UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM N-CSR

 

| Investment Company Act file number | 811-2786 |
|------------------------------------|----------|

 

DWS High Income Series

(Exact Name of Registrant as Specified in Charter)

 

345 Park Avenue

New York, NY 10154-0004

(Address of principal executive offices)             (Zip code)

 

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

 

Paul Schubert

345 Park Avenue

New York, NY 10154-0004

(Name and Address of Agent for Service)

 

| Date of fiscal year end: | 09/30 |
|--------------------------|-------|

 

| Date of reporting period: | 09/30/08 |
|---------------------------|----------|

 

 

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

 

 

----

|  

SEPTEMBER 30, 2008
Annual Report                        to Shareholders |
|---------------------------------------------------------------------------------|
|                                                                            |
|  

**DWS High Income 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. Some funds have more risk than others. The fund may invest in lower-quality and nonrated securities which present greater risk of loss of principal and interest than higher-quality securities. Additionally, investing in foreign securities presents certain risks, such as currency fluctuation, political and economic changes and market risks. All of these factors may result in            greater share price volatility. 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. Please read the fund's prospectus for specific details regarding the fund's risk profile.

*DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.*

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

**Performance SummarySeptember 30, 2008**

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

**The maximum sales charge for Class A shares is 4.5%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no front-end sales charge but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had.            Institutional Class shares are not subject to sales charges.**

**The total annual fund operating expense ratios, gross of any fee waivers or expense reimbursements, as stated in the fee table of the prospectus dated February 1, 2008 are 0.97%, 1.76%, 1.72% and 0.65% for Class A, Class B, Class C and Institutional Class shares, respectively. Please see the Information About Your Fund's Expenses, the Financial Highlights and Notes to the Financial Statements (Note C, Related            Parties) sections of this report for gross and net expense related disclosure for the period ended September 30, 2008.**

**To discourage short-term trading, the Fund imposes a 2% redemption fee on shareholders redeeming shares held less than 30 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 these waivers/reimbursements, returns would have been lower.

Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
| **Average Annual Total Returns**(Unadjusted for Sales Charge) as of 9/30/08 |
|-----------------------------------------------------------------------------|
| **DWS High Income Fund**                                                    | **1-Year** | **3-Year** | **5-Year** | **10-Year** |
| **Class A**                                                                 | **-10.40%** | **.90%** | **4.70%** | **3.88%** |
| **Class B**                                                                 | **-11.13%** | **.07%** | **3.84%** | **3.04%** |
| **Class C**                                                                 | **-11.04%** | **.15%** | **3.90%** | **3.06%** |
| Credit Suisse High Yield Index+                                             | -10.03% | 1.65% | 4.82% | 5.32% |
| **DWS High Income Fund**                                                    | **1-Year** | **3-Year** | **5-Year** | **Life of Class*** |
| **Institutional Class**                                                     | **-10.09%** | **1.29%** | **5.02%** | **8.06%** |
| Credit Suisse High Yield Index+                                             | -10.03% | 1.65% | 4.82% | 8.03% |

*Sources: Lipper, Inc. and Deutsche Investment Management Americas Inc.*
| **Net Asset Value and Distribution Information**                            |
|-----------------------------------------------------------------------------|
|                                                                        | **Class A** | **Class B** | **Class C** | **Institutional Class** |
| **Net Asset Value:**
9/30/08                                                | $ 4.32 | $ 4.32 | $ 4.33 | $ 4.33 |
| 9/30/07                                                                     | $ 5.24 | $ 5.24 | $ 5.25 | $ 5.25 |
| **Distribution Information:**
Twelve Months as of 9/30/08:
Income Dividends | $ .41 | $ .37 | $ .37 | $ .42 |
| September Income Dividend                                                   | $ .0313 | $ .0281 | $ .0285 | $ .0324 |
| SEC 30-day Yield++                                                          | 9.58% | 9.18% | 9.19% | 10.33% |
| Current Annualized Distribution Rate++                                      | 8.69% | 7.81% | 7.90% | 8.98% |
| **Class A Lipper Rankings — High Current Yield Funds Category**as of 9/30/08 |
|----------------------------------------------------------------------------------------------|
| **Period**                                                                                   | **Rank** |   | **Number of Funds Tracked** | **Percentile Ranking (%)** |
| 1-Year                                                                                       | 241 | of | 466 | 52 |
| 3-Year                                                                                       | 190 | of | 390 | 49 |
| 5-Year                                                                                       | 76 | of | 338 | 23 |
| 10-Year                                                                                      | 81 | of | 185 | 44 |

**Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.**
| **Growth of an Assumed $10,000 Investment**(Adjusted for Maximum Sales Charge) |
|----------------------------------------------------------------------------------------------------|
| **[]DWS High Income Fund — Class A**

**[]Credit Suisse High Yield Index+**                  |
|                                                                                                    |
| Yearly periods ended September 30                                                                  |

**The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.50%. This results in a net initial investment of $9,550.**
| **Comparative Results**(Adjusted for Maximum Sales Charge) as of 9/30/08 |
|--------------------------------------------------------------------------|
| **DWS High Income Fund**                                                 | **1-Year** | **3-Year** | **5-Year** | **10-Year** |
| **Class A**                                                              | Growth of $10,000 | $8,557 | $9,811 | $12,013 | $13,974 |
| Average annual total return                                              | -14.43% | -.63% | 3.74% | 3.40% |
| **Class B**                                                              | Growth of $10,000 | $8,639 | $9,863 | $11,988 | $13,487 |
| Average annual total return                                              | -13.61% | -.46% | 3.69% | 3.04% |
| **Class C**                                                              | Growth of $10,000 | $8,896 | $10,045 | $12,106 | $13,517 |
| Average annual total return                                              | -11.04% | .15% | 3.90% | 3.06% |
| Credit Suisse High Yield Index+                                          | Growth of $10,000 | $8,997 | $10,504 | $12,654 | $16,784 |
| Average annual total return                                              | -10.03% | 1.65% | 4.82% | 5.32% |

*The growth of $10,000 is cumulative.*
| **Growth of an Assumed $1,000,000 Investment**                                                |
|-----------------------------------------------------------------------------------------------|
| **[]DWS High Income Fund — Institutional Class**

**[]Credit Suisse High Yield Index+** |
|                                                                                               |
| Yearly periods ended September 30                                                             |
| **Comparative Results**as of 9/30/08 |
|--------------------------------------|
| **DWS High Income Fund**             | **1-Year** | **3-Year** | **5-Year** | **Life of Class*** |
| **Institutional Class**              | Growth of $1,000,000 | $899,100 | $1,039,300 | $1,277,800 | $1,606,800 |
| Average annual total return          | -10.09% | 1.29% | 5.02% | 8.06% |
| Credit Suisse High Yield Index+      | Growth of $1,000,000 | $899,700 | $1,050,400 | $1,265,400 | $1,600,300 |
| Average annual total return          | -10.03% | 1.65% | 4.82% | 8.03% |

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

*The minimum investment for 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, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in            dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had they not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (April 1, 2008 to September 30, 2008).

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

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

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

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. 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 September 30, 2008 |
|-------------------------------------------------------------------------------------------------------------------|
| **Actual Fund Return**                                                                                            | **Class A** | **Class B** | **Class C** | **Institutional Class** |
| Beginning Account Value 4/1/08                                                                                    | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
| Ending Account Value 9/30/08                                                                                      | $ 942.60 | $ 938.70 | $ 939.20 | $ 944.20 |
| Expenses Paid per $1,000*                                                                                         | $ 4.81 | $ 8.68 | $ 8.48 | $ 3.35 |
| **Hypothetical 5% Fund Return**                                                                                   | **Class A** | **Class B** | **Class C** | **Institutional Class** |
| Beginning Account Value 4/1/08                                                                                    | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 | $ 1,000.00 |
| Ending Account Value 9/30/08                                                                                      | $ 1,020.05 | $ 1,016.05 | $ 1,016.25 | $ 1,021.55 |
| Expenses Paid per $1,000*                                                                                         | $ 5.00 | $ 9.02 | $ 8.82 | $ 3.49 |
| **Annualized Expense Ratios** | **Class A** | **Class B** | **Class C** | **Institutional Class** |
|-------------------------------|-------------|-------------|-------------|-------------------------|
| DWS High Income Fund          | .99%        | 1.79%       | 1.75%       | .69%                    |

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

**Portfolio Management Review**

**DWS High Income 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 High Income 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.

**Portfolio Manager**

*Gary Sullivan, CFA*

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

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

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

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

In the following interview, the portfolio management team discusses DWS High Income Fund's strategy and the market environment during the 12-month period ended September 30, 2008.

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

**Q: How did the high-yield bond market perform during the annual period?**

**A:**High-yield bonds produced a negative absolute return and underperformed the broader bond market by a wide margin during the past year. The Credit Suisse High Yield Index (the fund's benchmark) returned -10.03% over the 12-month period, well behind the 3.65% return of the Barclays Capital US Aggregate Bond Index.1 The high-yield asset class produced the second-worst            quarterly return in its history in the third quarter (-8.04%) and registered the second-worst one-month return ever during September (-7.04%).

For several reasons, high-yield bonds were particularly vulnerable to the crosscurrents affecting the broader financial system. First, concerns about a sharp economic slowdown led to speculation that the high-yield default rate would soar from its current level of 3.2%, which is low on a historical basis.2 Second, the crisis caused a number of corporations to lose access to credit — an issue of particular            importance for companies in the high-yield sector. And third, the rapid rise in investor risk aversion sparked a flight to quality into Treasuries and a concurrent flood of cash out of higher-risk "spread sectors."3 The result, for high-yield bonds, was a surge of indiscriminate selling late in the period, particularly from investors who were forced to close out positions at virtually any price in order to raise cash.

The extreme weakness in high yield caused the spread between high-yield bonds and Treasuries to increase from 423 basis points (4.23 percentage points) one year ago — and 711 basis points at the start of the third quarter — to 1000 basis points on September 30, 2008.4 At this level, the yield spread stands near its all-time high levels of 1080 basis points in September 2002 and 1096 basis points in            1990. This indicates that on a historical basis, the high-yield sector is trading at extremely distressed levels.

**Q: How did the fund perform?**

**A:**The fund's Class A shares returned -10.40% during the 12-month period ended September 30, 2008, trailing the -10.03% return of the benchmark but outpacing the -10.99% average return of the funds in its Lipper peer group, High Current Yield Funds.5 (Fund returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past            performance is no guarantee of future results. Please see pages 4 through 6 for the performance of other share classes and more complete performance information.)

**Q: What individual securities helped performance?**

**A:**Performance was helped by our decision to avoid a number of individual securities that underperformed, particularly those related to the real estate and mortgage businesses. We believe this helps illustrate the value of using credit research to identify and avoid higher-risk securities.

Among the leading individual contributors to performance was DRS Technologies, Inc., a defense-related firm that was bid for by the investment-grade-rated company Finmeccanica. Also performing well for the fund were Kansas City Southern Railway Co. and its subsidiary, Kansas City Southern de Mexico SA de CV. The company has a substantial asset base, which was viewed as a positive attribute amid the credit            crisis. Two utilities held in the fund — AES Corp. and Allegheny Energy Supply Co. LLC — saw their bonds gain ground due to the companies' steady cash flows and defensive nature. In addition, the bonds of Allied Security, Inc. rose in price when the company was bought out and its bonds were tendered at a premium.

**Q: What holdings hurt performance?**

**A:**The fund's performance was hurt by a position in bonds issued by GMAC LLC. These bonds generated very poor performance due to GMAC's exposure to rising defaults on auto loans. However, since the fund's weighting in GMAC was close to the weighting in the benchmark, this position had only a small negative impact on relative performance.

The fund's relative performance was also hurt by positions in two companies forced to go through debt restructurings: American Color Graphics, Inc. and Tropicana Entertainment LLC. Another notable detractor was Young Broadcasting, Inc., whose bonds lost ground when the company ran into difficulties selling its holding in the San Francisco television station KRON, raising the likelihood of a restructuring.

**Q: What is your view on the high-yield market as a whole?**

**A:**It's understandable if the sell-off in high-yield bonds was unnerving to many investors. Still, we believe it is important to emphasize two key points. First, we continue to place a focus on using intensive credit research to avoid defaults to the greatest extent possible. While some defaults/restructurings are inevitable, we are making every effort to minimize this risk. Second,            the market has fallen to a level that has prompted us to adopt a more positive outlook than we held throughout the first half of the year. Although it's true that slowing economic growth means that defaults will likely increase from their current level, we believe this development is more than discounted into market prices given that yield spreads are near all-time highs. Further, we believe it's worth pointing out that the last two times high-yield bonds performed this poorly, the            subsequent rebounds were impressive. In 1990, when the market fell 6.38%, it rose 43.75% in the following calendar year. Ten years later, the -5.21% loss of 2000 was followed by gains of 5.78%, 3.10% and 27.94% in the next three years.6 (Naturally, past performance is no guarantee of future results.)

Our citation of these numbers does not mean that we have moved to a strongly optimistic posture. In fact, we think a cautious approach remains necessary given the unprecedented nature of this financial crisis — a conviction reflected in our continued focus on mitigating risk. Nevertheless, we believe investors can be well served by maintaining a long-term perspective at this stage of the market downturn.

**Portfolio Summary**
| **Asset Allocation**(As a % of Investment Portfolio excluding Securities Lending Collateral) | **9/30/08** | **9/30/07** |
|----------------------------------------------------------------------------------------------|-------------|-------------|
|                                                                                         |        |        |
| Corporate Bonds                                                                              | 90%         | 94%         |
| Senior Loans                                                                                 | 7%          | 2%          |
| Cash Equivalents                                                                             | 3%          | 3%          |
| Other Investments                                                                            | —     | 1%          |
|                                                                                         | 100%        | 100%        |
| **Corporate Bond Diversification**
(As a % of Investment Portfolio excluding Cash Equivalents and Securities Lending Collateral) | **9/30/08** | **9/30/07** |
|----------------------------------------------------------------------------------------------------------------------------------|-------------|-------------|
|                                                                                                                             |        |        |
| Consumer Discretionary                                                                                                           | 16%         | 25%         |
| Energy                                                                                                                           | 14%         | 8%          |
| Materials                                                                                                                        | 13%         | 12%         |
| Utilities                                                                                                                        | 12%         | 7%          |
| Financials                                                                                                                       | 11%         | 15%         |
| Industrials                                                                                                                      | 11%         | 13%         |
| Telecommunication Services                                                                                                       | 9%          | 8%          |
| Health Care                                                                                                                      | 7%          | 5%          |
| Information Technology                                                                                                           | 4%          | 3%          |
| Consumer Staples                                                                                                                 | 3%          | 4%          |
|                                                                                                                             | 100%        | 100%        |
| **Quality**      | **9/30/08** | **9/30/07** |
|------------------|-------------|-------------|
|             |        |        |
| Cash Equivalents | 2%          | 3%          |
| BBB              | 9%          | 3%          |
| BB               | 35%         | 27%         |
| B                | 46%         | 53%         |
| CCC              | 5%          | 14%         |
| D                | 1%          | —     |
| Not Rated        | 2%          | —     |
|             | 100%        | 100%        |

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

*The quality ratings represents 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** | **9/30/08** | **9/30/07** |
|------------------------|-------------|-------------|
|                   |        |        |
| Less than 1 year       | 3%          | 10%         |
| 1-4.99 years           | 35%         | 36%         |
| 5-6.99 years           | 35%         | 24%         |
| 7 years or greater     | 27%         | 30%         |
|                   | 100%        | 100%        |

*Weighted average effective maturity: 5.9 years and 5.8 years, respectively.*

*Effective maturity is subject to change.*

*For complete details about the Fund's investment portfolio, see page 16. A quarterly Fact Sheet is available upon request. A complete list of the fund's portfolio holdings is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on            www.dws-investments.com. Please see the Account Management Resources section for contact information.*

Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.

