UNITED        STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM        N-CSR

 

| Investment Company Act file number | 811-06071 |
|------------------------------------|-----------|

 

DWS        Institutional Funds

(Exact        Name of Registrant as Specified in Charter)

 

One        South Street

Baltimore, MD 21202

(Address of principal executive offices)                    (Zip code)

 

Registrant’s Telephone Number, including Area Code:(212) 454-7190

 

Paul        Schubert

345 Park        Avenue

New        York, NY 10154

(Name and        Address of Agent for Service)

 

| Date of fiscal year end: | 12/31 |
|--------------------------|-------|

 

| Date of reporting period: | 12/31/07 |
|---------------------------|----------|

 

 

**ITEM        1.**           **REPORT TO STOCKHOLDERS**

 

 

DECEMBER 31,        2007

# Annual Report        to Shareholders

**DWS U.S. Bond Index        Fund**

|  |
|--|

**Contents**

**click here**Performance Summary

**click here**Information About Your Fund's Expenses

**click        here**Portfolio Management Review

**click here**Portfolio Summary

**click here**Investment Portfolio

**click        here**Financial Statements

**click        here**Financial Highlights

**click        here**Notes to Financial Statements

**click        here**Report of Independent Registered Public        Accounting Firm

**click        here**Tax Information

**click        here**Investment Management Agreement        Approval

**click        here**Summary of Management Fee Evaluation by        Independent Fee Consultant

**click        here**Trustees and Officers

**click        here**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. The fund may not be able to replicate the Lehman Brothers U.S.        Aggregate Index closely enough to track its performance for several reasons, including the        fund's cost to buy and sell securities, the flow of money into and out of the fund and the        potential underperformance of securities selected. Additionally, the fund invests in        individual bonds whose yields and market values fluctuate so that your investment may be        worth more or less than its original cost. Bond investments are subject to interest-rate        risk such that when interest rates rise, the prices of the bonds, and thus the value of the        bond fund, can decline and the investor can lose principal value. In the current market        environment mortgage-backed securities are experiencing increased volatility. Please read        this fund's prospectus for specific details regarding its investments and risk        profile.

*DWS Scudder is part of        Deutsche Asset Management, which is the marketing name in the US for the asset        management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche        Investment Management Americas Inc. and DWS Trust Company.*

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

**Performance        SummaryDecember 31, 2007**

**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-scudder.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 May 1, 2007 is 0.43% for Institutional Class        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 December 31,        2007.**

**To discourage        short-term trading, the Fund imposes a 2% redemption fee on shareholders redeeming shares        held less than 15 days, which has the effect of lowering total return.**

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

Performance figures do        not reflect the deduction of taxes that a shareholder would pay on fund distributions or        the redemption of fund shares.

| **Average                    Annual Total Returns**as of                    12/31/07 |
|--------------------------------------------------------------------------------------|
| **DWS U.S.                    Bond Index Fund**                                      | **1-Year** | **3-Year** | **5-Year** | **10-Year** |
| **Institutional Class**                                                              | **7.34%** | **4.56%** | **4.34%** | **5.87%** |
| Lehman Brothers U.S. Aggregate                Index+                                 | 6.97% | 4.56% | 4.42% | 5.97% |

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

| **Net Asset                    Value and Distribution Information**                                                |
|--------------------------------------------------------------------------------------------------------------------|
|                                                                                                               | **Institutional Class** |
| **Net Asset                    Value:**
12/31/07                                                                   | $                    10.29 |
| 12/31/06                                                                                                           | $                    10.09 |
| **Distribution                    Information:**
Twelve Months as of 12/31/07:
Income                    Dividends | $                    .52 |
| December Income Dividend                                                                                           | $                    .0452 |
| SEC 30-day Yield as of                12/31/07++                                                                   | 4.72% |
| Current Annualized Distribution Rate as of                12/31/07++                                               | 5.17% |

| **Institutional Class Lipper Rankings —                    Intermediate Investment Grade Debt Funds Category**as of 12/31/07 |
|------------------------------------------------------------------------------------------------------------------------------------|
| **Period**                                                                                                                         | **Rank** |   | **Number of                    Funds Tracked** | **Percentile                    Ranking (%)** |
| 1-Year                                                                                                                             | 39 | of | 547 | 7 |
| 3-Year                                                                                                                             | 36 | of | 468 | 8 |
| 5-Year                                                                                                                             | 130 | of | 395 | 33 |
| 10-Year                                                                                                                            | 28 | of | 184 | 15 |

**Source: Lipper Inc. Rankings are historical and do not        guarantee future results.****Rankings are based        on total returns with distributions reinvested.**

| **Growth of an                    Assumed $1,000,000 Investment**                                                                             |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
| **[]DWS U.S. Bond Index Fund — Institutional                    Class**

**[]Lehman Brothers U.S. Aggregate                    Index+** |
|                                                                                                                                               |
| Yearly                    periods ended December 31                                                                                           |

| **Comparative                    Results**as of 12/31/07 |
|----------------------------------------------------------|
| **DWS U.S.                    Bond Index Fund**          | **1-Year** | **3-Year** | **5-Year** | **10-Year** |
| **Institutional Class**                                  | Growth of $1,000,000 | $1,073,400 | $1,143,100 | $1,236,600 | $1,769,500 |
| Average annual total return                         | 7.34% | 4.56% | 4.34% | 5.87% |
| Lehman Brothers U.S. Aggregate                Index+     | Growth of $1,000,000 | $1,069,700 | $1,143,100 | $1,241,700 | $1,786,400 |
| Average annual total return                         | 6.97% | 4.56% | 4.42% | 5.97% |

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

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

**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 and other Fund expenses. Examples of transaction costs include 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(July 1, 2007 to December 31,        2007).

The tables illustrate your Fund's        expenses in two ways:

**Actual Fund        Return.** This helps you estimate the actual dollar amount of ongoing expenses        (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual        return during the period. To estimate the expenses you paid over the period, simply divide        your account value by $1,000 (for example, an $8,600 account value divided by $1,000 =        8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under        the share class you hold.

**Hypothetical 5%        Fund Return.** This helps you to compare your Fund's ongoing expenses (but not        transaction costs) with those of other mutual funds using the Fund's actual expense ratio        and a hypothetical rate of return of 5% per year before expenses. Examples using a 5%        hypothetical fund return may be found in the shareholder reports of other mutual funds. The        hypothetical account values and expenses may not be used to estimate the actual ending        account balance or expenses you paid for the period.

Please note that the expenses shown        in these tables are meant to highlight your ongoing expenses only and do not reflect any        transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing        ongoing expenses only and will not help you determine the relative total expense of owning        different funds. If these transaction costs had been included, your costs would have been        higher.

| **Expenses and                    Value of a $1,000 Investment**for the six months ended                    December 31, 2007  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Actual Fund                    Return**                                                                                                                         | **Institutional Class** |
| Beginning Account Value 7/1/07                                                                                                                                    | $                    1,000.00 |
| Ending Account Value 12/31/07                                                                                                                                     | $                    1,063.60 |
| Expenses Paid per $1,000*                                                                                                                                         | $                    .78 |
| **Hypothetical                    5% Fund Return**                                                                                                                | **Institutional Class** |
| Beginning Account Value 7/1/07                                                                                                                                    | $                    1,000.00 |
| Ending Account Value 12/31/07                                                                                                                                     | $                    1,024.45 |
| Expenses Paid per $1,000*                                                                                                                                         | $                    .77 |

| **Annualized                    Expense Ratio** | **Institutional Class** |
|-------------------------------------------------|-------------------------|
| DWS U.S. Bond Index Fund                        | .15%                    |

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

**Portfolio Management        Review**

**DWS U.S. Bond Index 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 U.S. Bond Index 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.

Northern Trust Investments, N.A.        ("NTI"), a subsidiary of Northern Trust Company, is the subadvisor for the fund. As of        December 31, 2007, Northern Trust Corporation and its subsidiaries had assets under custody        of $4.1 trillion, and assets under investment management of $757 billion.

A group of investment professionals        is responsible for the day-to-day management of the fund.

**Portfolio Management        Team**

*Louis R.        D'Arienzo*

Vice President of NTI and        Portfolio Manager of the fund.

Responsible for the        management of various fixed income index portfolios.

Joined NTI in 2003 and the        fund in 1997.

For the five years prior        thereto, he was a trader and portfolio manager with Deutsche Bank.

In the following        interview, Lead Portfolio Manager Louis D'Arienzo discusses the market environment and fund        performance for DWS U.S. Bond Index Fund during the fund's most recent fiscal year ended        December 31, 2007.

*The views expressed in        the following discussion reflect those of the portfolio manager 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.*

**Q: How did DWS U.S.        Bond Index Fund perform during its most recent 12-month period?**

**A:**DWS U.S. Bond Index Fund closely tracked the performance of its        benchmark, the Lehman Brothers US Aggregate Index, for the 12 months ended December 31,        2007.1 The fund produced a return of 7.34% (Institutional shares) for the annual        period, as compared with 6.97% for its benchmark. The fund also outperformed the 4.71%        average return of the 547 funds in its Lipper category, Intermediate Investment Grade Debt        Funds.2 (Past performance is no guarantee of future results. Please see pages        4 through 5for the performance of other share classes and more complete        performance information.)

**Q: Will you        characterize conditions for the bond market in 2007?**

**A:**The start of 2007 saw a continuation of many of the market trends        that had characterized the previous year. The US economy was growing, despite uncertainty        over the continuing slump in the housing sector, and investors seemed comfortable holding        higher-risk assets. Beginning in February, however, global market volatility and news of        increasing defaults within the subprime mortgage market prompted a gradual reassessment of        risk tolerance by investors. This environment led to a "flight to quality" into lower-risk        assets — especially Treasury securities — toward the end of the first        quarter.

The second        quarter began with the fixed-income markets struggling with a mixed picture of slower        economic growth, inflation hovering above the US Federal Reserve Board's (the Fed's) stated        "comfort zone," steady employment and a series of rate hikes by foreign central banks. The        third quarter saw a very turbulent market as problems in the subprime mortgage area grew.        Liquidity concerns dominated the credit markets. At its September 18 meeting, the Fed        surprised the market with a 50-basis-point (0.50%) rate cut in an attempt to relieve the        global "credit crunch" that dominated the markets. Volatility continued in the fourth        quarter. The Fed once again cut short-term rates, by 25 basis points (0.25%) each, at        its October 31 and December 11 meetings. Along with other global central banks, the Fed        announced several liquidity measures, including its own temporary "term auction facility,"        meant to address the growing uncertainty in the short-term credit markets. By year-end, it        seemed that some measure of liquidity had been restored to the fixed-income markets.        Recession fears began to dominate market sentiment, though core inflation still seemed to        be under control.

The Treasury yield curve was        inverted at the start of the year, with short-term rates higher than long-term        rates.3 Over the 12-month period, rising commodity prices and increased        inflation concerns caused the yield curve to steepen. The 10-year Treasury note produced a        solid, nearly double-digit total return. In contrast,

investment-grade and high-yield bond        returns were impaired by the perception of rising risk that accompanied the subprime and        credit market crises.

| **US Treasury                    Bond Yield Curve**(ending 12/31/06                    and 12/31/07) |
|------------------------------------------------------------------------------------------------------|
|                                                                                                      |

***Past performance is        no guarantee of future results.***

**Source:        Bloomberg**

**Q: How did the various        maturities within the Treasury market perform?**

**A:**The yield curve changed from inverted to positively sloped during the        12-month period. The yield on the two-year note decreased by 177 basis points, while the        five-year note declined by 126 basis points and the 10-year note by 69 basis points. Yields        of 30-year Treasuries decreased by 36 basis points.

**Q: How do you expect to        manage the fund in the coming months?**

**A:**As an index fund, we seek to replicate as closely as possible (before        deduction of expenses) the investment performance of the benchmark index. Thus, we neither        evaluate short-term fluctuations in the fund's performance nor manage according to a given        outlook for the bond market or the economy in general. Still, we will continue to monitor        economic conditions and the way they affect the financial markets, as we seek to closely        track the performance of the broad US bond market.

**Portfolio        Summary**

| **Asset                    Allocation**(As a % of Investment                    Portfolio excluding Securities Lending Collateral) | **12/31/07** | **12/31/06** |
|------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|
|                                                                                                                               |         |         |
| Mortgage                    Backed Securities Pass-Throughs                                                                        | 37%          | 31%          |
| Government                    & Agency Obligations                                                                             | 36%          | 38%          |
| Corporate                    Bonds                                                                                                 | 18%          | 21%          |
| Commercial and                    Non-Agency Mortgage-Backed Securities                                                            | 5%           | 5%           |
| Cash                    Equivalents & Other, net                                                                               | 3%           | 3%           |
| Asset                    Backed                                                                                                    | 1%           | 2%           |
|                                                                                                                               | 100%         | 100%         |

| **Bond                    Diversification**(Excludes Cash Equivalents and Securities                    Lending Collateral) | **12/31/07** | **12/31/06** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|
|                                                                                                                                            |         |         |
| Financials                                                                                                                                      | 49%          | 47%          |
| Telecommunication Services                                                                                                                      | 7%           | 7%           |
| Utilities                                                                                                                                       | 7%           | 6%           |
| Energy                                                                                                                                          | 6%           | 6%           |
| Consumer                    Discretionary                                                                                                       | 6%           | 8%           |
| Consumer                    Staples                                                                                                             | 6%           | 6%           |
| Industrials                                                                                                                                     | 6%           | 5%           |
| Sovereign                    Bonds                                                                                                              | 5%           | 7%           |
| Health                    Care                                                                                                                  | 4%           | 3%           |
| Materials                                                                                                                                       | 2%           | 3%           |
| Information                    Technology                                                                                                       | 2%           | 2%           |
|                                                                                                                                            | 100%         | 100%         |

| **Quality**                                  | **12/31/07** | **12/31/06** |
|----------------------------------------------|--------------|--------------|
|                                         |         |         |
| US Government                    Obligations | 73%          | 69%          |
| AAA                                          | 9%           | 11%          |
| AA                                           | 5%           | 5%           |
| A                                            | 8%           | 8%           |
| BBB                                          | 5%           | 7%           |
|                                         | 100%         | 100%         |

*Asset allocation, bond        diversification and quality are subject to change.*

*The quality ratings        represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's        Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their        opinions as to the quality of the securities they rate. Ratings are relative and subjective        and are not absolute standards of quality. The Fund's credit quality does not remove market        risk.*

| **Effective                    Maturity** | **12/31/07** | **12/31/06** |
|-------------------------------------------|--------------|--------------|
|                                      |         |         |
| Under 1                    year           | —      | 3%           |
| 1-4.99                    years           | 46%          | 43%          |
| 5-9.99                    years           | 44%          | 43%          |
| 10-19.99                    years         | 3%           | 5%           |
| 20 years or                    greater    | 7%           | 6%           |
|                                      | 100%         | 100%         |

*Weighted average effective maturity: 7.07 years and 6.73        years, respectively.*

*Effective maturity is        subject to change.*

*For more complete        details about the Fund's investment portfolio, see page 14. A        quarterly Fact Sheet is available upon request. Information concerning portfolio        holdings of the Fund as of month end will be posted to www.dws-scudder.com on or after the        last day of the following month. 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        Portfolioas of December 31, 2007**

