N-CSR 1 ar103108bf.htm N-CSR - ANNUAL REPORT - DWS BALANCED FUND

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM N-CSR

 

Investment Company Act file number

811-1236

 

DWS Balanced Fund

(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:

10/31

 

Date of reporting period:

10/31/08

 

 

ITEM 1.

REPORT TO STOCKHOLDERS

 

 

 

 

OCTOBER 31, 2008

Annual Report
to Shareholders

 

 

DWS Balanced Fund

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Contents

4 Performance Summary

10 Information About Your Fund's Expenses

12 Portfolio Management Review

21 Portfolio Summary

23 Investment Portfolio

67 Financial Statements

71 Financial Highlights

76 Notes to Financial Statements

89 Report of Independent Registered Public Accounting Firm

90 Tax Information

91 Investment Management Agreement Approval

96 Summary of Management Fee Evaluation by Independent Fee Consultant

101 Trustees and Officers

105 Account Management Resources

This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.

Investments in mutual funds involve risk. Some funds have more risk than others. Although asset allocation among different asset categories generally limits risk, the risk remains that the investment advisor may favor an asset category that performed poorly relative to other asset categories. The fund is subject to stock market risk, meaning stocks in the fund may decline in value for extended periods due to the activities and financial prospects of individual companies, or due to general market and economic conditions. The fund 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 fund, can decline and the investor can lose principal value. The fund invests in derivatives seeking to hedge positions in certain securities and to generate income in order to enhance the fund's returns. Derivatives can be more volatile and less liquid than traditional fixed-income securities. Please read the prospectus for details regarding the fund's risk.

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.

NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

Performance Summary October 31, 2008

Classes A, B, C and Institutional Class

All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-investments.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 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.

The total annual fund operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated April 1, 2008 are 0.94%, 1.91%, 1.77% and 0.70% for Class A, Class B, Class C and Institutional Class shares, respectively. Please see the Information About Your Fund'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 October 31, 2008.

Returns and rankings for 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.

Average Annual Total Returns (Unadjusted for Sales Charge) as of 10/31/08

DWS Balanced Fund

1-Year

3-Year

5-Year

10-Year

Class A

-28.25%

-4.75%

-.86%

.39%

Class B

-28.34%

-4.95%

-1.27%

-.28%

Class C

-28.85%

-5.57%

-1.71%

-.48%

Institutional Class

-27.99%

-4.47%

-.54%

.75%

Russell 1000® Index+

-36.80%

-5.51%

.37%

.75%

Barclays Capital US Aggregate Index++

.30%

3.60%

3.48%

5.00%

Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.

Net Asset Value and Distribution Information

 

Class A

Class B

Class C

Institutional Class

Net Asset Value:

10/31/08

$ 7.11

$ 7.15

$ 7.10

$ 7.12

10/31/07

$ 10.25

$ 10.30

$ 10.22

$ 10.26

Distribution Information:

Twelve Months as of 10/31/08:

Income Dividends

$ .23

$ .21

$ .15

$ .25

Capital Gain Distributions

$ .05

$ .05

$ .05

$ .05

Tax Return of Capital

$ .04

$ .04

$ .04

$ .04

Class A Lipper Rankings — Mixed-Asset Target Allocation Moderate Funds Category as of 10/31/08

Period

Rank

 

Number of Funds Tracked

Percentile Ranking (%)

1-Year

317

of

509

63

3-Year

303

of

375

81

5-Year

215

of

257

84

10-Year

123

of

143

86

Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.

Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge)

[] DWS Balanced Fund — Class A

[] Russell 1000 Index+

[] Barclays Capital US Aggregate Index++

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Yearly periods ended October 31

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 10/31/08

DWS Balanced Fund

1-Year

3-Year

5-Year

10-Year

Class A

Growth of $10,000

$6,763

$8,144

$9,026

$9,801

Average annual total return

-32.37%

-6.61%

-2.03%

-.20%

Class B

Growth of $10,000

$6,957

$8,430

$9,295

$9,720

Average annual total return

-30.43%

-5.53%

-1.45%

-.28%

Class C

Growth of $10,000

$7,115

$8,420

$9,172

$9,527

Average annual total return

-28.85%

-5.57%

-1.71%

-.48%

Russell 1000 Index+
 Growth of $10,000

$6,320

$8,435

$10,188

$10,779

Average annual total return

-36.80%

-5.51%

.37%

.75%

Barclays Capital US Aggregate Index++
 Growth of $10,000

$10,030

$11,119

$11,867

$16,290

Average annual total return

.30%

3.60%

3.48%

5.00%

The growth of $10,000 is cumulative.

Growth of an Assumed $1,000,000 Investment

[] DWS Balanced Fund — Institutional Class

[] Russell 1000 Index+

[] Barclays Capital US Aggregate Index++

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Yearly periods ended October 31

Comparative Results as of 10/31/08

DWS Balanced Fund

1-Year

3-Year

5-Year

10-Year

Institutional Class

Growth of $1,000,000

$720,100

$871,900

$973,400

$1,077,300

Average annual total return

-27.99%

-4.47%

-.54%

.75%

Russell 1000 Index+
 Growth of $1,000,000

$632,000

$843,500

$1,018,800

$1,077,900

Average annual total return

-36.80%

-5.51%

.37%

.75%

Barclays Capital US Aggregate Index++
 Growth of $1,000,000

$1,003,000

$1,111,900

$1,186,700

$1,629,000

Average annual total return

.30%

3.60%

3.48%

5.00%

The growth of $1,000,000 is cumulative.

The minimum initial investment for the Institutional Class is $1,000,000.

+ 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. Equity 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 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, corporate bond issues and mortgage securities. Index returns, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest into an index.

Class S

Class S shares are generally not available to new investors except under certain circumstances. (Please refer to the Fund's Statement of Additional Information.)

All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit www.dws-investments.com for the Fund's most recent month-end performance.

The total annual fund operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated April 1, 2008 is 0.75% for Class S shares. Please see the Information About Your Fund'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 October 31, 2008.

Returns and rankings for all periods shown for Class S shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.

Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemptions of fund shares. Returns may differ by share class.

Average Annual Total Returns as of 10/31/08

DWS Balanced Fund

1-Year

3-Year

Life of Class*

Class S

-28.11%

-4.56%

-3.25%

Russell 1000 Index+

-36.80%

-5.51%

-3.53%

Barclays Capital US Aggregate Index++

.30%

3.60%

3.43%

Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.

* The Class commenced operations on March 14, 2005. Index returns began on March 31, 2005.

Net Asset Value and Distribution Information

 

Class S

Net Asset Value:

10/31/08

$ 7.11

10/31/07

$ 10.25

Distribution Information:

Twelve Months as of 10/31/08:

Income Dividends

$ .24

Capital Gain Distributions

$ .05

Tax Return of Capital

$ .04

Class S Lipper Rankings — Mixed-Asset Target Allocation Moderate Funds Category as of 10/31/08

Period

Rank

 

Number of Funds Tracked

Percentile Ranking (%)

1-Year

310

of

509

61

3-Year

296

of

375

79

Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return with distributions reinvested. Rankings are for Class S shares; other share classes may vary.

Growth of an Assumed $10,000 Investment

[] DWS Balanced Fund — Class S

[] Russell 1000 Index+

[] Barclays Capital US Aggregate Index++

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Comparative Results as of 10/31/08

DWS Balanced Fund

1-Year

3-Year

Life of Class*

Class S

Growth of $10,000

$7,189

$8,694

$8,865

Average annual total return

-28.11%

-4.56%

-3.25%

Russell 1000 Index+
 Growth of $10,000

$6,320

$8,435

$8,791

Average annual total return

-36.80%

-5.51%

-3.53%

Barclays Capital US Aggregate Index++
 Growth of $10,000

$10,030

$11,119

$11,286

Average annual total return

.30%

3.60%

3.43%

The growth of $10,000 is cumulative.

* The Class commenced operations on March 14, 2005. Index returns began on March 31, 2005.
+ 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. Equity 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 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, corporate bond issues and mortgage securities. Index returns, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest into an index.

Information About Your Fund's Expenses

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in 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 example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (May 1, 2008 to October 31, 2008).

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. An account maintenance fee of $6.25 per quarter for Class S shares may apply for certain accounts whose balances do not meet the applicable minimum initial investment. This fee is not included in these tables. If it was, the estimate of expenses paid for Class S shares during the period would be higher, and account value during the period would be lower, by this amount.

Expenses and Value of a $1,000 Investment for the six months ended October 31, 2008

Actual Fund Return

Class A

Class B

Class C

Class S

Institutional Class

Beginning Account Value 5/1/08

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

Ending Account Value 10/31/08

$ 757.20

$ 756.60

$ 753.30

$ 757.90

$ 758.60

Expenses Paid per $1,000*

$ 4.24

$ 4.77

$ 7.98

$ 3.40

$ 3.27

Hypothetical 5% Fund Return

Class A

Class B

Class C

Class S

Institutional Class

Beginning Account Value 5/1/08

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

Ending Account Value 10/31/08

$ 1,020.31

$ 1,019.71

$ 1,016.04

$ 1,021.27

$ 1,021.42

Expenses Paid per $1,000*

$ 4.88

$ 5.48

$ 9.17

$ 3.91

$ 3.76

* 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 366.

Annualized Expense Ratios

Class A

Class B

Class C

Class S

Institutional Class

DWS Balanced Fund

.96%

1.08%

1.81%

.77%

.74%

For more information, please refer to the Fund's prospectus.

Portfolio Management Review

DWS Balanced Fund: A Team Approach to Investing

Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for DWS Balanced Fund. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to institutional and retail clients.

Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.

DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.

Deutsche Asset Management International GmbH ("DeAMi"); a US registered investment advisor, is a subadvisor for the fund. DeAMi renders investment advisory and management services to a portion of the fund's large cap value allocation. DeAMi provides a full range of investment advisory services to institutional accounts and investment companies. DeAMi is a subsidiary of Deutsche Bank AG.

Portfolio Management Team

The fund is managed by separate teams of investment professionals who develop and implement each strategy within a particular asset category which together make up the fund's overall investment strategy. Each portfolio management team has authority over all aspects of the portfolio of the fund's investment portfolio allocated to it, including, but not limited to, purchases and sales of individual securities, portfolio construction techniques, portfolio risk assessment and the management of daily cash flows in accordance with portfolio holdings.

William Chepolis, CFA

Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management in 1998 after 13 years of experience as vice president and portfolio manager for Norwest Bank, where he managed the bank's fixed income and foreign exchange portfolios.

• Portfolio Manager for Retail Mortgage Backed Securities: New York.

• Joined the fund in 2005.

• BIS, University of Minnesota.

Matthew F. MacDonald

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management and the fund in 2006 after 14 years of fixed income experience at Bank of America Global Structured Products and PPM America, Inc., where he was portfolio manager for public fixed income, including MBS, ABS, CDOs and corporate bonds; earlier, as an analyst for MBS, ABS and money markets; and originally, at Duff & Phelps Credit Rating Company.

• Portfolio Manager for Retail Mortgage Backed Securities: New York.

• BA, Harvard University; MBA, University of Chicago Graduate School of Business.

John Brennan

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Portfolio and Sector Manager for Institutional Fixed Income: Louisville.

• Joined Deutsche Asset Management and the fund in 2007 after 14 years of experience at INVESCO and Freddie Mac. Previously, was head of Structured Securities sector team at INVESCO and before that was senior fixed income portfolio manager at Freddie Mac specializing in MBS, CMBS, collateralized mortgage obligations, ARMS, mortgage derivatives, US Treasuries and agency debt.

• BS, University of Maryland; MBA, William & Mary.

J. Richard Robben, CFA

Vice President of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management and the fund in 2007 after 11 years of experience at INVESCO Institutional, most recently as senior portfolio manager for LIBOR-related strategies and head of portfolio construction group for North American Fixed Income.

• BA, Bellarmine University.

Inna Okounkova

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Global Asset Allocation Portfolio Manager: New York.

• Joined Deutsche Asset Management in 1999 as a quantitative analyst, becoming an associate Portfolio Manager in 2001.

• Joined the fund in 2005.

• BS, MS, Moscow State University; MBA, University of Chicago.

Gary Sullivan, CFA

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management in 1996 and the fund in 2006. Served as the head of the High Yield group in Europe and as an Emerging Markets portfolio manager.

• Prior to that, four years at Citicorp as a research analyst and structurer of collateralized mortgage obligations. Prior to Citicorp, served as an officer in the US Army from 1988 to 1991.

• BS, United States Military Academy (West Point); MBA, New York University, Stern School of Business

Julie M. Van Cleave, CFA

Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management and the fund in 2002.

• Head of Large Cap Growth Portfolio Selection Team.

• Previous experience includes 18 years of investment industry experience at Mason Street Advisors, as Managing Director and team leader for the large-cap investment team.

• BBA, MBA, University of Wisconsin — Madison.

Robert Wang

Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Global Asset Allocation Senior Portfolio Manager: New York.

• Joined Deutsche Asset Management in 1995 as a senior fixed income portfolio manager after 13 years of experience at J.P. Morgan & Co. trading fixed income, derivatives and foreign exchange products.

• Joined the fund in 2005.

• BS, The Wharton School, University of Pennsylvania.

Thomas Picciochi

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Senior portfolio manager for Quantitative strategies: New York.

• Joined Deutsche Asset Management in 1999, formerly serving as portfolio manager for Absolute Return Strategies, after 13 years of experience in various research and analysis positions at State Street Global Advisors, FPL Energy, Barnett Bank, Trade Finance Corporation and Reserve Financial Management.

• Joined the fund in 2007.

• BA and MBA, University of Miami.

Julie Abbett

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Senior portfolio manager for Global Quantitative Equity: NewYork.

• Joined Deutsche Asset Management in 2000 after four years of combined experience as a consultant with equity trading services for BARRA, Inc. and a product developer for FactSet Research.

• Joined the fund in 2007.

• BA, University of Connecticut.

Joseph Axtell, CFA

Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management in 2001 and the fund in 2008.

• Senior analyst at Merrill Lynch Investment Managers for the international equity portion of a global balanced portfolio (1996-2001).

• Director, International Research at PCM International (1989-1996).

• Associate manager, structured debt and equity group at Prudential Capital Corporation (1988-1989).

• Analyst at Prudential-Bache Capital Funding in London (1987-1988).

• Equity analyst in the healthcare sector at Prudential Equity Management Associates (1985-1987).

• B.S., Carlson School of Management, University of Minnesota.

James B. Francis, CFA

Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Head of Active Quantitative Equity Portfolio Management: New York.

• Joined Deutsche Asset Management in 2008 after 20 years of experience as senior quantitative global equity portfolio manager at State Street Global Advisors, and most recently, Northern Trust Global Investments.

• BS in Applied Mathematics from University of Massachusetts, Amherst.

Thomas Schuessler, PhD

Managing Director of Deutsche Asset Management and Portfolio Manager of the fund.

• Joined Deutsche Asset Management in2001 after five years at Deutsche Bank where he managed various projects and worked in the office of the Chairman of the Management Board.

• US and Global Fund Management: Frankfurt.

• Joined the fund in 2008.

• PhD, University of Heidelberg, studies in physics and economics at University of Heidelberg and University of Utah.

Michael Sieghart, CFA

Managing Director of DWS Investment GmbH: Frankfurt and consultant to the Advisor.

• Joined DWS Investment GmbH: Frankfurt in 1997.

• Senior fund manager of global and European equities: Frankfurt.

• Master's degree in finance and economics from the University of Economics and Business Administration, Vienna.

In the following interview, the portfolio management team discusses the stock and bond markets, portfolio management strategy, and the resulting performance of DWS Balanced Fund for the 12-month period ended October 31, 2008.

The views expressed in the following discussion reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk.

Q: How would you describe the market environment over the last 12 months?

A: In the mid-year report for this fund, we described the six-month period ended April 30, 2008, as a time of economic uncertainty and turmoil in capital markets. Since that time, there has been pronounced deterioration in equity and debt markets not only in the US but throughout the world. Credit markets have become so intolerant of risk that they are essentially frozen. The US government has taken unprecedented actions to support weakened financial institutions, but markets remain very weak.

Essentially all US equity indices posted negative returns for this period. The Russell 3000® Index, which is generally regarded as a good indicator of the broad stock market, returned -36.60% for the period.1 There was little difference between the returns of large-cap stocks and small-cap stocks: the large-cap Russell 1000® Index posted a return of -36.80% for the 12 months ended October 31, 2008, while the small-cap Russell 2000® Index returned -34.16%.2 International markets were even weaker than the US market: the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index, which tracks performance of foreign equity markets, posted a return of -46.62%.3

1 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.
2 The Russell 1000 Index is an unmanaged index that measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index . The Russell 2000 Index is an unmanaged index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
3 The MSCI EAFE (Morgan Stanley Capital International Europe, Australasia and Far East) Index is composed of approximately 1,100 companies in 20 countries in Europe and the Pacific Basin. The objective of the index is to reflect the movements of stock markets in these countries by representing an unmanaged (indexed) portfolio within each country. The index is calculated using closing market prices and converts to US dollars using the London close foreign exchange rates. Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees of expenses. It is not possible to invest directly into an index.
Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect any fees of expenses. It is not possible to invest directly into an index.

In the bond market, we have seen unprecedented spreads between yields of corporate bonds and US Treasury securities, which are considered not to carry credit risk.4 The only bonds with positive returns were those with little or no credit risk: the Merrill Lynch 1-3 Year Treasury Index returned 6.85%.5 The Barclays Capital US Aggregate Index, which measures return of the US bond market as a whole, returned 0.30%, but the return of the Barclays Capital US Corporate High-Yield Index, which measures performance of the high-yield bond market, was -25.81%.6

4 The yield spread is the difference between the yields of two types of bonds with comparable maturities but different levels of credit risk.
5 The Merrill Lynch 1-3 Year Treasury Index is an index of US Treasury securities with maturities of one to three years. It is constructed by Merrill Lynch & Co. and is frequently used as a measure of intermediate-term returns on US Treasury securities.
6 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, corporate bond issues and mortgage securities. The Barclays Capital US Corporate High-Yield Index (name changed from Lehman Brothers US Corporate High-Yield Index, effective November 3, 2008) is an unmanaged, unleveraged trader-priced portfolio constructed to mirror the global high-yield debt market.
Index returns, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.

Q: How is DWS Balanced Fund managed?

A: The fund is invested in many types of securities including common stocks, convertible securities, corporate bonds, US government bonds, mortgage- and asset-backed securities, and certain derivatives. The fund normally invests approximately 60% of its net assets in common stocks and other equity securities and approximately 40% of its net assets in fixed-income securities, including lower-quality high-yield debt securities. These percentages may fluctuate in response to changing market conditions. Generally, most securities are from US issuers, but the fund may invest up to 25% of total assets in foreign securities.

We allocate the fund's assets among various asset categories, including growth and value stocks of large capitalization companies, small capitalization companies, and investment-grade and high-yield debt securities. We review the allocation among the various asset categories periodically and adjust the allocation based on current or expected market conditions or to manage risk.

Within each asset category, we may select securities using several different strategies that employ a variety of quantitative and qualitative techniques. Each strategy is managed by a team of portfolio managers that specializes in a particular asset category, representing both fundamental and quantitative management styles. (Fundamental analysis refers to the use of all available information about a possible investment, such as earnings growth, management capability, industry trends, a company's financial strength and quantitative measures, to determine value. Quantitative management uses mathematical techniques to analyze the financial characteristics of potential investments and compare alternative investments.)

The fund has undergone a transition in the last year, the essence of which was increased diversification across more asset classes and access to additional managers. Previously, assets were allocated among five asset classes: large-cap growth stocks, large-cap value stocks, small-cap stocks, core fixed-income and high-yield bonds. Beginning in December 2007, we added international equities, and new managers assumed responsibility for some of the existing categories within the equity portion of the portfolio.

We expanded the Global Tactical Asset Allocation (GTAA) strategy to apply to the whole fund. Previously, this strategy was used only on the fixed-income portion of the portfolio, and it used only bond and currency assets. This strategy, which DWS Investments calls iGAP (integrated Global Alpha Platform), is designed to add value by benefiting from short-term mispricings within global equity, bond and currency markets. This strategy is expected to have a low correlation to the fund's security holdings.7 It utilizes stock and bond futures and currency forwards to take long and short positions in different asset classes without having to make dramatic shifts in the stock, bond and cash allocations of the underlying strategies, which are maintained at the percentages specific to the fund and are rebalanced to these percentages each month.

7 Correlation is a measure of how closely two variables move together over time. A 1.0 equals perfect correlation. A -1.0 equals total negative correlation.

Q: How did the fund perform over the last year?

A: For the 12 months ended October 31, 2008, the return of DWS Balanced Fund (Class A shares) was -28.25%. (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 9 for complete performance information.) In evaluating performance, we look at the fund's returns relative to indices that represent the various asset classes. The return of the equity benchmark, the Russell 1000 Index, over this period was -36.80%. The fixed-income benchmark, the Barclays Capital US Aggregate Index returned 0.30% over this period.

We also compare returns with those of the fund's Lipper peer group of Mixed-Asset Target Allocation Moderate Funds.8 For the 12 months ended October 31, 2008, the fund's return was below the -26.48% average return of this group.

Q: What were the main determinants of the fund's performance?

A: The main reason for the fund's underperformance relative to its blended benchmark was underperformance of the underlying strategies. The exceptions were the large-cap growth sleeve, quantitative international sleeve and the high-yield sleeve, each of which outperformed its respective benchmark.

The large-cap growth sleeve made the largest positive contribution to performance, benefiting from both sector allocation and stock selection. As the markets continued to react negatively to the unwinding credit cycle, strategic overweights in health care and energy sectors added to performance.9 Active positions in Gilead Sciences, Inc., Johnson & Johnson, EOG Resources, Inc. and Devon Energy Corp. also added to performance.

8 "Overweight" means the fund holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the fund holds a lower weighting.
9 The Lipper Mixed-Asset Target Allocation Moderate Funds category is a group of mutual funds that, by portfolio practice, maintain a mix of 0% to 60% in equity securities, with the remainder invested in bonds, cash and cash equivalents. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper category.

The quantitative international equity sleeve also added value. Overweight positions in utilities, particularly in Japan, Australia and Hong Kong, were significant drivers of performance. Also significant were the underweight positions in financials, particularly in the UK and Germany.