**Investment Portfolioas of September 30, 2008**
|                                                                                               | **Principal Amount ($)(a)** | **Value ($)** |
|----------------------------------------------------------------------------------------------------|-----------------------------|---------------|
|                                                                                               |                        |
| **Corporate Bonds 87.7%**                                                                          |
| **Consumer Discretionary 13.7%**                                                                   |
| AMC Entertainment, Inc., 8.0%, 3/1/2014                                                            | 9,063,000                   | 7,794,180     |
| American Achievement Corp., 144A, 8.25%, 4/1/2012                                                  | 1,720,000                   | 1,715,700     |
| American Achievement Group Holding Corp., 14.75%, 10/1/2012 (PIK)                             | 3,898,900                   | 3,703,955     |
| Asbury Automotive Group, Inc.:                                                                     |                        |          |
| 7.625%, 3/15/2017                                                                                  | 3,990,000                   | 2,553,600     |
| 8.0%, 3/15/2014                                                                                    | 1,710,000                   | 1,201,275     |
| Ashtead Holdings PLC, 144A, 8.625%, 8/1/2015                                                       | 4,040,000                   | 3,474,400     |
| Cablevision Systems Corp., Series B, 7.133%**, 4/1/2009                                            | 2,107,000                   | 2,080,663     |
| CanWest MediaWorks LP, 144A, 9.25%, 8/1/2015                                                       | 2,875,000                   | 2,070,000     |
| Carrols Corp., 9.0%, 1/15/2013                                                                     | 1,810,000                   | 1,303,200     |
| Charter Communications Operating LLC, 144A,                        10.875%, 9/15/2014              | 9,250,000                   | 8,972,500     |
| Cirsa Capital Luxembourg SA, 144A,                        7.875%, 7/15/2012 EUR                    | 1,645,000                   | 1,447,395     |
| CSC Holdings, Inc.:                                                                                |                        |          |
| 6.75%, 4/15/2012 (b)                                                                               | 2,850,000                   | 2,611,313     |
| Series B, 7.625%, 4/1/2011                                                                         | 3,020,000                   | 2,899,200     |
| Series B, 8.125%, 7/15/2009                                                                        | 3,290,000                   | 3,257,100     |
| Series B, 8.125%, 8/15/2009                                                                        | 6,595,000                   | 6,529,050     |
| Denny's Holdings, Inc., 10.0%, 10/1/2012                                                           | 1,165,000                   | 1,060,150     |
| DIRECTV Holdings LLC, 144A, 7.625%, 5/15/2016                                                      | 8,620,000                   | 7,801,100     |
| Dollarama Group LP, 8.883%**, 8/15/2012 (c)                                                        | 2,705,000                   | 2,407,450     |
| EchoStar DBS Corp.:                                                                                |                        |          |
| 6.375%, 10/1/2011                                                                                  | 3,990,000                   | 3,670,800     |
| 6.625%, 10/1/2014                                                                                  | 4,985,000                   | 4,000,462     |
| 7.125%, 2/1/2016                                                                                   | 3,820,000                   | 3,065,550     |
| Fontainebleau Las Vegas Holdings LLC, 144A, 10.25%, 6/15/2015                                      | 3,640,000                   | 1,019,200     |
| General Motors Corp.:                                                                              |                        |          |
| 7.4%, 9/1/2025                                                                                     | 1,995,000                   | 718,200       |
| 8.375%, 7/15/2033                                                                                  | 4,828,000                   | 1,931,200     |
| Great Canadian Gaming Corp., 144A, 7.25%, 2/15/2015                                                | 3,395,000                   | 3,055,500     |
| Group 1 Automotive, Inc., 8.25%, 8/15/2013                                                         | 1,700,000                   | 1,547,000     |
| Hertz Corp., 8.875%, 1/1/2014                                                                      | 10,295,000                  | 8,879,437     |
| Idearc, Inc., 8.0%, 11/15/2016                                                                     | 7,330,000                   | 1,997,425     |
| Indianapolis Downs LLC, 144A, 11.0%, 11/1/2012                                                     | 2,255,000                   | 1,533,400     |
| Isle of Capri Casinos, Inc., 7.0%, 3/1/2014                                                        | 3,490,000                   | 2,338,300     |
| Kabel Deutschland GmbH, 10.625%, 7/1/2014 (b)                                                      | 4,913,000                   | 4,814,740     |
| Lamar Media Corp., Series C, 6.625%, 8/15/2015                                                     | 2,270,000                   | 1,878,425     |
| Liberty Media LLC:                                                                                 |                        |          |
| 5.7%, 5/15/2013                                                                                    | 540,000                     | 449,128       |
| 8.25%, 2/1/2030                                                                                    | 4,510,000                   | 3,043,258     |
| 8.5%, 7/15/2029                                                                                    | 5,890,000                   | 4,162,168     |
| MediMedia USA, Inc., 144A, 11.375%, 11/15/2014                                                     | 1,720,000                   | 1,685,600     |
| MGM MIRAGE:                                                                                        |                        |          |
| 6.625%, 7/15/2015 (b)                                                                              | 1,690,000                   | 1,174,550     |
| 6.75%, 9/1/2012                                                                                    | 4,775,000                   | 3,736,437     |
| 8.375%, 2/1/2011 (b)                                                                               | 3,205,000                   | 2,620,087     |
| MTR Gaming Group, Inc., Series B, 9.75%, 4/1/2010                                                  | 5,010,000                   | 4,759,500     |
| Norcraft Holdings LP, 9.75%, 9/1/2012                                                              | 9,580,000                   | 8,622,000     |
| Penske Automotive Group, Inc., 7.75%, 12/15/2016                                                   | 6,750,000                   | 4,826,250     |
| Pinnacle Entertainment, Inc., 8.75%, 10/1/2013                                                     | 3,570,000                   | 3,418,275     |
| Quebecor Media, Inc., 7.75%, 3/15/2016                                                             | 2,290,000                   | 2,003,750     |
| Quebecor World, Inc., 144A, 9.75%, 1/15/2015*                                                      | 2,830,000                   | 1,146,150     |
| Quiksilver, Inc., 6.875%, 4/15/2015 (b)                                                            | 4,510,000                   | 3,111,900     |
| Reader's Digest Association, Inc., 9.0%, 2/15/2017                                                 | 2,505,000                   | 1,415,325     |
| Sabre Holdings Corp., 8.35%, 3/15/2016                                                             | 3,160,000                   | 2,022,400     |
| Seminole Hard Rock Entertainment, Inc., 144A, 5.319%**, 3/15/2014                             | 3,960,000                   | 2,970,000     |
| Shaw Communications, Inc., 8.25%, 4/11/2010                                                        | 5,650,000                   | 5,621,750     |
| Shingle Springs Tribal Gaming Authority, 144A, 9.375%, 6/15/2015                              | 2,830,000                   | 2,037,600     |
| Simmons Co.:                                                                                       |                        |          |
| Step-up Coupon, 0% to 12/15/2009,                        10.0% to 12/15/2014                       | 11,875,000                  | 6,650,000     |
| 7.875%, 1/15/2014                                                                                  | 1,150,000                   | 862,500       |
| Sinclair Television Group, Inc., 8.0%, 3/15/2012 (b)                                               | 2,922,000                   | 2,819,730     |
| Sirius XM Radio, Inc., 9.625%, 8/1/2013 (b)                                                        | 6,905,000                   | 3,659,650     |
| Sonic Automotive, Inc., Series B,                        8.625%, 8/15/2013 (b)                     | 3,420,000                   | 2,325,600     |
| Travelport LLC:                                                                                    |                        |          |
| 7.436%**, 9/1/2014                                                                                 | 2,640,000                   | 2,032,800     |
| 9.875%, 9/1/2014                                                                                   | 530,000                     | 431,950       |
| Trump Entertainment Resorts, Inc., 8.5%, 6/1/2015                                                  | 855,000                     | 350,550       |
| United Components, Inc., 9.375%, 6/15/2013                                                         | 570,000                     | 473,100       |
| Unity Media GmbH:                                                                                  |                        |          |
| 144A, 8.75%, 2/15/2015 EUR                                                                         | 6,230,000                   | 7,542,713     |
| 144A, 10.375%, 2/15/2015                                                                           | 2,260,000                   | 2,186,550     |
| UPC Holding BV:                                                                                    |                        |          |
| 144A, 7.75%, 1/15/2014 EUR                                                                         | 3,405,000                   | 3,882,784     |
| 144A, 8.0%, 11/1/2016 EUR                                                                          | 1,700,000                   | 1,842,811     |
| Videotron Ltd., 144A, 9.125%, 4/15/2018                                                            | 1,325,000                   | 1,338,250     |
| Vitro SAB de CV:                                                                                   |                        |          |
| 9.125%, 2/1/2017                                                                                   | 10,780,000                  | 7,007,000     |
| 11.75%, 11/1/2013                                                                                  | 1,365,000                   | 1,173,900     |
| Young Broadcasting, Inc., 8.75%, 1/15/2014                                                         | 15,800,000                  | 2,291,000     |
|                                                                                               | **209,028,886**             |
| **Consumer Staples 2.8%**                                                                          |
| Alliance One International, Inc., 8.5%, 5/15/2012                                                  | 1,715,000                   | 1,586,375     |
| Delhaize America, Inc.:                                                                            |                        |          |
| 8.05%, 4/15/2027                                                                                   | 1,070,000                   | 1,049,803     |
| 9.0%, 4/15/2031                                                                                    | 7,709,000                   | 8,092,530     |
| General Nutrition Centers, Inc., 7.584%**, 3/15/2014 (PIK)                                         | 1,960,000                   | 1,631,700     |
| Harry & David Operations Corp., 7.81%**, 3/1/2012                                              | 2,615,000                   | 1,477,475     |
| North Atlantic Trading Co., 144A, 10.0%, 3/1/2012                                                  | 13,632,250                  | 10,633,155    |
| Smithfield Foods, Inc., 7.75%, 7/1/2017                                                            | 2,175,000                   | 1,707,375     |
| Viskase Companies, Inc., 11.5%, 6/15/2011                                                          | 18,895,000                  | 16,060,750    |
|                                                                                               | **42,239,163**              |
| **Energy 13.2%**                                                                                   |
| Atlas Energy Resources LLC, 144A, 10.75%, 2/1/2018                                                 | 7,030,000                   | 6,327,000     |
| Belden & Blake Corp., 8.75%, 7/15/2012                                                         | 15,945,000                  | 14,509,950    |
| Bristow Group, Inc., 7.5%, 9/15/2017                                                               | 3,505,000                   | 3,119,450     |
| Chaparral Energy, Inc.:                                                                            |                        |          |
| 8.5%, 12/1/2015                                                                                    | 5,225,000                   | 4,127,750     |
| 8.875%, 2/1/2017                                                                                   | 1,925,000                   | 1,520,750     |
| Chesapeake Energy Corp.:                                                                           |                        |          |
| 6.25%, 1/15/2018                                                                                   | 2,225,000                   | 1,902,375     |
| 6.875%, 1/15/2016                                                                                  | 11,150,000                  | 10,174,375    |
| 7.25%, 12/15/2018                                                                                  | 5,950,000                   | 5,474,000     |
| 7.5%, 6/15/2014                                                                                    | 1,450,000                   | 1,388,375     |
| Cimarex Energy Co., 7.125%, 5/1/2017                                                               | 2,880,000                   | 2,649,600     |
| Delta Petroleum Corp., 7.0%, 4/1/2015                                                              | 5,675,000                   | 3,944,125     |
| Dynegy Holdings, Inc.:                                                                             |                        |          |
| 6.875%, 4/1/2011                                                                                   | 1,130,000                   | 1,028,300     |
| 8.375%, 5/1/2016                                                                                   | 6,425,000                   | 5,589,750     |
| El Paso Corp.:                                                                                     |                        |          |
| 7.25%, 6/1/2018                                                                                    | 4,675,000                   | 4,347,750     |
| 9.625%, 5/15/2012                                                                                  | 2,325,000                   | 2,413,613     |
| EXCO Resources, Inc., 7.25%, 1/15/2011                                                             | 4,703,000                   | 4,444,335     |
| Forest Oil Corp., 144A, 7.25%, 6/15/2019                                                           | 1,745,000                   | 1,491,975     |
| Frontier Oil Corp.:                                                                                |                        |          |
| 6.625%, 10/1/2011                                                                                  | 2,495,000                   | 2,357,775     |
| 8.5%, 9/15/2016 (b)                                                                                | 4,580,000                   | 4,408,250     |
| KCS Energy, Inc., 7.125%, 4/1/2012                                                                 | 13,015,000                  | 11,453,200    |
| Mariner Energy, Inc.:                                                                              |                        |          |
| 7.5%, 4/15/2013                                                                                    | 2,850,000                   | 2,522,250     |
| 8.0%, 5/15/2017                                                                                    | 3,660,000                   | 3,092,700     |
| Newfield Exploration Co., 7.125%, 5/15/2018                                                        | 5,250,000                   | 4,567,500     |
| OPTI Canada, Inc.:                                                                                 |                        |          |
| 7.875%, 12/15/2014                                                                                 | 4,465,000                   | 3,951,525     |
| 8.25%, 12/15/2014                                                                                  | 8,600,000                   | 7,697,000     |
| Petrohawk Energy Corp.:                                                                            |                        |          |
| 144A, 7.875%, 6/1/2015                                                                             | 3,495,000                   | 3,040,650     |
| 9.125%, 7/15/2013                                                                                  | 3,295,000                   | 3,097,300     |
| Plains Exploration & Production Co.:                                                           |                        |          |
| 7.0%, 3/15/2017                                                                                    | 3,000,000                   | 2,610,000     |
| 7.625%, 6/1/2018                                                                                   | 5,955,000                   | 5,270,175     |
| Quicksilver Resources, Inc., 7.125%, 4/1/2016                                                      | 8,385,000                   | 6,833,775     |
| Range Resources Corp., 7.25%, 5/1/2018                                                             | 570,000                     | 538,650       |
| Sabine Pass LNG LP, 7.5%, 11/30/2016                                                               | 6,580,000                   | 5,132,400     |
| SandRidge Energy, Inc., 144A, 8.0%, 6/1/2018                                                       | 2,320,000                   | 1,995,200     |
| Stallion Oilfield Services, 144A, 9.75%, 2/1/2015                                                  | 1,925,000                   | 1,251,250     |
| Stone Energy Corp.:                                                                                |                        |          |
| 6.75%, 12/15/2014                                                                                  | 5,935,000                   | 4,599,625     |
| 8.25%, 12/15/2011                                                                                  | 9,440,000                   | 8,779,200     |
| Tennessee Gas Pipeline Co., 7.625%, 4/1/2037                                                       | 2,860,000                   | 2,538,344     |
| Tesoro Corp., 6.5%, 6/1/2017                                                                       | 2,426,000                   | 1,940,800     |
| Whiting Petroleum Corp.:                                                                           |                        |          |
| 7.0%, 2/1/2014                                                                                     | 3,505,000                   | 2,979,250     |
| 7.25%, 5/1/2012                                                                                    | 6,195,000                   | 5,745,863     |
| 7.25%, 5/1/2013                                                                                    | 1,445,000                   | 1,340,238     |
| Williams Companies, Inc.:                                                                          |                        |          |
| 8.125%, 3/15/2012                                                                                  | 10,576,000                  | 10,685,144    |
