Consolidated Financial Highlights
|
|
|
|
|
|
Years Ended June 30,
|
|
|
Class A
|
|
Six Months Ended 12/31/13 (Unaudited)
|
|
|
|
2013
|
d
|
|
|
2012
|
d
|
|
|
2011
|
d
|
|
|
2010
|
d
|
|
|
2009
|
d
|
|
Selected Per Share Data
|
|
|
Net asset value, beginning of period
|
|
$
|
14.95
|
d
|
|
$
|
16.25
|
|
|
$
|
22.10
|
|
|
$
|
17.20
|
|
|
$
|
16.10
|
|
|
$
|
95.30
|
|
|
Income (loss) from investment operations:
Net investment income (loss)
a
|
|
|
.01
|
|
|
|
.05
|
|
|
|
.00
|
***
|
|
|
(.05
|
)
|
|
|
(.10
|
)
|
|
|
(.10
|
)
|
|
Net realized and unrealized gain (loss)
|
|
|
.07
|
|
|
|
(1.00
|
)
|
|
|
(2.60
|
)
|
|
|
4.95
|
|
|
|
1.35
|
|
|
|
(52.70
|
)
|
|
Total from investment operations
|
|
|
.08
|
|
|
|
(.95
|
)
|
|
|
(2.60
|
)
|
|
|
4.90
|
|
|
|
1.25
|
|
|
|
(52.80
|
)
|
|
Less distributions from:
Net investment income
|
|
|
—
|
|
|
|
(.05
|
)
|
|
|
(3.25
|
)
|
|
|
—
|
|
|
|
(.15
|
)
|
|
|
—
|
|
|
Net realized gains
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26.40
|
)
|
|
Return of capital
|
|
|
—
|
|
|
|
(.30
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total distributions
|
|
|
—
|
|
|
|
(.35
|
)
|
|
|
(3.25
|
)
|
|
|
—
|
|
|
|
(.15
|
)
|
|
|
(26.40
|
)
|
|
Redemption fees
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
Net asset value, end of period
|
|
$
|
15.03
|
|
|
$
|
14.95
|
|
|
$
|
16.25
|
|
|
$
|
22.10
|
|
|
$
|
17.20
|
|
|
$
|
16.10
|
|
|
Total Return (%)
b
|
|
|
.54
|
c**
|
|
|
(6.14
|
)
|
|
|
(13.24
|
)
|
|
|
28.49
|
|
|
|
7.33
|
c
|
|
|
(51.43
|
)
c
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
|
Net assets, end of period ($ millions)
|
|
|
164
|
|
|
|
209
|
|
|
|
302
|
|
|
|
489
|
|
|
|
153
|
|
|
|
123
|
|
|
Ratio of expenses before expense reductions (%)
|
|
|
1.54
|
*
|
|
|
1.46
|
|
|
|
1.51
|
|
|
|
1.50
|
|
|
|
1.66
|
|
|
|
1.79
|
|
|
Ratio of expenses after expense reductions (%)
|
|
|
1.53
|
*
|
|
|
1.46
|
|
|
|
1.51
|
|
|
|
1.50
|
|
|
|
1.58
|
|
|
|
1.51
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
.18
|
*
|
|
|
.16
|
|
|
|
.09
|
|
|
|
(.17
|
)
|
|
|
(.60
|
)
|
|
|
(.25
|
)
|
|
Portfolio turnover rate (%)
|
|
|
33
|
**
|
|
|
71
|
|
|
|
98
|
|
|
|
116
|
|
|
|
189
|
|
|
|
113
|
|
|
a
Based on average shares outstanding during the period.
b
Total return does not reflect the effect of any sales charges.
c
Total return would have been lower had certain expenses not been reduced.
d
On December 6, 2013, the Fund implemented a 1 for 5 reverse stock split. Net asset value and per share information through December 5, 2013 have been updated to reflect the effect of the split. Shareholders received one share for every 5 shares owned and net asset value per share increased correspondingly.
*
Annualized
**
Not annualized
***
Amount is less than $.005.
|
|
|
Class B
|
|
Six Months Ended 12/31/13 (Unaudited)
|
|
|
|
2013
|
d
|
|
|
2012
|
d
|
|
|
2011
|
d
|
|
|
2010
|
d
|
|
|
2009
|
d
|
|
Selected Per Share Data
|
|
|
Net asset value, beginning of period
|
|
$
|
13.70
|
d
|
|
$
|
14.95
|
|
|
$
|
20.45
|
|
|
$
|
16.05
|
|
|
$
|
15.05
|
|
|
$
|
93.55
|
|
|
Income (loss) from investment operations:
Net investment income (loss)
a
|
|
|
(.04
|
)
|
|
|
(.10
|
)
|
|
|
(.15
|
)
|
|
|
(.20
|
)
|
|
|
(.20
|
)
|
|
|
(.25
|
)
|
|
Net realized and unrealized gain (loss)
|
|
|
.08
|
|
|
|
(.95
|
)
|
|
|
(2.40
|
)
|
|
|
4.60
|
|
|
|
1.20
|
|
|
|
(51.85
|
)
|
|
Total from investment operations
|
|
|
.04
|
|
|
|
(1.05
|
)
|
|
|
(2.55
|
)
|
|
|
4.40
|
|
|
|
1.00
|
|
|
|
(52.10
|
)
|
|
Less distributions from:
Net investment income
|
|
|
—
|
|
|
|
(.00
|
)
***
|
|
|
(2.95
|
)
|
|
|
—
|
|
|
|
(.00
|
)
***
|
|
|
—
|
|
|
Net realized gains
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26.40
|
)
|
|
Return of capital
|
|
|
—
|
|
|
|
(.20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total distributions
|
|
|
—
|
|
|
|
(.20
|
)
|
|
|
(2.95
|
)
|
|
|
—
|
|
|
|
(.00
|
)
***
|
|
|
(26.40
|
)
|
|
Redemption fees
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
Net asset value, end of period
|
|
$
|
13.74
|
|
|
$
|
13.70
|
|
|
$
|
14.95
|
|
|
$
|
20.45
|
|
|
$
|
16.05
|
|
|
$
|
15.05
|
|
|
Total Return (%)
b
|
|
|
.29
|
c**
|
|
|
(7.09
|
)
c
|
|
|
(13.94
|
)
|
|
|
27.41
|
c
|
|
|
6.66
|
c
|
|
|
(51.85
|
)
c
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
|
Net assets, end of period ($ millions)
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
7
|
|
|
|
8
|
|
|
|
9
|
|
|
Ratio of expenses before expense reductions (%)
|
|
|
2.46
|
*
|
|
|
2.37
|
|
|
|
2.34
|
|
|
|
2.39
|
|
|
|
2.48
|
|
|
|
2.65
|
|
|
Ratio of expenses after expense reductions (%)
|
|
|
2.31
|
*
|
|
|
2.35
|
|
|
|
2.34
|
|
|
|
2.35
|
|
|
|
2.33
|
|
|
|
2.26
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
(.62
|
)
*
|
|
|
(.75
|
)
|
|
|
(.74
|
)
|
|
|
(1.09
|
)
|
|
|
(1.35
|
)
|
|
|
(1.00
|
)
|
|
Portfolio turnover rate (%)
|
|
|
33
|
**
|
|
|
71
|
|
|
|
98
|
|
|
|
116
|
|
|
|
189
|
|
|
|
113
|
|
|
a
Based on average shares outstanding during the period.
b
Total return does not reflect the effect of any sales charges.
c
Total return would have been lower had certain expenses not been reduced.
d
On December 6, 2013, the Fund implemented a 1 for 5 reverse stock split. Net asset value and per share information through December 5, 2013 have been updated to reflect the effect of the split. Shareholders received one share for every 5 shares owned and net asset value per share increased correspondingly.