|                                                                                                                             | **Principal                    Amount ($)** | **Value                    ($)** |
|----------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|----------------------------------|
|                                                                                                                             |                                        |
| **Corporate Bonds                    19.2%**                                                                                     |
| **Consumer                    Discretionary 1.3%**                                                                               |
| British Sky                    Broadcasting Group PLC, 6.875%, 2/23/2009                                                         | 50,000                                      | 50,972                           |
| CBS Corp.,                    7.7%, 7/30/2010                                                                                    | 200,000                                     | 212,327                          |
| Comcast Cable                    Communications Holdings, Inc., 8.375%, 3/15/2013                                                | 90,000                                      | 100,969                          |
| Comcast Cable                    Communications LLC, 6.875%, 6/15/2009                                                           | 60,000                                      | 61,714                           |
| Comcast Cable                    Holdings LLC, 7.125%, 2/15/2028                                                                 | 100,000                                     | 103,971                          |
| Comcast                    Corp.:                                                                                                |                                        |                             |
| 5.85%,                    1/15/2010                                                                                              | 25,000                                      | 25,595                           |
| 5.85%,                    11/15/2015                                                                                             | 50,000                                      | 50,359                           |
| 6.5%,                    1/15/2017                                                                                               | 75,000                                      | 78,199                           |
| Cox                    Communications, Inc.:                                                                                     |                                        |                             |
| 7.125%,                    10/1/2012                                                                                             | 100,000                                     | 106,647                          |
| 7.875%,                    8/15/2009                                                                                             | 50,000                                      | 52,311                           |
| Gannett Co.,                    Inc., 6.375%, 4/1/2012 (a)                                                                       | 50,000                                      | 51,974                           |
| Home Depot,                    Inc.:                                                                                             |                                        |                             |
| 4.625%,                    8/15/2010                                                                                             | 100,000                                     | 99,333                           |
| 5.4%,                    3/1/2016                                                                                                | 100,000                                     | 94,745                           |
| Lowe's                    Companies, Inc., 5.0%, 10/15/2015 (a)                                                                  | 75,000                                      | 72,312                           |
| Macy's Retail                    Holdings, Inc., 7.45%, 7/15/2017                                                                | 150,000                                     | 154,317                          |
| McDonald's                    Corp., Series I, 6.3%, 10/15/2037                                                                  | 75,000                                      | 77,778                           |
| News America                    Holdings, Inc., 9.25%, 2/1/2013                                                                  | 100,000                                     | 116,890                          |
| News America,                    Inc.:                                                                                           |                                        |                             |
| 5.3%,                    12/15/2014                                                                                              | 75,000                                      | 74,614                           |
| 6.4%,                    12/15/2035                                                                                              | 50,000                                      | 50,582                           |
| R.R. Donnelley                    & Sons Co., 5.5%, 5/15/2015                                                                | 25,000                                      | 24,055                           |
| Target Corp.,                    5.875%, 3/1/2012                                                                                | 200,000                                     | 207,050                          |
| Time Warner                    Cable, Inc., 5.85%, 5/1/2017                                                                      | 125,000                                     | 125,308                          |
| Time Warner,                    Inc.:                                                                                            |                                        |                             |
| 5.875%,                    11/15/2016                                                                                            | 50,000                                      | 49,693                           |
| 6.625%,                    5/15/2029                                                                                             | 10,000                                      | 9,845                            |
| 6.75%,                    4/15/2011                                                                                              | 150,000                                     | 156,230                          |
| 6.875%,                    5/1/2012                                                                                              | 100,000                                     | 105,301                          |
| 6.95%,                    1/15/2028                                                                                              | 30,000                                      | 30,613                           |
| 7.7%,                    5/1/2032                                                                                                | 25,000                                      | 27,776                           |
| VF Corp.,                    6.45%, 11/1/2037                                                                                    | 20,000                                      | 19,330                           |
| Viacom,                    Inc.:                                                                                                 |                                        |                             |
| 6.25%,                    4/30/2016                                                                                              | 25,000                                      | 25,152                           |
| 6.875%,                    4/30/2036                                                                                             | 100,000                                     | 100,273                          |
| Walt Disney                    Co.:                                                                                              |                                        |                             |
| Series B,                    5.875%, 12/15/2017                                                                                  | 50,000                                      | 52,081                           |
| 6.2%,                    6/20/2014 (a)                                                                                           | 75,000                                      | 79,704                           |
| 6.375%,                    3/1/2012                                                                                              | 25,000                                      | 26,544                           |
| Yum! Brands,                    Inc., 6.25%, 4/15/2016                                                                           | 50,000                                      | 50,703                           |
|                                                                                                                             | **2,725,267**                               |
| **Consumer                    Staples 1.3%**                                                                                     |
| Altria Group,                    Inc., 7.75%, 1/15/2027 (a)                                                                      | 25,000                                      | 32,210                           |
| Anheuser-Busch                    Companies, Inc.:                                                                               |                                        |                             |
| 4.95%,                    1/15/2014 (a)                                                                                          | 100,000                                     | 99,806                           |
| 5.95%,                    1/15/2033                                                                                              | 50,000                                      | 50,586                           |
| Bottling Group                    LLC:                                                                                           |                                        |                             |
| 5.0%,                    11/15/2013 (a)                                                                                          | 50,000                                      | 50,407                           |
| 5.5%,                    4/1/2016                                                                                                | 25,000                                      | 25,462                           |
| Coca-Cola Co.,                    5.75%, 3/15/2011 (a)                                                                           | 25,000                                      | 26,203                           |
| Coca-Cola                    Enterprises, Inc.:                                                                                  |                                        |                             |
| 6.75%,                    9/15/2028 (a)                                                                                          | 50,000                                      | 55,163                           |
| 7.125%,                    8/1/2017 (a)                                                                                          | 50,000                                      | 57,063                           |
| 8.5%,                    2/1/2022                                                                                                | 75,000                                      | 94,045                           |
| ConAgra Foods,                    Inc., 7.125%, 10/1/2026                                                                        | 100,000                                     | 107,153                          |
| Coors Brewing                    Co., 6.375%, 5/15/2012                                                                          | 1,000                                       | 1,065                            |
| Costco                    Wholesale Corp., 5.5%, 3/15/2017                                                                       | 125,000                                     | 126,066                          |
| CVS Caremark                    Corp.:                                                                                           |                                        |                             |
| 4.0%,                    9/15/2009                                                                                               | 50,000                                      | 49,061                           |
| 5.75%,                    6/1/2017                                                                                               | 50,000                                      | 50,322                           |
| 6.25%,                    6/1/2027                                                                                               | 50,000                                      | 50,108                           |
| Diageo Capital                    PLC:                                                                                           |                                        |                             |
| 5.125%,                    1/30/2012                                                                                             | 25,000                                      | 25,027                           |
| 5.5%,                    9/30/2016                                                                                               | 125,000                                     | 124,133                          |
| Fortune                    Brands, Inc., 4.875%, 12/1/2013 (a)                                                                   | 50,000                                      | 49,076                           |
| General Mills,                    Inc.:                                                                                          |                                        |                             |
| 5.65%,                    9/10/2012                                                                                              | 25,000                                      | 25,408                           |
| 5.7%,                    2/15/2017                                                                                               | 50,000                                      | 49,368                           |
| 6.0%,                    2/15/2012                                                                                               | 48,000                                      | 49,224                           |
| H.J. Heinz                    Finance Co.:                                                                                       |                                        |                             |
| 6.0%,                    3/15/2012 (a)                                                                                           | 25,000                                      | 25,649                           |
| 6.625%,                    7/15/2011 (a)                                                                                         | 25,000                                      | 26,801                           |
| 6.75%,                    3/15/2032                                                                                              | 50,000                                      | 51,756                           |
| Kellogg                    Co.:                                                                                                  |                                        |                             |
| Series B,                    6.6%, 4/1/2011                                                                                      | 50,000                                      | 52,983                           |
| Series B,                    7.45%, 4/1/2031                                                                                     | 50,000                                      | 57,499                           |
| Kimberly-Clark                    Corp.:                                                                                         |                                        |                             |
| 5.625%,                    2/15/2012                                                                                             | 50,000                                      | 51,728                           |
| 6.625%,                    8/1/2037                                                                                              | 50,000                                      | 55,341                           |
| Kraft Foods,                    Inc.:                                                                                            |                                        |                             |
| 5.625%,                    11/1/2011                                                                                             | 50,000                                      | 51,134                           |
| 6.25%,                    6/1/2012                                                                                               | 40,000                                      | 41,554                           |
| 6.5%,                    8/11/2017                                                                                               | 100,000                                     | 103,455                          |
| Kroger Co.,                    8.0%, 9/15/2029                                                                                   | 50,000                                      | 58,070                           |
| Pepsi Bottling                    Group, Inc., Series B, 7.0%, 3/1/2029                                                          | 25,000                                      | 28,594                           |
| Procter &                    Gamble Co., 6.875%, 9/15/2009                                                                   | 200,000                                     | 209,402                          |
| Reynolds                    American, Inc., 7.625%, 6/1/2016                                                                     | 75,000                                      | 79,725                           |
| Safeway, Inc.,                    6.5%, 3/1/2011                                                                                 | 80,000                                      | 83,693                           |
| Unilever                    Capital Corp., 7.125%, 11/1/2010                                                                     | 50,000                                      | 53,622                           |
| Wal-Mart                    Stores, Inc.:                                                                                        |                                        |                             |
| 4.55%,                    5/1/2013                                                                                               | 100,000                                     | 99,527                           |
| 5.25%,                    9/1/2035                                                                                               | 300,000                                     | 266,104                          |
| 6.875%,                    8/10/2009                                                                                             | 100,000                                     | 104,512                          |
|                                                                                                                             | **2,698,105**                               |
| **Energy                    1.3%**                                                                                               |
| Alabama Power                    Co.:                                                                                            |                                        |                             |
| 5.5%,                    10/15/2017 (a)                                                                                          | 100,000                                     | 101,243                          |
| 5.7%,                    2/15/2033 (a)                                                                                           | 50,000                                      | 48,302                           |
| Alberta Energy                    Co., Ltd.:                                                                                     |                                        |                             |
| 7.375%,                    11/1/2031                                                                                             | 50,000                                      | 55,180                           |
| 7.65%,                    9/15/2010                                                                                              | 10,000                                      | 10,681                           |
| Anadarko                    Finance Co., Series B, 6.75%, 5/1/2011                                                               | 25,000                                      | 26,433                           |
| Anadarko                    Petroleum Corp., 5.95%, 9/15/2016                                                                    | 100,000                                     | 101,823                          |
| Apache Corp.,                    6.0%, 1/15/2037                                                                                 | 100,000                                     | 99,182                           |
| Burlington                    Resources, Inc., 7.375%, 3/1/2029                                                                  | 50,000                                      | 59,317                           |
| Canadian                    Natural Resources Ltd.:                                                                              |                                        |                             |
| 5.45%,                    10/1/2012                                                                                              | 25,000                                      | 25,259                           |
| 5.7%,                    5/15/2017                                                                                               | 100,000                                     | 99,391                           |
| 6.25%,                    3/15/2038                                                                                              | 25,000                                      | 24,427                           |
| Conoco Funding                    Co., 6.35%, 10/15/2011                                                                         | 100,000                                     | 106,213                          |
| Conoco, Inc.,                    6.95%, 4/15/2029                                                                                | 150,000                                     | 171,314                          |
| DCP Midstream                    LP, 8.125%, 8/16/2030 (a)                                                                       | 25,000                                      | 28,916                           |
| Devon                    Financing Corp., 6.875%, 9/30/2011                                                                      | 100,000                                     | 107,089                          |
| EnCana                    Corp.:                                                                                                 |                                        |                             |
| 4.75%,                    10/15/2013                                                                                             | 50,000                                      | 48,247                           |
| 5.9%,                    12/1/2017                                                                                               | 50,000                                      | 51,149                           |
| Energy                    Transfer Partners LP:                                                                                  |                                        |                             |
| 6.125%,                    2/15/2017                                                                                             | 25,000                                      | 24,311                           |
| 6.625%,                    10/15/2036                                                                                            | 25,000                                      | 23,961                           |
| Enterprise                    Products Operating LP:                                                                             |                                        |                             |
| Series B,                    5.6%, 10/15/2014                                                                                    | 50,000                                      | 49,900                           |
| Series B,                    6.875%, 3/1/2033 (a)                                                                                | 25,000                                      | 26,119                           |
| Exelon                    Generation Co., LLC, 6.95%, 6/15/2011                                                                  | 25,000                                      | 26,084                           |
| Hess Corp.,                    7.125%, 3/15/2033                                                                                 | 25,000                                      | 27,517                           |
| Kinder Morgan                    Energy Partners LP, 6.75%, 3/15/2011                                                            | 60,000                                      | 62,943                           |
| Marathon Oil                    Corp., 6.0%, 7/1/2012                                                                            | 150,000                                     | 155,662                          |
| Nexen, Inc.,                    7.875%, 3/15/2032                                                                                | 50,000                                      | 57,899                           |
| Occidental                    Petroleum Corp., 6.75%, 1/15/2012                                                                  | 100,000                                     | 108,176                          |
| Pemex Project                    Funding Master Trust:                                                                           |                                        |                             |
| 7.875%,                    2/1/2009                                                                                              | 41,000                                      | 42,145                           |
| 9.125%,                    10/13/2010                                                                                            | 80,000                                      | 88,400                           |
| Petro-Canada,                    5.95%, 5/15/2035                                                                                | 100,000                                     | 96,437                           |
| PPL Energy                    Supply LLC, 6.4%, 11/1/2011                                                                        | 25,000                                      | 25,592                           |
| Spectra Energy                    Capital LLC, 7.5%, 10/1/2009                                                                   | 50,000                                      | 52,122                           |
| Suncor Energy,                    Inc., 5.95%, 12/1/2034                                                                         | 50,000                                      | 49,063                           |
| TransCanada                    PipeLines Ltd.:                                                                                   |                                        |                             |
| 5.85%,                    3/15/2036                                                                                              | 50,000                                      | 47,920                           |
| 6.2%,                    10/15/2037                                                                                              | 50,000                                      | 49,645                           |
| 6.35%,                    5/15/2067                                                                                              | 25,000                                      | 23,432                           |
| Transcontinental Gas Pipe Line                    Corp.:                                                                         |                                        |                             |
| Series B,                    7.0%, 8/15/2011                                                                                     | 50,000                                      | 52,437                           |
| Series B,                    8.875%, 7/15/2012                                                                                   | 25,000                                      | 28,250                           |
| Union Pacific                    Resources Group, Inc., 7.5%, 10/15/2026                                                         | 60,000                                      | 64,741                           |
| Valero Energy                    Corp.:                                                                                          |                                        |                             |
| 6.625%,                    6/15/2037                                                                                             | 35,000                                      | 35,248                           |
| 6.875%,                    4/15/2012                                                                                             | 50,000                                      | 53,353                           |
| 7.5%,                    4/15/2032                                                                                               | 25,000                                      | 27,475                           |
| Weatherford                    International Ltd., 5.5%, 2/15/2016                                                               | 50,000                                      | 49,259                           |
| Williams                    Companies, Inc., 8.75%, 3/15/2032                                                                    | 50,000                                      | 61,125                           |
| XTO Energy,                    Inc.:                                                                                             |                                        |                             |
| 5.3%,                    6/30/2015                                                                                               | 50,000                                      | 49,774                           |
| 6.25%,                    4/15/2013                                                                                              | 25,000                                      | 26,150                           |
| 6.25%,                    8/1/2017                                                                                               | 100,000                                     | 104,912                          |
|                                                                                                                             | **2,754,218**                               |
| **Financials                    9.9%**                                                                                           |
| ACE INA                    Holdings, Inc., 6.7%, 5/15/2036                                                                       | 50,000                                      | 50,697                           |
| Allstate                    Corp.:                                                                                               |                                        |                             |
| 5.35%,                    6/1/2033                                                                                               | 50,000                                      | 43,378                           |
| 7.2%,                    12/1/2009                                                                                               | 100,000                                     | 105,416                          |
| American                    Express Co., 5.25%, 9/12/2011 (a)                                                                    | 250,000                                     | 252,033                          |
| American                    General Finance Corp.:                                                                               |                                        |                             |
| Series I,                    3.875%, 10/1/2009                                                                                   | 100,000                                     | 98,842                           |
| Series H,                    5.375%, 10/1/2012                                                                                   | 75,000                                      | 74,094                           |
| American                    International Group, Inc.:                                                                           |                                        |                             |
| 4.25%,                    5/15/2013                                                                                              | 100,000                                     | 95,127                           |
| 5.05%,                    10/1/2015                                                                                              | 100,000                                     | 96,572                           |
| Apache Finance                    Canada, 7.75%, 12/15/2029                                                                      | 25,000                                      | 29,850                           |
| Asian                    Development Bank, 4.5%, 9/4/2012                                                                        | 250,000                                     | 256,450                          |
| Assurant,                    Inc., 5.625%, 2/15/2014                                                                             | 25,000                                      | 24,464                           |
| Avalonbay                    Communities, 6.125%, 11/1/2012 (a)                                                                  | 30,000                                      | 30,751                           |
| Axa, 8.6%,                    12/15/2030                                                                                         | 50,000                                      | 61,309                           |
| AXA Financial,                    Inc., 7.75%, 8/1/2010                                                                          | 100,000                                     | 107,385                          |
| Bank of                    America Corp.:                                                                                        |                                        |                             |
| 5.125%,                    11/15/2014 (a)                                                                                        | 100,000                                     | 98,434                           |
| 5.75%,                    8/15/2016                                                                                              | 100,000                                     | 100,178                          |
| 5.75%,                    12/1/2017                                                                                              | 125,000                                     | 125,287                          |
| 5.875%,                    2/15/2009                                                                                             | 50,000                                      | 50,719                           |
| 6.25%,                    4/15/2012 (a)                                                                                          | 150,000                                     | 157,511                          |
| 7.8%,                    2/15/2010                                                                                               | 325,000                                     | 344,436                          |
| Bank of New                    York Mellon Corp.:                                                                                |                                        |                             |
| 5.5%,                    12/1/2017                                                                                               | 50,000                                      | 50,116                           |
| 7.3%,                    12/1/2009                                                                                               | 65,000                                      | 67,959                           |
| Bank of                    Tokyo-Mitsubishi NY, 7.4%, 6/15/2011                                                                  | 10,000                                      | 10,815                           |
| Bank One                    Corp.:                                                                                               |                                        |                             |
| 7.625%,                    10/15/2026                                                                                            | 50,000                                      | 55,811                           |
| 7.75%,                    7/15/2025                                                                                              | 100,000                                     | 112,398                          |
| 7.875%,                    8/1/2010                                                                                              | 50,000                                      | 53,933                           |
| Barclays Bank                    PLC, 7.4%, 12/15/2009                                                                           | 60,000                                      | 63,476                           |
| BB&T                    Capital Trust II, 6.75%, 6/7/2036                                                                    | 25,000                                      | 24,346                           |
| BB&T                    Corp., 5.2%, 12/23/2015                                                                              | 150,000                                     | 143,266                          |
| Bear Stearns                    Companies, Inc., 4.5%, 10/28/2010                                                                | 175,000                                     | 167,887                          |
| Berkshire                    Hathaway Finance Corp., 4.625%, 10/15/2013                                                          | 150,000                                     | 150,321                          |
| BHP Billiton                    Finance Ltd., 5.4%, 3/29/2017                                                                    | 150,000                                     | 144,268                          |
| Boeing Capital                    Corp., 6.1%, 3/1/2011 (a)                                                                      | 110,000                                     | 115,298                          |
| Boston                    Properties LP, 6.25%, 1/15/2013                                                                        | 50,000                                      | 50,220                           |
| British                    Transco Finance, Inc., 6.625%, 6/1/2018                                                               | 100,000                                     | 111,048                          |
| Capital One                    Bank, 5.75%, 9/15/2010                                                                            | 100,000                                     | 100,023                          |
| Caterpillar                    Financial Services Corp., Series F, 4.75%, 2/17/2015                                              | 50,000                                      | 48,311                           |
| Charter One                    Bank NA, 6.375%, 5/15/2012                                                                        | 10,000                                      | 10,603                           |
| China                    Development Bank, 5.0%, 10/15/2015                                                                      | 50,000                                      | 49,319                           |
| Chubb                    Corp.:                                                                                                  |                                        |                             |
| 6.0%,                    11/15/2011                                                                                              | 10,000                                      | 10,318                           |
| 6.0%,                    5/11/2037                                                                                               | 75,000                                      | 70,854                           |
| CIT Group,                    Inc.:                                                                                              |                                        |                             |
| 5.0%,                    11/24/2008                                                                                              | 75,000                                      | 74,232                           |
| 5.65%,                    2/13/2017                                                                                              | 100,000                                     | 87,784                           |
| 6.0%,                    4/1/2036                                                                                                | 150,000                                     | 121,326                          |
| Citigroup,                    Inc.:                                                                                              |                                        |                             |
| 5.0%,                    9/15/2014                                                                                               | 375,000                                     | 357,316                          |
| 5.125%,                    5/5/2014                                                                                              | 100,000                                     | 97,579                           |
| 5.25%,                    2/27/2012                                                                                              | 50,000                                      | 50,386                           |
| 5.3%, 1/7/2016                    (a)                                                                                            | 100,000                                     | 98,061                           |
| 5.5%,                    2/15/2017                                                                                               | 100,000                                     | 97,185                           |
| 5.875%,                    2/22/2033                                                                                             | 100,000                                     | 91,268                           |
| 6.0%,                    8/15/2017                                                                                               | 50,000                                      | 51,012                           |
| 6.0%,                    10/31/2033                                                                                              | 100,000                                     | 92,598                           |
| 6.5%,                    1/18/2011                                                                                               | 150,000                                     | 156,632                          |
| 6.625%,                    6/15/2032                                                                                             | 75,000                                      | 75,495                           |
| 7.25%,                    10/1/2010                                                                                              | 50,000                                      | 52,883                           |
| Corp. Andina                    de Fomento:                                                                                      |                                        |                             |
| 5.2%,                    5/21/2013                                                                                               | 75,000                                      | 74,895                           |
