UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSRS
Investment Company Act file number 811-5385
DWS Value Series, Inc.
(Exact Name of Registrant as Specified in Charter)
222 South Riverside Plaza
Chicago, IL 60606
(Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154
(Name and Address of Agent for Service)
Date of fiscal year end: | 11/30 |
Date of reporting period: | 05/31/06 |
ITEM 1. REPORT TO STOCKHOLDERS
MAY 31, 2006
Semiannual Report
to Shareholders
DWS Dreman Concentrated Value Fund
(formerly Scudder-Dreman Concentrated Value Fund)
Contents
Click Here Performance Summary
Click Here Information About Your Fund's Expenses
Click Here Portfolio Management Review
Click Here Portfolio Summary
Click Here Investment Portfolio
Click Here Financial Statements
Click Here Financial Highlights
Click Here Notes to Financial Statements
Click Here Other Information
Click Here Account Management Resources
Click Here Privacy Statement
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risks. Some funds have more risk than others. This fund is subject to stock market risk, meaning stocks in the fund may decline in value for extended periods of time due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The fund may focus its investments on certain economic sectors and also invest in a limited number of securities. This fund is nondiversified and can take larger positions in fewer companies, thereby increasing its vulnerability to any single economic, political or regulatory development. All of these factors may result in greater share price volatility and increase its overall potential risk. Please read this fund's prospectus for specific details regarding its risk profile.
DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Asset Management, Inc., Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary May 31, 2006
All performance shown is historical, assumes reinvestment of all dividends and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-scudder.com for the Fund's most recent month-end performance.
The maximum sales charge for Class A shares is 5.75%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had. Institutional Class shares are not subject to sales charges.
To discourage short-term trading, the Fund imposes a 2% redemption fee on shareholders redeeming shares held less than 15 days, which has the effect of lowering total return.
Returns and rankings during all periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Total Returns (Unadjusted for Sales Charge) as of 5/31/06 |
DWS Dreman Concentrated Value Fund | 6-Month* | Life of Fund** |
Class A | 7.00% | 7.64% |
Class B | 6.67% | 6.99% |
Class C | 6.73% | 7.05% |
Institutional Class | 7.11% | 7.97% |
S&P 500 Index + | 2.60% | 8.64% |
Russell 1000 Value Index++ | 6.51% | 12.61% |
Sources: Lipper Inc. and Deutsche Management Americas Inc.
* Total returns shown for periods less than one year are not annualized.
* The Fund commenced operations on June 2, 2005. Index returns began on May 31, 2005.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] DWS Dreman Concentrated Value Fund — Class A [] S&P 500 Index+ [] Russell 1000 Value Index++ |
 |
|
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.75%. This results in a net initial investment of $9,425.
Comparative Results (Adjusted for Maximum Sales Charge) as of 5/31/06 |
DWS Dreman Concentrated Value Fund | Life of Fund* |
Class A | Growth of $10,000 | $10,145 |
Average annual total return | 1.45% |
Class B | Growth of $10,000 | $10,299 |
Average annual total return | 2.99% |
Class C | Growth of $10,000 | $10,605 |
Average annual total return | 6.05% |
S&P 500 Index+ | Growth of $10,000 | $10,864 |
Average annual total return | 8.64% |
Russell 1000 Value Index++ | Growth of $10,000 | $11,261 |
Average annual total return | 12.61% |
The growth of $10,000 is cumulative.
* The Fund commenced operations on June 2, 2005. Index returns began on May 31, 2005.
DWS Dreman Concentrated Value Fund as of 5/31/06 | Life of Fund* |
Institutional Class | Growth of $1,000,000 | $1,079,700 |
Average annual total return | 7.97% |
S&P 500 Index+ | Growth of $1,000,000 | $1,086,400 |
Average annual total return | 8.64% |
Russell 1000 Value Index++ | Growth of $1,000,000 | $1,126,100 |
Average annual total return | 12.61% |
The growth of $1,000,000 is cumulative.
The minimum initial investment for Institutional Class shares is $1,000,000.
* The Fund commenced operations on June 2, 2005. Index returns began on May 31, 2005.
+ The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
++ The 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 Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Net Asset Value and Distribution Information |
| Class A | Class B | Class C | Institutional Class |
Net Asset Value: 5/31/06 | $ 10.68 | $ 10.68 | $ 10.68 | $ 10.69 |
11/30/05 | $ 10.06 | $ 10.03 | $ 10.03 | $ 10.08 |
Distribution Information: Six Months: Income Dividends as of 5/31/06 | $ .08 | $ .02 | $ .03 | $ .11 |
Information About Your Fund's Expenses
As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The tables are based on an investment of $1,000 made at the beginning of the six-month period ended May 31, 2006.
The tables illustrate your Fund's expenses in two ways:
Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended May 31, 2006 |
Actual Fund Return | Class A | Class B | Class C | Institutional Class |
Beginning Account Value 12/1/05 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 5/31/06 | $ 1,070.00 | $ 1,066.70 | $ 1,067.30 | $ 1,071.10 |
Expenses Paid per $1,000* | $ 6.14 | $ 9.64 | $ 9.33 | $ 4.96 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Institutional Class |
Beginning Account Value 12/1/05 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 5/31/06 | $ 1,019.00 | $ 1,015.61 | $ 1,015.91 | $ 1,020.14 |
Expenses Paid per $1,000* | $ 5.99 | $ 9.40 | $ 9.10 | $ 4.84 |
Annualized Expense Ratios | Class A | Class B | Class C | Institutional Class |
DWS Dreman Concentrated Value Fund | 1.19% | 1.87% | 1.81% | .96% |
During the six-month period ended May 31, 2006, the Advisor voluntarily agreed to pay the Fund's organizational and offering costs incurred since inception. The example in the table below reflects the expense ratios excluding the effect of the reimbursement of the organizational and offering costs.