*
Annualized
**
Not annualized
***
Amount is less than $.005.
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
Class C
|
|
Six Months Ended 12/31/13 (Unaudited)
|
|
|
|
2013
|
d
|
|
|
2012
|
d
|
|
|
2011
|
d
|
|
|
2010
|
d
|
|
|
2009
|
d
|
|
Selected Per Share Data
|
|
|
Net asset value, beginning of period
|
|
$
|
13.75
|
d
|
|
$
|
14.95
|
|
|
$
|
20.50
|
|
|
$
|
16.05
|
|
|
$
|
15.05
|
|
|
$
|
93.55
|
|
|
Income (loss) from investment operations:
Net investment income (loss)
a
|
|
|
(.04
|
)
|
|
|
(.10
|
)
|
|
|
(.10
|
)
|
|
|
(.20
|
)
|
|
|
(.20
|
)
|
|
|
(.25
|
)
|
|
Net realized and unrealized gain (loss)
|
|
|
.06
|
|
|
|
(.85
|
)
|
|
|
(2.50
|
)
|
|
|
4.65
|
|
|
|
1.20
|
|
|
|
(51.85
|
)
|
|
Total from investment operations
|
|
|
.02
|
|
|
|
(.95
|
)
|
|
|
(2.60
|
)
|
|
|
4.45
|
|
|
|
1.00
|
|
|
|
(52.10
|
)
|
|
Less distributions from:
Net investment income
|
|
|
—
|
|
|
|
(.05
|
)
|
|
|
(2.95
|
)
|
|
|
—
|
|
|
|
(.00
|
)
***
|
|
|
—
|
|
|
Net realized gains
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26.40
|
)
|
|
Return of capital
|
|
|
—
|
|
|
|
(.20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total distributions
|
|
|
—
|
|
|
|
(.25
|
)
|
|
|
(2.95
|
)
|
|
|
—
|
|
|
|
(.00
|
)
***
|
|
|
(26.40
|
)
|
|
Redemption fees
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
Net asset value, end of period
|
|
$
|
13.77
|
|
|
$
|
13.75
|
|
|
$
|
14.95
|
|
|
$
|
20.50
|
|
|
$
|
16.05
|
|
|
$
|
15.05
|
|
|
Total Return (%)
b
|
|
|
.15
|
c**
|
|
|
(6.68
|
)
|
|
|
(14.13
|
)
|
|
|
27.73
|
|
|
|
6.66
|
c
|
|
|
(51.85
|
)
c
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
|
Net assets, end of period ($ millions)
|
|
|
51
|
|
|
|
65
|
|
|
|
90
|
|
|
|
110
|
|
|
|
34
|
|
|
|
28
|
|
|
Ratio of expenses before expense reductions (%)
|
|
|
2.30
|
*
|
|
|
2.26
|
|
|
|
2.26
|
|
|
|
2.26
|
|
|
|
2.44
|
|
|
|
2.57
|
|
|
Ratio of expenses after expense reductions (%)
|
|
|
2.28
|
*
|
|
|
2.26
|
|
|
|
2.26
|
|
|
|
2.26
|
|
|
|
2.33
|
|
|
|
2.26
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
(.58
|
)
*
|
|
|
(.64
|
)
|
|
|
(.66
|
)
|
|
|
(.92
|
)
|
|
|
(1.35
|
)
|
|
|
(1.00
|
)
|
|
Portfolio turnover rate (%)
|
|
|
33
|
**
|
|
|
71
|
|
|
|
98
|
|
|
|
116
|
|
|
|
189
|
|
|
|
113
|
|
|
a
Based on average shares outstanding during the period.
b
Total return does not reflect the effect of any sales charges.
c
Total return would have been lower had certain expenses not been reduced.
d
On December 6, 2013, the Fund implemented a 1 for 5 reverse stock split. Net asset value and per share information through December 5, 2013 have been updated to reflect the effect of the split. Shareholders received one share for every 5 shares owned and net asset value per share increased correspondingly.
*
Annualized
**
Not annualized
***
Amount is less than $.005.
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
Class S
|
|
Six Months Ended 12/31/13 (Unaudited)
|
|
|
|
2013
|
c
|
|
|
2012
|
c
|
|
|
2011
|
c
|
|
|
2010
|
c
|
|
|
2009
|
c
|
|
Selected Per Share Data
|
|
|
Net asset value, beginning of period
|
|
$
|
15.10
|
c
|
|
$
|
16.40
|
|
|
$
|
22.35
|
|
|
$
|
17.35
|
|
|
$
|
16.25
|
|
|
$
|
95.45
|
|
|
Income (loss) from investment operations:
Net investment income (loss)
a
|
|
|
.03
|
|
|
|
.05
|
|
|
|
.05
|
|
|
|
(.00
|
)
***
|
|
|
(.05
|
)
|
|
|
(.00
|
)
***
|
|
Net realized and unrealized gain (loss)
|
|
|
.08
|
|
|
|
(1.00
|
)
|
|
|
(2.65
|
)
|
|
|
5.00
|
|
|
|
1.30
|
|
|
|
(52.80
|
)
|
|
Total from investment operations
|
|
|
.11
|
|
|
|
(.95
|
)
|
|
|
(2.60
|
)
|
|
|
5.00
|
|
|
|
1.25
|
|
|
|
(52.80
|
)
|
|
Less distributions from:
Net investment income
|
|
|
—
|
|
|
|
(.05
|
)
|
|
|
(3.35
|
)
|
|
|
—
|
|
|
|
(.15
|
)
|
|
|
—
|
|
|
Net realized gains
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26.40
|
)
|
|
Return of capital
|
|
|
—
|
|
|
|
(.30
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total distributions
|
|
|
—
|
|
|
|
(.35
|
)
|
|
|
(3.35
|
)
|
|
|
—
|
|
|
|
(.15
|
)
|
|
|
(26.40
|
)
|
|
Redemption fees
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
Net asset value, end of period
|
|
$
|
15.21
|
|
|
$
|
15.10
|
|
|
$
|
16.40
|
|
|
$
|
22.35
|
|
|
$
|
17.35
|
|
|
$
|
16.25
|
|
|
Total Return (%)
|
|
|
.73
|
b**
|
|
|
(5.92
|
)
|
|
|
(13.23
|
)
|
|
|
28.82
|
|
|
|
7.81
|
b
|
|
|
(51.43
|
)
b
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
|
Net assets, end of period ($ millions)
|
|
|
208
|
|
|
|
219
|
|
|
|
231
|
|
|
|
328
|
|
|
|
65
|
|
|
|
40
|
|
|
Ratio of expenses before expense reductions (%)
|
|
|
1.33
|
*
|
|
|
1.29
|
|
|
|
1.32
|
|
|
|
1.26
|
|
|
|
1.40
|
|
|
|
1.62
|
|
|
Ratio of expenses after expense reductions (%)
|
|
|
1.32
|
*
|
|
|
1.29
|
|
|
|
1.32
|
|
|
|
1.26
|
|
|
|
1.38
|
|
|
|
1.31
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
.39
|
*
|
|
|
.35
|
|
|
|
.28
|
|
|
|
.10
|
|
|
|
(.40
|
)
|
|
|
(.05
|
)
|
|
Portfolio turnover rate (%)
|
|
|
33
|
**
|
|
|
71
|
|
|
|
98
|
|
|
|
116
|
|
|
|
189
|
|
|
|
113
|
|
|
a
Based on average shares outstanding during the period.
b
Total return would have been lower had certain expenses not been reduced.
c
On December 6, 2013, the Fund implemented a 1 for 5 reverse stock split. Net asset value and per share information through December 5, 2013 have been updated to reflect the effect of the split. Shareholders received one share for every 5 shares owned and net asset value per share increased correspondingly.