| 6.875%,                    3/15/2012                                                                                             | 10,000                                      | 10,670                           |
| Countrywide                    Home Loans, Inc., Series L, 4.0%, 3/22/2011 (a)                                              | 100,000                                     | 72,205                           |
| Credit Suisse                    (USA), Inc.:                                                                                    |                                        |                             |
| 4.875%,                    1/15/2015 (a)                                                                                         | 150,000                                     | 146,643                          |
| 5.125%,                    8/15/2015                                                                                             | 25,000                                      | 24,831                           |
| 5.375%,                    3/2/2016 (a)                                                                                          | 50,000                                      | 49,908                           |
| 6.125%,                    11/15/2011                                                                                            | 100,000                                     | 104,054                          |
| 6.5%,                    1/15/2012                                                                                               | 150,000                                     | 158,131                          |
| 7.125%,                    7/15/2032 (a)                                                                                         | 50,000                                      | 55,790                           |
| Daimler                    Finance NA LLC:                                                                                       |                                        |                             |
| 6.5%,                    11/15/2013                                                                                              | 75,000                                      | 78,375                           |
| 7.2%,                    9/1/2009                                                                                                | 150,000                                     | 154,677                          |
| 8.0%,                    6/15/2010                                                                                               | 150,000                                     | 159,993                          |
| Deutsche                    Telekom International Finance BV:                                                                    |                                        |                             |
| 5.25%,                    7/22/2013                                                                                              | 100,000                                     | 99,598                           |
| 5.75%,                    3/23/2016 (a)                                                                                          | 100,000                                     | 100,094                          |
| 8.0%,                    6/15/2010                                                                                               | 50,000                                      | 53,380                           |
| Diageo Finance                    BV, 5.5%, 4/1/2013                                                                             | 50,000                                      | 50,727                           |
| Dow Capital                    BV, 9.2%, 6/1/2010                                                                                | 50,000                                      | 55,346                           |
| ERP Operating                    LP, 6.625%, 3/15/2012                                                                           | 125,000                                     | 129,755                          |
| European                    Investment Bank:                                                                                     |                                        |                             |
| 4.0%, 3/3/2010                    (a)                                                                                            | 250,000                                     | 251,764                          |
| 4.625%,                    5/15/2014                                                                                             | 450,000                                     | 459,957                          |
| 5.125%,                    5/30/2017 (a)                                                                                         | 50,000                                      | 52,162                           |
| FIA Credit                    Services NA, 4.625%, 8/3/2009                                                                      | 50,000                                      | 49,985                           |
| Fifth Third                    Bancorp:                                                                                          |                                        |                             |
| 4.5%,                    6/1/2018                                                                                                | 50,000                                      | 44,204                           |
| 5.45%,                    1/15/2017                                                                                              | 25,000                                      | 23,895                           |
| FleetBoston                    Financial Corp.:                                                                                  |                                        |                             |
| 6.875%,                    1/15/2028                                                                                             | 45,000                                      | 47,072                           |
| 7.375%,                    12/1/2009                                                                                             | 65,000                                      | 67,738                           |
| Fund American                    Co., Inc., 5.875%, 5/15/2013                                                                    | 50,000                                      | 50,108                           |
| GE Insurance                    Solutions Corp., 6.45%, 3/1/2019                                                                 | 50,000                                      | 52,828                           |
| General                    Electric Capital Corp.:                                                                               |                                        |                             |
| Series A,                    4.625%, 9/15/2009                                                                                   | 63,000                                      | 63,313                           |
| Series A,                    4.875%, 3/4/2015                                                                                    | 125,000                                     | 124,359                          |
| Series A,                    5.0%, 1/8/2016 (a)                                                                                  | 150,000                                     | 149,359                          |
| 5.45%,                    1/15/2013                                                                                              | 200,000                                     | 206,134                          |
| Series A,                    5.625%, 9/15/2017                                                                                   | 100,000                                     | 102,598                          |
| Series A,                    5.875%, 2/15/2012                                                                                   | 200,000                                     | 208,381                          |
| 6.0%,                    6/15/2012                                                                                               | 200,000                                     | 209,668                          |
| Series A,                    6.15%, 8/7/2037                                                                                     | 125,000                                     | 132,804                          |
| Series A,                    6.75%, 3/15/2032                                                                                    | 100,000                                     | 113,538                          |
| 6.875%,                    11/15/2010                                                                                            | 50,000                                      | 53,303                           |
| Genworth                    Financial, Inc.:                                                                                     |                                        |                             |
| 5.75%,                    6/15/2014                                                                                              | 25,000                                      | 25,091                           |
| 6.15%,                    11/15/2066                                                                                             | 75,000                                      | 68,141                           |
| Hartford                    Financial Services Group, Inc.:                                                                      |                                        |                             |
| 4.625%,                    7/15/2013                                                                                             | 50,000                                      | 48,267                           |
| 5.95%,                    10/15/2036                                                                                             | 25,000                                      | 23,683                           |
| Health Care                    Property Investors, Inc., (REIT), 6.0%, 1/30/2017                                                 | 50,000                                      | 47,085                           |
| HSBC Bank USA,                    4.625%, 4/1/2014 (a)                                                                           | 50,000                                      | 47,915                           |
| HSBC Finance                    Corp.:                                                                                           |                                        |                             |
| 4.75%,                    7/15/2013                                                                                              | 100,000                                     | 96,388                           |
| 5.0%,                    6/30/2015                                                                                               | 50,000                                      | 47,686                           |
| 5.5%,                    1/19/2016                                                                                               | 100,000                                     | 97,594                           |
| 5.875%,                    2/1/2009                                                                                              | 100,000                                     | 100,845                          |
| 6.375%,                    10/15/2011                                                                                            | 50,000                                      | 51,516                           |
| 6.75%,                    5/15/2011                                                                                              | 125,000                                     | 129,671                          |
| 7.0%,                    5/15/2012                                                                                               | 100,000                                     | 104,776                          |
| HSBC Holdings                    PLC:                                                                                            |                                        |                             |
| 6.5%,                    5/2/2036                                                                                                | 100,000                                     | 97,218                           |
| 7.5%,                    7/15/2009                                                                                               | 150,000                                     | 155,682                          |
| ING Groep NV,                    5.775%, 12/29/2049                                                                              | 75,000                                      | 69,337                           |
| Inter-American                    Development Bank, 7.375%, 1/15/2010                                                            | 250,000                                     | 268,546                          |
| International                    Finance Corp.:                                                                                  |                                        |                             |
| 4.75%,                    4/25/2012                                                                                              | 50,000                                      | 51,183                           |
| 5.125%,                    5/2/2011                                                                                              | 50,000                                      | 52,438                           |
| International                    Lease Finance Corp.:                                                                            |                                        |                             |
| 3.5%,                    4/1/2009                                                                                                | 25,000                                      | 24,572                           |
| Series R,                    5.55%, 9/5/2012                                                                                     | 100,000                                     | 100,783                          |
| Series R,                    5.65%, 6/1/2014                                                                                     | 50,000                                      | 50,810                           |
| 5.875%,                    5/1/2013                                                                                              | 100,000                                     | 101,656                          |
| iStar                    Financial, Inc., (REIT), 5.15%, 3/1/2012                                                                | 75,000                                      | 64,816                           |
| John Deere                    Capital Corp.:                                                                                     |                                        |                             |
| 6.0%,                    2/15/2009                                                                                               | 35,000                                      | 35,455                           |
| 7.0%,                    3/15/2012                                                                                               | 100,000                                     | 108,888                          |
| JPMorgan Chase                    & Co.:                                                                                     |                                        |                             |
| 6.125%,                    6/27/2017                                                                                             | 50,000                                      | 50,971                           |
| 6.75%,                    2/1/2011                                                                                               | 100,000                                     | 104,999                          |
| 7.125%,                    6/15/2009                                                                                             | 100,000                                     | 103,365                          |
| JPMorgan Chase                    Bank NA, 5.875%, 6/13/2016                                                                     | 250,000                                     | 251,890                          |
| JPMorgan Chase                    Capital XV, 5.875%, 3/15/2035                                                                  | 225,000                                     | 192,881                          |
| KeyBank                    National Association, 5.45%, 3/3/2016                                                                 | 25,000                                      | 24,403                           |
| KeyCorp.,                    Series G, 4.7%, 5/21/2009                                                                           | 100,000                                     | 99,766                           |
| Korea                    Development Bank, 4.625%, 9/16/2010                                                                     | 100,000                                     | 99,144                           |
| Kreditanstalt                    fuer Wiederaufbau:                                                                              |                                        |                             |
| Zero Coupon,                    6/29/2037                                                                                        | 500,000                                     | 112,935                          |
| 4.125%,                    10/15/2014                                                                                            | 150,000                                     | 149,735                          |
| 4.25%,                    6/15/2010                                                                                              | 110,000                                     | 112,214                          |
| 7.0%,                    3/1/2013                                                                                                | 275,000                                     | 313,893                          |
| Landwirtschaftliche Rentenbank:                                                                                                  |                                        |                             |
| 3.875%,                    3/15/2010 (a)                                                                                         | 250,000                                     | 251,977                          |
| 5.125%,                    2/1/2017                                                                                              | 100,000                                     | 104,732                          |
| Lehman                    Brothers Holdings, Inc.:                                                                               |                                        |                             |
| Series G,                    4.8%, 3/13/2014                                                                                     | 225,000                                     | 209,407                          |
| Series I,                    5.25%, 2/6/2012                                                                                     | 50,000                                      | 49,474                           |
| 5.75%,                    1/3/2017                                                                                               | 100,000                                     | 96,065                           |
| 6.625%,                    1/18/2012                                                                                             | 100,000                                     | 103,860                          |
| 6.875%,                    7/17/2037                                                                                             | 50,000                                      | 48,884                           |
| Lincoln                    National Corp., 6.05%, 4/20/2067                                                                      | 75,000                                      | 70,017                           |
| M&T Bank                    Corp., 5.375%, 5/24/2012                                                                         | 25,000                                      | 24,934                           |
| Marsh &                    McLennan Companies, Inc., 5.375%, 7/15/2014 (a)                                                   | 50,000                                      | 48,695                           |
| Marshall &                    Ilsley Corp., 4.375%, 8/1/2009                                                                 | 50,000                                      | 49,516                           |
| MBIA, Inc.,                    9.375%, 2/15/2011                                                                                 | 125,000                                     | 134,072                          |
| Mellon Funding                    Corp., 5.0%, 12/1/2014                                                                         | 50,000                                      | 49,208                           |
| Merrill Lynch                    & Co., Inc.:                                                                                |                                        |                             |
| Series C,                    4.79%, 8/4/2010                                                                                     | 50,000                                      | 49,544                           |
| 5.0%,                    2/3/2014                                                                                                | 25,000                                      | 23,848                           |
| Series C,                    5.0%, 1/15/2015                                                                                     | 25,000                                      | 23,576                           |
| 6.0%,                    2/17/2009                                                                                               | 250,000                                     | 252,041                          |
| Series C,                    6.05%, 8/15/2012                                                                                    | 200,000                                     | 203,839                          |
| 6.22%,                    9/15/2026                                                                                              | 50,000                                      | 46,039                           |
| Series C,                    6.4%, 8/28/2017                                                                                     | 50,000                                      | 50,798                           |
| 6.5%,                    7/15/2018                                                                                               | 50,000                                      | 50,530                           |
| MetLife,                    Inc.:                                                                                                |                                        |                             |
| 5.0%,                    6/15/2015                                                                                               | 100,000                                     | 96,775                           |
| 6.125%,                    12/1/2011                                                                                             | 25,000                                      | 25,924                           |
| 6.4%,                    12/15/2036                                                                                              | 25,000                                      | 22,912                           |
| Morgan                    Stanley:                                                                                               |                                        |                             |
| 3.875%,                    1/15/2009                                                                                             | 150,000                                     | 148,457                          |
| 4.75%,                    4/1/2014                                                                                               | 375,000                                     | 351,320                          |
| 5.3%,                    3/1/2013                                                                                                | 100,000                                     | 99,748                           |
| 5.45%,                    1/9/2017                                                                                               | 100,000                                     | 97,007                           |
| 6.6%,                    4/1/2012                                                                                                | 100,000                                     | 105,072                          |
| MUFG Capital                    Finance 1 Ltd.,6.346%, 7/25/2049                                                                 | 100,000                                     | 94,713                           |
| National                    Australia Bank Ltd., Series A, 8.6%, 5/19/2010                                                       | 50,000                                      | 54,016                           |
| National City                    Corp., 4.9%, 1/15/2015                                                                          | 100,000                                     | 91,377                           |
| National                    Westminster Bank PLC, 7.375%, 10/1/2009                                                              | 50,000                                      | 53,046                           |
| Nationwide                    Financial Services, 5.9%, 7/1/2012                                                                 | 25,000                                      | 26,094                           |
| NiSource                    Finance Corp., 5.45%, 9/15/2020                                                                      | 75,000                                      | 67,113                           |
| Oesterreichische Kontrollbank AG, 4.5%,                    3/9/2015                                                              | 150,000                                     | 149,955                          |
| Ontario                    Electricity Financial Corp, 7.45%, 3/31/2013                                                          | 50,000                                      | 57,899                           |
| Principal Life                    Income Fundings, 5.1%, 4/15/2014                                                               | 25,000                                      | 24,586                           |
| ProLogis                    (REIT):                                                                                              |                                        |                             |
| 5.5%,                    3/1/2013                                                                                                | 20,000                                      | 19,765                           |
| 5.75%,                    4/1/2016 (a)                                                                                           | 25,000                                      | 23,466                           |
| Protective                    Life Secured Trust, Series 2004-A, 4.0%, 4/1/2011                                                  | 25,000                                      | 25,052                           |
| Prudential                    Financial, Inc.:                                                                                   |                                        |                             |
| Series B,                    5.1%, 9/20/2014                                                                                     | 100,000                                     | 98,710                           |
| Series B,                    5.75%, 7/15/2033                                                                                    | 25,000                                      | 22,852                           |
| Regions                    Financial Corp., 6.375%, 5/15/2012                                                                    | 50,000                                      | 51,293                           |
| Royal Bank of                    Canada, 5.65%, 7/20/2011                                                                        | 50,000                                      | 51,965                           |
| Royal Bank of                    Scotland Group PLC:                                                                             |                                        |                             |
| 5.0%,                    11/12/2013                                                                                              | 50,000                                      | 49,931                           |
| 5.05%,                    1/8/2015                                                                                               | 100,000                                     | 97,538                           |
| 7.648%,                    8/31/2049                                                                                             | 50,000                                      | 51,587                           |
| Santander                    Central Hispano Issuances, 7.625%, 9/14/2010                                                        | 50,000                                      | 53,533                           |
| Simon Property                    Group LP (REIT):                                                                               |                                        |                             |
| 5.1%,                    6/15/2015                                                                                               | 50,000                                      | 47,009                           |
| 5.25%,                    12/1/2016                                                                                              | 100,000                                     | 93,047                           |
| 6.35%,                    8/28/2012                                                                                              | 100,000                                     | 102,734                          |
| SLM                    Corp.:                                                                                                    |                                        |                             |
| Series A,                    4.0%, 1/15/2009                                                                                     | 150,000                                     | 144,505                          |
| Series A,                    5.0%, 10/1/2013                                                                                     | 25,000                                      | 21,913                           |
| Svensk                    Exportkredit AB:                                                                                       |                                        |                             |
| Series C,                    4.0%, 6/15/2010 (a)                                                                                 | 100,000                                     | 100,280                          |
| Series D,                    4.875%, 9/29/2011                                                                                   | 100,000                                     | 102,343                          |
| Swiss Bank                    Corp., 7.0%, 10/15/2015                                                                            | 100,000                                     | 109,030                          |
| The Goldman                    Sachs Group, Inc.:                                                                                |                                        |                             |
| 5.125%,                    1/15/2015                                                                                             | 50,000                                      | 49,118                           |
| 5.15%,                    1/15/2014 (a)                                                                                          | 100,000                                     | 98,986                           |
| 5.35%,                    1/15/2016                                                                                              | 100,000                                     | 99,088                           |
| 5.5%,                    11/15/2014                                                                                              | 200,000                                     | 201,748                          |
| 6.125%,                    2/15/2033                                                                                             | 50,000                                      | 49,139                           |
| 6.6%,                    1/15/2012                                                                                               | 100,000                                     | 105,800                          |
| 6.65%,                    5/15/2009 (a)                                                                                          | 15,000                                      | 15,404                           |
| 6.75%,                    10/1/2037                                                                                              | 400,000                                     | 391,911                          |
| 6.875%,                    1/15/2011                                                                                             | 50,000                                      | 53,030                           |
| 7.35%,                    10/1/2009                                                                                              | 50,000                                      | 52,237                           |
| The                    International Bank for Reconstruction & Development:                                                  |                                        |                             |
| 4.75%,                    2/15/2035                                                                                              | 25,000                                      | 24,587                           |
| 5.0%,                    4/1/2016                                                                                                | 50,000                                      | 52,599                           |
| 8.625%,                    10/15/2016                                                                                            | 100,000                                     | 129,379                          |
| The Travelers                    Cos., Inc.:                                                                                     |                                        |                             |
| 6.25%,                    6/15/2037                                                                                              | 50,000                                      | 48,431                           |
| 6.75%,                    6/20/2036                                                                                              | 50,000                                      | 52,178                           |
| UBS AG                    Stamford Branch, Series 10, 5.875%, 7/15/2016                                                          | 50,000                                      | 51,034                           |
| UFJ Finance                    Aruba AEC, 6.75%, 7/15/2013                                                                       | 150,000                                     | 162,955                          |
| US Bank                    National Association:                                                                                 |                                        |                             |
| 4.8%,                    4/15/2015 (a)                                                                                           | 100,000                                     | 96,024                           |
| 6.375%,                    8/1/2011                                                                                              | 100,000                                     | 104,878                          |
| USB Capital                    IX, 6.189%, 4/15/2049                                                                             | 50,000                                      | 45,251                           |
| Verizon Global                    Funding Corp.:                                                                                 |                                        |                             |
| 7.75%,                    12/1/2030                                                                                              | 100,000                                     | 117,286                          |
| 7.75%,                    6/15/2032                                                                                              | 100,000                                     | 117,092                          |
| Wachovia Bank                    NA:                                                                                             |                                        |                             |
| 4.875%,                    2/1/2015                                                                                              | 75,000                                      | 71,397                           |
| 5.0%,                    8/15/2015                                                                                               | 200,000                                     | 189,129                          |
| 6.6%,                    1/15/2038                                                                                               | 50,000                                      | 50,251                           |
| Wachovia                    Corp.:                                                                                               |                                        |                             |
| 4.875%,                    2/15/2014                                                                                             | 50,000                                      | 48,013                           |
| 5.625%,                    10/15/2016                                                                                            | 100,000                                     | 98,597                           |
| 5.75%,                    6/15/2017 (a)                                                                                          | 50,000                                      | 49,694                           |
| 6.15%,                    3/15/2009                                                                                              | 100,000                                     | 100,608                          |
| Washington                    Mutual, Inc., 5.25%, 9/15/2017 (a)                                                                 | 20,000                                      | 16,680                           |
| Wells Fargo                    & Co.:                                                                                        |                                        |                             |
| 4.95%,                    10/16/2013                                                                                             | 50,000                                      | 49,646                           |
| 5.0%,                    11/15/2014 (a)                                                                                          | 50,000                                      | 49,518                           |
| 5.125%,                    9/15/2016                                                                                             | 50,000                                      | 48,527                           |
| 5.375%,                    2/7/2035                                                                                              | 50,000                                      | 44,070                           |
| Wells Fargo                    Bank NA:                                                                                          |                                        |                             |
| 6.45%,                    2/1/2011                                                                                               | 75,000                                      | 79,346                           |
| 7.55%,                    6/21/2010                                                                                              | 200,000                                     | 213,761                          |
| Wells Fargo                    Financial, Inc., 5.5%, 8/1/2012                                                                   | 25,000                                      | 25,700                           |
| Western Union                    Co.:                                                                                            |                                        |                             |
| 5.93%,                    10/1/2016                                                                                              | 50,000                                      | 49,894                           |
| 6.2%,                    11/17/2036                                                                                              | 25,000                                      | 23,994                           |
| XL Capital                    Ltd., Series E, 6.5%, 12/31/2049                                                                   | 50,000                                      | 43,718                           |
|                                                                                                                             | **21,190,081**                              |
| **Health Care                    0.7%**                                                                                          |
| Abbott                    Laboratories, 6.15%, 11/30/2037                                                                        | 50,000                                      | 52,759                           |
| Aetna, Inc.,                    6.625%, 6/15/2036                                                                                | 50,000                                      | 49,500                           |
| Amgen, Inc.,                    4.85%, 11/18/2014                                                                                | 25,000                                      | 24,329                           |
| AstraZeneca                    PLC, 5.9%, 9/15/2017                                                                              | 150,000                                     | 157,508                          |
| Baxter                    International, Inc., 4.625%, 3/15/2015                                                                 | 25,000                                      | 24,009                           |
| Bristol-Myers                    Squibb Co., 5.875%, 11/15/2036                                                                  | 50,000                                      | 49,686                           |
| Covidien                    International Finance SA, 144A, 6.0%, 10/15/2017                                                     | 75,000                                      | 77,605                           |
| Genentech,                    Inc., 4.75%, 7/15/2015                                                                             | 50,000                                      | 49,203                           |
| Johnson &                    Johnson, 6.95%, 9/1/2029                                                                        | 50,000                                      | 59,677                           |
| McKesson                    Corp., 5.7%, 3/1/2017                                                                                | 50,000                                      | 49,714                           |
| Medtronic,                    Inc., Series B, 4.75%, 9/15/2015                                                                   | 25,000                                      | 24,124                           |
| Merck &                    Co, Inc., 6.4%, 3/1/2028                                                                          | 250,000                                     | 267,720                          |
| Pharmacia                    Corp., 6.6%, 12/1/2028                                                                              | 75,000                                      | 83,083                           |
| Quest                    Diagnostics, Inc., 6.95%, 7/1/2037                                                                      | 25,000                                      | 26,434                           |