Expenses and Value of a $1,000 Investment for the six months ended May 31, 2006 |
Actual Fund Return | Class A | Class B | Class C | Institutional Class |
Beginning Account Value 12/1/05 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 5/31/06 | $ 1,069.70 | $ 1,066.05 | $ 1,066.85 | $ 1,070.91 |
Expenses Paid per $1,000* | $ 6.45 | $ 10.30 | $ 9.79 | $ 5.16 |
Hypothetical 5% Fund Return | Class A | Class B | Class C | Institutional Class |
Beginning Account Value 12/1/05 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
Ending Account Value 5/31/06 | $ 1,018.70 | $ 1,014.96 | $ 1,015.46 | $ 1,019.95 |
Expenses Paid per $1,000* | $ 6.29 | $ 10.05 | $ 9.55 | $ 5.04 |
Annualized Expense Ratios | Class A | Class B | Class C | Institutional Class |
DWS Dreman Concentrated Value Fund | 1.25% | 2.00% | 1.90% | 1.00% |
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
For more information, please refer to the Fund's prospectus.
Portfolio Management Review
In the following interview, Co-Lead Portfolio Manager David N. Dreman discusses the economy, the market environment and performance of DWS Dreman Concentrated Value Fund for the semiannual period ended May 31, 2006.
Q: How would you describe the economic and market environment over the last six months, and what do trends suggest for the months ahead?
A: The broad market, as measured by the Standard & Poor's 500 (S&P 500) Index, had a return of 2.60% for the six-month period ended May 31, 2006.1
1 The Standard & Poor's 500 (S&P 500) Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
The market's weakness in late May and early June tends to obscure the strength in recent months, but this is not surprising, based on past experience. As we near midyear 2006, interest rates and the fear of inflation are key drivers of the stock market. When inflation rates rise, people tend to be negative on the stock market as a whole, but it's important to remember that, even with recent increases, interest rates and inflation remain low relative to levels of the last 25 years. We believe that there is reason to expect that stocks will perform well in the months ahead. Price-to-earnings ratios are much lower than they were four or five years ago, and profit margins are holding up well. We could see some pronounced ups and downs in the market, and some industry groups may drop sharply, but high volatility can create great opportunities for value-oriented investors such as ourselves.
One reason to feel optimistic about the market is that the economy still has considerable momentum: the Department of Commerce reported that real growth in gross domestic product rebounded to 5.3% in the first quarter of 2006, after a weak showing in the hurricane-impacted fourth quarter of 2005.2 Corporate profits were strong in early 2006, posting the largest year-on-year increase since 2002, according to The Wall Street Journal.
2 Gross domestic product (GDP) is the total market value of all final goods and services produced in a country in a given year. Real GDP is GDP adjusted for inflation.
3 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 fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Business investment has been a key driver of economic growth, and consumer spending also remains reasonably strong, although it is likely to slow from the pace in the first quarter. There are a few signs of moderation: housing activity has slowed a bit, and recent labor market indicators have been slightly less positive. We believe that the cumulative effect of the Federal Reserve's series of rate increases will begin to slow economic growth, especially now that real long-term interest rates have begun to increase.
Q: How has the fund performed?
A: We caution investors against paying excessive attention to short-term performance of any stock or fund. In the case of this fund, which was introduced during 2005, we have less than a year of performance to report. For the six months ended May 31, 2006, the fund's return (Class A shares) was 7.00%, above the returns of its benchmarks. The S&P 500 Index had a return of 2.60%, and return of the Russell 1000 Value Index was 6.51%.3 (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results. Please see pages 4 through 6 for complete performance information.)
Q: How is the fund managed?
A: This fund seeks to achieve long-term growth of capital by investing in the stocks of large companies that we consider undervalued, but have favorable prospects for appreciation. We are especially interested in companies that are financially sound but have fallen out of favor with the investing public. This fund is concentrated, as its name indicates, with the portfolio normally comprising just 20 to 25 stocks that represent our best investment ideas.
We begin the selection process by identifying stocks with price-to-earnings ratios below the average for the S&P 500 Index. We then compare the stock price of each company under consideration with its book value, cash flow and dividend yield to identify companies that are financially sound and appear to have a strong potential for long-term capital appreciation and dividend growth. We also analyze other key measures of financial strength such as liquidity ratios, debt management and return on equity. We assemble a portfolio of the most attractive stocks, drawing on our outlook for the economy as a whole as well as for various industries and sectors.
As of May 31, 2006, the portfolio included 24 stocks in four industry sectors: financials (34%), energy (28%), health care (21%) and consumer staples (17%); all of the consumer staples position is in tobacco. The fund's largest holding is Altria Group, Inc., followed by ConocoPhillips, Washington Mutual, Inc, and Pfizer, Inc. (Portfolio holdings are subject to change.)
Q: What were the major determinants of the fund's performance?
