WASHINGTON, D. C. 20549
January 31, 2014
Semiannual Report
to Shareholders
DWS Target 2014 Fund
Contents
5 Portfolio Management Team 8 Statement of Assets and Liabilities 9 Statement of Operations 10 Statement of Changes in Net Assets 12 Notes to Financial Statements 19 Information About Your Fund's Expenses 21 Advisory Agreement Board Considerations and Fee Evaluation 26 Account Management Resources |
This report must be preceded by a prospectus. The prospectus contains the fund's objectives, risks, charges and expenses, and other important information about the fund.
Although allocation among different asset categories generally limits risk, portfolio management may favor an asset category that underperforms other assets or markets as a whole. Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Because Exchange Traded Funds ("ETFs") trade on a securities exchange, their shares may trade at a premium or discount to their net asset value. ETFs also incur fees and expenses so they may not fully match the performance of the indexes they are designed to track. Stocks may decline in value. See the prospectus for details.
Deutsche Asset & Wealth Management represents the asset management and wealth management activities conducted by Deutsche Bank AG or any of its subsidiaries, including the Advisor and DWS Investments Distributors, Inc.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary January 31, 2014 (Unaudited) Average Annual Total Returns as of 1/31/14 |
| | 6-Month‡ | 1-Year | 5-Year | 10-Year |
| Unadjusted for Sales Charge | 0.84% | 2.69% | 4.14% | 3.63% |
Adjusted for the Maximum Sales Charge (max 5.00% load) | –4.20% | –2.45% | 3.07% | 3.10% |
S&P 500® Index† | 6.85% | 21.52% | 19.19% | 6.83% |
Barclays U.S. Treasury Index†† | 0.80% | –0.63% | 3.03% | 4.28% |
Average Annual Total Returns as of 12/31/13 (most recent calendar quarter end) |
| | | 1-Year | 5-Year | 10-Year |
| Unadjusted for Sales Charge | | 4.18% | 3.64% | 3.79% |
Adjusted for the Maximum Sales Charge (max 5.00% load) | | –1.03% | 2.58% | 3.26% |
S&P 500® Index† | | 32.39% | 17.94% | 7.41% |
Barclays U.S. Treasury Index†† | | –2.75% | 2.15% | 4.23% |
Performance in the Average Annual Total Returns table above and the Growth of an Assumed $10,000 Investment line graph that follows is historical and does not guarantee future results. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit dws-investments.com for the Fund's most recent month-end performance. Fund performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had.
The gross expense ratio of the Fund, as stated in the fee table of the prospectus dated December 1, 2013, is 1.27% and may differ from the expense ratio disclosed in the Financial Highlights table in this report.
The Fund may charge a 2% fee for redemptions of shares held less than 15 days.
Index returns do not reflect any fees or expenses and it is not possible to invest directly into an index.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
| Net Asset Value and Distribution Information | |
Net Asset Value: 1/31/14 | | $ | 7.61 | |
| 7/31/13 | | $ | 7.78 | |
Distribution Information: Six Months as of 1/31/14: Income Dividends | | $ | .24 | |
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
|
|
| Yearly periods ended January 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.0%. This results in a net initial investment of $9,500.
The growth of $10,000 is cumulative.
† The Standard & Poor's 500 (S&P 500) Index is an unmanaged, capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
†† The Barclays U.S. Treasury Index tracks the performance of U.S. Treasury obligations with a remaining maturity of one year or more.
‡ Total returns shown for periods less than one year are not annualized.
Portfolio Management Team
William Chepolis, CFA, Managing Director
Portfolio Manager of the fund. Began managing the fund in 2005.
— Joined Deutsche Asset & Wealth Management in 1998 after 13 years of experience as vice president and portfolio manager for Norwest Bank where he managed the bank's fixed income and foreign exchange portfolios.
— Portfolio Manager for Retail Fixed Income: New York.
— BIS, University of Minnesota.
Rahmila Nadi, Associate
Portfolio Manager of the fund. Began managing the fund in 2013.
— Joined Deutsche Asset & Wealth Management in 2012 after six years of experience at J.P. Morgan Chase in credit portfolio trading.
— BA, Columbia University, Columbia College; MBA, S.C. Johnson Graduate School of Management at Cornell University.
