WASHINGTON, D. C. 20549
OCTOBER 31, 2010 Semiannual Report to Shareholders |
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Government & Agency Securities Portfolio DWS Government & Agency Money Fund |
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Contents
3 Information About Your Fund's Expenses 9 Statement of Assets and Liabilities 11 Statement of Operations 12 Statement of Changes in Net Assets 14 Notes to Financial Statements 21 Investment Management Agreement Approval 25 Summary of Management Fee Evaluation by Independent Fee Consultant 29 Summary of Administrative Fee Evaluation by Independent Fee Consultant |
This report must be preceded or accompanied by a prospectus. To obtain a summary prospectus, if available, or prospectus for any of our funds, visit www.dws-investments.com. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the fund. Please read the prospectus carefully before you invest.
An investment in this fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or by any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The share price of money market funds can fall below the $1.00 share price. You should not rely on or expect the Advisor to enter into support agreements or take other actions to maintain the fund's $1.00 share price. The credit quality of the fund's holdings can change rapidly in certain markets, and the default of a single holding could have an adverse impact on the fund's share price. The fund's share price can also be negatively affected during periods of high redemption pressures and/or illiquid markets. The actions of a few large investors in one class of shares of the fund may have a significant adverse effect on the share prices of all classes of shares of the fund. See the prospectus for specific details regarding the fund's risk profile.
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 — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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 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 for the DWS Government & Agency Money Fund. 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 pe riod (May 1, 2010 to October 31, 2010).
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 each Fund using each 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 each Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using each 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 October 31, 2010 | |
| Actual Fund Return | | DWS Government & Agency Money Fund | |
| Beginning Account Value 5/1/10 | | $ | 1,000.00 | |
| Ending Account Value 10/31/10 | | $ | 1,000.10 | |
| Expenses Paid per $1,000* | | $ | 1.31 | |
| Hypothetical 5% Fund Return | | | | |
| Beginning Account Value 5/1/10 | | $ | 1,000.00 | |
| Ending Account Value 10/31/10 | | $ | 1,023.89 | |
| Expenses Paid per $1,000* | | $ | 1.33 | |
* Expenses are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.
| Annualized Expense Ratio | |
| DWS Government & Agency Money Fund | .26% |
For more information, please refer to the Fund's prospectus.
Government & Agency Securities Portfolio
Asset Allocation (As a % of Investment Portfolio) | 10/31/10 | 4/30/10 |
| | | |
| Government & Agency Obligations | 92% | 85% |
| Repurchase Agreements | 8% | 15% |
| | 100% | 100% |
| Weighted Average Maturity | 10/31/10 | 4/30/10 |
| | | |
| Cash Account Trust — Government & Agency Securities Portfolio | 46 days | 52 days |
| iMoneyNet Government & Agencies Retail Money Fund Average* | 37 days | 45 days |
* The Fund is compared to its respective iMoney Net Category: Government & Agencies Retail Money Fund Average consists of all non-institutional government money market funds. Category includes the most broadly based of the government retail funds. These funds can invest in US Treasuries, US Other, Repos, whether or not they are backed by US Treasuries and government-backed Floating Rate Notes.
Weighted average maturity, also known as effective maturity, is the weighted average of the bonds held by the Fund taking into consideration any maturity shortening features.
Asset allocation and weighted average maturity are subject to change.
For more complete details about the Fund's holdings, see pages 6-8. A quarterly Fact Sheet is available upon request.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. In addition, each month beginning December 2010, information about the Fund and its portfolio holdings is filed with the SEC on Form N-MFP. The SEC delays the public availability of the information filed on Form N-MFP for 60 days after the end of the reporting period included in the filing. These forms will be available on the SEC's Web site at www.sec.gov, and they may also 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 www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.
Investment Portfolio as of October 31, 2010 (Unaudited)
Government & Agency Securities Portfolio
| | | Principal Amount ($) | | | Value ($) | |
| | | | |
| Government & Agency Obligations 88.6% | |
| US Government Sponsored Agencies 85.5% | |
| Federal Farm Credit Bank: | |
| 0.072%**, 12/17/2010 | | | 25,000,000 | | | | 24,998,679 | |
| 0.18%**, 11/4/2010 | | | 92,000,000 | | | | 92,000,000 | |
| 0.186%**, 12/23/2010 | | | 50,000,000 | | | | 49,999,564 | |
| 0.226%**, 2/4/2011 | | | 75,000,000 | | | | 74,990,119 | |
| 0.255%**, 2/28/2011 | | | 50,000,000 | | | | 50,001,709 | |