A: A major positive was Washington Mutual, Inc., a leading retailer of financial services for consumers and small businesses. This company has built a tremendous branch system across the US through a number of acquisitions. The stock performed well after the company outsourced its mortgage business, which was a bit of a drag on performance at the time we bought the stock. A high yield adds to the stock's attractiveness.
Another top performer in the fund was UST, Inc., the leader in smokeless tobacco in the United States. UST has a low price/earnings ratio, a high yield and a record of frequent dividend increases. The company has significant brand equity with some of its brands dating back more than 100 years. The moist smokeless tobacco market has been growing at a rate in the 6% range, more rapidly than the cigarette market. The major issues overhanging this stock relate to declining margins due to downtrading by the company's core customers and the competitive response from other tobacco companies.
In health care, our largest holdings are Pfizer, Inc., and Wyeth, both of which performed well. These stocks have been out of favor because of concerns that there are no blockbuster drugs to replace older drugs with patents that will expire soon, but history shows that drug development is a process that is hard to predict. Furthermore, these companies have excellent marketing forces that could contract with biotech companies to serve as their distribution systems. With these stocks generating significant cash flows and trading at below-market multiples, we feel that these stocks give us a defensive position relative to the market, backed by solid fundamentals.
Several energy stocks were also among the top contributors to performance; these include Occidental Petroleum Corp., Tesoro Corp., Valero Energy Corp. and Burlington Resources Inc., which was acquired by ConocoPhillips. We have made a major commitment to the energy group because we believe the combination of growing world demand for energy and a lack of investment in new energy resources over the last 20 years create a major opportunity for companies with the ability to find and exploit oil and gas.
Performance was hurt by three large holdings in the financials sector, Freddie Mac, Fannie Mae and American International Group, Inc. (AIG). These stocks have performed poorly for some time because of accounting irregularities that required earnings restatements.
We believe that the financial problems affecting Freddie Mac and Fannie Mae have been exaggerated and that much of the criticism of these companies has been politically motivated. While we acknowledge that their problems have taken longer to work out than we expected, we consider the market's negative reaction to the issues facing these companies to be excessive. We continue to hold positions in both of these stocks.
There continue to be a number of unknowns surrounding AIG; the stock moved up after we bought it but has dropped again. We have the stock under review and may consider selling if the stock price rises.
Q: Do you have other comments for shareholders?
A: The cornerstone of our contrarian value investing philosophy is to seek companies that are financially sound but have fallen out of favor with the investing public. We believe DWS Dreman Concentrated Value Fund provides investors an opportunity to own a core group of stocks that represent our best ideas.
We have confidence in our time-tested approach of identifying companies with solid long-term earnings growth prospects, below-market price-to-earnings ratios and above-market dividend yields. We urge investors to take a long-term view and to avoid reacting to the fluctuations that are an inevitable element of equity investing.
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. Past performance is no guarantee of future results.
Portfolio Summary
Asset Allocation | 5/31/06 | 11/30/05 |
| | |
Common Stocks | 100% | 96% |
Cash Equivalents | — | 4% |
| 100% | 100% |
Sector Diversification (As a % of Common Stocks) | 5/31/06 | 11/30/05 |
| | |
Financials | 34% | 38% |
Energy | 28% | 27% |
Health Care | 21% | 19% |
Consumer Staples | 17% | 16% |
| 100% | 100% |
Asset allocation and sector diversification are subject to change.
Ten Largest Equity Holdings at May 31, 2006 (68.1% of Net Assets) |
1. Altria Group, Inc. Parent company operating in the tobacco and food industries | 12.9% |
2. ConocoPhillips Producer of petroleum and other natural gases | 9.0% |
3. Washington Mutual, Inc. Provider of diversified financial services | 8.0% |
4. Pfizer, Inc. Manufacturer of prescription pharmaceuticals and nonprescription self medications | 7.9% |
5. Wyeth Manufacturer of pharmaceutical and health care products | 6.3% |
6. Chevron Corp. Operator of petroleum exploration, delivery and refining facilities | 5.4% |
7. Fannie Mae Facilitator of mortgages and issuer of mortgage-backed securities | 5.1% |
8. Freddie Mac Facilitator of mortgages and issuer of mortgage-backed securities | 4.8% |
9. Bank of America Corp. Provider of commercial banking services | 4.7% |
10. UST, Inc. Manufacturer and marketer of smokeless tobacco, premium cigars and premium wines | 4.0% |
Portfolio holdings are subject to change.