*
Annualized
**
Not annualized
***
Amount is less than $.005.
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
Institutional Class
|
|
Six Months Ended 12/31/13 (Unaudited)
|
|
|
|
2013
|
c
|
|
|
2012
|
c
|
|
|
2011
|
c
|
|
|
2010
|
c
|
|
|
2009
|
c
|
|
Selected Per Share Data
|
|
|
Net asset value, beginning of period
|
|
$
|
15.15
|
c
|
|
$
|
16.45
|
|
|
$
|
22.40
|
|
|
$
|
17.35
|
|
|
$
|
16.25
|
|
|
$
|
95.40
|
|
|
Income (loss) from investment operations:
Net investment income (loss)
a
|
|
|
.04
|
|
|
|
.10
|
|
|
|
.10
|
|
|
|
.05
|
|
|
|
(.05
|
)
|
|
|
.05
|
|
|
Net realized and unrealized gain (loss)
|
|
|
.07
|
|
|
|
(1.00
|
)
|
|
|
(2.70
|
)
|
|
|
5.00
|
|
|
|
1.35
|
|
|
|
(52.80
|
)
|
|
Total from investment operations
|
|
|
.11
|
|
|
|
(.90
|
)
|
|
|
(2.60
|
)
|
|
|
5.05
|
|
|
|
1.30
|
|
|
|
(52.75
|
)
|
|
Less distributions from:
Net investment income
|
|
|
—
|
|
|
|
(.10
|
)
|
|
|
(3.35
|
)
|
|
|
—
|
|
|
|
(.20
|
)
|
|
|
—
|
|
|
Net realized gains
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26.40
|
)
|
|
Return of capital
|
|
|
—
|
|
|
|
(.30
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Total distributions
|
|
|
—
|
|
|
|
(.40
|
)
|
|
|
(3.35
|
)
|
|
|
—
|
|
|
|
(.20
|
)
|
|
|
(26.40
|
)
|
|
Redemption fees
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
|
.00
|
***
|
|
Net asset value, end of period
|
|
$
|
15.26
|
|
|
$
|
15.15
|
|
|
$
|
16.45
|
|
|
$
|
22.40
|
|
|
$
|
17.35
|
|
|
$
|
16.25
|
|
|
Total Return (%)
|
|
|
.73
|
**
|
|
|
(5.78
|
)
|
|
|
(13.02
|
)
|
|
|
29.11
|
|
|
|
7.87
|
b
|
|
|
(51.41
|
)
b
|
|
Ratios to Average Net Assets and Supplemental Data
|
|
|
Net assets, end of period ($ millions)
|
|
|
282
|
|
|
|
300
|
|
|
|
289
|
|
|
|
320
|
|
|
|
127
|
|
|
|
46
|
|
|
Ratio of expenses before expense reductions (%)
|
|
|
1.16
|
*
|
|
|
1.14
|
|
|
|
1.16
|
|
|
|
1.13
|
|
|
|
1.21
|
|
|
|
1.33
|
|
|
Ratio of expenses after expense reductions (%)
|
|
|
1.16
|
*
|
|
|
1.14
|
|
|
|
1.16
|
|
|
|
1.13
|
|
|
|
1.20
|
|
|
|
1.26
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
.55
|
*
|
|
|
.51
|
|
|
|
.44
|
|
|
|
.19
|
|
|
|
(.23
|
)
|
|
|
.00
|
****
|
|
Portfolio turnover rate (%)
|
|
|
33
|
**
|
|
|
71
|
|
|
|
98
|
|
|
|
116
|
|
|
|
189
|
|
|
|
113
|
|
|
a
Based on average shares outstanding during the period.
b
Total return would have been lower had certain expenses not been reduced.
c
On December 6, 2013, the Fund implemented a 1 for 5 reverse stock split. Net asset value and per share information through December 5, 2013 have been updated to reflect the effect of the split. Shareholders received one share for every 5 shares owned and net asset value per share increased correspondingly.
*
Annualized
**
Not annualized
***
Amount is less than $.005.
****
Amount is less than .005%.
|
|
Notes to Consolidated Financial Statements
(Unaudited)
A. Organization and Significant Accounting Policies
DWS Enhanced Commodity Strategy Fund (the "Fund'') is a diversified series of DWS Securities Trust (the "Trust"), which is registered under the Investment Company Act of 1940, as amended (the "1940 Act''), as an open-end management investment company organized as a Massachusetts business trust.
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 of the Fund are closed to new purchases, except exchanges or the reinvestment of dividends or other distributions. Class B shares were 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. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not automatically convert into another class. Institutional Class shares are generally available only to qualified institutions, are not subject to initial or contingent deferred sales charges and generally have lower ongoing expenses than other classes. Class S shares are not subject to initial or contingent deferred sales charges and are only available to a limited group of investors.
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 consolidated 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 consolidated financial statements.
Principles of Consolidation.
The Fund invests indirectly in commodities markets through a wholly owned subsidiary, DWS Cayman Commodity II, Ltd., organized under the laws of the Cayman Islands (the "Subsidiary"). Among other investments, the Subsidiary may invest in commodity-linked derivative instruments, such as swaps and futures. The Subsidiary may also invest in debt securities, some of which are intended to serve as margin or collateral for the Subsidiary's derivatives positions. The Subsidiary may also invest available cash in affiliated money market funds. The Subsidiary is managed by the same portfolio managers that manage the Fund. As of December 31, 2013, the Fund's investment in the Subsidiary was $129,447,690, representing 18.3% of the Fund's net assets. The Fund's Investment Portfolio has been consolidated and includes the portfolio holdings of the Fund and the Subsidiary.
The consolidated financial statements include the accounts of the Fund and the Subsidiary. All inter-company transactions and balances have been eliminated.
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.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The level assigned to the securities valuations may not be an indication of the risk or liquidity associated with investing in those securities.
Debt securities and loan participations and assignments are valued at prices supplied by independent pricing services approved by the Fund's Board. 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, prepayment speeds and other data, as well as broker quotes. If the pricing services are unable to provide valuations, debt securities are valued at the average of the most recent reliable bid quotations or evaluated prices, as applicable, obtained from broker-dealers and loan participations and assignments are valued at the mean of the most recent bid and ask quotations or evaluated prices, as applicable, obtained from one or more broker-dealers. These securities are generally categorized as Level 2.
Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.
Swap contracts are valued daily based upon prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer. Swap contracts are generally categorized as Level 2.
Exchange-traded options are valued at the last sale price or, in the absence of a sale, the mean between the closing bid and asked prices or at the most recent asked price (bid for purchased options) if no bid or asked price are available. Exchange-traded options are categorized as Level 1. Over-the-counter written or purchased options are valued at prices supplied by a Board approved pricing vendor, if available, and otherwise are valued at the price provided by the broker-dealer with which the option was traded. Over-the-counter written or purchased options are generally categorized as Level 2.
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 Board and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold; and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Consolidated Investment Portfolio.
Securities Lending.
Brown Brothers Harriman & Co., as lending agent, lends securities of the Fund to certain financial institutions under the terms of the Security Lending Agreement. The Fund retains benefits of owning the securities it has loaned and continues to receive interest and dividends generated by the 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 either cash or 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 agent will use its best efforts to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. If the Fund is not able to recover securities lent, the Fund may sell the collateral and purchase a replacement investment in the market, incurring the risk that the value of the replacement security is greater than the value of the collateral. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments. The Fund had no securities on loan at December 31, 2013.