| 8.75%, 3/15/2032                                                                                   | 14,037,000                  | 14,392,978    |
| Williams Partners LP, 7.25%, 2/1/2017                                                              | 2,865,000                   | 2,664,450     |
|                                                                                               | **199,938,965**             |
| **Financials 10.1%**                                                                               |
| Algoma Acquisition Corp., 144A, 9.875%, 6/15/2015                                                  | 7,335,000                   | 6,610,669     |
| Ashton Woods USA LLC, 9.5%, 10/1/2015                                                              | 9,125,000                   | 4,106,250     |
| Buffalo Thunder Development Authority, 144A, 9.375%, 12/15/2014                               | 1,705,000                   | 716,100       |
| Citigroup, Inc., 6.5%, 8/19/2013                                                                   | 4,115,000                   | 3,657,280     |
| Conproca SA de CV, Series REG S, 12.0%, 6/16/2010                                                  | 14,101,160                  | 15,194,000    |
| Eaton Vance Corp., CDO II, Series C-X, 13.68%, 7/15/2012*                                          | 2,525,075                   | 0             |
| Ford Motor Credit Co., LLC:                                                                        |                        |          |
| 7.25%, 10/25/2011                                                                                  | 23,115,000                  | 14,698,667    |
| 7.375%, 10/28/2009                                                                                 | 15,715,000                  | 12,634,326    |
| 7.875%, 6/15/2010                                                                                  | 11,255,000                  | 8,591,245     |
| GMAC LLC, 6.875%, 9/15/2011                                                                        | 45,345,000                  | 20,232,350    |
| Hawker Beechcraft Acquisition Co., LLC:                                                            |                        |          |
| 8.5%, 4/1/2015                                                                                     | 5,975,000                   | 5,467,125     |
| 8.875%, 4/1/2015 (PIK)                                                                             | 5,440,000                   | 4,923,200     |
| 9.75%, 4/1/2017                                                                                    | 6,795,000                   | 6,081,525     |
| Hexion US Finance Corp., 9.75%, 11/15/2014                                                         | 1,675,000                   | 1,323,250     |
| Inmarsat Finance PLC, Step-up Coupon, 0% to 11/15/2008, 10.375% to 11/15/2012                 | 9,996,000                   | 9,846,060     |
| iPayment, Inc., 9.75%, 5/15/2014                                                                   | 3,155,000                   | 2,524,000     |
| Local TV Finance LLC, 144A, 9.25%, 6/15/2015 (PIK)                                                 | 2,890,000                   | 1,878,500     |
| New ASAT (Finance) Ltd., 9.25%, 2/1/2011                                                           | 4,710,000                   | 2,449,200     |
| Orascom Telecom Finance, 144A, 7.875%, 2/8/2014                                                    | 2,910,000                   | 2,546,250     |
| Qwest Capital Funding, Inc., 7.0%, 8/3/2009                                                        | 2,845,000                   | 2,795,212     |
| Rainbow National Services LLC, 144A, 10.375%, 9/1/2014                                             | 740,000                     | 754,800       |
| Sprint Capital Corp.:                                                                              |                        |          |
| 7.625%, 1/30/2011                                                                                  | 2,855,000                   | 2,598,050     |
| 8.375%, 3/15/2012                                                                                  | 1,135,000                   | 1,021,500     |
| Tropicana Entertainment LLC, 9.625%, 12/15/2014*                                                   | 8,975,000                   | 1,256,500     |
| UCI Holdco, Inc., 10.319%**, 12/15/2013 (PIK)                                                      | 4,222,966                   | 3,209,454     |
| Universal City Development Partners, 11.75%, 4/1/2010                                              | 15,045,000                  | 14,537,231    |
| Williams Companies, Inc., Credit Linked Certificate Trust, 144A, 6.75%, 4/15/2009             | 30,000                      | 29,901        |
| Wind Acquisition Finance SA, 144A,                        9.75%, 12/1/2015 EUR                     | 2,700,000                   | 3,439,960     |
|                                                                                               | **153,122,605**             |
| **Health Care 5.6%**                                                                               |
| Advanced Medical Optics, Inc., 7.5%, 5/1/2017                                                      | 6,685,000                   | 5,815,950     |
| Boston Scientific Corp., 6.0%, 6/15/2011                                                           | 4,088,000                   | 3,863,160     |
| Community Health Systems, Inc., 8.875%, 7/15/2015                                                  | 22,760,000                  | 21,622,000    |
| HCA, Inc.:                                                                                         |                        |          |
| 9.125%, 11/15/2014                                                                                 | 4,520,000                   | 4,395,700     |
| 9.25%, 11/15/2016                                                                                  | 15,895,000                  | 15,457,887    |
| 9.625%, 11/15/2016 (PIK)                                                                           | 4,750,000                   | 4,512,500     |
| HEALTHSOUTH Corp., 10.75%, 6/15/2016 (b)                                                           | 2,380,000                   | 2,403,800     |
| IASIS Healthcare LLC, 8.75%, 6/15/2014                                                             | 3,590,000                   | 3,392,550     |
| Psychiatric Solutions, Inc., 7.75%, 7/15/2015                                                      | 2,990,000                   | 2,780,700     |
| Surgical Care Affiliates, Inc., 144A, 8.875%, 7/15/2015 (PIK)                                      | 3,435,000                   | 2,988,450     |
| The Cooper Companies, Inc., 7.125%, 2/15/2015                                                      | 5,700,000                   | 5,586,000     |
| Vanguard Health Holding Co. I, LLC, Step-up Coupon, 0% to 10/1/2009, 11.25% to 10/1/2015 | 3,940,000                   | 3,408,100     |
| Vanguard Health Holding Co. II, LLC, 9.0%, 10/1/2014                                               | 9,430,000                   | 9,099,950     |
|                                                                                               | **85,326,747**              |
| **Industrials 10.2%**                                                                              |
| Actuant Corp., 6.875%, 6/15/2017                                                                   | 2,290,000                   | 2,186,950     |
| Allied Waste North America, Inc., 6.5%, 11/15/2010                                                 | 2,030,000                   | 1,984,325     |
| American Color Graphics, Inc., 10.0%, 6/15/2010*                                                   | 5,685,000                   | 397,950       |
| American Color Graphics, Inc., Promissory Note due 12/31/2008 (g)                             | 341,000                     | 0             |
| ARAMARK Corp.:                                                                                     |                        |          |
| 6.301%**, 2/1/2015                                                                                 | 3,990,000                   | 3,491,250     |
| 8.5%, 2/1/2015                                                                                     | 1,140,000                   | 1,071,600     |
| Baldor Electric Co., 8.625%, 2/15/2017 (b)                                                         | 2,850,000                   | 2,721,750     |
| BE Aerospace, Inc., 8.5%, 7/1/2018                                                                 | 1,000,000                   | 970,000       |
| Belden, Inc., 7.0%, 3/15/2017                                                                      | 2,840,000                   | 2,527,600     |
| Browning-Ferris Industries, Inc., 7.4%, 9/15/2035 (b)                                              | 9,568,000                   | 8,419,840     |
| Building Materials Corp. of America, 7.75%, 8/1/2014                                               | 3,990,000                   | 3,152,100     |
| Cenveo Corp., 144A, 10.5%, 8/15/2016                                                               | 910,000                     | 841,750       |
| Congoleum Corp., 8.625%, 8/1/2008*                                                                 | 6,765,000                   | 5,073,750     |
| DRS Technologies, Inc.:                                                                            |                        |          |
| 6.625%, 2/1/2016                                                                                   | 7,775,000                   | 7,852,750     |
| 6.875%, 11/1/2013                                                                                  | 8,120,000                   | 8,038,800     |
| 7.625%, 2/1/2018                                                                                   | 9,875,000                   | 10,319,375    |
| Education Management LLC, 8.75%, 6/1/2014                                                          | 510,000                     | 425,850       |
| Esco Corp.:                                                                                        |                        |          |
| 144A, 6.694%**, 12/15/2013                                                                         | 1,875,000                   | 1,725,000     |
| 144A, 8.625%, 12/15/2013                                                                           | 5,665,000                   | 5,551,700     |
| General Cable Corp.:                                                                               |                        |          |
| 5.166%**, 4/1/2015                                                                                 | 4,305,000                   | 3,616,200     |
| 7.125%, 4/1/2017                                                                                   | 3,025,000                   | 2,722,500     |
| Gibraltar Industries, Inc., Series B, 8.0%, 12/1/2015                                              | 1,055,000                   | 880,925       |
| Great Lakes Dredge & Dock Co., 7.75%, 12/15/2013                                               | 2,365,000                   | 2,163,975     |
| Harland Clarke Holdings Corp., 9.5%, 5/15/2015                                                     | 1,065,000                   | 756,150       |
| K. Hovnanian Enterprises, Inc., 8.875%, 4/1/2012                                                   | 11,060,000                  | 7,023,100     |
| Kansas City Southern de Mexico SA de CV:                                                           |                        |          |
| 7.375%, 6/1/2014                                                                                   | 4,875,000                   | 4,655,625     |
| 7.625%, 12/1/2013                                                                                  | 7,670,000                   | 7,324,850     |
| 9.375%, 5/1/2012                                                                                   | 8,785,000                   | 8,960,700     |
| Kansas City Southern Railway Co.:                                                                  |                        |          |
| 7.5%, 6/15/2009                                                                                    | 2,235,000                   | 2,235,000     |
| 8.0%, 6/1/2015                                                                                     | 5,425,000                   | 5,343,625     |
| Mobile Services Group, Inc., 9.75%, 8/1/2014                                                       | 3,435,000                   | 3,194,550     |
| Moog, Inc., 144A, 7.25%, 6/15/2018                                                                 | 1,170,000                   | 1,123,200     |
| Navios Maritime Holdings, Inc., 9.5%, 12/15/2014                                                   | 4,505,000                   | 4,144,600     |
| Ply Gem Industries, Inc., 144A, 11.75%, 6/15/2013                                                  | 2,075,000                   | 1,784,500     |
| R.H. Donnelley Corp., Series A-4, 8.875%, 10/15/2017                                               | 9,460,000                   | 3,216,400     |
| RBS Global & Rexnord Corp., 9.5%, 8/1/2014                                                     | 2,575,000                   | 2,420,500     |
| Seitel, Inc., 9.75%, 2/15/2014                                                                     | 1,750,000                   | 1,426,250     |
| Titan International, Inc., 8.0%, 1/15/2012                                                         | 10,105,000                  | 9,801,850     |
| TransDigm, Inc., 7.75%, 7/15/2014                                                                  | 1,705,000                   | 1,602,700     |
| United Rentals North America, Inc.:                                                                |                        |          |
| 6.5%, 2/15/2012                                                                                    | 5,955,000                   | 4,972,425     |
| 7.0%, 2/15/2014                                                                                    | 8,020,000                   | 5,614,000     |
| US Concrete, Inc., 8.375%, 4/1/2014                                                                | 3,219,000                   | 2,510,820     |
| Vought Aircraft Industries, Inc., 8.0%, 7/15/2011                                                  | 1,820,000                   | 1,583,400     |
|                                                                                               | **155,830,185**             |
| **Information Technology 3.9%**                                                                    |
| Alion Science and Technology Corp., 10.25%, 2/1/2015                                               | 2,790,000                   | 1,757,700     |
| Freescale Semiconductor, Inc., 8.875%, 12/15/2014                                                  | 11,715,000                  | 8,083,350     |
| L-3 Communications Corp.:                                                                          |                        |          |
| 5.875%, 1/15/2015                                                                                  | 9,690,000                   | 8,769,450     |
| Series B, 6.375%, 10/15/2015                                                                       | 4,430,000                   | 4,075,600     |
| 7.625%, 6/15/2012                                                                                  | 10,340,000                  | 10,184,900    |
| Lucent Technologies, Inc., 6.45%, 3/15/2029                                                        | 9,440,000                   | 5,758,400     |
| MasTec, Inc., 7.625%, 2/1/2017                                                                     | 3,985,000                   | 3,367,325     |
| NXP BV/NXP Funding LLC, 7.713%**, 10/15/2013 EUR                                                   | 4,135,000                   | 3,550,965     |
| Sanmina-SCI Corp., 144A, 5.569%**, 6/15/2010                                                       | 1,425,000                   | 1,339,500     |
| Seagate Technology HDD Holdings, 6.8%, 10/1/2016                                                   | 5,410,000                   | 4,733,750     |
| SunGard Data Systems, Inc., 10.25%, 8/15/2015                                                      | 7,495,000                   | 6,501,913     |
| Vangent, Inc., 9.625%, 2/15/2015                                                                   | 2,270,000                   | 1,850,050     |
|                                                                                               | **59,972,903**              |
| **Materials 11.4%**                                                                                |
| Appleton Papers, Inc., Series B, 8.125%, 6/15/2011                                                 | 1,665,000                   | 1,461,038     |
| ARCO Chemical Co., 9.8%, 2/1/2020                                                                  | 24,081,000                  | 14,448,600    |
| Cascades, Inc., 7.25%, 2/15/2013                                                                   | 8,433,000                   | 6,577,740     |
| Chemtura Corp., 6.875%, 6/1/2016                                                                   | 6,120,000                   | 4,896,000     |
| Clondalkin Acquisition BV, 144A, 4.819%**, 12/15/2013                                              | 3,860,000                   | 3,136,250     |
| CPG International I, Inc., 10.5%, 7/1/2013                                                         | 6,415,000                   | 4,362,200     |
| Exopack Holding Corp., 11.25%, 2/1/2014                                                            | 9,845,000                   | 8,269,800     |
| Freeport-McMoRan Copper & Gold, Inc.:                                                          |                        |          |
| 8.25%, 4/1/2015                                                                                    | 7,880,000                   | 7,742,100     |
| 8.375%, 4/1/2017                                                                                   | 15,464,000                  | 15,232,040    |
| GEO Specialty Chemicals, Inc.:                                                                     |                        |          |
| 144A, 7.5%**, 3/31/2015                                                                            | 6,844,792                   | 4,996,699     |
| 144A, 10.697%**, 12/31/2009                                                                        | 11,210,000                  | 8,183,300     |
| Georgia-Pacific LLC:                                                                               |                        |          |
| 144A, 7.125%, 1/15/2017                                                                            | 1,995,000                   | 1,780,537     |
| 9.5%, 12/1/2011                                                                                    | 2,385,000                   | 2,361,150     |
| Hexcel Corp., 6.75%, 2/1/2015                                                                      | 11,780,000                  | 11,308,800    |
| Huntsman LLC, 11.625%, 10/15/2010                                                                  | 15,191,000                  | 15,494,820    |
| Innophos, Inc., 8.875%, 8/15/2014                                                                  | 1,310,000                   | 1,310,000     |
| Jefferson Smurfit Corp., 8.25%, 10/1/2012                                                          | 5,245,000                   | 4,379,575     |
| Koppers Holdings, Inc., Step-up Coupon, 0% to 11/15/2009, 9.875% to 11/15/2014                | 8,255,000                   | 7,388,225     |
| Metals USA Holdings Corp., 8.791%**, 7/1/2012 (PIK)                                                | 1,920,000                   | 1,536,000     |
| Millar Western Forest Products Ltd., 7.75%, 11/15/2013                                             | 1,450,000                   | 826,500       |
| Momentive Performance Materials, Inc., 9.75%, 12/1/2014                                            | 6,150,000                   | 4,858,500     |
| NewMarket Corp., 7.125%, 12/15/2016                                                                | 6,860,000                   | 6,585,600     |
| NewPage Corp., 10.0%, 5/1/2012                                                                     | 5,620,000                   | 5,029,900     |
| Pliant Corp., 11.85%, 6/15/2009 (PIK)                                                              | 7                           | 6             |
| Radnor Holdings Corp., 11.0%, 3/15/2010*                                                           | 1,510,000                   | 1,888         |
| Rhodia SA, 144A, 7.713%**, 10/15/2013 EUR                                                          | 265,000                     | 307,780       |
| Smurfit-Stone Container Enterprises, Inc.:                                                         |                        |          |
| 8.0%, 3/15/2017 (b)                                                                                | 4,355,000                   | 3,396,900     |
| 8.375%, 7/1/2012                                                                                   | 2,880,000                   | 2,419,200     |