| 0.255%**, 3/28/2011 | | | 40,000,000 | | | | 39,993,537 | |
| 0.276%**, 1/20/2011 | | | 94,655,000 | | | | 94,654,973 | |
| 0.506%**, 12/23/2010 | | | 70,000,000 | | | | 70,022,230 | |
| Federal Home Loan Bank: | |
| 0.186%**, 1/14/2011 | | | 100,000,000 | | | | 100,000,000 | |
| 0.189%**, 11/17/2010 | | | 229,225,000 | | | | 229,223,795 | |
| 0.195%**, 11/19/2010 | | | 250,000,000 | | | | 249,997,537 | |
| 0.226%**, 9/26/2011 | | | 12,500,000 | | | | 12,499,441 | |
| 0.25%, 12/28/2010 | | | 18,275,000 | | | | 18,274,317 | |
| 0.25%, 6/29/2011 | | | 31,920,000 | | | | 31,915,162 | |
| 0.26%, 1/25/2011 | | | 40,000,000 | �� | | | 39,997,495 | |
| 0.39%**, 11/15/2010 | | | 170,000,000 | | | | 169,999,012 | |
| 0.5%, 11/12/2010 | | | 45,000,000 | | | | 45,000,310 | |
| 0.56%, 5/27/2011 | | | 22,000,000 | | | | 22,036,504 | |
| 0.75%, 7/8/2011 | | | 15,000,000 | | | | 15,046,751 | |
| 0.76%, 7/19/2011 | | | 33,500,000 | | | | 33,617,661 | |
| Federal Home Loan Mortgage Corp.: | |
| 0.139%**, 11/10/2011 | | | 200,000,000 | | | | 200,000,000 | |
| 0.18%*, 11/17/2010 | | | 85,000,000 | | | | 84,992,822 | |
| 0.218%*, 2/23/2011 | | | 25,000,000 | | | | 24,982,583 | |
| 0.237%*, 1/18/2011 | | | 40,000,000 | | | | 39,979,200 | |
| 0.321%*, 12/7/2010 | | | 18,800,000 | | | | 18,793,796 | |
| 0.337%**, 1/28/2011 | | | 45,000,000 | | | | 45,017,961 | |
| 0.35%**, 4/1/2011 | | | 50,000,000 | | | | 50,056,035 | |
| Federal National Mortgage Association: | |
| 0.156%**, 7/27/2011 | | | 65,000,000 | | | | 64,968,483 | |
| 0.178%*, 2/14/2011 | | | 70,000,000 | | | | 69,963,250 | |
| 0.206%*, 11/15/2010 | | | 10,000,000 | | | | 9,999,145 | |
| 0.216%**, 9/19/2011 | | | 30,000,000 | | | | 29,998,640 | |
| 0.217%*, 1/18/2011 | | | 100,000,000 | | | | 99,952,333 | |
| 0.237%*, 1/19/2011 | | | 40,000,000 | | | | 39,978,933 | |
| 0.244%*, 12/13/2010 | | | 40,000,000 | | | | 39,988,333 | |
| 0.296%*, 1/18/2011 | | | 28,000,000 | | | | 27,981,800 | |
| 0.304%*, 12/20/2010 | | | 45,000,000 | | | | 44,981,013 | |
| 0.384%*, 11/15/2010 | | | 63,500,000 | | | | 63,489,875 | |
| 4.68%, 6/15/2011 | | | 15,000,000 | | | | 15,409,418 | |
| 4.75%, 12/15/2010 | | | 12,000,000 | | | | 12,064,521 | |
| | | | | 2,446,866,937 | |
| US Treasury Obligations 3.1% | |
| US Treasury Bill, 0.208%*, 9/22/2011 | | | 17,500,000 | | | | 17,467,613 | |
| US Treasury Notes: | |
| 0.875%, 1/31/2011 | | | 30,000,000 | | | | 30,051,600 | |
| 1.0%, 9/30/2011 | | | 17,500,000 | | | | 17,622,675 | |
| 4.5%, 11/15/2010 | | | 25,000,000 | | | | 25,039,539 | |
| | | | | 90,181,427 | |
Total Government & Agency Obligations (Cost $2,537,048,364) | | | | 2,537,048,364 | |
| | |
| Repurchase Agreements 7.8% | |
| Banc of America Securities LLC, 0.23% dated 10/29/2010, to be repurchased at $52,627,819 on 11/1/2010 (a) | | | 52,626,810 | | | | 52,626,810 | |
| BNP Paribas, 0.23% dated 10/29/2010, to be repurchased at $28,061,975 on 11/1/2010 (b) | | | 28,061,437 | | | | 28,061,437 | |
| Morgan Stanley & Co., Inc., 0.21% dated 10/29/2010, to be repurchased at $101,998,636 on 11/1/2010 (c) | | | 101,996,851 | | | | 101,996,851 | |
| The Goldman Sachs & Co., 0.22% dated 10/29/2010, to be repurchased at $40,179,547 on 11/1/2010 (d) | | | 40,178,810 | | | | 40,178,810 | |
Total Repurchase Agreements (Cost $222,863,908) | | | | 222,863,908 | |
| | | % of Net Assets | | | Value ($) | |
| | | | |
Total Investment Portfolio (Cost $2,759,912,272)+ | | | 96.4 | | | | 2,759,912,272 | |
| Other Assets and Liabilities, Net | | | 3.6 | | | | 102,471,875 | |
| Net Assets | | | 100.0 | | | | 2,862,384,147 | |
* Annualized yield at time of purchase; not a coupon rate.
** These securities are shown at their current rate as of October 31, 2010. Floating rate securities' yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate.
+ The cost for federal income tax purposes was $2,759,912,272.
(a) Collateralized by $50,137,827 Government National Mortgage Association, with various coupon rates from 4.0-5.0%, with various maturity dates of 5/20/2040-10/15/2040 with a value of $53,679,346.
(b) Collateralized by $28,212,000 Federal National Mortgage Association, 2.95%, maturing on 5/5/2015 with a value of $28,623,002.
(c) Collateralized by:
| Principal Amount ($) | | Security | | Rate (%) | | Maturity Date | | Collateral Value ($) | |
| | 9,514,190 | | Federal National Mortgage Association | | | 3.5 | | 11/1/2040 | | | 9,595,624 | |
| | 22,198,192 | | Government National Mortgage Association | | | 4.0 | | 6/20/2039 | | | 22,875,084 | |
| | 516,763,189 | | Government National Mortgage Association — Interest Only | | | 6.044-6.444 | | 11/20/2038-7/20/2040 | | | 71,889,260 | |
| Total Collateral Value | | | 104,359,968 | |
(d) Collateralized by $40,990,000 Federal National Mortgage Association, 0.65%, maturing on 10/21/2013 with a value of $40,983,214.
Interest Only: Interest Only (IO) bonds represent the "interest only" portion of payments on a pool of underlying mortgages or mortgage-backed securities. IO securities are subject to prepayment risk of the pool of underlying mortgages.
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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Most securities held by a money market fund are reflected as Level 2 because the securities are valued at amortized cost (whi ch approximates fair value) and, accordingly, the inputs used to determine value are not quoted prices in an active market.