The high-yield sleeve added value as well. An overweight to some of the less cyclical sectors such as health care, aerospace/defenses and utilities helped performance. An underweight to retail and housing sectors also helped. Additionally, the portfolio favored higher-quality B- and BB/B-rated names over the lower-quality CCC-rated names during a time when higher-quality securities outperformed.

Unfortunately, the strong performance of these three strategies relative to their benchmarks did not offset underperformance of the other strategies in the very difficult market conditions experienced over the last year.

The core fixed-income strategy had the greatest negative impact over the last 12 months. Overweights in non-agency mortgage-backed bonds and other asset-backed bonds detracted from performance in an extremely illiquid market. Although the fund's investments have been almost exclusively in bonds with the highest credit ratings where credit problems are minimal, deleveraging across the financial markets has pushed bond prices down and yield spreads to extremely wide levels.

The iGAP strategy performance was also a detractor over the last 12 months. During this period this strategy underperformed primarily due to its positioning in equity and currency markets. In equity markets, short positions in Japan, France and Germany contributed to returns, while long positions in Hong Kong, Canada and the US detracted. In currencies, the bias toward the Norwegian krone detracted from performance, as the value of Norway's currency dropped relative to other currencies. In addition, the fall in energy prices also had a detrimental effect on the Norwegian economy. A long position in the Singapore dollar also detracted, as this currency dropped more in value than the short positions in the euro and British pound sterling, as investors rushed towards liquidity and the perceived safety of the US dollar. Although the bond positions in the overlay added value, this was not enough to offset the losses in the currency and equity positions.

The quantitative US equity sleeves underperformed, as overweights in economically sensitive sectors including capital goods, consumer durables and financials detracted from performance. The fundamental large-cap value sleeve detracted slightly, mainly because of a position in energy stocks, as a sharp drop in global demand led to a substantial decline in oil prices, accompanied by falling prices of energy stocks.

The fundamental international sleeve detracted due to weak stock selection within the consumer discretionary, consumer staples and energy sectors. Also, an overweighting in emerging markets was negative for performance, as these markets sold off sharply as many investors sought to reduce risk in their portfolios.

Q: Do you have other comments for shareholders?

A: DWS Balanced Fund gives shareholders an opportunity to invest in a wide variety of domestic and international asset classes. We believe that the broad diversification offered by this fund is especially important in difficult market conditions such as those experienced over the last year. We will continue to review asset allocation and manager allocation periodically, and we are always looking for opportunities to expand our asset coverage universe and increase diversification among managers and investment styles.

Portfolio Summary

Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral)

10/31/08

10/31/07

 

 

 

Common Stocks

56%

60%

Cash Equivalents

10%

4%

Corporate Bonds

8%

12%

Government & Agency Obligations

8%

2%

Mortgage-Backed Securities Pass-Throughs

8%

3%

Commercial and Non-Agency Mortgage-Backed Securities

7%

14%

Collateralized Mortgage Obligations

2%

2%

Asset Backed

1%

2%

Senior Bank Loans

—

1%

 

100%

100%

Sector Diversification (As a % of Equities, Corporate Bonds and Senior Bank Loans)

10/31/08

10/31/07

 

 

 

Financials

17%

17%

Health Care

15%

11%

Information Technology

12%

13%

Energy

12%

13%

Consumer Staples

11%

8%

Industrials

9%

11%

Consumer Discretionary

8%

13%

Utilities

6%

4%

Materials

5%

5%

Telecommunication Services

5%

5%

 

100%

100%

Asset allocation and sector diversification are subject to change.

Ten Largest Equity Holdings at October 31, 2008 (6.6% of Net Assets)

1. ExxonMobil Corp.
Explorer and producer of oil and gas

0.8%

2. Microsoft Corp.
Developer of computer software

0.8%

3. Pfizer, Inc.
Manufacturer of prescription pharmaceuticals and nonprescription self-medications

0.7%

4. Baxter International, Inc.
Manufacturer and distributor of hospital and laboratory products and services

0.7%

5. Johnson & Johnson
Provider of health care products

0.7%

6. International Business Machines Corp.
Manufacturer of computers and provider of information processing services

0.6%

7. PepsiCo, Inc.
Provider of soft drinks, snack foods and food services

0.6%

8. JPMorgan Chase & Co.
Provider of global financial services

0.6%

9. Chevron Corp.
Operator of petroleum exploration, delivery and refining facilities

0.6%

10. Wal-Mart Stores, Inc.
Operator of discount stores and supercenters

0.5%

Portfolio holdings are subject to change.

For more complete details about the Fund's investment portfolio, see page 23. A quarterly Fact Sheet is available upon request. A complete list of the fund's portfolio holdings 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. 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 October 31, 2008

 


Shares

Value ($)

 

 

Common Stocks 57.1%

Consumer Discretionary 4.3%

Auto Components 0.3%

Aisin Seiki Co., Ltd.

400

6,952

ArvinMeritor, Inc.

26,700

158,064

Autoliv, Inc.

8,200

175,152

BorgWarner, Inc.

22,100

496,587

Bridgestone Corp.

1,000

17,331

Compagnie Generale des Etablissements Michelin "B"

332

17,102

Continental AG

298

12,266

Denso Corp.

700

13,824

Fuel Systems Solutions, Inc.*

6,600

187,770

GKN PLC

2,953

5,698

Goodyear Tire & Rubber Co.*

69,700

621,724

Lear Corp.*

30,000

60,300

Magna International, Inc. "A"

1,200

40,262

Nokian Renkaat Oyj

28,602

375,549

Rieter Holding AG (Registered)

52

9,016

Stanley Electric Co., Ltd.

600

7,785

Stoneridge, Inc.*

34,600

196,874

Toyota Industries Corp.

400

9,148

WABCO Holdings, Inc.

38,200

701,734

 

3,113,138

Automobiles 0.1%

Bayerische Motoren Werke (BMW) AG

271

7,015

Daimler AG (Registered)

1,751

60,461

Fiat SpA

22,493

178,891

Harley-Davidson, Inc.

23,540

576,259

Honda Motor Co., Ltd.

2,400

59,606

Isuzu Motors Ltd.

3,000

5,228

Mazda Motor Corp.

3,000

6,794

Mitsubishi Motors Corp.*

8,000

11,005

Nissan Motor Co., Ltd.

3,000

15,692

PSA Peugeot Citroen

354

9,465

Renault SA

1,101

33,808

Suzuki Motor Corp.

600

8,691

Toyota Motor Corp.

3,900

153,745

Volkswagen AG

294

187,641

 

1,314,301

Distributors 0.2%

Genuine Parts Co.

47,526

1,870,148

Li & Fung Ltd.

58,000

116,624

 

1,986,772

Diversified Consumer Services 0.0%

thinkorswim Group, Inc.*

26,500

212,000

Hotels Restaurants & Leisure 0.8%

Accor SA

479

18,663

Brinker International, Inc.

25,400

236,220

California Pizza Kitchen, Inc.*

6,400

62,528

Carnival PLC

469

10,249

CEC Entertainment, Inc.*

17,200

441,696

CKE Restaurants, Inc.

6,000

50,940

Compass Group PLC

6,414

30,006

Crown Ltd.

27,488

122,965

Enterprise Inns PLC

14,820

23,164

InterContinental Hotel Group PLC

796

6,751

Ladbrokes PLC

2,594

6,617

Lottomatica SpA

972

22,727

McDonald's Corp.

87,900

5,092,047

P.F. Chang's China Bistro, Inc.*

22,700

464,442

Panera Bread Co. "A"*

20,100

906,912

Shangri-La Asia Ltd.

46,000

64,340

Sodexo

268

12,842

TABCORP Holding Ltd.

23,640

108,046

Tatts Group Ltd.

52,357

87,285

TUI AG

491

6,026

Whitbread PLC

725

10,443

WMS Industries, Inc.*

28,400

710,000

 

8,494,909

Household Durables 0.3%

Blyth, Inc.

33,900

291,540

Centex Corp.

98,300

1,204,175

CSS Industries, Inc.

7,800

173,160

Electrolux AB "B"

2,600

23,902

Harman International Industries, Inc.

1,900

34,903

Husqvarna AB "B"

2,800

19,626

NVR, Inc.*

700

343,147

Panasonic Corp.

39,000

606,428

Persimmon PLC

863

4,170

Ryland Group, Inc.

12,100

227,359

Sharp Corp.

1,000

7,060

Sony Corp.

1,500

34,318

Tupperware Brands Corp.

19,700

498,410

 

3,468,198

Internet & Catalog Retail 0.0%

Amazon.com, Inc.*

3,600

206,064

Home Retail Group PLC

2,228

7,112

Stamps.com, Inc.*

3,700

36,112

 

249,288

Leisure Equipment & Products 0.0%

Nikon Corp.

1,000

13,968

Media 0.9%

British Sky Broadcasting Group PLC

4,143

25,261

CBS Corp. "B"

106,900

1,037,999

Comcast Corp. "A"

174,800

2,754,848

DENTSU, Inc.

6

9,798

DISH Network Corp. "A"*

36,900

580,806

Fairfax Media Ltd.

40,770

52,285

Gestevision Telecinco SA

1,501

12,045

Global Sources Ltd.*

23,890

188,731

ITV PLC

10,128

4,858

Lagardere SCA

340

13,518

Liberty Global, Inc. "A"*

24,000

395,760

Liberty Media Corp. — Entertainment "A"*

92,800

1,494,080

Live Nation, Inc.*

46,800

526,500

Mediacom Communications Corp. "A"*

60,600

269,064

Mediaset SpA

13,494

73,253

Modern Times Group MTG AB "B"

525

11,385

Morningstar, Inc.*

12,200

456,768

Pearson PLC

3,225

31,613

Publicis Groupe

417

9,395

Reed Elsevier NV

10,499

140,485

Reed Elsevier PLC

4,259

37,408

Seat Pagine Gialle SpA*

57,838

5,094

SES "A" (FDR)

606

10,896

Shaw Communications, Inc. "B"

5,300

92,826

Singapore Press Holdings Ltd.

304,000

660,980

Thomson Reuters Corp.

5,200

122,439

Thomson Reuters PLC

923

15,956

Time Warner, Inc.

33,300

335,997

United Business Media Ltd.

1,276

8,264

Vivendi

2,506

65,547

Walt Disney Co.

24,700

639,730

Wolters Kluwer NV

5,260

93,185

WPP Group PLC

4,008

24,214

Yellow Pages Income Fund (Unit)

2,800

20,327

 

10,221,315

Multiline Retail 0.4%

Canadian Tire Corp., Ltd. "A"

1,500

56,998

Kohl's Corp.*

42,690

1,499,700

Macy's, Inc.

90,400

1,111,016

Marks & Spencer Group PLC

3,639

12,836

Next PLC

536

9,102

PPR

179

11,400

Target Corp.

29,700

1,191,564

 

3,892,616

Specialty Retail 1.0%

Advance Auto Parts, Inc.

2,200

68,640

AnnTaylor Stores Corp.*

19,600

246,372

Best Buy Co., Inc.

41,400

1,109,934

Children's Place Retail Stores, Inc.*

16,700

558,281

Esprit Holdings Ltd.

26,600

149,331

Fast Retailing Co., Ltd.

100

10,537

GameStop Corp. "A"*

28,600

783,354

Hennes & Mauritz AB "B"

5,300

191,386

Hot Topic, Inc.*

6,500

42,120

Industria de Diseno Textil SA

8,494

286,955

Jo-Ann Stores, Inc.*

16,600

318,056

Jos. A. Bank Clothiers, Inc.*

17,200

438,084

Kingfisher PLC

6,218

11,421

Lowe's Companies, Inc.

63,396

1,375,693

New York & Co., Inc.*

32,600

91,932

RadioShack Corp.

95,200

1,205,232

Rent-A-Center, Inc.*

32,500

474,500

Stage Stores, Inc.

16,100

124,131

Staples, Inc.

77,280

1,501,550

The Buckle, Inc.

17,250

454,365

The Gap, Inc.

16,200

209,628

Tiffany & Co.

25,100

688,995

Tractor Supply Co.*

17,400

723,144

Yamada Denki Co., Ltd.

150

8,128

 

11,071,769

Textiles, Apparel & Luxury Goods 0.3%

Adidas AG

410

14,345

Billabong International Ltd.

772

6,159

Burberry Group PLC

1,345

5,958

Compagnie Financiere Richemont SA "A"*

4,954

105,334

Fossil, Inc.*

20,400

370,260

Gildan Activewear, Inc.*

1,800

41,965

Hermes International

172

22,236

Jones Apparel Group, Inc.

6,100

67,771

Luxottica Group SpA

1,559

31,534

LVMH Moet Hennessy Louis Vuitton SA

524

34,961

NIKE, Inc. "B"

17,000

979,710

Oxford Industries, Inc.

12,000

161,640

Polo Ralph Lauren Corp.

3,200

150,944

Swatch Group AG (Bearer)

305

47,704

Swatch Group AG (Registered)

513

14,923

The Warnaco Group, Inc.*

21,900

652,839

Timberland Co. "A"*

11,500

139,150

True Religion Apparel, Inc.*

19,700

329,975

UniFirst Corp.

12,700

414,401

 

3,591,809

Consumer Staples 6.1%

Beverages 1.2%

Asahi Breweries Ltd.

2,400

40,025

Boston Beer Co., Inc. "A"*

4,200

158,718

Carlsberg AS "B"

23,900

946,246

Coca-Cola Amatil Ltd.

6,417

34,429

Diageo PLC

94,221

1,442,120

Dr. Pepper Snapple Group, Inc.*

69,225

1,585,253

Foster's Group Ltd.

14,875

56,706

Heineken NV

1,879

63,406

InBev NV

15,720

633,797

Kirin Holdings Co., Ltd.

5,000

54,730

Pepsi Bottling Group, Inc.

68,000

1,572,160

PepsiCo, Inc.

114,173

6,509,003

Pernod Ricard SA

978

63,716

SABMiller PLC

2,214

35,273

 

13,195,582

Food & Staples Retailing 1.6%

AEON Co., Ltd.

3,700

35,307

BJ's Wholesale Club, Inc.*

38,700

1,362,240

Carrefour SA

2,828

119,506

Casino Guichard-Perrachon SA

260

18,194

Colruyt SA

258

57,978

CVS Caremark Corp.

71,576

2,193,804

Delhaize Group

1,558

87,626

George Weston Ltd.

1,100

56,136

J Sainsbury PLC

4,178

19,109

Kesko Oyj "B"

423

9,916

Koninklijke Ahold NV

7,918

84,935

Kroger Co.

32,800

900,688

Lawson, Inc.

300

14,777

Loblaw Companies Ltd.

2,500

60,877

Metro AG

2,692

86,753

Metro, Inc. "A"

1,400

35,253

Nash Finch Co.

2,300

90,689

Seven & I Holdings Co., Ltd.

28,000

784,206

Shoppers Drug Mart Corp.

23,200

893,122

Sysco Corp.

75,200

1,970,240

Tesco PLC

18,684

102,130

Wal-Mart Stores, Inc.

113,100

6,312,111

Walgreen Co.

72,720

1,851,451

Wesfarmers Ltd.

4,643

66,370

Wesfarmers Ltd. (PPS)

978

14,036

William Morrison Supermarkets PLC

5,191

22,179

Woolworths Ltd.

8,539

158,180

 

17,407,813

Food Products 1.4%

Ajinomoto Co., Inc.

4,000

35,013

Aryzta AG*

330

11,781

Cadbury PLC

3,264

29,994

Cal-Maine Foods, Inc.

13,200

387,948

Danisco AS

2,100

91,844

Darling International, Inc.*

54,400

410,176

Dean Foods Co.*

64,710

1,414,561

Flowers Foods, Inc.

11,500

340,975

Fresh Del Monte Produce, Inc.*

14,000

295,540

General Mills, Inc.

39,918

2,704,045

Golden Agri-Resources Ltd.

22,000

2,862

Groupe DANONE

20,940

1,159,564

H.J. Heinz Co.

20,000

876,400

Imperial Sugar Co.

8,000

94,720

Kellogg Co.

30,220

1,523,692

Kerry Group PLC "A" (a)

5,090

113,583

Kerry Group PLC "A" (a)

7,547

171,677

Kraft Foods, Inc. "A"

72,658

2,117,254

Nestle SA (Registered)

58,204

2,268,761

Nissin Foods Holdings Co., Ltd.

500

14,348

Parmalat SpA

9,453

16,556

Saputo, Inc.

3,200

80,640

Sara Lee Corp.

25,400

283,972

Tate & Lyle PLC

1,463

8,677

Tyson Foods, Inc. "A"

11,100

97,014

Unilever NV (CVA)

10,778

259,834

Unilever PLC

3,062

69,034

Wilmar International Ltd.

4,000

6,760

Yakult Honsha Co., Ltd.

700

17,668

 

14,904,893

Household Products 0.9%

Colgate-Palmolive Co.

59,140

3,711,626

Henkel AG & Co. KGaA

2,258

55,799

Kao Corp.

3,000

86,723

Procter & Gamble Co.

95,750

6,179,705

Reckitt Benckiser Group PLC

1,071

45,016

 

10,078,869

Personal Products 0.0%

Beiersdorf AG

1,967

103,989

L'Oreal SA

1,245

94,116

Nu Skin Enterprises, Inc. "A"

8,300

106,987

Shiseido Co., Ltd.

2,000

40,513

 

345,605

Tobacco 1.0%

Altria Group, Inc.

188,979

3,626,507

British American Tobacco PLC

6,590

180,979

Imperial Tobacco Group PLC

34,403

925,133

Japan Tobacco, Inc.

431

1,530,409

Philip Morris International, Inc.

112,959

4,910,328

Swedish Match AB

28,400

391,515

 

11,564,871

Energy 7.3%

Energy Equipment & Services 1.5%

Acergy SA

43,300

302,476

Aker Solutions ASA

2,700

14,718

AMEC PLC

54,168

451,331

Baker Hughes, Inc.

35,670

1,246,667

Compagnie Generale de Geophysique-Veritas*

379

6,111

Complete Production Services, Inc.*

24,200

299,838

ENGlobal Corp.*

21,700

95,263

ENSCO International, Inc.

34,815

1,323,318

Fugro NV (CVA)

2,461

89,037

Halliburton Co.

65,728

1,300,757

National-Oilwell Varco, Inc.*

53,400

1,596,126

Noble Corp.

55,657

1,792,712

Petroleum Geo-Services ASA*

2,400

12,073

Prosafe Production Public Ltd.*

1,100

2,729

ProSafe SE

1,100

4,071

RPC, Inc.

50,800

537,972

Saipem SpA

38,527

725,600

SBM Offshore NV

6,127

107,691

Schlumberger Ltd.

44,950

2,321,667

Seadrill Ltd.

1,500

14,381

Technip SA

239

7,146

Transocean, Inc.*

48,587

4,000,168

WorleyParsons Ltd.

832

8,293

 

16,260,145

Oil, Gas & Consumable Fuels 5.8%

Apache Corp.

4,100

337,553

BG Group PLC

58,062

854,158

Bill Barrett Corp.*

12,000

244,800

BP PLC

14,659

121,143

Callon Petroleum Co.*

24,600

253,872

Cameco Corp.

500

8,185

Canadian Natural Resources Ltd.

500

25,230

Canadian Oil Sands Trust (Unit)

300

8,049

Chevron Corp.

85,538

6,381,135

Cimarex Energy Co.

37,600

1,521,296

Clayton Williams Energy, Inc.*

5,500

266,365

ConocoPhillips

115,441

6,005,241

Devon Energy Corp.

55,137

4,458,378

Enbridge, Inc.

400

13,892

EnCana Corp.

700

35,560

Encore Acquisition Co.*

68,800

2,143,120

Eni SpA

9,984

237,903

EOG Resources, Inc.

22,130

1,790,760

ExxonMobil Corp.

119,644

8,868,013

Foundation Coal Holdings, Inc.

5,800

120,408

Frontline Ltd.

48,300

1,535,940

Gazprom (ADR)

38,950

786,011

Hess Corp.

37,000

2,227,770

Husky Energy, Inc.

400

14,480

Imperial Oil Ltd.

500

17,693

INPEX Corp.

11

63,966

Knightsbridge Tankers Ltd.

8,500

152,235

Marathon Oil Corp.

106,201

3,090,449

Mariner Energy, Inc.*

77,400

1,113,786

McMoRan Exploration Co.*

21,100

299,409

Mongolia Energy Corp., Ltd.*

54,000

22,670

Murphy Oil Corp.

9,100

460,824

Neste Oil Oyj

358

5,673

Nexen, Inc. (a)

700

11,116

Nexen, Inc. (a)

66,323

1,060,505

Nippon Mining Holdings, Inc.

11,000

34,063

Nippon Oil Corp.

17,000

70,387

Noble Energy, Inc.

60,180

3,118,528

Occidental Petroleum Corp.

79,502

4,415,541

OMV AG

8,762

281,679

Origin Energy Ltd.

5,715

59,698

Paladin Energy Ltd.*

4,648

7,207

Parallel Petroleum Corp.*

9,600

38,496

Petro-Canada

600

15,004

Petroleo Brasileiro SA (ADR)

24,000

645,360

PetroQuest Energy, Inc.*

28,500

283,575

Plains Exploration & Production Co.*

28,200

795,240

Repsol YPF SA

22,937

437,380

Rosetta Resources, Inc.*

45,100

475,805

Royal Dutch Shell PLC "A"

2,896

79,178

Royal Dutch Shell PLC "B"

2,321

62,036

Santos Ltd.

4,665

42,476

StatoilHydro ASA

66,400

1,328,051

Suncor Energy, Inc. (a)

800

19,215

Suncor Energy, Inc. (a)

66,673

1,594,818

Swift Energy Co.*

7,700

247,016

Talisman Energy, Inc.

800

7,905

TonenGeneral Sekiyu KK

4,000

33,791

Total SA

34,454

1,892,378

Tullow Oil PLC

1,051

8,874

TXCO Resources, Inc.*

23,200

121,568

VAALCO Energy, Inc.*

7,400

39,220

Walter Industries, Inc.

14,200

550,250

Whiting Petroleum Corp.*

20,900

1,086,591

Woodside Petroleum Ltd.

3,359

94,480

XTO Energy, Inc.

51,095

1,836,865

 

64,280,263

Financials 7.8%

Capital Markets 1.1%

Affiliated Managers Group, Inc.*

9,427

437,224

Ameriprise Financial, Inc.