| Schering-Plough Corp.:                                                                                                           |                                        |                             |
| 5.55%,                    12/1/2013                                                                                              | 50,000                                      | 50,589                           |
| 6.75%,                    12/1/2033                                                                                              | 25,000                                      | 27,128                           |
| UnitedHealth                    Group, Inc.:                                                                                     |                                        |                             |
| 4.875%,                    4/1/2013                                                                                              | 25,000                                      | 24,635                           |
| 5.0%,                    8/15/2014                                                                                               | 150,000                                     | 145,187                          |
| WellPoint                    Health Networks, Inc., 6.375%, 1/15/2012                                                            | 100,000                                     | 103,964                          |
| Wyeth:                                                                                                                           |                                        |                             |
| 5.5%,                    2/15/2016                                                                                               | 50,000                                      | 50,814                           |
| 5.95%,                    4/1/2037                                                                                               | 150,000                                     | 150,398                          |
|                                                                                                                             | **1,548,066**                               |
| **Industrials                    1.1%**                                                                                          |
| 3M Co., 5.7%,                    3/15/2037 (a)                                                                                   | 25,000                                      | 25,500                           |
| Archer-Daniels-Midland Co., 5.935%,                    10/1/2032                                                                 | 75,000                                      | 72,218                           |
| Boeing Co.,                    5.125%, 2/15/2013                                                                                 | 50,000                                      | 51,084                           |
| Burlington                    Northern Santa Fe Corp., 5.9%, 7/1/2012                                                            | 100,000                                     | 103,377                          |
| Canadian                    National Railway Co.:                                                                                |                                        |                             |
| 4.4%,                    3/15/2013                                                                                               | 100,000                                     | 98,087                           |
| 6.375%,                    11/15/2037                                                                                            | 50,000                                      | 51,165                           |
| Caterpillar,                    Inc.:                                                                                            |                                        |                             |
| 6.05%,                    8/15/2036                                                                                              | 50,000                                      | 51,307                           |
| 7.3%,                    5/1/2031                                                                                                | 120,000                                     | 140,954                          |
| CRH America,                    Inc., 5.3%, 10/15/2013                                                                           | 100,000                                     | 97,856                           |
| CSX                    Corp.:                                                                                                    |                                        |                             |
| 6.0%,                    10/1/2036 (a)                                                                                           | 100,000                                     | 90,759                           |
| 6.15%,                    5/1/2037                                                                                               | 50,000                                      | 46,726                           |
| D.R. Horton,                    Inc., 6.5%, 4/15/2016 (a)                                                                        | 40,000                                      | 34,705                           |
| FedEx Corp.,                    9.65%, 6/15/2012                                                                                 | 50,000                                      | 58,623                           |
| General                    Dynamics Corp., 5.375%, 8/15/2015                                                                     | 100,000                                     | 102,900                          |
| Honeywell                    International, Inc.:                                                                                |                                        |                             |
| 5.3%,                    3/15/2017 (a)                                                                                           | 50,000                                      | 50,068                           |
| 5.7%,                    3/15/2036                                                                                               | 50,000                                      | 49,237                           |
| 5.7%,                    3/15/2037                                                                                               | 25,000                                      | 24,682                           |
| 7.5%,                    3/1/2010                                                                                                | 25,000                                      | 26,607                           |
| Lockheed                    Martin Corp., Series B, 6.15%, 9/1/2036                                                              | 75,000                                      | 77,570                           |
| M.D.C.                    Holdings, Inc., 5.375%, 7/1/2015                                                                       | 25,000                                      | 23,332                           |
| Norfolk                    Southern Corp.:                                                                                       |                                        |                             |
| 5.64%,                    5/17/2029                                                                                              | 96,000                                      | 88,146                           |
| 6.2%,                    4/15/2009 (a)                                                                                           | 50,000                                      | 51,053                           |
| 7.8%,                    5/15/2027                                                                                               | 4,000                                       | 4,767                            |
| Norfolk                    Southern Railway Co., 9.75%, 6/15/2020                                                                | 40,000                                      | 54,586                           |
| Northrop                    Grumman Corp.:                                                                                       |                                        |                             |
| 7.125%,                    2/15/2011                                                                                             | 100,000                                     | 106,575                          |
| 7.75%,                    2/15/2031                                                                                              | 50,000                                      | 61,293                           |
| ONEOK Partners                    LP, 6.15%, 10/1/2016                                                                           | 75,000                                      | 76,186                           |
| Raytheon Co.,                    7.2%, 8/15/2027                                                                                 | 75,000                                      | 86,117                           |
| Republic                    Services, Inc., 7.125%, 5/15/2009                                                                    | 10,000                                      | 10,422                           |
| Union Pacific                    Corp.:                                                                                          |                                        |                             |
| 6.65%,                    1/15/2011                                                                                              | 50,000                                      | 51,979                           |
| 7.0%,                    2/1/2016                                                                                                | 50,000                                      | 54,131                           |
| United Parcel                    Service, Inc., 8.375%, 4/1/2020                                                                 | 50,000                                      | 64,915                           |
| United                    Technologies Corp.:                                                                                    |                                        |                             |
| 4.875%,                    5/1/2015                                                                                              | 50,000                                      | 49,320                           |
| 6.1%,                    5/15/2012 (a)                                                                                           | 50,000                                      | 52,730                           |
| 6.35%,                    3/1/2011                                                                                               | 25,000                                      | 26,620                           |
| 7.125%,                    11/15/2010                                                                                            | 50,000                                      | 53,597                           |
| Waste                    Management, Inc.:                                                                                       |                                        |                             |
| 7.0%,                    7/15/2028                                                                                               | 50,000                                      | 53,045                           |
| 7.1%,                    8/1/2026                                                                                                | 100,000                                     | 107,969                          |
| Xerox Corp.,                    6.75%, 2/1/2017                                                                                  | 100,000                                     | 104,232                          |
|                                                                                                                             | **2,434,440**                               |
| **Information                    Technology 0.4%**                                                                               |
| Cisco Systems,                    Inc., 5.5%, 2/22/2016                                                                          | 150,000                                     | 152,545                          |
| Hewlett-Packard Co., 6.5%, 7/1/2012                    (a)                                                                       | 50,000                                      | 54,026                           |
| International                    Business Machines Corp.:                                                                        |                                        |                             |
| 4.75%,                    11/29/2012                                                                                             | 100,000                                     | 100,735                          |
| 5.7%,                    9/14/2017                                                                                               | 50,000                                      | 51,688                           |
| 6.5%,                    1/15/2028                                                                                               | 125,000                                     | 133,285                          |
| Motorola,                    Inc., 7.625%, 11/15/2010                                                                            | 8,000                                       | 8,569                            |
| Oracle Corp.,                    5.25%, 1/15/2016                                                                                | 100,000                                     | 99,804                           |
| Pitney Bowes,                    Inc., 3.875%, 6/15/2013                                                                         | 100,000                                     | 94,346                           |
| Scana                    Corp.:                                                                                                  |                                        |                             |
| 6.25%,                    2/1/2012                                                                                               | 60,000                                      | 62,397                           |
| 6.875%,                    5/15/2011                                                                                             | 25,000                                      | 26,394                           |
|                                                                                                                             | **783,789**                                 |
| **Materials                    0.5%**                                                                                            |
| Alcan,                    Inc.:                                                                                                  |                                        |                             |
| 4.5%,                    5/15/2013 (a)                                                                                           | 100,000                                     | 97,635                           |
| 4.875%,                    9/15/2012                                                                                             | 10,000                                      | 9,845                            |
| 5.2%,                    1/15/2014                                                                                               | 25,000                                      | 25,132                           |
| 6.125%,                    12/15/2033                                                                                            | 50,000                                      | 48,514                           |
| Alcoa,                    Inc.:                                                                                                  |                                        |                             |
| 5.9%,                    2/1/2027                                                                                                | 25,000                                      | 23,606                           |
| 6.0%,                    1/15/2012                                                                                               | 25,000                                      | 25,948                           |
| 7.375%,                    8/1/2010                                                                                              | 100,000                                     | 105,506                          |
| Dow Chemical                    Co., 6.0%, 10/1/2012                                                                             | 100,000                                     | 103,952                          |
| E.I. du Pont                    de Nemours & Co., 6.875%, 10/15/2009                                                         | 150,000                                     | 156,765                          |
| Meadwestvaco                    Corp., 6.85%, 4/1/2012                                                                           | 70,000                                      | 73,937                           |
| Monsanto Co.,                    5.5%, 8/15/2025                                                                                 | 25,000                                      | 23,702                           |
| Praxair, Inc.,                    3.95%, 6/1/2013 (a)                                                                            | 50,000                                      | 48,393                           |
| United States                    Steel Corp., 6.65%, 6/1/2037                                                                    | 25,000                                      | 22,301                           |
| Vale Overseas                    Ltd.:                                                                                           |                                        |                             |
| 6.25%,                    1/23/2017                                                                                              | 50,000                                      | 50,155                           |
| 6.875%,                    11/21/2036                                                                                            | 100,000                                     | 101,161                          |
| Weyerhaeuser                    Co., 6.75%, 3/15/2012                                                                            | 150,000                                     | 157,521                          |
|                                                                                                                             | **1,074,073**                               |
| **Telecommunication Services                    1.4%**                                                                           |
| Ameritech                    Capital Funding, 6.55%, 1/15/2028                                                                   | 100,000                                     | 100,108                          |
| AT&T                    Mobility LLC, 6.5%, 12/15/2011                                                                       | 75,000                                      | 78,958                           |
| AT&T,                    Inc.:                                                                                               |                                        |                             |
| 5.1%,                    9/15/2014                                                                                               | 25,000                                      | 24,741                           |
| 5.875%,                    8/15/2012                                                                                             | 150,000                                     | 155,345                          |
| 6.8%,                    5/15/2036                                                                                               | 50,000                                      | 54,104                           |
| 8.0%,                    11/15/2031                                                                                              | 20,000                                      | 24,561                           |
| BellSouth                    Corp.:                                                                                              |                                        |                             |
| 5.2%,                    9/15/2014                                                                                               | 100,000                                     | 99,802                           |
| 5.2%,                    12/15/2016 (a)                                                                                          | 300,000                                     | 292,994                          |
| 6.0%,                    11/15/2034 (a)                                                                                          | 100,000                                     | 97,238                           |
| British                    Telecommunications PLC:                                                                               |                                        |                             |
| 8.625%,                    12/15/2010                                                                                            | 50,000                                      | 54,867                           |
| 9.125%,                    12/15/2030                                                                                            | 70,000                                      | 92,654                           |
| Embarq                    Corp.:                                                                                                 |                                        |                             |
| 7.082%,                    6/1/2016                                                                                              | 75,000                                      | 77,279                           |
| 7.995%,                    6/1/2036                                                                                              | 25,000                                      | 26,346                           |
| France Telecom                    SA:                                                                                            |                                        |                             |
| 7.75%,                    3/1/2011                                                                                               | 75,000                                      | 80,612                           |
| 8.5%,                    3/1/2031                                                                                                | 75,000                                      | 97,249                           |
| Koninklijke                    (Royal) KPN NV:                                                                                   |                                        |                             |
| 8.0%,                    10/1/2010                                                                                               | 25,000                                      | 26,812                           |
| 8.375%,                    10/1/2030                                                                                             | 50,000                                      | 59,952                           |
| Motorola,                    Inc., 7.5%, 5/15/2025                                                                               | 50,000                                      | 53,202                           |
| New Cingular                    Wireless Services, Inc., 7.875%, 3/1/2011                                                        | 100,000                                     | 108,297                          |
| Sprint Capital                    Corp.:                                                                                         |                                        |                             |
| 6.875%,                    11/15/2028                                                                                            | 295,000                                     | 279,767                          |
| 6.9%,                    5/1/2019                                                                                                | 25,000                                      | 24,834                           |
| 8.375%,                    3/15/2012                                                                                             | 75,000                                      | 81,227                           |
| Sprint Nextel                    Corp., 6.0%, 12/1/2016                                                                          | 50,000                                      | 47,890                           |
| Telecom Italia                    Capital:                                                                                       |                                        |                             |
| 5.25%,                    10/1/2015                                                                                              | 175,000                                     | 170,494                          |
| 6.375%,                    11/15/2033                                                                                            | 75,000                                      | 75,116                           |
| Telefonica                    Emisiones SAU, 6.421%, 6/20/2016                                                                   | 125,000                                     | 131,545                          |
| Telefonica                    Europe BV, 7.75%, 9/15/2010                                                                        | 125,000                                     | 133,794                          |
| Verizon                    Communications Inc., 5.55%, 2/15/2016                                                                 | 100,000                                     | 101,073                          |
| Verizon New                    York, Inc., Series A, 6.875%, 4/1/2012                                                            | 25,000                                      | 26,525                           |
| Verizon                    Virginia, Inc., 4.625%, 3/15/2013                                                                     | 100,000                                     | 96,591                           |
| Vodafone Group                    PLC:                                                                                           |                                        |                             |
| 5.0%,                    12/16/2013                                                                                              | 100,000                                     | 98,313                           |
| 5.0%,                    9/15/2015                                                                                               | 50,000                                      | 48,189                           |
| 6.15%,                    2/27/2037                                                                                              | 125,000                                     | 123,452                          |
| 7.75%,                    2/15/2010                                                                                              | 50,000                                      | 52,744                           |
|                                                                                                                             | **3,096,675**                               |
| **Utilities                    1.3%**                                                                                            |
| American                    Electric Power Co., Inc., 5.25%, 6/1/2015                                                            | 100,000                                     | 97,106                           |
| Arizona Public                    Service, 6.5%, 3/1/2012                                                                        | 25,000                                      | 26,011                           |
| Atmos Energy                    Corp., 4.95%, 10/15/2014                                                                         | 25,000                                      | 23,842                           |
| Cleveland                    Electric Illuminating Co.:                                                                          |                                        |                             |
| 5.7%,                    4/1/2017                                                                                                | 100,000                                     | 97,650                           |
| Series D,                    7.88%, 11/1/2017                                                                                    | 75,000                                      | 84,547                           |
| Consolidated                    Edison Co. of New York:                                                                          |                                        |                             |
| 4.875%,                    2/1/2013                                                                                              | 50,000                                      | 49,834                           |
| 6.2%,                    6/15/2036 (a)                                                                                           | 125,000                                     | 127,320                          |
| Constellation                    Energy Group, 4.55%, 6/15/2015 (a)                                                              | 30,000                                      | 27,665                           |
| Detroit Edison                    Co., 5.7%, 10/1/2037                                                                           | 50,000                                      | 46,992                           |
| Dominion                    Resources, Inc., Series C, 5.15%, 7/15/2015                                                          | 50,000                                      | 48,382                           |
| DTE Energy                    Co., 7.05%, 6/1/2011                                                                               | 50,000                                      | 53,094                           |
| Duke Energy                    Carolinas LLC, 5.3%, 10/1/2015                                                                    | 75,000                                      | 74,833                           |
| Duke Energy                    Indiana, Inc., 5.0%, 9/15/2013                                                                    | 50,000                                      | 48,945                           |
| Emerson                    Electric Co., 4.75%, 10/15/2015 (a)                                                                   | 75,000                                      | 72,789                           |
| Exelon                    Corp.:                                                                                                 |                                        |                             |
| 5.625%,                    6/15/2035                                                                                             | 25,000                                      | 22,326                           |
| 6.75%,                    5/1/2011                                                                                               | 50,000                                      | 52,258                           |
| Florida Power                    & Light Co.:                                                                                |                                        |                             |
| 4.95%,                    6/1/2035                                                                                               | 50,000                                      | 44,000                           |
| 5.65%,                    2/1/2037                                                                                               | 50,000                                      | 48,526                           |
| General                    Electric Co., 5.0%, 2/1/2013                                                                          | 100,000                                     | 101,272                          |
| Hydro-Quebec,                    Series HY, 8.4%, 1/15/2022 (a)                                                                  | 100,000                                     | 135,407                          |
| KeySpan Corp.,                    8.0%, 11/15/2030                                                                               | 50,000                                      | 59,452                           |
| KeySpan Gas                    East Corp., 7.875%, 2/1/2010                                                                      | 25,000                                      | 26,536                           |
| MidAmerican                    Energy Holdings Co.:                                                                              |                                        |                             |
| 5.875%,                    10/1/2012                                                                                             | 25,000                                      | 25,912                           |
| 6.125%,                    4/1/2036                                                                                              | 50,000                                      | 49,881                           |
| 6.5%,                    9/15/2037                                                                                               | 100,000                                     | 104,428                          |
| National Rural                    Utilities Cooperative Finance Corp., 8.0%, 3/1/2032                                            | 100,000                                     | 120,770                          |
| Nevada Power                    Co., Series N, 6.65%, 4/1/2036                                                                   | 25,000                                      | 25,310                           |
| NSTAR Electric                    Co., 4.875%, 4/15/2014                                                                         | 25,000                                      | 24,392                           |
| Pacific Gas                    & Electric Co., 6.05%, 3/1/2034                                                               | 150,000                                     | 149,751                          |
| Progress                    Energy, Inc.:                                                                                        |                                        |                             |
| 6.85%,                    4/15/2012                                                                                              | 35,000                                      | 37,465                           |
| 7.1%,                    3/1/2011                                                                                                | 42,000                                      | 44,696                           |
| PSE&G                    Power LLC, 5.5%, 12/1/2015                                                                          | 150,000                                     | 146,853                          |
| Public Service                    Co. of Colorado, 4.875%, 3/1/2013                                                              | 75,000                                      | 73,625                           |
| Puget Sound                    Energy, Inc., 5.483%, 6/1/2035                                                                    | 25,000                                      | 22,018                           |
| Scottish Power                    PLC, 5.375%, 3/15/2015                                                                         | 150,000                                     | 144,707                          |
| Sempra                    Energy:                                                                                                |                                        |                             |
| 6.0%,                    2/1/2013                                                                                                | 25,000                                      | 25,826                           |
| 7.95%,                    3/1/2010                                                                                               | 25,000                                      | 26,711                           |
| Southern                    California Edison Co.:                                                                               |                                        |                             |
| 6.0%,                    1/15/2034 (a)                                                                                           | 50,000                                      | 50,580                           |
| 6.65%,                    4/1/2029 (a)                                                                                           | 100,000                                     | 105,725                          |
| Southern                    California Gas Co., 5.75%, 11/15/2035                                                                | 50,000                                      | 48,432                           |
| Southern Union                    Co., 8.25%, 11/15/2029                                                                         | 50,000                                      | 55,958                           |
| United                    Utilities PLC, 5.375%, 2/1/2019 (a)                                                                    | 30,000                                      | 27,959                           |
| Wisconsin                    Energy Corp., 6.5%, 4/1/2011 (a)                                                                    | 50,000                                      | 52,368                           |
| Xcel Energy,                    Inc., 6.5%, 7/1/2036                                                                             | 75,000                                      | 74,403                           |
|                                                                                                                             | **2,806,557**                               |
| **Total                    Corporate Bonds** (Cost $40,984,265)                                                                  | **41,111,271**                              |
|                                                                                                                             |
| **Asset Backed                    0.9%**                                                                                         |
| **Automobile                    Receivables 0.2%**                                                                               |
| Chase                    Manhattan Auto Owner Trust, "A4", Series 2006-B, 5.11%, 4/15/2014                                       | 100,000                                     | 101,196                          |
| Daimler                    Chrysler Auto Trust, "A4", Series 2006-C, 4.98%, 11/8/2011                                            | 100,000                                     | 100,854                          |
| Honda Auto                    Receivables Owner Trust, "A3", Series 2007-1, 5.1%, 3/18/2011                                      | 200,000                                     | 201,390                          |
| Nissan Auto                    Receivables Owner Trust, "A4", Series 2005-C, 4.31%, 3/15/2011                                    | 100,000                                     | 99,698                           |
|                                                                                                                             | **503,138**                                 |
| **Credit Card                    Receivables 0.4%**                                                                              |
| Capital One                    Multi-Asset Execution Trust, "A7", Series 2005-A7, 4.7%,                    6/15/2015        | 100,000                                     | 100,686                          |
| Chase Issuance                    Trust, "A4", Series 2005-A4, 4.23%, 1/15/2013                                                  | 50,000                                      | 50,045                           |
| Citibank                    Credit Card Issuance Trust:                                                                          |                                        |                             |
| "A10", Series                    2003-A10, 4.75%, 12/10/2015                                                                     | 100,000                                     | 99,830                           |
| "A8", Series                    2004-A8, 4.9%, 12/12/2016                                                                        | 100,000                                     | 99,928                           |
| Citibank                    Credit Card Master Trust I, "A", Series 1999-2, 5.875%, 3/10/2011                                    | 100,000                                     | 101,841                          |
| MBNA Credit                    Card Master Note Trust, "A1", Series 2006-A1, 4.9%, 7/15/2011                                | 200,000                                     | 201,423                          |
| MBNA Credit                    Card Master Trust:                                                                                |                                        |                             |
| "A", Series                    1999-B, 5.9%, 8/15/2011                                                                           | 50,000                                      | 50,983                           |
| "A", Series                    1999-J, 7.0%, 2/15/2012                                                                           | 200,000                                     | 209,422                          |
|                                                                                                                             | **914,158**                                 |
| **Home Equity                    Loans 0.2%**                                                                                    |
| Chase Funding                    Mortgage Loan, "1A4", Series 2004-2, 5.323%, 2/25/2035                                          | 99,032                                      | 98,645                           |
| Countrywide                    Asset-Backed Certificates:                                                                        |                                        |                             |
| "AF3", Series                    2005-1, 4.575%, 7/25/2035                                                                       | 28,383                                      | 28,187                           |
| "A6", Series                    2006-S9, 5.588%, 8/25/2036                                                                       | 100,000                                     | 90,266                           |
| GMAC Mortgage                    Corp. Loan Trust, "A5", Series 2004-HE5, 4.865%, 9/25/2034                                      | 100,000                                     | 90,021                           |
|                                                                                                                             | **307,119**                                 |
| **Miscellaneous 0.1%**                                                                                                           |
| Centerpoint                    Energy Transition II, "A4", Series 2005-A, 5.17%, 8/1/2019                                        | 100,000                                     | 98,635                           |
| Detroit Edison                    Securitization Funding LLC, "A3", Series 2001-1, 5.875%,                    3/1/2010      | 18,882                                      | 18,916                           |
| Oncor Electric                    Delivery Transition Bond Co., "A3", Series 2003-1, 4.95%,                    2/15/2015    | 100,000                                     | 100,626                          |
|                                                                                                                             | **218,177**                                 |
| **Total Asset                    Backed** (Cost $1,954,862)                                                                      | **1,942,592**                               |
|                                                                                                                             |
| **Government &                    Agency Obligations 36.7%**                                                                 |
| **Sovereign                    Bonds 1.0%**                                                                                      |
| Government of                    Malaysia, 8.75%, 6/1/2009                                                                       | 10,000                                      | 10,535                           |