When-Issued/Delayed Delivery Securities.
The Fund may purchase or sell 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 or sell a security, the transaction is recorded and the value of the transaction 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. At the time the Fund enters into a purchase 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 transactions 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.
Loan Participations and Assignments.
Loan Participations and Assignments are portions of loans originated by banks and sold in pieces to investors. These fixed and floating rate loans ("Loans") in which the Fund invests, are arranged between the borrower and one or more financial institutions ("Lenders"). These Loans may take the form of Senior Loans, which are corporate obligations often issued in connection with recapitalizations, acquisitions, leveraged buy-outs and refinancing. 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, or 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. Loans held by the Fund are generally in the form of Assignments but the Fund may also invest in Participations. All Loans involve interest rate risk, liquidity risk and credit risk, including the potential default or insolvency of the borrower.
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.
Income from certain commodity-linked derivatives does not constitute "qualifying income" to the Fund. Receipt of such income could cause the Fund to be subject to tax at the Fund level. The IRS has issued a private letter ruling to the Fund stating that such income earned through its wholly-owned Subsidiary constitutes qualifying income. The Fund is required to increase its taxable income by its share of the Subsidiary's income, including net gains from commodity-linked transactions. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income for future periods.
Under the Regulated Investment Company Modernization Act of 2010, net capital losses incurred post-enactment may be carried forward indefinitely, and their character is retained as short-term and/or long-term. Previously, net capital losses were carried forward for eight years and treated as short-term losses. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
At June 30, 2013, the Fund had net tax basis capital loss carryforwards of approximately $211,372,000, including $194,920,000 of pre-enactment losses, of which $43,038,000 was inherited from its merger with an affiliated fund in fiscal year 2011 and may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until June 30, 2016 ($6,708,000), June 30, 2017 ($102,120,000), June 30, 2018 ($77,997,000) and June 30, 2019 ($8,095,000), the respective expiration dates, whichever occurs first; and which may be subject to certain limitations under Section 382–384 of the Revenue Code, and approximately $16,452,000 of post-enactment losses, which may be applied against realized net taxable capital gains indefinitely, including short-term losses ($13,419,000) and long-term losses ($3,033,000).
In addition, from November 1, 2012 through June 30, 2013, the Fund elects to defer qualified late year losses of approximately $2,883,000 of net short-term realized capital losses and treat them as arising in the fiscal year ending June 30, 2014.
The Fund has reviewed the tax positions for the open tax years as of June 30, 2013 and has determined that no provision for income tax is required in the Fund's consolidated financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.
Distribution of Income and Gains.
Distributions from net investment income of the Fund, if any, are declared and distributed to shareholders quarterly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary.
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 investments in futures and swap contracts. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Redemption Fees.
The Fund imposes a redemption fee of 2% of the total redemption amount on all Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in capital.
Expenses.
Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust based upon the relative net assets or other appropriate measures.
Contingencies.
In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Other.
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Proceeds from litigation payments, if any, are included in net realized gain (loss) from investments. All discounts and premiums are accreted/amortized for both tax and financial reporting purposes.
B. Derivative Instruments
Swaps.
A swap is a contract between two parties to exchange future cash flows at periodic intervals based on the notional amount of the swap. A bilateral swap is a transaction between the fund and a counterparty where cash flows are exchanged between the two parties. A centrally cleared swap is a transaction executed between the fund and a counterparty, then cleared by a clearing member through a central clearinghouse. The central clearinghouse serves as the counterparty, with whom the fund exchanges cash flows.
The value of a swap is adjusted daily, and the change in value, if any, is recorded as unrealized appreciation or depreciation in the Consolidated Statement of Assets and Liabilities. Gains or losses are realized when the swap expires or is closed. Certain risks may arise when entering into swap transactions including counterparty default; liquidity; or unfavorable changes in interest rates or the value of the underlying reference security, commodity or index. In connection with bilateral swaps, securities and/or cash may be identified as collateral in accordance with the terms of the swap agreement to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the swap, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. Upon entering into a centrally cleared swap, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount equal to a certain percentage of the notional amount of the swap. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value of the swap. In a cleared swap transaction, counterparty risk is minimized as the central clearinghouse acts as the counterparty.
Interest Rate Swaps.
Interest rate swaps are agreements in which the Fund agrees to pay to the counterparty a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment. The payment obligations are based on the notional amount of the swap. For the six months ended December 31, 2013, the Fund entered into interest rate swap agreements to gain exposure to different parts of the yield curve while managing overall duration.
A summary of the open interest rate swap contracts as of December 31, 2013 is included in a table following the Fund's Consolidated Investment Portfolio. For the six months ended December 31, 2013, the investment in interest rate swap contracts had a total notional amount generally indicative of a range from $190,000,000 to $260,000,000.
Commodity-Linked Swaps.
Commodity-linked swap agreements involve a commitment to pay interest in exchange for a commodity-linked return based on a notional amount. To the extent the return of the reference commodity or commodity index underlying the commodity-linked swap exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment or make a payment to the counterparty, respectively. For the six months ended December 31, 2013 the Fund entered into commodity-linked swap agreements to gain exposure to the investment return of assets that trade in the commodity markets, without investing directly in physical commodities.
A summary of the open commodity-linked swap contracts as of December 31, 2013 is included in a table following the Fund's Consolidated Investment Portfolio. For the six months ended December 31, 2013, the investment in long commodity-linked swap contracts had a total notional amount generally indicative of a range from approximately $777,295,000 to $926,685,000, and the investment in short commodity-linked swap contracts had a total notional value generally indicative of a range from approximately $34,823,000 to $117,865,000.
Options.
An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option), or sell to (put option), the writer a designated instrument at a specified price within a specified period of time. The Fund may write or purchase interest rate swaption agreements which are options to enter into a pre-defined swap agreement. The interest rate swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer upon exercise. Certain options, including options on indices, will require cash settlement by the Fund if exercised. For the six months ended December 31, 2013, the Fund entered into options on interest rate swaps in order to hedge against potential adverse interest rate movements of portfolio assets.
If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.
There were no open purchased options at December 31, 2013. A summary of open written option contracts is included in the table following the Fund's Investment Portfolio. For the six months ended December 31, 2013, the investment in written option contracts had a total value generally indicative of a range from approximately $72,000 to $78,000, and purchased option contracts had a total value generally indicative of a range from $0 to approximately $50,000.
Futures Contracts.
A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). For the six months ended December 31, 2013, the Fund entered into commodity futures contracts to gain exposure to the investment return of assets that trade in the commodity markets, without investing directly in physical commodities and interest rate futures contracts to gain exposure to different parts of the yield curve while managing overall duration.
Upon entering into a futures contract, the Fund is required to deposit
with a financial intermediary cash or securities ("initial margin") in an amount equal to a
certain percentage of the face value indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the
Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as
unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are
exchange traded, counterparty risk is minimized as the exchange's
clearinghouse acts as the counterparty, and guarantees the futures against default.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund's ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts disclosed in the Consolidated Statement of Assets and Liabilities.
A summary of the open futures contracts as of December 31, 2013 is included in the table following the Fund's Consolidated Investment Portfolio. For the six months ended December 31, 2013, the investment in futures contracts purchased had a total notional value generally indicative of a range from approximately $68,314,000 to $89,788,000, and the investment in futures contracts sold had a total notional value generally indicative of a range from approximately $13,690,000 to $144,830,000.
