UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
Investment Company Act file number: 811-01236
DWS Market Trust
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue
New York, NY 10154-0004
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (212) 250-3220
Paul Schubert
60 Wall Street
New York, NY 10005
(Name and Address of Agent for Service)
| Date of fiscal year end: | 3/31 |
| Date of reporting period: | 3/31/2012 |
| ITEM 1. | REPORT TO STOCKHOLDERS |
MARCH 31, 2012 Annual Report to Shareholders |
DWS Alternative Asset Allocation Fund (formerly DWS Alternative Asset Allocation Plus Fund) |
 |
Contents
4 Portfolio Management Review 10 Performance Summary 13 Investment Portfolio 16 Statement of Assets and Liabilities 18 Statement of Operations 19 Statement of Changes in Net Assets 20 Financial Highlights 25 Notes to Financial Statements 36 Report of Independent Registered Public Accounting Firm 37 Information About Your Fund's Expenses 38 Tax Information 39 Summary of Management Fee Evaluation by Independent Fee Consultant 43 Board Members and Officers 48 Account Management Resources |
This report must be preceded or accompanied by a prospectus. To obtain a summary prospectus, if available, or prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The summary prospectus and prospectus contain this and other important information about the fund. Please read the prospectus carefully before you invest.
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. The fund expects to invest in underlying funds that emphasize alternatives or non-traditional asset categories or investment strategies, and as a result, it is subject to the risk factors of those underlying funds. Some of those risks include stock market risk, credit and interest rate risk, volatility in commodity prices and high-yield debt securities, short sales risk and the political, general economic, liquidity and currency risks of foreign investments, which may be particularly significant for emerging markets. The fund may use derivatives, including as part of its Global Tactical Asset Allocation (GTAA) strategy. The fund expects to have direct and indirect exposure to derivatives, which may be more volatile and less liquid than traditional securities. The fund could suffer losses on its derivative positions. See the prospectus for additional risks and specific details regarding the fund's risk profile.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the U.S., 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
Market Overview and Fund Performance
All performance information below is historical and does not guarantee future results. Returns shown are for Class A shares, unadjusted for sales charges. 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 www.dws-investments.com for the most recent month-end performance of all share classes. Fund performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had. Please refer to pages 10 through 12 for more complete performance information.
DWS Alternative Asset Allocation Fund invests in other DWS mutual funds, plus exchange-traded funds and a global tactical asset allocation (GTAA) strategy, which together provide exposure to alternative asset classes.
| "Our core belief is that meaningful diversification is best achieved by investing across all asset classes, and not just among the various segments of the stock market." |
During the 12-month period ended March 31, 2012, the Class A shares of the fund returned -1.77% and underperformed the 3.26% return of the fund's blended benchmark index, which is a blend of 70% in the MSCI World Index and 30% in the Barclays U.S. Aggregate Bond Index. As of March 31, 2012, the fund's weighting in non-traditional long-only equity investments was 32%, less than half of the benchmark's 70% weighting in equities. The fund underperformed the -1.46% average return of the funds in its Morningstar peer group, Multialternative Funds. The fund's three-year average annual total return is 14.04%, well ahead of the 7.73% average for the category.
Fund Performance
We define the alternative allocations in terms of three segments: real return, non-traditional and absolute return.
The real return allocation holds investments that should outpace the rate of inflation over time, while the non-traditional allocation holds investments that provide diversification, but that may not yet be held in traditional portfolios. The absolute return segment seeks to generate positive returns independent of market direction. The approximate weightings of these allocations were 57%, 26% and 17%, respectively, as of March 31, 2012.
Asset Allocation (As a % of Investment Portfolio) | 3/31/12 | 3/31/11 | ||
| Market Neutral | DWS Disciplined Market Neutral Fund | 17% | 15% | |
| Emerging Markets | DWS Emerging Markets Equity Fund DWS Enhanced Emerging Markets Fixed Income Fund WisdomTree Emerging Markets Local Debt Fund | 16% | 20% | |
| Commodities | DWS Enhanced Commodity Strategy Fund | 15% | 15% | |
| Global Real Estate | DWS RREEF Global Real Estate Securities Fund | 11% | 14% | |
| Floating Rate Notes | DWS Floating Rate Fund | 11% | 7% | |
| Treasury Inflation Protected Securities | DWS Global Inflation Fund | 10% | 12% | |
| Global Infrastructure | DWS RREEF Global Infrastructure Fund | 9% | 7% | |
| International Treasury Bond | SPDR Barclays Capital International Treasury Bond | 3% | 2% | |
| Preferred Stock | iShares S&P U.S. Preferred Stock Index Fund | 3% | — | |
| International and Emerging-Market Small Cap | iShares MSCI EAFE Small Cap Index ETF Vanguard FTSE All World ex-US Small-Cap Fund WisdomTree Emerging Markets SmallCap Dividend Fund | 2% | 4% | |
| Convertible | SPDR Barclays Capital Convertible Securities | 2% | — | |
| Money Market Fund | Central Cash Management Fund | 1% | 2% | |
| Timber | iShares S&P Global Timber & Forestry Index Fund | 0% | — | |
| Gold | DWS Gold & Precious Metals Fund | — | 2% | |
| 100% | 100% | |||
Asset allocation excludes derivatives and is subject to change. | ||||
The real return allocation delivered the strongest performance of the fund's three segments. This allocation produced a positive net return, with four of its holdings gaining ground and one finishing the period with a negative return. The top individual performer was DWS RREEF Global Infrastructure Fund, which produced a double-digit gain. Infrastructure stocks comfortably outperformed the broader market during the past 12 months, as investors were attracted to securities with steadier return streams. Our investments in DWS Global Inflation Fund and DWS Floating Rate Fund also finished the year in positive territory. Additionally, DWS RREEF Global Real Estate Securities Fund finished with a positive return as investors grew more confident in the economic outlook. These gains were offset to some extent by the negative return of DWS Enhanced Commodity Strategy Fund. Although investors were fixated on rising oil prices during the latter part of the period, commodities in general were hit hard by slower economic growth and heightened investor risk aversion during the middle portion of the year.
| This fund is a fund-of-funds, which means its assets are invested in a combination of other DWS funds, certain other securities and derivative instruments. The fund seeks to achieve its objective by investing in alternative (or non-traditional) asset categories and investment strategies. The fund may also invest in securities of exchange-traded funds ("ETFs") or hedge funds when the desired economic exposure to a particular asset category or investment strategy is not available through a DWS fund. |
The non-traditional allocation detracted from performance. On the positive side, our positions in emerging-markets fixed income contributed positively to returns behind the continued improvement in the economic fundamentals of the asset class. The fund's allocations to international government bonds (through the SPDR Barclays Capital International Treasury Bond ETF) and preferred stocks (through iShares S&P U.S. Preferred Stock Index ETF) also added to returns. However, this was more than offset by the negative return of DWS Emerging Markets Equity Fund, which was hit hard amid the selloff in higher-risk assets in the first half of the period.
The fund's absolute return segment was helped by the strength in DWS Disciplined Market Neutral Fund, which takes offsetting long and short positions in the U.S. equity market. DWS Disciplined Market Neutral Fund performed well during the past year, providing an element of stability during periods of elevated market volatility. However, this positive contribution was somewhat offset by the GTAA strategy, which is designed to add value by taking advantage of short-term mispricings in the global bond and currency markets. GTAA produced a negative absolute return during the 12-month period and offset some of the positive performance of the fund's other holdings.
Outlook and Fund Positioning
We made several notable changes to the fund's positioning during the past 12 months. Among our most notable additions or position increases were our decisions to:
•Increase the fund's exposure to emerging-market debt denominated in local currencies: The goal of this shift was to gain exposure to emerging currencies, which we believe can benefit in the long term from the superior economic growth of the emerging nations.
•Increase the fund's investment in DWS RREEF Global Infrastructure Fund: Infrastructure spending has lagged investment in other fixed structures, but governments are under pressure to allocate scarce public funds to areas that provide long-term enhancements to productivity and growth.
•Increase the fund's investment in DWS Disciplined Market Neutral Fund: We made this move on the belief that it was prudent to increase our allocation to an investment that should be unaffected by the direction of the stock market.
•Add exposure to preferred stocks and convertible bonds: We achieved this through investments in two ETFs: iShares S&P U.S. Preferred Stock Index ETF and SPDR Barclays Capital Convertible Securities ETF. We expect these ETFs will be less reactive to financial volatility, a positive at a time of continued uncertainty in the global markets.
•Add a position in timber: In March 2012, we established a 0.25% target weighting to timber-related assets via the iShares S&P Global Timber & Forestry Index (ETF). We believe this will help to further diversify the portfolio.
These additions were funded, in part, by reductions in DWS Emerging Markets Equity Fund, DWS RREEF Global Real Estate Securities Fund and DWS Global Inflation Fund. We also eliminated two positions: DWS Gold & Precious Metals Fund, in order to prevent a duplication of our position in commodities, and one of our holdings in international small-cap ETFs, which were providing less diversification than they had in the past. We also reduced the fund's exposure to U.S. Treasury Inflation-Protected Securities (TIPS), which we saw as having risen to fairly rich valuations.