The following is a summary of the inputs used as of October 31, 2010 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 Obligations (e) | | $ | — | | | $ | 2,537,048,364 | | | $ | — | | | $ | 2,537,048,364 | |
| Repurchase Agreements | | | — | | | | 222,863,908 | | | | — | | | | 222,863,908 | |
| Total | | $ | — | | | $ | 2,759,912,272 | | | $ | — | | | $ | 2,759,912,272 | |
There have been no transfers in and out of Level 1 and Level 2 fair value measurements during the period ended October 31, 2010.
(e) 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 October 31, 2010 (Unaudited) | |
| Assets | | Government & Agency Securities Portfolio | |
Investments: Investments in securities, at value (cost $2,537,048,364) | | $ | 2,537,048,364 | |
| Repurchase agreements, at value (cost $222,863,908) | | | 222,863,908 | |
| Total investments, at value (cost $2,759,912,272) | | | 2,759,912,272 | |
| Cash | | | 7 | |
| Receivable for investments sold | | | 101,200,000 | |
| Receivable for Fund shares sold | | | 101,909 | |
| Interest receivable | | | 2,586,416 | |
| Due from Advisor | | | 8,615 | |
| Other assets | | | 221,702 | |
| Total assets | | | 2,864,030,921 | |
| Liabilities | |
| Payable for Fund shares redeemed | | | 201,724 | |
| Distributions payable | | | 42,450 | |
| Accrued management fee | | | 141,970 | |
| Other accrued expenses and payables | | | 1,260,630 | |
| Total liabilities | | | 1,646,774 | |
| Net assets, at value | | $ | 2,862,384,147 | |
| Net Assets Consist of | |
| Undistributed net investment income | | | 168,845 | |
| Accumulated net realized gain (loss) | | | (698,634 | ) |
| Paid-in capital | | | 2,862,913,936 | |
| Net assets, at value | | $ | 2,862,384,147 | |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of October 31, 2010 (Unaudited) (continued) | |
| Net Asset Value | | Government & Agency Securities Portfolio | |
Capital Assets Funds Shares Net Asset Value, offering and redemption price per share ($290,403,968 ÷ 290,455,917 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
Davidson Cash Equivalent Shares Net Asset Value, offering and redemption price per share ($21,901,494 ÷ 21,905,412 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
Davidson Cash Equivalent Plus Shares Net Asset Value, offering and redemption price per share ($64,440,311 ÷ 64,451,838 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
DWS Government & Agency Money Fund Net Asset Value, offering and redemption price per share ($200,446,222 ÷ 200,482,095 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
DWS Government Cash Institutional Shares Net Asset Value, offering and redemption price per share ($1,945,484,194 ÷ 1,945,832,200 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
Government Cash Managed Shares Net Asset Value, offering and redemption price per share ($213,475,957 ÷ 213,514,144 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
Service Shares Net Asset Value, offering and redemption price per share ($126,232,001 ÷ 126,254,582 outstanding shares of beneficial interest, no par value, unlimited number of shares authorized) | | $ | 1.00 | |
The accompanying notes are an integral part of the financial statements.
| for the six months ended October 31, 2010 (Unaudited) | |
| Investment Income | | Government & Agency Securities Portfolio | |
Income: Interest | | $ | 6,476,205 | |
Expenses: Management fee | | | 1,279,226 | |
| Administration fee | | | 2,391,155 | |
| Services to shareholders | | | 1,041,262 | |
| Custodian fee | | | 126,537 | |
| Distribution and service fees | | | 1,619,569 | |
| Professional fees | | | 101,467 | |
| Trustees' fees and expenses | | | 162,445 | |
| Reports to shareholders | | | 237,699 | |
| Registration fees | | | 66,206 | |
| Other | | | 235,565 | |
| Total expenses before expense reductions | | | 7,261,131 | |
| Expense reductions | | | (2,174,444 | ) |
| Total expenses after expense reductions | | | 5,086,687 | |
| Net investment income | | | 1,389,518 | |
| Net realized gain (loss) from investments | | | (698,634 | ) |
| Net increase (decrease) in net assets resulting from operations | | $ | 690,884 | |
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | | | Government & Agency Securities Portfolio | |
| | | Six Months Ended October 31, 2010 (Unaudited) | | | Year Ended April 30, 2010 | |
Operations: Net investment income | | $ | 1,389,518 | | | $ | 18,279,158 | |
| Net realized gain (loss) | | | (698,634 | ) | | | 683,254 | |
| Net increase in net assets resulting from operations | | | 690,884 | | | | 18,962,412 | |
Distributions to shareholders from: Net investment income: Capital Assets Funds Shares | | | (15,131 | ) | | | (30,842 | ) |
| Davidson Cash Equivalent Shares | | | (1,137 | ) | | | (2,419 | ) |
| Davidson Cash Equivalent Plus Shares | | | (3,009 | ) | | | (3,042 | ) |
| DWS Government & Agency Money Fund | | | (10,184 | ) | | | (168,152 | ) |
| DWS Government Cash Institutional Shares | | | (1,364,945 | ) | | | (17,853,361 | ) |
| Government Cash Managed Shares | | | (11,387 | ) | | | (46,318 | ) |
| Premier Money Market Shares | | | — | | | | (176,438 | ) |
| Service Shares | | | (6,221 | ) | | | (13,091 | ) |
Net realized gains: Capital Assets Funds Shares | | | — | | | | (34,871 | ) |
| Davidson Cash Equivalent Shares | | | — | | | | (2,710 | ) |
| Davidson Cash Equivalent Plus Shares | | | — | | | | (2,843 | ) |
| DWS Government & Agency Money Fund | | | — | | | | (32,168 | ) |
| DWS Government Cash Institutional Shares | | | — | | | | (1,560,440 | ) |
| Government Cash Managed Shares | | | — | | | | (38,058 | ) |
| Premier Money Market Shares | | | — | | | | (242,870 | ) |
| Service Shares | | | — | | | | (14,378 | ) |
| Total distributions | | | (1,412,014 | ) | | | (20,222,001 | ) |
Fund share transactions: Proceeds from shares sold | | | 21,084,513,207 | | | | 89,328,240,895 | |
| Reinvestment of distributions | | | 701,073 | | | | 9,173,740 | |
| Cost of shares redeemed | | | (26,124,508,712 | ) | | | (101,467,650,200 | ) |
| Net increase (decrease) in net assets from Fund share transactions | | | (5,039,294,432 | ) | | | (12,130,235,565 | ) |
| Increase (decrease) in net assets | | | (5,040,015,562 | ) | | | (12,131,495,154 | ) |
| Net assets at beginning of period | | | 7,902,399,709 | | | | 20,033,894,863 | |
| Net assets at end of period (including undistributed net investment income of $168,845 and $191,341, respectively) | | $ | 2,862,384,147 | | | $ | 7,902,399,709 | |
The accompanying notes are an integral part of the financial statements.