For more complete details about the Fund's investment portfolio, see page 16. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end will be posted to www.dws-scudder.com on or after the last day of the following month. In addition, the Fund's top ten holdings and other information about the Fund is posted on www.dws-scudder.com as of the calendar quarter-end on or after the 15th day following quarter-end. Please see the Account Management Resources section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio as of May 31, 2006 (Unaudited)
|
Shares
| Value ($) |
| |
Common Stocks 98.2% |
Consumer Staples 16.9% |
Tobacco |
Altria Group, Inc. | 91,600 | 6,627,260 |
UST, Inc. | 47,300 | 2,081,673 |
| 8,708,933 |
Energy 27.6% |
Oil, Gas & Consumable Fuels |
Apache Corp. | 24,400 | 1,583,072 |
Chevron Corp. | 47,000 | 2,810,130 |
ConocoPhillips | 72,958 | 4,617,512 |
Devon Energy Corp. | 18,700 | 1,072,632 |
Occidental Petroleum Corp. | 15,800 | 1,565,622 |
Tesoro Corp. | 18,400 | 1,253,224 |
Valero Energy Corp. | 22,000 | 1,349,700 |
| 14,251,892 |
Financials 33.5% |
Banks 10.7% |
Wachovia Corp. | 25,700 | 1,374,950 |
Washington Mutual, Inc. | 89,800 | 4,122,718 |
| 5,497,668 |
Capital Markets 4.6% |
Morgan Stanley | 18,300 | 1,091,046 |
The Goldman Sachs Group, Inc. | 8,400 | 1,267,980 |
| 2,359,026 |
Diversified Financial Services 14.6% |
Bank of America Corp. | 50,500 | 2,444,200 |
Fannie Mae | 53,100 | 2,641,725 |
Freddie Mac | 40,900 | 2,455,636 |
| 7,541,561 |
Insurance 3.6% |
American International Group, Inc. | 30,400 | 1,848,320 |
Health Care 20.2% |
Health Care Equipment & Supplies 1.4% |
Adeza Biomedical Corp.* | 16,300 | 214,019 |
Bausch & Lomb, Inc. | 10,500 | 516,075 |
| 730,094 |
Health Care Providers & Services 4.6% |
Aetna, Inc. | 14,000 | 538,440 |
Medco Health Solutions, Inc.* | 17,600 | 948,640 |
UnitedHealth Group, Inc. | 19,500 | 857,220 |
| 2,344,300 |
Pharmaceuticals 14.2% |
Pfizer, Inc. | 172,900 | 4,090,814 |
Wyeth | 71,200 | 3,256,688 |
| 7,347,502 |
| % of Net Assets | Value ($) |
| |
Total Investment Portfolio (Cost $49,084,442)+ | 98.2 | 50,629,296 |
Other Assets and Liabilities, Net | 1.8 | 950,944 |
Net Assets | 100.0 | 51,580,240 |
* Non-income producing security.
+ The cost for federal income tax purposes was $49,123,327. At May 31, 2006, net unrealized appreciation for all securities based on tax cost was $1,505,969. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,045,709 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $539,740.
The accompanying notes are an integral part of the financial statements.
Financial Statements
Statement of Assets and Liabilities as of May 31, 2006 (Unaudited) |
Assets |
Investments: Investments in securities, at value (cost $49,084,442) | $ 50,629,296 |
Cash | 198,314 |
Receivable for investment sold | 1,169,147 |
Dividends receivable | 154,454 |
Interest receivable | 747 |
Receivable for Fund shares sold | 230,898 |
Other assets | 49,153 |
Total assets | 52,432,009 |
Liabilities |
Payable for Fund shares redeemed | 24,657 |
Payable for investments purchased | 752,863 |
Other accrued expenses and payables | 74,249 |
Total liabilities | 851,769 |
Net assets, at value | $ 51,580,240 |
Net Assets |
Net assets consist of: Undistributed net investment income | 149,367 |
Net unrealized appreciation (depreciation) on investments | 1,544,854 |
Accumulated net realized gain (loss) | 44,105 |
Paid-in capital | 49,841,914 |
Net assets, at value | $ 51,580,240 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of May 31, 2006 (Unaudited) (continued) |
Net Asset Value |
Class A Net Asset Value and redemption price(a) per share ($35,205,148 ÷ 3,297,064 shares of capital stock outstanding, $.01 par value, 75,000,000 shares authorized) | $ 10.68 |
Maximum offering price per share (100 ÷ 94.25 of $10.68) | $ 11.33 |
Class B Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($1,675,262 ÷ 156,809 shares of capital stock outstanding, $.01 par value, 75,000,000 shares authorized) | $ 10.68 |
Class C Net Asset Value, offering and redemption price(a) (subject to contingent deferred sales charge) per share ($9,609,995 ÷ 899,924 shares of capital stock outstanding, $.01 par value, 75,000,000 shares authorized) | $ 10.68 |
Institutional Class Net Asset Value, offering and redemption price(a) per share ($5,089,835 ÷ 475,924 shares of capital stock outstanding, $.01 par value, 75,000,000 shares authorized) | $ 10.69 |
(a) Redemption price per share for shares held less than 15 days is equal to net asset value less a 2% redemption fee.