Portfolio Allocation as of 3/31/12 | |
 |  |
Absolute return investments seek to generate positive returns independent of market direction. Real return investments seek to outpace the rate of inflation over time. Non-traditional investments seek to provide diversification but may not be held in traditional portfolios.
Subadvisor
QS Investors, LLC ("QS Investors"), New York, New York, is the subadvisor for the fund. QS Investors manages and advises assets on behalf of institutional clients and retail funds, providing global expertise in research, portfolio management and quantitative analysis.
Portfolio Management Team
Robert Wang
Head of Portfolio Management and Trading, QS Investors. Began managing the fund in 2007.
Inna Okounkova
Head of Strategic Asset Allocation Portfolio Management, QS Investors. Began managing the fund in 2007.
Thomas Picciochi
Head of Global Tactical Asset Allocation Portfolio Management and Trading, QS Investors. Began managing the fund in 2007.
The views expressed reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk.
Terms to Know
The global tactical asset allocation (GTAA) strategy attempts to take advantage of inefficiencies within global bond and currency markets. The strategy is implemented through the use of derivatives, which are contracts or other instruments whose value is based on, for example, indices, currencies or securities. The strategy primarily uses exchange-traded futures contracts and over-the-counter forward currency contracts.
The Morgan Stanley Capital International (MSCI) World Index is an unmanaged, capitalization-weighted measure of global stock markets including the U.S., Canada, Europe, Australia and the Far East. The index is calculated using closing local market prices and translates into U.S. dollars using the London close foreign exchange rates.
The Barclays U.S. Aggregate Bond Index is an unmanaged, market-value- weighted measure of Treasury issues, corporate bond issues and mortgage securities.
Index returns do not reflect fees or expenses and it is not possible to invest directly into an index.
Source: Morningstar, Inc. Rankings are historical and do not guarantee future results. As of March 31, 2012, Class A shares of DWS Alternative Asset Allocation Fund were ranked as follows in the Morningstar Multialternative Funds category: one-year 99/184, and three-year 15/104. Rankings are based on a fund's total return.
Average Annual Total Returns as of 3/31/12 | |||
| Unadjusted for Sales Charge | 1-Year | 3-Year | Life of Fund* |
| Class A | -1.77% | 14.04% | 1.71% |
| Class C | -2.53% | 13.16% | 0.87% |
| Adjusted for the Maximum Sales Charge | |||
Class A (max 5.75% load) | -7.42% | 11.81% | 0.43% |
Class C (max 1.00% CDSC) | -2.53% | 13.16% | 0.87% |
| No Sales Charges | |||
| Class R | -1.95% | 13.79% | 1.48% |
| Class S | -1.49% | 14.30% | 1.90% |
| Institutional Class | -1.50% | 14.30% | 1.90% |
MSCI World Index+ | 0.56% | 20.24% | -1.61% |
Barclays U.S. Aggregate Bond Index+ | 7.71% | 6.83% | 6.64% |
S&P 500® Index+ | 8.54% | 23.42% | 1.52% |
Blended Index+ | 3.26% | 16.56% | 1.38% |
* The Fund commenced operations on July 31, 2007. Index returns began on July 31, 2007.
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 www.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 ratios of the Fund, as stated in the fee table of the prospectus dated August 1, 2011 are 2.13%, 2.89%, 2.54%, 1.96% and 1.75% for Class A, Class C, Class R, Class S and Institutional Class shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. These expense ratios include net expenses of the underlying funds in which the Fund invests.
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 redemptions of fund shares.
Returns shown for Class R shares for the period prior to its inception on June 1, 2011 are derived from the historical performance of Class A shares of the DWS Alternative Asset Allocation Fund during such periods have been adjusted to reflect the higher total annual operating expenses. Any difference in expenses will affect performance.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
 |
 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 5.75%. This results in a net initial investment of $9,425.
The growth of $10,000 is cumulative.
Performance of other share classes will vary based on the sales charges and the fee structure of those classes.
* The Fund commenced operations on July 31, 2007. Index returns began on July 31, 2007.
+ The Morgan Stanley Capital International (MSCI) World Index is an unmanaged, capitalization-weighted measure of global stock markets including the U.S., Canada, Europe, Australia and the Far East. The index is calculated using closing local market prices and translates into U.S. dollars using the London close foreign exchange rates.
The Barclays U.S. Aggregate Bond Index is an unmanaged, market-value-weighted measure of Treasury issues, agency issues, corporate bond issues and mortgage securities.
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 Blended Index is calculated using the performance of two unmanaged indices, representative of stocks (the Morgan Stanley Capital International (MSCI) World Index (70%)) and bonds (the Barclays U.S. Aggregate Bond Index (30%)). These results are summed to produce the aggregate benchmark.
| Net Asset Value and Distribution Information | ||||||||||||||||||||
| Class A | Class C | Class R | Class S | Institutional Class | ||||||||||||||||
Net Asset Value: 3/31/12 | $ | 9.13 | $ | 9.09 | $ | 9.17 | $ | 9.07 | $ | 9.07 | ||||||||||
| 6/1/11 (commencement of operations of Class R) | $ | — | $ | — | $ | 9.65 | $ | — | $ | — | ||||||||||
| 3/31/11 | $ | 9.67 | $ | 9.61 | $ | — | $ | 9.61 | $ | 9.61 | ||||||||||
Distribution Information: Twelve Months as of 3/31/12: Income Dividends | $ | .36 | $ | .27 | $ | .30 | $ | .38 | $ | .38 | ||||||||||
Morningstar Rankings — Multialternative Funds Category as of 3/31/12 | ||||
| Period | Rank | Number of Fund Classes Tracked | Percentile Ranking (%) | |
Class A 1-Year | 99 | of | 184 | 54 |
| 3-Year | 15 | of | 104 | 14 |
Class C 1-Year | 126 | of | 184 | 68 |
| 3-Year | 21 | of | 104 | 20 |
Class S 1-Year | 94 | of | 184 | 51 |
| 3-Year | 13 | of | 104 | 12 |
Institutional Class 1-Year | 95 | of | 184 | 52 |
| 3-Year | 14 | of | 104 | 13 |
Source: Morningstar, Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable.
| Shares | Value ($) | |||||||
| Mutual Funds 86.0% | ||||||||
| DWS Disciplined Market Neutral Fund "Institutional" (a) | 11,988,987 | 115,094,278 | ||||||
| DWS Emerging Markets Equity Fund "Institutional" (a) | 2,470,808 | 41,064,834 | ||||||
| DWS Enhanced Commodity Strategy Fund "Institutional" (a) | 29,779,790 | 103,038,072 | ||||||
| DWS Enhanced Emerging Markets Fixed Income Fund "Institutional" (a) | 5,219,097 | 54,330,797 | ||||||
| DWS Floating Rate Fund "Institutional" (a) | 8,032,864 | 74,705,634 | ||||||
| DWS Global Inflation Fund "Institutional" (a) | 6,154,046 | 66,032,917 | ||||||
| DWS RREEF Global Infrastructure Fund "Institutional" (a) | 6,329,475 | 68,295,039 | ||||||
| DWS RREEF Global Real Estate Securities Fund "Institutional" (a) | 10,056,197 | 75,320,917 | ||||||
Total Mutual Funds (Cost $577,485,381) | 597,882,488 | |||||||
| Exchange-Traded Funds 12.0% | ||||||||
| iShares S&P Global Timber & Forestry Index Fund | 42,135 | 1,742,282 | ||||||
| iShares S&P U.S. Preferred Stock Index Fund | 522,205 | 20,386,883 | ||||||
| SPDR Barclays Capital Convertible Securities | 342,758 | 13,662,334 | ||||||
| SPDR Barclays Capital International Treasury Bond | 341,022 | 20,444,269 | ||||||
| Vanguard FTSE All World ex-U.S. Small-Cap Fund | 76,224 | 6,781,649 | ||||||
| WisdomTree Emerging Markets Local Debt Fund | 262,227 | 13,606,959 | ||||||
| WisdomTree Emerging Markets SmallCap Dividend Fund | 144,219 | 6,939,819 | ||||||
Total Exchange-Traded Funds (Cost $81,602,079) | 83,564,195 | |||||||
| Cash Equivalents 1.2% | ||||||||
| Central Cash Management Fund, 0.11% (a) (b) (Cost $8,528,512) | 8,528,512 | 8,528,512 | ||||||
| % of Net Assets | Value ($) | |||||||
Total Investment Portfolio (Cost $667,615,972)+ | 99.2 | 689,975,195 | ||||||
| Other Assets and Liabilities, Net | 0.8 | 5,826,389 | ||||||
| Net Assets | 100.0 | 695,801,584 | ||||||
+ The cost for federal income tax purposes was $721,473,512. At March 31, 2012, net unrealized depreciation for all securities based on tax cost was $31,498,317. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $29,971,960 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $61,470,277.
(a) Affiliated fund managed by Deutsche Investment Management Americas Inc.
(b) The rate shown is the annualized seven-day yield at period end.