| Kingdom of                    Sweden, 12.0%, 2/1/2010                                                                            | 220,000                                     | 257,323                          |
| Province of                    Nova Scotia, 5.75%, 2/27/2012                                                                     | 50,000                                      | 53,312                           |
| Province of                    Ontario:                                                                                          |                                        |                             |
| 4.375%,                    2/15/2013                                                                                             | 100,000                                     | 99,367                           |
| 4.5%, 2/3/2015                    (a)                                                                                            | 150,000                                     | 150,139                          |
| Province of                    Quebec:                                                                                           |                                        |                             |
| 5.125%,                    11/14/2016                                                                                            | 50,000                                      | 51,691                           |
| 5.75%,                    2/15/2009                                                                                              | 50,000                                      | 50,906                           |
| Series NN,                    7.125%, 2/9/2024                                                                                   | 100,000                                     | 121,402                          |
| Series PD,                    7.5%, 9/15/2029 (a)                                                                                | 100,000                                     | 130,763                          |
| Republic of                    Chile, 6.875%, 4/28/2009                                                                          | 10,000                                      | 10,369                           |
| Republic of                    Italy:                                                                                            |                                        |                             |
| 4.5%,                    1/21/2015                                                                                               | 250,000                                     | 249,487                          |
| 5.375%,                    6/15/2033                                                                                             | 100,000                                     | 102,565                          |
| 6.875%,                    9/27/2023                                                                                             | 200,000                                     | 238,740                          |
| United Mexican                    States:                                                                                        |                                        |                             |
| 6.375%,                    1/16/2013                                                                                             | 350,000                                     | 372,225                          |
| Series A,                    6.75%, 9/27/2034                                                                                    | 41,000                                      | 45,285                           |
| Series A,                    9.875%, 2/1/2010                                                                                    | 190,000                                     | 210,235                          |
|                                                                                                                             | **2,154,344**                               |
| **US                    Government Sponsored Agencies 9.9%**                                                                     |
| Federal Home                    Loan Bank:                                                                                       |                                        |                             |
| 3.875%,                    6/14/2013 (a)                                                                                         | 1,000,000                                   | 992,953                          |
| 4.5%,                    11/15/2012 (a)                                                                                          | 1,000,000                                   | 1,023,822                        |
| 4.875%,                    5/14/2010                                                                                             | 5,000,000                                   | 5,143,545                        |
| 5.375%,                    8/19/2011                                                                                             | 1,000,000                                   | 1,055,144                        |
| Federal Home                    Loan Mortgage Corp.:                                                                             |                                        |                             |
| 4.125%,                    7/12/2010 (a)                                                                                         | 1,000,000                                   | 1,012,312                        |
| 4.25%,                    7/15/2009                                                                                              | 2,000,000                                   | 2,018,776                        |
| 4.5%,                    1/15/2013 (a)                                                                                           | 500,000                                     | 511,893                          |
| 5.0%,                    6/11/2009 (a)                                                                                           | 1,700,000                                   | 1,731,584                        |
| 5.25%,                    5/21/2009 (a)                                                                                          | 2,000,000                                   | 2,041,170                        |
| 6.75%,                    9/15/2029                                                                                              | 3,000                                       | 3,721                            |
| 7.0%,                    3/15/2010 (a)                                                                                           | 450,000                                     | 482,284                          |
| Federal                    National Mortgage Association:                                                                        |                                        |                             |
| 4.25%,                    5/15/2009 (a)                                                                                          | 750,000                                     | 755,404                          |
| 4.875%,                    5/18/2012 (a)                                                                                         | 1,300,000                                   | 1,350,732                        |
| 5.0%,                    5/11/2017                                                                                               | 1,000,000                                   | 1,035,559                        |
| 5.25%,                    1/15/2009                                                                                              | 500,000                                     | 506,347                          |
| 6.25%,                    5/15/2029 (a)                                                                                          | 450,000                                     | 528,144                          |
| 7.125%,                    1/15/2030 (a)                                                                                         | 50,000                                      | 64,729                           |
| 7.25%,                    5/15/2030 (a)                                                                                          | 650,000                                     | 853,990                          |
|                                                                                                                             | **21,112,109**                              |
| **US Treasury                    Obligations 25.8%**                                                                             |
| US Treasury                    Bonds:                                                                                            |                                        |                             |
| 4.5%,                    2/15/2036 (a)                                                                                           | 550,000                                     | 552,793                          |
| 4.625%,                    2/15/2017 (a)                                                                                         | 1,250,000                                   | 1,306,836                        |
| 4.75%,                    2/15/2037 (a)                                                                                          | 1,725,000                                   | 1,805,319                        |
| 5.375%,                    2/15/2031 (a)                                                                                         | 1,670,000                                   | 1,881,490                        |
| 6.0%,                    2/15/2026 (a)                                                                                           | 810,000                                     | 958,585                          |
| 6.25%,                    8/15/2023 (a)                                                                                          | 700,000                                     | 838,086                          |
| 7.25%,                    8/15/2022 (a)                                                                                          | 590,000                                     | 766,078                          |
| 7.625%,                    11/15/2022 (a)                                                                                        | 90,000                                      | 120,860                          |
| 7.875%,                    2/15/2021 (a)                                                                                         | 300,000                                     | 403,500                          |
| 8.0%,                    11/15/2021 (a)                                                                                          | 565,000                                     | 773,256                          |
| 8.75%,                    5/15/2020 (a)                                                                                          | 300,000                                     | 425,766                          |
| 8.75%,                    8/15/2020 (a)                                                                                          | 450,000                                     | 640,723                          |
| US Treasury                    Notes:                                                                                            |                                        |                             |
| 3.5%,                    8/15/2009 (a)                                                                                           | 1,500,000                                   | 1,509,962                        |
| 3.5%,                    11/15/2009 (a)                                                                                          | 750,000                                     | 756,621                          |
| 3.625%,                    7/15/2009 (a)                                                                                         | 500,000                                     | 503,985                          |
| 3.625%,                    12/31/2012                                                                                            | 1,500,000                                   | 1,511,250                        |
| 3.875%,                    9/15/2010 (a)                                                                                         | 1,500,000                                   | 1,531,992                        |
| 4.125%,                    5/15/2015 (a)                                                                                         | 540,000                                     | 550,589                          |
| 4.25%,                    1/15/2011 (a)                                                                                          | 2,700,000                                   | 2,791,125                        |
| 4.25%,                    9/30/2012 (a)                                                                                          | 400,000                                     | 414,031                          |
| 4.25%,                    11/15/2013 (a)                                                                                         | 3,300,000                                   | 3,421,430                        |
| 4.25%,                    8/15/2015 (a)                                                                                          | 1,000,000                                   | 1,026,406                        |
| 4.25%,                    11/15/2017                                                                                             | 1,000,000                                   | 1,017,422                        |
| 4.5%,                    2/15/2009 (a)                                                                                           | 1,900,000                                   | 1,928,648                        |
| 4.5%,                    11/15/2010 (a)                                                                                          | 1,000,000                                   | 1,039,766                        |
| 4.5%,                    4/30/2012 (a)                                                                                           | 250,000                                     | 261,152                          |
| 4.5%,                    11/15/2015 (a)                                                                                          | 1,580,000                                   | 1,646,286                        |
| 4.5%,                    2/15/2016 (a)                                                                                           | 1,660,000                                   | 1,727,826                        |
| 4.5%,                    5/15/2017 (a)                                                                                           | 3,265,000                                   | 3,384,120                        |
| 4.625%,                    12/31/2011 (a)                                                                                        | 1,500,000                                   | 1,573,359                        |
| 4.625%,                    2/29/2012 (a)                                                                                         | 500,000                                     | 524,688                          |
| 4.75%,                    2/15/2010 (a)                                                                                          | 9,500,000                                   | 9,828,044                        |
| 4.875%,                    5/31/2009 (a)                                                                                         | 1,000,000                                   | 1,024,688                        |
| 4.875%,                    6/30/2009 (a)                                                                                         | 4,500,000                                   | 4,615,312                        |
| 4.875%,                    6/30/2012 (a)                                                                                         | 1,500,000                                   | 1,590,938                        |
| 4.875%,                    8/15/2016 (a)                                                                                         | 675,000                                     | 718,770                          |
|                                                                                                                             | **55,371,702**                              |
| **Total                    Government & Agency Obligations** (Cost $75,747,979)                                              | **78,638,155**                              |
|                                                                                                                             |
| **Mortgage-Backed                    Securities Pass-Throughs 37.8%**                                                            |
| Federal Home                    Loan Mortgage Corp.:                                                                             |                                        |                             |
| 4.0%,                    1/1/2020                                                                                                | 734,410                                     | 706,726                          |
| 4.305%*,                    3/1/2035                                                                                             | 120,256                                     | 119,496                          |
| 4.374%*,                    12/1/2033                                                                                            | 98,483                                      | 98,033                           |
| 4.5%, with                    various maturities from 1/1/2020 until 9/1/2035                                                    | 2,614,008                                   | 2,546,775                        |
| 4.524%*,                    3/1/2035                                                                                             | 41,613                                      | 41,488                           |
| 4.645%*,                    7/1/2035                                                                                             | 233,272                                     | 232,971                          |
| 4.685%*,                    4/1/2035                                                                                             | 123,346                                     | 123,361                          |
| 4.844%*,                    9/1/2035                                                                                             | 311,796                                     | 312,314                          |
| 4.87%*,                    11/1/2035                                                                                             | 120,339                                     | 120,574                          |
| 4.892%*,                    12/1/2034                                                                                            | 112,899                                     | 112,135                          |
| 5.0%, with                    various maturities from 12/1/2017 until 6/1/2036                                                   | 6,347,090                                   | 6,223,315                        |
| 5.119%*,                    6/1/2035                                                                                             | 174,578                                     | 175,638                          |
| 5.228%*,                    9/1/2035                                                                                             | 70,151                                      | 70,862                           |
| 5.234%*,                    12/1/2035                                                                                            | 375,179                                     | 378,611                          |
| 5.301%*,                    4/1/2037                                                                                             | 286,048                                     | 287,512                          |
| 5.433%*,                    11/1/2035                                                                                            | 162,117                                     | 163,820                          |
| 5.5%, with                    various maturities from 11/1/2013 until 10/1/2037                                                  | 8,488,461                                   | 8,486,006                        |
| 5.507%*,                    1/1/2037                                                                                             | 94,028                                      | 94,563                           |
| 5.529%*,                    5/1/2037                                                                                             | 95,142                                      | 96,022                           |
| 5.654%*,                    4/1/2036                                                                                             | 86,796                                      | 87,961                           |
| 5.694%*,                    4/1/2037                                                                                             | 197,784                                     | 199,286                          |
| 5.71%*,                    5/1/2037                                                                                              | 99,034                                      | 100,112                          |
| 5.734%*,                    4/1/2036                                                                                             | 230,737                                     | 234,308                          |
| 5.792%*,                    4/1/2037                                                                                             | 95,697                                      | 96,946                           |
| 5.908%*,                    2/1/2037                                                                                             | 184,310                                     | 186,892                          |
| 5.913%*,                    12/1/2036                                                                                            | 85,528                                      | 86,586                           |
| 6.0%, with                    various maturities from 9/1/2021 until 11/1/2037                                                   | 6,991,421                                   | 7,101,640                        |
| 6.408%*,                    8/1/2036                                                                                             | 74,522                                      | 76,023                           |
| 6.5%, with                    various maturities from 12/1/2014 until 8/1/2036                                                   | 1,507,049                                   | 1,551,376                        |
| 7.0%, with                    various maturities from 12/1/2024 until 9/1/2031                                                   | 553,317                                     | 576,118                          |
| 7.5%, with                    various maturities from 5/1/2024 until 7/1/2027                                                    | 17,974                                      | 19,397                           |
| Federal                    National Mortgage Association:                                                                        |                                        |                             |
| 4.0%,                    12/1/2020                                                                                               | 480,984                                     | 461,632                          |
| 4.36%*,                    3/1/2035                                                                                              | 273,869                                     | 273,353                          |
| 4.393%*,                    4/1/2034                                                                                             | 79,098                                      | 79,151                           |
| 4.474%*,                    3/1/2035                                                                                             | 206,201                                     | 206,378                          |
| 4.5%, with                    various maturities from 2/1/2020 until 7/1/2035                                                    | 2,547,830                                   | 2,476,272                        |
| 4.64%*,                    4/1/2035                                                                                              | 254,890                                     | 255,435                          |
| 4.749%*,                    11/1/2034                                                                                            | 94,303                                      | 94,595                           |
| 4.803%*,                    1/1/2035                                                                                             | 132,709                                     | 133,129                          |
| 4.847%*,                    8/1/2036                                                                                             | 81,916                                      | 82,156                           |
| 4.94%*,                    6/1/2035                                                                                              | 254,270                                     | 255,553                          |
| 4.947%*,                    10/1/2034                                                                                            | 127,564                                     | 128,363                          |
| 4.967%*,                    8/1/2035                                                                                             | 181,356                                     | 180,121                          |
| 4.973%*,                    6/1/2035                                                                                             | 108,252                                     | 109,054                          |
| 5.0%, with                    various maturities from 11/1/2020 until 4/1/2036                                                   | 10,314,901                                  | 10,155,023                       |
| 5.081%*,                    7/1/2035                                                                                             | 97,384                                      | 97,955                           |
| 5.17%*,                    1/1/2036                                                                                              | 230,708                                     | 233,187                          |
| 5.309%*,                    1/1/2037                                                                                             | 86,635                                      | 87,581                           |
| 5.46%*,                    1/1/2037                                                                                              | 179,584                                     | 182,038                          |
| 5.47%*,                    1/1/2036                                                                                              | 244,290                                     | 247,677                          |
| 5.491%*,                    10/1/2036                                                                                            | 164,941                                     | 167,284                          |
| 5.5%, with                    various maturities from 8/1/2019 until 11/1/2037                                                   | 13,143,444                                  | 13,147,007                       |
| 5.611%*,                    1/1/2037                                                                                             | 90,989                                      | 92,495                           |
| 5.773%*,                    1/1/2037                                                                                             | 86,591                                      | 88,196                           |
| 5.785%*,                    3/1/2037                                                                                             | 99,971                                      | 101,702                          |
| 5.856%*,                    11/1/2036                                                                                            | 185,830                                     | 189,502                          |
| 5.928%*,                    9/1/2036                                                                                             | 169,850                                     | 173,557                          |
| 6.0%, with                    various maturities from 10/1/2009 until 11/1/2037                                                  | 8,728,066                                   | 8,875,853                        |
| 6.5%, with                    various maturities from 1/1/2018 until 12/1/2036                                                   | 3,080,237                                   | 3,170,354                        |
| 7.0%, with                    various maturities from 6/1/2012 until 12/1/2033                                                   | 970,172                                     | 1,012,219                        |
| 7.5%, with                    various maturities from 1/1/2024 until 4/1/2028                                                    | 31,985                                      | 34,450                           |
| 8.0%, with                    various maturities from 12/1/2021 until 11/1/2031                                                  | 53,124                                      | 56,614                           |
| 8.5%, with                    various maturities from 12/1/2025 until 8/1/2031                                                   | 24,134                                      | 26,455                           |
| Government                    National Mortgage Association:                                                                     |                                        |                             |
| 5.0%, with                    various maturities from 10/1/2033 until 10/20/2035 (d)                                             | 1,349,570                                   | 1,324,498                        |
| 5.5%, with                    various maturities from 9/15/2033 until 3/15/2036                                                  | 2,544,157                                   | 2,561,268                        |
| 6.0%, with                    various maturities from 2/15/2029 until 7/20/2037                                                  | 2,274,738                                   | 2,326,865                        |
| 6.5%, with                    various maturities from 11/15/2023 until 6/1/2035                                                  | 1,009,409                                   | 1,044,624                        |
| 7.5%, with                    various maturities from 8/15/2029 until 6/15/2032                                                  | 59,116                                      | 62,469                           |
| 8.0%, with                    various maturities from 7/15/2022 until 3/15/2032                                                  | 108,782                                     | 118,650                          |
| 8.5%,                    11/15/2029                                                                                              | 22,565                                      | 24,937                           |
| 9.0%,                    1/15/2023                                                                                               | 27,692                                      | 31,221                           |
| **Total                    Mortgage-Backed Securities Pass-Throughs** (Cost $80,353,831)                                         | **81,075,740**                              |
|                                                                                                                             |
| **Commercial and                    Non-Agency Mortgage-Backed Securities 5.1%**                                                 |
| Banc of                    America Commercial Mortgage, Inc.:                                                                    |                                        |                             |
| "A4", Series                    2004-1, 4.76%, 11/10/2039                                                                        | 200,000                                     | 197,931                          |
| "A3", Series                    2003-2, 4.873%, 3/11/2041                                                                        | 300,000                                     | 300,512                          |
| "A4", Series                    2007-1, 5.451%, 1/15/2049                                                                        | 100,000                                     | 100,489                          |
| "A4", Series                    2006-4, 5.634%, 7/10/2046                                                                        | 250,000                                     | 255,273                          |
| Bear Stearns                    Commercial Mortgage Securities, Inc.:                                                            |                                        |                             |
| "A2", Series                    1999-WF2, 7.08%, 7/15/2031                                                                       | 381,697                                     | 390,336                          |
| "A1", Series                    2000-WF2, 7.11%, 10/15/2032                                                                      | 46,017                                      | 46,200                           |
| "A2", Series                    2000-WF1, 7.78%, 2/15/2032                                                                       | 150,000                                     | 157,320                          |
| Capco America                    Securitization Corp., "A1B", Series 1998-D7, 6.26%, 10/15/2030                                  | 87,215                                      | 87,636                           |
| Citigroup                    Commercial Mortgage Trust, "A4", Series 2004-C1, 5.356%*,                    4/15/2040         | 100,000                                     | 102,552                          |
| Commercial                    Mortgage Pass-Through Certificate, "A2", Series 2004-LB4A, 4.049%,                    10/15/2037   | 198,074                                     | 196,098                          |
| Credit Suisse                    Mortgage Capital Certificates, "A4", Series 2006-C1, 5.555%*,                    2/15/2039 | 380,000                                     | 385,759                          |
| CS First                    Boston Mortgage Securities Corp.:                                                                    |                                        |                             |
| "A2", Series                    2003-CPN1, 4.597%, 3/15/2035                                                                     | 215,000                                     | 212,107                          |
| "A4", Series                    2001-CP4, 6.18%, 12/15/2035                                                                      | 435,000                                     | 453,313                          |
| "A3", Series                    2001-CF2, 6.238%, 2/15/2034                                                                      | 15,568                                      | 15,547                           |
| DLJ Commercial                    Mortgage Corp., "A1B", Series 1998-CG1, 6.41%, 6/10/2031                                       | 28,193                                      | 28,201                           |
| First Union                    National Bank Commercial Mortgage, "A2", Series 2001-C4, 6.223%,                    12/12/2033    | 150,000                                     | 157,105                          |
| GE Capital                    Commercial Mortgage Corp., "A4", Series 2003-C2, 5.145%,                    7/10/2037         | 337,000                                     | 340,098                          |
| GMAC                    Commercial Mortgage Securities, Inc., "A4", Series 2003-C3, 5.023%,                    4/10/2040    | 200,000                                     | 200,620                          |
| Greenwich                    Capital Commercial Funding Corp.:                                                                   |                                        |                             |
| "A7", Series                    2004-GG1, 5.317%*, 6/10/2036                                                                     | 200,000                                     | 203,534                          |
| "A4", Series                    2007-GG9, 5.444%, 3/10/2039                                                                      | 200,000                                     | 201,181                          |
| GS Mortgage                    Securities Corp. II:                                                                              |                                        |                             |
| "A4A", Series                    2005-GG4, 4.751%, 7/10/2039                                                                     | 100,000                                     | 95,857                           |
| "A6", Series                    2004-GG2, 5.396%*, 8/10/2038                                                                     | 100,000                                     | 102,114                          |
| "A4", Series                    2006-GG8, 5.56%, 11/10/2039                                                                      | 500,000                                     | 507,797                          |
| JPMorgan Chase                    Commercial Mortgage Securities Corp.:                                                          |                                        |                             |
| "A2", Series                    2004-C1, 4.302%, 1/15/2038                                                                       | 300,000                                     | 295,913                          |
| "A2", Series                    2002-CIB5, 5.161%, 10/12/2037                                                                    | 200,000                                     | 202,417                          |
| "A3", Series                    2007-LDPX, 5.42%, 1/15/2049                                                                      | 200,000                                     | 200,185                          |
| "A4", Series                    2007-CB18, 5.44%, 6/12/2047                                                                      | 100,000                                     | 100,396                          |
| "A4", Series                    2006-CB15, 5.814%*, 6/12/2043                                                                    | 250,000                                     | 258,449                          |
| "A4", Series                    2006-LDP7, 5.875%*, 4/15/2045                                                                    | 100,000                                     | 104,046                          |
| LB-UBS                    Commercial Mortgage Trust:                                                                             |                                        |                             |
| "A4", Series                    2003-C3, 4.166%, 5/15/2032                                                                       | 250,000                                     | 241,247                          |
| "A3", Series                    2006-C7, 5.347%, 11/15/2038                                                                      | 500,000                                     | 500,199                          |
| "A4", Series                    2007-C1, 5.424%, 2/15/2040                                                                       | 100,000                                     | 100,434                          |
| "A4", Series                    2002-C1, 6.462%, 3/15/2031                                                                       | 200,000                                     | 212,031                          |
| "A2", Series                    2001-C2, 6.653%, 11/15/2027                                                                      | 525,000                                     | 554,684                          |
| Merrill Lynch                    Mortgage Trust:                                                                                 |                                        |                             |
| "A2", Series                    2004-BPC1, 4.071%, 10/12/2041                                                                    | 145,000                                     | 143,669                          |
| "A4", Series                    2005-MCP1, 4.747%*, 6/12/2043                                                                    | 200,000                                     | 191,519                          |
| "A6", Series                    2005-CKI1, 5.244%*, 11/12/2037                                                                   | 100,000                                     | 99,677                           |
| Merrill                    Lynch/Countrywide Commercial Mortgage Trust:                                                          |                                        |                             |
| "A4", Series                    2007-6, 5.485%, 3/12/2051                                                                        | 200,000                                     | 201,279                          |
| "A4", Series                    2006-1, 5.606%*, 2/12/2039                                                                       | 200,000                                     | 202,749                          |
| Morgan Stanley                    Capital I:                                                                                     |                                        |                             |
| "A4", Series                    2005-HQ5, 5.168%, 1/14/2042                                                                      | 250,000                                     | 245,201                          |
| "A4", Series                    2006-HQ9, 5.731%, 7/12/2044                                                                      | 500,000                                     | 513,811                          |
| "A2", Series                    1999-LIFE, 7.11%, 4/15/2033                                                                      | 89,838                                      | 92,400                           |
| Morgan Stanley                    Dean Witter Capital I, "A2", Series 2002-TOP7, 5.98%, 1/15/2039                           | 185,000                                     | 192,869                          |
| Wachovia Bank                    Commercial Mortgage Trust:                                                                      |                                        |                             |
| "A3", Series                    2003-C9, 4.608%, 12/15/2035                                                                      | 100,000                                     | 99,665                           |
| "A4", Series                    2004-C15, 4.803%, 10/15/2041                                                                     | 200,000                                     | 197,566                          |
| "A5", Series                    2007-C30, 5.342%, 12/15/2043                                                                     | 500,000                                     | 498,474                          |
| "A4", Series                    2006-C23, 5.418%*, 1/15/2045                                                                     | 200,000                                     | 201,045                          |
| "A3", Series                    2007-C34, 5.678%, 5/15/2046                                                                      | 500,000                                     | 509,936                          |
| **Total                    Commercial and Non-Agency Mortgage-Backed Securities**                    (Cost $10,754,226)     | **10,897,441**                              |
|                                                                                                                             |
| **Municipal Bonds and                    Notes 0.2%**                                                                            |
| Illinois,                    State General Obligation, Taxable Pension, 5.1%, 6/1/2033                                           | 275,000                                     | 265,421                          |
| Oregon, State                    General Obligation, Taxable Pension, 5.892%, 6/1/2027                                           | 25,000                                      | 26,365                           |
| **Total                    Municipal Bonds and Notes** (Cost $286,835)                                                           | **291,786**                                 |