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the six months ended May 31, 2006 (Unaudited) |
Investment Income |
Income: Dividends | $ 635,527 |
Interest — Cash Management QP Trust | 15,140 |
Total Income | 650,667 |
Expenses: Management fee | 185,802 |
Distribution service fees | 90,520 |
Services to shareholders | 33,442 |
Custodian and accounting fees | 59,837 |
Auditing | 22,934 |
Legal | 8,257 |
Directors' fees and expenses | 4,301 |
Reports to shareholders | 13,066 |
Registration fees | 18,168 |
Organization and offering expenses | 24,813 |
Other | 3,659 |
Total expenses before expense reductions | 464,799 |
Expense reductions | (174,910) |
Total expenses after expense reductions | 289,889 |
Net investment income (loss) | 360,778 |
Realized and Unrealized Gain (Loss) on Investment Transactions |
Net realized gain (loss) from: Investments | 83,787 |
Net unrealized appreciation (depreciation) during the period on investments | 1,908,753 |
Net gain (loss) on investment transactions | 1,992,540 |
Net increase (decrease) in net assets resulting from operations | $ 2,353,318 |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets |
Increase (Decrease) in Net Assets | Six Months Ended May 31, 2006 (Unaudited) | For the Period Ended November 30, 2005* |
Operations: Net investment income (loss) | $ 360,778 | $ 79,239 |
Net realized gain (loss) on investment transactions | 83,787 | (39,682) |
Net unrealized appreciation (depreciation) during the period on investment transactions | 1,908,753 | (363,899) |
Net increase (decrease) in net assets resulting from operations | 2,353,318 | (324,342) |
Distributions to shareholders from: Net investment income: Class A | (230,250) | — |
Class B | (4,253) | — |
Class C | (22,852) | — |
Institutional Class | (33,295) | — |
Fund share transactions: Proceeds from shares sold | 24,822,831 | 34,979,287 |
Reinvestment of distributions | 237,330 | — |
Cost of shares redeemed | (8,102,318) | (2,095,531) |
Redemption fees | 310 | 5 |
Net increase (decrease) in net assets from Fund share transactions | 16,958,153 | 32,883,761 |
Increase (decrease) in net assets | 19,020,821 | 32,559,419 |
Net assets at beginning of period | 32,559,419 | — |
Net assets at end of period (including undistributed net investment income of $149,367 and $79,239, respectively) | $ 51,580,240 | $ 32,559,419 |
* For the period from June 2, 2005 (commencement of operations) to November 30, 2005.
The accompanying notes are an integral part of the financial statements.
Financial Highlights
Class A | 2006a | 2005b |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.06 | $ 10.00 |
Income (loss) from investment operations: Net investment incomec | .09 | .06 |
Net realized and unrealized gain (loss) on investment transactions | .61 | .00f*** |
Total from investment operations | .70 | .06 |
Less distributions from: Net investment income | (.08) | — |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 10.68 | $ 10.06 |
Total Return (%)d,e | 7.00** | .60** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 35 | 22 |
Ratio of expenses before expense reductions (%) | 1.84* | 2.81* |
Ratio of expenses after expense reductions (%) | 1.19g* | 1.66* |
Ratio of net investment income (loss) (%) | 1.61* | 1.18* |
Portfolio turnover rate (%) | 43* | 5 |
a For the six months ended May 31, 2006 (Unaudited). b For the period from June 2, 2005 (commencement of operations) to November 30, 2005. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e Total return would have been lower had certain expenses not been reduced. f Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value the amount shown may not agree with the change in aggregate gains and losses. g The ratio of operating expenses includes the waiver of the Fund's organizational and offering costs incurred since inception of the Fund. * Annualized ** Not annualized *** Amount is less than $.005. |
Class B | 2006a | 2005b |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.03 | $ 10.00 |
Income (loss) from investment operations: Net investment incomec | .06 | .02 |
Net realized and unrealized gain (loss) on investment transactions | .61 | .01f |
Total from investment operations | .67 | .03 |
Less distributions from: Net investment income | (.02) | — |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 10.68 | $ 10.03 |
Total Return (%)d,e | 6.67** | .30** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 2 | 2 |
Ratio of expenses before expense reductions (%) | 2.62* | 3.58* |
Ratio of expenses after expense reductions (%) | 1.87g* | 2.41* |
Ratio of net investment income (loss) (%) | .93* | .43* |
Portfolio turnover rate (%) | 43* | 5 |
a For the six months ended May 31, 2006 (Unaudited). b For the period from June 2, 2005 (commencement of operations) to November 30, 2005. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e Total return would have been lower had certain expenses not been reduced. f Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value the amount shown may not agree with the change in aggregate gains and losses. g The ratio of operating expenses includes the waiver of the Fund's organizational and offering costs incurred since inception of the Fund. * Annualized ** Not annualized *** Amount is less than $.005. |
Class C | 2006a | 2005b |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.03 | $ 10.00 |
Income (loss) from investment operations: Net investment incomec | .06 | .02 |
Net realized and unrealized gain (loss) on investment transactions | .62 | .01f |
Total from investment operations | .68 | .03 |
Less distributions from: Net investment income | (.03) | — |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 10.68 | $ 10.03 |
Total Return (%)d,e | 6.73** | .30** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 10 | 7 |
Ratio of expenses before expense reductions (%) | 2.59* | 3.54* |
Ratio of expenses after expense reductions (%) | 1.81g* | 2.31* |
Ratio of net investment income (loss) (%) | .99* | .53* |
Portfolio turnover rate (%) | 43* | 5 |
a For the six months ended May 31, 2006 (Unaudited). b For the period from June 2, 2005 (commencement of operations) to November 30, 2005. c Based on average shares outstanding during the period. d Total return does not reflect the effect of any sales charges. e Total return would have been lower had certain expenses not been reduced. f Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value the amount shown may not agree with the change in aggregate gains and losses. g The ratio of operating expenses includes the waiver of the Fund's organizational and offering costs incurred since inception of the Fund. * Annualized ** Not annualized *** Amount is less than $.005. |
Institutional Class | 2006a | 2005b |
Selected Per Share Data |
Net asset value, beginning of period | $ 10.08 | $ 10.00 |
Income (loss) from investment operations: Net investment incomec | .10 | .07 |
Net realized and unrealized gain (loss) on investment transactions | .62 | .01e |
Total from investment operations | .72 | .08 |
Less distributions from: Net investment income | (.11) | — |
Redemption fees | .00*** | .00*** |
Net asset value, end of period | $ 10.69 | $ 10.08 |
Total Return (%)d | 7.11** | .80** |
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) | 5 | 1 |
Ratio of expenses before expense reductions (%) | 1.58* | 2.52* |
Ratio of expenses after expense reductions (%) | .96f* | 1.41* |
Ratio of net investment income (loss) (%) | 1.84* | 1.43* |
Portfolio turnover rate (%) | 43* | 5 |
a For the six months ended May 31, 2006 (Unaudited). b For the period from June 2, 2005 (commencement of operations) to November 30, 2005. c Based on average shares outstanding during the period. d Total return would have been lower had certain expenses not been reduced. e Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value the amount shown may not agree with the change in aggregate gains and losses. f The ratio of operating expenses includes the waiver of the Fund's organizational and offering costs incurred since inception of the Fund. * Annualized ** Not annualized *** Amount is less than $.005. |
Notes to Financial Statements (Unaudited)
A. Significant Accounting Policies
DWS Dreman Concentrated Value Fund (formerly Scudder-Dreman Concentrated Value Fund) (the ``Fund'') is a non-diversified series of DWS Value Series, Inc. (formerly Scudder Value Series, Inc.) (the ``Corporation'') which is registered under the Investment Company Act of 1940, as amended (the ``1940 Act''), as an open-end, non-diversified management investment company organized as a Maryland Corporation.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution service fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Scudder Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Directors.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Fund may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes and risk management and return enhancement purposes.
Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Fund's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities or currencies hedged. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
Distribution of Income and Gains. Net investment income of the Fund, if any, is declared and distributed to shareholders quarterly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Offering Costs. Offering costs for the Fund were paid in connection with the offering of shares and were amortized over one year.
Redemption Fees. The Fund imposes a redemption fee of 2% of the total redemption amount on the Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in capital.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Expenses. Expenses of the Corporation arising in connection with a specific fund are allocated to that fund. Other Corporation expenses which cannot be directly attributed to a fund are apportioned among the funds in the Corporation.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset valuation calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the six months ended May 31, 2006, purchases and sales of investment securities (excluding short-term investments) aggregated $26,452,706 and $9,171,313, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.80% of the first $250 million of the Fund's average daily net assets, 0.78% of the next $750 million of such net assets, 0.76% of the next $1.5 billion of such net assets, and 0.74% of such net assets in excess of $2.5 billion, computed and accrued daily and payable monthly. Dreman Value Management, L.L.C. ("DVM") serves as subadvisor with respect to the investment and reinvestment of assets of the Fund. DVM is paid by the Advisor for its services.
For the period December 1, 2005 through February 28, 2007, the Advisor has agreed to contractually waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses at 1.25%, 2.00%, 1.90% and 1.00% of average daily net assets for Class A, B, C and Institutional Class shares, respectively (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest and organizational and offering expenses).
Accordingly, for the six months ended May 31, 2006, the Advisor waived a portion of its fee pursuant to the Management Agreement aggregating $86,884 and the amount imposed aggregated $98,918, which was equivalent to an annualized effective rate of 0.43% of the Fund's average daily net assets.
In addition, during the six month period ended May 31, 2006, the advisor voluntarily agreed to pay the Fund's organizational and offering costs incurred since inception of $58,596.
Service Provider Fees. DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for Class A, B, C and Institutional Class shares of the Fund. Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems, Inc. ("DST"), DWS-SISC has delegated certain transfer agent and dividend-paying agent functions to DST. DWS-SISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the six months ended May 31, 2006, the amounts charged to the Fund by DWS-SISC were as follows:
Services to Shareholders | Total Aggregated | Waived | Unpaid at May 31, 2006 |
Class A | $ 19,697 | $ 16,667 | $ 3,103 |
Class B | 1,666 | 1,457 | — |
Class C | 5,758 | 4,872 | 209 |
Institutional Class | 1,851 | 1,851 | — |
| $ 28,972 | $ 24,847 | $ 3,312 |
DWS Scudder Fund Accounting Corporation ("DWS-SFAC"), an affiliate of the Advisor, is responsible for computing the daily net asset value per share and maintaining the portfolio and general accounting records of the Fund. DWS-SFAC has retained State Street Bank and Trust Company to provide certain administrative, fund accounting and record-keeping services to the Fund. For the six months ended May 31, 2006, the amount charged to the Fund by DWS-SFAC for accounting services aggregated $51,957, of which $11,800 is unpaid.
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS Scudder Distributors, Inc. ("DWS-SDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and Class C shares. Pursuant to the agreement, DWS-SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the six months ended May 31, 2006, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at May 31, 2006 |
Class B | $ 7,818 | $ 1,028 |
Class C | 34,326 | 5,889 |
| $ 42,144 | $ 6,917 |
In addition, DWS-SDI provides information and administrative services ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DWS-SDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the six months ended May 31, 2006, the Service Fee was as follows:
Service Fee | Total Aggregated | Waived | Unpaid at May 31, 2006 | Annualized Effective Rate |
Class A | $ 35,383 | $ — | $ 13,029 | .23% |
Class B | 2,406 | — | 347 | .23% |
Class C | 10,587 | 4,546 | — | .13% |
| $ 48,376 | $ 4,546 | $ 13,376 | |
Underwriting Agreement and Contingent Deferred Sales Charge. DWS-SDI is the principal underwriter for the Fund. Underwriting commissions paid by shareholders in connection with the distribution of Class A shares for the six months ended May 31, 2006 aggregated $10,751.