FTSE: Financial Times and the London Stock Exchange
SPDR: Standard & Poor's Depositary Receipt
At March 31, 2012, open futures contracts purchased were as follows:
| Futures | Currency | Expiration Date | Contracts | Notional Value ($) | Unrealized Appreciation ($) | |||||||||
| 10 Year U.S. Treasury Note | USD | 6/20/2012 | 29 | 3,755,047 | 35,655 | |||||||||
| Federal Republic of Germany Euro-Schatz | EUR | 6/7/2012 | 440 | 64,747,651 | 28,053 | |||||||||
| United Kingdom Long Gilt Bond | GBP | 6/27/2012 | 183 | 33,518,070 | 52,817 | |||||||||
| Total unrealized appreciation | 116,525 | |||||||||||||
At March 31, 2012, open futures contracts sold were as follows:
| Futures | Currency | Expiration Date | Contracts | Notional Value ($) | Unrealized Appreciation/ (Depreciation) ($) | |||||||||
| 10 Year Australian Treasury Bond | AUD | 6/15/2012 | 11 | 1,322,689 | (30,658 | ) | ||||||||
| 10 Canadian Government Bond | CAD | 6/20/2012 | 210 | 27,628,753 | 104,489 | |||||||||
| 10 Year Japanese Government Bond | JPY | 6/11/2012 | 2 | 3,431,437 | 3,353 | |||||||||
| 2 Year U.S. Treasury Note | USD | 6/20/2012 | 140 | 30,819,688 | 15,298 | |||||||||
| Federal Republic of Germany Euro-Bund | EUR | 6/7/2012 | 48 | 8,865,795 | (185,234 | ) | ||||||||
| Total net unrealized depreciation | (92,752 | ) | ||||||||||||
At March 31, 2012, the Fund had the following open forward foreign currency exchange contracts:
| Contracts to Deliver | In Exchange For | Settlement Date | Unrealized Appreciation ($) | Counterparty | |||||||||||
| USD | 26,225,577 | CHF | 24,060,000 | 4/24/2012 | 435,475 | UBS AG | |||||||||
| USD | 7,569,185 | JPY | 630,990,000 | 4/24/2012 | 88,404 | UBS AG | |||||||||
| USD | 23,623,601 | EUR | 17,860,000 | 4/24/2012 | 194,079 | UBS AG | |||||||||
| USD | 4,641,805 | NOK | 26,730,000 | 4/24/2012 | 41,707 | UBS AG | |||||||||
| USD | 16,254,136 | SEK | 109,850,000 | 4/24/2012 | 329,611 | UBS AG | |||||||||
| USD | 7,173,210 | GBP | 4,530,000 | 4/24/2012 | 67,469 | UBS AG | |||||||||
| NZD | 5,580,000 | USD | 4,578,808 | 4/24/2012 | 9,656 | UBS AG | |||||||||
| CAD | 6,490,000 | USD | 6,542,141 | 4/24/2012 | 48,829 | UBS AG | |||||||||
| AUD | 19,580,000 | USD | 20,380,724 | 4/24/2012 | 129,323 | UBS AG | |||||||||
| Total unrealized appreciation | 1,344,553 | ||||||||||||||
| Contracts to Deliver | In Exchange For | Settlement Date | Unrealized Depreciation ($) | Counterparty | |||||||||||
| USD | 33,246,676 | AUD | 31,600,000 | 4/24/2012 | (563,107 | ) | UBS AG | ||||||||
| USD | 2,593,157 | CAD | 2,570,000 | 4/24/2012 | (21,845 | ) | UBS AG | ||||||||
| GBP | 12,910,000 | USD | 20,473,194 | 4/24/2012 | (161,942 | ) | UBS AG | ||||||||
| EUR | 32,680,000 | USD | 43,000,998 | 4/24/2012 | (580,288 | ) | UBS AG | ||||||||
| CHF | 15,930,000 | USD | 17,468,829 | 4/24/2012 | (183,314 | ) | UBS AG | ||||||||
| JPY | 654,600,000 | USD | 7,791,234 | 4/24/2012 | (152,882 | ) | UBS AG | ||||||||
| Total unrealized depreciation | (1,663,378 | ) | |||||||||||||
| Currency Abbreviations |
AUD Australian Dollar CAD Canadian Dollar CHF Swiss Franc EUR Euro GBP British Pound JPY Japanese Yen NOK Norwegian Krone NZD New Zealand Dollar SEK Swedish Krona USD United States Dollar |
For information on the Fund's policy and additional disclosures regarding futures contracts and forward foreign currency exchange contracts, please refer to Note B in the accompanying Notes to Financial Statements.
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.
The following is a summary of the inputs used as of March 31, 2012 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 | ||||||||||||
| Mutual Funds | $ | 597,882,488 | $ | — | $ | — | $ | 597,882,488 | ||||||||
| Exchange-Traded Funds | 83,564,195 | — | — | 83,564,195 | ||||||||||||
| Short-Term Investments | 8,528,512 | — | — | 8,528,512 | ||||||||||||
| Derivatives (c) | 239,665 | 1,344,553 | — | 1,584,218 | ||||||||||||
| Total | $ | 690,214,860 | $ | 1,344,553 | $ | — | $ | 691,559,413 | ||||||||
| Liabilities | ||||||||||||||||
| Derivatives (c) | $ | (215,892 | ) | $ | (1,663,378 | ) | $ | — | $ | (1,879,270 | ) | |||||
| Total | $ | (215,892 | ) | $ | (1,663,378 | ) | $ | — | $ | (1,879,270 | ) | |||||
There have been no transfers between Level 1 and Level 2 fair value measurements during the year ended March 31, 2012.
(c) Derivatives include unrealized appreciation (depreciation) on futures contracts and forward foreign currency exchange contracts.
The accompanying notes are an integral part of the financial statements.
| as of March 31, 2012 | ||||
| Assets | ||||
Investments: Investments in affiliated Underlying Funds, at value (cost $586,013,893) | $ | 606,411,000 | ||
| Investments in non-affiliated Underlying Funds, at value (cost $81,602,079) | 83,564,195 | |||
| Total investments in securities, at value (cost $667,615,972) | 689,975,195 | |||
| Cash | 10,000 | |||
| Deposit with broker for futures contracts | 2,106,926 | |||
| Cash held as collateral for forward foreign currency exchange contracts | 2,210,000 | |||
| Receivable for investments sold | 5,572,172 | |||
| Receivable for Fund shares sold | 1,561,203 | |||
| Interest receivable | 633 | |||
| Receivable for variation margin on futures contracts | 23,773 | |||
| Unrealized appreciation on forward foreign currency exchange contracts | 1,344,553 | |||
| Due from Advisor | 83,202 | |||
| Other assets | 51,792 | |||
| Total assets | 702,939,449 | |||
| Liabilities | ||||
| Payable for investments purchased | 3,159,926 | |||
| Payable for Fund shares redeemed | 1,530,317 | |||
| Unrealized depreciation on forward foreign currency exchange contracts | 1,663,378 | |||
| Accrued management fee | 25,810 | |||
| Other accrued expenses and payables | 758,434 | |||
| Total liabilities | 7,137,865 | |||
| Net assets, at value | $ | 695,801,584 | ||
| Net Assets Consist of | ||||
| Undistributed net investment income | 894,982 | |||
Net unrealized appreciation (depreciation) on: Investments | 22,359,223 | |||
| Futures | 23,773 | |||
| Foreign currency | (313,959 | ) | ||
| Accumulated net realized gain (loss) | (90,742,422 | ) | ||
| Paid-in capital | 763,579,987 | |||
| Net assets, at value | $ | 695,801,584 | ||
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of March 31, 2012 (continued) | ||||
| Net Asset Value | ||||
Class A Net Asset Value and redemption price per share ($261,570,487 ÷ 28,639,732 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) | $ | 9.13 | ||
| Maximum offering price per share (100 ÷ 94.25 of $9.13) | $ | 9.69 | ||
Class C Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($161,809,651 ÷ 17,795,709 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) | $ | 9.09 | ||
Class R Net Asset Value, offering and redemption price per share ($1,337.21 ÷ 145.89 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) | $ | 9.17 | ||
Class S Net Asset Value, offering and redemption price per share ($230,100,585 ÷ 25,362,659 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) | $ | 9.07 | ||
Institutional Class Net Asset Value, offering and redemption price per share ($42,319,524 ÷ 4,666,020 shares outstanding of beneficial interest, no par value, unlimited number of shares authorized) | $ | 9.07 | ||
The accompanying notes are an integral part of the financial statements.