|                                                                                      |  

**Shares** | **Value                    ($)** |
|-------------------------------------------------------------------------------------------|--------------------|----------------------------------|
|                                                                                      |               |
| **Securities Lending                    Collateral 31.0%**                                |
| Daily Assets                    Fund Institutional, 5.03% (b) (c) (Cost $66,482,329) | 66,482,329         | **66,482,329**                   |
| * *                                                                                  |
| **Cash Equivalents                    2.9%**                                              |
| Cash                    Management QP Trust, 4.67% (b) (Cost $6,254,113)                  | 6,254,113          | **6,254,113**                    |

|                                                                        | **% of Net                    Assets** | **Value                    ($)** |
|-----------------------------------------------------------------------------|----------------------------------------|----------------------------------|
|                                                                        |                                   |
| **Total                    Investment Portfolio** (Cost $282,818,440)+ | 133.8                                  | **286,693,427**                  |
| **Other Assets                    and Liabilities, Net**                    | (33.8)                                 | **(72,390,464)**                 |
| **Net                    Assets**                                           | 100.0                                  | **214,302,963**                  |

*144A: Security exempt        from registration under Rule 144A of the Securities Act of 1933. These securities may be        resold in transactions exempt from registration, normally to qualified institutional        buyers.*

*REIT: Real Estate        Investment Trust*

*Included in the        portfolio are investments in mortgage or asset-backed securities which are interests in        separate pools of mortgages or assets. Effective maturities of these investments may be        shorter than stated maturities due to prepayments. Some separate investments in the Federal        Home Loan Mortgage Corp, Federal National Mortgage Association and Government National        Mortgage Association issues which have similar coupon rates have been aggregated for        presentation purposes in this investment portfolio.*

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

**Financial        Statements**

| **Statement of                    Assets and Liabilities**as of                    December 31, 2007                                                                                                                                                                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Assets**                                                                                                                                                                                                                                                           |
| Investments:
Investments in                    securities, at value (cost $210,081,998) — including $64,656,425 of                    securities loaned                                                                                                   | $                    213,956,985 |
| Investment in                    Cash Management QP Trust (cost $6,254,113)                                                                                                                                                                                     | 6,254,113 |
| Investment in                    Daily Assets Fund Institutional (cost $66,482,329)*                                                                                                                                                                                 | 66,482,329 |
| Total investments, at value                (cost $282,818,440)                                                                                                                                                                                                  | 286,693,427 |
| Cash                                                                                                                                                                                                                                                                 | 10,000 |
| Interest receivable                                                                                                                                                                                                                                                  | 2,059,726 |
| Receivable for Fund shares sold                                                                                                                                                                                                                                      | 364,836 |
| Due from Advisor                                                                                                                                                                                                                                                     | 120,929 |
| Other assets                                                                                                                                                                                                                                                         | 15,999 |
| Total assets                                                                                                                                                                                                                                                         | 289,264,917 |
| **Liabilities**                                                                                                                                                                                                                                                      |
| Payable for investments purchased                                                                                                                                                                                                                                    | 7,350,940 |
| Payable for investments purchased — mortgage                dollar rolls                                                                                                                                                                                       | 491,771 |
| Payable upon return of securities loaned                                                                                                                                                                                                                             | 66,482,329 |
| Payable for Fund shares redeemed                                                                                                                                                                                                                                     | 143,655 |
| Distributions payable                                                                                                                                                                                                                                                | 356,943 |
| Other accrued expenses and payable                                                                                                                                                                                                                                   | 136,316 |
| Total liabilities                                                                                                                                                                                                                                                    | 74,961,954 |
| **Net assets,                    at value**                                                                                                                                                                                                                          | **$                    214,302,963** |
| **Net Assets                    Consist of:**                                                                                                                                                                                                                        |
| Undistributed net investment income                                                                                                                                                                                                                                  | 79,793 |
| Net unrealized appreciation (depreciation) on                investments                                                                                                                                                                                             | 3,874,987 |
| Accumulated net realized gain (loss)                                                                                                                                                                                                                                 | (505,907) |
|                                                                                                                                                                                                                                                                      |
| Paid-in capital                                                                                                                                                                                                                                                      | 210,854,090 |
| **Net assets,                    at value**                                                                                                                                                                                                                          | **$                    214,302,963** |
| **Net Asset                    Value**                                                                                                                                                                                                                               |
| **Net Asset Value,** offering and redemption                price(a) per share ($214,302,963 ÷ 20,835,812                outstanding shares of beneficial interest, $.01 par value, unlimited                number of shares authorized) | **$                    10.29** |

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

| **Statement of                    Operations**for the year ended                    December 31, 2007                    |
|--------------------------------------------------------------------------------------------------------------------------|
| **Investment                    Income**                                                                                 |
| Interest (net                    of foreign taxes withheld of $498)                                                      | $                    8,932,204 |
| Interest                    — Cash Management QP Trust                                                        | 438,520 |
| Securities lending income, including income from                Daily Assets Fund Institutional, net of borrower rebates | 235,261 |
| Total Income                                                                                                             | 9,605,985 |
| Expenses:Management fee                                                                                                  | 271,498 |
| Administration fees                                                                                                      | 180,999 |
| Services to shareholders                                                                                                 | 70,913 |
| Reports to shareholders                                                                                                  | 39,469 |
| Registration fees                                                                                                        | 19,404 |
| Custodian fees                                                                                                           | 18,900 |
| Trustees' fees and expenses                                                                                              | 7,042 |
| Audit and tax fees                                                                                                       | 75,662 |
| Pricing service fee                                                                                                      | 43,956 |
| Other                                                                                                                    | 2,376 |
| Total expenses before expense reductions                                                                                 | 730,219 |
| Expense reductions                                                                                                       | (457,011) |
| Total expenses after expense reductions                                                                                  | 273,208 |
| **Net                    investment income (loss)**                                                                      | **9,332,777** |
| **Realized and                    Unrealized Gain (Loss)**                                                               |
| Net realized gain (loss) from                investments                                                                 | (319,478) |
| Change in net unrealized appreciation                (depreciation) on investments                                       | 4,404,820 |
| **Net gain                    (loss)**                                                                                   | **4,085,342** |
| **Net increase                    (decrease) in net assets resulting from operations**                                   | **$                    13,418,119** |

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

| **Statement of                    Changes in Net Assets**                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------------------------|
| **Increase                    (Decrease) in Net Assets**                                                                                           | **Years                    Ended December 31,** |
| **2007**                                                                                                                                           | **2006a** |
| Operations:Net investment income                                                                                                                   | $                    9,332,777 | $                    6,378,537 |
| Net realized gain (loss)                                                                                                                           | (319,478) | (186,429) |
| Change in net unrealized appreciation                (depreciation)                                                                                | 4,404,820 | (646,431) |
| Net increase (decrease) in net assets resulting                from operations                                                                     | 13,418,119 | 5,545,677 |
| Distributions to shareholders from:Net investment income                                                                                           | (9,330,202) | (6,382,180) |
| Net realized gains                                                                                                                                 | — | (74,461) |
| Total distributions                                                                                                                                | (9,330,202) | (6,456,641) |
| Fund share transactions:Proceeds from shares sold                                                                                                  | 102,499,509 | 36,165,813 |
| Reinvestment of distributions                                                                                                                      | 6,475,832 | 5,313,785 |
| Cost of shares redeemed                                                                                                                            | (36,751,812) | (23,059,235) |
| Redemption fees                                                                                                                                    | 2,256 | 387 |
| Net increase (decrease) in net assets from Fund                share transactions                                                                  | 72,225,785 | 18,420,750 |
| **Increase                    (decrease) in net assets**                                                                                           | 76,313,702 | 17,509,786 |
| Net assets at beginning of period                                                                                                                  | 137,989,261 | 120,479,475 |
| **Net assets at end of period** (including                undistributed net investment income of $79,793 and $77,218,                respectively) | **$                    214,302,963** | **$                    137,989,261** |

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

**Financial        Highlights**

| **Years Ended                    December 31,**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **2007**                       | **2006**                       | **2005**                       | **2004**                       | **2003**                       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------|--------------------------------|--------------------------------|--------------------------------|
| **Selected Per                    Share Data**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **Net asset                    value, beginning of period**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | **$                    10.09** | **$                    10.18** | **$                    10.41** | **$                    10.46** | **$                    10.60** |
| *Income                    (loss) from investment operations:*

Net investment                    incomea                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | .52                            | .49                            | .43                            | .37                            | .44                            |
| Net realized                    and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | .20                            | (.07)                          | (.20)                          | .06                            | (.05)                          |
| **Total from                    investment operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | .72                            | .42                            | .23                            | .43                            | .39                            |
| *Less                    distributions from:*

Net investment                    income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (.52)                          | (.50)                          | (.44)                          | (.37)                          | (.42)                          |
| Net realized                    gains                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | —                        | (.01)                          | (.02)                          | (.11)                          | (.11)                          |
| **Total                    distributions**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (.52)                          | (.51)                          | (.46)                          | (.48)                          | (.53)                          |
| Redemption fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | .00*                           | .00*                           | .00*                           | —                        | —                        |
| **Net asset                    value, end of period**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **$                    10.29** | **$                    10.09** | **$                    10.18** | **$                    10.41** | **$                    10.46** |
| Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 7.34                           | 4.19                           | 2.22                           | 4.27                           | 3.75                           |
| **Ratios to                    Average Net Assets and Supplemental Data**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Net assets, end of period                ($ millions)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 214                            | 138                            | 120                            | 160                            | 143                            |
| Ratio of expenses before expense                reductions (%)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | .40                            | .55                            | .57                            | .48                            | .50                            |
| Ratio of expenses after expense                reductions (%)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | .15                            | .16                            | .15                            | .15                            | .15                            |
| Ratio of net investment income                (loss) (%)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 5.16                           | 4.94                           | 4.24                           | 3.57                           | 4.27                           |
| Portfolio turnover rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 35c                            | 25d                            | 45c                            | 71c                            | 173c                           |
| a*Based on average shares outstanding during the                period.*b*Total return would have been lower had certain                expenses not been reduced.*c*The portfolio turnover rates including mortgage                dollar roll transactions were 53%, 203%, 341% and 271% for the periods ended                December 31, 2007, December 31, 2005, December 31, 2004 and December 31, 2003,                respectively.*d*On January 13, 2006, the U.S. Bond Index                Portfolio was closed (See Note A in the Notes to Financial Statements). This ratio                includes the purchase and sale of portfolio securities of the DWS U.S. Bond Index                Fund as a stand-alone fund in addition to the U.S. Bond Index                Portfolio.***Amount is less than $.005.* |

**Notes to Financial        Statements**

**A. Significant Accounting        Policies**

DWS U.S. Bond Index Fund (the        "Fund") is a diversified series of the DWS Institutional Funds (the "Trust"), which is        registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an        open-end management investment company organized as a Massachusetts business        trust.