| Steel Dynamics, Inc.:                                                                              |                        |          |
| 6.75%, 4/1/2015                                                                                    | 2,240,000                   | 1,926,400     |
| 7.375%, 11/1/2012                                                                                  | 2,250,000                   | 2,058,750     |
| Terra Capital, Inc., Series B, 7.0%, 2/1/2017                                                      | 6,249,000                   | 5,936,550     |
| The Mosaic Co., 144A, 7.375%, 12/1/2014                                                            | 8,885,000                   | 9,198,365     |
| Witco Corp., 6.875%, 2/1/2026                                                                      | 2,370,000                   | 1,504,950     |
| Wolverine Tube, Inc., 10.5%, 4/1/2009                                                              | 5,130,000                   | 4,976,100     |
|                                                                                               | **173,892,263**             |
| **Telecommunication Services 7.7%**                                                                |
| BCM Ireland Preferred Equity Ltd., 144A,                        11.964%**, 2/15/2017 (PIK) EUR     | 3,361,596                   | 2,318,903     |
| Centennial Communications Corp.:                                                                   |                        |          |
| 10.0%, 1/1/2013                                                                                    | 2,155,000                   | 2,063,413     |
| 10.125%, 6/15/2013                                                                                 | 4,550,000                   | 4,504,500     |
| Cincinnati Bell, Inc.:                                                                             |                        |          |
| 7.25%, 7/15/2013                                                                                   | 5,875,000                   | 5,287,500     |
| 8.375%, 1/15/2014 (b)                                                                              | 3,295,000                   | 2,866,650     |
| Cricket Communications, Inc.:                                                                      |                        |          |
| 9.375%, 11/1/2014                                                                                  | 6,565,000                   | 6,105,450     |
| 144A, 10.0%, 7/15/2015                                                                             | 5,880,000                   | 5,615,400     |
| Embratel, Series B, 11.0%, 12/15/2008                                                              | 1,296,000                   | 1,297,620     |
| Grupo Iusacell Celular SA de CV, 10.0%, 3/31/2012                                                  | 1,543,457                   | 1,342,808     |
| Hellas Telecommunications Luxembourg V, 144A, 8.463%**, 10/15/2012 EUR                             | 1,625,000                   | 1,750,072     |
| Intelsat Corp.:                                                                                    |                        |          |
| 144A, 9.25%, 8/15/2014                                                                             | 1,180,000                   | 1,103,300     |
| 144A, 9.25%, 6/15/2016                                                                             | 13,645,000                  | 12,553,400    |
| Intelsat Subsidiary Holding Co., Ltd., 144A, 8.875%, 1/15/2015                                | 7,115,000                   | 6,510,225     |
| iPCS, Inc., 4.926%**, 5/1/2013                                                                     | 1,465,000                   | 1,193,975     |
| MetroPCS Wireless, Inc., 9.25%, 11/1/2014                                                          | 8,270,000                   | 7,732,450     |
| Millicom International Cellular SA, 10.0%, 12/1/2013                                               | 12,015,000                  | 11,894,850    |
| Nortel Networks Ltd.:                                                                              |                        |          |
| 7.041%**, 7/15/2011                                                                                | 3,295,000                   | 2,199,412     |
| 144A, 10.75%, 7/15/2016                                                                            | 4,095,000                   | 2,508,187     |
| Qwest Corp.:                                                                                       |                        |          |
| 7.25%, 9/15/2025                                                                                   | 1,005,000                   | 748,725       |
| 7.875%, 9/1/2011                                                                                   | 7,995,000                   | 7,675,200     |
| 8.875%, 3/15/2012                                                                                  | 1,720,000                   | 1,685,600     |
| Sprint Nextel Corp., 6.0%, 12/1/2016                                                               | 2,900,000                   | 2,233,000     |
| Stratos Global Corp., 9.875%, 2/15/2013                                                            | 2,205,000                   | 2,149,875     |
| Telesat Canada, 144A, 11.0%, 11/1/2015                                                             | 8,575,000                   | 6,860,000     |
| Virgin Media Finance PLC, 8.75%, 4/15/2014                                                         | 14,366,000                  | 12,067,440    |
| West Corp., 9.5%, 10/15/2014                                                                       | 2,205,000                   | 1,686,825     |
| Windstream Corp., 7.0%, 3/15/2019                                                                  | 3,405,000                   | 2,724,000     |
|                                                                                               | **116,678,780**             |
| **Utilities 9.1%**                                                                                 |
| AES Corp.:                                                                                         |                        |          |
| 8.0%, 10/15/2017                                                                                   | 5,715,000                   | 5,157,788     |
| 144A, 8.0%, 6/1/2020                                                                               | 5,840,000                   | 5,110,000     |
| 144A, 8.75%, 5/15/2013                                                                             | 18,610,000                  | 18,703,050    |
| 9.5%, 6/1/2009                                                                                     | 3,180,000                   | 3,148,200     |
| Allegheny Energy Supply Co., LLC, 144A, 8.25%, 4/15/2012                                           | 25,320,000                  | 25,573,200    |
| CMS Energy Corp., 8.5%, 4/15/2011 (b)                                                              | 13,575,000                  | 13,889,831    |
| Edison Mission Energy, 7.0%, 5/15/2017                                                             | 6,125,000                   | 5,512,500     |
| Energy Future Holdings Corp., 144A, 10.875%, 11/1/2017                                             | 8,555,000                   | 7,720,887     |
| IPALCO Enterprises, Inc., 144A, 7.25%, 4/1/2016                                                    | 2,675,000                   | 2,554,625     |
| Knight, Inc., 6.5%, 9/1/2012                                                                       | 1,605,000                   | 1,512,713     |
| Mirant Americas Generation LLC, 8.3%, 5/1/2011                                                     | 6,675,000                   | 6,424,688     |
| Mirant North America LLC, 7.375%, 12/31/2013                                                       | 2,235,000                   | 2,100,900     |
| NRG Energy, Inc.:                                                                                  |                        |          |
| 7.25%, 2/1/2014                                                                                    | 6,795,000                   | 6,302,363     |
| 7.375%, 2/1/2016                                                                                   | 4,945,000                   | 4,450,500     |
| Oncor Electric Delivery Co., 7.0%, 9/1/2022                                                        | 2,415,000                   | 2,027,706     |
| Regency Energy Partners LP, 8.375%, 12/15/2013                                                     | 4,020,000                   | 3,618,000     |
| Reliant Energy, Inc., 7.875%, 6/15/2017 (b)                                                        | 6,830,000                   | 5,054,200     |
| Sierra Pacific Resources:                                                                          |                        |          |
| 6.75%, 8/15/2017                                                                                   | 6,710,000                   | 6,134,007     |
| 8.625%, 3/15/2014 (b)                                                                              | 1,263,000                   | 1,293,537     |
| Texas Competitive Electric Holdings Co., LLC, 144A, 10.25%, 11/1/2015                              | 12,535,000                  | 11,312,837    |
|                                                                                               | **137,601,532**             |
| **Total Corporate Bonds** (Cost $1,615,474,060)                                                    | **1,333,632,029**           |
|                                                                                               |
| **Loan Participations and Assignments 7.1%**                                                       |
| **Senior Loans****                                                                                 |
| Advanced Medical Optics, Inc., Term Loan B, LIBOR plus 1.75%, 5.713%, 4/2/2014                     | 1,691,556                   | 1,473,728     |
| Algoma Steel, Inc., Term Loan, LIBOR plus 2.5%, 6.463%, 6/30/2013                             | 2,267,626                   | 2,120,348     |
| Alliance Mortgage Cycle Loan, Term Loan, LIBOR plus 7.25%, 11.213%, 6/4/2010*                      | 3,500,000                   | 0             |
| Bausch & Lomb, Inc.:                                                                           |                        |          |
| Term Delay Draw, LIBOR plus 3.25%, 7.213%, 4/11/2015                                               | 684,000                     | 640,474       |
| Term Loan B, LIBOR plus 3.25%, 7.213%, 4/11/2015                                                   | 4,535,725                   | 4,246,392     |
| Buffets, Inc.:                                                                                     |                        |          |
| Letter of Credit, 7.35%, 5/1/2013                                                                  | 755,494                     | 272,922       |
| Term Loan B, 10.954%, 11/1/2013                                                                    | 7,774,259                   | 2,808,452     |
| Charter Communications Operations:                                                                 |                        |          |
| Term Loan, LIBOR plus 2.0%, 5.963%, 3/6/2014                                                       | 5,497,375                   | 5,233,342     |
| Term Loan B, LIBOR plus 3.25%, 7.213%, 4/27/2011                                                   | 8,061,376                   | 6,448,485     |
| Energy Future Holdings Corp.:                                                                      |                        |          |
| Term Loan B1, LIBOR plus 3.5%, 7.463%, 10/10/2014                                                  | 25,942,950                  | 21,912,492    |
| Term Loan B3, LIBOR plus 3.5%, 7.463%, 10/10/2014                                                  | 16,948,800                  | 14,334,058    |
| Ford Motor Co., Term Loan B, LIBOR plus 3.0%, 6.963%, 12/16/2013                              | 2,947,500                   | 1,967,456     |
| General Nutrition Centers, Inc., Term Loan B, LIBOR plus 2.25%, 6.213%, 9/16/2013                  | 1,697,110                   | 1,479,320     |
| Golden Nugget, Term Loan, 6.68%, 6/16/2014                                                         | 3,314,692                   | 1,740,213     |
| Hawker Beechcraft, Inc.:                                                                           |                        |          |
| Letter of Credit, LIBOR plus 2.0%, 5.963%, 3/26/2014                                               | 94,318                      | 83,000        |
| Term Loan B, LIBOR plus 2.0%, 5.963%, 3/26/2014                                                    | 1,610,319                   | 1,405,109     |
| HCA, Inc., Term Loan A1, 5.262%, 11/18/2012                                                        | 9,155,891                   | 8,115,614     |
| Hexion Specialty Chemicals:                                                                        |                        |          |
| Term Loan C1, LIBOR plus 2.25%, 6.213%, 5/5/2013                                                   | 7,978,703                   | 6,125,888     |
| Term Loan C2, LIBOR plus 2.25%, 6.213%, 5/5/2013                                                   | 2,008,967                   | 1,541,612     |
| IASIS Healthcare LLC, Term Loan, 8.043%, 6/15/2014                                                 | 3,792,605                   | 3,299,567     |
| Longview Power LLC:                                                                                |                        |          |
| Demand Draw, 5.75%, 4/1/2014                                                                       | 1,141,000                   | 1,023,100     |
| Term Loan B, 5.125%, 4/1/2014                                                                      | 983,000                     | 881,427       |
| Letter of Credit, 3.663%, 4/1/2014                                                                 | 321,000                     | 287,831       |
| NewPage Corp., Term Loan B, LIBOR plus 3.0%, 6.963%, 11/5/2014                                | 655,050                     | 602,108       |
| Sabre, Inc., Term Loan B, LIBOR plus 2.25%, 6.213%, 9/30/2014                                 | 2,784,229                   | 1,907,197     |
| Symbion, Inc.:                                                                                     |                        |          |
| Term Loan A, 6.149%, 8/23/2013                                                                     | 1,291,405                   | 1,136,040     |
| Term Loan B, 6.149%, 8/23/2014                                                                     | 1,291,407                   | 1,129,569     |
| Telesat Canada, Inc.:                                                                              |                        |          |
| Term Loan, 5.9%, 9/1/2014                                                                          | 7,841,631                   | 7,103,369     |
| Term Loan B, LIBOR plus 3.0%, 6.963%, 10/31/2014                                                   | 674,152                     | 610,781       |
| Toys "R" Us, Term Loan, 7.059%, 7/1/2012                                                           | 3,980,100                   | 3,595,025     |
| Tribune Co., Term Loan B, 5.786%, 5/24/2014                                                        | 5,678,125                   | 2,968,610     |
| **Total Loan Participations and Assignments** (Cost $123,072,001)                                  | **106,493,529**             |
|                                                                                               |
| **Preferred Securities 0.3%**                                                                      |
| **Financials**                                                                                     |
| Citigroup, Inc., Series E, 8.4%, 4/30/2018 (d)                                                     | 4,570,000                   | 3,110,616     |
| Xerox Capital Trust I, 8.0%, 2/1/2027 (b) (d)                                                      | 2,025,000                   | 1,841,395     |
| **Total Preferred Securities** (Cost $6,523,160)                                                   | **4,952,011**               |
|                                                               | **Units** | **Value ($)** |
|--------------------------------------------------------------------|-----------|---------------|
|                                                               |      |
| **Other Investments 0.3%**                                         |
| Hercules, Inc. (Bond Unit), 6.5%, 6/30/2029 (Cost $5,732,937) | 6,700,000 | **4,824,000** |
|                                                                   | **Shares**  | **Value ($)**  |
|------------------------------------------------------------------------|-------------|----------------|
|                                                                   |        |
| **Common Stocks 0.0%**                                                 |
| **Materials**                                                          |
| GEO Specialty Chemicals, Inc.*                                         | 136,705     | 116,199        |
| GEO Specialty Chemicals, Inc. 144A*                                    | 12,448      | 10,581         |
| **Total Common Stocks** (Cost $1,635,755)                              | **126,780** |
|                                                                   |
| **Preferred Stocks 0.0%**                                              |
| **Consumer Discretionary**                                             |
| ION Media Networks, Inc.:                                              |        |           |
| Series AI, 12.0%*                                                      | 30,003      | 2,145          |
| 144A, 12.0%*                                                           | 65,016      | 10,823         |
| **Total Preferred Stocks** (Cost $272,427)                             | **12,968**  |
|                                                                   |
| **Warrants 0.0%**                                                      |
| **Financials 0.0%**                                                    |
| New ASAT (Finance) Ltd., Expiration Date 2/1/2011*                     | 911,300     | **139,092**    |
| **Industrials 0.0%**                                                   |
| Dayton Superior Corp. 144A, Expiration Date 6/15/2009*                 | 560         | 0              |
| DeCrane Aircraft Holdings, Inc. 144A, Expiration Date 9/30/2008*       | 16,090      | 0              |
| **Total Warrants** (Cost $6)                                           | **139,092** |
|                                                                   |
| **Securities Lending Collateral 2.0%**                                 |
| Daily Assets Fund Institutional, 2.79% (e) (f) (Cost $30,172,805) | 30,172,805  | **30,172,805** |
| * *                                                               |
| **Cash Equivalents 2.3%**                                              |
| Cash Management QP Trust, 2.38% (e) (Cost $35,359,059)                 | 35,359,059  | **35,359,059** |
|                                                       | **% of Net Assets** | **Value ($)**     |
|------------------------------------------------------------|---------------------|-------------------|
|                                                       |                |
| **Total Investment Portfolio** (Cost $1,818,242,210)+ | 99.7                | **1,515,712,273** |
| **Other Assets and Liabilities, Net**                      | 0.3                 | **5,284,034**     |
| **Net Assets**                                             | 100.0               | **1,520,996,307** |
| **Securities**                | **Coupon** | **Maturity Date** | **Principal Amount** | **Acquisition Cost ($)** | **Value ($)**  |
|-------------------------------|------------|-------------------|----------------------|-------------------------------|----------------|
| Alliance Mortgage Cycle Loan  | 11.213%    | 6/4/2010          | 3,500,000            | USD                           | 3,508,969      | 0 |
| American Color Graphics, Inc. | 10.0%      | 6/15/2010         | 5,685,000            | USD                           | 4,094,575      | 397,950 |
| Congoleum Corp.               | 8.625%     | 8/1/2008          | 6,765,000            | USD                           | 6,665,724      | 5,073,750 |
| Eaton Vance Corp., CDO        | 13.68%     | 7/15/2012         | 2,525,075            | USD                           | 1,697,739      | 0 |
| Quebecor World, Inc.          | 9.75%      | 1/15/2015         | 2,830,000            | USD                           | 2,830,000      | 1,146,150 |
| Radnor Holdings Corp.         | 11.0%      | 3/15/2010         | 1,510,000            | USD                           | 1,333,438      | 1,888 |
| Tropicana Entertainment LLC   | 9.625%     | 12/15/2014        | 8,975,000            | USD                           | 7,018,944      | 1,256,500 |
| * *                      |       |              |                 | * *                      | **27,149,389** | **7,876,238** |