| for the year ended March 31, 2012 | ||||
| Investment Income | ||||
| Income distributions from affiliated Underlying Funds | $ | 30,702,390 | ||
| Dividends | 2,605,829 | |||
| Total income | 33,308,219 | |||
Expenses: Management fee | 1,453,207 | |||
| Administration fee | 726,604 | |||
| Services to shareholders | 1,218,820 | |||
| Distribution and service fees | 2,365,780 | |||
| Custodian fee | 19,742 | |||
| Professional fees | 134,046 | |||
| Reports to shareholders | 88,395 | |||
| Registration fees | 146,859 | |||
| Trustees' fees and expenses | 29,140 | |||
| Other | 80,552 | |||
| Total expenses before expense reductions | 6,263,145 | |||
| Expense reductions | (2,325,712 | ) | ||
| Total expenses after expense reductions | 3,937,433 | |||
| Net investment income | 29,370,786 | |||
| Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) from: Sale of affiliated Underlying Funds | 17,763,096 | |||
| Sales of non-affiliated Underlying Funds | 1,505,159 | |||
| Capital gain distributions from affiliated Underlying Funds | 4,745,955 | |||
| Capital gain distributions from non-affiliated Underlying Funds | 203,595 | |||
| Futures | 191,171 | |||
| Foreign currency | (8,346,344 | ) | ||
| 16,062,632 | ||||
Change in net unrealized appreciation (depreciation) on: Investments | (60,869,308 | ) | ||
| Futures | (340,858 | ) | ||
| Foreign currency | (942,920 | ) | ||
| (62,153,086 | ) | |||
| Net gain (loss) | (46,090,454 | ) | ||
| Net increase (decrease) in net assets resulting from operations | $ | (16,719,668 | ) | |
The accompanying notes are an integral part of the financial statements.
| Years Ended March 31, | ||||||||
| Increase (Decrease) in Net Assets | 2012 | 2011 | ||||||
Operations: Net investment income | $ | 29,370,786 | $ | 11,669,731 | ||||
| Net realized gain (loss) | 16,062,632 | (11,717,940 | ) | |||||
| Change in net unrealized appreciation (depreciation) | (62,153,086 | ) | 75,299,235 | |||||
| Net increase (decrease) in net assets resulting from operations | (16,719,668 | ) | 75,251,026 | |||||
Distributions to shareholders from: Net investment income: Class A | (10,460,901 | ) | (2,979,432 | ) | ||||
| Class C | (4,880,016 | ) | (1,161,293 | ) | ||||
| Class R | (35 | ) | — | |||||
| Class S | (9,814,777 | ) | (3,063,615 | ) | ||||
| Institutional Class | (1,822,029 | ) | (377,438 | ) | ||||
| Total distributions | (26,977,758 | ) | (7,581,778 | ) | ||||
Fund share transactions: Proceeds from shares sold | 201,543,537 | 333,685,547 | ||||||
| Reinvestment of distributions | 23,343,453 | 6,311,605 | ||||||
| Payments for shares redeemed | (244,568,014 | ) | (191,044,031 | ) | ||||
| Net increase (decrease) in net assets from Fund share transactions | (19,681,024 | ) | 148,953,121 | |||||
| Increase (decrease) in net assets | (63,378,450 | ) | 216,622,369 | |||||
| Net assets at beginning of period | 759,180,034 | 542,557,665 | ||||||
| Net assets at end of period (including undistributed net investment income of $894,982 and $7,033,787, respectively) | $ | 695,801,584 | $ | 759,180,034 | ||||
The accompanying notes are an integral part of the financial statements.
| Years Ended March 31, | ||||||||||||||||||||
| Class A | 2012 | 2011 | 2010 | 2009 | Period Ended 3/31/08a | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 9.67 | $ | 8.71 | $ | 6.72 | $ | 10.21 | $ | 10.00 | ||||||||||
Income (loss) from investment operations: Net investment incomeb | .38 | .17 | .20 | .14 | .19 | |||||||||||||||
| Net realized and unrealized gain (loss) | (.56 | ) | .90 | 2.08 | (3.20 | ) | .27 | |||||||||||||
| Total from investment operations | (.18 | ) | 1.07 | 2.28 | (3.06 | ) | .46 | |||||||||||||
Less distributions from: Net investment income | (.36 | ) | (.11 | ) | (.29 | ) | (.38 | ) | (.25 | ) | ||||||||||
| Net realized gain | — | — | — | (.05 | ) | — | ||||||||||||||
| Total distributions | (.36 | ) | (.11 | ) | (.29 | ) | (.43 | ) | (.25 | ) | ||||||||||
| Net asset value, end of period | $ | 9.13 | $ | 9.67 | $ | 8.71 | $ | 6.72 | $ | 10.21 | ||||||||||
Total Return (%)c,d,e | (1.77 | ) | 12.43 | 34.30 | (30.21 | ) | 4.57 | ** | ||||||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||||||
| Net assets, end of period ($ millions) | 262 | 293 | 221 | 128 | 102 | |||||||||||||||
Ratio of expenses before expense reductions (%)f | .76 | .79 | .83 | .89 | .97 | * | ||||||||||||||
Ratio of expenses after expense reductions (%)f | .47 | .47 | .47 | .49 | .47 | * | ||||||||||||||
| Ratio of net investment income (%) | 4.10 | 1.94 | 2.44 | 1.63 | 2.78 | * | ||||||||||||||
| Portfolio turnover rate (%) | 32 | 24 | 18 | 42 | 0 | ** | ||||||||||||||
a For the period from July 31, 2007 (commencement of operations) to March 31, 2008. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. e Total return would have been lower if the Advisor had not reduced some Underlying Funds' expenses. f The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized | ||||||||||||||||||||
| Years Ended March 31, | ||||||||||||||||||||
| Class C | 2012 | 2011 | 2010 | 2009 | Period Ended 3/31/08a | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 9.61 | $ | 8.68 | $ | 6.69 | $ | 10.15 | $ | 10.00 | ||||||||||
Income (loss) from investment operations: Net investment incomeb | .31 | .11 | .14 | .07 | .14 | |||||||||||||||
| Net realized and unrealized gain (loss) | (.56 | ) | .89 | 2.06 | (3.16 | ) | .22 | |||||||||||||
| Total from investment operations | (.25 | ) | 1.00 | 2.20 | (3.09 | ) | .36 | |||||||||||||
Less distributions from: Net investment income | (.27 | ) | (.07 | ) | (.21 | ) | (.32 | ) | (.21 | ) | ||||||||||
| Net realized gain | — | — | — | (.05 | ) | — | ||||||||||||||
| Total distributions | (.27 | ) | (.07 | ) | (.21 | ) | (.37 | ) | (.21 | ) | ||||||||||
| Net asset value, end of period | $ | 9.09 | $ | 9.61 | $ | 8.68 | $ | 6.69 | $ | 10.15 | ||||||||||
Total Return (%)c,d,e | (2.53 | ) | 11.63 | 33.17 | (30.65 | ) | 3.62 | ** | ||||||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||||||
| Net assets, end of period ($ millions) | 162 | 176 | 138 | 87 | 55 | |||||||||||||||
Ratio of expenses before expense reductions (%)f | 1.49 | 1.55 | 1.56 | 1.66 | 1.83 | * | ||||||||||||||
Ratio of expenses after expense reductions (%)f | 1.22 | 1.22 | 1.22 | 1.24 | 1.22 | * | ||||||||||||||
| Ratio of net investment income (%) | 3.37 | 1.19 | 1.69 | .88 | 2.03 | * | ||||||||||||||
| Portfolio turnover rate (%) | 32 | 24 | 18 | 42 | 0 | ** | ||||||||||||||
a For the period from July 31, 2007 (commencement of operations) to March 31, 2008. b Based on average shares outstanding during the period. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. e Total return would have been lower if the Advisor had not reduced some Underlying Funds' expenses. f The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized | ||||||||||||||||||||
| Class R | Period Ended 3/31/12a | |||
| Selected Per Share Data | ||||
| Net asset value, beginning of period | $ | 9.65 | ||
Income (loss) from investment operations: Net investment incomeb | .36 | |||
| Net realized and unrealized gain (loss) | (.54 | ) | ||
| Total from investment operations | (.18 | ) | ||
Less distributions from: Net investment income | (.30 | ) | ||
| Net asset value, end of period | $ | 9.17 | ||
Total Return (%)c,d | (1.77 | )** | ||
| Ratios to Average Net Assets and Supplemental Data | ||||
| Net assets, end of period ($ thousands) | 1 | |||
Ratio of expenses before expense reductions (%)e | 3.62 | * | ||
Ratio of expenses after expense reductions (%)e | .72 | * | ||
| Ratio of net investment income (%) | 4.73 | * | ||
| Portfolio turnover rate (%) | 32 | |||
a For the period from June 1, 2011 (commencement of operations) to March 31, 2012. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not reduced some Underlying Funds' expenses. e The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized | ||||
| Years Ended March 31, | ||||||||||||||||||||
| Class S | 2012 | 2011 | 2010 | 2009 | Period Ended 3/31/08a | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 9.61 | $ | 8.66 | $ | 6.69 | $ | 10.18 | $ | 10.00 | ||||||||||
Income (loss) from investment operations: Net investment incomeb | .40 | .20 | .22 | .16 | .20 | |||||||||||||||
| Net realized and unrealized gain (loss) | (.56 | ) | .89 | 2.07 | (3.18 | ) | .24 | |||||||||||||
| Total from investment operations | (.16 | ) | 1.09 | 2.29 | (3.02 | ) | .44 | |||||||||||||
Less distributions from: Net investment income | (.38 | ) | (.14 | ) | (.32 | ) | (.42 | ) | (.26 | ) | ||||||||||
| Net realized gain | — | — | — | (.05 | ) | — | ||||||||||||||
| Total distributions | (.38 | ) | (.14 | ) | (.32 | ) | (.47 | ) | (.26 | ) | ||||||||||
| Net asset value, end of period | $ | 9.07 | $ | 9.61 | $ | 8.66 | $ | 6.69 | $ | 10.18 | ||||||||||
Total Return (%)c,d | (1.49 | ) | 12.66 | 34.56 | (29.97 | ) | 4.37 | ** | ||||||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||||||
| Net assets, end of period ($ millions) | 230 | 250 | 170 | 97 | 64 | |||||||||||||||
Ratio of expenses before expense reductions (%)e | .61 | .62 | .71 | .71 | .84 | * | ||||||||||||||
Ratio of expenses after expense reductions (%)e | .22 | .22 | .22 | .24 | .23 | * | ||||||||||||||
| Ratio of net investment income (%) | 4.37 | 2.19 | 2.69 | 1.88 | 3.02 | * | ||||||||||||||
| Portfolio turnover rate (%) | 32 | 24 | 18 | 42 | 0 | ** | ||||||||||||||
a For the period from July 31, 2007 (commencement of operations) to March 31, 2008. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not reduced some Underlying Funds' expenses. e The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized | ||||||||||||||||||||
| Years Ended March 31, | ||||||||||||||||||||