Government & Agency Securities Portfolio DWS Government & Agency Money Fund | |
| Years Ended April 30, | | | 2010 | a | | | 2010 | | | | 2009 | | | | 2008 | | | | 2007 | b |
| Selected Per Share Data | |
| Net asset value, beginning of period | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
Income (loss) from investment operations: Net investment income | | | .000 | *** | | | .001 | | | | .014 | | | | .043 | | | | .006 | |
| Net realized and unrealized gain (loss) | | | .000 | *** | | | .000 | *** | | | .000 | *** | | | .000 | *** | | | .000 | *** |
| Total from investment operations | | | .000 | *** | | | .001 | | | | .014 | | | | .043 | | | | .006 | |
Less distributions from: Net investment income | | | (.000 | )*** | | | (.001 | ) | | | (.014 | ) | | | (.043 | ) | | | (.006 | ) |
| Net realized gains | | | — | | | | (.000 | )*** | | | — | | | | — | | | | — | |
| Total distributions | | | (.000 | )*** | | | (.001 | ) | | | (.014 | ) | | | (.043 | ) | | | (.006 | ) |
| Net asset value, end of period | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | |
Total Return (%)c | | | .01 | ** | | | .07 | | | | 1.41 | | | | 4.42 | | | | .60 | ** |
| Ratios to Average Net Assets and Supplemental Data | |
| Net assets, end of period ($ millions) | | | 200 | | | | 233 | | | | 325 | | | | 438 | | | | 436 | |
| Ratio of expenses before expense reductions (%) | | | .30 | * | | | .27 | | | | .26 | | | | .30 | | | | .30 | * |
| Ratio of expenses after expense reductions (%) | | | .26 | * | | | .26 | | | | .26 | | | | .28 | | | | .28 | * |
| Ratio of net investment income (%) | | | .01 | * | | | .06 | | | | 1.46 | d | | | 4.17 | | | | 5.06 | * |
a For the six months ended October 31, 2010 (Unaudited). b For the period from March 19, 2007 (commencement of operations) to April 30, 2007. c Total return would have been lower had certain expenses not been reduced. d Due to the timing of the subscriptions and redemptions, the amount shown does not correspond to the total return during the period. * Annualized ** Not annualized *** Amount is less than $.0005. | |
Notes to Financial Statements (Unaudited)
1. Organization and Significant Accounting Policies
Cash Account Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end investment management company organized as a Massachusetts business trust.
The Trust offers three funds: Money Market Portfolio, Government & Agency Securities Portfolio and Tax-Exempt Portfolio. These financial statements report on Government & Agency Securities Portfolio (the "Fund").
Government & Agency Securities Portfolio offers seven classes of shares: Capital Assets Funds Shares, Davidson Cash Equivalent Shares, Davidson Cash Equivalent Plus Shares, DWS Government & Agency Money Fund, DWS Government Cash Institutional Shares, Government Cash Managed Shares and Service Shares.
The financial highlights for all classes of shares, other than DWS Government & Agency Money Fund, are provided separately and are available upon request.
The Fund's 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 of the Fund, 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 Trust have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. 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 inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund values all securities utilizing the amortized cost method permitted in accordance with Rule 2a-7 under the 1940 Act and certain conditions therein. Under this method, which does not take into account unrealized capital gains or losses on securities, an instrument is initially valued at its cost and thereafter assumes a constant accretion/amortization rate to maturity of any discount or premium. Securities held by a money market fund are reflected as Level 2 because the securities are valued at amortized cost (which approximates fair value) and, accordingly, the inputs used to determine value are not quoted prices in an active market.
Repurchase Agreements. The Fund may enter into repurchase agreements with certain banks and broker/dealers whereby the Fund, through its custodian or sub-custodian bank, receives delivery of the underlying securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is equal to at least the principal amount of the repurchase price plus accrued interest. The custodial bank holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the fina ncial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, the Fund has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, the Fund's claims on the collateral may be subject to legal proceedings.
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 and tax-exempt income to its shareholders.
The Fund has reviewed the tax positions for the open tax years as of April 30, 2010 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. Net investment income of the Fund is declared as a daily dividend and is distributed to shareholders monthly. The Fund may take into account capital gains and losses in its daily dividend declarations. The Fund may also make additional distributions for tax purposes if necessary.
Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Temporary book and tax basis differences will reverse in a subsequent period. There were no significant book-to-tax differences for the Fund.
The tax character of current year distributions will be determined at the end of the current fiscal year.
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 pro rata on the basis of relative net assets among the Funds in the Trust.
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 trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for both tax and financial reporting purposes.
2. Related Parties
Management Agreement. Under an Amended and Restated 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.