14,900

321,840

Bank of New York Mellon Corp.

52,000

1,695,200

BGC Partners, Inc. "A"

7,800

31,902

BlackRock, Inc.

1,200

157,608

Charles Schwab Corp.

57,500

1,099,400

Credit Suisse Group AG (Registered)

1,813

69,196

Daiwa Securities Group, Inc.

3,000

16,663

Eaton Vance Corp.

21,585

474,870

IGM Financial, Inc.

400

12,093

Jefferies Group, Inc.

33,209

525,699

Julius Baer Holding AG (Registered)

373

14,683

Macquarie Group Ltd.

2,002

39,540

Man Group PLC

1,445

8,292

Mediobanca SpA

1,107

12,621

Nomura Holdings, Inc.

4,000

37,192

Northern Trust Corp.

3,900

219,609

Penson Worldwide, Inc.*

13,500

96,390

Prospect Capital Corp.

35,887

451,459

Raymond James Financial, Inc.

16,300

379,627

Reinet Investments SCA*

678

6,982

Riskmetrics Group, Inc.*

5,700

87,837

Sanders Morris Harris Group, Inc.

5,300

39,220

State Street Corp.

55,890

2,422,832

T. Rowe Price Group, Inc.

30,800

1,217,832

TD Ameritrade Holding Corp.*

54,422

723,268

The Goldman Sachs Group, Inc.

11,300

1,045,250

UBS AG (Registered)*

5,807

99,086

 

11,743,415

Commercial Banks 2.5%

Allied Irish Banks PLC (a)

12,988

71,509

Allied Irish Banks PLC (a)

13,608

74,178

Anglo Irish Bank Corp. PLC

23,933

77,731

Australia & New Zealand Banking Group Ltd.

2,816

32,711

Banca Monte dei Paschi di Siena SpA

2,902

5,636

Banca Popolare di Milano Scarl

9,476

55,560

Banco Bilbao Vizcaya Argentaria SA

7,772

90,236

Banco Comercial Portugues SA (Registered)

265,212

312,150

Banco Espirito Santo SA (Registered)

22,105

213,458

Banco Latinoamericano de Exportaciones SA "E"

30,000

318,900

Banco Popolare Societa Cooperativa

4,446

55,455

Banco Popular Espanol SA

1,775

16,222

Banco Santander SA

71,260

770,784

Bank of East Asia Ltd.

6,000

11,834

Bank of Montreal

900

32,123

Bank of Nova Scotia

1,700

56,685

Barclays PLC

4,711

13,874

BNP Paribas

17,840

1,295,035

BOC Hong Kong (Holdings) Ltd.

15,500

17,363

Canadian Imperial Bank of Commerce (a)

31,573

1,430,888

Canadian Imperial Bank of Commerce (a)

600

27,210

Chuo Mitsui Trust Holdings, Inc.

2,000

7,867

City Holding Co.

5,400

225,936

Commercial Bank of Qatar (GDR) 144A*

42,700

155,718

Commerzbank AG

6,814

72,976

Commonwealth Bank of Australia

1,927

52,408

Community Bank System, Inc.

9,900

247,005

Credit Agricole SA

1,154

16,825

Danske Bank AS

9,200

136,493

DBS Group Holdings Ltd.

9,000

68,900

Deutsche Postbank AG

203

4,168

Dexia SA

14,077

75,023

DnB NOR ASA

118,700

685,239

Erste Group Bank AG

14,307

387,255

First Financial Bankshares, Inc.

4,800

260,112

First Merchants Corp.

3,500

77,035

Governor and Co. of the Bank of Ireland (a)

10,196

30,853

Governor and Co. of the Bank of Ireland (a)

16,126

48,930

Hang Seng Bank Ltd.

4,200

52,067

HBOS PLC

17,055

27,797

HSBC Holdings PLC (Registered)

102,063

1,231,950

Intesa Sanpaolo

352,957

1,291,874

Intesa Sanpaolo (RSP)

1,308

3,885

Jyske Bank AS (Registered)*

1,200

35,959

KBC Groep NV

770

33,342

Lakeland Bancorp., Inc.

4,800

52,896

Lloyds TSB Group PLC

4,121

13,382

Mitsubishi UFJ Financial Group, Inc.

137,300

845,491

Mizuho Financial Group, Inc.

18

43,110

Mizuho Trust & Banking Co., Ltd.

10,000

11,657

National Australia Bank Ltd.

2,506

40,668

National Bank of Canada

400

15,004

National Penn Bancshares, Inc.

41,200

697,928

NBT Bancorp., Inc.

16,800

468,384

Nordea Bank AB

14,426

115,682

Oriental Financial Group, Inc.

35,500

576,520

Oversea-Chinese Banking Corp., Ltd.

24,000

80,496

PNC Financial Services Group, Inc.

42,142

2,809,607

Raiffeisen International Bank-Holding AG

3,801

120,326

Republic Bancorp., Inc. "A"

2,500

57,550

Resona Holdings, Inc.

9

9,280

Royal Bank of Canada

2,200

85,496

Royal Bank of Scotland Group PLC

10,314

11,375

Santander BanCorp.

18,000

170,820

Skandinaviska Enskilda Banken AB "A"

5,129

51,746

Societe Generale

900

49,417

Southside Bancshares, Inc.

6,900

166,221

St. George Bank Ltd.

1,885

35,186

Standard Chartered PLC

944

15,673

Sumitomo Mitsui Financial Group, Inc.

13

52,779

Sumitomo Trust & Banking Co., Ltd.

3,000

13,952

Susquehanna Bancshares, Inc.

32,900

509,621

SVB Financial Group*

6,100

313,845

Svenska Handelsbanken AB "A"

2,800

51,271

Swedbank AB "A"

4,746

39,524

Sydbank AS

1,650

25,561

Synovus Financial Corp.

47,715

492,896

The Bank of Yokohama Ltd.

2,000

9,601

The Chiba Bank Ltd.

2,000

9,736

Tompkins Financial Corp.

5,100

249,900

Toronto-Dominion Bank

500

23,612

UMB Financial Corp.

12,400

562,092

UniCredit SpA

360,471

881,150

Unione di Banche Italiane ScpA

1,201

20,224

United Overseas Bank Ltd.

82,000

730,308

US Bancorp.

39,700

1,183,457

Wells Fargo & Co.

175,984

5,992,255

Westpac Banking Corp.

2,811

38,741

 

27,953,599

Consumer Finance 0.1%

Advanta Corp. "B"

36,100

163,172

Capital One Financial Corp.

15,686

613,636

Cash America International, Inc.

15,800

558,846

Credit Saison Co., Ltd.

600

6,323

ORIX Corp.

160

16,981

 

1,358,958

Diversified Financial Services 1.4%

ASX Ltd.

1,617

32,321

Bank of America Corp.

179,969

4,349,851

CIT Group, Inc.

39,900

165,186

Citigroup, Inc.

30,700

419,055

CME Group, Inc.

3,587

1,012,072

Compagnie Nationale a Portefeuille

196

10,584

Deutsche Boerse AG

8,195

654,365

Encore Capital Group, Inc.*

7,300

68,328

Fortis

155,908

181,157

Groupe Bruxelles Lambert SA

343

25,124

Hong Kong Exchanges & Clearing Ltd.

7,700

78,715

ING Groep NV (CVA)

18,070

167,072

Interactive Brokers Group, Inc. "A"*

4,000

85,480

Investor AB "B"

5,096

76,615

JPMorgan Chase & Co.

155,182

6,401,258

KBC Ancora

162

4,805

Mitsubishi UFJ Lease & Finance Co., Ltd.

310

7,558

NYSE Euronext

39,836

1,202,250

Singapore Exchange Ltd.

15,000

52,777

The Nasdaq OMX Group, Inc.*

13,600

441,456

 

15,436,029

Insurance 1.7%

ACE Ltd.

23,548

1,350,713

Aegon NV

5,816

23,828

Aflac, Inc.

37,762

1,672,101

Alleanza Assicurazioni SpA

735

4,905

Alleghany Corp.*

2,006

565,692

Allianz SE (Registered)

8,737

654,306

Allied World Assurance Co. Holdings Ltd.

8,600

275,802

Allstate Corp.

56,900

1,501,591

American Physicians Capital, Inc.

2,200

90,002

AMP Ltd.

3,058

11,181

AmTrust Financial Services, Inc.

41,800

410,476

Aon Corp.

15,098

638,645

Arthur J. Gallagher & Co.

29,129

709,582

Aspen Insurance Holdings Ltd.

2,300

52,808

Assicurazioni Generali SpA

1,665

41,970

Aviva PLC

1,867

11,195

Axa

58,333

1,124,096

AXA Asia Pacific Holdings Ltd.

1,676

4,937

China Life Insurance Co., Ltd. "H"

281,700

752,845

CNP Assurances

77

6,204

Crawford & Co. "B"*

19,200

278,400

Fidelity National Financial, Inc. "A"

51,645

465,322

First American Corp.

16,600

338,806

Genworth Financial, Inc. "A"

87,411

423,069

Great-West Lifeco, Inc.

500

10,620

Hallmark Financial Services, Inc.*

14,900

96,850

Insurance Australia Group Ltd.

3,370

8,546

Irish Life & Permanent PLC

14,011

48,990

Legal & General Group PLC

6,916

7,997

Manulife Financial Corp.

2,500

50,029

MetLife, Inc.

63,071

2,095,219

Mitsui Sumitomo Insurance Group Holdings, Inc.*

600

17,099

Muenchener Rueckversicherungs-Gesellschaft AG (Registered)

406

53,116

Navigators Group, Inc.*

9,500

479,845

NIPPONKOA Insurance Co., Ltd.

1,000

6,132

Odyssey Re Holdings Corp.

16,725

659,634

Old Mutual PLC

28,741

23,373

PartnerRe Ltd.

8,451

572,048

Platinum Underwriters Holdings Ltd.

17,200

545,928

Power Corp. of Canada

600

13,042

Power Financial Corp.

400

10,013

Progressive Corp.

27,900

398,133

Prudential PLC

87,337

448,351

QBE Insurance Group Ltd.

1,226

21,138

Reinsurance Group of America, Inc. "A"

7,600

283,784

Sampo Oyj "A"

14,219

283,982

Seabright Insurance Holdings*

8,200

85,772

Sompo Japan Insurance, Inc.

2,000

14,241

State Auto Financial Corp.

7,700

202,818

Storebrand ASA

14,900

35,141

Sun Life Financial, Inc.

900

21,169

Suncorp-Metway Ltd.

1,450

7,777

Swiss Life Holding (Registered)*

62

5,617

Swiss Re (Registered)

602

25,081

T&D Holdings, Inc.

300

11,542

The Travelers Companies, Inc.

1,600

68,080

Tokio Marine Holdings, Inc.

1,100

34,312

Topdanmark AS*

425

45,973

Vienna Insurance Group

766

20,923

Zurich Financial Services AG (Registered)

243

49,153

 

18,169,944

Real Estate Investment Trusts 0.6%

Annaly Capital Management, Inc. (REIT)

13,700

190,430

Apartment Investment & Management Co. "A" (REIT)

5,969

87,327

AvalonBay Communities, Inc. (REIT)

3,700

262,774

BioMed Realty Trust, Inc. (REIT)

7,800

109,590

Boston Properties, Inc. (REIT)

6,100

432,368

CapitaMall Trust (REIT)

10,000

13,093

Corio NV (REIT)

227

12,249

Corporate Office Properties Trust (REIT)

8,800

273,592

Cousins Properties, Inc. (REIT)

11,100

160,728

Equity Lifestyle Properties, Inc. (REIT)

5,500

230,945

Equity Residential (REIT)

12,200

426,146

First Industrial Realty Trust, Inc. (REIT)

12,700

131,318

Glimcher Realty Trust (REIT)

11,300

59,212

Goodman Group (REIT)

3,467

2,182

GPT Group (REIT)

4,877

2,434

HCP, Inc. (REIT)

5,800

173,594

Healthcare Realty Trust, Inc. (REIT)

7,800

199,290

Home Properties, Inc. (REIT)

7,100

287,479

Hospitality Properties Trust (REIT)

10,000

101,500

Host Hotels & Resorts, Inc. (REIT)

17,000

175,780

Kimco Realty Corp. (REIT)

6,500

146,770

LaSalle Hotel Properties (REIT)

10,200

143,616

Lexington Realty Trust (REIT)

18,900

151,767

Link (REIT)

8,000

13,937

Maguire Properties, Inc. (REIT)

8,600

30,530

Mid-America Apartment Communities, Inc. (REIT)

5,800

204,392

OMEGA Healthcare Investors, Inc. (REIT)

9,000

135,630

Parkway Properties, Inc. (REIT)

8,100

139,725

Pennsylvania Real Estate Investment Trust (REIT)

5,700

72,105

Potlatch Corp. (REIT)

5,700

189,297

ProLogis (REIT)

9,900

138,600

Realty Income Corp. (REIT)

8,700

201,144

Redwood Trust, Inc. (REIT)

3,800

57,912

Senior Housing Properties Trust (REIT)

16,100

308,637

Simon Property Group, Inc. (REIT)

8,000

536,240

Sovran Self Storage, Inc. (REIT)

4,900

159,005

Stockland (REIT)

2,927

7,909

Strategic Hotels & Resorts, Inc. (REIT)

15,700

77,715

Sunstone Hotel Investors, Inc. (REIT)

14,900

97,595

Unibail-Rodamco (REIT)

125

18,829

Vornado Realty Trust (REIT)

5,200

366,860

Washington Real Estate Investment Trust (REIT)

9,300

278,814

Wereldhave NV (REIT)

152

12,648

Westfield Group (REIT)

2,826

31,414

 

6,853,122

Real Estate Management & Development 0.1%

Atrium European Real Estate Ltd.*

6,556

30,389

Brookfield Asset Management, Inc. "A"

1,000

17,506

CapitaLand Ltd.

26,000

51,353

Cheung Kong (Holdings) Ltd.

6,000

58,427

City Developments Ltd.

2,000

8,703

Hang Lung Properties Ltd.

7,000

16,914

Henderson Land Development Co., Ltd.

4,000

14,232

Hopewell Holdings Ltd.

10,000

30,542

Immoeast AG*

46,769

58,744

Immofinanz Immobilien Anlagen AG*

47,130

53,962

Kerry Properties Ltd.

1,500

3,721

Lend Lease Corp., Ltd.

911

4,248

Mitsubishi Estate Co., Ltd.

2,000

35,205

Mitsui Fudosan Co., Ltd.

2,000

34,433

New World Development Co., Ltd.

36,000

30,264

Sino Land Co., Ltd.

42,000

36,015

Sumitomo Realty & Development Co., Ltd.

1,000

16,045

Sun Hung Kai Properties Ltd.

6,000

51,624

Swire Pacific Ltd. "A"

3,000

20,933

Wharf Holdings Ltd.

5,000

9,820

 

583,080

Thrifts & Mortgage Finance 0.3%

Astoria Financial Corp.

18,200

346,164

Capitol Federal Financial

13,540

629,745

Dime Community Bancshares

33,200

554,440

Doral Financial Corp.*

30,900

288,915

Flushing Financial Corp.

16,500

256,575

Hudson City Bancorp., Inc.

39,700

746,757

Ocwen Financial Corp.*

28,000

187,600

WSFS Financial Corp.

2,500

119,675

 

3,129,871

Health Care 9.4%

Biotechnology 1.5%

Actelion Ltd. (Registered)*

272

14,381

Alexion Pharmaceuticals, Inc.*

3,000

122,250

Amgen, Inc.*

38,600

2,311,754

Celgene Corp.*

48,100

3,090,906

CSL Ltd.

9,966

242,905

Cubist Pharmaceuticals, Inc.*

26,500

672,835

CV Therapeutics, Inc.*

37,000

345,210

Enzon Pharmaceuticals, Inc.*

70,200

348,894

Genentech, Inc.*

29,300

2,430,142

Genomic Health, Inc.*

4,800

88,464

Gilead Sciences, Inc.*

100,020

4,585,917

Grifols SA

953

19,014

Myriad Genetics, Inc.*

11,400

719,226

NPS Pharmaceuticals, Inc.*

23,200

162,400

OSI Pharmaceuticals, Inc.*

18,200

690,690

PDL BioPharma, Inc.

46,900

457,275

 

16,302,263

Health Care Equipment & Supplies 2.0%

Baxter International, Inc.

123,902

7,494,832

Becton, Dickinson & Co.

52,735

3,659,809

C.R. Bard, Inc.

18,020

1,590,265

Cochlear Ltd.

1,073

40,836

Cynosure, Inc. "A"*

2,800

24,528

Essilor International SA

1,930

86,656

Getinge AB "B"

800

11,237

Hologic, Inc.*

33,300

407,592

Medtronic, Inc.

89,960

3,628,087

Merit Medical Systems, Inc.*

17,500

320,250

Nobel Biocare Holding AG (Bearer)

485

8,346

Olympus Corp.

2,000

38,206

Smith & Nephew PLC

4,258

39,020

Sonova Holding AG (Registered)

186

7,818

STERIS Corp.

20,400

694,416

Synthes, Inc.

232

29,955

Terumo Corp.

18,000

758,780

Thoratec Corp.*

21,500

529,330

Varian Medical Systems, Inc.*

18,100

823,731

William Demant Holding AS*

125

4,816

Zimmer Holdings, Inc.*

25,370

1,177,929

 

21,376,439

Health Care Providers & Services 1.1%

Aetna, Inc.

42,800

1,064,436

Alliance Imaging, Inc.*

31,900

259,985

Almost Family, Inc.*

11,200

539,392

Celesio AG

2,085

61,902

Centene Corp.*

29,600

557,664

Community Health Systems, Inc.*

19,600

401,800

CorVel Corp.*

16,500

442,530

Express Scripts, Inc.*

6,700

406,087

Fresenius Medical Care AG & Co. KGaA

23,086

1,035,986

Kindred Healthcare, Inc.*

20,800

301,392

Laboratory Corp. of America Holdings*

19,600

1,205,204

Landauer, Inc.

400

21,624

LifePoint Hospitals, Inc.*

36,700

879,699

Magellan Health Services, Inc.*

11,500

424,810

McKesson Corp.

38,400

1,412,736

Mediceo Paltac Holdings Co., Ltd.

1,400

15,128

Owens & Minor, Inc.

7,900

341,833

RehabCare Group, Inc.*

11,900

203,847

Sonic Healthcare Ltd.

6,569

60,000

Suzuken Co., Ltd.

600

12,822

Triple-S Management Corp. "B"*

6,800

69,428

UnitedHealth Group, Inc.

26,760

635,015

Universal Health Services, Inc. "B"

11,800

496,072

WellPoint, Inc.*

32,618

1,267,862

 

12,117,254

Life Sciences Tools & Services 0.5%

Albany Molecular Research, Inc.*

3,000

37,950

Bruker Corp.*

28,900

118,201

eResearchTechnology, Inc.*

63,700

411,502

Gerresheimer AG

24,442

845,296

Lonza Group AG (Registered)

13,091

1,089,684

Luminex Corp.*

7,800

145,470

MDS, Inc.*

700

7,312

Thermo Fisher Scientific, Inc.*

72,655

2,949,793

 

5,605,208

Pharmaceuticals 4.3%

Abbott Laboratories

92,761

5,115,769

Astellas Pharma, Inc.

33,400

1,365,451

AstraZeneca PLC

6,232

264,954

Bayer AG

24,381

1,338,119

Bristol-Myers Squibb Co.

121,300

2,492,715

Caraco Pharmaceutical Laboratories Ltd.*

13,900

141,363

Chugai Pharmaceutical Co., Ltd.

2,900

41,059

Daiichi Sankyo Co., Ltd.

7,000

143,249

Eisai Co., Ltd.

2,600

85,468

Elan Corp. PLC* (a)

42,576

320,263

Elan Corp. PLC* (a)

36,705

274,577

Eli Lilly & Co.

81,650

2,761,403

GlaxoSmithKline PLC

23,143

446,105

Hisamitsu Pharmaceutical Co., Inc.

600

25,083

Johnson & Johnson

122,040

7,485,934

Kyowa Hakko Kirin Co., Ltd.

2,000

16,556

Medicines Co.*

22,400

390,432

Medicis Pharmaceutical Corp. "A"

21,300

303,951

Merck & Co., Inc.

126,261

3,907,778

Merck KGaA

1,877

166,190

Mitsubishi Tanabe Pharma Corp.

3,000

31,192

Novartis AG (Registered)

41,106

2,079,497

Novo Nordisk AS "B"

32,150

1,721,007

Ono Pharmaceutical Co., Ltd.

900

40,265

Perrigo Co.

16,400

557,600

Pfizer, Inc.

436,087

7,723,101

POZEN, Inc.*

86,200

531,854

Roche Holding AG (Genusschein)

13,772

2,108,022

Salix Pharmaceuticals Ltd.*

15,600

143,520

Sanofi-Aventis

10,531

662,846

Schering-Plough Corp.

4,100

59,409

Shionogi & Co., Ltd.

3,000

50,908

Shire Ltd.

2,151

28,435

Takeda Pharmaceutical Co., Ltd.

8,600

433,420

Teva Pharmaceutical Industries Ltd. (ADR)

53,353

2,287,777

UCB SA

13,690

350,157

VIVUS, Inc.*

14,000

85,260

Wyeth

46,277

1,489,194

 

47,469,883

Industrials 5.6%

Aerospace & Defense 1.4%

BAE Systems PLC

90,765

509,919

Boeing Co.

3,600

188,172

Bombardier, Inc. "B"

11,600

44,752

CAE, Inc.

2,600

15,251

Cobham PLC

3,674

11,124

European Aeronautic Defence & Space Co.

703

11,701

Finmeccanica SpA

654

8,111

General Dynamics Corp.

36,000

2,171,520

Goodrich Corp.

38,600

1,411,216

Honeywell International, Inc.

167,410

5,097,635

L-3 Communications Holdings, Inc.

13,200

1,071,444

Lockheed Martin Corp.

1,900

161,595

Northrop Grumman Corp.

19,800

928,422

Rolls-Royce Group PLC*

6,433

34,122

Rolls-Royce Group PLC (C Share Entitlement)*

367,967

592

Singapore Technologies Engineering Ltd.

31,000

49,070

Teledyne Technologies, Inc.*

5,700

259,749

Thales SA

226

9,072

United Technologies Corp.