| Institutional Class | 2012 | 2011 | 2010 | 2009 | Period Ended 3/31/08a | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 9.61 | $ | 8.65 | $ | 6.69 | $ | 10.18 | $ | 10.00 | ||||||||||
Income (loss) from investment operations: Net investment incomeb | .41 | .20 | .22 | .16 | .20 | |||||||||||||||
| Net realized and unrealized gain (loss) | (.57 | ) | .90 | 2.06 | (3.18 | ) | .24 | |||||||||||||
| Total from investment operations | (.16 | ) | 1.10 | 2.28 | (3.02 | ) | .44 | |||||||||||||
Less distributions from: Net investment income | (.38 | ) | (.14 | ) | (.32 | ) | (.42 | ) | (.26 | ) | ||||||||||
| Net realized gain | — | — | — | (.05 | ) | — | ||||||||||||||
| Total distributions | (.38 | ) | (.14 | ) | (.32 | ) | (.47 | ) | (.26 | ) | ||||||||||
| Net asset value, end of period | $ | 9.07 | $ | 9.61 | $ | 8.65 | $ | 6.69 | $ | 10.18 | ||||||||||
Total Return (%)c,d | (1.50 | ) | 12.80 | 34.41 | (29.97 | ) | 4.38 | ** | ||||||||||||
| Ratios to Average Net Assets and Supplemental Data | ||||||||||||||||||||
| Net assets, end of period ($ millions) | 42 | 41 | 14 | 5 | .3 | |||||||||||||||
Ratio of expenses before expense reductions (%)e | .45 | .41 | .46 | .50 | .91 | * | ||||||||||||||
Ratio of expenses after expense reductions (%)e | .22 | .22 | .22 | .24 | .23 | * | ||||||||||||||
| Ratio of net investment income (%) | 4.45 | 2.19 | 2.69 | 1.88 | 3.02 | * | ||||||||||||||
| Portfolio turnover rate (%) | 32 | 24 | 18 | 42 | 0 | ** | ||||||||||||||
a For the period from July 31, 2007 (commencement of operations) to March 31, 2008. b Based on average shares outstanding during the period. c Total return would have been lower had certain expenses not been reduced. d Total return would have been lower if the Advisor had not reduced some Underlying Funds' expenses. e The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. This ratio does not include these indirect fees and expenses. * Annualized ** Not annualized | ||||||||||||||||||||
A. Organization and Significant Accounting Policies
DWS Alternative Asset Allocation Fund (formerly DWS Alternative Asset Allocation Plus Fund) (the "Fund") is a diversified series of DWS Market Trust (the "Trust"), which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company organized as a Massachusetts business trust. The Fund mainly invests in other affiliated DWS funds (the "Underlying DWS Funds"), derivative investments and exchange-traded funds ("ETFs"). ETFs and Underlying DWS Funds are collectively referred to as "Underlying Funds." Each Underlying DWS Fund's accounting policies and investment holdings are outlined in the Underlying DWS Funds' financial statements and are available upon request. The Fund is the successor to DWS Alternative Asset Allocation Plus Fund, a series of DWS Equity Trust (the "Predecessor Fund"). On April 29, 2011, the Predecessor Fund transferred all of its assets and liabilities to the Trust, while retaining the same fund name. The transaction had no material effect on an investment in the Fund. All financial and other information contained herein for periods prior to April 29, 2011, is that of the Predecessor Fund.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. On June 1, 2011, the Fund commenced offering Class R shares. Class R shares are only available to participants in certain retirement plans and are offered to investors without an initial sales charge. Class S shares are not subject to initial or contingent deferred sales charges and are generally not available to new investors except under certain circumstances. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as services to shareholders, distribution and service fees and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading.
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.
Investments in the Underlying DWS Funds are valued at the net asset value per share of each class of the Underlying DWS Fund and are categorized as Level 1.
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 and are categorized as Level 1. 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.
Futures contracts are generally valued at the settlement prices established each day on the exchange on which they are traded and are categorized as Level 1.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and are categorized as Level 2.
Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.
Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the acquisition and disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
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 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 March 31, 2012, the Fund had a net tax basis capital loss carryforward of approximately $36,533,000 of pre-enactment losses, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until March 31, 2017 ($1,052,000) and March 31, 2018 ($35,481,000), the respective expiration dates, whichever occurs first.
In addition, from November 1, 2011 through March 31, 2012, the Fund elects to defer qualified late-year losses of approximately $248,000 of net short-term realized capital losses and treat them as arising in the fiscal year ending March 31, 2013.
The Fund has reviewed the tax positions for the open tax years as of March 31, 2012 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. Net investment income of the Fund, if any, is 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 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 forward currency contracts, investments in futures and certain securities sold at a loss. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
At March 31, 2012, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:
Undistributed ordinary income* | $ | 576,157 | ||
| Capital loss carryforwards | $ | (36,533,000 | ) | |
| Net unrealized appreciation (depreciation) on investments | $ | (31,498,317 | ) |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
| Years Ended March 31, | ||||||||
| 2012 | 2011 | |||||||
| Distributions from ordinary income* | $ | 26,977,758 | $ | 7,581,778 | ||||
* For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
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.
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. Distributions of income and capital gains from the Underlying Funds are recorded on the ex-dividend date. Realized gains and losses from investment transactions are recorded on an identified cost basis.
B. Derivative Instruments
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearing house in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Fund seeks to enhance returns by employing a global tactical asset allocation overlay strategy by entering into futures contracts on global equity and bonds, including on financial indices and security indices. For the year ended March 31, 2012, as part of this strategy, the Fund used futures contracts to attempt to take advantage of inefficiencies within the global bond markets.
Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary cash or securities ("initial margin") in an amount equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund dependent upon the daily fluctuations in the value and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. Gains or losses are realized when the contract expires or is closed. Since all futures contracts are exchange traded, counterparty risk is minimized as the exchange's clearinghouse acts as the counterparty, and guarantees the futures against default.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid market will limit the Fund's ability to close out a futures contract prior to the settlement date and the risk that the futures contract is not well correlated with the security, index or currency to which it relates. Risk of loss may exceed amounts disclosed in the Statement of Assets and Liabilities.
A summary of the open futures contracts as of March 31, 2012, is included in a table following the Fund's Investment Portfolio. For the year ended March 31, 2012, the investment in futures contracts purchased had a total notional value generally indicative of a range from approximately $62,679,000 to $158,477,000, and the investment in futures contracts sold had a total notional value generally indicative of a range from approximately $72,068,000 to $145,278,000.
Forward Foreign Currency Exchange Contracts. A forward foreign currency exchange contract ("forward currency contract") is a commitment to purchase or sell a foreign currency at the settlement date at a negotiated rate. The Fund seeks to enhance returns by employing a global tactical asset allocation overlay strategy. For the year ended March 31, 2012, as part of this strategy, the Fund used forward currency contracts to gain exposure to changes in the value of foreign currencies to attempt to take advantage of inefficiencies within the currency markets.
Forward currency contracts are valued at the prevailing forward exchange rate of the underlying currencies and unrealized gain (loss) is recorded daily. On the settlement date of the forward currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed. Certain risks may arise upon entering into forward currency contracts from the potential inability of counterparties to meet the terms of their contracts. The maximum counterparty credit risk to the Fund is measured by the unrealized gain on appreciated contracts.
A summary of the open forward currency contracts as of March 31, 2012, is included in a table following the Fund's Investment Portfolio. For the year ended March 31, 2012, the investment in forward currency contracts U.S. dollars purchased had a total contract value generally indicative of a range from approximately $23,009,000 to $120,236,000, and the investment in forward currency contracts U.S. dollars sold had a total contract value generally indicative of a range from approximately $15,515,000 to $121,327,000.