In addition, DWS-SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates, ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the six months ended May 31, 2006, the CDSC for Class C shares aggregated $1,780. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares.
Typesetting and Filing Service Fees. Under an agreement with DeIM, the Advisor is compensated for providing typesetting and certain regulatory filing services to the Fund. For the six months ended May 31, 2006, the amount charged to the Fund by DeIM included in the reports to shareholders aggregated $9,432, of which $5,640 is unpaid.
Directors' Fees and Expenses. The Fund paid each Director not affiliated with the Advisor retainer fees.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay its Advisor a management fee for the affiliated funds' investments in the QP Trust.
D. Expense Reductions
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. During the six months ended May 31, 2006, the custodian fee was reduced by $37 for custodian credits earned.
E. Line of Credit
The Fund and several other affiliated funds (the ``Participants'') share in a $750 million revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
F. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Six Months Ended
May 31, 2006 | Period Ended November 30, 2005* |
| Shares | Dollars | Shares | Dollars |
Shares sold |
Class A | 1,516,376 | $ 16,199,038 | 2,415,608 | $ 24,532,605 |
Class B | 50,401 | 540,972 | 184,196 | 1,858,163 |
Class C | 297,554 | 3,187,176 | 710,993 | 7,217,447 |
Institutional Class | 452,043 | 4,895,645 | 136,116 | 1,371,072 |
| | $ 24,822,831 | | $ 34,979,287 |
Shares issued to shareholders in reinvestment of distributions |
Class A | 17,485 | $ 186,146 | — | $ — |
Class B | 335 | 3,646 | — | — |
Class C | 1,821 | 19,715 | — | — |
Institutional Class | 2,577 | 27,823 | — | — |
| | $ 237,330 | | $ — |
Shares redeemed |
Class A | (456,275) | $ (4,886,976) | (196,130) | $ (1,978,172) |
Class B | (76,311) | (847,102) | (1,812) | (18,301) |
Class C | (108,057) | (1,182,985) | (2,387) | (24,069) |
Institutional Class | (107,528) | (1,185,255) | (7,284) | (74,989) |
| | $ (8,102,318) | | $ (2,095,531) |
Redemption fees | $ 310 | | $ 5 |
Net increase (decrease) |
Class A | 1,077,586 | $ 11,498,407 | 2,219,478 | $ 22,554,438 |
Class B | (25,575) | (302,484) | 182,384 | 1,839,862 |
Class C | 191,318 | 2,023,906 | 708,606 | 7,193,378 |
Institutional Class | 347,092 | 3,738,324 | 128,832 | 1,296,083 |
| | $ 16,958,153 | | $ 32,883,761 |
* For the period June 2, 2005 (commencement of operations) to November 30, 2005.
G. Regulatory Matters and Litigation
Market Timing Related Regulatory and Litigation Matters. Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including DWS Scudder. The DWS funds' advisors have been cooperating in connection with these inquiries and are in discussions with the regulators concerning proposed settlements. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the DWS funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain DWS funds, the funds' investment advisors and their affiliates, and certain individuals, including in some cases fund Trustees/Directors, officers, and other parties. Each DWS fund's investment advisor has agreed to indemnify the applicable DWS funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding market timing, revenue sharing, fund valuation or other subjects arising from or related to the pending inquiries. It is not possible to determine with certainty what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors.
With respect to the lawsuits, based on currently available information, the funds' investment advisors believe the likelihood that the pending lawsuits will have a material adverse financial impact on a DWS fund is remote and such actions are not likely to materially affect their ability to perform under their investment management agreements with the DWS funds.
With respect to the regulatory matters, Deutsche Asset Management ("DeAM") has advised the funds as follows:
DeAM expects to reach final agreements with regulators in 2006 regarding allegations of improper trading in the DWS funds. DeAM expects that it will reach settlement agreements with the Securities and Exchange Commission, the New York Attorney General and the Illinois Secretary of State providing for payment of disgorgement, penalties, and investor education contributions totaling approximately $134 million. Approximately $127 million of this amount would be distributed to shareholders of the affected DWS funds in accordance with a distribution plan to be developed by an independent distribution consultant. DeAM does not believe that any of the DWS funds will be named as respondents or defendants in any proceedings. The funds' investment advisors do not believe these amounts will have a material adverse financial impact on them or materially affect their ability to perform under their investment management agreements with the DWS funds. The above-described amounts are not material to Deutsche Bank, and they have already been reserved.
Based on the settlement discussions thus far, DeAM believes that it will be able to reach a settlement with the regulators on a basis that is generally consistent with settlements reached by other advisors, taking into account the particular facts and circumstances of market timing at DeAM and at the legacy Scudder and Kemper organizations prior to their acquisition by DeAM in April 2002. Among the terms of the expected settled orders, DeAM would be subject to certain undertakings regarding the conduct of its business in the future, including maintaining existing management fee reductions for certain funds for a period of five years. DeAM expects that these settlements would resolve regulatory allegations that it violated certain provisions of federal and state securities laws (i) by entering into trading arrangements that permitted certain investors to engage in market timing in certain DWS funds and (ii) by failing more generally to take adequate measures to prevent market timing in the DWS funds, primarily during the 1999-2001 period. With respect to the trading arrangements, DeAM expects that the settlement documents will include allegations related to one legacy DeAM arrangement, as well as three legacy Scudder and six legacy Kemper arrangements. All of these trading arrangements originated in businesses that existed prior to the current DeAM organization, which came together in April 2002 as a result of the various mergers of the legacy Scudder, Kemper and Deutsche fund groups, and all of the arrangements were terminated prior to the start of the regulatory investigations that began in the summer of 2003. No current DeAM employee approved the trading arrangements.