68,672

3,774,213

 

15,757,680

Air Freight & Logistics 0.0%

Deutsche Post AG (Registered)

1,628

18,113

TNT NV

2,576

53,932

Toll Holdings Ltd.

7,340

29,324

 

101,369

Airlines 0.3%

Air France-KLM

357

5,154

Alaska Air Group, Inc.*

7,300

180,310

AMR Corp.*

27,700

282,817

Deutsche Lufthansa AG (Registered)

2,192

30,793

Hawaiian Holdings, Inc.*

98,400

688,800

Iberia Lineas Aereas de Espana SA

3,905

9,173

Qantas Airways Ltd.

26,244

42,422

Singapore Airlines Ltd.

9,000

67,900

Southwest Airlines Co.

150,600

1,774,068

Virgin Blue Holdings Ltd.

4,940

1,140

 

3,082,577

Building Products 0.1%

AAON, Inc.

6,700

110,483

Ameron International Corp.

3,800

178,600

Asahi Glass Co., Ltd.

2,000

12,812

Assa Abloy AB "B"

1,200

13,432

Compagnie de Saint-Gobain

572

22,087

Daikin Industries Ltd.

400

8,990

Geberit AG (Registered)

186

19,343

Gibraltar Industries, Inc.

21,300

282,225

Griffon Corp.*

11,800

99,592

Insteel Industries, Inc.

46,900

481,194

Wienerberger AG

215

3,599

 

1,232,357

Commercial Services & Supplies 0.3%

American Ecology Corp.

6,200

108,748

Babcock International Group PLC

33,929

211,284

Brambles Ltd.

17,473

92,534

Cenveo, Inc.*

50,300

242,949

Comfort Systems USA, Inc.

49,600

462,768

Dai Nippon Printing Co., Ltd.

1,000

11,776

G4S PLC

3,161

9,532

Rentokil Initial PLC

5,625

4,078

Secom Co., Ltd.

300

11,612

Securitas AB "B"

1,200

11,550

Serco Group PLC

1,430

8,509

Standard Register Co.

4,300

34,959

Sykes Enterprises, Inc.*

34,500

550,620

The Brink's Co.

27,100

1,314,079

Toppan Printing Co., Ltd.

1,000

7,331

Vertis Holdings, Inc.

5,114

0

 

3,082,329

Construction & Engineering 0.3%

ACS, Actividades de Construccion y Servicios SA

3,230

119,781

Balfour Beatty PLC

1,558

6,249

Boart Longyear Group

19,808

5,745

Bouygues SA

742

31,611

EMCOR Group, Inc.*

31,800

565,086

FLSmidth & Co. AS

600

22,442

Fluor Corp.

4,300

171,699

Fomento de Construcciones y Contratas SA

881

35,004

Grupo Ferrovial SA

964

29,716

JGC Corp.

1,000

10,615

Leighton Holdings Ltd.

1,959

32,555

MasTec, Inc.*

41,800

364,496

Michael Baker Corp.*

17,300

412,259

Perini Corp.*

33,600

639,072

Shaw Group, Inc.*

42,800

765,692

Skanska AB "B"

1,600

14,072

SNC-Lavalin Group, Inc.

1,400

44,338

Vinci SA

844

30,363

YIT Oyj

2,643

16,498

 

3,317,293

Electrical Equipment 0.5%

ABB Ltd. (Registered)*

9,355

123,695

Alstom SA

416

20,676

AZZ, Inc.*

2,200

64,196

Emerson Electric Co.

93,892

3,073,085

Gamesa Corp. Tecnologica SA

5,699

93,506

GrafTech International Ltd.*

73,500

596,085

II-VI, Inc.*

19,400

544,946

Mitsubishi Electric Corp.

3,000

18,489

Q-Cells AG*

905

35,599

Renewable Energy Corp. AS*

550

5,190

Schneider Electric SA

420

25,265

Solarworld AG

188

4,758

Sumitomo Electric Industries Ltd.

1,500

12,050

Vestas Wind Systems AS*

3,627

149,293

Woodward Governor Co.

9,300

298,530

 

5,065,363

Industrial Conglomerates 0.4%

Carlisle Companies, Inc.

9,200

213,900

CSR Ltd.

25,620

36,990

Fraser & Neave Ltd.

29,000

54,322

General Electric Co.

200,984

3,921,198

Hutchison Whampoa Ltd.

33,000

180,635

Keppel Corp., Ltd.

37,000

113,975

Koninklijke (Royal) Philips Electronics NV

6,784

125,249

Orkla ASA

3,000

19,953

SembCorp Industries Ltd.

38,000

64,088

Siemens AG (Registered)

2,810

168,120

Smiths Group PLC

1,308

16,825

 

4,915,255

Machinery 1.3%

Actuant Corp. "A"

5,600

100,408

AGCO Corp.*

36,400

1,147,328

Alfa Laval AB

4,460

32,151

Ampco-Pittsburgh Corp.

900

21,276

Atlas Copco AB "A"

7,272

60,786

Atlas Copco AB "B"

6,676

50,068

Caterpillar, Inc.

28,260

1,078,684

Chart Industries, Inc.*

16,700

227,454

CIRCOR International, Inc.

2,400

73,560

Columbus McKinnon Corp.*

17,600

247,104

Cummins, Inc.

2,700

69,795

Dover Corp.

49,773

1,581,288

EnPro Industries, Inc.*

20,500

455,305

FANUC Ltd.

300

20,362

Federal Signal Corp.

3,600

30,636

Flowserve Corp.

10,700

609,044

Gardner Denver, Inc.*

31,100

796,782

Gorman-Rupp Co.

1,500

47,175

Hitachi Construction Machinery Co., Ltd.

600

6,855

Invensys PLC*

2,690

6,693

Japan Steel Works Ltd.

1,000

7,045

Joy Global, Inc.

64,800

1,877,904

KCI Konecranes Oyj

336

5,739

Komatsu Ltd.

1,200

13,030

Kone Oyj "B"

3,282

73,464

Kubota Corp.

2,000

10,277

MAN AG

1,721

84,716

Manitowoc Co., Inc.

32,600

320,784

Metso Corp.

4,584

61,011

Mitsubishi Heavy Industries Ltd.

5,000

15,970

Mueller Water Products, Inc. "A"

5,100

35,700

Parker Hannifin Corp.

69,155

2,681,139

Robbins & Myers, Inc.

12,800

261,120

Sandvik AB

7,455

48,431

Sauer-Danfoss, Inc.

37,300

382,325

Scania AB "B"

4,800

39,427

Schindler Holding AG

266

11,621

SembCorp Marine Ltd.

35,000

42,674

SKF AB "B"

1,800

16,502

Sulzer AG (Registered)

140

8,285

Sumitomo Heavy Industries Ltd.

11,000

33,550

Sun Hydraulics Corp.

25,000

523,500

Titan International, Inc.

41,900

484,364

Vallourec SA

105

11,808

Volvo AB "A"

1,800

9,441

Volvo AB "B"

11,500

60,500

Wabtec Corp.

2,400

95,424

Wartsila Oyj

2,886

73,245

Xerium Technologies, Inc.

36,200

140,818

Zardoya Otis SA

3,267

62,395

 

14,154,963

Marine 0.0%

A P Moller-Maersk AS "A"

8

46,782

A P Moller-Maersk AS "B"

17

98,460

Kawasaki Kisen Kaisha Ltd.

1,000

3,890

Kuehne & Nagel International AG (Registered)

248

15,084

Mitsui O.S.K. Lines Ltd.

2,000

10,590

Nippon Yusen Kabushiki Kaisha

2,000

9,588

Pacific Basin Shipping Ltd.

70,000

36,631

TBS International Ltd. "A"*

14,100

120,696

 

341,721

Professional Services 0.1%

Adecco SA (Registered)

573

20,031

Capita Group PLC

1,502

15,466

COMSYS IT Partners, Inc.*

20,400

124,032

Experian Group Ltd.

2,421

13,321

Exponent, Inc.*

8,000

235,440

Manpower, Inc.

5,700

177,441

Randstad Holdings NV

992

19,285

SGS SA (Registered)

21

20,741

 

625,757

Road & Rail 0.6%

Canadian National Railway Co. (a)

46,200

1,998,612

Canadian National Railway Co. (a)

4,000

173,633

Canadian Pacific Railway Ltd.

1,300

58,836

Central Japan Railway Co.

2

16,363

CSX Corp.

9,300

425,196

DSV AS

2,200

26,505

East Japan Railway Co.

156

1,108,548

FirstGroup PLC

1,366

9,034

Marten Transport Ltd.*

3,500

64,330

MTR Corp., Ltd.

23,500

52,496

Norfolk Southern Corp.

18,600

1,114,884

Ryder System, Inc.

22,300

883,526

Tokyu Corp.

3,000

11,739

Werner Enterprises, Inc.

27,000

529,740

West Japan Railway Co.

4

17,713

 

6,491,155

Trading Companies & Distributors 0.2%

Bunzl PLC

1,161

11,650

DXP Enterprises, Inc.*

10,800

150,768

Finning International, Inc.

1,800

21,878

Itochu Corp.

2,000

10,800

Marubeni Corp.

3,000

11,892

Mitsubishi Corp.

49,200

816,620

Mitsui & Co., Ltd.

3,000

28,838

Noble Group Ltd.

32,000

23,120

Sumitomo Corp.

1,600

14,348

TAL International Group, Inc.

18,600

308,016

United Rentals, Inc.*

87,100

892,775

WESCO International, Inc.*

6,200

123,256

Wolseley PLC

1,672

9,179

 

2,423,140

Transportation Infrastructure 0.1%

Abertis Infraestructuras SA

4,546

78,074

Atlantia SpA

591

10,812

Brisa

47,175

364,032

Cintra Concesiones de Infraestructuras de Transporte SA

4,048

36,006

Macquarie Infrastructure Group (Unit)

24,494

32,087

Transurban Group (Unit)

14,141

50,962

 

571,973

Information Technology 7.7%

Communications Equipment 1.0%

Alcatel-Lucent*

21,660

56,159

Brocade Communications Systems, Inc.*

301,929

1,138,272

Cisco Systems, Inc.*

161,430

2,868,611

Corning, Inc.

97,414

1,054,994

DG Fastchannel, Inc.*

17,000

301,070

Nokia Oyj

52,020

793,463

Nokia Oyj (ADR)

114,420

1,736,896

Nortel Networks Corp.*

2,700

3,360

Plantronics, Inc.

21,200

306,128

QUALCOMM, Inc.

51,170

1,957,764

Research In Motion Ltd.*

5,200

263,257

Tandberg ASA

500

6,190

Tekelec*

34,900

442,881

Telefonaktiebolaget LM Ericsson "B"

39,658

279,658

 

11,208,703

Computers & Peripherals 1.8%

Apple, Inc.*

34,280

3,688,185

EMC Corp.*

70,890

835,084

Fujitsu Ltd.

4,000

15,918

Hewlett-Packard Co.

155,700

5,960,196

International Business Machines Corp.

73,340

6,818,420

Lexmark International, Inc. "A"*

10,400

268,632

Logitech International SA (Registered)*

40,482

609,004

NEC Corp.

7,000

21,035

Toshiba Corp.

7,000

25,229

Western Digital Corp.*

57,500

948,750

Wincor Nixdorf AG

264

11,502

 

19,201,955

Electronic Equipment, Instruments & Components 0.6%

Arrow Electronics, Inc.*

9,500

165,775

Avnet, Inc.*

67,500

1,129,950

Daktronics, Inc.

23,700

236,052

Electro Rent Corp.

16,100

193,039

Electrocomponents PLC

7,201

16,555

Fujifilm Holdings Corp.

1,000

22,147

Hirose Electric Co., Ltd.

100

8,742

Hitachi Ltd.

6,000

27,863

Hoya Corp.

800

14,829

IBIDEN Co., Ltd.

200

3,836

Jabil Circuit, Inc.

296,900

2,496,929

Keyence Corp.

100

19,311

Kyocera Corp.

300

17,525

Mettler-Toledo International, Inc.*

18,200

1,393,028

Multi-Fineline Electronix, Inc.*

18,300

213,744

Murata Manufacturing Co., Ltd.

400

13,862

Nidec Corp.

200

10,291

Nippon Electric Glass Co., Ltd.

1,000

6,147

Plexus Corp.*

5,600

104,496

RadiSys Corp.*

13,300

84,721

TDK Corp.

300

10,023

 

6,188,865

Internet Software & Services 0.5%

EarthLink, Inc.*

25,300

174,570

eBay, Inc.*

36,800

561,936

Google, Inc. "A"*

9,090

3,266,582

GSI Commerce, Inc.*

8,800

91,080

InfoSpace, Inc.

8,600

73,702

Marchex, Inc. "B"

14,600

112,128

ModusLink Global Solutions, Inc.*

18,900

105,084

United Internet AG (Registered)

3,803

34,337

United Online, Inc.

22,500

166,500

ValueClick, Inc.*

19,700

145,780

Vocus, Inc.*

13,900

233,937

Yahoo! Japan Corp.

28

9,167

Yahoo!, Inc.*

33,300

426,906

 

5,401,709

IT Services 1.3%

Accenture Ltd. "A"

85,240

2,817,182

Alliance Data Systems Corp.*

17,000

852,720

Atos Origin SA

562

13,062

Automatic Data Processing, Inc.

39,400

1,377,030

Broadridge Financial Solutions, Inc.

49,800

602,580

Cap Gemini SA

1,316

42,376

CGI Group, Inc. "A"*

2,000

15,963

CIBER, Inc.*

13,700

73,980

Computer Sciences Corp.*

29,600

892,736

Computershare Ltd.

1,801

10,097

CSG Systems International, Inc.*

38,200

635,266

Fiserv, Inc.*

25,500

850,680

Gartner, Inc.*

24,900

458,160

iGATE Corp.*

43,900

298,081

Indra Sistemas SA

31,724

620,871

Logica PLC

83,488

92,484

NTT Data Corp.

3

9,835

SAIC, Inc.*

97,000

1,791,590

Sapient Corp.*

28,300

155,367

TNS, Inc.*

4,900

69,482

Visa, Inc. "A"

47,900

2,651,265

 

14,330,807

Office Electronics 0.1%

Brother Industries Ltd.

1,000

6,987

Canon, Inc.

36,400

1,252,579

Konica Minolta Holdings, Inc.

1,000

6,510

Neopost SA

285

23,844

Ricoh Co., Ltd.

1,000

10,637

 

1,300,557

Semiconductors & Semiconductor Equipment 1.0%

Analog Devices, Inc.

52,700

1,125,672

ARM Holdings PLC

8,017

12,492

ASML Holding NV

17,397

303,605

Broadcom Corp. "A"*

70,980

1,212,338

Elpida Memory, Inc.*

400

2,092

Infineon Technologies AG*

12,363

39,172

Intel Corp.

161,100

2,577,600

Linear Technology Corp.

12,700

288,036

Monolithic Power Systems, Inc.*

8,500

144,415

PMC-Sierra, Inc.*

72,200

337,896

ROHM Co., Ltd.

200

9,454

Skyworks Solutions, Inc.*

63,500

452,755

STMicroelectronics NV (a)

5,170

43,938

STMicroelectronics NV (a)

5,331

43,781

Taiwan Semiconductor Manufacturing Co., Ltd. (ADR)

234,412

1,936,239

Texas Instruments, Inc.

97,000

1,897,320

Tokyo Electron Ltd.

300

9,918

TriQuint Semiconductor, Inc.*

87,800

393,344

Ultratech, Inc.*

17,100

257,868

Volterra Semiconductor Corp.*

35,600

336,064

 

11,423,999

Software 1.4%

Adobe Systems, Inc.*

49,450

1,317,348

Advent Software, Inc.*

12,900

241,746

Compuware Corp.*

9,500

60,610

Dassault Systemes SA

503

20,766

Electronic Arts, Inc.*

27,450

625,311

JDA Software Group, Inc.*

27,600

394,128

Konami Corp.

400

7,306

Manhattan Associates, Inc.*

2,300

38,663

Mentor Graphics Corp.*

44,300

325,162

Microsoft Corp.

388,136

8,667,077

Misys PLC

5,338

9,480

Net 1 UEPS Technologies, Inc.*

35,500

497,000

NetScout Systems, Inc.*

12,200

117,364

Nintendo Co., Ltd.

2,300

725,413

Oracle Corp.*

65,700

1,201,653

Pegasystems, Inc.

3,100

40,548

Quality Systems, Inc.

12,700

488,823

Renaissance Learning, Inc.

5,700

77,748

SAP AG

6,376

226,694

Symantec Corp.*

11,200

140,896

Symyx Technologies, Inc.*

2,800

12,348

The Sage Group PLC

58,210

162,196

Trend Micro, Inc.

500

12,377

 

15,410,657

Materials 3.0%

Chemicals 1.6%

Agrium, Inc.

300

11,492

Air Liquide SA

435

37,493

Air Products & Chemicals, Inc.

31,642

1,839,349

Akzo Nobel NV

4,204

174,931

Asahi Kasei Corp.

4,000

15,278

Ashland, Inc.

43,900

991,701

BASF SE

26,126

877,934

Calgon Carbon Corp.*

22,700

302,364

CF Industries Holdings, Inc.

13,900

892,241

Ecolab, Inc.

37,870

1,411,036

Ferro Corp.

11,600

179,568

GenTek, Inc.*

5,800

104,400

Givaudan SA (Registered)

43

29,467

Incitec Pivot Ltd.

9,966

27,079

Innophos Holdings, Inc.

3,000

80,250

JSR Corp.

600

6,960

K+S AG

527

12,990

Koninklijke DSM NV

1,744

48,528

Kuraray Co., Ltd.

1,000

7,552

Linde AG

8,663

717,274

LSB Industries, Inc.*

14,700

120,834

Mitsubishi Chemical Holdings Corp.

3,500

14,350

Mitsubishi Gas Chemical Co., Inc.

2,000

7,511

Mitsui Chemicals, Inc.

2,000

7,076

Monsanto Co.

28,600

2,544,828

NewMarket Corp.

4,000

150,760

Nitto Denko Corp.

500

10,998

Novozymes AS "B"

5,375

382,753

Orica Ltd.

4,232

54,772

Potash Corp. of Saskatchewan, Inc.

6,603

562,050

Praxair, Inc.

59,154

3,853,883

Shin-Etsu Chemical Co., Ltd.

1,500

78,499

Showa Denko KK

5,000

7,492

Solvay SA

3,150

293,587

Sumitomo Chemical Co., Ltd.

6,000

18,187

Syngenta AG (Registered)

575

107,240

Teijin Ltd.

4,000

10,298

Terra Industries, Inc.

31,000

681,690

The Mosaic Co.

18,500

729,085

Toray Industries, Inc.

4,000

18,538

Ube Industries Ltd.

4,000

8,289

Umicore

9,407

168,566

Yara International ASA

19,130

399,459

 

17,998,632

Construction Materials 0.1%

CRH PLC (a)

15,347

342,233

CRH PLC (a)

15,012

330,981

Fletcher Building Ltd.

19,453

65,200

Holcim Ltd. (Registered)

1,277

72,804

Imerys SA

225

10,200

Lafarge SA

519

34,200

 

855,618

Containers & Packaging 0.2%

Amcor Ltd.

1,918

7,417

Rock-Tenn Co. "A"

8,600

261,526

Silgan Holdings, Inc.

2,900

134,966

Sonoco Products Co.

67,317

1,695,042

Toyo Seikan Kaisha Ltd.

800

9,992

 

2,108,943

Metals & Mining 1.0%

A.M. Castle & Co.

3,800

46,246

Acerinox SA

20,726

262,431

Agnico-Eagle Mines Ltd.

300

8,278

AK Steel Holding Corp.

18,200

253,344

Alumina Ltd.

17,317

24,238

Anglo American PLC

1,934

47,762

ArcelorMittal

36,337

943,009

Barrick Gold Corp. (a)

49,200

1,117,824

Barrick Gold Corp. (a)

1,500

34,299

BHP Billiton Ltd.

7,927

152,301

BHP Billiton PLC

4,488

76,166

BlueScope Steel Ltd.

1,489

4,375

Boliden AB

20,590

50,440

Companhia Vale do Rio Doce (ADR)

25,200

330,624

Compass Minerals International, Inc.

12,900

708,597

Eramet

16

3,211

Fortescue Metals Group Ltd.*

2,210

4,391

Freeport-McMoRan Copper & Gold, Inc.

15,800

459,780

Goldcorp, Inc.

1,000

18,701

JFE Holdings, Inc.

2,200

57,674

Kazakhmys PLC

709

3,264

Kinross Gold Corp.

700

7,289

Kobe Steel Ltd.

9,000

14,521

Lonmin PLC

229

4,232

Mitsubishi Materials Corp.

4,000

9,212

Newcrest Mining Ltd.

837

11,640

Nippon Steel Corp.

22,000

73,520

Nisshin Steel Co., Ltd.

4,000

5,495

Norsk Hydro ASA

64,600

271,592

Olympic Steel, Inc.

10,700

244,602

OneSteel Ltd.

12,640

29,132

Outokumpu Oyj

4,621

48,107

OZ Minerals Ltd.

35,727

22,522

Rautaruukki Oyj

4,708

77,051

Reliance Steel & Aluminum Co.

39,900

999,096

Rio Tinto Ltd.

1,109

57,383

Rio Tinto PLC

1,871

87,255

Salzgitter AG

99

6,542

Sims Group Ltd.

501

4,873

SSAB Svenskt Stal AB "A"

8,724

88,949

Steel Dynamics, Inc.

244,200

2,910,864

Sumitomo Metal Industries Ltd.

17,000

45,184

Sumitomo Metal Mining Co., Ltd.

2,000

14,983

Teck Cominco Ltd. "B"

3,873

38,560

ThyssenKrupp AG

1,988

38,424

United States Steel Corp.

14,200

523,696

Vedanta Resources PLC

477

6,537

voestalpine AG

1,838

44,958

Xstrata PLC

42,662

725,807

Yamana Gold, Inc.

700

3,339

 

11,022,320

Paper & Forest Products 0.1%

Buckeye Technologies, Inc.*

28,200

166,098

Oji Paper Co., Ltd.

3,000

11,457

Schweitzer-Mauduit International, Inc.

8,000

133,760

Stora Enso Oyj "R"

27,834

261,039

Svenska Cellulosa AB "B"

18,665

138,705

UPM-Kymmene Oyj

20,402

289,036

 

1,000,095

Telecommunication Services 2.9%

Diversified Telecommunication Services 2.3%

AT&T, Inc.