The following tables summarize the value of the Fund's derivative instruments held as of December 31, 2013 and the related location in the accompanying Consolidated Statement of Assets and Liabilities, presented by primary underlying risk exposure:
|
Asset Derivatives
|
|
Futures Contracts
|
|
|
Swap Contracts
|
|
|
Total
|
|
|
Interest Rate Contracts (a)
|
|
$
|
411,509
|
|
|
$
|
191,577
|
|
|
$
|
603,086
|
|
|
Commodity Contracts (a) (b)
|
|
|
2,235,821
|
|
|
|
2,624,206
|
|
|
|
4,860,027
|
|
|
|
|
$
|
2,647,330
|
|
|
$
|
2,815,783
|
|
|
$
|
5,463,113
|
|
|
Each of the above derivatives is located in the following Consolidated Statement of Assets and Liabilities accounts:
(a) Includes cumulative appreciation of futures and centrally cleared swap contracts as disclosed in the Consolidated Investment Portfolio. Unsettled variation margin is disclosed separately within the Consolidated Statement of Assets and Liabilities.
(b) Unrealized appreciation on swap contracts
|
|
|
Liability Derivatives
|
|
Written Options
|
|
|
Futures Contracts
|
|
|
Swap Contracts
|
|
|
Total
|
|
|
Interest Rate Contracts (a) (b)
|
|
$
|
(77,934
|
)
|
|
$
|
—
|
|
|
$
|
(665,044
|
)
|
|
$
|
(742,978
|
)
|
|
Commodity Contracts (b) (c)
|
|
|
—
|
|
|
|
(1,286,018
|
)
|
|
|
(5,402,234
|
)
|
|
|
(6,688,252
|
)
|
|
|
|
$
|
(77,934
|
)
|
|
$
|
(1,286,018
|
)
|
|
$
|
(6,067,278
|
)
|
|
$
|
(7,431,230
|
)
|
|
Each of the above derivatives is located in the following Consolidated Statement of Assets and Liabilities accounts:
(a) Written options, at value
(b) Includes cumulative depreciation of futures and centrally cleared swap contracts as disclosed in the Consolidated Investment Portfolio. Unsettled variation margin is disclosed separately within the Consolidated Statement of Assets and Liabilities.
(c) Unrealized depreciation on swap contracts
|
|
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the six months ended December 31, 2013 and the related location on the accompanying Consolidated Statement of Operations is summarized in the following tables by primary underlying risk exposure:
|
Realized Gain (Loss)
|
|
Purchased Options
|
|
|
Written Options
|
|
|
Futures Contracts
|
|
|
Swap Contracts
|
|
|
Total
|
|
|
Interest Rate Contracts (a)
|
|
$
|
(29,718
|
)
|
|
$
|
28,278
|
|
|
$
|
(322,242
|
)
|
|
$
|
2,729,067
|
|
|
$
|
2,405,385
|
|
|
Commodity Contracts (a)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,822,872
|
|
|
|
(18,315,612
|
)
|
|
|
(16,492,740
|
)
|
|
|
|
$
|
(29,718
|
)
|
|
$
|
28,278
|
|
|
$
|
1,500,630
|
|
|
$
|
(15,586,545
|
)
|
|
$
|
(14,087,355
|
)
|
|
Each of the above derivatives is located in the following Consolidated Statement of Operations accounts:
(a) Net realized gain (loss) from investments (includes purchased options), written options, futures and swap contracts, respectively
|
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
Written Options
|
|
|
Swap Contracts
|
|
|
Futures Contracts
|
|
|
Total
|
|
|
Interest Rate Contracts (a)
|
|
$
|
490
|
|
|
$
|
(3,870,945
|
)
|
|
$
|
411,509
|
|
|
$
|
(3,458,946
|
)
|
|
Commodity Contracts (a)
|
|
|
—
|
|
|
|
17,764,262
|
|
|
|
1,203,707
|
|
|
|
18,967,969
|
|
|
|
|
$
|
490
|
|
|
$
|
13,893,317
|
|
|
$
|
1,615,216
|
|
|
$
|
15,509,023
|
|
|
Each of the above derivatives is located in the following Consolidated Statement of Operations accounts:
(a) Change in net unrealized appreciation (depreciation) from written options, swap contracts and futures, respectively
|
|
As of December 31, 2013, the Fund has transactions subject to enforceable master netting agreements. A reconciliation of the gross amounts on the Consolidated Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is included in the following tables:
|
Counterparty
|
|
Gross Amounts of Assets Presented in the Consolidated Statement of Assets and Liabilities (a)
|
|
|
Financial Instruments and Derivatives Available for Offset
|
|
|
Non-Cash Collateral Received (c)
|
|
|
Cash Collateral Received
|
|
|
Net Amount of Derivative Assets
|
|
|
Bank of America
|
|
$
|
14,898
|
|
|
$
|
(14,898
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Barclays Bank PLC
|
|
|
2,142,236
|
|
|
|
(92,889
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,049,347
|
|
|
Canadian Imperial Bank of Commerce
|
|
|
23,503
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,503
|
|
|
Citigroup, Inc.
|
|
|
263,191
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
263,191
|
|
|
JPMorgan Chase Securities, Inc.
|
|
|
145,340
|
|
|
|
(145,340
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
The Goldman Sachs & Co.
|
|
|
35,038
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,038
|
|
|
Exchange Traded Futures and Swaps (b)
|
|
|
2,838,907
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,838,907
|
|
|
|
|
$
|
5,463,113
|
|
|
$
|
(253,127
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,209,986
|
|
|
Counterparty
|
|
Gross Amounts of Liabilities Presented in the Consolidated Statement of Assets and Liabilities (a)
|
|
|
Financial Instruments and Derivatives Available for Offset
|
|
|
Non-Cash Collateral Pledged (c)
|
|
|
Cash Collateral Pledged
|
|
|
Net Amount of Derivative Liabilities
|
|
|
Bank of America
|
|
$
|
153,676
|
|
|
$
|
(14,898
|
)
|
|
$
|
(138,778
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Barclays Bank PLC
|
|
|
92,889
|
|
|
|
(92,889
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
BNP Paribas
|
|
|
199,880
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
199,880
|
|
|
JPMorgan Chase Securities, Inc.
|
|
|
4,588,465
|
|
|
|
(145,340
|
)
|
|
|
(4,443,125
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Macquarie Bank Ltd.
|
|
|
232,815
|
|
|
|
—
|
|
|
|
(232,815
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Nomura International PLC
|
|
|
38,967
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,967
|
|
|
UBS AG
|
|
|
173,476
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
173,476
|
|
|
Exchange Traded Futures and Swaps (b)
|
|
|
1,951,062
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,951,062
|
|
|
|
|
$
|
7,431,230
|
|
|
$
|
(253,127
|
)
|
|
$
|
(4,814,718
|
)
|
|
$
|
—
|
|
|
$
|
2,363,385
|
|
(a) Swaps and written options are netted.
(b) Includes financial instruments (futures and centrally cleared swaps) which are not subject to a master netting arrangement, or another similar arrangement.
(c) The actual collateral pledged may be more than the amount shown.
C. Purchases and Sales of Securities
During the six months ended December 31, 2013, purchases and sales of investment securities (excluding short-term investments and U.S. Treasury obligations) aggregated $121,905,666 and $189,895,115, respectively. Purchases and sales of U.S. Treasury obligations aggregated $75,003,259 and $120,960,365, respectively.