Portfolio Summary (Unaudited)
Investment Portfolio as of January 31, 2014 (Unaudited) | | | Principal Amount ($) | | | Value ($) | |
| | | | |
| Government & Agency Obligation 81.4% | |
| U.S. Treasury Obligation | |
| U.S. Treasury STRIPS, 4.456%*, 11/15/2014 (a) (Cost $16,725,459) | | | 17,316,000 | | | | 17,301,905 | |
| | | Shares | | | Value ($) | |
| | | | |
| Exchange-Traded Funds 18.6% | |
| iShares S&P 500 Index Fund | | | 10,220 | | | | 1,830,402 | |
| SPDR S&P 500 ETF Trust | | | 11,949 | | | | 2,129,073 | |
Total Exchange-Traded Funds (Cost $2,497,654) | | | | 3,959,475 | |
| | |
| Securities Lending Collateral 47.9% | |
| Daily Assets Fund Institutional, 0.08% (b) (c) (Cost $10,178,801) | | | 10,178,801 | | | | 10,178,801 | |
| | |
| Cash Equivalents 0.2% | |
| Central Cash Management Fund, 0.04% (b) (Cost $39,876) | | | 39,876 | | | | 39,876 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $29,441,790)† | | | 148.1 | | | | 31,480,057 | |
| Other Assets and Liabilities, Net | | | (48.1 | ) | | | (10,230,847 | ) |
| Net Assets | | | 100.0 | | | | 21,249,210 | |
* Annualized yield at time of purchase; not a coupon rate.
† The cost for federal income tax purposes was $29,441,790. At January 31, 2014, net unrealized appreciation for all securities based on tax cost was $2,038,267. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $2,038,267 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $0.
(a) All or a portion of these securities were on loan. In addition, "Other Assets and Liabilities, Net" may include pending sales that are also on loan. The value of securities loaned at January 31, 2014 amounted to $9,964,882, which is 46.9% of net assets.
(b) Affiliated fund managed by Deutsche Investment Management Americas Inc. The rate shown is the annualized seven-day yield at period end.
(c) Represents collateral held in connection with securities lending. Income earned by the Fund is net of borrower rebates.
S&P: Standard & Poor's
SPDR: Standard & Poor's Depositary Receipt
STRIPS: Separate Trading of Registered Interest and Principal Securities
Fair Value Measurements
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.
The following is a summary of the inputs used as of January 31, 2014 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.
| Assets | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | |
| Government & Agency Obligation | | $ | — | | | $ | 17,301,905 | | | $ | — | | | $ | 17,301,905 | |
| Exchange-Traded Funds | | | 3,959,475 | | | | — | | | | — | | | | 3,959,475 | |
| Short-Term Investments (d) | | | 10,218,677 | | | | — | | | | — | | | | 10,218,677 | |
| Total | | $ | 14,178,152 | | | $ | 17,301,905 | | | $ | — | | | $ | 31,480,057 | |
There have been no transfers between fair value measurement levels during the period ended January 31, 2014.
(d) See Investment Portfolio for additional detailed categorizations.
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities | as of January 31, 2014 (Unaudited) | |
| Assets | |
Investments: Investments in non-affiliated securities, at value (cost $19,223,113) — including $9,964,882 of securities loaned | | $ | 21,261,380 | |
| Investment in Daily Assets Fund Institutional (cost $10,178,801)* | | | 10,178,801 | |
| Investment in Central Cash Management Fund (cost $39,876) | | | 39,876 | |
| Total investments, at value (cost $29,441,790) | | | 31,480,057 | |
| Cash | | | 10,000 | |
| Interest receivable | | | 1,111 | |
| Other assets | | | 10,075 | |
| Total assets | | | 31,501,243 | |
| Liabilities | |
| Payable upon return of securities loaned | | | 10,178,801 | |
| Payable for Fund shares redeemed | | | 24,163 | |
| Accrued management fee | | | 1,062 | |
| Accrued Trustees' fees | | | 619 | |
| Other accrued expenses and payables | | | 47,388 | |
| Total liabilities | | | 10,252,033 | |
| Net assets, at value | | $ | 21,249,210 | |
| Net Assets Consist of | |
| Distributions in excess of net investment income | | | (28,912 | ) |
| Net unrealized appreciation (depreciation) on investments | | | 2,038,267 | |
| Accumulated net realized gain (loss) | | | (363,480 | ) |
| Paid-in capital | | | 19,603,335 | |
| Net assets, at value | | $ | 21,249,210 | |
| Net Asset Value | |
Net Asset Value and redemption price(a) per share ($21,249,210 ÷ 2,793,537 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 7.61 | |
* Represents collateral on securities loaned.
(a) Redemption price per share for shares held less than 15 days is equal to net asset value less a 2% redemption fee.