The following tables summarize the value of the Fund's derivative instruments held as of March 31, 2012 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
| Asset Derivatives | Forward Contracts | Futures Contracts | Total | |||||||||
| Foreign Exchange Contracts (a) | $ | 1,344,553 | $ | — | $ | 1,344,553 | ||||||
| Interest Rate Contracts (b) | — | 239,665 | 239,665 | |||||||||
| $ | 1,344,553 | $ | 239,665 | $ | 1,584,218 | |||||||
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:
(a) Unrealized appreciation on forward foreign currency exchange contracts
(b) Includes cumulative appreciation of futures contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.
| Liability Derivatives | Forward Contracts | Futures Contracts | Total | |||||||||
| Foreign Exchange Contracts (a) | $ | (1,663,378 | ) | $ | — | $ | (1,663,378 | ) | ||||
| Interest Rate Contracts (b) | — | (215,892 | ) | (215,892 | ) | |||||||
| $ | (1,663,378 | ) | $ | (215,892 | ) | $ | (1,879,270 | ) | ||||
Each of the above derivatives is located in the following Statement of Assets and Liabilities accounts:
(a) Unrealized depreciation on forward foreign currency exchange contracts
(b) Includes cumulative depreciation of futures contracts as disclosed in the Investment Portfolio. Unsettled variation margin is disclosed separately within the Statement of Assets and Liabilities.
Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the year ended March 31, 2012 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:
| Realized Gain (Loss) | Forward Contracts | Futures Contracts | Total | |||||||||
| Foreign Exchange Contracts (a) | $ | (8,323,132 | ) | $ | — | $ | (8,323,132 | ) | ||||
| Interest Rate Contracts (b) | — | 191,171 | 191,171 | |||||||||
| $ | (8,323,132 | ) | $ | 191,171 | $ | (8,131,961 | ) | |||||
Each of the above derivatives is located in the following Statement of Operations accounts:
(a) Net realized gain (loss) from foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)
(b) Net realized gain (loss) from futures
| Change in Net Unrealized Appreciation (Depreciation) | Forward Contracts | Futures Contracts | Total | |||||||||
| Foreign Exchange Contracts (a) | $ | (962,291 | ) | $ | — | $ | (962,291 | ) | ||||
| Interest Rate Contracts (b) | — | (340,858 | ) | (340,858 | ) | |||||||
| $ | (962,291 | ) | $ | (340,858 | ) | $ | (1,303,149 | ) | ||||
Each of the above derivatives is located in the following Statement of Operations accounts:
(a) Change in net unrealized appreciation (depreciation) on foreign currency (Statement of Operations includes both forward currency contracts and foreign currency transactions)
(b) Change in net unrealized appreciation (depreciation) on futures
C. Purchases and Sales of Mutual Funds
During the year ended March 31, 2012, purchases and sales of affiliated Underlying Funds (excluding short-term investments and money market funds) aggregated $165,688,172 and $195,434,913, respectively. Purchases and sales of non-affiliated Underlying Funds (excluding short-term investments and money market funds) aggregated $62,672,493 and $29,571,622, respectively.
D. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments in Underlying Funds to be purchased, sold or entered into by the Fund or delegates such responsibility to the Fund's subadvisor.
QS Investors, LLC ("QS Investors") acts as investment subadvisor to the Fund. As an investment subadvisor to the Fund, QS Investors renders strategic asset allocation services and manages the portion of assets allocated to the Fund's global tactical asset allocation overlay strategy. QS Investors is paid by the Advisor for the services QS Investors provides to the Fund.
The Fund does not invest in the Underlying DWS Funds for the purpose of exercising management or control; however, investments within the set limits may represent 5% or more of an Underlying DWS Fund's outstanding shares. At March 31, 2012, the Fund held greater than 5% of the following Underlying DWS Funds' outstanding shares: approximately 28% of DWS Global Inflation Fund, 28% of DWS Disciplined Market Neutral Fund, 23% of DWS Enhanced Emerging Markets Fixed Income Fund, 22% of DWS Emerging Markets Equity Fund, 16% of DWS RREEF Global Infrastructure Fund, 10% of DWS Enhanced Commodity Strategy Fund and 9% of DWS RREEF Global Real Estate Securities Fund.
The management fee payable under the Investment Management Agreement is equivalent to the annual rate of 0.20% of the Fund's average daily net assets, computed and accrued daily and payable monthly. In addition, the Advisor will receive management fees from managing the Underlying DWS Funds in which the Fund invests.
For the period from April 1, 2011 and for the period from June 1, 2011 (commencement of operations) for Class R, through July 31, 2012, the Advisor has 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) of each class as follows:
| Class A | .46% |
| Class C | 1.21% |
| Class R | .71% |
| Class S | .21% |
| Institutional Class | .21% |
Accordingly, for the year ended March 31, 2012, the Advisor waived a portion of its management fee pursuant to the Investment Management Agreement aggregating $1,166,082, and the amount charged aggregated $287,125, which was equivalent to an annual effective rate of 0.04% of the Fund's average daily net assets.
The Fund indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which it is invested.
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 year ended March 31, 2012, the Administration Fee was $726,604, of which $59,281 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 of 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 serving fee it receives from the Fund. For the year ended March 31, 2012, and for the period from June 1, 2011 (commencement of operations) through March 31, 2012 for Class R shares, the amounts charged to the Fund by DISC were as follows:
| Services to Shareholders | Total Aggregated | Waived | ||||||
| Class A | $ | 71,393 | $ | 71,393 | ||||
| Class C | 42,841 | 42,841 | ||||||
| Class R | 23 | 23 | ||||||
| Class S | 65,687 | 65,687 | ||||||
| Institutional Class | 3,380 | 3,380 | ||||||
| $ | 183,324 | $ | 183,324 | |||||
In addition, for the year ended March 31, 2012, the Advisor reimbursed $484,332 and $28,766 of non-affiliated sub-recordkeeping fees for Class S and Institutional Class shares, respectively.
Distribution and Service Fees. Under the Fund's Class C and Class R 12b-1 Plans, DWS Investments Distributors, Inc., ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of C shares and 0.25% of average daily net assets of Class R shares. In accordance with the Fund's Underwriting and Distribution Services Agreement, DIDI enters into related selling group agreements with various firms at various rates for sales of Class C and R shares. For the year ended March 31, 2012 for Class C shares and for the period from June 1, 2011 through March 31, 2012 for Class R shares, the Distribution Fee was as follows:
| Distribution Fee | Total Aggregated | Unpaid at March 31, 2012 | ||||||
| Class C | $ | 1,262,712 | $ | 103,701 | ||||
| Class R | 2 | 1 | ||||||
| $ | 1,262,714 | $ | 103,702 | |||||
In addition, DIDI provides information and administrative services for a fee ("Service Fee") to Class A, Class C and Class R shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DIDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended March 31, 2012 for Class A and C shares and for the period from June 1, 2011 through March 31, 2012 for Class R shares, the Service Fee was as follows:
| Service Fee | Total Aggregated | Waived | Unpaid at March 31, 2012 | Annual Effective Rate | ||||||||||||
| Class A | $ | 682,732 | $ | 307,573 | $ | 42,038 | .14 | % | ||||||||
| Class C | 420,332 | 155,635 | 24,144 | .16 | % | |||||||||||
| Class R | 2 | — | — | .24 | % | |||||||||||
| $ | 1,103,066 | $ | 463,208 | $ | 66,182 | |||||||||||
Underwriting Agreement and Contingent Deferred Sales Charge. DIDI is the principal underwriter for the Fund. Underwriting commissions paid by shareholders in connection with the distribution of Class A shares for the year ended March 31, 2012, aggregated $61,043.
In addition, DIDI receives any contingent deferred sales charge ("CDSC") from Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is 1% of the value of the shares redeemed for Class C. For the year ended March 31, 2012, the CDSC for the Fund's Class C shares aggregated $28,055. A deferred sales charge of up to 0.75% is assessed on certain redemptions of Class A shares. For the year ended March 31, 2012, DIDI received $9,958 for Class A shares.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended March 31, 2012, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $37,256, of which $6,376 is unpaid.
Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.
Affiliated Cash Management Vehicle. The Fund may invest uninvested cash balances in Central Cash Management Fund, which is managed by the Advisor. The Fund indirectly bears its proportionate share of the expenses of Central Cash Management Fund. Central Cash Management Fund does not pay the Advisor an investment management fee. Central Cash Management Fund seeks a high level of current income consistent with liquidity and the preservation of capital.