The Fund pays a monthly management fee based on the combined average daily net assets of the three Funds and allocated to the Fund based on its relative net assets, computed and accrued daily and payable monthly, at the following annual rates:
| First $500 million of the Funds' combined average daily net assets | | | .120 | % |
| Next $500 million of such net assets | | | .100 | % |
| Next $1 billion of such net assets | | | .075 | % |
| Next $1 billion of such net assets | | | .060 | % |
| Over $3 billion of such net assets | | | .050 | % |
The Advisor has agreed to contractually reduce its management fee for the Fund such that the annual effective rate is limited to 0.05% of the Fund's average daily net assets.
Accordingly, for the six months ended October 31, 2010, the Advisor waived a portion of its management fee on the Fund aggregating $83,648 and the amount charged aggregated $1,195,578.
Accordingly, for the six months ended October 31, 2010, the Fund incurred a management fee equivalent to the following annualized effective rate of the Fund's average daily net assets:
| | Annualized Effective Rate |
| Government & Agency Securities Portfolio | .05% |
For the period from May 1, 2010 through January 31, 2011, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses of the DWS Government & Agency Money Fund to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) at 0.45%.
The Advisor also has agreed to maintain expenses of certain other classes of the Trust. These rates are disclosed in the respective share classes' annual reports that are provided separately and are available upon request.
In addition, the Advisor has agreed to voluntarily waive additional expenses. The waiver may be changed or terminated at any time without notice. Under these arrangements, the Advisor waived certain expenses on DWS Government & Agency Money Fund shares.
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 October 31, 2010, the Administration Fee was as follows:
| | | Administration Fee | | | Unpaid at October 31, 2010 | |
| Government & Agency Securities Portfolio | | $ | 2,391,155 | | | $ | 283,939 | |
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 October 31, 2010, the amounts charged to the Fund by DISC were as follows:
| Government & Agency Securities Portfolio: | | Total Aggregated | | | Waived | | | Unpaid at October 31, 2010 | |
| Capital Assets Funds Shares | | $ | 373,254 | | | $ | 268,028 | | | $ | 88,420 | |
| Davidson Cash Equivalent Shares | | | 28,718 | | | | 20,820 | | | | 5,569 | |
| Davidson Cash Equivalent Plus Shares | | | 59,963 | | | | 39,243 | | | | 14,481 | |
| DWS Government & Agency Money Fund | | | 112,327 | | | | 37,172 | | | | 44,127 | |
| DWS Government Cash Institutional Shares | | | 182,594 | | | | — | | | | 49,427 | |
| Government Cash Managed Shares | | | 72,500 | | | | — | | | | 50,388 | |
| Service Shares | | | 155,160 | | | | 111,945 | | | | 24,655 | |
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee"), calculated as a percentage of average daily net assets for the shares listed in the following table.
For the six months ended October 31, 2010, the Distribution Fee was as follows:
| Government & Agency Securities Portfolio: | | Distribution Fee | | | Waived | | | Annualized Effective Rate | | | Contractual Rate (Up To) | |
| Capital Assets Funds Shares | | $ | 499,195 | | | $ | 499,195 | | | | .00 | % | | | .33 | % |
| Davidson Cash Equivalent Shares | | | 34,110 | | | | 34,110 | | | | .00 | % | | | .30 | % |
| Davidson Cash Equivalent Plus Shares | | | 75,234 | | | | 75,234 | | | | .00 | % | | | .25 | % |
| Service Shares | | | 373,454 | | | | 373,454 | | | | .00 | % | | | .60 | % |
In addition, DIDI provides information and administrative services for a fee ("Service Fee") for the shares listed in the following table. A portion of these fees may be paid pursuant to a Rule 12b-1 plan.
For the six months ended October 31, 2010, the Service Fee was as follows:
| Government & Agency Securities Portfolio: | | Service Fee | | | Waived | | | Annualized Effective Rate | | | Contractual Rate (Up To) | |
| Capital Assets Funds Shares | | $ | 378,179 | | | $ | 378,179 | | | | .00 | % | | | .25 | % |
| Davidson Cash Equivalent Shares | | | 28,425 | | | | 28,425 | | | | .00 | % | | | .25 | % |
| Davidson Cash Equivalent Plus Shares | | | 60,187 | | | | 60,187 | | | | .00 | % | | | .20 | % |
| Government Cash Managed Shares | | | 170,785 | | | | 164,804 | | | | .00 | % | | | .15 | % |
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 October 31, 2010, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" expenses was as follows:
| | | Total Aggregated | | | Unpaid at October 31, 2010 | |
| Government & Agency Securities Portfolio | | $ | 31,442 | | | $ | 12,415 | |
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
3. Concentration of Ownership
From time to time, the Fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the Fund.
At October 31, 2010, one shareholder held approximately 11% of the outstanding shares of the Government & Agency Securities Portfolio.
4. Line of Credit
The Fund and other affiliated funds (the "Participants") share in a $450 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.