225,955

6,048,815

Atlantic Tele-Network, Inc.

13,900

338,187

BCE, Inc. (a)

92,288

2,677,275

BCE, Inc. (a)

5,300

154,036

Belgacom SA

1,686

57,687

BT Group PLC

32,185

60,666

Cable & Wireless PLC

10,538

20,862

Deutsche Telekom AG (Registered)

107,800

1,604,551

Elisa Oyj

1,543

23,244

Embarq Corp.

35,400

1,062,000

France Telecom SA

23,257

586,881

Global Crossing Ltd.*

26,500

176,490

Koninklijke (Royal) KPN NV

29,264

411,768

Nippon Telegraph & Telephone Corp.

238

976,813

NTELOS Holdings Corp.

7,900

205,400

PCCW Ltd.

13,000

4,864

Portugal Telecom, SGPS, SA (Registered)

39,966

264,346

Premiere Global Services, Inc.*

3,600

35,820

Singapore Telecommunications Ltd.

404,000

679,749

Swisscom AG (Registered)

1,588

485,662

Tele2 AB "B"

5,300

45,667

Telecom Corp. of New Zealand Ltd.

559,989

774,762

Telecom Italia SpA

178,003

204,906

Telecom Italia SpA (RSP)

98,010

82,575

Telefonica SA

105,665

1,954,504

Telekom Austria AG

22,345

277,353

Telenor ASA

108,900

648,529

TeliaSonera AB

35,500

156,494

Telstra Corp., Ltd.

143,936

395,197

Telus Corp.

900

31,787

Telus Corp. (Non-Voting Shares)

2,000

65,212

Verizon Communications, Inc.

166,754

4,947,591

 

25,459,693

Wireless Telecommunication Services 0.6%

America Movil SAB de CV "L" (ADR)

10,800

334,152

China Mobile Ltd.

113,500

995,869

KDDI Corp.

53

316,641

Millicom International Cellular SA (SDR)

1,175

43,622

Mobistar SA

167

11,080

NTT DoCoMo, Inc.

288

456,929

Rogers Communications, Inc. "B"

5,300

153,860

Softbank Corp.

13,800

134,701

Syniverse Holdings, Inc.*

23,400

439,920

Telephone & Data Systems, Inc.

65,600

1,761,360

USA Mobility, Inc.*

61,000

588,650

Vodafone Group PLC

875,892

1,687,112

 

6,923,896

Utilities 3.0%

Electric Utilities 2.2%

Acciona SA

502

47,592

Allegheny Energy, Inc.

69,101

2,083,395

American Electric Power Co., Inc.

62,000

2,023,060

British Energy Group PLC

8,328

99,299

Chubu Electric Power Co., Inc.

8,000

210,629

Chugoku Electric Power Co., Inc.

3,400

83,286

Cleco Corp.

3,600

82,836

CLP Holdings Ltd.

58,500

397,247

Duke Energy Corp.

118,744

1,945,027

E.ON AG

48,197

1,839,520

Edison International

56,800

2,021,512

EDP — Energias de Portugal SA

83,310

287,010

Electricite de France

1,261

75,558

Enel SpA

71,891

482,576

Entergy Corp.

12,806

999,508

Exelon Corp.

41,458

2,248,682

FirstEnergy Corp.

42,992

2,242,463

Fortis, Inc.

7,500

163,652

Fortum Oyj

48,342

1,189,963

FPL Group, Inc.

29,404

1,389,045

Hokkaido Electric Power Co., Inc.

2,500

56,827

Hokuriku Electric Power Co.

2,200

57,602

Hongkong Electric Holdings Ltd.

43,000

232,161

Iberdrola SA

174,986

1,266,075

Kansai Electric Power Co., Inc.

8,800

223,884

Kyushu Electric Power Co., Inc.

4,600

107,109

Oesterreichische Elektrizitaetswirtschafts AG "A"

415

19,685

Portland General Electric Co.

14,100

289,332

PPL Corp.

26,100

856,602

Red Electrica Corporacion SA

695

30,459

Scottish & Southern Energy PLC

5,845

114,576

Shikoku Electric Power Co., Inc.

2,300

67,388

Terna-Rete Elettrica Nazionale SpA

20,539

66,370

Tohoku Electric Power Co., Inc.

5,200

118,160

Tokyo Electric Power Co., Inc.

13,500

387,610

Union Fenosa SA

1,998

42,361

 

23,848,061

Gas Utilities 0.3%

Enagas

870

16,978

Gas Natural SDG SA

1,848

57,634

Hong Kong & China Gas Co., Ltd.

116,600

206,131

New Jersey Resources Corp.

2,600

96,824

ONEOK, Inc.

29,100

928,290

Osaka Gas Co., Ltd.

25,000

89,690

Piedmont Natural Gas Co., Inc.

9,500

312,740

Snam Rete Gas SpA

14,716

74,599

The Laclede Group, Inc.

12,500

654,000

Tokyo Gas Co., Ltd.

27,000

117,603

UGI Corp.

5,000

119,350

WGL Holdings, Inc.

17,500

563,325

 

3,237,164

Independent Power Producers & Energy Traders 0.0%

Electric Power Development Co., Ltd.

1,900

56,349

Iberdrola Renovables*

4,169

12,692

International Power PLC

13,366

47,843

TransAlta Corp.

9,500

190,741

 

307,625

Multi-Utilities 0.5%

A2A SpA

14,784

27,032

AGL Energy Ltd.

82,072

764,237

Avista Corp.

16,600

329,676

CenterPoint Energy, Inc.

12,200

140,544

Centrica PLC

29,415

144,599

Dominion Resources, Inc.

15,600

565,968

GDF Suez

6,998

311,606

National Grid PLC

18,797

213,433

NorthWestern Corp.

1,500

29,310

PG&E Corp.

72,036

2,641,560

RWE AG

1,954

162,454

Sempra Energy

13,700

583,483

United Utilities Group PLC

4,223

47,655

Veolia Environnement

2,542

62,406

 

6,023,963

Water Utilities 0.0%

Severn Trent PLC

1,502

33,141

Total Common Stocks (Cost $766,296,726)

628,216,524

 

Rights 0.0%

Financials

Fortis, Expiration Date 7/4/2014*

23,884

0

Goodman Group, Expiration Date 11/21/2008*

1,629

0

GPT Group, Expiration Date 11/17/2008*

4,877

470

Total Rights (Cost $0)

470

 

Warrants 0.0%

Financials 0.0%

New ASAT (Finance) Ltd., Expiration Date 2/1/2011*

75,400

8,482

Industrials 0.0%

Dayton Superior Corp., 144A, Expiration Date 6/15/2009*

15

0

Total Warrants (Cost $0)

8,482

 

Participatory Note 0.0%

Financials

Union Bank of Nigeria (issuer Merrill Lynch International & Co.) Expiration Date 10/4/2010* (Cost $5,934)

16,645

4,328

 

Convertible Preferred Stocks 0.0%

Consumer Discretionary 0.0%

ION Media Networks, Inc., 144A, 12.0%* (Cost $17,340)

25,001

812

 

Preferred Stocks 0.0%

Consumer Discretionary 0.0%

Porsche Automobil Holding SE

426

37,546

Volkswagen AG

195

12,039

 

49,585

Consumer Staples 0.0%

Henkel AG & Co. KGaA

3,926

113,628

Health Care 0.0%

Fresenius SE

2,061

131,894

Utilities 0.0%

RWE AG

71

4,463

Total Preferred Stocks (Cost $499,302)

299,570

 

Principal Amount($)(b)

Value ($)

 

 

Corporate Bonds 8.3%

Consumer Discretionary 0.6%

AMC Entertainment, Inc., 8.0%, 3/1/2014

190,000

134,900

American Achievement Corp., 144A, 8.25%, 4/1/2012

45,000

44,888

American Achievement Group Holding Corp., 14.75%, 10/1/2012 (PIK)

104,580

99,351

Asbury Automotive Group, Inc.:

 

 

7.625%, 3/15/2017

105,000

46,200

8.0%, 3/15/2014

50,000

25,000

Cablevision Systems Corp., Series B, 8.334%***, 4/1/2009

55,000

53,350

CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015

75,000

45,750

Carrols Corp., 9.0%, 1/15/2013

45,000

29,025

Charter Communications Operating LLC, 144A, 10.875%, 9/15/2014

240,000

195,000

Comcast Corp., 6.4%, 5/15/2038

1,100,000

841,325

CSC Holdings, Inc.:

 

 

6.75%, 4/15/2012

75,000

64,875

Series B, 8.125%, 7/15/2009

85,000

81,387

Series B, 8.125%, 8/15/2009

170,000

162,775

Denny's Holdings, Inc., 10.0%, 10/1/2012

30,000

22,800

DIRECTV Holdings LLC, 144A, 7.625%, 5/15/2016

225,000

189,000

Dollarama Group LP, 8.883%***, 8/15/2012 (c)

108,000

75,600

EchoStar DBS Corp.:

 

 

6.625%, 10/1/2014

130,000

104,325

7.125%, 2/1/2016

95,000

76,238

Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015

100,000

13,500

General Motors Corp.:

 

 

7.4%, 9/1/2025

25,000

6,500

8.375%, 7/15/2033

125,000

40,625

Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015

90,000

67,500

Group 1 Automotive, Inc., 8.25%, 8/15/2013

50,000

33,000

Hertz Corp., 8.875%, 1/1/2014

265,000

193,450

Idearc, Inc., 8.0%, 11/15/2016

195,000

27,056

Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012

60,000

30,000

Isle of Capri Casinos, Inc., 7.0%, 3/1/2014

90,000

43,650

Kabel Deutschland GmbH, 10.625%, 7/1/2014

150,000

126,000

Lamar Media Corp., Series C, 6.625%, 8/15/2015

70,000

51,450

Liberty Media LLC:

 

 

5.7%, 5/15/2013

15,000

10,431

8.25%, 2/1/2030

115,000

63,183

8.5%, 7/15/2029

170,000

95,095

MediMedia USA, Inc., 144A, 11.375%, 11/15/2014

45,000

36,000

MGM MIRAGE:

 

 

6.625%, 7/15/2015

45,000

26,325

6.75%, 9/1/2012

40,000

25,600

8.375%, 2/1/2011

75,000

43,500

MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010

130,000

91,000

Norcraft Holdings LP, 9.75%, 9/1/2012

250,000

205,000

Penske Automotive Group, Inc., 7.75%, 12/15/2016

180,000

85,950

Pinnacle Entertainment, Inc., 8.75%, 10/1/2013

65,000

49,075

Quebecor Media, Inc., 7.75%, 3/15/2016

60,000

41,550

Quebecor World, Inc., 144A, 9.75%, 1/15/2015**

115,000

16,100

Reader's Digest Association, Inc., 9.0%, 2/15/2017

65,000

18,363

Sabre Holdings Corp., 8.35%, 3/15/2016

80,000

34,400

Seminole Hard Rock Entertainment, Inc., 144A, 5.319%***, 3/15/2014

105,000

69,300

Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015

75,000

36,750

Simmons Co., Step-up Coupon, 0% to 12/15/2009, 10.0% to 12/15/2014

310,000

86,800

Sinclair Television Group, Inc., 8.0%, 3/15/2012

76,000

62,700

Sirius XM Radio, Inc., 9.625%, 8/1/2013

180,000

55,800

Sonic Automotive, Inc., Series B, 8.625%, 8/15/2013

90,000

41,400

TCI Communications, Inc., 8.75%, 8/1/2015

1,638,000

1,542,387

Travelport LLC:

 

 

7.436%***, 9/1/2014

70,000

30,800

9.875%, 9/1/2014

15,000

7,125

Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015

20,000

5,150

United Components, Inc., 9.375%, 6/15/2013

15,000

9,300

Unity Media GmbH:

 

 

144A, 8.75%, 2/15/2015 EUR

190,000

167,093

144A, 10.375%, 2/15/2015

75,000

49,406

UPC Holding BV, 144A, 7.75%, 1/15/2014 EUR

90,000

77,429

Vitro SAB de CV, 9.125%, 2/1/2017

130,000

40,625

Young Broadcasting, Inc., 8.75%, 1/15/2014

430,000

30,638

 

6,078,795

Consumer Staples 1.1%

Alliance One International, Inc., 8.5%, 5/15/2012

45,000

34,650

Coca-Cola Enterprises, Inc., 7.375%, 3/3/2014

4,000,000

4,057,996

CVS Caremark Corp., 6.25%, 6/1/2027

2,250,000

1,631,183

Delhaize America, Inc.:

 

 

8.05%, 4/15/2027

90,000

73,352

9.0%, 4/15/2031

199,000

176,341

General Nutrition Centers, Inc.,
7.584%***, 3/15/2014 (PIK)

55,000

34,100

Kroger Co., 6.15%, 1/15/2020

3,750,000

3,078,607

North Atlantic Trading Co., 144A, 10.0%, 3/1/2012

526,750

323,951

Reynolds American, Inc., 7.75%, 6/1/2018

2,250,000

1,800,828

Smithfield Foods, Inc., 7.75%, 7/1/2017

30,000

18,900

Viskase Companies, Inc., 11.5%, 6/15/2011

1,425,000

1,140,000

 

12,369,908

Energy 0.3%

Atlas Energy Resources LLC, 144A, 10.75%, 2/1/2018

185,000

124,875

Belden & Blake Corp., 8.75%, 7/15/2012

416,000

334,880

Bristow Group, Inc., 7.5%, 9/15/2017

95,000

71,250

Chaparral Energy, Inc., 8.5%, 12/1/2015

120,000

61,200

Chesapeake Energy Corp.:

 

 

6.25%, 1/15/2018

60,000

42,600

6.875%, 1/15/2016

290,000

232,725

7.5%, 6/15/2014

35,000

28,788

Cimarex Energy Co., 7.125%, 5/1/2017

80,000

64,000

Delta Petroleum Corp., 7.0%, 4/1/2015

145,000

68,512

Dynegy Holdings, Inc.:

 

 

6.875%, 4/1/2011

30,000

25,050

8.375%, 5/1/2016

165,000

122,100

El Paso Corp., 7.25%, 6/1/2018

125,000

93,750

Forest Oil Corp., 144A, 7.25%, 6/15/2019

45,000

30,600

Frontier Oil Corp.:

 

 

6.625%, 10/1/2011

65,000

57,525

8.5%, 9/15/2016

120,000

104,400

KCS Energy, Inc., 7.125%, 4/1/2012

345,000

246,675

Mariner Energy, Inc.:

 

 

7.5%, 4/15/2013

75,000

51,750

8.0%, 5/15/2017

65,000

38,350

Newfield Exploration Co., 7.125%, 5/15/2018

135,000

95,344

OPTI Canada, Inc.:

 

 

7.875%, 12/15/2014

115,000

69,000

8.25%, 12/15/2014

225,000

133,875

Petrohawk Energy Corp., 144A, 7.875%, 6/1/2015

95,000

64,362

Plains Exploration & Production Co., 7.0%, 3/15/2017

65,000

42,575

Quicksilver Resources, Inc., 7.125%, 4/1/2016

220,000

140,800

Range Resources Corp., 7.25%, 5/1/2018

15,000

12,113

SandRidge Energy, Inc., 144A, 8.0%, 6/1/2018

60,000

39,900

Stone Energy Corp.:

 

 

6.75%, 12/15/2014

160,000

102,400

8.25%, 12/15/2011

250,000

205,000

Tennessee Gas Pipeline Co., 7.625%, 4/1/2037

75,000

55,023

Tesoro Corp., 6.5%, 6/1/2017

90,000

60,300

Whiting Petroleum Corp.:

 

 

7.0%, 2/1/2014

90,000

63,900

7.25%, 5/1/2012

160,000

126,400

7.25%, 5/1/2013

40,000

30,000

Williams Companies, Inc.:

 

 

8.125%, 3/15/2012

275,000

250,250

8.75%, 3/15/2032

365,000

297,475

Williams Partners LP, 7.25%, 2/1/2017

75,000

59,625

 

3,647,372

Financials 3.1%

Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015

190,000

125,400

American Express Co., 8.15%, 3/19/2038

1,300,000

1,018,311

Ashton Woods USA LLC, 9.5%, 10/1/2015**

215,000

43,000

BB&T Corp., 5.2%, 12/23/2015

3,000,000

2,516,496

Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014

45,000

15,750

Citigroup, Inc.:

 

 

6.125%, 5/15/2018

1,250,000

1,070,856

6.5%, 8/19/2013

4,605,000

4,365,351

Conproca SA de CV, REG S, 12.0%, 6/16/2010

1,072,450

1,118,029

Countrywide Home Loans, Inc., Series H, 6.25%, 4/15/2009

375,000

367,466

FIA Credit Services NA, 144A, 7.125%, 11/15/2012

3,750,000

3,656,003

Ford Motor Credit Co., LLC:

 

 

7.25%, 10/25/2011

600,000

363,263

7.875%, 6/15/2010

220,000

147,814

General Electric Capital Corp., Series A, 5.25%, 10/19/2012

3,750,000

3,458,633

GMAC LLC, 6.875%, 9/15/2011

975,000

571,008

Hawker Beechcraft Acquisition Co., LLC:

 

 

8.5%, 4/1/2015

225,000

135,000

9.75%, 4/1/2017

120,000

67,200

Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012

95,000

75,525

iPayment, Inc., 9.75%, 5/15/2014

80,000

60,000

JPMorgan Chase & Co., 4.75%, 5/1/2013

4,875,000

4,517,853

Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK)

75,000

37,500

Merrill Lynch & Co., Inc., 6.875%, 4/25/2018

2,250,000

1,998,425

New ASAT (Finance) Ltd., 9.25%, 2/1/2011

290,000

121,800

Orascom Telecom Finance SCA, 144A, 7.875%, 2/8/2014

100,000

45,000

PNC Bank NA, 6.875%, 4/1/2018

3,000,000

2,765,763

Qwest Capital Funding, Inc., 7.0%, 8/3/2009

75,000

71,250

Rainbow National Services LLC, 144A, 10.375%, 9/1/2014

17,000

14,790

Simon Property Group LP, (REIT), 6.125%, 5/30/2018

2,600,000

1,851,265

SLM Corp., Series A, 4.5%, 7/26/2010

375,000

293,490

Sprint Capital Corp.:

 

 

7.625%, 1/30/2011

75,000

62,250

8.375%, 3/15/2012

30,000

24,150

The Goldman Sachs Group, Inc., 6.15%, 4/1/2018

3,000,000

2,485,179

Tropicana Entertainment LLC, 9.625%, 12/15/2014**

235,000

11,163

UCI Holdco, Inc., 10.316%***, 12/15/2013 (PIK)

111,346

42,311

Universal City Development Partners, 11.75%, 4/1/2010

390,000

312,000

Wind Acquisition Finance SA, 144A, 10.75%, 12/1/2015

75,000

57,750

 

33,887,044

Health Care 0.2%

Advanced Medical Optics, Inc., 7.5%, 5/1/2017

135,000

89,100

Boston Scientific Corp., 6.0%, 6/15/2011

80,000

71,600

Community Health Systems, Inc., 8.875%, 7/15/2015

600,000

502,500

HCA, Inc.:

 

 

9.125%, 11/15/2014

115,000

98,900

9.25%, 11/15/2016

430,000

365,500

9.625%, 11/15/2016 (PIK)

125,000

100,625

HEALTHSOUTH Corp., 10.75%, 6/15/2016

60,000

54,300

IASIS Healthcare LLC, 8.75%, 6/15/2014

95,000

75,050

Psychiatric Solutions, Inc., 7.75%, 7/15/2015

80,000

65,800

Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK)

90,000

67,500

The Cooper Companies, Inc., 7.125%, 2/15/2015

150,000

120,000

Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015

100,000

78,500

Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014

245,000

203,350

 

1,892,725

Industrials 0.5%

Actuant Corp., 6.875%, 6/15/2017

60,000

51,300

ARAMARK Corp., 8.5%, 2/1/2015

30,000

25,650

Baldor Electric Co., 8.625%, 2/15/2017

75,000

57,375

BE Aerospace, Inc., 8.5%, 7/1/2018

160,000

137,600

Belden, Inc., 7.0%, 3/15/2017

75,000

57,375

Browning-Ferris Industries, Inc., 7.4%, 9/15/2035

255,000

191,250

Cenveo Corp., 144A, 10.5%, 8/15/2016

25,000

21,125

Congoleum Corp., 8.625%, 8/1/2008**

572,000

429,000

DRS Technologies, Inc.:

 

 

6.625%, 2/1/2016

35,000

34,650

6.875%, 11/1/2013

210,000

207,900

7.625%, 2/1/2018

255,000

252,450

Education Management LLC, 8.75%, 6/1/2014

15,000

10,950

Esco Corp.:

 

 

144A, 6.694%***, 12/15/2013

50,000

38,000

144A, 8.625%, 12/15/2013

155,000

124,000

General Cable Corp., 7.125%, 4/1/2017

5,000

3,200

Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015

25,000

16,750

Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013

60,000

43,200

K. Hovnanian Enterprises, Inc., 8.875%, 4/1/2012

220,000

85,800

Kansas City Southern de Mexico SA de CV:

 

 

7.375%, 6/1/2014

65,000

50,862

7.625%, 12/1/2013

200,000

156,500

9.375%, 5/1/2012

190,000

160,550

Kansas City Southern Railway Co., 7.5%, 6/15/2009

60,000

57,600

Lockheed Martin Corp., 4.121%, 3/14/2013

1,500,000

1,390,401

Mobile Services Group, Inc., 9.75%, 8/1/2014

90,000

67,500

Moog, Inc., 144A, 7.25%, 6/15/2018

30,000

24,000

Navios Maritime Holdings, Inc., 9.5%, 12/15/2014

115,000

94,300

R.H. Donnelley Corp., Series A-4, 8.875%, 10/15/2017

250,000

53,750

RBS Global & Rexnord Corp., 9.5%, 8/1/2014

65,000

44,850

Seitel, Inc., 9.75%, 2/15/2014

45,000

28,350

Titan International, Inc., 8.0%, 1/15/2012

265,000

235,850

TransDigm, Inc., 7.75%, 7/15/2014

45,000

36,000

Union Pacific Corp., 5.7%, 8/15/2018

1,500,000

1,261,614

United Rentals North America, Inc.:

 

 