The accompanying notes are an integral part of the financial statements.
| for the six months ended January 31, 2014 (Unaudited) | |
| Investment Income | |
Income: Dividends | | $ | 41,485 | |
| Interest | | | 383,738 | |
| Income distributions — Central Cash Management Fund | | | 10 | |
| Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates | | | 4,305 | |
| Total income | | | 429,538 | |
Expenses: Management fee | | | 44,499 | |
| Administration fee | | | 11,125 | |
| Services to shareholders | | | 14,542 | |
| Distribution and service fees | | | 26,625 | |
| Custodian fee | | | 3,074 | |
| Audit and tax fees | | | 19,968 | |
| Legal fees | | | 8,133 | |
| Reports to shareholders | | | 12,776 | |
| Registration fees | | | 3,764 | |
| Trustees' fees and expenses | | | 1,460 | |
| Other | | | 729 | |
| Total expenses before expense reductions | | | 146,695 | |
| Expense reductions | | | (19,420 | ) |
| Total expenses after expense reductions | | | 127,275 | |
| Net investment income | | | 302,263 | |
| Realized and Unrealized Gain (Loss) | |
| Net realized gain (loss) from investments | | | 226,277 | |
| Change in net unrealized appreciation (depreciation) on investments | | | (359,878 | ) |
| Net gain (loss) | | | (133,601 | ) |
| Net increase (decrease) in net assets resulting from operations | | $ | 168,662 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | Increase (Decrease) in Net Assets | | Six Months Ended January 31, 2014 (Unaudited) | | | Year Ended July 31, 2013 | |
Operations: Net investment income | | $ | 302,263 | | | $ | 631,645 | |
Operations: Net investment income | | $ | 302,263 | | | $ | 631,645 | |
| Net realized gain (loss) | | | 226,277 | | | | 322,665 | |
| Change in net unrealized appreciation (depreciation) | | | (359,878 | ) | | | (258,429 | ) |
| Net increase (decrease) in net assets resulting from operations | | | 168,662 | | | | 695,881 | |
Distributions to shareholders from: Net investment income | | | (649,958 | ) | | | (683,640 | ) |
Fund share transactions: Reinvestment of distributions | | | 639,572 | | | | 683,640 | |
| Payments for shares redeemed | | | (1,898,980 | ) | | | (2,954,659 | ) |
| Net increase (decrease) in net assets from Fund share transactions | | | (1,259,408 | ) | | | (2,271,019 | ) |
| Increase (decrease) in net assets | | | (1,740,704 | ) | | | (2,258,778 | ) |
| Net assets at beginning of period | | | 22,989,914 | | | | 25,248,692 | |
| Net assets at end of period (including distributions in excess of net investment income and undistributed net investment income of $28,912 and $318,783, respectively) | | $ | 21,249,210 | | | $ | 22,989,914 | |
| Other Information | |
| Shares outstanding at beginning of period | | | 2,954,356 | | | | 3,247,422 | |
| Shares issued to shareholders in reinvestment of distributions | | | 84,042 | | | | 90,534 | |
| Shares redeemed | | | (244,861 | ) | | | (383,600 | ) |
| Net increase (decrease) in Fund shares | | | (160,819 | ) | | | (293,066 | ) |
| Shares outstanding at end of period | | | 2,793,537 | | | | 2,954,356 | |
The accompanying notes are an integral part of the financial statements.
| | | | | | Years Ended July 31, | |
| | | Six Months Ended 1/31/14 (Unaudited) | | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | |
| Selected Per Share Data | |
| Net asset value, beginning of period | | $ | 7.78 | | | $ | 7.77 | | | $ | 7.84 | | | $ | 7.68 | | | $ | 7.27 | | | $ | 7.51 | |
Income (loss) from investment operations: Net investment incomea | | | .11 | | | | .20 | | | | .20 | | | | .19 | | | | .19 | | | | .19 | |
| Net realized and unrealized gain (loss) | | | (.04 | ) | | | .03 | | | | (.07 | ) | | | .18 | | | | .42 | | | | (.23 | ) |
| Total from investment operations | | | .07 | | | | .23 | | | | .13 | | | | .37 | | | | .61 | | | | (.04 | ) |
Less distributions from: Net investment income | | | (.24 | ) | | | (.22 | ) | | | (.20 | ) | | | (.21 | ) | | | (.20 | ) | | | (.20 | ) |
| Net asset value, end of period | | $ | 7.61 | | | $ | 7.78 | | | $ | 7.77 | | | $ | 7.84 | | | $ | 7.68 | | | $ | 7.27 | |
Total Return (%)b | | | .84 | c** | | | 3.00 | c | | | 1.77 | | | | 4.84 | | | | 8.54 | | | | (.57 | ) |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | 21 | | | | 23 | | | | 25 | | | | 28 | | | | 31 | | | | 31 | |
| Ratio of expenses before expense reductions (%) | | | 1.32 | * | | | 1.26 | | | | 1.20 | | | | 1.18 | | | | 1.17 | | | | 1.20 | |
| Ratio of expenses after expense reductions (%) | | | 1.14 | * | | | 1.16 | | | | 1.20 | | | | 1.18 | | | | 1.17 | | | | 1.20 | |
| Ratio of net investment income (%) | | | 2.72 | * | | | 2.62 | | | | 2.64 | | | | 2.43 | | | | 2.56 | | | | 2.62 | |
| Portfolio turnover rate (%) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 35 | | | | 39 | |
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charge. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized | |
Notes to Financial Statements (Unaudited)
A. Organization and Significant Accounting Policies
DWS Target 2014 Fund (the "Fund") is a diversified series of DWS Target Fund (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.