For the six months ended December 31, 2013, transactions for written options on futures and interest rate swap contracts were as follows:
|
|
|
Contracts/
Contract Amount
|
|
|
Premiums
|
|
|
Outstanding, beginning of period
|
|
|
8,000,000
|
|
|
$
|
57,600
|
|
|
Options written
|
|
|
166
|
|
|
|
49,534
|
|
|
Options closed
|
|
|
(166
|
)
|
|
|
(49,534
|
)
|
|
Outstanding, end of period
|
|
|
8,000,000
|
|
|
$
|
57,600
|
|
D. 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.
Under the Investment Management Agreement with the Advisor, 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 $500 million of the Fund's average daily net assets
|
|
|
.950
|
%
|
|
Next $500 million of such net assets
|
|
|
.900
|
%
|
|
Next $500 million of such net assets
|
|
|
.850
|
%
|
|
Over $1.5 billion of such net assets
|
|
|
.825
|
%
|
Accordingly, for the six months ended December 31, 2013, the fee pursuant to the Investment Management Agreement was equivalent to an annualized effective rate (exclusive of any applicable waivers/reimbursements) of 0.93% of the Fund's average daily net assets.
For the period from July 1, 2013 through September 30, 2013, the Advisor had contractually agreed to waive its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) for certain classes as follows:
|
Class A
|
1.60%
|
|
Class B
|
2.35%
|
|
Class C
|
2.35%
|
|
Class S
|
1.40%
|
|
Institutional Class
|
1.35%
|
Effective October 1, 2013 through September 30, 2014, the Advisor has contractually agreed to waive all or a portion of its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:
|
Class A
|
1.50%
|
|
Class B
|
2.25%
|
|
Class C
|
2.25%
|
|
Class S
|
1.30%
|
|
Institutional Class
|
1.25%
|
For the six months ended December 31, 2013, fees waived and/or expenses reimbursed for each class are as follows:
|
Class A
|
|
$
|
10,026
|
|
|
Class B
|
|
|
718
|
|
|
Class C
|
|
|
8,342
|
|
|
Class S
|
|
|
10,253
|
|
|
|
|
$
|
29,339
|
|
Administration Fee.
Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays 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 six months ended December 31, 2013, the Administration Fee was $389,387, of which $61,487 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 six months ended December 31, 2013, the amounts charged to the Fund by DISC were as follows:
|
Services to Shareholders
|
|
Total Aggregated
|
|
|
Unpaid at December 31, 2013
|
|
|
Class A
|
|
$
|
27,540
|
|
|
$
|
22,516
|
|
|
Class B
|
|
|
922
|
|
|
|
922
|
|
|
Class C
|
|
|
10,273
|
|
|
|
7,525
|
|
|
Class S
|
|
|
29,373
|
|
|
|
17,930
|
|
|
Institutional Class
|
|
|
7,862
|
|
|
|
2,742
|
|
|
|
|
$
|
75,970
|
|
|
$
|
51,635
|
|
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 six months ended December 31, 2013, the Distribution Fee was as follows:
|
Distribution Fee
|
|
Total Aggregated
|
|
|
Unpaid at December 31, 2013
|
|
|
Class B
|
|
$
|
3,403
|
|
|
$
|
465
|
|
|
Class C
|
|
|
225,576
|
|
|
|
33,665
|
|
|
|
|
$
|
228,979
|
|
|
$
|
34,130
|
|
In addition, DIDI provides information and administrative services for a fee ("Service Fee") to Class A, B, and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DIDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the six months ended December 31, 2013, the Service Fee was as follows:
|
Service Fee
|
|
Total Aggregated
|
|
|
Unpaid at December 31, 2013
|
|
|
Annualized Effective Rate
|
|
|
Class A
|
|
$
|
233,787
|
|
|
$
|
121,887
|
|
|
|
.23
|
%
|
|
Class B
|
|
|
1,055
|
|
|
|
639
|
|
|
|
.23
|
%
|
|
Class C
|
|
|
75,126
|
|
|
|
35,762
|
|
|
|
.25
|
%
|
|
|
|
$
|
309,968
|
|
|
$
|
158,288
|
|
|
|
|
|
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 six months ended December 31, 2013 aggregated $2,277.
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 six months ended December 31, 2013, the CDSC for the Fund's Class B and C shares was $2,120 and $2,736, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the six months ended December 31, 2013, DIDI received $838 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 six months ended December 31, 2013, the amount charged to the Fund by DIMA included in the Consolidated Statement of Operations under "reports to shareholders" aggregated $11,345, of which $4,515 is unpaid.
Trustees' Fees and Expenses.
The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.
Affiliated Cash Management Vehicles.
The Fund may invest uninvested cash balances in Central Cash Management Fund and DWS Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund seeks to provide a high level of current income consistent with liquidity and the preservation of capital. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the Investment Company Act of 1940, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Central Cash Management Fund seeks to maintain a stable net asset value, and DWS Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Central Cash Management Fund does not pay the Advisor an investment management fee. To the extent that DWS Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund's assets invested in DWS Variable NAV Money Fund.
E. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $375 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 a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at December 31, 2013.
F. Investing in Commodities-Related Investments
The Fund invests in commodity-linked derivative instruments such as commodity-linked swaps, structured notes and futures contracts that are designed to provide exposure to the investment return of assets that trade in the commodity markets, without investing directly in physical commodities. The commodities-linked derivatives instruments in which the Fund invests are more volatile than many other types of securities and may subject the Fund to special risks that do not apply to all derivatives transactions. The value of a commodity-linked derivative investment generally is based upon the price movements of a physical commodity (such as energy, minerals, or agricultural products), a futures contract, swap or commodity index, or other economic variables based upon changes in the value of commodities or the commodities markets. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, changes in storage costs, embargoes, tariffs, policies of commodity cartels and international economic, political and regulatory developments. Also, a liquid secondary market may not exist for the types of commodity-linked derivative instruments the Fund buys, which may make it difficult for the Fund to sell them at an acceptable price.