6.5%, 2/15/2012

50,000

35,000

7.0%, 2/15/2014

210,000

114,450

US Concrete, Inc., 8.375%, 4/1/2014

125,000

78,125

Vertis, Inc., 13.5%, 4/1/2014 (PIK)

102,535

23,921

 

5,701,198

Information Technology 0.5%

Alion Science & Technology Corp., 10.25%, 2/1/2015

60,000

33,000

Freescale Semiconductor, Inc., 8.875%, 12/15/2014

190,000

84,550

L-3 Communications Corp.:

 

 

5.875%, 1/15/2015

250,000

205,000

Series B, 6.375%, 10/15/2015

115,000

95,450

Lucent Technologies, Inc., 6.45%, 3/15/2029

135,000

66,150

MasTec, Inc., 7.625%, 2/1/2017

105,000

84,000

Seagate Technology HDD Holdings, 6.8%, 10/1/2016

140,000

98,000

SunGard Data Systems, Inc., 10.25%, 8/15/2015

195,000

136,500

Tyco Electronics Group SA, 6.55%, 10/1/2017

1,500,000

1,248,670

Vangent, Inc., 9.625%, 2/15/2015

80,000

47,200

Xerox Corp., 5.65%, 5/15/2013

3,900,000

3,078,110

 

5,176,630

Materials 0.5%

Appleton Papers, Inc., Series B, 8.125%, 6/15/2011

45,000

31,500

ARCO Chemical Co., 9.8%, 2/1/2020

635,000

298,450

Cascades, Inc., 7.25%, 2/15/2013

221,000

122,655

Chemtura Corp., 6.875%, 6/1/2016

160,000

100,000

Clondalkin Acquisition BV, 144A, 4.819%***, 12/15/2013

90,000

58,500

CPG International I, Inc., 10.5%, 7/1/2013

195,000

125,775

Exopack Holding Corp., 11.25%, 2/1/2014

255,000

196,350

Freeport-McMoRan Copper & Gold, Inc.:

 

 

8.25%, 4/1/2015

205,000

164,000

8.375%, 4/1/2017

400,000

314,000

GEO Specialty Chemicals, Inc.:

 

 

144A, 7.5%***, 3/31/2015 (PIK)

585,071

427,102

144A, 10.698%***, 12/31/2009

959,000

700,070

Georgia-Pacific LLC, 144A, 7.125%, 1/15/2017

50,000

34,750

Hexcel Corp., 6.75%, 2/1/2015

305,000

231,800

Huntsman LLC, 11.625%, 10/15/2010

400,000

396,000

Innophos, Inc., 8.875%, 8/15/2014

35,000

30,800

Jefferson Smurfit Corp., 8.25%, 10/1/2012

135,000

68,850

Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014

215,000

172,000

Metals USA Holdings Corp.,
9.883%***, 7/1/2012 (PIK)

50,000

27,500

Millar Western Forest Products Ltd.,
7.75%, 11/15/2013

40,000

22,000

Momentive Performance Materials, Inc.,
9.75%, 12/1/2014

110,000

61,600

Monsanto Co., 5.875%, 4/15/2038

1,500,000

1,256,690

NewMarket Corp., 7.125%, 12/15/2016

195,000

159,900

OI European Group BV, 144A, 6.875%, 3/31/2017 EUR

85,000

83,419

Pliant Corp., 11.85%, 6/15/2009 (PIK)

10

7

Radnor Holdings Corp., 11.0%, 3/15/2010**

120,000

150

Rhodia SA, 144A, 8.068%***, 10/15/2013 EUR

85,000

68,794

Smurfit-Stone Container Enterprises, Inc.:

 

 

8.0%, 3/15/2017

110,000

53,900

8.375%, 7/1/2012

80,000

40,800

Steel Dynamics, Inc.:

 

 

6.75%, 4/1/2015

35,000

22,925

7.375%, 11/1/2012

30,000

22,313

Terra Capital, Inc., Series B, 7.0%, 2/1/2017

160,000

136,000

The Mosaic Co., 144A, 7.375%, 12/1/2014

135,000

118,014

Witco Corp., 6.875%, 2/1/2026

155,000

68,200

Wolverine Tube, Inc., 10.5%, 4/1/2009

135,000

121,500

 

5,736,314

Telecommunication Services 0.5%

BCM Ireland Preferred Equity Ltd., 144A, 11.964%***, 2/15/2017 (PIK) EUR

219,736

62,759

Centennial Communications Corp.:

 

 

10.0%, 1/1/2013

55,000

48,675

10.125%, 6/15/2013

120,000

106,200

Cincinnati Bell, Inc.:

 

 

7.25%, 7/15/2013

220,000

167,200

8.375%, 1/15/2014

85,000

61,412

Cricket Communications, Inc.:

 

 

9.375%, 11/1/2014

170,000

138,125

144A, 10.0%, 7/15/2015

155,000

130,587

Embratel, Series B, 11.0%, 12/15/2008

85,000

83,725

Grupo Iusacell Celular SA de CV, 10.0%, 3/31/2012

48,081

40,869

Hellas Telecommunications Luxembourg V, 144A, 8.818%***, 10/15/2012 EUR

100,000

66,277

Intelsat Corp.:

 

 

144A, 9.25%, 8/15/2014

30,000

25,800

144A, 9.25%, 6/15/2016

355,000

294,650

Intelsat Subsidiary Holding Co., Ltd., 144A, 8.875%, 1/15/2015

190,000

161,500

iPCS, Inc., 4.926%***, 5/1/2013

35,000

26,950

MetroPCS Wireless, Inc., 9.25%, 11/1/2014

185,000

154,012

Millicom International Cellular SA, 10.0%, 12/1/2013

270,000

210,600

Qwest Corp.:

 

 

7.25%, 9/15/2025

25,000

16,625

7.875%, 9/1/2011

210,000

182,175

8.875%, 3/15/2012

45,000

39,375

Rogers Communications, Inc., 6.8%, 8/15/2018

1,500,000

1,312,549

Sprint Nextel Corp., 6.0%, 12/1/2016

75,000

51,938

Stratos Global Corp., 9.875%, 2/15/2013

55,000

46,475

Telesat Canada, 144A, 11.0%, 11/1/2015

710,000

426,000

Verizon Communications, Inc., 8.95%, 3/1/2039

1,500,000

1,524,525

Virgin Media Finance PLC:

 

 

8.75%, 4/15/2014

180,000

126,000

8.75%, 4/15/2014 EUR

200,000

142,750

Windstream Corp.:

 

 

7.0%, 3/15/2019

90,000

54,900

8.625%, 8/1/2016

15,000

11,325

 

5,713,978

Utilities 1.0%

AES Corp.:

 

 

8.0%, 10/15/2017

150,000

115,500

144A, 8.0%, 6/1/2020

155,000

113,925

144A, 8.75%, 5/15/2013

486,000

442,260

9.5%, 6/1/2009

85,000

82,025

Allegheny Energy Supply Co., LLC, 144A,
8.25%, 4/15/2012

595,000

544,425

American Electric Power Co., Inc., Series C, 5.375%, 3/15/2010

3,000,000

2,918,538

Appalachian Power Co., 7.0%, 4/1/2038

2,250,000

1,757,819

CenterPoint Energy, Inc., 6.5%, 5/1/2018

2,250,000

1,702,629

CMS Energy Corp., 8.5%, 4/15/2011

355,000

338,776

DPL, Inc., 6.875%, 9/1/2011

1,500,000

1,430,085

Edison Mission Energy, 7.0%, 5/15/2017

160,000

126,600

Energy Future Holdings Corp., 144A,
10.875%, 11/1/2017

220,000

169,400

Knight, Inc., 6.5%, 9/1/2012

45,000

39,375

Mirant Americas Generation LLC, 8.3%, 5/1/2011

130,000

119,275

Mirant North America LLC, 7.375%, 12/31/2013

60,000

52,425

NRG Energy, Inc.:

 

 

7.25%, 2/1/2014

180,000

157,500

7.375%, 2/1/2016

165,000

142,313

7.375%, 1/15/2017

55,000

47,575

Regency Energy Partners LP, 8.375%, 12/15/2013

105,000

79,800

Reliant Energy, Inc., 7.875%, 6/15/2017

180,000

137,700

Sierra Pacific Resources:

 

 

6.75%, 8/15/2017

180,000

141,570

8.625%, 3/15/2014

31,000

27,237

Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015

325,000

247,813

 

10,934,565

Total Corporate Bonds (Cost $111,752,702)

91,138,529

 

Asset-Backed 0.7%

Automobile Receivables 0.2%

Capital Auto Receivables Asset Trust, "B", Series 2006-1, 5.26%, 10/15/2010

1,643,000

1,601,349

Ford Credit Auto Owner Trust, "B", Series 2007-B, 5.69%, 11/15/2012

1,517,000

1,256,128

 

2,857,477

Home Equity Loans 0.5%

Countrywide Asset-Backed Certificates, "1AF2", Series 2005-17, 5.363%, 5/25/2036

2,027,163

1,828,290

Credit-Based Asset Servicing and Securitization LLC, "AF2", Series 2006-CB2, 5.501%, 12/25/2036

3,814,900

3,330,351

 

5,158,641

Total Asset-Backed (Cost $9,001,385)

8,016,118

 

Mortgage-Backed Securities Pass-Throughs 7.5%

Federal Home Loan Bank, 6.0%, 11/1/2021

1,167,863

1,193,976

Federal Home Loan Mortgage Corp.:

 

 

5.0%, 10/1/2035

7,173,599

6,802,870

5.5%, 4/1/2038

26,064,055

25,433,833

Federal National Mortgage Association:

 

 

4.5%, 11/1/2028 (d)

2,367,005

2,158,968

5.5%, with various maturities from 2/1/2037 until 4/1/2038

28,370,469

27,425,200

6.0%, with various maturities from 8/1/2037 until 5/1/2038

17,894,363

17,897,054

6.5%, with various maturities from 4/1/2017 until 6/1/2017

775,577

790,180

8.0%, 9/1/2015

542,953

570,485

Government National Mortgage Association, 6.5%, 8/20/2034

346,927

351,671

Total Mortgage-Backed Securities Pass-Throughs (Cost $84,069,197)

82,624,237

 

Commercial and Non-Agency Mortgage-Backed Securities 7.2%

Adjustable Rate Mortgage Trust, "3A31", Series 2005-10, 5.415%***, 1/25/2036

3,015,000

1,909,862

Bear Stearns Adjustable Rate Mortgage Trust, "12A5", Series 2004-1, 4.455%***, 4/25/2034

5,176,508

4,057,317

Citigroup Mortgage Loan Trust, Inc., "1CB2", Series 2004-NCM2, 6.75%, 8/25/2034

757,712

692,123

Countrywide Alternative Loan Trust:

 

 

"3A11", Series 2005-20CB, 3.559%***, 7/25/2035

3,327,693

2,863,761

"A1", Series 2004-1T1, 5.0%, 2/25/2034

1,242,549

1,119,634

"1A5", Series 2003-J1, 5.25%, 10/25/2033

1,140,733

1,050,296

"4A3", Series 2005-43, 5.673%***, 10/25/2035

3,419,268

1,954,339

"1A4", Series 2006-43CB, 6.0%, 2/25/2037

3,165,143

2,587,573

"3A5", Series 2005-28CB, 6.0%, 8/25/2035

3,629,965

3,083,291

"A1", Series 2004-35T2, 6.0%, 2/25/2035

1,182,413

1,089,140

Credit Suisse Mortgage Capital Certificates Trust, "A3", Series 2008-C1, 6.426%***, 2/15/2041

5,000,000

3,864,978

First Horizon Alternative Mortgage Securities, "1A7", Series 2006-FA8, 6.0%, 2/25/2037

5,096,001

4,449,106

GS Mortgage Securities Corp. II, "AAB", Series 2006-GG8, 5.535%, 11/10/2039

5,300,000

4,286,922

JPMorgan Alternative Loan Trust, "2A4", Series 2006-S1, 5.5%, 2/25/2021

5,842,797

4,867,959

JPMorgan Chase Commercial Mortgage Securities Corp., "ASB", Series 2007-CB20, 5.688%, 2/12/2051

11,250,000

8,788,104

NYC Mortgage Loan Trust, "A3", Series 1996, 144A, 6.75%, 9/25/2019

1,047,267

1,031,558

Structured Adjustable Rate Mortgage Loan Trust:

 

 

"6A3", Series 2005-21, 5.4%, 11/25/2035

2,725,000

1,704,246

"5A1", Series 2005-18, 5.528%***, 9/25/2035

1,890,581

1,391,112

Structured Asset Securities Corp., "4A1", Series 2005-6, 5.0%, 5/25/2035

1,955,972

1,657,687

Wachovia Bank Commercial Mortgage Trust:

 

 

"APB", Series 2006-C23, 5.446%, 1/15/2045

5,900,000

4,819,783

"APB", Series 2007-C34, 5.617%, 5/15/2046

8,625,000

6,661,783

Wachovia Mortgage Loan Trust LLC, "1A1", Series 2006-A, 5.465%***, 5/20/2036

13,698,021

10,179,934

Washington Mutual Mortgage Pass-Through Certificates Trust:

 

 

"1A6", Series 2005-AR12, 4.834%***, 10/25/2035

5,590,000

3,521,820

"1A3", Series 2005-AR16, 5.103%***, 12/25/2035

3,005,000

1,987,417

Total Commercial and Non-Agency Mortgage-Backed Securities (Cost $102,335,968)

79,619,745

 

Collateralized Mortgage Obligations 1.5%

Fannie Mae Whole Loan, "1A1", Series 2004-W15, 6.0%, 8/25/2044

1,362,541

1,356,840

Federal Home Loan Mortgage Corp., "OS", Series 3102, Principal Only, Zero Coupon, 1/15/2036

10,835,553

8,464,298

Federal National Mortgage Association, "2", Series 379, Interest Only, 5.5%, 5/1/2037

41,236

9,977

Government National Mortgage Association, "CK", Series 2007-31, 5.0%, 5/16/2037

7,500,000

6,651,812

Total Collateralized Mortgage Obligations (Cost $16,889,504)

16,482,927

 

Senior Loans*** 0.2%

Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 4.924%, 4/2/2014

43,582

32,252

Algoma Steel, Inc., Term Loan B, LIBOR plus 2.5%, 5.674%, 6/20/2013

59,848

48,477

Alliance Mortgage Cycle Loan, Term Loan A, LIBOR plus 7.25%, 10.424%, 6/1/2010**

233,333

0

Buffets, Inc.:

 

 

Letter of Credit, LIBOR plus 7.25%, 10.424%, 5/1/2013

83,455

26,983

Term Loan B, LIBOR plus 7.25%, 10.424%, 11/1/2013

424,534

137,267

Term Loan DIP, LIBOR plus 7.25%, 10.424%, 1/22/2009

204,094

65,989

Energy Future Holdings Corp.:

 

 

Term Loan B2, LIBOR plus 3.5%, 6.674%, 10/14/2014

672,703

529,837

Term Loan B3, LIBOR plus 3.5%, 6.674%, 10/14/2014

355,252

279,711

Ford Motor Co., Term Loan B, LIBOR plus 3.0%, 6.174%, 12/16/2013

79,797

44,227

General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 5.424%, 9/16/2013

49,497

33,658

Golden Nugget, Term Loan, 6.51%, 6/16/2014

100,000

40,000

Hawker Beechcraft, Inc.:

 

 

Letter of Credit, LIBOR plus 2.0%, 5.174%, 3/26/2014

2,939

1,896

Term Loan B, LIBOR plus 2.0%, 5.174%, 3/26/2014

50,307

32,448

HCA, Inc., Term Loan A, LIBOR plus 1.5%, 4.674%, 11/18/2012

265,022

224,758

Hexion Specialty Chemicals:

 

 

Term Loan C1, LIBOR plus 2.25%, 5.424%, 5/6/2013

248,235

174,509

Term Loan C2, LIBOR plus 2.25%, 5.424%, 5/6/2013

32,779

23,044

IASIS Healthcare LLC, Term Loan, LIBOR plus 5.25%, (PIK) 8.424%, 6/15/2014

230,457

178,603

Longview Power LLC:

 

 

Demand Draw, 5.75%, 4/1/2014

102,000

70,125

Letter of Credit, 3.663%, 4/1/2014

27,000

18,563

Term Loan B, 5.125%, 4/1/2014

81,000

55,687

Sabre, Inc., Term Loan B, LIBOR plus 2.0%, 5.174%, 9/30/2014

78,657

45,009

Symbion:

 

 

Term Loan B, LIBOR plus 3.25%, 6.424%, 8/23/2013

33,988

23,791

Term Loan B, LIBOR plus 3.25%, 6.424%, 8/23/2014

33,988

23,791

Telesat Canada:

 

 

Term Loan B, LIBOR plus 3.0%, 6.174%, 10/31/2014

233,159

179,300

Delayed Draw Term Loan, LIBOR plus 3.0%, 6.174%, 10/31/2014

20,028

15,402

Tribune Co., Tranche B, LIBOR plus 3.0%, 6.174% 5/19/2014

216,681

98,590

Total Senior Loans (Cost $3,839,273)

2,403,917

 

Government & Agency Obligations 8.3%

US Government Sponsored Agencies 2.2%

Federal Home Loan Bank, 4.375%, 10/22/2010

3,500,000

3,567,718

Federal National Mortgage Association, 3.625%, 8/15/2011 (e)

20,000,000

20,200,180

 

23,767,898

US Treasury Obligations 6.1%

US Treasury Bill, 0.17%****, 1/15/2009 (f)

20,935,000

20,919,508

US Treasury Bond, 4.75%, 2/15/2037 (e)

13,000,000

13,783,042

US Treasury Notes:

 

 

3.375%, 7/31/2013 (e)

10,000,000

10,293,750

3.875%, 5/15/2018 (e)

22,000,000

21,963,898

 

66,960,198

Total Government & Agency Obligations (Cost $91,116,995)

90,728,096

 

Exchange Traded Fund 0.2%

iShares MSCI Japan Index Fund (Cost $3,102,757)

276,081

2,481,968

 

Preferred Securities 0.1%

Financials

Citigroup, Inc., Series E, 8.4%, 4/30/2018 (g)

120,000

83,412

Farm Credit Bank of Texas, Series 1, 7.561%, 12/15/2013 (g)

889,000

533,365

Xerox Capital Trust I, 8.0%, 2/1/2027

80,000

59,484

Total Preferred Securities (Cost $1,149,110)

676,261

 


Units

Value ($)

 

 

Other Investments 0.0%

Hercules, Inc., (Bond Unit), 6.5%, 6/30/2029 (Cost $348,079)

506,000

333,960

 


Shares

Value ($)

 

 

Securities Lending Collateral 6.3%

Daily Assets Fund Institutional, 2.63% (h) (i) (Cost $68,705,000)

68,705,000

68,705,000

 

Cash Equivalents 10.3%

Cash Management QP Trust, 2.30% (h) (Cost $113,682,212)

113,682,212

113,682,212

 

% of Net Assets

Value ($)

 

 

Total Investment Portfolio (Cost $1,372,811,484)+

107.7

1,185,423,156

Other Assets and Liabilities, Net

(7.7)

(85,033,752)

Net Assets

100.0

1,100,389,404

* 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 ($)

Alliance Mortgage Cycle Loan

10.424%

6/4/2010

233,333

USD

233,333

0

Ashton Woods USA LLC

9.5%

10/1/2015

215,000

USD

195,058

43,000

Congoleum Corp.

8.625%

8/1/2008

572,000

USD

573,205

429,000

Quebecor World, Inc.

9.75%

1/15/2015

115,000

USD

115,000

16,100

Radnor Holdings Corp.

11.0%

3/15/2010

120,000

USD

79,038

150

Tropicana Entertainment LLC

9.625%

12/15/2014

235,000

USD

172,931

11,163

 

 

 

 

 

1,368,565

499,413

*** Floating rate notes are securities whose yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury Bill rate. These securities are shown at their current rate as of October 31, 2008.
**** Annualized yield at time of purchase; not a coupon rate.
+ The cost for federal income tax purposes was $1,394,574,732. At October 31, 2008, net unrealized depreciation for all securities based on tax cost was $209,151,576. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $37,208,767 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $246,360,343.
(a) Securities with the same description are the same corporate entity but trade on different stock exchanges.
(b) Principal amount stated in US dollars unless otherwise noted.
(c) Security has deferred its 6/15/2008 interest payment until 12/15/2008.
(d) At October 31, 2008, this security has been pledged, in whole or in part, as collateral for open credit default swaps.
(e) All or a portion of these securities were on loan (see Notes to Financial Statements). The value of all securities loaned at October 31, 2008 amounted to $66,240,870, which is 6.0% of net assets.
(f) At October 31, 2008, this security has been pledged, in whole or in part, to cover initial margin requirements for open futures contracts.
(g) Date shown is call date; not a maturity date for the perpetual preferred securities.
(h) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(i) Represents collateral held in connection with securities lending. Income earned by the Fund 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

GDR: Global Depositary Receipt

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.