5. Share Transactions
The following table summarizes share and dollar activity in the Fund:
Government & Agency Securities Portfolio
| | | Six Months Ended October 31, 2010 | | | Year Ended April 30, 2010 | |
| | | Shares | | | Dollars | | | Shares | | | Dollars | |
| Shares sold | |
| Capital Assets Funds Shares | | | 222,518,651 | | | $ | 222,518,651 | | | | 649,627,293 | | | $ | 649,627,293 | |
| Davidson Cash Equivalent Shares | | | 16,037,098 | | | | 16,037,098 | | | | 14,397,365 | | | | 14,397,365 | |
| Davidson Cash Equivalent Plus Shares | | | 193,682,452 | | | | 193,682,452 | | | | 185,485,990 | | | | 185,485,990 | |
| DWS Government & Agency Money Fund | | | 31,384,329 | | | | 31,384,329 | | | | 105,758,351 | | | | 105,758,351 | |
| DWS Government Cash Institutional Shares | | | 19,613,012,148 | | | | 19,613,012,148 | | | | 86,737,251,385 | | | | 86,737,251,385 | |
| Government Cash Managed Shares | | | 857,433,537 | | | | 857,433,537 | | | | 1,141,762,346 | | | | 1,141,762,346 | |
| Premier Money Market Shares* | | | — | | | | — | | | | 265,266,569 | | | | 265,266,569 | |
| Service Shares | | | 150,444,992 | | | | 150,444,992 | | | | 228,691,596 | | | | 228,691,596 | |
| | | | | | | $ | 21,084,513,207 | | | | | | | $ | 89,328,240,895 | |
| Shares issued to shareholders in reinvestment of distributions | |
| Capital Assets Funds Shares | | | 14,964 | | | $ | 14,964 | | | | 65,880 | | | $ | 65,880 | |
| Davidson Cash Equivalent Shares | | | 1,126 | | | | 1,126 | | | | 5,141 | | | | 5,141 | |
| Davidson Cash Equivalent Plus Shares | | | 2,981 | | | | 2,981 | | | | 5,913 | | | | 5,913 | |
| DWS Government & Agency Money Fund | | | 9,850 | | | | 9,850 | | | | 195,740 | | | | 195,740 | |
| DWS Government Cash Institutional Shares | | | 663,394 | | | | 663,394 | | | | 8,526,918 | | | | 8,526,918 | |
| Government Cash Managed Shares | | | 2,608 | | | | 2,608 | | | | 8,301 | | | | 8,301 | |
| Premier Money Market Shares* | | | — | | | | — | | | | 338,346 | | | | 338,346 | |
| Service Shares | | | 6,150 | | | | 6,150 | | | | 27,501 | | | | 27,501 | |
| | | | | | | $ | 701,073 | | | | | | | $ | 9,173,740 | |
| Shares redeemed | |
| Capital Assets Funds Shares | | | (236,062,310 | ) | | $ | (236,062,310 | ) | | | (625,330,611 | ) | | $ | (625,330,611 | ) |
| Davidson Cash Equivalent Shares | | | (14,032,524 | ) | | | (14,032,524 | ) | | | (23,739,455 | ) | | | (23,739,455 | ) |
| Davidson Cash Equivalent Plus Shares | | | (179,467,448 | ) | | | (179,467,448 | ) | | | (158,769,431 | ) | | | (158,769,431 | ) |
| DWS Government & Agency Money Fund | | | (63,380,861 | ) | | | (63,380,861 | ) | | | (198,527,517 | ) | | | (198,527,517 | ) |
| DWS Government Cash Institutional Shares | | | (24,567,168,748 | ) | | | (24,567,168,748 | ) | | | (94,492,111,010 | ) | | | (94,492,111,010 | ) |
| Government Cash Managed Shares | | | (923,650,508 | ) | | | (923,650,508 | ) | | | (1,338,740,329 | ) | | | (1,338,740,329 | ) |
| Premier Money Market Shares* | | | — | | | | — | | | | (4,366,260,819 | ) | | | (4,366,260,819 | ) |
| Service Shares | | | (140,746,313 | ) | | | (140,746,313 | ) | | | (264,171,028 | ) | | | (264,171,028 | ) |
| | | | | | | $ | (26,124,508,712 | ) | | | | | | $ | (101,467,650,200 | ) |
| Net increase (decrease) | |
| Capital Assets Funds Shares | | | (13,528,695 | ) | | $ | (13,528,695 | ) | | | 24,362,562 | | | $ | 24,362,562 | |
| Davidson Cash Equivalent Shares | | | 2,005,700 | | | | 2,005,700 | | | | (9,336,949 | ) | | | (9,336,949 | ) |
| Davidson Cash Equivalent Plus Shares | | | 14,217,985 | | | | 14,217,985 | | | | 26,722,472 | | | | 26,722,472 | |
| DWS Government & Agency Money Fund | | | (31,986,682 | ) | | | (31,986,682 | ) | | | (92,573,426 | ) | | | (92,573,426 | ) |
| DWS Government Cash Institutional Shares | | | (4,953,493,206 | ) | | | (4,953,493,206 | ) | | | (7,746,332,707 | ) | | | (7,746,332,707 | ) |
| Government Cash Managed Shares | | | (66,214,363 | ) | | | (66,214,363 | ) | | | (196,969,682 | ) | | | (196,969,682 | ) |
| Premier Money Market Shares* | | | — | | | | — | | | | (4,100,655,904 | ) | | | (4,100,655,904 | ) |
| Service Shares | | | 9,704,829 | | | | 9,704,829 | | | | (35,451,931 | ) | | | (35,451,931 | ) |
| | | | | | | $ | (5,039,294,432 | ) | | | | | | $ | (12,130,235,565 | ) |
* The Premier Money Market Shares class was liquidated on February 16, 2010 and is no longer offered.
Investment Management Agreement Approval
The Board of Trustees, including the Independent Trustees, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DWS") in September 2010.
In terms of the process that the Board followed prior to approving the Agreement, shareholders should know that:
• In September 2010, all but one of the Fund's Trustees were independent of DWS and its affiliates.
• The Trustees meet frequently to discuss fund matters. Each year, the Trustees dedicate substantial 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 Quant Oversight Committee, reviewed comprehensive materials received from DWS, independent third parties and independent counsel. These materials included an analysis of the Fund's performance, fees and expenses, and profitability compiled by the Fund's independent fee consultant. The Board also received extensive information throughout the year regarding performance of the Fund.
• The Independent Trustees regularly meet privately with their independent counsel to discuss contract review and other matters. In addition, the Independent Trustees were also advised by the Fund's independent fee consultant in the course of their review of the Fund's contractual arrangements and considered a comprehensive report prepared by the independent fee consultant in connection with their deliberations (the "IFC Report").