E. Share Transactions
The following table summarizes share and dollar activity in the Fund:
| Year Ended March 31, 2012 | Year Ended March 31, 2011 | |||||||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||||||
| Shares sold | ||||||||||||||||
| Class A | 7,691,470 | $ | 71,585,969 | 13,612,540 | $ | 123,915,614 | ||||||||||
| Class C | 3,026,332 | 28,036,965 | 5,306,607 | 48,334,691 | ||||||||||||
| Class R* | 142 | 1,349 | — | — | ||||||||||||
| Class S | 9,253,126 | 85,382,329 | 15,118,431 | 136,458,460 | ||||||||||||
| Institutional Class | 1,784,562 | 16,536,925 | 2,751,745 | 24,976,782 | ||||||||||||
| $ | 201,543,537 | $ | 333,685,547 | |||||||||||||
| Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
| Class A | 1,101,292 | $ | 9,830,430 | 300,682 | $ | 2,676,261 | ||||||||||
| Class C | 460,699 | 4,100,605 | 110,097 | 941,331 | ||||||||||||
| Class R* | 4 | 35 | — | — | ||||||||||||
| Class S | 889,057 | 7,877,075 | 265,758 | 2,377,057 | ||||||||||||
| Institutional Class | 173,526 | 1,535,308 | 35,226 | 316,956 | ||||||||||||
| $ | 23,343,453 | $ | 6,311,605 | |||||||||||||
| Shares redeemed | ||||||||||||||||
| Class A | (10,413,142 | ) | $ | (95,858,777 | ) | (9,036,210 | ) | $ | (81,921,345 | ) | ||||||
| Class C | (3,981,766 | ) | (36,392,557 | ) | (2,989,948 | ) | (27,054,572 | ) | ||||||||
| Class S | (10,798,432 | ) | (98,461,252 | ) | (8,971,154 | ) | (80,392,141 | ) | ||||||||
| Institutional Class | (1,524,478 | ) | (13,855,428 | ) | (184,369 | ) | (1,675,973 | ) | ||||||||
| $ | (244,568,014 | ) | $ | (191,044,031 | ) | |||||||||||
| Net increase (decrease) | ||||||||||||||||
| Class A | (1,620,380 | ) | $ | (14,442,378 | ) | 4,877,012 | $ | 44,670,530 | ||||||||
| Class C | (494,735 | ) | (4,254,987 | ) | 2,426,756 | 22,221,450 | ||||||||||
| Class R* | 146 | 1,384 | — | — | ||||||||||||
| Class S | (656,249 | ) | (5,201,848 | ) | 6,413,035 | 58,443,376 | ||||||||||
| Institutional Class | 433,610 | 4,216,805 | 2,602,602 | 23,617,765 | ||||||||||||
| $ | (19,681,024 | ) | $ | 148,953,121 | ||||||||||||
* For the period from June 1, 2011 (commencement of operations of Class R shares) through March 31, 2012.
To the Board of Trustees of DWS Market Trust and the Shareholders of DWS Alternative Asset Allocation Fund:
We have audited the accompanying statement of assets and liabilities of DWS Alternative Asset Allocation Fund (formerly DWS Alternative Asset Allocation Plus Fund) (the "Fund"), a series of DWS Market Trust (the "Trust"), including the investment portfolio, as of March 31, 2012, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2012, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of DWS Alternative Asset Allocation Fund at March 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
 | ||
Boston, Massachusetts May 22, 2012 |
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 table is 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 addition to the ongoing expenses which the Fund bears directly, the Fund's shareholders indirectly bear the expense of the Underlying Funds in which the Fund invests. These expenses are not included in the Fund's annualized expense ratios used to calculate the expense estimate in the table. In the most recent six-month period, the Fund limited the ongoing expenses the Fund bears directly; had it not done so, expenses would have been higher. The examples in the table are based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (October 1, 2011 to March 31, 2012).
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. An account maintenance fee of $6.25 per quarter for Class S shares may apply for certain accounts whose balances do not meet the applicable minimum initial investment. This fee is not included in these tables. If it was, the estimate of expenses paid for Class S shares during the period would be higher, and account value during the period would be lower, by this amount.
Expenses and Value of a $1,000 Investment for the six months ended March 31, 2012 (Unaudited) | ||||||||||||||||||||
| Actual Fund Return | Class A | Class C | Class R | Class S | Institutional Class | |||||||||||||||
| Beginning Account Value 10/1/11 | $ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | ||||||||||
| Ending Account Value 3/31/12 | $ | 1,076.40 | $ | 1,072.10 | $ | 1,076.00 | $ | 1,077.00 | $ | 1,078.30 | ||||||||||
| Expenses Paid per $1,000* | $ | 2.44 | $ | 6.32 | $ | 4.44 | $ | 1.14 | $ | 1.14 | ||||||||||
| Hypothetical 5% Fund Return | Class A | Class C | Class R | Class S | Institutional Class | |||||||||||||||
| Beginning Account Value 10/1/11 | $ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | $ | 1,000.00 | ||||||||||
| Ending Account Value 3/31/12 | $ | 1,022.65 | $ | 1,018.90 | $ | 1,025.82 | $ | 1,023.90 | $ | 1,023.90 | ||||||||||
| Expenses Paid per $1,000* | $ | 2.38 | $ | 6.16 | $ | 4.33 | $ | 1.11 | $ | 1.11 | ||||||||||
* Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 366.
Annualized Expense Ratios** | Class A | Class C | Class R | Class S | Institutional Class |
| DWS Alternative Asset Allocation Fund | .47% | 1.22% | .71% | .22% | .22% |
** The Fund invests in other funds and indirectly bears its proportionate share of fees and expenses incurred by the Underlying Funds in which the Fund is invested. These ratios do not include these indirect fees and expenses.
For more information, please refer to the Fund's prospectus.
For corporate shareholders, 100% of the income dividends paid during the Fund's fiscal year ended March 31, 2012, qualified for the dividends received deduction.
For federal income tax purposes, the Fund designates $36,795,000, or the maximum amount allowable under tax law, as qualified dividend income.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 621-1048.
September 26, 2011
Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2011, 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, 2009 and 2010.
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 109 mutual 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
President, Thomas H. Mack & Co., Inc.
The following table presents certain information regarding the Board Members and Officers of the fund as of March 31, 2012. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Paul K. Freeman, Independent Chairman, DWS Funds, PO Box 101833, Denver, CO 80250-1833. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex. The Length of Time Served represents the year in which the Board Member joined the Board of one or more DWS funds now overseen by the Board.
| Independent Board Members | ||||
Name, Year of Birth, Position with the Fund and Length of Time Served1 | Business Experience and Directorships During the Past Five Years | Number of Funds in DWS Fund Complex Overseen | Other Directorships Held by Board Member | |
Paul K. Freeman (1950) Chairperson since 2009 Board Member since 1993 | Consultant, World Bank/Inter-American Development Bank; Executive and Governing Council of the Independent Directors Council (Chairman of Education Committee); formerly: Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998) | 108 | — | |
John W. Ballantine (1946) Board Member since 1999 | Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Chairman of the Board, Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC (private equity); former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International | 108 | — | |
Henry P. Becton, Jr. (1943) Board Member since 1990 | Vice Chair and former President, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Public Radio International; Public Radio Exchange (PRX); The PBS Foundation; former Directorships: Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service | 108 | Lead Director, Becton Dickinson and Company2 (medical technology company); Lead Director, Belo Corporation2 (media company) | |
Dawn-Marie Driscoll (1946) Board Member since 1987 | President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley University; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: Director of ICI Mutual Insurance Company (since 2007); Advisory Board, Center for Business Ethics, Bentley University; Trustee, Southwest Florida Community Foundation (charitable organization); former Directorships: Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees) | 108 | Trustee, Sun Capital Advisers, Inc. (22 open-end mutual funds advised by Sun Capital Advisers, Inc.) (since 2007) | |
Keith R. Fox, CFA (1954) Board Member since 1996 | Managing General Partner, Exeter Capital Partners (a series of private investment funds) (since 1986). Directorships: Progressive International Corporation (kitchen goods importer and distributor); BoxTop Media Inc. (advertising); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies | 108 | Trustee, Sun Capital Advisers, Inc. (22 open-end mutual funds advised by Sun Capital Advisers, Inc.) (since 2011) | |
Kenneth C. Froewiss (1945) Board Member since 2001 | Adjunct Professor of Finance, NYU Stern School of Business (September 2009-present; Clinical Professor from 1997-September 2009); Member, Finance Committee, Association for Asian Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US) (2004-present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996) | 108 | — | |
Richard J. Herring (1946) Board Member since 1990 | Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center (since July 2000); Co-Chair, U.S. Shadow Financial Regulatory Committee; Executive Director, Financial Economists Roundtable; formerly: Vice Dean and Director, Wharton Undergraduate Division (July 1995-June 2000); Director, Lauder Institute of International Management Studies (July 2000-June 2006) | 108 | Director, Japan Equity Fund, Inc. (since September 2007), Thai Capital Fund, Inc. (since September 2007), Singapore Fund, Inc. (since September 2007), Independent Director of Barclays Bank Delaware (since September 2010) | |
William McClayton (1944) Board Member since 2004 | Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001-2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966-2001); Trustee, Ravinia Festival | 108 | — | |
Rebecca W. Rimel (1951) Board Member since 1995 | President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 to present); Trustee, Washington College (2011 to present); formerly: Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983-2004); Board Member, Investor Education (charitable organization) (2004-2005); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001-2007); Trustee, Pro Publica (charitable organization) (2007-2010); Trustee, Thomas Jefferson Foundation (charitable organization) (1994 to 2011) | 108 | Director, CardioNet, Inc.2 (health care) (2009- present); Director, Viasys Health Care2 (January 2007- June 2007) | |
William N. Searcy, Jr. (1946) Board Member since 1993 | Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989-September 2003) | 108 | Trustee, Sun Capital Advisers, Inc. (22 open-end mutual funds advised by Sun Capital Advisers, Inc.) (since 1998) | |
Jean Gleason Stromberg (1943) Board Member since 1997 | Retired. Formerly, Consultant (1997-2001); Director, Financial Markets U.S. Government Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation; former Directorships: Service Source, Inc., Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and 1994-1996) | 108 | — | |
Robert H. Wadsworth (1940) Board Member since 1999 | President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present); Director, National Horizon, Inc. (non-profit organization); Director and Treasurer, The Phoenix Boys Choir Association | 111 | — | |
Officers4 | ||
Name, Year of Birth, Position with the Fund and Length of Time Served5 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | |
W. Douglas Beck, CFA6 (1967) President, 2011-present | Managing Director3, Deutsche Asset Management (2006-present); President of DWS family of funds and Head of Product Management, U.S. for DWS Investments; formerly, Executive Director, Head of Product Management (2002-2006) and President (2005-2006) of the UBS Funds at UBS Global Asset Management; Co-Head of Manager Research/Managed Solutions Group, Merrill Lynch (1998-2002) | |
John Millette7 (1962) Vice President and Secretary, 1999-present | Director3, Deutsche Asset Management | |
Paul H. Schubert6 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present | Managing Director3, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998) | |
Caroline Pearson7 (1962) Chief Legal Officer, 2010-present | Managing Director3, Deutsche Asset Management; formerly, Assistant Secretary for DWS family of funds (1997-2010) | |
Rita Rubin6 (1970) Assistant Secretary, 2009-2012* | Director3 and Senior Counsel, Deutsche Asset Management (since October 2007); formerly, Vice President, Morgan Stanley Investment Management (2004-2007) | |
Paul Antosca7 (1957) Assistant Treasurer, 2007-present | Director3, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006) | |
Jack Clark7 (1967) Assistant Treasurer, 2007-present | Director3, Deutsche Asset Management (since 2007); formerly, Vice President, State Street Corporation (2002-2007) | |
Diane Kenneally7 (1966) Assistant Treasurer, 2007-present | Director3, Deutsche Asset Management | |
John Caruso6 (1965) Anti-Money Laundering Compliance Officer, 2010-present | Managing Director3, Deutsche Asset Management | |
Robert Kloby6 (1962) Chief Compliance Officer, 2006-present | Managing Director3, Deutsche Asset Management | |
1 The length of time served represents the year in which the Board Member joined the board of one or more DWS funds currently overseen by the Board.