There is no certainty that the final settlement documents will contain the foregoing terms and conditions. The independent Trustees/Directors of the DWS funds have carefully monitored these regulatory investigations with the assistance of independent legal counsel and independent economic consultants.
Other Regulatory Matters. DeAM is also engaged in settlement discussions with the Enforcement Staffs of the SEC and the NASD regarding DeAM's practices during 2001-2003 with respect to directing brokerage commissions for portfolio transactions by certain DWS funds to broker-dealers that sold shares in the DWS funds and provided enhanced marketing and distribution for shares in the DWS funds. In addition, DWS Scudder Distributors, Inc. is in settlement discussions with the Enforcement Staff of the NASD regarding DWS Scudder Distributors' payment of non-cash compensation to associated persons of NASD member firms, as well as DWS Scudder Distributors' procedures regarding non-cash compensation regarding entertainment provided to such associated persons.
Other Information
Additional information announced by Deutsche Asset Management regarding the terms of the expected settlements referred to in the Market Timing Related Regulatory and Litigation Matters and Other Regulatory Matters in the Notes to Financial Statements will be made available at www.dws-scudder.com/regulatory_settlements, which will also disclose the terms of any final settlement agreements once they are announced.
Account Management Resources
For shareholders of Classes A, B, C and Institutional |
Automated Information Lines | InvestorACCESS (800) 972-3060 Personalized account information, information on other DWS funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | www.dws-scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a DWS Scudder service representative. |
Written Correspondence | DWS Scudder PO Box 219356
Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 is available on our Web site — www.dws-scudder.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at 1-800-621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: DWS Scudder Distributors, Inc. 222 South Riverside Plaza
Chicago, IL 60606-5808 (800) 621-1148 |
| Class A | Class B | Class C | Institutional Class |
Nasdaq Symbol | LOPEX | LOPBX | LOPCX | LOPIX |
CUSIP Number | 23338F-689 | 23338F-671 | 23338F-663 | 23338F-655 |
Fund Number | 444 | 644 | 744 | 1444 |
Privacy Statement
This privacy statement is issued by DWS Scudder Distributors, Inc., Deutsche Investment Management Americas Inc., Deutsche Asset Management, Inc., Investment Company Capital Corporation, DeAM Investor Services, Inc., DWS Trust Company and the DWS Funds.
We never sell customer lists or individual client information. We consider privacy fundamental to our client relationships and adhere to the policies and practices described below to protect current and former clients' information. Internal policies are in place to protect confidentiality, while allowing client needs to be served. Only individuals who need to do so in carrying out their job responsibilities may access client information. We maintain physical, electronic and procedural safeguards that comply with federal and state standards to protect confidentiality. These safeguards extend to all forms of interaction with us, including the Internet.
In the normal course of business, clients give us nonpublic personal information on applications and other forms, on our websites, and through transactions with us or our affiliates. Examples of the nonpublic personal information collected are name, address, Social Security number and transaction and balance information. To be able to serve our clients, certain of this client information is shared with affiliated and nonaffiliated third party service providers such as transfer agents, custodians, and broker-dealers to assist us in processing transactions and servicing your account with us. In addition, we may disclose all of the information we collect to companies that perform marketing services on our behalf or to other financial institutions with which we have joint marketing agreements. The organizations described above that receive client information may only use it for the purpose designated by the companies listed above.
We may also disclose nonpublic personal information about you to other parties as required or permitted by law. For example, we are required or we may provide information to government entities or regulatory bodies in response to requests for information or subpoenas, to private litigants in certain circumstances, to law enforcement authorities, or any time we believe it necessary to protect the firm.
Questions on this policy may be sent to:
DWS Scudder
Attention: Correspondence — Chicago
P.O. Box 219415
Kansas City, MO 64121-9415
February 2006
Notes
Notes
Notes
Notes
Notes
Notes
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
| ITEM 6. | SCHEDULE OF INVESTMENTS |
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Procedures and Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to the Fund's Secretary for the attention of the Chairman of the Nominating and Governance Committee, Two International Place, Boston, MA 02110. Suggestions for candidates must include a resume of the candidate.
| ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
(b) | There have been no changes in the registrant's internal control over financial reporting that occurred during the registrant's last half-year (the registrant's second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting. |
(a)(1) | Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
(b) | Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSRS Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: | DWS Dreman Concentrated Value Fund, a series of DWS Value Series, Inc. |
By: | /s/Michael G. Clark |
| Michael G. Clark | |
President
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Registrant: | DWS Dreman Concentrated Value Fund, a series of DWS Value Series, Inc. |
By: | /s/Michael G. Clark |
| Michael G. Clark | |
President
By: | /s/Paul Schubert |
| Paul Schubert | |
Chief Financial Officer and Treasurer