• In connection with reviewing the Agreement, the Board also reviewed the terms of the Fund's Rule 12b-1 plan, distribution agreement, administrative services agreement, transfer agency agreement and other material service agreements.
• Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Independent Trustees as a group. The Independent Trustees reviewed the Contract Committee's findings and recommendations and presented their recommendations to the full Board.
In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DWS 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 DWS managed the Fund, and that the Agreement was approved by the Fund's shareholders. DWS is part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Board believes that there are significant advantages to being part of a global asset management business that offers a wide range of investin g expertise and resources, including hundreds of portfolio managers and analysts with research capabilities in many countries throughout the world.
While shareholders may focus primarily on fund performance and fees, the Fund's Board considers these and many other factors, including the quality and integrity of DWS'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, DWS provides portfolio management services to the Fund and that, pursuant to a separate administrative services agreement, DWS 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 DWS to attract and retain high-quality personnel, and the organizational depth and stability of DWS. The Board reviewed the Fund's performance and compared those returns to various agreed-upon performance measures, includin g a peer universe compiled by the independent fee consultant using information supplied by iMoneyNet Inc. ("iMoneyNet"). The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer universe compiled by iMoneyNet), and receives more frequent reporting and information from DWS regarding such funds, along with DWS'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-year period ended December 31, 2009, the Fund's gross performance (Government Cash Management Shares) was in the 1st quartile of the applicable iMoneyNet universe (the 1st quartile being the best performers and the 4th quartile being the worst performers).
On the basis of this evaluation and the ongoing review of investment results by the Board, the Board concluded that the nature, quality and extent of services provided by DWS historically have been and continue to be satisfactory.
Fees and Expenses. The Board considered the Fund's investment management fee schedule, operating expenses, and total expense ratios, and comparative information provided by Lipper Inc. ("Lipper") and the independent fee consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund, which include the 0.10% fee paid to DWS under the Fund's administrative services agreement, were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provide d as of December 31, 2009). Based on Lipper data provided as of December 31, 2009, the Board noted that the Fund's total (net) operating expenses (excluding 12b-1 fees and/or shareholder administration fees) were expected to be higher than the median of the applicable Lipper expense universe for the following share classes: Service Shares (3rd quartile), Capital Assets Funds Shares (4th quartile), Davidson Cash Equivalent Shares (3rd quartile) and Government Cash Managed Shares (4th quartile); at the median of the applicable Lipper expense universe for Davidson Cash Equivalent Plus Shares; and lower than the median of the applicable Lipper expense universe for the following share classes: DWS Government Cash Institutional Shares (1st quartile) and DWS Government & Agency Money Fund shares (1st quartile). The Board considered the Fund's management fee rate as compared to fees charged by DWS and certain of its affiliates for comparable mutual funds and considered differences in fund and fee structures betw een the DWS Funds. The Board also considered how the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size). The Board also noted that the expense limitations agreed to by DWS 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 DWS 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 US 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 Euro pe 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 DWS.
Profitability. The Board reviewed detailed information regarding revenues received by DWS under the Agreement. The Board considered the estimated costs and pre-tax profits realized by DWS 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 reviewed DWS'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 DWS 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), DWS 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 DWS 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 DWS of such economies of scale as may exist in the management of the Fund at current asset levels.
Other Benefits to DWS and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DWS and its affiliates, including any fees received by DWS for administrative services provided to the Fund and any fees received by an affiliate of DWS for distribution services. The Board also considered benefits to DWS 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 DWS related to DWS Funds advertising and cross-selling opportunities among DWS products and services. The Board concl uded that management fees were reasonable in light of these fallout benefits.
Compliance. The Board considered the significant attention and resources dedicated by DWS to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of both DWS's chief compliance officer and the Fund's chief compliance officer; (ii) the large number of DWS compliance personnel; and (iii) the substantial commitment of resources by DWS and its affiliates to compliance matters.
Based on all of the information considered and the conclusions reached, the Board unanimously (including the Independent Trustees) determined that the continuation of the Agreement is in the best interests of the Fund. In making this determination the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Trustees and their counsel present. It is possible that individual Trustees may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreement.
Summary of Management Fee Evaluation by Independent Fee Consultant
October 3, 2010
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This rep ort summarizes my evaluation for 2010, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007, 2008, and 2009.
Qualifications
For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.
Since 1991, I have been an independent consultant within the asset management industry. I have provided services to over 125 client organizations, including investment managers, mutual fund boards, product distributors and related organizations. Over the past ten years I have completed a number of assignments for mutual fund boards, specifically including assisting boards with management contract renewal.
I hold a Master of Business Administration degree, with highest honors, from Harvard University and Master of Science and Bachelor of Science (highest honors) degrees from the University of California at Berkeley. I am an independent director and audit committee financial expert for two closed-end mutual funds and have served in various leadership and financial oversight capacities with non-profit organizations.
Evaluation of Fees for each DWS Fund
My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 118 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).
In evaluating each Fund's fees, I reviewed comprehensive materials provided by or on behalf of DeAM, including expense information prepared by Lipper Analytical, comparative performance information, profitability data, manager histories, and other materials. I also accessed certain additional information from the Lipper and Morningstar databases and drew on my industry knowledge and experience.
To facilitate evaluating this considerable body of information, I prepared for each Fund a document summarizing the key data elements in each area as well as additional analytics discussed below. This made it possible to consider each key data element in the context of the others.
In the course of contract renewal, DeAM agreed to implement a number of fee and expense adjustments requested by the Independent Directors which will favorably impact future fees and expenses, and my evaluation includes the effects of these changes.
Fees and Expenses Compared with Other Funds
The competitive fee and expense evaluation for each fund focused on two primary comparisons:
The Fund's contractual management fee (the advisory fee plus the administration fee where applicable) compared with those of a group of typically 12-15 funds in the same Lipper investment category (e.g. Large Capitalization Growth) having similar distribution arrangements and being of similar size.