By investing in Zero Coupon Treasuries, the Fund seeks to assure that investors who reinvest all dividends and hold their shares until the Maturity Date (November 15, 2014) will receive at least their original investment on the Maturity Date. This assurance is further backed by an agreement entered into between Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Fund's investment manager, and the Fund. Under this agreement, the Advisor has agreed to make, if necessary, sufficient payments on the Fund's Maturity Date to the investors who have reinvested all dividends and held their investments in the Fund to the Maturity Date to enable them to receive on that date, an aggregate amount of redemption proceeds and payments equal to the amount of their original investment, including any applicable sales charge. The Fund accounts for this agreement as a derivative pursuant to ASC Topic 815, Accounting for Derivatives and Hedging Activities. Management values the derivative through comparison of the expected maturity date value of the Zero Coupon Treasuries to DIMA's obligation under the agreement. As the expected maturity date value of the Zero Coupon Treasuries exceeds the obligation under the agreement, the value of the agreement is considered to be immaterial to the Fund at January 31, 2014. Fund shares were sold during a limited offering period and are redeemable on a continuous basis. The Fund is no longer offering shares to new or existing shareholders except through dividend reinvestment. The Fund's returns will fluctuate and there is no assurance that the Fund will achieve its objective of long-term capital growth.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
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.
Exchange-traded funds ("ETFs") are valued at the most recent sale price or official closing price reported on the exchange (U.S. or foreign) or over-the-counter market on which they trade. ETFs for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation. Equity securities are generally categorized as Level 1.
Debt securities 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. These securities are generally categorized as Level 2.
Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.
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 Investment Portfolio.
Securities Lending. Deutsche Bank AG, 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 effort 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.
As of January 31, 2014, the Fund had securities on loan. The value of the related collateral exceeded the value of the securities loaned at period end.
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.
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 July 31, 2013, the Fund had a net tax basis capital loss carryforward of approximately $590,000 of pre-enactment losses, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until the Fund matures.
The Fund has reviewed the tax positions for the open tax years as of July 31, 2013 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain 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 annually. 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 certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
Redemption Fees. The Fund imposes a redemption fee of 2% of the total redemption amount on the Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in capital. For the six months ended January 31, 2014, there were no redemption fees imposed by the Fund.
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. Dividend income is recorded on the ex-dividend date. 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 premiums and discounts are amortized/accreted for both tax and financial reporting purposes.
B. Purchases and Sales of Securities
During the six months ended January 31, 2014, purchases and sales of investment securities (excluding short-term investments and U.S. Treasury obligations) aggregated $0 and $449,351, respectively. Purchases and sales of U.S. Treasury obligations aggregated $34,966 and $1,601,928, respectively.
C. Related Parties
Management Agreement. Under the Investment Management Agreement, 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. The management fee payable under the Investment Management Agreement is equal to an annualized effective rate (exclusive of any applicable waivers/reimbursements) of 0.40% of average daily net assets, computed and accrued daily and payable monthly.
For the period from August 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) at 1.15% of the Fund's average daily net assets.
Effective October 1, 2013 through September 30, 2014, the Advisor has contractually agreed to waive its fee 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 expense) at 1.14% of the Fund's average daily net assets.
For the six months ended January 31, 2014, fees waived and/or expenses reimbursed amounted to $19,420.
Administration Fee. Pursuant to the 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 January 31, 2014, the Administration Fee was $11,125, of which $1,829 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 January 31, 2014, the amount charged to the Fund by DISC aggregated $9,054, all of which is unpaid.