On August 8, 2005, the Board of        Directors approved dissolving the DWS U.S. Bond Index Fund master-feeder structure, and        converting the Fund to a stand alone fund. On January 13, 2006, the Fund received net        assets with a value of $121,508,592, which included net unrealized appreciation of $669,128        from the U.S. Bond Index Portfolio (the "Portfolio") in a tax free exchange for its        beneficial ownership in the Portfolio. Activity prior to this conversion is included in the        Financial Statements.

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. 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        mean of the most recent bid and asked quotations or evaluated price obtained from a        broker-dealer. Such services may use various pricing techniques which take into account        appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading        characteristics and other data, as well as broker quotes.

Money market instruments purchased        with an original or remaining maturity of sixty days or less, maturing at par, are valued        at amortized cost. Investments in open-end 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.

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

**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 issuers 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. 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. The        Fund is subject to all investment risks associated with the value of any cash collateral        received, including, but not limited to, interest rate, credit and liquidity risk        associated with such investments.

**Mortgage Dollar        Rolls.** The Fund may enter into mortgage dollar rolls in which the Fund sells        mortgage-backed securities for delivery in the current month and simultaneously contracts        to repurchase similar, but not identical, securities at an agreed upon price and date.        During the period between the sale and repurchase, the Fund will not be entitled to earn        interest and receive principal payment on securities sold. 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 the securities sold by the Fund        may decline below the repurchase price of those securities.

**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. Accordingly, the Fund paid no        federal income taxes and no federal income tax provision was required.

At December 31, 2007, the Fund had a        net tax basis capital loss carryforward of approximately $492,000 which may be applied        against any realized net taxable capital gains of each succeeding year until fully utilized        or until December 31, 2014 ($187,000) and December 31, 2015 ($305,000), the expiration        dates, whichever occurs first.

In addition, from November 1, 2007        through December 31, 2007, the Fund incurred approximately $6,000 of net realized capital        losses, As permitted by tax regulations, the Fund intends to defer these losses and treat        them as arising in the fiscal year ended December 31, 2008.

The Fund has reviewed the tax        positions for each of the three open tax years as of December 31, 2007 and has determined        that no provision for income tax is required in the Fund's financial statements. Each of        the Fund's federal tax returns for the prior three fiscal years remains subject to        examination by the Internal Revenue Service.

**Distribution of        Income and Gains.** Net investment income is declared as a daily dividend and        distributed to shareholders monthly. Net realized gains from investment transactions, in        excess of available capital loss carryforwards, would be taxable to the Fund if not        distributed, and, therefore, will be distributed to shareholders at least        annually.

The timing and characterization of        certain income and capital gains distributions are determined annually in accordance with        federal tax regulations which may differ from accounting principles generally accepted in        the United States of America. These differences primarily relate to certain securities sold        at a loss. As a result, net investment income (loss) and net realized gain (loss) on        investment transactions for a reporting period may differ significantly from distributions        during such period. Accordingly, the Fund may periodically make reclassifications among        certain of its capital accounts without impacting the net asset value of the        Fund.

At December 31,        2007, the Fund's components of distributable earnings (accumulated losses) on a tax-basis        were as follows:

| Undistributed ordinary income                                            | $                    79,793    |
|--------------------------------------------------------------------------|--------------------------------|
| Capital loss carryforwards                                               | $                    (492,000) |
| Net unrealized appreciation (depreciation) on                investments | $                    3,866,639 |

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

|                                                      | **Years                    Ended December 31,** |
|-----------------------------------------------------------|-------------------------------------------------|
|                                                      | **2007**                                        | **2006** |
| Distributions from ordinary income*                       | $                    9,330,202                  | $                    6,385,429 |
| Distributions from long-term capital                gains | $                    —                    | $                    71,212 |

**Redemption        Fees.** The Fund imposes a redemption fee of 2% of the total redemption amount on        the Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or        exchange. This fee is assessed and retained by the Fund for the benefit of the remaining        shareholders. The redemption fee is accounted for as an addition to paid-in        capital.

**Contingencies.** In the normal course of        business, the Fund may enter into contracts with service providers that contain general        indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as        this would involve future claims that may be made against the Fund that have not yet been        made. However, based on experience, the Fund expects the risk of loss to be        remote.

**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. Realized gains and        losses from investment transactions are recorded on an identified cost basis. All premiums        and discounts are amortized/accreted for both tax and financial reporting        purposes.

**B. Purchases        and Sales of Securities**

During the year ended December 31,        2007, purchases and sales of investment securities (excluding short-term investments, US        Treasury obligations and mortgage dollar rolls) aggregated $89,223,537 and $29,520,117,        respectively. Purchases and sales of US Treasury obligations aggregated $49,522,423 and        $31,598,812, respectively. Purchases and sales of mortgage dollar rolls aggregated        $32,009,502 and $31,967,301, respectively.

**C. Related Parties**

**Management        Agreement.** Under the Investment Management Agreement with Deutsche Investment        Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of        Deutsche Bank AG, the Advisor directs the investments of 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. The management        fee payable under the Investment Management Agreement is equal to an annual rate of 0.15%        of the Fund's average daily net assets, computed and accrued daily and payable monthly.        Northern Trust Investments, N.A. ("NTI") serves as sub-advisor to the Fund and is paid by        the Advisor for its services. NTI is responsible for the day to day management of the        Fund.

For the period from January 1, 2007        through September 30, 2007, the Advisor had contractually agreed to waive all or a portion        of its fees and/or reimburse expenses of the Fund (excluding certain expenses such as        extraordinary expenses, taxes, brokerage, interest, proxy and organizational and offering        expenses) to the extent necessary to maintain the operating expenses at 0.36%.

Effective October 1, 2007 through        September 30, 2008, the Advisor has contractually agreed to waive all or a portion of its        fees and/or reimburse expenses of the Fund (excluding certain expenses such as        extraordinary expenses, taxes, brokerage and interest expenses) to the extent necessary to        maintain the operating expenses at 0.32%.

In addition, the Advisor has        voluntarily agreed to waive a portion of its fees and reimburse or pay operating expenses        of the Fund (excluding certain expenses such as extraordinary expenses, taxes, brokerage        and interest expenses) to the extent necessary to maintain the operating expenses at 0.15%        of the average daily net assets of the the Fund. This voluntary waiver or reimbursement may        be terminated at any time at the option of the Advisor.

For the year        ended December 31, 2007, the management fee charged to the Fund was $271,498, all of which        was waived, resulting in an annualized effective rate of 0.00% of the Fund's average daily        net assets.

In addition, under this arrangement,        the Advisor reimbursed the Fund $55,406 of other expenses.

**Administration        Fee.** Pursuant to an Administrative Services Agreement, DIMA provides most        administrative services to the Fund. For all services provided under the Administrative        Services Agreement, the Fund pays DIMA 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        year ended December 31, 2007, the Administration Fee charged to the Fund was $180,999, of        which $101,703 was waived.

**Service Provider        Fees.** DWS Scudder Investments Service Company ("DWS-SISC"), an affiliate of the        Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the        Fund. Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems, Inc.        ("DST"), DWS-SISC has delegated certain transfer agent, dividend-paying agent and        shareholder service agent functions to DST. DWS-SISC compensates DST out of the shareholder        servicing fee it receives from the Fund. For the year ended December 31, 2007, the amount        charged to the Fund by DWS-SISC aggregated $21,391, all of which was waived.

**Typesetting and        Filing Service Fees.** Under an agreement with the Advisor, the Advisor is        compensated for providing typesetting and certain regulatory filing services to the Fund.        For the year ended December 31, 2007, the amount charged to the Fund by the Advisor        included in the Statement of Operations under "Reports to shareholders" aggregated $21,818,        of which $9,322 is unpaid.

**Trustees' Fees        and Expenses.** As compensation for his or her services, each Independent Trustee        receives an aggregated annual fee, plus a fee for each meeting attended (plus reimbursement        for reasonable out-of-pocket expenses incurred in connection with his or her attendance at        board and committee meetings) from each fund in the Fund Complex for which he or she        serves. In addition, the Chairperson of the Board and the Chairperson of each committee of        the Board receive additional compensation for their services. Payment of such fees and        expenses is allocated among all such funds described above in direct proportion to their        relative net assets.

**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 its        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**

The Fund has entered into an        arrangement with its custodian whereby credits realized as a result of uninvested cash        balances are used to reduce a portion of the Fund's custodian expenses. During the year        ended December 31, 2007, the Fund's custodian fee was reduced by $288 and $6,725,        respectively, for custody and transfer agent credits earned.

**E. Line of Credit**

The Fund and other affiliated funds        (the "Participants") share in a $750 million revolving credit facility administered by        JPMorgan Chase Bank, N.A. for temporary or emergency purposes, including the meeting of        redemption requests that otherwise might require the untimely disposition of securities.        The Participants are charged an annual commitment fee which is allocated, based upon net        assets, among each of the Participants. Interest is calculated at the Federal Funds Rate        plus 0.35 percent. The Fund may borrow up to a maximum of 33 percent of its net assets        under this agreement.

**F. Share        Transactions**

The following table summarizes share        and dollar activity in the Fund:

|                                                                          | **Year Ended                    December 31, 2007** | **Year Ended                    December 31, 2006** |
|-------------------------------------------------------------------------------|-----------------------------------------------------|-----------------------------------------------------|
|                                                                          | **Shares**                                          | **Dollars**                                         | **Shares** | **Dollars** |
| Shares sold                                                                   | 10,171,004                                          | **$                    102,499,509**                | 3,607,748 | **$                    36,165,813** |
| Shares issued to shareholders in reinvestment of                distributions | 640,479                                             | **$                    6,475,832**                  | 529,936 | **$                    5,313,785** |
| Shares redeemed                                                               | (3,648,144)                                         | **$                    (36,751,812)**               | (2,299,112) | **$                    (23,059,235)** |
| Redemption fees                                                               |                                                | **$                    2,256**                      |   | **$                    387** |
| Net increase (decrease)                                                       | **7,163,339**                                       | **$                    72,225,785**                 | 1,838,572 | **$                    18,420,750** |

**G. Concentration of        Ownership**

From time to time the Fund may have        a concentration of several shareholders holding a significant percentage of shares        outstanding. Investment activities of these shareholders could have a material impact on        the Fund.

At December 31, 2007, one        shareholder held approximately 32% of the outstanding shares of the Fund.

**Report of Independent        Registered Public Accounting Firm**

**To the Trustees of DWS        Institutional Funds and Shareholders ofDWSU.S. Bond Index Fund:**

In our opinion, the accompanying        statement of assets and liabilities, including the investment portfolio, and the related        statements of operations and of changes in net assets and the financial highlights present        fairly, in all material respects, the financial position of DWS U.S. Bond Index Fund (the        "Fund") at December 31, 2007, and the results of its operations, the changes in its net        assets and the financial highlights for each of the periods indicated therein, in        conformity with accounting principles generally accepted in the United States of America.        These financial statements and financial highlights (hereafter referred to as "financial        statements") are the responsibility of the Fund's management. Our responsibility is to        express an opinion on these financial statements based on our audits. We conducted our        audits of these financial statements 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 are        free of material misstatement. An audit includes examining, on a test basis, evidence        supporting the amounts and disclosures in the financial statements, assessing the        accounting principles used and significant estimates made by management, and evaluating the        overall financial statement presentation. We believe that our audits, which included        confirmation of securities at December 31, 2007 by correspondence with the custodian and        brokers, provide a reasonable basis for our opinion.

| Boston,                    Massachusetts                    February 25, 2008 | PricewaterhouseCoopers                    LLP |
|-------------------------------------------------------------------------------|-----------------------------------------------|

**Tax Information(Unaudited)**

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)        294-4366.

**Investment Management        Agreement Approval**

The Fund's Trustees approved the        continuation of the Fund's current investment management agreement with DIMA and        sub-advisory agreement between DIMA and Northern Trust Investments, N.A. ("NTI") in        September 2007.

In terms of the process that the        Trustees 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. In connection with reviewing the Fund's investment management        agreement, the Trustees also review the terms of the Fund's Rule 12b-1 plan, distribution        agreement, administration agreement, transfer agency agreement and other material service        agreements.

In connection with the Board's 2007        contract review, the Board formed a special committee to facilitate careful review of        the funds' contractual arrangements. After reviewing the Fund's arrangements, that        committee recommended that the Board vote to approve the continuation of the Fund's        investment management agreement and sub-advisory agreement.

The Trustees regularly meet        privately with their independent counsel to discuss contract review and other matters. In        addition, the Trustees were also advised by two consultants, including the Fund's        independent fee consultant, in the course of their 2007 review of the Fund's contractual        arrangements. In particular, the Trustees considered the report prepared by the independent        fee consultant in connection with their deliberations.

The sub-advisory fee paid to NTI is        paid by DIMA out of its fee and not directly by the Fund.

The Trustees believe that a        long-term relationship with a capable, conscientious advisor is in the best interest of        shareholders. As you may know, DIMA is part of Deutsche Bank, a major global banking        institution that is engaged in a wide range of financial services. The Trustees believe        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.

Shareholders        may focus primarily on fund performance and fees, but the Fund's Trustees consider these        and many other factors, including the quality and integrity of DIMA's and NTI's personnel        and such other issues as back-office operations, fund valuations, and compliance policies        and procedures.

In determining to approve the        continuation of the Fund's current investment management agreement and sub-advisory        agreement, the Board considered all factors that it believes relevant to the interests of        Fund shareholders, including:

**The investment        management fee schedule for the Fund, including (i) comparative information provided        by Lipper regarding investment management fee rates paid to other investment advisors by        similar funds and (ii) fee rates paid to DIMA by similar funds and institutional        accounts advised by DIMA (if any).** With respect to management fees paid to other        investment advisors by similar funds, the Trustees noted that the contractual fee rates        paid by the Fund were lower than the median (1st quartile) of the applicable Lipper peer        group (based on Lipper data provided as of December 31, 2006). The Board gave a lesser        weight to fees paid by similar institutional accounts advised by DIMA, in light of the        material differences in the scope of services provided to mutual funds as compared to those        provided to institutional accounts. Taking into account the foregoing, the Board concluded        that the fee schedule in effect for the Fund represents reasonable compensation in light of        the nature, extent and quality of the investment services being provided to the        Fund.

**The extent to        which economies of scale would be realized as the Fund grows.** In this regard,        the Board noted that while the Fund's current investment management fee schedule does not        include breakpoints, the Board intends to consider implementation of one or more        breakpoints once the Fund reaches an efficient operating size. The Board concluded that the        Fund's fee schedule represents an appropriate sharing between Fund shareholders and DIMA of        such economies of scale as may exist in the management of the Fund at current asset        levels.

**The total operating expenses of the        Fund.** In this regard, the Board noted that the total (net) operating expenses of        the Fund (Institutional Class shares) are expected to be higher than the median (3rd        quartile) of the applicable Lipper expense universe (based on Lipper data provided as of        December 31, 2006). The Board considered the expenses of this class to be representative        for purposes of evaluating other classes of shares. 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 investment        performance of the Fund and DIMA, both absolute and relative to various benchmarks and        industry peer groups.** The Board noted that for the each of the one-, three- and        five-year periods ended December 31, 2006, the Fund's performance (Institutional        Class shares) was in the 2nd quartile of the applicable Lipper universe. The Board        also observed that the Fund has underperformed its benchmark in the each of the one-,        three- and five-year periods ended December 31, 2006. The Board recognized that DIMA        has made significant changes in its investment personnel and processes in recent years in        an effort to improve long-term performance.

**The nature,        extent and quality of the advisory services provided by DIMA and NTI.** The Board        considered extensive information regarding DIMA, including DIMA's personnel (including        particularly those personnel with responsibilities for providing services to the Fund),        resources, policies and investment processes. The Board also considered the terms of the        current investment management agreement and the sub-advisory agreement, including the scope        of services provided under the agreements. In this regard, the Board concluded that the        quality and range of services provided by DIMA and NTI have benefited and should        continue to benefit the Fund and its shareholders.

**The costs of the        services to, and profits realized by, DIMA and its affiliates from their relationships with        the Fund.** The Board reviewed information concerning the costs incurred and        profits realized by DIMA during 2006 from providing investment management services to the        Fund (and, separately, to the entire DWS Scudder fund complex), and reviewed with DIMA the        cost allocation methodology used to determine DIMA's profitability. In analyzing DIMA's        costs and profits, the Board also reviewed the fees paid to and services provided by DIMA        and its affiliates with respect to administrative services, transfer agent services,        shareholder servicing and distribution (including fees paid pursuant to 12b-1 plans), as        well as information regarding other possible benefits derived by DIMA and its affiliates as        a result of DIMA's relationship with the Fund. As part of this review, the Board considered        information provided by an independent accounting firm engaged to review DIMA's cost        allocation methodology and calculations. The Board concluded that the Fund's investment        management fee schedule represented reasonable compensation in light of the costs incurred        by DIMA and its affiliates in providing services to the Fund. 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 Scudder fund complex (after        taking into account distribution and other services provided to the funds by DIMA and its        affiliates) was lower than the overall profitability levels of many comparable firms for        which such data was available.

**The practices of DIMA and NTI regarding the        selection and compensation of brokers and dealers executing portfolio transactions for the        Fund.** The Board considered that a portion of the Fund's brokerage may be        allocated to affiliates of DIMA or NTI, subject to compliance with applicable SEC rules.        The Board also considered that, subject to ongoing review by the Board, a limited portion        of the Fund's brokerage may be allocated to brokers who acquire (and provide to DIMA and        its affiliates) research services from third parties that are generally useful to DIMA and        its affiliates in managing client portfolios. The Board indicated that it would continue to        monitor the allocation of the Fund's brokerage to ensure that the principle of "best price        and execution" remains paramount in the portfolio trading process.

**DIMA's        commitment to and record of compliance, including its written compliance policies and        procedures.** In this regard, the Board considered DIMA's commitment to indemnify        the Fund against any costs and liabilities related to lawsuits or regulatory actions        arising from allegations regarding market timing, revenue sharing, fund valuation or other        subjects arising from or relating to pending regulatory inquiries. The Board also        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.

**Deutsche Bank's commitment to its US mutual fund        business.** The Board considered recent and ongoing efforts by Deutsche Bank to        restructure its US mutual fund business to improve efficiency and competitiveness and to        reduce compliance and operational risk. The Board considered assurances received from        Deutsche Bank that it would commit the resources necessary to maintain high-quality        services to the Fund and its shareholders. The Board also considered Deutsche Bank's        strategic plans for its US mutual fund business, the potential benefits to Fund        shareholders and Deutsche Bank's management of one of Europe's most successful fund        groups.

Based on all of the foregoing, the        Board determined to continue the Fund's current investment management agreement and the        sub-advisory agreement, and concluded that the continuation of such agreements was in the        best interests of the Fund's shareholders.

In reaching this conclusion the        Board did not give particular weight to any single factor identified above. The Board        considered these factors over the course of numerous meetings, many 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 current        agreements.

**Summary of Management Fee        Evaluation by Independent Fee Consultant**

October 26, 2007

Pursuant to an Order entered into by        Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the        Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee        Consultant for the DWS Scudder Funds. My duties include preparing an annual written        evaluation of the management fees DeAM charges the Funds, considering among other factors        the management fees charged by other mutual fund companies for like services, management        fees DeAM charges other clients for like services, DeAM's costs of supplying services under        the management agreements and related profit margins, possible economies of scale if a Fund        grows larger, and the nature and quality of DeAM's services, including fund performance.        This report summarizes my evaluation for 2007, including my qualifications, the evaluation        process for each of the DWS Scudder Funds, consideration of certain complex-level factors,        and my conclusions.

**Qualifications**

For more than 30 years I have served        in various professional capacities within the investment management business. I have held        investment analysis and advisory positions, including securities analyst, portfolio        strategist and director of investment policy with a large investment firm. I have also        performed business management functions, including business development, financial        management and marketing research and analysis.

