Street, Boston, MA 02108.10 Address: 280 Park Avenue, New York, New York 10017.The fund's Statement of Additional Information ("SAI") includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 621-1048.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
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 Investment Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
(800) 778-1482
VS2-2 (R-9042-1 2/09)