Distribution Service Fee. Under the Fund's 12b-1 Plan, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, provides information and administrative services for a fee ("Service Fee") to shareholders at an annual rate of up to 0.25% of average daily net assets. 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 January 31, 2014, the Service Fee was $26,625, of which $16,392 is unpaid. Accordingly, for the six months ended January 31, 2014, the Service Fee was equivalent to an annualized effective rate of 0.24% of the Fund's average daily net assets.
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 January 31, 2014, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $6,130, of which $570 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.
Security Lending Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the six months ended January 31, 2014, the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $479.
D. 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 January 31, 2014.
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) and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (August 1, 2013 to January 31, 2014).
The tables illustrate your Fund's expenses in two ways:
—Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.
— Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. If these transaction costs had been included, your costs would have been higher.
Expenses and Value of a $1,000 Investment for the six months ended January 31, 2014 (Unaudited) | |
| Actual Fund Return | | | |
| Beginning Account Value 8/1/13 | | $ | 1,000.00 | |
| Ending Account Value 1/31/14 | | $ | 1,008.40 | |
| Expenses Paid per $1,000* | | $ | 5.77 | |
| Hypothetical 5% Fund Return | | | | |
| Beginning Account Value 8/1/13 | | $ | 1,000.00 | |
| Ending Account Value 1/31/14 | | $ | 1,019.46 | |
| Expenses Paid per $1,000* | | $ | 5.80 | |
* Expenses are equal to the Fund's annualized expense ratio, 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 Ratio | |
| DWS Target 2014 Fund | 1.14% |
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 Target 2014 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 but one 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 Fixed Income and Asset Allocation 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, and that the Agreement was approved by the Fund's shareholders. 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 was in the 4th quartile 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 underperformed its benchmark in the one-, three- 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 lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2012). The Board noted that the Fund's total (net) operating expenses (excluding 12b-1 fees) were expected to be lower than the median (2nd 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 considered the Fund's management fee rate as compared to fees charged by DIMA to comparable funds, noting that DIMA indicated that it does not provide services to any other 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 limitation 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.
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 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. 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. |
| Portfolio Holdings | | 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. |
| Principal Underwriter | | If you have questions, comments or complaints, contact: DWS Investments Distributors, Inc. 222 South Riverside Plaza Chicago, IL 60606-5808 (800) 621-1148 |
| Investment Management | | 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. |
| |
| Nasdaq Symbol | | KRFEX |
| CUSIP Number | | 23337N 709 |
| Fund Number | | 55 |
| FACTS | | What Does Deutsche Asset & Wealth Management Do With Your Personal Information? |
| Why? | | 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. |
| What? | | The types of personal information we collect and share can include: — Social Security number — Account balances — Purchase and transaction history — Bank account information — Contact information such as mailing address, e-mail address and telephone number |
| How? | | 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. |
| Reasons we can share your personal information | | Does Deutsche Asset & Wealth Management share? | Can you limit this sharing? |
For our everyday business purposes — such as to process your transactions, maintain your account(s), respond to court orders or legal investigations | | Yes | No |
For our marketing purposes — to offer our products and services to you | | Yes | No |
| For joint marketing with other financial companies | | No | We do not share |
For our affiliates' everyday business purposes — information about your transactions and experiences | | No | We do not share |
For our affiliates' everyday business purposes — information about your creditworthiness | | No | We do not share |
| For non-affiliates to market to you | | No | We do not share |
| Questions? | | Call (800) 728-3337 or e-mail us at service@dws.com | |
| | | | | |
| Who we are |
| Who is providing this notice? | | DWS Investments Distributors, Inc.; Deutsche Investment Management Americas Inc.; DeAM Investor Services, Inc.; DWS Trust Company; the DWS Funds |
| What we do |
| How does Deutsche Asset & Wealth Management protect my personal information? | | 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. |
| How does Deutsche Asset & Wealth Management collect my personal information? | | We collect your personal information, for example. When you: — open an account — give us your contact information — provide bank account information for ACH or wire transactions — tell us where to send money — seek advice about your investments |
| Why can't I limit all sharing? | | Federal law gives you the right to limit only — sharing for affiliates' everyday business purposes — information about your creditworthiness — affiliates from using your information to market to you — sharing for non-affiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
| Definitions |
| Affiliates | | 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. |
| Non-affiliates | | 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. |
| Joint marketing | | 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. |
| | | | Rev. 09/2013 |
Notes
Notes
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