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 payment on a pool of underlying mortgages 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

At October 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

12/15/2008

338

23,210,695

23,885,312

674,617

10 Year Canadian Government Bond

12/18/2008

183

17,772,002

17,792,890

20,888

10 Year Federal Republic of Germany Bond

12/8/2008

203

29,517,690

29,994,978

477,288

10 Year US Treasury Note

12/19/2008

160

18,626,386

18,092,501

(533,885)

AEX Index

11/21/2008

194

13,145,477

13,179,096

33,619

DJ Euro Stoxx 50 Index

12/19/2008

62

2,177,421

2,048,252

(129,169)

FTSE 100 Index

12/19/2008

2

171,241

140,931

(30,310)

Hang Seng Index

11/27/2008

54

3,957,747

4,853,001

895,254

IBEX 35 Index

11/21/2008

6

783,193

688,218

(94,975)

Nikkei 225 Index

12/11/2008

4

250,917

178,700

(72,217)

Russell 2000 Mini Index

12/19/2008

255

14,427,617

13,680,750

(746,867)

S&P 500 E-Mini Index

12/19/2008

454

23,518,627

21,957,710

(1,560,917)

S&P 500 Index

12/18/2008

6

1,878,153

1,450,950

(427,203)

S&P MIB Index

12/19/2008

27

4,573,104

3,650,686

(922,418)

SPI 200 Index

12/18/2008

109

7,453,726

7,308,786

(144,940)

United Kingdom Treasury Bond

12/29/2008

256

46,084,331

45,850,759

(233,572)

Total net unrealized depreciation

(2,794,807)

At October 31, 2008, open futures contracts sold were as follows:

Futures

Expiration Date

Contracts

Aggregated Face Value ($)

Value ($)

Unrealized Appreciation/ (Depreciation) ($)

2 Year Federal Republic of Germany

12/8/2008

497

66,319,272

67,155,314

(836,042)

2 Year US Treasury Note

12/31/2008

95

20,361,406

20,408,671

(47,265)

10 Year Japanese Government Bond

12/11/2008

77

107,444,726

107,851,589

(406,863)

10 Year US Treasury Note

12/19/2008

53

5,917,836

5,993,141

(75,305)

CAC 40 Index

11/21/2008

81

3,416,019

3,581,860

(165,841)

DAX Index

12/19/2008

18

2,741,148

2,905,017

(163,869)

FTSE 100 Index

12/19/2008

59

4,623,029

4,157,457

465,572

Russell 2000 Mini Index

12/19/2008

48

3,316,687

2,575,200

741,487

S&P TSE 60 Index

12/18/2008

33

3,286,291

3,236,754

49,537

TOPIX Index

12/12/2008

200

23,698,112

17,338,341

6,359,771

Total net unrealized appreciation

5,921,182

At October 31, 2008, open credit default swap contract purchased was as follows:

Effective/
Expiration Date

Notional Amount ($)

Cash Flows Paid by the Fund

Underlying Debt Obligation

Unrealized Appreciation ($)

5/6/2008
6/20/2013

80,0001

Fixed — 7.25%

ARCO Chemical Co., 9.8%, 2/1/2020

18,539

At October 31, 2008, open credit default swap contracts sold were as follows:

Effective/
Expiration Date

Notional Amount ($)

Cash Flows Received by the Fund

Underlying Debt Obligation

Unrealized Appreciation/
(Depreciation) ($)

10/9/2007
12/20/2008

235,0002

Fixed — 3.1%

Ford Motor Co., 6.5%, 8/1/2018

(12,626)

10/5/2007
12/20/2008

140,0003

Fixed — 3.15%

Ford Motor Co., 6.5%, 8/1/2018

(7,504)

10/4/2007
12/20/2008

250,0004

Fixed — 2.6%

General Motors Corp., 7.125%, 7/15/2013

(20,496)

10/3/2007
12/20/2008

235,0003

Fixed — 3.2%

General Motors Corp., 7.125%, 7/15/2013

(18,906)

2/19/2008
3/20/2009

130,0001

Fixed — 3.8%

HCA, Inc., 7.7%, 3/20/2009

(288)

2/26/2008
3/20/2009

180,0001

Fixed — 5.0%

Tenet Healthcare Corp., 7.375%, 2/1/2013

483

Total net unrealized depreciation

(59,337)

Counterparty:
1 Merrill Lynch, Pierce, Fenner & Smith, Inc.
2 Goldman Sachs & Co.
3 JPMorgan Chase Securities, Inc.
4 Citigroup Global Markets, Inc.

As of October 31, 2008, the Fund had the following open forward foreign currency exchange contracts:

Contracts to Deliver

 

In Exchange For

 

Settlement Date

Unrealized Appreciation ($)

USD

1,684,609

 
 EUR

1,324,000

 

11/5/2008

2,568

USD

29,182

 
 EUR

22,900

 

11/5/2008

0

USD

187,336

 
 SGD

278,000

 

11/5/2008

13

EUR

558,000

 
 USD

754,176

 

11/17/2008

43,446

EUR

7,900

 
 USD

10,227

 

11/17/2008

164

USD

10,695

 
 EUR

8,400

 

11/17/2008

4

CAD

30,807,000

 

USD

28,808,847

 

12/15/2008

3,251,462

CHF

20,379,000

 

USD

17,907,733

 

12/15/2008

322,194

DKK

6,099,000

 

USD

1,137,215

 

12/15/2008

96,026

EUR

38,727,000

 

USD

53,870,806

 

12/15/2008

4,577,937

GBP

30,264,000

 

USD

54,869,389

 

12/15/2008

6,292,681

GBP

9,258,000

 

USD

15,903,855

 

12/15/2008

1,043,852

USD

890,842

 
 JPY

94,411,000

 

12/15/2008

69,509

NOK

88,219,000

 

USD

13,178,423

 

12/15/2008

124,462

NZD

6,248,000

 

USD

4,118,682

 

12/15/2008

500,788

NZD

27,905,000

 

USD

16,946,706

 

12/15/2008

788,367

SEK

1,331,000

 

USD

189,184

 

12/15/2008

17,848

SGD

54,917,000

 

USD

38,031,427

 

12/15/2008

946,269

Total unrealized appreciation

18,077,590

Contracts to Deliver

 

In Exchange For

 

Settlement Date

Unrealized Depreciation ($)

USD

1,617,677

 
 JPY

159,050,000

 

11/4/2008

(2,890)

USD

374,836

 

AUD

565,000

 

11/5/2008

(2,115)

USD

19,152

 
 CAD

23,030

 

11/5/2008

(46)

USD

135,528

 
 CAD

163,000

 

11/5/2008

(299)

USD

147,549

 

CHF

171,000

 

11/5/2008

(1,149)

USD

140,880

 

DKK

824,000

 

11/5/2008

(581)

USD

37,726

 

GBP

23,446

 

11/5/2008

(6)

USD

78,987

 
 GBP

49,000

 

11/5/2008

(153)

USD

753,414

 

NOK

5,043,000

 

11/5/2008

(4,388)

USD

167,616

 

NZD

288,000

 

11/5/2008

(251)

USD

389,983

 

SEK

3,019,000

 

11/5/2008

(2,668)

USD

34,687

 

EUR

25,800

 

11/17/2008

(1,825)

USD

1,078,968

 

AUD

1,372,000

 

12/15/2008

(171,069)

USD

7,871,891

 

AUD

10,067,000

 

12/15/2008

(1,210,216)

USD

12,523,758

 

AUD

18,584,000

 

12/15/2008

(226,096)

USD

4,103,782

 

CAD

4,356,000

 

12/15/2008

(490,058)

USD

3,915,652

 

CAD

4,633,000

 

12/15/2008

(72,131)

USD

24,680,097

 

CHF

27,868,000

 

12/15/2008

(632,118)

USD

1,132,023

 

DKK

6,099,000

 

12/15/2008

(90,828)

USD

15,470,394

 

EUR

11,474,000

 

12/15/2008

(865,950)

USD

21,296,811

 

EUR

15,827,000

 

12/15/2008

(1,151,741)

USD

22,814,100

 

EUR

17,245,000

 

12/15/2008

(864,158)

USD

30,161,942

 

GBP

17,102,000

 

12/15/2008

(2,711,544)

JPY

1,654,408,000

 

USD

15,770,911

 

12/15/2008

(1,057,771)

JPY

683,626,000

 

USD

6,805,973

 

12/15/2008

(147,889)

USD

25,738,240

 

NZD

40,216,000

 

12/15/2008

(2,451,238)

USD

4,118,991

 

SEK

28,295,000

 

12/15/2008

(476,643)

USD

9,791,196

 

SEK

72,225,000

 

12/15/2008

(493,843)

USD

104,888,943

 

SGD

149,395,000

 

12/15/2008

(4,003,292)

Total unrealized depreciation

(17,132,956)

Currency Abbreviations

AUD Australian Dollar
CAD Canadian Dollar
CHF Swiss Franc
DKK Danish Krone
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

The accompanying notes are an integral part of the financial statements.

Financial Statements

Statement of Assets and Liabilities as of October 31, 2008

Assets

Investments:

Investments in securities, at value (cost $1,190,424,272) — including $66,240,870 of securities loaned

$ 1,003,035,944

Investment in Daily Assets Fund Institutional (cost $68,705,000)*

68,705,000

Investment in Cash Management QP Trust (cost $113,682,212)

113,682,212

Total investments, at value (cost $1,372,811,484)

1,185,423,156

Cash

274,536

Foreign currency, at value (cost $2,859,242)

2,836,010

Receivable for investments sold

18,566,954

Dividends receivable

841,145

Interest receivable

4,214,437

Receivable for Fund shares sold

92,374

Unrealized appreciation on forward foreign currency exchange contracts

18,077,590

Foreign taxes recoverable

81,476

Other assets

62,255

Total assets

1,230,469,933

Liabilities

Payable upon return of securities loaned

68,705,000

Payable for investments purchased

29,634,441

Payable for Fund shares redeemed

1,874,713

Payable for variation margin on open futures contracts

677,983

Net payable for closed credit default swap contracts

13,466

Net payable on closed forward foreign currency exchange contracts

10,133,313

Unrealized depreciation on forward foreign currency exchange contracts

17,132,956

Net unrealized depreciation on credit default swap contracts

40,798

Accrued management fee

357,392

Other accrued expenses and payables

1,510,467

Total liabilities

130,080,529

Net assets, at value

$ 1,100,389,404

* Represents collateral on securities loaned.

The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities as of October 31, 2008 (continued)

Net Assets Consist of

Undistributed net investment income

6,941,906

Net unrealized appreciation (depreciation) on:

Investments

(187,388,328)

Futures

3,126,375

Credit default swaps

(40,798)

Foreign currency

895,366

Accumulated net realized gain (loss)

(74,673,178)

Paid-in capital

1,351,528,061

Net assets, at value

$ 1,100,389,404

Net Asset Value

Class A

Net Asset Value and redemption price per share ($815,135,881 ÷ 114,631,134 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 7.11

Maximum offering price per share (100 ÷ 94.25 of $7.11)

$ 7.54

Class B

Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($22,412,452 ÷ 3,133,766 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 7.15

Class C

Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($17,807,348 ÷ 2,509,365 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 7.10

Class S

Net Asset Value, offering and redemption price per share ($244,764,337 ÷ 34,413,189 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 7.11

Institutional Class

Net Asset Value, offering and redemption price per share ($269,386 ÷ 37,848 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 7.12

The accompanying notes are an integral part of the financial statements.

Statement of Operations for the year ended October 31, 2008

Investment Income

Income:
Dividends (net of foreign taxes withheld of $467,371)

$ 18,744,941

Interest (net of foreign taxes withheld of $8,696)

29,983,169

Interest — Cash Management QP Trust

3,467,026

Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates

585,020

Total Income

52,780,156

Expenses:
Management fee

6,424,662

Administration fee

717,413

Services to shareholders

2,754,723

Distribution and service fees

3,331,716

Custodian fee

395,401

Professional fees

156,853

Reports to shareholders and shareholder meeting

811,271

Registration fees

79,461

Trustees' fees and expenses

161,091

Other

136,952

Total expenses before expense reductions

14,969,543

Expense reductions

(705,115)

Total expenses after expense reductions

14,264,428

Net investment income (loss)

38,515,728

Realized and Unrealized Gain (Loss)

Net realized gain (loss) from:
Investments

(40,615,338)

Futures

(6,220,948)

Credit default swaps

(558,827)

Foreign currency

(12,342,609)

Payments made by affiliates (See Note G)

36,855

 

(59,700,867)

Change in net unrealized appreciation (depreciation) on:
Investments

(436,064,588)

Futures

2,581,621

Credit default swaps

32,956

Unfunded loan commitments

(1,777)

Foreign currency

(528,954)

 

(433,980,742)

Net gain (loss)

(493,681,609)

Net increase (decrease) in net assets resulting from operations

$ (455,165,881)

The accompanying notes are an integral part of the financial statements.

Statement of Changes in Net Assets

Increase (Decrease) in Net Assets

Years Ended October 31,

2008

2007

Operations:
Net investment income (loss)

$ 38,515,728

$ 47,629,715

Net realized gain (loss)

(59,700,867)

141,691,650

Change in net unrealized appreciation (depreciation)

(433,980,742)

(31,401,516)

Net increase (decrease) in net assets resulting from operations

(455,165,881)

157,919,849

Distributions to shareholders from:
Net investment income:

Class A

(27,869,661)

(42,404,195)

Class B

(846,131)

(1,884,282)

Class C

(432,663)

(744,003)

Class S

(9,054,876)

(13,552,448)

Institutional Class

(9,651)

(14,803)

Net realized gains:

Class A

(6,432,304)

—

Class B

(243,190)

—

Class C

(155,159)

—

Class S

(1,938,318)

—

Institutional Class

(1,890)

—

Tax return of capital:

Class A

(4,267,519)

—

Class B

(142,881)

—

Class C

(100,275)

—

Class S

(1,286,678)

—

Institutional Class

(1,317)

—

Total distributions

(52,782,513)

(58,599,731)

Fund share transactions:
Proceeds from shares sold

67,098,717

85,392,368

Reinvestment of distributions

49,132,419

54,493,897

Cost of shares redeemed

(282,834,277)

(354,693,520)

Redemption fees

10,445

11,529

Net increase (decrease) in net assets from Fund share transactions

(166,592,696)

(214,795,726)

Increase (decrease) in net assets

(674,541,090)

(115,475,608)

Net assets at beginning of period

1,774,930,494

1,890,406,102

Net assets at end of period (including undistributed net investment income of $6,941,906 and $6,929,636, respectively)

$ 1,100,389,404

$ 1,774,930,494

The accompanying notes are an integral part of the financial statements.

Financial Highlights

Class A

Years Ended October 31,

2008

2007

2006

2005

2004

Selected Per Share Data

Net asset value, beginning of period

$ 10.25

$ 9.70

$ 8.99

$ 8.68

$ 8.44

Income (loss) from investment operations:

Net investment incomea

.23

.26

.23d

.21

.13

Net realized and unrealized gain (loss)

(3.05)

.61

.69

.31

.26

Total from investment operations

(2.82)

.87

.92

.52

.39

Less distributions from:

Net investment income

(.23)

(.32)

(.21)

(.21)

(.15)

Net realized gains

(.05)

—

—

—

—

Tax return of capital

(.04)

—

—

—

—

Total distributions

(.32)

(.32)

(.21)

(.21)

(.15)

Redemption fees

.00*

.00*

.00*

.00*

—

Net asset value, end of period

$ 7.11

$ 10.25

$ 9.70

$ 8.99

$ 8.68

Total Return (%)b

(28.25)c

9.08c

10.40c,d

5.97c

4.59

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

815

1,299

1,367

1,459

1,620

Ratio of expenses before expense reductions (%)

.99

.92

.97

.98

1.03

Ratio of expenses after expense reductions (%)

.96

.92

.92

.96

1.03

Ratio of net investment income (%)

2.51

2.59

2.56d

2.40

1.55

Portfolio turnover rate (%)

276

188

98

158

81

a Based on average shares outstanding during the period.
b Total return does not reflect the effect of any sales charges.
c Total return would have been lower had certain expenses not been reduced.
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 $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.07% lower.
* Amount is less than $.005.

Class B

Years Ended October 31,

2008

2007

2006

2005

2004

Selected Per Share Data

Net asset value, beginning of period

$ 10.30

$ 9.75

$ 9.01

$ 8.69

$ 8.44

Income (loss) from investment operations:

Net investment incomea

.22

.24

.21d

.16

.06

Net realized and unrealized gain (loss)

(3.07)

.60

.70

.30

.25

Total from investment operations

(2.85)

.84

.91

.46

.31

Less distributions from:

Net investment income

(.21)

(.29)

(.17)

(.14)

(.06)

Net realized gains

(.05)

—

—

—

—

Tax return of capital

(.04)

—

—

—

—

Total distributions

(.30)

(.29)

(.17)

(.14)

(.06)

Redemption fees

.00*

.00*

.00*

.00*

—

Net asset value, end of period

$ 7.15

$ 10.30

$ 9.75

$ 9.01

$ 8.69

Total Return (%)b,c

(28.34)

8.79

10.18d

5.30

3.71

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

22

52

77

114

178

Ratio of expenses before expense reductions (%)

1.90

1.89

1.99

1.94

1.94

Ratio of expenses after expense reductions (%)

1.13

1.13

1.16

1.54

1.93

Ratio of net investment income (%)

2.34

2.37

2.32d

1.82

.65

Portfolio turnover rate (%)

276

188

98

158

81

a Based on average shares outstanding during the period.
b Total return does not reflect the effect of any sales charges.
c Total return would have been lower had certain expenses not been reduced.
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 $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.07% lower.
* Amount is less than $.005.

Class C

Years Ended October 31,

2008

2007

2006

2005

2004

Selected Per Share Data

Net asset value, beginning of period

$ 10.22

$ 9.68

$ 8.97

$ 8.66

$ 8.42

Income (loss) from investment operations:

Net investment incomea

.15

.18

.16d

.14

.06

Net realized and unrealized gain (loss)

(3.03)

.59

.69

.30

.25

Total from investment operations

(2.88)

.77

.85

.44

.31

Less distributions from:

Net investment income

(.15)

(.23)

(.14)

(.13)

(.07)

Net realized gains

(.05)

—

—

—

—

Tax return of capital

(.04)

—

—

—

—

Total distributions

(.24)

(.23)

(.14)

(.13)

(.07)

Redemption fees

.00*

.00*

.00*

.00*

—

Net asset value, end of period

$ 7.10

$ 10.22

$ 9.68

$ 8.97

$ 8.66

Total Return (%)b

(28.85)c

8.05

9.52d

5.09c

3.65

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

18

31

33

38

50

Ratio of expenses before expense reductions (%)

1.82

1.75

1.77

1.86

1.90

Ratio of expenses after expense reductions (%)

1.82

1.75

1.76

1.78

1.89

Ratio of net investment income (%)

1.65

1.75

1.72d

1.58

.69

Portfolio turnover rate (%)

276

188

98

158

81

a Based on average shares outstanding during the period.
b Total return does not reflect the effect of any sales charges.
c Total return would have been lower had certain expenses not been reduced.
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 $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.07% lower.
* Amount is less than $.005.

Class S

Years Ended October 31,

2008

2007

2006

2005a

Selected Per Share Data

Net asset value, beginning of period

$ 10.25

$ 9.71

$ 8.99

$ 8.98

Income (loss) from investment operations:

Net investment incomeb

.25

.28

.25d

.14

Net realized and unrealized gain (loss)

(3.06)

.60

.70

.04

Total from investment operations

(2.81)

.88

.95

.18

Less distributions from:

Net investment income

(.24)

(.34)

(.23)

(.17)

Net realized gains

(.05)

—

—

—

Tax return of capital

(.04)

—

—

—

Total distributions

(.33)

(.34)

(.23)

(.17)

Redemption fees

.00***

.00***

.00***

.00***

Net asset value, end of period

$ 7.11

$ 10.25

$ 9.71

$ 8.99

Total Return (%)c

(28.11)

9.17

10.76d

1.97**

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

245

393

411

153

Ratio of expenses before expense reductions (%)

.79

.73

.85

.79*

Ratio of expenses after expense reductions (%)

.77

.73

.74

.74*

Ratio of net investment income (%)

2.70

2.78

2.74d

2.43*

Portfolio turnover rate (%)

276

188

98

158

a For the period from March 14, 2005 (commencement of operations of Class S shares) to October 31, 2005.
b Based on average shares outstanding during the period.
c Total return would have been lower had certain expenses not been reduced.
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 $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.07% lower.
* Annualized
** Not annualized
*** Amount is less than $.005.

Institutional Class

Years Ended October 31,

2008

2007

2006

2005

2004

Selected Per Share Data

Net asset value, beginning of period

$ 10.26

$ 9.72

$ 9.01

$ 8.70

$ 8.45

Income (loss) from investment operations:

Net investment incomea

.26

.29

.26c

.24

.16

Net realized and unrealized gain (loss)

(3.06)

.60

.69

.31

.26

Total from investment operations

(2.80)

.89

.95

.55

.42

Less distributions from:

Net investment income

(.25)

(.35)

(.24)

(.24)

(.17)

Net realized gains

(.05)

—

—

—

—

Tax return of capital

(.04)

—

—

—

—

Total distributions

(.34)

(.35)

(.24)

(.24)

(.17)

Redemption fees

.00*

.00*

.00*

.00*

—

Net asset value, end of period

$ 7.12

$ 10.26

$ 9.72

$ 9.01

$ 8.70

Total Return (%)b

(27.99)

9.32

10.76c

6.32

5.01

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

.27

.42

.42

.39

.35

Ratio of expenses before expense reductions (%)

.75

.68

.74

.69

.73

Ratio of expenses after expense reductions (%)

.71

.61

.60

.62

.69

Ratio of net investment income (%)

2.76

2.89

2.88c

2.74

1.89

Portfolio turnover rate (%)

276

188

98

158

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 $0.007 per share and an increase in the ratio of net investment income of 0.07%. Excluding this non-recurring income, total return would have been 0.07% lower.
* Amount is less than $.005.

Notes to Financial Statements

A. Significant Accounting Policies

DWS Balanced Fund (the ``Fund'') is registered under the Investment Company Act of 1940, as amended (the ``1940 Act''), as an open-end, diversified management investment company organized as a Massachusetts business trust.

The 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 to investors 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 to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Class S shares are not subject to initial or contingent deferred sales charges and are generally not available to new investors except under certain circumstances.

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 and service fees, administration fee, 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.

Debt securities are valued by independent pricing services approved by the Trustees of the Fund. If the pricing services are unable to provide valuations, the securities are valued at the average of the means based on the most recent bid 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 investments companies and Cash Management QP Trust are valued at their net asset value each business day.

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.

New Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15, 2007. As of October 31, 2008, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the levels of inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.

In addition, 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.

In addition, in September 2008, 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; and Clarification of the Effective Date of FASB Statement No. 161" was issued. The FSP requires enhanced disclosures regarding credit derivatives sold by the Fund, including credit default swaps sold. The FSP is effective for fiscal and interim reporting periods ending after November 15, 2008. Management is currently reviewing the enhanced disclosure requirements for the adoption of the FSP.