*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.*

*At September 30, 2008, the Fund had unfunded loan commitments of $453,150, which could be extended at the option of the borrower pursuant to the following agreement:*
| **Borrower**                                        | **Unfunded Loan Commitments ($)** | **Value ($)** | **Unrealized Depreciation ($)** |
|-----------------------------------------------------|-----------------------------------|---------------|---------------------------------|
| Bausch & Lomb, Inc., Term Delay Draw, 4/11/2015 | 453,150                           | 426,982       | **(26,168)**                    |

*At September 30, 2008, open credit default swap contracts purchased were as follows:*
| **Effective/                        Expiration Dates** | **Notional Amount ($)** | **Cash Flows Paid by the Fund** | **Underlying Debt Obligation**    | **Unrealized Appreciation ($)** |
|--------------------------------------------------------|-------------------------|--------------------------------------|-----------------------------------|---------------------------------|
| 5/6/2008                        6/20/2013              | 2,940,0004              | Fixed — 7.25%                  | ARCO Chemical Co., 9.8%, 2/1/2020 | **469,273**                     |

*At September 30, 2008, open credit default swap contracts sold were as follows:*
| **Effective/                        Expiration Dates** | **Notional Amount ($)** | **Cash Flows Received by the Fund** | **Underlying Debt Obligation**           | **Net Unrealized Appreciation/ (Depreciation) ($)** |
|--------------------------------------------------------|-------------------------|------------------------------------------|------------------------------------------|-----------------------------------------------------|
| 10/5/2007                        12/20/2008            | 2,855,0005              | Fixed — 3.2%                       | General Motors Corp., 7.125%, 7/15/2013  | (348,134)                                           |
| 10/9/2007                        12/20/2008            | 3,005,0002              | Fixed — 2.6%                       | General Motors Corp., 7.125%, 7/15/2013  | (370,784)                                           |
| 10/9/2007                        12/20/2008            | 2,855,0003              | Fixed — 3.1%                       | Ford Motor Co., 6.5%, 8/1/2018      | (44,074)                                            |
| 10/10/2007                        12/20/2008           | 1,715,0005              | Fixed — 3.15%                      | Ford Motor Co., 6.5%, 8/1/2018      | (26,254)                                            |
| 10/17/2007                        12/20/2009           | 3,220,0004              | Fixed — 3.85%                      | Ford Motor Co., 6.5%, 8/1/2018      | (612,475)                                           |
| 10/23/2007                        12/20/2008           | 533,0001                | Fixed — 3.4%                       | Ford Motor Co., 6.5%, 8/1/2018      | (7,815)                                             |
| 11/21/2007                        12/20/2008           | 3,055,0004              | Fixed — 4.02%                      | Tenet Healthcare Corp., 7.375%, 2/1/2013 | 13,374                                              |
| 12/13/2007                        12/20/2009           | 2,995,0004              | Fixed — 5.05%                      | Ford Motor Co., 6.5%, 8/1/2018      | (600,540)                                           |
| 2/19/2008                        3/20/2009             | 2,985,0004              | Fixed — 3.8%                       | HCA, Inc., 7.7%, 3/20/2009          | 20,507                                              |
| 2/26/2008                        3/20/2009             | 3,150,0004              | Fixed — 5.0%                       | Tenet Healthcare Corp., 7.375%, 2/1/2013 | 39,039                                              |
| **Total net unrealized depreciation**                  | **(1,937,156)**         |
| Counterparties:1*Morgan Stanley Co., Inc.*2*Citigroup Global Markets, Inc.*3*Goldman Sachs & Co.*4*Merrill Lynch & Co., Inc.*5*JP Morgan Chase & Co.* |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*At September 30, 2008, the Fund had the following open forward foreign currency exchange contracts:*
| **Contracts to Deliver**          |        | **In Exchange For** |   | **Settlement Date** | **Unrealized Appreciation ($)** |
|-----------------------------------|-------------|---------------------|--------|---------------------|---------------------------------|
| EUR                               | 17,493,700  | * *            | USD    | 24,760,234          | * *                        | 10/16/2008 | 90,860 |
| EUR                               | 1,229,000   | * *            | USD    | 1,772,943           | * *                        | 10/16/2008 | 39,824 |
| EUR                               | 79,000      | * *            | USD    | 113,685             | * *                        | 10/16/2008 | 2,280 |
| EUR                               | 1,192,100   | * *            | USD    | 1,750,956           | * *                        | 10/16/2008 | 69,874 |
| **Total unrealized appreciation** | **202,838** |
| **Contracts to Deliver**          |         | **In Exchange For** |   | **Settlement Date** | **Unrealized Depreciation ($)** |
|-----------------------------------|--------------|---------------------|--------|---------------------|---------------------------------|
| USD                               | 754,923      | * *            | EUR    | 517,000             | * *                        | 10/16/2008 | (25,857) |
| USD                               | 418,024      | * *            | EUR    | 289,400             | * *                        | 10/16/2008 | (9,916) |
| **Total unrealized depreciation** | **(35,773)** |
| **Currency Abbreviations**       |
|----------------------------------|
| EUR EuroUSD United States Dollar |

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

**Financial Statements**
| **Statement of Assets and Liabilities**as of September 30, 2008                                                                |
|--------------------------------------------------------------------------------------------------------------------------------|
| **Assets**                                                                                                                     |
| Investments:
Investments in securities, at value (cost $1,752,710,346) — including $28,556,000 of securities loaned | $ 1,450,180,409 |
| Investment in Daily Assets Fund Institutional (cost $30,172,805)*                                                              | 30,172,805 |
| Investment in Cash Management QP Trust (cost $35,359,059)                                                                      | 35,359,059 |
| Total investments, at value (cost $1,818,242,210)                                                                         | 1,515,712,273 |
| Cash                                                                                                                           | 1,005,287 |
| Foreign currency at value (cost $164)                                                                                          | 158 |
| Deposits with brokers for credit default swap contracts                                                                        | 2,143,000 |
| Receivable for investments sold                                                                                                | 1,013,337 |
| Receivable for Fund shares sold                                                                                                | 1,354,876 |
| Interest receivable                                                                                                            | 39,244,226 |
| Unrealized appreciation on forward foreign currency exchange contracts                                                         | 202,838 |
| Other assets                                                                                                                   | 38,723 |
| Total assets                                                                                                                   | 1,560,714,718 |
| **Liabilities**                                                                                                                |
| Payable upon return of securities loaned                                                                                       | 30,172,805 |
| Payable for Fund shares redeemed                                                                                               | 5,657,574 |
| Net payable for closed credit default swap contracts                                                                           | 85,446 |
| Unrealized depreciation on unfunded loan commitments                                                                           | 26,168 |
| Accrued management fee                                                                                                         | 644,984 |
| Unrealized depreciation on forward foreign currency exchange contracts                                                         | 35,773 |
| Net unrealized depreciation on credit default swap contracts                                                                   | 1,467,883 |
| Net payable on closed forward currency exchange contracts                                                                      | 15,214 |
| Other accrued expenses and payables                                                                                            | 1,612,564 |
| Total liabilities                                                                                                              | 39,718,411 |
| **Net assets, at value**                                                                                                       | **$ 1,520,996,307** |
| **Net Assets Consist of**                                                                                                      |
| Undistributed net investment income                                                                                            | 880,482 |
| Net unrealized appreciation (depreciation) on:
Investments                                                                     | (302,529,937) |
| Credit default swap contracts                                                                                                  | (1,467,883) |
| Unfunded loan commitments                                                                                                      | (26,168) |
| Foreign currency                                                                                                               | 113,653 |
| Accumulated net realized gain (loss)                                                                                           | (1,493,156,721) |
| Paid-in capital                                                                                                                | 3,317,182,881 |
| **Net assets, at value**                                                                                                       | **$ 1,520,996,307** |

*The accompanying notes are an integral part of the financial statements.*
| **Statement of Assets and Liabilities**as of September 30, 2008 (continued)                                                                                                                                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Net Asset Value**                                                                                                                                                                                                                                                               |
| **Class A**
**Net Asset Value** and redemption price(a) per share ($1,277,006,924 ÷ 295,334,143 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)                                                      | **$ 4.32** |
| Maximum offering price per share (100 ÷ 95.50 of $4.32)                                                                                                                                                                                                          | **$ 4.52** |
| **Class B**
**Net Asset Value,** offering and redemption price(a) (subject to contingent deferred sales charge) per share ($62,359,746 ÷ 14,426,640 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)       | **$ 4.32** |
| **Class C**
**Net Asset Value,** offering and redemption price(a) (subject to contingent deferred sales charge) per share ($110,963,772 ÷ 25,631,891 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | **$ 4.33** |
| **Institutional Class**
**Net Asset Value,** offering and redemption price(a) per share ($70,665,865 ÷ 16,325,165 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)                                    | **$ 4.33** |

*The accompanying notes are an integral part of the financial statements.*
| **Statement of Operations**for the year ended September 30, 2008                                          |
|-----------------------------------------------------------------------------------------------------------|
| **Investment Income**                                                                                     |
| Income:Interest                                                                                           | $ 157,250,935 |
| Dividends                                                                                                 | 15,392 |
| Interest — Cash Management QP Trust                                                            | 1,948,774 |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | 598,678 |
| Total Income                                                                                              | 159,813,779 |
| Expenses:Management fee                                                                                   | 9,074,749 |
| Distribution and service fees                                                                             | 5,794,043 |
| Services to shareholders                                                                                  | 2,274,037 |
| Administration fee                                                                                        | 717,651 |
| Reports to shareholders and shareholder meeting                                                           | 236,146 |
| Trustees' fees and expenses                                                                               | 150,246 |
| Professional fees                                                                                         | 137,808 |
| Registration fees                                                                                         | 77,319 |
| Custodian fee                                                                                             | 68,261 |
| Other                                                                                                     | 879,247 |
| Total expenses before expense reductions                                                                  | 19,409,507 |
| Expense reductions                                                                                        | (133,925) |
| Total expenses after expense reductions                                                                   | 19,275,582 |
| **Net investment income (loss)**                                                                          | **140,538,197** |
| **Realized and Unrealized Gain (Loss)**                                                                   |
| Net realized gain (loss) from:Investments                                                                 | (86,000,150) |
| Foreign currency                                                                                          | (832,242) |
| Credit default swaps                                                                                      | 1,105,365 |
| Payments by affiliates (see note I)                                                                       | 281 |
| * *                                                                                                  | (85,726,746) |
| Net unrealized appreciation (depreciation) during the period on:Investments                               | (239,446,116) |
| Unfunded loan commitments                                                                                 | (26,168) |
| Credit default swaps                                                                                      | (1,467,883) |
| Foreign currency                                                                                          | 917,629 |
| * *                                                                                                  | (240,022,538) |
| **Net gain (loss) on investment transactions**                                                            | **(325,749,284)** |
| **Decrease in net assets resulting from operations**                                                      | **$ (185,211,087)** |