The Fund's total expenses compared with a broader universe of funds from the same Lipper investment category and having similar distribution arrangements.
These two comparisons provide a view of not only the level of the fee compared with funds of similar scale but also the total expense the Fund bears for all the services it receives, in comparison with the investment choices available in the Fund's investment category and distribution channel. The principal figure-of-merit used in these comparisons was the subject Fund's percentile ranking against peers.
DeAM's Fees for Similar Services to Others
DeAM provided management fee schedules for all of its US domiciled fund and non-fund investment management accounts in any of the investment categories where there is a DWS Fund. These similar products included the other DWS Funds, non-fund pooled accounts, institutional accounts and sub-advisory accounts. Using this information, I calculated for each Fund the fee that would be charged to each similar product, at the subject Fund's asset level.
Evaluating information regarding non-fund products is difficult because there are varying levels of services required for different types of accounts, with mutual funds generally requiring considerably more regulatory and administrative types of service as well as having more frequent cash flows than other types of accounts. Also, while mutual fund fees for similar fund products can be expected to be similar, there will be some differences due to different pricing conditions in different distribution channels (e.g. retail funds versus those used in variable insurance products), differences in underlying investment processes and other factors.
Costs and Profit Margins
DeAM provided a detailed profitability analysis for each Fund. After making some adjustments so that the presentation would be more comparable to the available industry figures, I reviewed profit margins from investment management alone, from investment management plus other fund services (excluding distribution) provided to the Funds by DeAM (principally shareholder services), and DeAM profits from all sources, including distribution. A later section comments on overall profitability.
Economies of Scale
Economies of scale — an expected decline in management cost per dollar of fund assets as fund assets grow — are very rarely quantified and documented because of inherent difficulties in collecting and analyzing relevant data. However, in virtually every investment category that I reviewed, larger funds tend to have lower fees and lower total expenses than smaller funds. To see how each DWS Fund compares with this industry observation, I reviewed:
The trend in Fund assets over the last five years and the accompanying trend in total expenses. This shows if the Fund has grown and, if so, whether total expense (management fees as well as other expenses) have declined as a percent of assets.
Whether the Fund has break-points in its management fee schedule, the extent of the fee reduction built into the schedule and the asset levels where the breaks take effect, and in the case of a sub-advised Fund how the Fund's break-points compare with those of the sub-advisory fee schedule.
How the Fund's contractual fee schedule compares with trends in the industry data. To accomplish this, I constructed a chart showing how actual latest-fiscal-year contractual fees of the Fund and of other similar funds relate to average fund assets, with the subject Fund's contractual fee schedule superimposed.
Quality of Service — Performance
The quality-of-service evaluation focused on investment performance, which is the principal result of the investment management service. Each Fund's performance was reviewed over the past 1, 3, 5 and 10 years, as applicable, and compared with that of other funds in the same investment category and with a suitable market index.
In addition, I calculated and reviewed risk-adjusted returns relative to an index of similar mutual funds' returns and a suitable market index. The risk-adjusted returns analysis provides a way of determining the extent to which the Fund's return comparisons are mainly the product of investment value-added (or lack thereof) or alternatively taking considerably more or less risk than is typical in its investment category.
I also received and considered the history of portfolio manager changes for each Fund, as this provided an important context for evaluating the performance results.
Complex-Level Considerations
While this evaluation was conducted mainly at the individual fund level, there are some issues relating to the reasonableness of fees that can alternatively be considered across the whole fund complex:
I reviewed DeAM's profitability analysis for all DWS Funds, with a view toward determining if the allocation procedures used were reasonable and how profit levels compared with public data for other investment managers.
I considered whether DeAM and affiliates receive any significant ancillary or "fall-out" benefits that should be considered in interpreting the direct profitability results. These would be situations where serving as the investment manager of the Funds is beneficial to another part of the Deutsche Bank organization.
I considered how aggregated DWS Fund expenses had varied over the years, by asset class and in the context of trends in asset levels.
I reviewed the structure of the DeAM organization, trends in staffing levels, and information on compensation of investment management and other professionals compared with industry data.
Findings
Based on the process and analysis discussed above, which included reviewing a wide range of information from management and external data sources and considering among other factors the fees DeAM charges other clients, the fees charged by other fund managers, DeAM's costs and profits associated with managing the Funds, economies of scale, possible fall-out benefits, and the nature and quality of services provided, in my opinion the management fees charged the DWS Funds are reasonable.
Thomas H. Mack
Summary of Administrative Fee Evaluation by Independent Fee Consultant
October 4, 2010
Pursuant to an Order entered into by Deutsche Asset Management (DeAM) with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds and have as part of my duties evaluated the reasonableness of a proposed pass-through to the funds of certain reporting costs associated with new regulations for money funds. My evaluation considered the following:
• My recently completed annual evaluation (please see my summary report of October 3, 2010), concluding that the prospective fees and expenses of all the DWS-sponsored money funds are reasonable.
• The fact that in my opinion the services DWS would provide under the combination of the Advisory and proposed Administration Agreements continues to be comparable with those typically provided to competitive funds under their management agreements.
• Management's analysis showing that the maximum total expense ratio impact of this change on any fund share class would be 1.3 basis points, which in my opinion is not material to my conclusions about the reasonableness of expenses.
Based on the foregoing considerations, in my opinion the proposed fees and expenses for the affected DWS-sponsored money funds are reasonable.
Thomas H. Mack
| FACTS | What Does DWS Investments 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 DWS Investments chooses to share and whether you can limit this sharing. |
| Reasons we can share your personal information | Does DWS Investments 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) 621-1048 or e-mail us at dws-investments.info@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 DWS Investments 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 DWS Investments 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 nonaffiliates 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. DWS Investments does not jointly market. |
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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.