G. Share Transactions
The following table summarizes share and dollar activity in the Fund:
|
|
|
Six Months Ended
December 31, 2013
|
|
|
Year Ended
June 30, 2013
|
|
|
|
|
Shares*
|
|
|
Dollars
|
|
|
Shares*
|
|
|
Dollars
|
|
|
Shares sold
|
|
|
Class A
|
|
|
2,298,458
|
|
|
$
|
34,759,536
|
|
|
|
3,892,134
|
|
|
$
|
63,464,562
|
|
|
Class B
|
|
|
—
|
|
|
|
—
|
|
|
|
2,434
|
|
|
|
36,792
|
|
|
Class C
|
|
|
187,281
|
|
|
|
2,593,796
|
|
|
|
634,974
|
|
|
|
9,611,101
|
|
|
Class S
|
|
|
4,623,044
|
|
|
|
70,717,746
|
|
|
|
9,071,146
|
|
|
|
149,493,902
|
|
|
Institutional Class
|
|
|
2,603,435
|
|
|
|
39,896,049
|
|
|
|
5,786,234
|
|
|
|
96,188,872
|
|
|
|
|
|
|
|
|
$
|
147,967,127
|
|
|
|
|
|
|
$
|
318,795,229
|
|
|
Shares issued to shareholders in reinvestment of distributions
|
|
|
Class A
|
|
|
—
|
|
|
$
|
—
|
|
|
|
322,704
|
|
|
$
|
5,419,900
|
|
|
Class B
|
|
|
—
|
|
|
|
—
|
|
|
|
1,796
|
|
|
|
28,128
|
|
|
Class C
|
|
|
—
|
|
|
|
—
|
|
|
|
63,243
|
|
|
|
989,632
|
|
|
Class S
|
|
|
—
|
|
|
|
—
|
|
|
|
211,251
|
|
|
|
3,572,634
|
|
|
Institutional Class
|
|
|
—
|
|
|
|
—
|
|
|
|
383,141
|
|
|
|
6,477,319
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
16,487,613
|
|
|
Shares redeemed
|
|
|
Class A
|
|
|
(5,377,425
|
)
|
|
$
|
(81,183,417
|
)
|
|
|
(8,790,450
|
)
|
|
$
|
(143,087,565
|
)
|
|
Class B
|
|
|
(24,290
|
)
|
|
|
(336,610
|
)
|
|
|
(112,741
|
)
|
|
|
(1,694,945
|
)
|
|
Class C
|
|
|
(1,196,355
|
)
|
|
|
(16,602,589
|
)
|
|
|
(2,016,658
|
)
|
|
|
(30,159,658
|
)
|
|
Class S
|
|
|
(5,429,283
|
)
|
|
|
(82,965,970
|
)
|
|
|
(8,899,542
|
)
|
|
|
(145,929,436
|
)
|
|
Institutional Class
|
|
|
(3,916,965
|
)
|
|
|
(59,990,606
|
)
|
|
|
(3,956,438
|
)
|
|
|
(65,948,859
|
)
|
|
|
|
|
|
|
|
$
|
(241,079,192
|
)
|
|
|
|
|
|
$
|
(386,820,463
|
)
|
|
Redemption fees
|
|
|
|
|
|
$
|
3,023
|
|
|
|
|
|
|
$
|
7,431
|
|
|
Net increase (decrease)
|
|
|
Class A
|
|
|
(3,078,967
|
)
|
|
$
|
(46,423,211
|
)
|
|
|
(4,575,613
|
)
|
|
$
|
(74,199,646
|
)
|
|
Class B
|
|
|
(24,290
|
)
|
|
|
(336,610
|
)
|
|
|
(108,510
|
)
|
|
|
(1,630,025
|
)
|
|
Class C
|
|
|
(1,009,074
|
)
|
|
|
(14,008,639
|
)
|
|
|
(1,318,440
|
)
|
|
|
(19,558,904
|
)
|
|
Class S
|
|
|
(806,239
|
)
|
|
|
(12,246,129
|
)
|
|
|
382,855
|
|
|
|
7,140,149
|
|
|
Institutional Class
|
|
|
(1,313,530
|
)
|
|
|
(20,094,453
|
)
|
|
|
2,212,937
|
|
|
|
36,718,236
|
|
|
|
|
|
|
|
|
$
|
(93,109,042
|
)
|
|
|
|
|
|
$
|
(51,530,190
|
)
|
* Shares for the year ended June 30, 2013, and through December 5, 2013 have been adjusted to reflect the effects of a reverse stock split effective December 6, 2013. See Note I.
H. Transactions with Affiliates
The Underlying DWS Funds in which the Fund invests are considered to be affiliated investments. A summary of the Fund's transactions with affiliated Underlying DWS Funds for the six months ended December 31, 2013 is as follows:
|
Affiliate
|
|
Value ($) at 6/30/2013
|
|
|
Purchases Cost ($)
|
|
|
Sales
Cost ($)
|
|
|
Realized Gain/
(Loss) ($)
|
|
|
Income Distributions ($)
|
|
|
Value ($) at 12/31/2013
|
|
|
DWS Variable NAV Money Fund
|
|
|
5,001,407
|
|
|
|
4,690
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,683
|
|
|
|
5,006,097
|
|
|
Central Cash Management Fund
|
|
|
38,148,293
|
|
|
|
289,140,974
|
|
|
|
301,981,209
|
|
|
|
—
|
|
|
|
5,620
|
|
|
|
25,308,058
|
|
|
Total
|
|
|
43,149,700
|
|
|
|
289,145,664
|
|
|
|
301,981,209
|
|
|
|
—
|
|
|
|
11,303
|
|
|
|
30,314,155
|
|
I. Reverse Stock Split
On December 6, 2013, the Fund implemented a 1 for 5 reverse stock split for each class of shares of the Fund. The net effect of the reverse stock split was to decrease the number of outstanding shares and increase the net asset value per share by a proportionate amount for each class of shares of the Fund. The reverse stock split had no impact on the overall value of a shareholder's investment in the Fund. Capital share activity referenced in Note G. Share Transactions and per share and net asset value data in the Consolidated Financial Highlights tables have been restated to reflect the reverse stock split.
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, Class A, B, C and S shares limited these expenses; had they not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (July 1, 2013 to December 31, 2013).
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. Subject to certain exceptions, an account maintenance fee of $20.00 assessed once per calendar year for Classes A, B, C and S shares may apply for accounts with balances less than $10,000. This fee is not included in these tables. If it was, the estimate of expenses paid for Classes A, B, C and S shares during the period would be higher, and account value during the period would be lower, by this amount.
|
Expenses and Value of a $1,000 Investment
for the six months ended December 31, 2013 (Unaudited)
|
|
|
Actual Fund Return
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class S
|
|
|
Institutional Class
|
|
|
Beginning Account Value 7/1/13
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
Ending Account Value 12/31/13
|
|
$
|
1,005.40
|
|
|
$
|
1,002.90
|
|
|
$
|
1,001.50
|
|
|
$
|
1,007.30
|
|
|
$
|
1,007.30
|
|
|
Expenses Paid per $1,000*
|
|
$
|
7.73
|
|
|
$
|
11.66
|
|
|
$
|
11.50
|
|
|
$
|
6.68
|
|
|
$
|
5.87
|
|
|
Hypothetical 5% Fund Return
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class S
|
|
|
Institutional Class
|
|
|
Beginning Account Value 7/1/13
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
$
|
1,000.00
|
|
|
Ending Account Value 12/31/13
|
|
$
|
1,017.49
|
|
|
$
|
1,013.56
|
|
|
$
|
1,013.71
|
|
|
$
|
1,018.55
|
|
|
$
|
1,019.36
|
|
|
Expenses Paid per $1,000*
|
|
$
|
7.78
|
|
|
$
|
11.72
|
|
|
$
|
11.57
|
|
|
$
|
6.72
|
|
|
$
|
5.90
|
|
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by 184 (the number of days in the most recent six-month period), then divided by 365.
|
Annualized Expense Ratios
|
Class A
|
Class B
|
Class C
|
Class S
|
Institutional Class
|
|
DWS Enhanced Commodity Strategy Fund
|
1.53%
|
2.31%
|
2.28%
|
1.32%
|
1.16%
|
For more information, please refer to the Fund's prospectus.
For an analysis of the fees associated with an investment in the Fund or similar funds, please refer to http://apps.finra.org/fundanalyzer/1/fa.aspx.
Advisory Agreement Board Considerations and Fee Evaluation
The Board of Trustees approved the renewal of DWS Enhanced Commodity Strategy Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA") in September 2013.
In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:
—
In September 2013, all of the Fund's Trustees were independent of DIMA and its affiliates.
—
The Trustees met frequently during the past year to discuss fund matters and dedicated a substantial amount of time to contract review matters. Over the course of several months, the Board's Contract Committee, in coordination with the Board's Equity 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 a fee consultant retained by the Fund's Independent Trustees (the "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 to discuss contract review and other matters. In addition, the Independent Trustees were also advised by the Fee Consultant in the course of their review of the Fund's contractual arrangements and considered a comprehensive report prepared by the Fee Consultant in connection with their deliberations.
—
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 Board. The Board then reviewed the Contract Committee's findings and recommendations.
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. DIMA is part of Deutsche Bank AG, a major global banking institution that is engaged in a wide range of financial services. The Board believes that there are 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.
As part of the contract review process, the Board carefully considered the fees and expenses of each DWS fund overseen by the Board in light of the fund's performance. In many cases, this led to a negotiation with DIMA of lower expense caps as part of the 2012 and 2013 contract review processes than had previously been in place. As part of these negotiations, the Board indicated that it would consider relaxing these new lower caps in future years following sustained improvements in performance, among other considerations.