*The accompanying notes are an integral part of the financial statements.*
| **Statement of Changes in Net Assets**                                                                             |
|--------------------------------------------------------------------------------------------------------------------|
| **Increase (Decrease) in Net Assets**                                                                              | **Years Ended September 30** |
| **2008**                                                                                                           | **2007** |
| Operations:Net investment income (loss)                                                                            | $ 140,538,197 | $ 162,515,881 |
| Net realized gain (loss)                                                                                           | (85,726,746) | (3,657,644) |
| Change in net unrealized appreciation (depreciation)                                                               | (240,022,538) | (27,816,159) |
| Net increase (decrease) in net assets resulting from operations                                                    | (185,211,087) | 131,042,078 |
| Distributions to shareholders from:Net investment income:
Class A                                                  | (125,754,170) | (155,829,053) |
| Class B                                                                                                            | (6,444,694) | (11,154,231) |
| Class C                                                                                                            | (10,353,864) | (13,390,734) |
| Institutional Class                                                                                                | (4,330,416) | (2,085,052) |
| Total distributions                                                                                                | (146,883,144) | (182,459,070) |
| Fund share transactions:Proceeds from shares sold                                                                  | 229,474,496 | 298,959,748 |
| Reinvestment of distributions                                                                                      | 90,101,418 | 111,991,844 |
| Cost of shares redeemed                                                                                            | (489,439,803) | (488,158,058) |
| Redemption fees                                                                                                    | 15,783 | 121,432 |
| Net increase (decrease) in net assets from Fund share transactions                                                 | (169,848,106) | (77,085,034) |
| **Increase (decrease) in net assets**                                                                              | (501,942,337) | (128,502,026) |
| Net assets at beginning of period                                                                                  | 2,022,938,644 | 2,151,440,670 |
| Net assets at end of period (including undistributed net investment income of $880,482 and $504,075, respectively) | **$ 1,520,996,307** | **$ 2,022,938,644** |

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

**Financial Highlights**
| **Class A**

**Years Ended September 30,**                                                                                                                                                                                          | **2008**   | **2007**   | **2006**   | **2005**   | **2004**   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Selected Per Share Data**                                                                                                                                                                                                         |
| **Net asset value, beginning of period**                                                                                                                                                                                       | **$ 5.24** | **$ 5.37** | **$ 5.42** | **$ 5.43** | **$ 5.23** |
| *Income (loss) from investment operations:*

Net investment incomea                                                                                                                                                                 | .39        | .42        | .42        | .44        | .44        |
| Net realized and unrealized gain (loss)                                                                                                                                                                                        | (.90)      | (.08)      | (.02)      | .00*       | .22        |
| **Total from investment operations**                                                                                                                                                                                                | (.51)      | .34        | .40        | .44        | .66        |
| *Less distributions from:*

Net investment income                                                                                                                                                                                   | (.41)      | (.47)      | (.45)      | (.45)      | (.46)      |
| Redemption fees                                                                                                                                                                                                                     | .00*       | .00*       | .00*       | .00*       | —    |
| **Net asset value, end of period**                                                                                                                                                                                                  | **$ 4.32** | **$ 5.24** | **$ 5.37** | **$ 5.42** | **$ 5.43** |
| Total Return (%)b                                                                                                                                                                                                                   | (10.40)c   | 6.39c      | 7.77       | 8.12c      | 13.24      |
| **Ratios to Average Net Assets and Supplemental Data**                                                                                                                                                                              |
| Net assets, end of period ($ millions)                                                                                                                                                                                         | 1,277      | 1,715      | 1,809      | 1,926      | 1,950      |
| Ratio of expenses before expense reductions (%)                                                                                                                                                                                | .99        | .97        | .96        | .96        | .94        |
| Ratio of expenses after expense reductions (%)                                                                                                                                                                                 | .98        | .96        | .96        | .96        | .94        |
| Ratio of net investment income (%)                                                                                                                                                                                             | 7.92       | 7.70       | 7.84       | 8.00       | 8.13       |
| Portfolio turnover rate (%)                                                                                                                                                                                                    | 61         | 66         | 100        | 113        | 162        |
| a*Based on average shares outstanding during the period.*b*Total return does not reflect the effect of any sales charges.*c*Total return would have been lower had certain expenses not been reduced.***Amount is less than $.005.* |
| **Class B**

**Years Ended September 30,**                                                                                                                                                                                          | **2008**   | **2007**   | **2006**   | **2005**   | **2004**   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Selected Per Share Data**                                                                                                                                                                                                         |
| **Net asset value, beginning of period**                                                                                                                                                                                       | **$ 5.24** | **$ 5.37** | **$ 5.42** | **$ 5.43** | **$ 5.23** |
| *Income (loss) from investment operations:*

Net investment incomea                                                                                                                                                                 | .35        | .37        | .38        | .39        | .39        |
| Net realized and unrealized gain (loss)                                                                                                                                                                                        | (.90)      | (.08)      | (.02)      | .01        | .22        |
| **Total from investment operations**                                                                                                                                                                                                | (.55)      | .29        | .36        | .40        | .61        |
| *Less distributions from:*

Net investment income                                                                                                                                                                                   | (.37)      | (.42)      | (.41)      | (.41)      | (.41)      |
| Redemption fees                                                                                                                                                                                                                     | .00*       | .00*       | .00*       | .00*       | —    |
| **Net asset value, end of period**                                                                                                                                                                                                  | **$ 4.32** | **$ 5.24** | **$ 5.37** | **$ 5.42** | **$ 5.43** |
| Total Return (%)b                                                                                                                                                                                                                   | (11.13)c   | 5.53c      | 6.87       | 7.45c      | 12.09      |
| **Ratios to Average Net Assets and Supplemental Data**                                                                                                                                                                              |
| Net assets, end of period ($ millions)                                                                                                                                                                                         | 62         | 115        | 165        | 212        | 332        |
| Ratio of expenses before expense reductions (%)                                                                                                                                                                                | 1.81       | 1.76       | 1.76       | 1.81       | 1.75       |
| Ratio of expenses after expense reductions (%)                                                                                                                                                                                 | 1.80       | 1.76       | 1.76       | 1.80       | 1.75       |
| Ratio of net investment income (%)                                                                                                                                                                                             | 7.10       | 6.90       | 7.04       | 7.15       | 7.32       |
| Portfolio turnover rate (%)                                                                                                                                                                                                    | 61         | 66         | 100        | 113        | 162        |
| a*Based on average shares outstanding during the period.*b*Total return does not reflect the effect of any sales charges.*c*Total return would have been lower had certain expenses not been reduced.***Amount is less than $.005.* |
| **Class C**

**Years Ended September 30,**                                                                                                                                                                                      | **2008**   | **2007**   | **2006**   | **2005**   | **2004**   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Selected Per Share Data**                                                                                                                                                                                                     |
| **Net asset value, beginning of period**                                                                                                                                                                                   | **$ 5.25** | **$ 5.38** | **$ 5.43** | **$ 5.44** | **$ 5.24** |
| *Income (loss) from investment operations:*

Net investment incomea                                                                                                                                                             | .35        | .38        | .38        | .39        | .40        |
| Net realized and unrealized gain (loss)                                                                                                                                                                                    | (.90)      | (.08)      | (.02)      | .01        | .22        |
| **Total from investment operations**                                                                                                                                                                                            | (.55)      | .30        | .36        | .40        | .62        |
| *Less distributions from:*

Net investment income                                                                                                                                                                               | (.37)      | (.43)      | (.41)      | (.41)      | (.42)      |
| Redemption fees                                                                                                                                                                                                                 | .00*       | .00*       | .00*       | .00*       | —    |
| **Net asset value, end of period**                                                                                                                                                                                              | **$ 4.33** | **$ 5.25** | **$ 5.38** | **$ 5.43** | **$ 5.44** |
| Total Return (%)b                                                                                                                                                                                                               | (11.04)c   | 5.59c      | 6.94       | 7.49c      | 12.12      |
| **Ratios to Average Net Assets and Supplemental Data**                                                                                                                                                                          |
| Net assets, end of period ($ millions)                                                                                                                                                                                     | 111        | 162        | 159        | 153        | 156        |
| Ratio of expenses before expense reductions (%)                                                                                                                                                                            | 1.75       | 1.72       | 1.71       | 1.75       | 1.71       |
| Ratio of expenses after expense reductions (%)                                                                                                                                                                             | 1.74       | 1.72       | 1.71       | 1.74       | 1.71       |
| Ratio of net investment income (%)                                                                                                                                                                                         | 7.16       | 6.94       | 7.09       | 7.21       | 7.36       |
| Portfolio turnover rate (%)                                                                                                                                                                                                | 61         | 66         | 100        | 113        | 162        |
| a*Based on average shares outstanding during the period.*b*Total return does not reflect the effect of sales charges.*c*Total return would have been lower had certain expenses not been reduced.***Amount is less than $.005.* |
| **Institutional Class**

**Years Ended September 30,**                                                                                                             | **2008**   | **2007**   | **2006**   | **2005**   | **2004**   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Selected Per Share Data**                                                                                                                                        |
| **Net asset value, beginning of period**                                                                                                                      | **$ 5.25** | **$ 5.38** | **$ 5.42** | **$ 5.43** | **$ 5.23** |
| *Income (loss) from investment operations:*

Net investment incomea                                                                                                | .40        | .43        | .44        | .46        | .45        |
| Net realized and unrealized gain                                                                                                                              | (.90)      | (.08)      | (.01)      | .00*       | .22        |
| **Total from investment operations**                                                                                                                               | (.50)      | .35        | .43        | .46        | .67        |
| *Less distributions from:*

Net investment income                                                                                                                  | (.42)      | (.48)      | (.47)      | (.47)      | (.47)      |
| Redemption fees                                                                                                                                                    | .00*       | .00*       | .00*       | .00*       | —    |
| **Net asset value, end of period**                                                                                                                                 | **$ 4.33** | **$ 5.25** | **$ 5.38** | **$ 5.42** | **$ 5.43** |
| Total Return (%)                                                                                                                                                   | (10.09)b   | 6.70b      | 8.33b      | 8.49b      | 13.32      |
| **Ratios to Average Net Assets and Supplemental Data**                                                                                                             |
| Net assets, end of period ($ millions)                                                                                                                        | 71         | 31         | 18         | 13         | 10         |
| Ratio of expenses before expense reductions (%)                                                                                                               | .70        | .65        | .69        | .66        | .65        |
| Ratio of expenses after expense reductions (%)                                                                                                                | .69        | .64        | .68        | .59        | .65        |
| Ratio of net investment income (%)                                                                                                                            | 8.21       | 8.02       | 8.12       | 8.36       | 8.42       |
| Portfolio turnover rate (%)                                                                                                                                   | 61         | 66         | 100        | 113        | 162        |
| a*Based on average shares outstanding during the period.*b*Total return would have been lower had certain expenses not been reduced.***Amount is less than $.005.* |

**Notes to Financial Statements**

**A. Significant Accounting Policies**

DWS High Income Fund (the "Fund"), is a diversified series of the DWS High Income Series (the "Trust") which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment management company organized as a Massachusetts business trust.

The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A            shares six years after issuance. Class C shares are offered to investors without an initial sales charge and are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not convert into another class. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing            expenses than other classes.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution and service fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses            may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.

The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

**Security Valuation.** Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no            sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.

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 most recent bid quotation or evaluated price, as applicable, obtained from one or more broker-dealers. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity,            type of issue, trading characteristics and other data, as well as broker quotes.

Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Cash Management QP Trust are valued at their net asset value each business day.

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

**New Accounting Pronouncements.** In September 2006, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 is effective for fiscal years beginning after November 15,            2007. As of September 30, 2008, management does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the levels of inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.

In addition, in March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("FAS 161"), "Disclosures about Derivative Instruments and Hedging Activities". FAS 161 requires enhanced disclosure about an entity's derivative and hedging activities including qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on            derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management is currently reviewing the enhanced disclosure requirements for the adoption of FAS 161.

In addition, in September 2008, FASB Staff Position (FSP) FAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161" was issued. The FSP requires enhanced disclosures regarding credit derivatives sold by the Fund, including credit default swaps. The FSP is            effective for fiscal and interim reporting periods ending after November 15, 2008. Management is currently reviewing the enhanced disclosure requirements for the adoption of the FSP.

**Securities Lending.** The Fund may lend securities to financial institutions. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of            liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agents will use their best efforts to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives            compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to the lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the value of any cash            collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

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

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

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

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

**Forward Foreign Currency Exchange Contracts.** A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign currency denominated portfolio holdings            and to facilitate transactions in foreign currency denominated securities. The Fund may also engage in forward currency contracts for non-hedging purposes.

Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. Sales and purchases of forward currency contracts having the same settlement date and broker are offset and any gain (loss) is realized on the date of offset; otherwise, gain (loss) is realized on settlement date. Realized and unrealized gains and losses which represent the            difference between the value of a forward currency contract to buy and a forward currency contract to sell are included in net realized and unrealized gain (loss) from foreign currency.

Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. Additionally, when utilizing forward currency contracts to hedge, the Fund gives up the opportunity to profit from favorable exchange rate movements during the term of the contract.

**Senior Bank Debt.** Senior loans are portions of loans originated by banks and sold in pieces to investors. These US dollar-denominated fixed and floating rate loans ("Loans") in which the Fund invests, are arranged through private negotiations between the borrower and one or more financial institutions ("Lenders"). The Fund invests in such Loans in the form of participations in Loans            ("Participations") or assignments of all or a portion of loans from third parties ("Assignments"). Participations typically result in the Fund having a contractual relationship only with the Lender, not with the borrower. The Fund has the right to receive payments of principal, interest and any fees to which it is entitled from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection with purchasing Participations, the            Fund generally has no right to enforce compliance by the borrower with the terms of the loan agreement relating to the Loan, nor any rights of set-off against the borrower, and the Fund will not benefit directly from any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund assumes the credit risk of both the borrower and the Lender that is selling the Participation. Assignments typically result in the Fund having a direct contractual            relationship with the borrower, and the Fund may enforce compliance by the borrower with the terms of the loan agreement. All Senior Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.

**When-Issued/Delayed Delivery Securities.** The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security            will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.

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

**Federal Income Taxes.** The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies, and to distribute all of its taxable income to its shareholders.

At September 30, 2008, the Fund had a capital loss carryforward of approximately $1,388,805,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until September 30, 2009 ($173,248,000), September 30, 2010 ($283,200,000), September 30, 2011 ($620,426,000), September 30, 2012 ($194,012,000), September 30, 2013 ($13,591,000), September 30, 2014 ($44,333,000), and            September 30, 2015 ($38,251,000), September 30, 2016 ($21,744,000), the respective expiration dates, whichever occurs first. During the year ended September 30, 2008, the Fund lost through expiration approximately $126,549,000 of a prior year capital loss carryforward.

In addition, from November 1, 2007 through September 30,2008, the Fund incurred approximately $93,980,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ended September 30, 2009.