Since 1991, I have been an        independent consultant within the asset management industry. I have provided services to        over 125 client organizations, including investment managers, mutual fund boards, product        distributors and related organizations. Over the past several years I have completed a        number of assignments for mutual fund boards, specifically including assisting boards with        management contract renewal.

I hold a Master of Business        Administration degree, with highest honors, from Harvard University; and Master of Science        and Bachelor of Science (highest honors) degrees from the University of California at        Berkeley. I am an independent director and audit committee financial expert for two        closed-end mutual funds, serve on the board of directors of a private market research        company, and have served in various leadership and financial oversight capacities with        non-profit organizations.

**Evaluation        of Fees for each DWS Scudder Fund**

My work focused primarily on        evaluating, fund-by-fund, the fees charged to each of the 136 Fund portfolios in the DWS        Scudder Fund family. For each Fund, I considered each of the key factors mentioned above,        as well as any other relevant information. In doing so I worked closely with the Funds'        Independent Directors in their annual contract renewal process, as well as in their        approval of contracts for several new funds (documented separately).

In evaluating each Fund's fees, I        reviewed comprehensive materials provided by or on behalf of DeAM, including expense        information prepared by Lipper Analytical, comparative performance information,        profitability data, manager histories, and other materials. I also accessed certain        additional information from the Lipper, Strategic Insight, and Morningstar databases and        drew on my industry knowledge and experience.

To facilitate evaluating this        considerable body of information, I prepared for each Fund a document summarizing the key        data elements in each area as well as additional analytics discussed below. This made it        possible to consider each key data element in the context of the others.

In the course of contract renewal,        DeAM agreed to implement a number of fee and expense adjustments requested by the        Independent Directors which will favorably impact future fees and expenses, and my        evaluation includes the effects of these changes.

**Fees and Expenses        Compared with Other Funds**

The competitive fee and expense        evaluation for each fund focused on two primary comparisons:

The Fund's contractual management        fee (the advisory fee plus the administration fee where applicable) compared with those of        a group of typically 12-15 funds in the same Lipper investment category (e.g. Large        Capitalization Growth) having similar distribution arrangements and being of similar        size.

The Fund's        total expenses compared with a broader universe of funds from the same Lipper investment        category and having similar distribution arrangements.

These two comparisons provide a view        of not only the level of the fee compared with funds of similar scale but also the total        expense the Fund bears for all the services it receives, in comparison with the investment        choices available in the Fund's investment category and distribution channel. The principal        figure-of-merit used in these comparisons was the subject Fund's percentile ranking against        peers.

**DeAM's Fees for Similar        Services to Others**

DeAM provided management fee        schedules for all of its US domiciled fund and non-fund investment management accounts in        any of the investment categories where there is a DWS Scudder Fund. These similar products        included the other DWS Scudder Funds, non-fund pooled accounts, institutional accounts and        sub-advisory accounts. Using this information, I calculated for each Fund the fee that        would be charged to each similar product, at the subject Fund's asset level.

Evaluating information regarding        non-fund products is difficult because there are varying levels of services required for        different types of accounts, with mutual funds generally requiring considerably more        regulatory and administrative types of service as well as having more frequent cash flows        than other types of accounts. Also, while mutual fund fees for similar fund products can be        expected to be similar, there will be some differences due to different pricing conditions        in different distribution channels (e.g. retail funds versus those used in variable        insurance products), differences in underlying investment processes and other        factors.

**Costs and Profit        Margins**

DeAM provided a detailed        profitability analysis for each Fund. After making some adjustments so that the        presentation would be more comparable to the available industry figures, I reviewed profit        margins from investment management alone, from investment management plus other fund        services (excluding distribution) provided to the Funds by DeAM (principally shareholder        services), and DeAM profits from all sources, including distribution. A later section        comments on overall profitability.

**Economies of Scale**

Economies of scale — an        expected decline in management cost per dollar of fund assets as fund assets grow —        are very rarely quantified and documented because of inherent difficulties in collecting        and analyzing relevant data. However, in virtually every investment category that I        reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds.        To see how each DWS Scudder Fund compares with this industry observation, I        reviewed:

The trend in Fund assets over the        last five years and the accompanying trend in total expenses. This shows if the Fund has        grown and, if so, whether total expense (management fees as well as other expenses) have        declined as a percent of assets.

Whether the Fund has break-points in        its management fee schedule, the extent of the fee reduction built into the schedule and        the asset levels where the breaks take effect, and in the case of a sub-advised Fund how        the Fund's break-points compare with those of the sub-advisory fee schedule.

How the Fund's contractual fee        schedule compares with trends in the industry data. To accomplish this, I constructed a        chart showing how actual latest-fiscal-year contractual fees of the Fund and of other        similar funds relate to average fund assets, with the subject Fund's contractual fee        schedule superimposed.

**Quality of Service        — Performance**

The quality-of-service evaluation        focused on investment performance, which is the principal result of the investment        management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10        years, as applicable, and compared with that of other funds in the same investment category        and with a suitable market index.

In addition, I calculated and        reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a        suitable market index. The risk-adjusted returns analysis provides a way of determining the        extent to which the Fund's return comparisons are mainly the product of investment        value-added (or lack thereof) or alternatively taking considerably more or less risk than        is typical in its investment category.

I also received        and considered the history of portfolio manager changes for each Fund, as this provided an        important context for evaluating the performance results.

**Complex-Level        Considerations**

While this evaluation was conducted        mainly at the individual fund level, there are some issues relating to the reasonableness        of fees that can alternatively be considered across the whole fund complex:

I reviewed DeAM's profitability        analysis for all DWS Scudder funds, with a view toward determining if the allocation        procedures used were reasonable and how profit levels compared with public data for other        investment managers.

I considered whether DeAM and        affiliates receive any significant ancillary or "fall-out" benefits that should be        considered in interpreting the direct profitability results. These would be situations        where serving as the investment manager of the Funds is beneficial to another part of the        Deutsche Bank organization.

I considered how aggregated DWS        Scudder Fund expenses had varied over the years, by asset class and in the context of        trends in asset levels.

I reviewed the structure of the DeAM        organization, trends in staffing levels, and information on compensation of investment        management and other professionals compared with industry data.

**Findings**

Based on the process and analysis        discussed above, which included reviewing a wide range of information from management and        external data sources and considering among other factors the fees DeAM charges other        clients, the fees charged by other fund managers, DeAM's costs and profits associated with        managing the Funds, economies of scale, possible fall-out benefits, and the nature and        quality of services provided, in my opinion the management fees charged the DWS Scudder        Funds are reasonable.

        Thomas H. Mack

**Trustees and        Officers**

The following table presents certain        information regarding the Board Members and Officers of the Trust as of December 31, 2007.        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.

| **Independent                    Board Members**                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|----------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Name, Year                    of Birth, Position with the Fund and Length of Time Served** | **Business                    Experience and Directorships During the                    Past Five Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Number of                    Funds in Fund Complex Overseen** |
| Dawn-Marie Driscoll (1946)Chairperson since 2006Board Member since 2006                      | 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 eight 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) | 76 |
| Henry P. Becton, Jr. (1943)Board Member since 2006                                           | Vice Chair, WGBH Educational Foundation.                Directorships: Association of Public Television Stations; Becton Dickinson and                Company1 (medical technology company); Belo Corporation1                (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                                                                                                                                                                                                                                                                                                     | 76 |
| Keith R. Fox (1954)Board Member since 2006                                                   | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 76 |
| Kenneth C. Froewiss (1945)Board Member since 2006                                            | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 76 |
| Martin J. Gruber7 (1937)Board Member since 1999                                              | Nomura Professor of Finance, Leonard N. Stern                School of Business, New York University (since September 1965); Director, Japan                Equity Fund, Inc. (since January 1992), Thai Capital Fund, Inc. (since January                2000), Singapore Fund, Inc. (since January 2000), National Bureau of Economic                Research (since January 2006). Formerly, Trustee, TIAA (pension funds) (January                1996-January 2000); Trustee, CREF and CREF Mutual Funds (January 2000-March 2005);                Chairman, CREF and CREF Mutual Funds (February 2004-March 2005); and Director, S.G.                Cowen Mutual Funds (January 1985-January 2001)                                                                                                                                                            | 76 |
| Richard J. Herring (1946)Board Member since 1999                                             | 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)                                                                                                                                                                                               | 76 |
| Graham E. Jones7 (1933)Board Member since 2002                                               | Senior Vice President, BGK Realty, Inc. (commercial                real estate) (since 1995). Formerly, Trustee of various investment companies                managed by Sun Capital Advisors, Inc. (1998-2005), Morgan Stanley Asset Management                (1985-2001) and Weiss, Peck and Greer (1985-2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 76 |
| Rebecca W. Rimel (1951)Board Member since 2002                                               | 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 to present). 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 Care1                (January 2007-June 2007)                                                                                                                                                                                                        | 76 |
| William N. Searcy, Jr. (1946)Board Member since 2002                                         | Private investor since October 2003; Trustee of                eight open-end mutual funds managed by Sun Capital Advisers, Inc. (since October                1998). Formerly, Pension & Savings Trust Officer, Sprint                Corporation1 (telecommunications) (November 1989-September                2003)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 76 |
| Jean Gleason Stromberg (1943)Board Member since 2006                                         | 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)                                                                                                                                                                                                                                                                                                                                                                 | 76 |
| Carl W. Vogt7 (1936)Board Member since 2006                                                  | Retired Senior Partner, Fulbright & Jaworski,                L.L.P. (law firm); formerly, President (interim) of Williams College (1999-2000);                formerly, President of certain funds in the Deutsche Asset Management family of                funds (formerly, Flag Investors family of funds) (registered investment companies)                (1999-2000). Directorships: Yellow Corporation (trucking); American Science &                Engineering (x-ray detection equipment). Former Directorships: ISI Family of Funds                (registered investment companies, four funds overseen); National Railroad Passenger                Corporation (Amtrak); Waste Management, Inc. (solid waste disposal). Formerly,                Chairman and Member, National Transportation Safety Board                                     | 74 |

| **Interested                    Board Member**                                               |
|----------------------------------------------------------------------------------------------|
| **Name, Year                    of Birth, Position with the Fund and Length of Time Served** | **Business                    Experience and Directorships During the                    Past Five Years** | **Number of                    Funds in Fund Complex Overseen** |
| Axel Schwarzer2 (1958)Board Member since 2006                                                | Managing Director4, Deutsche Asset                Management; Head of Deutsche Asset Management Americas; CEO of DWS Scudder;                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) | 82 |

| **Officers3**                                                                                |
|----------------------------------------------------------------------------------------------|
| **Name, Year                    of Birth, Position with the Fund and Length of Time Served** | **Principal                    Occupation(s) During Past 5 Years and Other Directorships Held** |
| Michael G. Clark5 (1965)President, 2006-present                                              | Managing Director4, 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 Millette6 (1962)Vice President and Secretary,                2003-present               | Director4, Deutsche Asset                Management |
| Paul H. Schubert5 (1963)Chief Financial Officer, 2004-presentTreasurer, 2005-present         | Managing Director4, 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 DeFilippis5 (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. Metzger5 (1962)Assistant Secretary 2005-present                                     | Director4, Deutsche Asset Management                (since September 2005); formerly, Counsel, Morrison and Foerster LLP                (1999-2005) |
| Caroline Pearson6 (1962)Assistant Secretary, 2002-present                                    | Managing Director4, Deutsche Asset                Management |
| Paul Antosca6 (1957)Assistant Treasurer, 2007-present                                        | Director4, Deutsche Asset Management                (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.)                (1990-2006) |
| Jack Clark6 (1967)Assistant Treasurer, 2007-present                                          | Director4, Deutsche Asset Management                (since 2007); formerly, Vice President, State Street Corporation                (2002-2007) |
| Kathleen Sullivan D'Eramo6                (1957)Assistant Treasurer, 2003-present            | Director4, Deutsche Asset                Management |
| Diane Kenneally6 (1966)Assistant Treasurer, 2007-present                                     | Director4, Deutsche Asset                Management |
| Jason Vazquez4 (1972)Anti-Money Laundering Compliance Officer,                2007-present   | Vice President, Deutsche Asset Management (since                2006); formerly, AML Operations Manager for Bear Stearns (2004-2006), Supervising                Compliance Principal and Operations Manager for AXA Financial                (1999-2004) |
| Robert Kloby5 (1962)Chief Compliance Officer, 2006-present                                   | Managing Director4, 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 Jackson5 (1951)Chief Legal Officer, 2006-present               | Director4, 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) |

| **Name                    and**

**Year of                    Birth**

**Chicago                    Board Members to be Elected to New York Board** | **Business                    Experience and Directorships**

**During the                    Past 5 Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **Position                    with the DWS Funds and Length of Time Served**    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|
| John W. Ballantine (1946)* *                                                                                                                   | 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 | Chicago Board                    Member since 1999                         |
| Paul K. Freeman (1950)* *                                                                                                                      | 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). Formerly, Trustee of funds managed by DIMA or its                affiliates (1993-2002).                                                                                                                                                                                                                | Chicago Board                    Member since 2002, Chairperson since 2007 |
| William McClayton (1944)* *                                                                                                                    | Chief Administrative Officer, Diamond Management                & Technology Consultants, Inc. (global management consulting firm)                (2001-present); formerly, Senior Partner, Arthur Andersen LLP (accounting)                (1966-2001). Directorship: Board of Managers, YMCA of Metropolitan Chicago.                Formerly, Trustee, Ravinia Festival.                                                                                                                                                                                                               | Chicago Board                    Member since 2004                         |
| Robert H. Wadsworth(1940)* *                                                                                                                   | President, Robert H. Wadsworth & Associates,                Inc. (consulting firm) (1983 to present). Formerly, Trustee of funds managed by                DIMA or its affiliates (1999-2004).* *                                                                                                                                                                                                                                                                                                                                                                                    | Chicago Board                    Member since 2004                         |

*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                    Scudder representative by calling the appropriate number below:
**For                    shareholders of Institutional Class:**
(800) 621-1048 |
| **Web                    Site**               | **www.dws-scudder.com**
View your account transactions and balances,                    trade shares, monitor your asset allocation, and change your address, 24 hours                    a day.**Obtain prospectuses and                    applications,**blank forms,                    interactive worksheets, news about DWS funds, subscription to fund updates by                    e-mail, retirement planning information, and more. |
| **Written                    Correspondence** | **DWS                    Scudder**
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 endedJune 30is available on our Web site —                www.dws-scudder.com (click on "proxy voting"at the bottom of the page) —                or on the SEC's Web site — www.sec.gov. To obtain a written copy of the                fund's policies and procedures without charge, upon request, call us toll free at                (800) 621-1048. |
| **Principal                    Underwriter**  | If you have questions, comments or complaints,                    contact:
**DWS Scudder                    Distributors, Inc.**
222 South Riverside Plaza                    Chicago, IL 60606-5808(800) 621-1148 |

|                                 | **Institutional Class** |
|--------------------------------------|-------------------------|
| **Nasdaq                    Symbol** | BTUSX                   |
| **CUSIP                    Number**  | 23339C 750              |
| **Fund                    Number**   | 548                     |

**Notes**

**Notes**

 

| **ITEM 2.** | **CODE OF ETHICS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        | As of the end of the period, December 31, 2007, DWS US Bond                        Index 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” serving on the Funds’ audit committee. The Board has                        determined that Keith R Fox, the chair of the Funds’ audit committee,                        qualifies as an “audit committee financial expert” (as such                        term has been defined by the Regulations) based on its review of Mr.                        Fox’s pertinent experience and education. The SEC has stated that 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 US        BOND INDEX FUND**

**FORM        N-CSR DISCLOSURE RE: AUDIT FEES**

The        following table shows the amount of fees that PricewaterhouseCoopers, LLP        (“PWC”), the Fund’s independent registered public accounting firm, 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 PWC 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 Accounting        Firm Billed to the Fund**

| Fiscal YearEndedDecember 31, | Audit Fees Billed to Fund | Audit-RelatedFees Billed to Fund | Tax Fees Billed to Fund | AllOther Fees Billed to Fund |
|------------------------------|---------------------------|----------------------------------|-------------------------|------------------------------|
| 2007                         | $56,575                   | $0                               | $0                      | $0                           |
| 2006                         | $58,500                   | $128                             | $0                      | $0                           |

 

The above        “Audit- Related Fees” were billed for agreed upon procedures        performed.

 

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

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

| Fiscal YearDecember 31, | Audit-RelatedFees Billed to Adviser and Affiliated Fund Service                        Providers | Tax Fees Billed to Adviser and Affiliated Fund Service                        Providers | AllOther Fees Billed to Adviser and Affiliated Fund Service                        Providers |
|-------------------------|--------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
| 2007                    | $58,500                                                                                          | $25,000                                                                                 | $0                                                                                           |
| 2006                    | $155,500                                                                                         | $11,930                                                                                 | $0                                                                                           |

 

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

**Non-Audit Services**

The        following table shows the amount of fees that PWC billed during the Fund’s last two        fiscal years for non-audit services. The Audit Committee pre-approved all non-audit        services that PWC 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 PWC about any non-audit services that PWC        rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund        Service Provider. The Committee considered this information in evaluating PWC’s        independence.

 

| Fiscal YearEndedDecember 31, | TotalNon-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) |
|------------------------------|-----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|--------------------------|
| 2007                         | $0                                      | $25,000                                                                                                                                                                                                              | $600,000                                                                                                                         | $625,000                 |
| 2006                         | $0                                      | $11,930                                                                                                                                                                                                              | $0                                                                                                                               | $11,930                  |

 

 

All other        engagement fees were billed for services provided by PWC for services related to consulting        on an IT project.

 

|   |   |
|--------|--------|

 

 

| **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 Committee on Independent Trustees/Directors selects and                        nominates Independent Trustees/Directors. Fund shareholders may submit                        nominees that will be considered by the committee when a Board vacancy                        occurs. Submissions should be mailed to: c/o Dawn-Marie Driscoll, PO 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 registrant’s last half-year (the                        registrant’s second fiscal half-year in the case of the annual                        report) that has materially affected, or is reasonably likely to materially                        affect, the registrant’s internal controls over financial                        reporting. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **ITEM 12.** | **EXHIBITS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         | (a)(1)     Code of Ethics pursuant                        to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE                        ETH.                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         | (a)(2)     Certification pursuant                        to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR                        270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.                                                                                                                                                                                                                                                                                                                                                                             |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         | (b)         Certification                        pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR                        270.30a-2(b)) is furnished and attached hereto as Exhibit                        99.906CERT.                                                                                                                                                                                                                                                                                                                          |

 

 

 

 

Form N-CSR        Item F

 

**SIGNATURES**

 

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

 

| Registrant: | DWS US Bond Index Fund, a series of DWS Institutional                        Funds |
|-------------|------------------------------------------------------------------------------------|

 

| By: | /s/Michael G. Clark |
|-----|---------------------|

|   | Michael G. Clark |
|--------|------------------|

President

 

| Date: | February 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.

 

| Registrant: | DWS US Bond Index Fund, a series of DWS Institutional                        Funds |
|-------------|------------------------------------------------------------------------------------|

 

| By: | /s/Michael G. Clark |
|-----|---------------------|

|   | Michael G. Clark |
|--------|------------------|

President

 

| Date: | February 29, 2008 |
|-------|-------------------|

 

 

| By: | /s/Paul Schubert |
|-----|------------------|

|   | Paul Schubert |
|--------|---------------|

Chief Financial Officer and Treasurer

 

| Date: | February 29, 2008 |
|-------|-------------------|