Securities Lending. The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. 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 Fund 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 Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund 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 Fund is also subject to all investment risks associated with the value of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

Credit Default Swap Contracts. A credit default swap is a contract between a buyer and a seller of protection against a pre-defined credit event. The Fund may buy or sell credit default swap contracts to seek to increase the Fund's income, to add leverage to the portfolio, or to hedge the risk of default on Fund securities. As a seller in the credit default swap contract, the Fund would be required to pay the par (or other agreed-upon) value of the referenced debt obligation to the counterparty in the event of a default by a third party, such as a US or foreign corporate issuer, on the debt obligation, which would likely result in a loss to the Fund. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no default occurs, the Fund would keep the stream of payments and would have no payment obligations. The Fund may also buy credit default swap contracts in order to hedge against the risk of default of debt securities, in which case the Fund would function as the counterparty referenced above. This would involve the risk that the contract may expire worthless. It would also involve credit risk — that the seller may fail to satisfy its payment obligations to the Fund in the event of a default. When the Fund sells a credit default swap contract it will "cover" its commitment. This may be achieved by, among other methods, maintaining cash or liquid assets equal to the aggregate notional value of the underlying debt obligations for all outstanding credit default swap contracts sold by the Fund.

Credit default swap contracts are marked to market daily based upon quotations from 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 Fund, if any, is recorded as an asset on the statement of assets and liabilities. An upfront payment received by the Fund, if any, is recorded as a liability on the statement of assets and liabilities. Under the terms of the credit default swap contracts, the Fund receives or makes payments semiannually based on a specified interest rate on a fixed notional amount. These payments are recorded as a realized gain or loss on the statement of operations. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses.

Foreign Currency Translations. The books and records of the Fund are maintained in US dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into US dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into US dollars at the prevailing exchange rates on the respective dates of the transactions.

Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the US dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.

Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings, to facilitate transactions in foreign currency denominated securities and to enhance the total returns. The Fund may also enter into forward currency contracts as part of its global tactical asset allocation overlay 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 Fund gives up the opportunity to profit from favorable exchange rate movement during the term of the contract.

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 utilize futures contracts as an efficient means of managing allocations between assets or to keep cash on hand to meet shareholder redemptions or other needs while maintaining exposure to the market. The Fund may also utilize futures as part of its global tactical asset allocation overlay strategy.

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. 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. Risk of loss may exceed amounts recognized on the Statement of Assets and Liabilities.

Senior Loans. Senior loans 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 Fund invests, are arranged through private negotiations between the borrower and one or more financial institutions ("Lenders"). The Fund 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 Fund having a contractual relationship only with the Lender, not with the borrower. The Fund 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 Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. All Senior Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.

Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which the Fund 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 Fund 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 Fund is able to repurchase them. There can be no assurance that the Fund'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. The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.

Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.

Federal Income Taxes. The 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.

At October 31, 2008, the Fund had a net tax basis capital loss carryforward of approximately $45,598,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until October 31, 2016, the expiration date, whichever occurs first.

The Fund has reviewed the tax positions for the open tax years as of October 31, 2008 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.

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 investments in mortgage backed securities, premium amortization on debt securities, investments in futures 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, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At October 31, 2008, the Fund's components of distributable earnings (accumulated losses) on a tax-basis were as follows:

Undistributed ordinary income*

$ —

Capital loss carryforwards

$ (45,598,000)

Net unrealized appreciation (depreciation) on investments

$ (209,151,576)

In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:

 

Years Ended October 31,

 

2008

2007

Distributions from ordinary income*

$ 38,453,252

$ 58,599,731

Distributions from long-term capital gains

$ 8,530,591

$ —

Tax return of capital

$ 5,798,670

$ —

* For tax purposes short-term capital gains distributions are considered ordinary income distirbutions.

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. Effective April 1, 2008, the Fund no longer imposes the 2% redemption fee on Fund shares acquired on or after that date.

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.

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 Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.

B. Purchases and Sales of Securities

During the year ended October 31, 2008, purchases and sales of investment securities (excluding short-term investments and US Treasury securities) aggregated $2,971,407,524 and $3,232,639,444, respectively. Purchases and sales of US Treasury securities aggregated $884,004,303 and $847,814,859, respectively.

C. Related Parties

Management Agreement. Under the Amended and Restated 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 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 or delegates such responsibility to the Fund's subadvisor. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Amended and Restated Management Agreement.

Pursuant to a written contract with the Advisor, Deutsche Asset Management International GmbH ("DeAMi"), a direct, wholly owned subsidiary of Deutsche Bank AG, serves as the subadvisor to the Fund and is responsible for portfolio management of a portion of the large cap value allocation of the Fund. DeAMi is paid for its services by the Advisor from its fee as Investment Advisor to the Fund.

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 November 1, 2007 through April 30, 2008, the Fund paid a monthly management fee, computed and accrued daily and payable monthly at the following rates:

First $1.5 billion of the Fund's average daily net assets

.470%

Next $500 million of such net assets

.445%

Next $1.5 billion of such net assets

.410%

Next $2.0 billion of such net assets

.400%

Next $2.0 billion of such net assets

.390%

Next $2.5 billion of such net assets

.380%

Next $2.5 billion of such net assets

.370%

Over $12.5 billion of such net assets

.360%

Effective May 1, 2008, under the Amended and Restated Management Agreement, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly at the following rates:

First $1.5 billion of the Fund's average daily net assets

.370%

Next $500 million of such net assets

.345%

Next $1.5 billion of such net assets

.310%

Next $2.0 billion of such net assets

.300%

Next $2.0 billion of such net assets

.290%

Next $2.5 billion of such net assets

.280%

Next $2.5 billion of such net assets

.270%

Over $12.5 billion of such net assets

.260%

Accordingly, for the year ended October 31, 2008, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.42% of the Fund's average daily net assets.

For the period from November 1, 2007 through the expiration dates noted below, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) to the extent necessary to maintain the operating expenses of certain classes as follows:

 

 

Expiration Date

Class A

.93%

November 17, 2008

Class C

1.80%

March 13, 2008

Class S

.74%

July 14, 2009

Institutional Class

.61%

March 13, 2008

For the period from November 1, 2007 through March 13, 2008, the Advisor had contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) to the extent necessary to maintain the operating expenses at 1.88% for Class B shares.

Effective October 1, 2008 through September 30, 2009, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the Fund (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) to the extent necessary to maintain the operating expenses at 1.95% for Class B shares.

Administration Fee. Effective May 1, 2008, the Fund entered into an Administrative Services Agreement with the Advisor, pursuant to which the Advisor provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the period from May 1, 2008 through October 31, 2008, the Advisor received an Administration fee of $717,413, of which $96,686 is unpaid.

Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement among 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 the Fund. For the year ended October 31, 2008, the amounts charged to the Fund by DISC were as follows:

Services to Shareholders

Total Aggregated

Waived

Unpaid at October 31, 2008

Class A

$ 1,590,731

$ 276,594

$ 342,192

Class B

110,556

6,047

44,052

Class C

56,179

—

13,594

Class S

610,290

43,221

155,610

Institutional Class

505

122

124

 

$ 2,368,261

$ 325,984

$ 555,572

Distribution and Service Fees. Under the Fund's Class B and C 12b-1 Plans, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of each of Class B and C shares shares. DIDI has voluntarily agreed to waive the 0.75% 12b-1 Distribution fee for Class B shares only. In accordance with the Fund's Underwriting and Distribution Services Agreement, DIDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended October 31, 2008, the Distribution Fee was as follows:

Distribution Fee

Total Aggregated

Waived

Unpaid at October 31, 2008

Class B

$ 282,251

$ 282,251

$ —

Class C

197,573

—

14,074

 

$ 479,824

$ 282,251

$ 14,074

In addition, DIDI provides information and administrative services for a fee ("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. DIDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended October 31, 2008, the Service Fee was as follows:

Service Fee

Total Aggregated

Unpaid at October 31, 2008

Annual Effective Rate

Class A

$ 2,694,449

$ 149,386

.24%

Class B

91,935

2,874

.24%

Class C

65,508

2,342

.25%

 

$ 2,851,892

$ 154,602

 

Underwriting and Contingent Deferred Sales Charge. DIDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended October 31, 2008 aggregated $44,824.

In addition, DIDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended October 31, 2008, the CDSC for Class B and C shares aggregated $85,767 and $2,533, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions for Class A shares.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory, filing services to the Fund. For the year ended October 31, 2008, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders and shareholder meeting" aggregated $71,523, of which $13,340 is unpaid.

Trustees' Fees and Expenses. The Fund 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 Funds for the cost of this benefit. During the period ended October 31, 2008, the Fund paid its allocated portion of the retirement benefit of $78,426 to the non-continuing Independent Board Members, and the Fund was reimbursed by DIMA for this payment.

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 the Advisor a management fee for the affiliated funds' investments in the QP Trust.

D. Fee Reductions

For the year ended October 31, 2008, the Advisor agreed to reimburse the Fund $3,534, which represents a portion of the expected fee savings for the Advisor through December 31, 2007, related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.

In addition, the Fund has entered into an arrangement with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. During the year ended October 31, 2008, the Fund's custodian fee was reduced by $4,836 and $10,084, respectively, for the custody and transfer agent credits earned.

E. Line of Credit

The Fund and other affiliated funds (the "Participants") share in a $490 million revolving credit facility provided by a syndication of banks. The Fund 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 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:

 

Year Ended October 31, 2008

Year Ended October 31, 2007

 

Shares

Dollars

Shares

Dollars

Shares sold

Class A

5,165,160

$ 47,909,912

6,003,478

$ 59,764,564

Class B

246,224

2,284,341

381,489

3,819,268

Class C

318,017

2,950,515

471,227

4,709,936

Class R+

—

—

1,204

11,715

Class S

1,500,840

13,953,949

1,710,188

17,066,885

Institutional Class

—

—

1,972

20,000

 

 

$ 67,098,717

 

$ 85,392,368

Shares issued to shareholders in reinvestment of distributions

Class A

3,860,707

$ 36,028,267

3,975,953

$ 39,554,424

Class B

126,785

1,196,258

182,391

1,822,451

Class C

64,095

600,257

65,448

650,040

Class S

1,211,047

11,294,779

1,251,572

12,452,182

Institutional Class

1,380

12,858

1,486

14,800

 

 

$ 49,132,419

 

$ 54,493,897

Shares redeemed

Class A

(21,165,418)

$ (193,421,437)

(24,253,406)

$ (241,474,944)

Class B

(2,289,180)

(21,332,901)

(3,389,402)

(33,833,017)

Class C

(900,759)

(8,112,207)

(933,811)

(9,264,856)

Class R+

—

—

(991)

(9,663)

Class S

(6,608,089)

(59,926,281)

(7,033,396)

(70,047,109)

Institutional Class

(4,170)

(41,451)

(6,484)

(63,931)

 

 

$ (282,834,277)

 

$ (354,693,520)

Shares converted

Class A+

—

$ —

173,622

$ 1,706,679

Class R+

—

—

(173,657)

(1,706,679)

 

 

$ —

 

$ —

Redemption fees

 

$ 10,445

 

$ 11,529

Net increase (decrease)

Class A

(12,139,551)

$ (109,475,455)

(14,100,353)

$ (140,445,670)

Class B

(1,916,171)

(17,852,257)

(2,825,522)

(28,191,230)

Class C

(518,647)

(4,561,432)

(397,136)

(3,904,840)

Class R+

—

—

(173,444)

(1,704,627)

Class S

(3,896,202)

(34,674,959)

(4,071,636)

(40,520,228)

Institutional Class

(2,790)

(28,593)

(3,026)

(29,131)

 

 

$ (166,592,696)

 

$ (214,795,726)

+ On June 28, 2006, the Board of the Fund approved the conversion of Class R shares of the Fund into Class A shares of the Fund. This conversion was completed on November 20, 2006, and Class R shares are no longer offered.

G. Payments Made by Affiliates

During the year ended October 31, 2008, the Advisor fully reimbursed the Fund $36,855 for a loss incurred on a trade executed incorrectly. The amount of the loss was less than 0.01% of the Fund's average net assets, thus having no impact on the Fund's total return.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Trustees of DWS Balanced Fund:

We have audited the accompanying statement of assets and liabilities of DWS Balanced Fund (the "Fund"), including the investment portfolio, as of October 31, 2008, and the related statement of operations for the year then ended, the statement 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 Fund'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 Fund'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 Fund'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 October 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 DWS Balanced Fund at October 31, 2008, the results of its operations for the year then ended, the changes in its 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
December 23, 2008

 

bf_eny0

Tax Information (Unaudited)

The Fund paid distributions of $0.05 per share from net long-term capital gains during its year ended October 31, 2008, of which 100% represents 15% rate gain.

For corporate shareholders, 22% of the income dividends paid during the Fund's fiscal year ended October 31, 2008, qualified for the dividends received deduction.

For federal income tax purposes, the Fund designates approximately $21,029,000, or the maximum amount allowable under tax law, as qualified dividend income.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 621-1048.

Investment Management Agreement Approval

The Board of Trustees, including the Independent Trustees, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA") and sub-advisory agreement (the "Sub-Advisory Agreement" and together with the Agreement, the "Agreements") between DIMA and Deutsche Asset Management International GmbH ("DeAMi"), an affiliate of DIMA, in September 2008.

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 your Fund's 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 Fixed Income and Quant Oversight Committee, reviewed comprehensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund's performance, fees and expenses, and profitability compiled by the Fund's independent fee consultant. The Board also received extensive information throughout the year regarding performance of the 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 Fund's independent fee consultant in the course of their review of the 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 the Fund's Rule 12b-1 plan, 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 the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund's shareholders at a special meeting held in 2008. DIMA and DeAMi are 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 Fund's Board considers these and many other factors, including the quality and integrity of DIMA's and DeAMi's 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 DeAMi provide portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. 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 DeAMi to attract and retain high-quality personnel, and the organizational depth and stability of DIMA and DeAMi. The Board reviewed the 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. 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 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.

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 DeAMi historically have been and continue to be satisfactory.

Fees and Expenses. The Board considered the Fund's investment management fee schedule, sub-advisory 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). 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 (excluding 12b-1 fees) 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 considered the 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 the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size). The Board also noted that the expense limitation agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would be competitive relative to the applicable Lipper universe.

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 DeAMi.

Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. 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 the Fund in particular. 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 the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the 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.

Economies of Scale. The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund's management fee schedule includes fee breakpoints. The Board concluded that the 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 Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA 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 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.

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 the Fund and its shareholders. 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.

bf_sigmack0
Thomas H. Mack

Trustees and Officers

The following table presents certain information regarding the Board Members and Officers of the Trust as of October 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

Dawn-Marie Driscoll (1946)
Chairperson since 20042
Board Member since 1987
 President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley College; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: 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 College; Trustee, Southwest Florida Community Foundation (charitable organization). Former Directorships: Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)

134

Paul K. Freeman (1950)
Vice Chairperson since 2008
Board Member since 1993
 Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998)

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. 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 equity funds). Directorships: Progressive Holding Corporation (kitchen goods importer and distributor); Natural History, Inc. (magazine publisher); 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; Service Source, Inc. Former Directorships: Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and 1994-1996)

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)
Patricia DeFilippis10 (1963)
Assistant Secretary, 2005-present
 Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003)
Elisa D. Metzger10 (1962)
Assistant Secretary 2005-present
 Director5, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005)
Caroline Pearson9 (1962)
Assistant Secretary, 1997-present
 Managing Director5, Deutsche Asset Management
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)
Kathleen Sullivan D'Eramo9 (1957)
Assistant Treasurer, 2003-present
 Director5, Deutsche Asset Management
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 Represents the year Ms. Driscoll was first appointed Chairperson of certain DWS funds.
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.

Account Management Resources

 

For More Information

The automated telephone system allows you to access personalized account information and obtain information on other DWS funds using either your voice or your telephone keypad. Certain account types within Classes A, B, C and S also have the ability to purchase, exchange or redeem shares using this system.
For more information, contact your financial advisor. You may also access our automated telephone system or speak with a DWS Investments representative by calling the appropriate number below:

For shareholders of Classes A, B, C and Institutional Class:

(800) 621-1048

For shareholders of Class S:

(800) 728-3337

Web Site

www.dws-investments.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.

Written Correspondence

DWS Investments

PO Box 219151
Kansas City, MO 64121-9151

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-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 fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.

Principal Underwriter

If you have questions, comments or complaints, contact:

DWS Investments Distributors, Inc.

222 South Riverside Plaza
Chicago, IL 60606-5808
(800) 621-1148

 

Class A

Class B

Class C

Class S

Institutional Class

Nasdaq Symbol

KTRAX
 KTRBX
 KTRCX
 KTRSX
 KTRIX

CUSIP Number

23336W 106
 23336W 205
 23336W 304
 23336W 502
 23336W 601

Fund Number

002
 202
 302
 2033
 1402

bf_backcover0

 

ITEM 2.

CODE OF ETHICS

 

 

 

As of the end of the period, October 31, 2008, DWS Balanced Fund has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.

 

There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.

 

A copy of the code of ethics is filed as an exhibit to this Form N-CSR.

 

 

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT

 

 

 

The Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there are several “audit committee financial experts” (as such term has been defined by the Regulations) serving on the Funds’ audit committee including Mr. William McClayton, the chair of the Funds’ audit committee. The SEC has stated that an audit committee financial expert is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.

 

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

 

DWS BALANCED FUND

FORM N-CSR DISCLOSURE RE: AUDIT FEES

The following table shows the amount of fees that Ernst & Young LLP (“E&Y”), the Fund’s Independent Registered Public Accountant, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Fund.

The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).

Services that the Fund’s Independent Registered Public Accountant Billed to the Fund

Fiscal Year
Ended
October 31,

Audit Fees Billed to Fund

Audit-Related
Fees Billed to Fund

Tax Fees Billed to Fund

All
Other Fees Billed to Fund

2008

$80,118

$0

$10,925

$0

2007

$54,520

$0

$7,435

$0

 

The above "Tax Fees" were billed for professional services rendered for tax return preparation.

 

Services that the Fund’s Independent Registered Public Accountant Billed to the Adviser and Affiliated Fund Service Providers

The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. (“DIMA” or the “Adviser”), and any entity controlling, controlled by or under common control with DIMA (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.

 

Fiscal Year
Ended
October 31,

Audit-Related
Fees Billed to Adviser and Affiliated Fund Service Providers

Tax Fees Billed to Adviser and Affiliated Fund Service Providers

All
Other Fees Billed to Adviser and Affiliated Fund Service Providers

2008

$0

$382,000

$0

2007

$250,000

$486,614

$0

 

The “Audit-Related Fees” were billed for services in connection with agreed upon procedures related to fund mergers and the above “Tax Fees” were billed in connection with tax compliance services and agreed upon procedures.

Non-Audit Services

The following table shows the amount of fees that E&Y billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y’s independence.

 

Fiscal Year
Ended
October 31,

Total
Non-Audit Fees Billed to Fund

(A)

Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund)

(B)

Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements)

(C)

Total of (A), (B)

and (C)

2008

$10,925

$382,000

$1,474,733

$1,867,658

2007

$7,435

$486,614

$1,129,726

$1,623,775

 

 

All other engagement fees were billed for services in connection with internal control reviews, agreed upon procedures and tax compliance for DIMA and other related entities that provide support for the operations of the fund.

 

***

In connection with the audit of the 2007 and 2008 financial statements, the Fund entered into an engagement letter with E&Y. The terms of the engagement letter required by E&Y, and agreed to by the Audit Committee, include provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury and an exclusion of punitive damages.

 

***

E&Y advised the Fund’s Audit Committee that certain arrangements between the Ernst & Young member firm in Germany (“E&Y Germany”) and Deutsche Bank AG (“DB”) had been determined to be inconsistent with the SEC auditor independence rules. DB is within the “Investment Company Complex” (as defined by SEC rules) and therefore covered by the SEC auditor independence rules applicable to the Fund. In 2006 and 2007, DB provided standard overdraft protection on a depository account and a guarantee of certain lease deposits to E&Y Germany. E&Y advised the Audit Committee that while neither of these arrangements was ever utilized by E&Y Germany, they could constitute lending type arrangements in violation of Rule 2-01 of Regulation S-X. (Rule 2-01(c)(1)(ii)(A) provides that an accountant is not independent when an accounting firm has a loan to or from an audit client.) E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audits of the Fund. In reaching this conclusion, E&Y noted a number of factors, including that neither of the arrangements was ever utilized and, accordingly, E&Y Germany never had amounts outstanding to DB, these arrangements were immaterial to E&Y Germany and DB and the E&Y professionals responsible for the Fund’s audits were not aware of these arrangements. E&Y informed the Audit Committee that E&Y Germany has cancelled the overdraft arrangements and has terminated the guarantee on the lease deposits.

 

 

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS

 

 

 

Not Applicable

 

 

ITEM 6.

SCHEDULE OF INVESTMENTS

 

 

 

Not Applicable

 

 

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

 

 

 

Not applicable.

 

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

 

 

 

Not applicable.

 

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

 

 

 

Not Applicable.

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

 

 

The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Chairman of the Board, P.O. Box 100176, Cape Coral, FL 33910.

 

 

 

 

ITEM 11.

CONTROLS AND PROCEDURES

 

 

 

(a)          The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.

 

 

 

(b)          There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

 

 

ITEM 12.

EXHIBITS

 

 

 

(a)(1)     Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH.

 

 

 

(a)(2)     Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.

 

 

 

(b)         Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.

 

 

 

 

Form N-CSR Item F

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Central Europe & Russia Fund, Inc.

DWS Core Fixed Income Fund, a series of DWS Advisor Funds

DWS High Income Plus Fund, a series of DWS Advisor Funds

DWS International Select Equity Fund, a series of DWS Advisor Funds

DWS Short Duration Fund, a series of DWS Advisor Funds

DWS Short-Term Municipal Bond Fund, a series of DWS Advisor Funds

DWS Balanced Fund

DWS Blue Chip Fund

DWS Global High Income Fund, Inc.

DWS Emerging Markets Fixed Income Fund, a series of DWS Global/International Fund, Inc.

DWS Global Bond Fund, a series of DWS Global/International Fund, Inc.

DWS Global Opportunities Fund, a series of DWS Global/International Fund, Inc.

DWS Emerging Markets Equity Fund, a series of DWS International Fund, Inc.

DWS Europe Equity Fund, a series of DWS International Fund, Inc.

DWS Latin America Equity Fund, a series of DWS International Fund, Inc.

DWS Gold & Precious Metals Fund, a series of DWS Mutual Funds, Inc.

DWS Strategic Government Securities Fund

DWS Strategic Income Fund

DWS Technology Fund

 

By:

/s/Michael G. Clark

 

Michael G. Clark

President

 

Date:

December 29, 2008

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:

/s/Michael G. Clark

 

Michael G. Clark

President

 

Date:

December 29, 2008

 

By:

/s/Paul Schubert

 

Paul Schubert

Chief Financial Officer and Treasurer

 

Date:

December 29, 2008