In June 2012, Deutsche Bank AG ("DB"), DIMA's parent company, announced that DB would combine its Asset Management (of which DIMA was a part) and Wealth Management divisions. DB has advised the Independent Trustees that the U.S. asset management business is a critical and integral part of DB, and that it has, and will continue to, reinvest a significant portion of the substantial savings it expects to realize by combining its Asset Management and Wealth Management divisions into the new Asset and Wealth Management ("AWM") division, including ongoing enhancements to its investment capabilities. DB also has confirmed its commitment to maintaining strong legal and compliance groups within the AWM division.
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 Fee Consultant using information supplied by Morningstar Direct ("Morningstar"), an independent fund data service. The Board also noted that it has put into place a process of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer universe compiled by an independent fund data service), 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, 2012, the Fund's performance (Class A shares) was in the 3rd quartile, 1st quartile and 2nd quartile, respectively, of the applicable Morningstar universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has outperformed its benchmark in the three-year period and has underperformed its benchmark in the one- and five-year periods ended December 31, 2012.
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 Inc. ("Lipper") and the 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 a 0.10% fee paid to DIMA under the Fund's administrative services agreement, were higher than the median (3rd quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2012). The Board noted that the Fund's Class A shares total (net) operating expenses (excluding 12b-1 fees) were expected to be higher than the median (3rd quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2012, and analyzing Lipper expense universe Class A (net) expenses less any applicable 12b-1 fees) ("Lipper Universe Expenses"). The Board also reviewed data comparing each share class's total (net) operating expenses to the applicable Lipper Universe Expenses. The Board considered the Fund's management fee rate as compared to fees charged by DIMA to comparable funds and considered differences between the Fund and the comparable funds. The Board also considered how the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size).
The Board also noted that the expense limitations agreed to by DIMA helped to ensure that the Fund's total (net) operating expenses would remain competitive.
The information considered by the Board as part of its review of management fees included information regarding fees charged by DIMA and its affiliates to similar institutional accounts and to similar funds offered primarily to European investors ("DWS Europe funds"), in each case as applicable. The Board observed that advisory fee rates for institutional accounts generally were lower than the management fees charged by similarly managed DWS U.S. mutual funds ("DWS Funds"), but also took note of the differences in services provided to DWS Funds as compared to institutional accounts. In the case of DWS Europe funds, the Board observed that fee rates for DWS Europe funds generally were higher than for similarly managed DWS Funds, but noted that differences in the types of services provided to DWS Funds relative to DWS Europe funds made it difficult to compare such fees.
The Board noted that, in connection with the 2011 contract renewal process, DIMA agreed to implement a new management fee breakpoint.
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 DWS and its affiliates with respect to all fund services in totality and by fund. The Board and the Fee Consultant 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 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 DIMA 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 both DIMA's chief compliance officer and the Fund's chief compliance officer; (ii) the large number of DIMA compliance personnel; 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 unanimously 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 independent 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.
Account Management Resources
|
|
|
For More Information
|
|
The automated telephone system allows you to access personalized account information and obtain information on other DWS funds using either your voice or your telephone keypad. Certain account types within Classes A, B, C and S also have the ability to purchase, exchange or redeem shares using this system.
For more information, contact your financial advisor. You may also access our automated telephone system or speak with a Shareholder Service representative by calling:
(800) 728-3337
|
|
Web Site
|
|
dws-investments.com
View your account transactions and balances, trade shares, monitor your asset allocation, subscribe to fund and account updates by e-mail, and change your address, 24 hours a day.
Obtain prospectuses and applications,
blank forms, interactive worksheets, news about DWS funds, retirement planning information, and more.
|
|
Written Correspondence
|
|
Deutsche Asset & Wealth Management
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 ended June 30 are available on our Web site — dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 728-3337.
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Portfolio Holdings
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Following the fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. This form will be available on the SEC's Web site at 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. The fund's portfolio holdings are also posted on dws-investments.com from time to time. Please see the fund's current prospectus for more information.
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Principal Underwriter
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If you have questions, comments or complaints, contact:
DWS Investments Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
(800) 621-1148
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Share Price
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To obtain the fund's most recent share price, go to dws-investments.com or call (800) 728-3337.
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Investment Management
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Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset & Wealth Management, is the investment advisor for the 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 both institutional and retail clients.
DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution engaged in a wide variety of financial services, including investment management, retail, private and commercial banking, investment banking and insurance.
Deutsche Asset & Wealth Management is the retail brand name in the U.S. for the wealth management and asset management activities of Deutsche Bank AG and DIMA. Deutsche Asset & Wealth Management is committed to delivering the investing expertise, insight and resources of this global investment platform to American investors.
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Class A
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Class B
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Class C
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Class S
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Institutional Class
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Nasdaq Symbol
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SKNRX
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SKBRX
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SKCRX
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SKSRX
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SKIRX
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CUSIP Number
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23337G 225
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23337G 233
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23337G 241
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23337G 258
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23337G 266
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Fund Number
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485
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685
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785
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2085
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817
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FACTS
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What Does Deutsche Asset & Wealth Management Do With Your Personal Information?
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Why?
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Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share and protect your personal information. Please read this notice carefully to understand what we do.
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What?
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The types of personal information we collect and share can include:
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Social Security number
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Account balances
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Purchase and transaction history
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Bank account information
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Contact information such as mailing address, e-mail address and telephone number
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How?
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All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information, the reasons Deutsche Asset & Wealth Management chooses to share and whether you can limit this sharing.
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Reasons we can share your personal information
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Does Deutsche Asset & Wealth Management share?
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Can you limit this sharing?
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For our everyday business purposes —
such as to process your transactions, maintain your account(s), respond to court orders or legal investigations
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Yes
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No
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For our marketing purposes —
to offer our products and services to you
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Yes
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No
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For joint marketing with other financial companies
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No
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We do not share
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For our affiliates' everyday business purposes —
information about your transactions and experiences
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No
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We do not share
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For our affiliates' everyday business purposes —
information about your creditworthiness
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No
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We do not share
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For non-affiliates to market to you
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No
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We do not share
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Questions?
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Call (800) 728-3337 or e-mail us at service@dws.com
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Who we are
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Who is providing this notice?
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DWS Investments Distributors, Inc.; Deutsche Investment Management Americas Inc.; DeAM Investor Services, Inc.; DWS Trust Company; the DWS Funds
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What we do
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How does Deutsche Asset & Wealth Management protect my personal information?
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To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
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How does Deutsche Asset & Wealth Management collect my personal information?
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We collect your personal information, for example. When you:
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open an account
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give us your contact information
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provide bank account information for ACH or wire transactions
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tell us where to send money
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seek advice about your investments
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Why can't I limit all sharing?
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Federal law gives you the right to limit only
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sharing for affiliates' everyday business purposes — information about your creditworthiness
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affiliates from using your information to market to you
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sharing for non-affiliates to market to you
State laws and individual companies may give you additional rights to limit sharing.
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Definitions
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Affiliates
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Companies related by common ownership or control. They can be financial or non-financial companies. Our affiliates include financial companies with the DWS or Deutsche Bank ("DB") name, such as DB AG Frankfurt and DB Alex Brown.
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Non-affiliates
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Companies not related by common ownership or control. They can be financial and non-financial companies.
Non-affiliates we share with include account service providers, service quality monitoring services, mailing service providers and verification services to help in the fight against money laundering and fraud.
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Joint marketing
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A formal agreement between non-affiliated financial companies that together market financial products or services to you. Deutsche Asset & Wealth Management does not jointly market.
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Rev. 09/2013
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Notes
Notes
Notes