The Fund has reviewed the tax positions for each of the open tax years as September 30, 2008, and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.

**Distribution of Income and Gains.** Net investment income of the Fund is declared 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 gain 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 premium amortization on debt securities and certain securities sold at a loss. As a result, net investment income (loss) and net realized            gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.

At September 30, 2008, the Fund's components of distributable earnings (accumulated losses) on a tax-basis are as follows:
| Undistributed ordinary income*                            | $ 346,168         |
|-----------------------------------------------------------|-------------------|
| Capital loss carryforwards                                | $ (1,388,805,000) |
| Net unrealized appreciation (depreciation) on investments | $ (292,812,363)   |

In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
|                                | **Years Ended September 30,** |
|-------------------------------------|-------------------------------|
|                                | **2008**                      | **2007** |
| Distributions from ordinary income* | $ 146,883,144                 | $ 182,459,070 |

**Redemption Fees.** The Fund imposes a redemption fee of 2% of the total redemption amount on all Fund shares redeemed or exchanged within 30 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 security 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 financial reporting purposes, with the exception of securities in default of principal.

**B. Purchases and Sales of Securities**

During the year ended September 30, 2008, purchases and sales of investment securities (excluding short-term investments) aggregated $1,052,184,357 and $1,210,765,924, 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. In addition to portfolio management services, the Advisor provides certain administrative services in accordance with the Investment Management Agreement.

Prior to May 1, 2008, under the Investment Management Agreement with the Advisor, the Fund paid a monthly management fee, computed and accrued daily and payable monthly, at the following annual rates:
| First $250 million of the Fund's average daily net assets | .580% |
|-----------------------------------------------------------|-------|
| Next $750 million of such net assets                      | .550% |
| Next $1.5 billion of such net assets                      | .530% |
| Next $2.5 billion of such net assets                      | .510% |
| Next $2.5 billion of such net assets                      | .480% |
| Next $2.5 billion of such net assets                      | .460% |
| Next $2.5 billion of such net assets                      | .440% |
| Over $12.5 billion of such net assets                     | .420% |

Effective May 1, 2008, under the Amended and Restated Investment Management Agreement, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly at the following annual rates:
| First $250 million of the Fund's average daily net assets | .48% |
|-----------------------------------------------------------|------|
| Next $750 million of such net assets                      | .45% |
| Next $1.5 billion of such net assets                      | .43% |
| Next $2.5 billion of such net assets                      | .41% |
| Next $2.5 billion of such net assets                      | .38% |
| Next $2.5 billion of such net assets                      | .36% |
| Next $2.5 billion of such net assets                      | .34% |
| Over $12.5 billion of such net assets                     | .32% |

Accordingly, for the year ended September 30, 2008, the fee pursuant to the Investment Management Agreement was equivalent to an annual effective rate of 0.51% of the Fund's average daily net assets.

**Administration Fee.** Effective May 1, 2008, 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 the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the period from            May 1, 2008 to September 30, 2008, the Advisor received an Administration Fee of $717,651, of which $133,641 is unpaid.

**Service Provider Fees.** DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates            DST out of the shareholder servicing fee it receives from the Fund. For the year ended September 30, 2008, the amounts charged to the Fund by DISC were as follows:
| **Service Provider Fees** | **Total Aggregated** | **Unpaid at September 30, 2008** |
|---------------------------|----------------------|----------------------------------|
| Class A                   | $ 1,462,956          | $ 359,688                        |
| Class B                   | 121,818              | 30,357                           |
| Class C                   | 110,388              | 27,663                           |
| Institutional Class       | 24,025               | 5,760                            |
|                      | **$ 1,719,187**      | **$ 423,468**                    |

**Distribution and Service Fees.** Under the Fund's Class B and Class C 12b-1 plans, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of each of Class B and C shares. In accordance with the Fund's Underwriting and Distribution Services agreement, DIDI enters into related selling group agreements with            various firms at various rates for sales of Class B and C shares. For the year ended September 30, 2008, the Distribution Fee was as follows:
| **Distribution Fee** | **Total Aggregated** | **Unpaid at September 30, 2008** |
|----------------------|----------------------|----------------------------------|
| Class B              | $ 650,616            | $ 43,593                         |
| Class C              | 1,032,520            | 72,415                           |
|                 | **$ 1,683,136**      | **$ 116,008**                    |

In addition, DIDI provides information and administrative services for a fee ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DIDI in turn has various agreements with financial services firms that provide these services and pay these fees based upon the assets of shareholder accounts the firms service. For the year ended            September 30, 2008, the Service Fee was as follows:
| **Service Fee** | **Total Aggregated** | **Unpaid at September 30, 2008** | **Annual Effective Rate** |
|-----------------|----------------------|----------------------------------|--------------------------------|
| Class A         | $ 3,551,837          | $ 247,904                        | .23%                           |
| Class B         | 214,820              | 10,589                           | .25%                           |
| Class C         | 344,250              | 9,424                            | .25%                           |
|            | **$ 4,110,907**      | **$ 267,917**                    |                           |

**Underwriting Agreement and Contingent Deferred Sales Charge.** DIDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended September 30, 2008, aggregated $156,426.

In addition, DIDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares            redeemed. For the year ended September 30, 2008, the CDSC for Class B and C shares aggregated $209,059 and $39,434, respectively. A deferred sales charge of up to 0.85% is assessed on certain redemptions of Class A shares. For the year ended September 30, 2008, DIDI received an aggregate CDSC of $4,192 for Class A shares.

**Typesetting and Filing Service Fees.** Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended September 30, 2008, the amount charged to the Fund by DIMA included in Statement of Operations under "reports to shareholders and shareholder meeting" aggregated $23,345, of which $9,132 is unpaid.

**Trustees' Fees and Expenses.** The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson and Vice Chairperson.

In connection with the board consolidation on April 1, 2008, of the two DWS Funds Boards of Trustees, certain Independent Board Members retired prior to their normal retirement date, and received a one-time retirement benefit. DIMA has agreed to reimburse the Funds for the cost of this benefit. During the period ended September 30, 2008, the Fund paid its allocated portion of the retirement benefit of $87,200 to the            non-continuing Independent Board Members, and the Fund was reimbursed by DIMA for this payment.

**Cash Management QP Trust.** Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Advisor. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Advisor a management            fee for the affiliated funds' investments in the QP Trust.

**D. Investing in High Yield Securities**

Investing in high yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest            rates would likely have an adverse impact on the value of such obligations. Moreover, high yield securities may be less liquid due to the extent that there is no established retail secondary market and because of a decline in the value of such securities.

**E. Fee Reductions**

For the year ended September 30, 2008, the Advisor agreed to reimburse the Fund $6,158, which represented a portion of the expected fee savings for the Advisor through December 31, 2007, related to the outsourcing by the Advisor of certain administrative services to an unaffiliated service provider.

In addition, the Fund has entered into an arrangement with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the year ended September 30, 2008, the Fund's custodian fee was reduced by $24,006 and $16,561, respectively, for custody and transfer agent credits earned.

**F. Line of Credit**

The Fund and other affiliated funds (the "Participants") share in a $490 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the            Participants. Interest is calculated at the Federal Funds Rate plus 0.35 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.

**G. Borrowings**

The Fund and one other affiliated fund (the"Participants") have entered into a credit facility with State Street Bank and Trust Company and Societe Generale. Under the terms of this agreement, any loan obtained by the Fund will bear interest at the Fed Funds Rate plus 0.65%, which is payable at maturity. A commitment fee is charged to the Participants and is included with "other expense" on the Statement of Operations. The loan            amounts and rates are reset periodically under a revolving credit agreement obtained by the Participants in an amount not to exceed $111,000,000 at any one time and which was available until October 9, 2007. Effective October 10, 2007, Societe Generale is no longer party to the credit agreement and the size of the revolving credit agreement was decreased to an amount not to exceed $40,000,000 at any one time and is available until October 10, 2008.

No loans were initiated by the Fund under this credit facility during the year ended September 30, 2008.

**H. Share Transactions**

The following table summarizes share and dollar activity in the Fund:
|                                                               | **Year Ended September 30, 2008** | **Year Ended September 30, 2007** |
|--------------------------------------------------------------------|----------------------------------------|----------------------------------------|
|                                                               | **Shares**                             | **Dollars**                            | **Shares** | **Dollars** |
| **Shares sold**                                                    |
| Class A                                                            | 29,467,925                             | $ 144,519,679                          | 38,875,368 | $ 210,169,964 |
| Class B                                                            | 1,622,985                              | 7,945,601                              | 3,473,890 | 18,811,631 |
| Class C                                                            | 3,470,233                              | 17,122,126                             | 8,494,879 | 46,112,494 |
| Institutional Class                                                | 12,320,542                             | 59,887,090                             | 4,527,152 | 23,865,659 |
| * *                                                           |                                   | **$ 229,474,496**                      |   | **$ 298,959,748** |
| **Shares issued to shareholders in reinvestment of distributions** |
| Class A                                                            | 16,144,163                             | $ 78,573,203                           | 17,912,785 | $ 96,504,580 |
| Class B                                                            | 687,353                                | 3,356,643                              | 1,080,415 | 5,826,207 |
| Class C                                                            | 1,265,670                              | 6,175,336                              | 1,425,332 | 7,690,122 |
| Institutional Class                                                | 414,388                                | 1,996,236                              | 366,140 | 1,970,935 |
| * *                                                           |                                   | **$ 90,101,418**                       |   | **$ 111,991,844** |
| **Shares redeemed**                                                |
| Class A                                                            | (77,644,674)                           | $ (381,136,008)                        | (66,204,338) | $ (356,916,523) |
| Class B                                                            | (9,776,330)                            | (48,062,510)                           | (13,387,554) | (72,345,058) |
| Class C                                                            | (9,998,033)                            | (48,957,880)                           | (8,649,327) | (46,423,133) |
| Institutional Class                                                | (2,320,889)                            | (11,283,405)                           | (2,393,577) | (12,473,344) |
| * *                                                           |                                   | **$ (489,439,803)**                    |   | **$ (488,158,058)** |
| **Redemption fees**                                                |                                   | **$ 15,783**                           |   | **$ 121,432** |
| **Net increase (decrease)**                                        |
| Class A                                                            | (32,032,586)                           | $ (158,030,640)                        | (9,416,185) | $ (50,175,138) |
| Class B                                                            | (7,465,992)                            | (36,758,363)                           | (8,833,249) | (47,697,552) |
| Class C                                                            | (5,262,130)                            | (25,659,296)                           | 1,270,884 | 7,424,024 |
| Institutional Class                                                | 10,414,041                             | 50,600,193                             | 2,499,715 | 13,363,632 |
| * *                                                           |                                   | **$ (169,848,106)**                    |   | **$ (77,085,034)** |

**I. Payments made by Affiliates**

During the year ended September 30, 2008, the Advisor reimbursed the Fund $281 for losses incurred on trades executed incorrectly. The amounts of the losses were less than 0.01% of average net assets, thus having no impact on total return.

**Report of Independent Registered Public Accounting Firm**

**To the Board of Trustees of DWS High Income Series and the Shareholders of DWS High Income Fund:**

We have audited the accompanying statement of assets and liabilities of DWS High Income Fund (the "Fund"), including the investment portfolio, as of September 30, 2008, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial            statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included            consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the            accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2008 by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of DWS High Income Fund at September 30, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in            conformity with U.S. generally accepted accounting principles.
| Boston, Massachusetts                        November 25, 2008 |   |  |
|----------------------------------------------------------------|--------|--|

**Tax Information(Unaudited)**

For federal income tax purposes, the Fund designates $16,900, or the maximum allowable under tax law, as qualified dividend income.

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

**Investment Management Agreement Approval**

The Board of Trustees, including the Independent Trustees, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA") in September 2008.

In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:

• At the present time, all but one of your Fund's Trustees are independent of DIMA and its affiliates.

• The Trustees meet frequently to discuss fund matters. Each year, the Trustees dedicate part or all of several meetings to contract review matters. Over the course of several months, the Board's Contract Committee, in coordination with the Board's Fixed Income and Quant Oversight Committee, reviewed comprehensive materials received from DIMA, independent third parties and independent counsel. These            materials included an analysis of the Fund's performance, fees and expenses, and profitability compiled by the Fund's independent fee consultant. The Board also received extensive information throughout the year regarding performance of the Fund.

• The Independent Trustees regularly meet privately with their independent counsel (and, as needed, other advisors) to discuss contract review and other matters. In addition, the Independent Trustees were also advised by the Fund's independent fee consultant in the course of their review of the Fund's contractual arrangements and considered a comprehensive report prepared by the independent fee            consultant in connection with their deliberations (the "IFC Report").

• In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund's Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.

• Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Independent Trustees as a group. The Independent Trustees reviewed the Contract Committee's findings and recommendations and presented their recommendations to the full Board.

In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders chose to            invest or remain invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund's shareholders at a special meeting held in 2008. DIMA is part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Board believes that there are significant advantages to being part of a global asset management business that offers a wide range of investing expertise and resources, including hundreds of            portfolio managers and analysts with research capabilities in many countries throughout the world.

While shareholders may focus primarily on fund performance and fees, the Fund's Board considers these and many other factors, including the quality and integrity of DIMA's personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.

**Nature, Quality and Extent of Services.** The Board considered the terms of the Agreement, including the scope of advisory services provided under the Agreement. The Board noted that, under the Agreement, DIMA provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DIMA provides administrative services to the Fund. The Board            considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of DIMA to attract and retain high-quality personnel, and the organizational depth and stability of DIMA. The Board reviewed the Fund's performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market indices and a peer universe compiled by the independent fee            consultant using information supplied by Lipper Inc. ("Lipper"). The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer group compiled by Lipper), and receives more frequent reporting and information from DIMA regarding such funds, along with DIMA's remedial plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing            underperforming funds. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance (Class A shares) was in the 4th quartile, 2nd quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and            five-year periods ended December 31, 2007. The Board noted the disappointing investment performance of the Fund in the recent period and continued to discuss with senior management of DIMA the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first six months of 2008. The Board recognized that DIMA has made significant changes in its investment            personnel and processes in recent years in an effort to improve long-term performance.

On the basis of this evaluation and the ongoing review of investment results by the Board, the Board concluded that the nature, quality and extent of services provided by DIMA historically have been and continue to be satisfactory.

**Fees and Expenses.** The Board considered the Fund's investment management fee schedule, operating expenses and total expense ratios, and comparative information provided by Lipper and the independent fee consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With            respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DIMA under the Fund's administrative services agreement, were lower than the median (2nd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). The Board noted that the Fund's Class A shares' total (net) operating expenses (excluding 12b-1 fees) were expected            to be lower than the median (1st quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007, and analyzing Lipper expense universe Class A expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed each other share class's total (net) operating expenses relative to the Lipper Universe Expenses. The Board considered the Fund's management fee rate as compared to fees charged by DIMA and certain of its            affiliates for comparable mutual funds and considered differences in fund and fee structures between the DWS Funds. The Board also considered how the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size).

On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA.

**Profitability.** The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs and pre-tax profits realized by DIMA from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability            of the DWS Investments organization with respect to all fund services in totality and by fund. The Board reviewed DIMA's methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed information regarding the profitability of certain similar investment management firms. The Board noted that            while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates' overall profitability with respect to the DWS Investments fund complex (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of many comparable firms for which such data was available.

**Economies of Scale.** The Board considered whether there are economies of scale with respect to the management of the Fund and whether the Fund benefits from any economies of scale. The Board noted that the Fund's management fee schedule includes fee breakpoints. The Board concluded that the Fund's fee schedule represents an appropriate sharing between the Fund and DIMA of such            economies of scale as may exist in the management of the Fund at current asset levels.

**Other Benefits to DIMA and Its Affiliates.** The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar            allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA related to DWS Funds advertising and cross-selling opportunities among DWS Investments products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.

**Compliance.** The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of DIMA's chief compliance officer; (ii) the large number of compliance personnel who report to DIMA's chief compliance officer; and (iii) the substantial commitment of            resources by DIMA and its affiliates to compliance matters.

Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Trustees) determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of            which were in executive session with only the Independent Trustees and their counsel present. It is possible that individual Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.

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

October 24, 2008

Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees            charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2008, including my qualifications, the evaluation process for each of the DWS Funds, consideration of            certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007.

**Qualifications**

For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and            analysis.

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

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

**Evaluation of Fees for each DWS Fund**

My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 129 Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented            separately).

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

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

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

**Fees and Expenses Compared with Other Funds**

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

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

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

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

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

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

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

**Costs and Profit Margins**

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

**Economies of Scale**

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

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

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

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

**Quality of Service — Performance**

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

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

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

**Complex-Level Considerations**

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

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

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

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

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

**Findings**

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

            Thomas H. Mack

**Trustees and Officers**

The following table presents certain information regarding the Board Members and Officers of the Trust as of September 30, 2008. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address            of each Independent Board Member is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period.            The Board Members may also serve in similar capacities with other funds in the fund complex. The Length of Time Served represents the year in which the Board Member joined the board of one or more DWS funds now overseen by the Board.
| **Independent Board Members**                                              |
|----------------------------------------------------------------------------|
| **Name, Year of Birth, Position with the Fund and Length of Time Served1** | **Business Experience and Directorships During the Past Five Years** | **Number of Funds in DWS Fund Complex Overseen** |
| Dawn-Marie Driscoll (1946)Chairperson since 20042Board Member since 1987   | President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley College; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: Trustee of 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) | 134 |
| Paul K. Freeman (1950)Vice Chairperson since 2008Board Member since 1993   | Consultant, World Bank/Inter-American Development Bank; formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998) | 134 |
| John W. Ballantine (1946)Board Member since 1999                           | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC                    (private equity). Former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank | 134 |
| Henry P. Becton, Jr. (1943)Board Member since 1990                         | Vice Chair, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Becton Dickinson and Company3 (medical technology company); Belo Corporation3 (media company); Boston Museum of Science; Public Radio International. Former Directorships: American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational                    Telecommunications; Committee for Economic Development; Public Broadcasting Service | 134 |
| Keith R. Fox (1954)Board Member since 1996                                 | Managing General Partner, Exeter Capital Partners (a series of private equity funds). Directorships: Progressive Holding Corporation (kitchen goods importer and distributor); Natural History, Inc. (magazine publisher); Box Top Media Inc. (advertising); The Kennel Shop (retailer) | 134 |
| Kenneth C. Froewiss (1945)Board Member since 2001                          | Clinical Professor of Finance, NYU Stern School of Business (1997-present); Member, Finance Committee, Association for Asian Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US) (2004-present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996) | 134 |
| Richard J. Herring (1946)Board Member since 1990                           | Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center (since July 2000); Director, Japan Equity Fund, Inc. (since September 2007), Thai Capital Fund, Inc. (since September 2007), Singapore Fund, Inc. (since September 2007). Formerly, Vice Dean and                    Director, Wharton Undergraduate Division (July 1995-June 2000); Director, Lauder Institute of International Management Studies (July 2000-June 2006) | 134 |
| William McClayton (1944)Board Member since 2004                            | Managing Director, Diamond Management & Technology Consultants, Inc. (global management consulting firm) (2001-present); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966-2001); Trustee, Ravinia Festival | 134 |
| Rebecca W. Rimel (1951)Board Member since 1995                             | President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 to present); Trustee, Thomas Jefferson Foundation (charitable organization) (1994 to present); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001-2007); Trustee, Pro Publica (2007-present) (charitable organization). Formerly, Executive Vice President, The Glenmede Trust Company                    (investment trust and wealth management) (1983-2004); Board Member, Investor Education (charitable organization) (2004-2005); Director, Viasys Health Care3 (January 2007-June 2007) | 134 |
| William N. Searcy, Jr. (1946)Board Member since 1993                       | Private investor since October 2003; Trustee of eight open-end mutual funds managed by Sun Capital Advisers, Inc. (since October 1998). Formerly, Pension & Savings Trust Officer, Sprint Corporation3 (telecommunications) (November 1989-September 2003) | 134 |
| Jean Gleason Stromberg (1943)Board Member since 1997                       | Retired. Formerly, Consultant (1997-2001); Director, US Government Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation; Service Source, Inc. Former Directorships: Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and                    1994-1996) | 134 |
| Robert H. Wadsworth(1940)Board Member since 1999                           | President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present); Director, The Phoenix Boys Choir Association | 137 |
| **Interested Board Member**                                                |
|----------------------------------------------------------------------------|
| **Name, Year of Birth, Position with the Fund and Length of Time Served1** | **Business Experience and Directorships During the Past Five Years** | **Number of Funds in Fund Complex Overseen** |
| Axel Schwarzer4 (1958)Board Member since 2006                              | Managing Director5, Deutsche Asset Management; Head of Deutsche Asset Management Americas; CEO of DWS Investments; formerly, board member of DWS Investments, Germany (1999-2005); formerly, Head of Sales and Product Management for the Retail and Private Banking Division of Deutsche Bank in Germany (1997-1999); formerly, various strategic and operational positions for Deutsche Bank                    Germany Retail and Private Banking Division in the field of investment funds, tax driven instruments and asset management for corporates (1989-1996) | 134 |
| **Officers6**                                                                        |
|--------------------------------------------------------------------------------------|
| **Name, Year of Birth, Position with the Fund and Length of Time Served7**           | **Principal Occupation(s) During Past 5 Years and Other Directorships Held** |
| Michael G. Clark8 (1965)President, 2006-present                                      | Managing Director5, Deutsche Asset Management (2006-present); President of DWS family of funds; Director, ICI Mutual Insurance Company (since October 2007); formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000) |
| John Millette9 (1962)Vice President and Secretary, 1999-present                      | Director5, Deutsche Asset Management |
| Paul H. Schubert8 (1963)Chief Financial Officer, 2004-presentTreasurer, 2005-present | Managing Director5, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998) |
| Patricia DeFilippis10 (1963)Assistant Secretary, 2005-present                        | Vice President, Deutsche Asset Management (since June 2005); formerly, Counsel, New York Life Investment Management LLC (2003-2005); legal associate, Lord, Abbett & Co. LLC (1998-2003) |
| Elisa D. Metzger10 (1962)Assistant Secretary 2005-present                            | Director5, Deutsche Asset Management (since September 2005); formerly, Counsel, Morrison and Foerster LLP (1999-2005) |
| Caroline Pearson9 (1962)Assistant Secretary, 1997-present                            | Managing Director5, Deutsche Asset Management |
| Paul Antosca9 (1957)Assistant Treasurer, 2007-present                                | Director5, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006) |
| Jack Clark9 (1967)Assistant Treasurer, 2007-present                                  | Director5, Deutsche Asset Management (since 2007); formerly, Vice President, State Street Corporation (2002-2007) |
| Kathleen Sullivan D'Eramo9 (1957)Assistant Treasurer, 2003-present                   | Director5, Deutsche Asset Management |
| Diane Kenneally9 (1966)Assistant Treasurer, 2007-present                             | Director5, Deutsche Asset Management |
| Jason Vazquez10 (1972)Anti-Money Laundering Compliance Officer, 2007-present         | Vice President, Deutsche Asset Management (since 2006); formerly, AML Operations Manager for Bear Stearns (2004-2006), Supervising Compliance Principal and Operations Manager for AXA Financial (1999-2004) |
| Robert Kloby10 (1962)Chief Compliance Officer, 2006-present                          | Managing Director5, Deutsche Asset Management (2004-present); formerly, Chief Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance Company of America (1988-2000); E.F. Hutton and Company (1984-1988) |
| J. Christopher Jackson10 (1951)Chief Legal Officer, 2006-present                     | Director5, Deutsche Asset Management (2006-present); formerly, Director, Senior Vice President, General Counsel and Assistant Secretary, Hansberger Global Investors, Inc. (1996-2006); Director, National Society of Compliance Professionals (2002-2005) (2006-2009) |

*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 and C also have the ability to purchase, exchange or redeem shares using this system.For more information, contact your financial advisor. You may also access our automated telephone system or speak with a DWS Investments representative by calling the appropriate number below:
**For shareholders of Classes A, B, C and Institutional Class:**
(800) 621-1048 |
| **Web Site**               | **www.dws-investments.com**
View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day.**Obtain prospectuses and applications,**blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. |
| **Written Correspondence** | **DWS Investments**
PO Box 219151                        Kansas City, MO 64121-9151 |
| **Proxy Voting**           | 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 30are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of                    the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048. |
| **Principal Underwriter**  | If you have questions, comments or complaints, contact:
**DWS Investments Distributors, Inc.**
222 South Riverside Plaza                        Chicago, IL 60606-5808(800) 621-1148 |
|              | **Class A** | **Class B** | **Class C** | **Institutional Class** |
|-------------------|-------------|-------------|-------------|-------------------------|
| **Nasdaq Symbol** | KHYAX       | KHYBX       | KHYCX       | KHYIX                   |
| **CUSIP Number**  | 23337M 107  | 23337M 206  | 23337M 305  | 23337M 404              |
| **Fund Number**   | 008         | 208         | 308         | 513                     |

----

 

| **ITEM 2.** | **CODE OF ETHICS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        | As of the end of the period, September 30, 2008, DWS High Income Fund has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.

 

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

 

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **ITEM 3.** | **AUDIT COMMITTEE FINANCIAL EXPERT**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        | The Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there                            are several “audit committee financial experts” (as such term has been defined by the Regulations) serving on the Funds’ audit committee including Mr. William McClayton, the chair of the Funds’ audit committee. The SEC has stated that an audit committee financial expert is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an audit                            committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **ITEM 4.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

**DWS HIGH INCOME FUND**

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

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

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

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

| Fiscal YearEndedSeptember 30, | Audit Fees Billed to Fund | Audit-RelatedFees Billed to Fund | Tax Fees Billed to Fund | AllOther Fees Billed to Fund |
|-------------------------------|---------------------------|----------------------------------|-------------------------|------------------------------|
| 2008                          | $73,590                   | $0                               | $10,564                 | $0                           |
| 2007                          | $65,611                   | $0                               | $8,947                  | $0                           |

 

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

 

----

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

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

 

| Fiscal YearEndedSeptember 30, | 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 |
|-------------------------------|---------------------------------------------------------------------------|------------------------------------------------------------------|-----------------------------------------------------------------------|
| 2008                          | $0                                                                        | $382,000                                                         | $0                                                                    |
| 2007                          | $250,000                                                                  | $486,614                                                         | $0                                                                    |

 

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

Non-Audit Services

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

 

| Fiscal YearEndedSeptember 30, | 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) |
|-------------------------------|-----------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------|--------------------------|
| 2008                          | $10,564                                 | $382,000                                                                                                                                                               | $1,474,733                                                                                                | $1,867,297               |
| 2007                          | $8,947                                  | $486,614                                                                                                                                                               | $1,484,326                                                                                                | $1,979,887               |

 

 

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

 

***

----

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

 

***

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

 

|        |                                                                                                  |
|-------------|-------------------------------------------------------------------------------------------------------|
| **ITEM 5.** | **AUDIT COMMITTEE OF LISTED REGISTRANTS**                                                             |
|        |                                                                                                  |
|        | Not Applicable                                                                                        |
|        |                                                                                                  |
| **ITEM 6.** | **SCHEDULE OF INVESTMENTS**                                                                           |
|        |                                                                                                  |
|        | Not Applicable                                                                                        |
|        |                                                                                                  |
| **ITEM 7.** | **DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES** |
|        |                                                                                                  |
|        | Not applicable.                                                                                       |
|        |                                                                                                  |
| **ITEM 8.** | **PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES**                                  |
|        |                                                                                                  |
|        | Not applicable.                                                                                       |

 

| **ITEM 9.** | **PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS** |
|-------------|----------------------------------------------------------------------------------------------------------|
|        |                                                                                                     |
|        | Not Applicable.                                                                                          |

 

| **ITEM 10.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                                                                                                                                                                                                                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                                             |
|         | The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Chairman of the Board, P.O.                            Box 100176, Cape Coral, FL 33910. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

----

 

| **ITEM 11.** | **CONTROLS AND PROCEDURES**                                                                                                                                                                                                                                                                                                                                                                                            |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         | (a)          The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.                                                                                           |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         | (b)          There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal                            controls over financial reporting. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **ITEM 12.** | **EXHIBITS**                                                                                                                                                                                                                                                                                                                                                                                                           |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         | (a)(1)     Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH.                                                                                                                                                                                                                                                                                    |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         | (a)(2)     Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.                                                                                                                                                                                                                            |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         | (b)         Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.                                                                                                                                                                                                |

 

 

 

 

----

**Form N-CSR Item F**

SIGNATURES

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

DWS Micro Cap Fund, a series ofDWS Advisor Funds

DWS Mid Cap Growth Fund, a series ofDWS Advisor Funds

DWS Short Duration Plus Fund, a series ofDWS Advisor Funds

DWS Small Cap Growth Fund, a series ofDWS Advisor Funds

DWS Dreman Value Income Edge Fund, Inc.

DWS High Income Fund, a series ofDWS High Income Series

DWS GNMA Fund, a series ofDWS Income Trust

DWS Inflation Protected Plus Fund, a series ofDWS Institutional Funds

DWS Capital Growth Fund, a series ofDWS Investment Trust

DWS Growth & Income Fund, a series ofDWS Investment Trust

DWS Small Cap Core Fund, a series ofDWS Investment Trust

Tax-Exempt California Money Market Fund

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

                           President

Date:                   December 2, 2008                         Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.                         By:                     /s/Michael G. Clark                           Michael G. Clark

                           President

Date:                   December 2, 2008                         By:                     /s/Paul Schubert                           Paul Schubert

                           Chief Financial Officer and Treasurer

Date:                   December 2, 2008