2 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
3 Executive title, not a board directorship.
4 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
5 The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.
6 Address: 60 Wall Street, New York, NY 10005.
7 Address: One Beacon Street, Boston, MA 02108.
* Effective May 18, 2012, Rita Rubin no longer serves as Assistant Secretary to the fund.
The fund's Statement of Additional Information ("SAI") includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 621-1048.
| For More Information | The automated telephone system allows you to access personalized account information and obtain information on other DWS funds using either your voice or your telephone keypad. Certain account types within Classes A, C and S also have the ability to purchase, exchange or redeem shares using this system. For more information, contact your financial advisor. You may also access our automated telephone system or speak with a DWS Investments representative by calling the appropriate number below: For shareholders of Classes A, C and Institutional Class: (800) 621-1048 For shareholders of Class S: (800) 728-3337 | |
| Web Site | www.dws-investments.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. | |
| Written Correspondence | DWS Investments PO Box 219151 Kansas City, MO 64121-9151 | |
| Proxy Voting | The fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period 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. | |
| 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 www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. 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. | |
| 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 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. DWS Investments is the retail brand name in the U.S. for the asset management activities of Deutsche Bank AG and DIMA. As such, DWS is committed to delivering the investing expertise, insight and resources of this global investment platform to American investors. | |
| Class A | Class C | Class S | Institutional Class | ||
| Nasdaq Symbol | AAAAX | AAAPX | AAASX | AAAZX | |
| CUSIP Number | 233376 763 | 233376 755 | 233376 748 | 233376 730 | |
| Fund Number | 487 | 787 | 2087 | 1487 |
| For shareholders of Class R | ||
| Automated Information Line | DWS Investments Flex Plan Access (800) 532-8411 24-hour access to your retirement plan account. | |
| Web Site | www.dws-investments.com Click "Retirement Plans" to reallocate assets, process transactions and review your funds through our secure online account access. Obtain prospectuses and applications, blank forms, interactive worksheets, news about DWS funds, subscription to fund updates by e-mail, retirement planning information, and more. | |
| For More Information | (800) 543-5776 To speak with a service representative. | |
| Written Correspondence | DWS Investments Service Company 222 South Riverside Plaza Chicago, IL 60606-5806 | |
| Nasdaq Symbol | AAAQX | |
| CUSIP Number | 233376 672 | |
| Fund Number | 1587 | |
Notes
Notes
Notes
Notes
Notes
Notes
Notes
| ITEM 2. | CODE OF ETHICS |
As of the end of the period covered by this report, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer. There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2. A copy of the code of ethics is filed as an exhibit to this Form N-CSR. | |
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
| The fund’s audit committee is comprised solely of trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The fund’s Board of Trustees has determined that there are several "audit committee financial experts" (as such term has been defined by the Regulations) serving on the fund’s audit committee including Mr. William McClayton, the chair of the fund’s audit committee. An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an “audit committee financial expert” does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. | |
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
DWS ALTERNATIVE ASSET ALLOCATION FUND
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that Ernst & Young LLP (“E&Y”), the Fund’s Independent Registered Public Accounting Firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Fund.
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund
| Fiscal Year Ended March 31, | Audit Fees Billed to Fund | Audit-Related Fees Billed to Fund | Tax Fees Billed to Fund | All Other Fees Billed to Fund | ||||||||||||
| 2012 | $ | 56,960 | $ | 0 | $ | 9,650 | $ | 0 | ||||||||
| 2011 | $ | 50,724 | $ | 0 | $ | 13,441 | $ | 0 | ||||||||
The above “Tax Fees” were billed for professional services rendered for tax return preparation.
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. (“DIMA” or the “Adviser”), and any entity controlling, controlled by or under common control with DIMA (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
| Fiscal Year Ended March 31, | Audit-Related Fees Billed to Adviser and Affiliated Fund Service Providers | Tax Fees Billed to Adviser and Affiliated Fund Service Providers | All Other Fees Billed to Adviser and Affiliated Fund Service Providers | |||||||||
| 2012 | $ | 0 | $ | 333,267 | $ | 0 | ||||||
| 2011 | $ | 0 | $ | 405,550 | $ | 0 | ||||||
The above “Tax Fees” were billed in connection with tax compliance services and agreed upon procedures.
Non-Audit Services
The following table shows the amount of fees that E&Y billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating E&Y’s independence.
| Fiscal Year Ended March 31, | Total Non-Audit Fees Billed to Fund (A) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) | Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) | Total of (A), (B) and (C) | ||||||||||||
| 2012 | $ | 9,650 | $ | 333,267 | $ | 539,555 | $ | 882,472 | ||||||||
| 2011 | $ | 13,441 | $ | 405,550 | $ | 586,510 | $ | 1,005,501 | ||||||||
All other engagement fees were billed for services in connection with agreed upon procedures and tax compliance for DIMA and other related entities that provide support for the operations of the Fund.
Audit Committee Pre-Approval Policies and Procedures. Generally, each Fund’s Audit Committee must pre approve (i) all services to be performed for a Fund by a Fund’s Independent Registered Public Accounting Firm and (ii) all non-audit services to be performed by a Fund’s Independent Registered Public Accounting Firm for the DIMA Entities with respect to operations and financial reporting of the Fund, except that the Chairperson or Vice Chairperson of each Fund’s Audit Committee may grant the pre-approval for non-audit services described in items (i) and (ii) above for non-prohibited services for engagements of less than $100,000. All such delegated pre approvals shall be presented to each Fund’s Audit Committee no later than the next Audit Committee meeting.
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.
According to the registrant’s principal Independent Registered Public Accounting Firm, substantially all of the principal Independent Registered Public Accounting Firm's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal Independent Registered Public Accounting Firm.
***
In connection with the audit of the 2011 and 2012 financial statements, the Fund entered into an engagement letter with E&Y. The terms of the engagement letter required by E&Y, and agreed to by the Audit Committee, include provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury and an exclusion of punitive damages.
***
E&Y advised the Fund’s Audit Committee that E&Y had identified two matters that it determined to be inconsistent with the SEC’s auditor independence rules.
First, E&Y advised the Fund’s Audit Committee that, in 2010, an investment advisor for a Covered Person in the Chain of Command (both as defined by SEC rules) purchased for the Covered Person’s account shares of a DWS Fund that is not audited by E&Y. E&Y informed the Audit Committee that this investment constituted an investment in an affiliate of an audit client in violation of the Rule 2-01(c)(1) of Regulation S-X. E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audit of the Fund. In reaching this conclusion, E&Y noted a number of factors, including that the purchase was by the Covered Person’s investment advisor, not by the Covered Person himself and the Covered Person caused the shares of the DWS Fund to be sold immediately upon detection of the purchase.
Second, E&Y advised the Fund’s Audit Committee that, in 2010, a Covered Person in the same Office (as defined by SEC rules) as the lead audit engagement partner for the Fund became a trustee and executor to an estate whose assets included shares of a DWS Fund that is not audited by E&Y. E&Y informed the Audit Committee that this investment constituted an investment in an affiliate of an audit client in violation of the Rule 2-01(c)(1) of Regulation S-X. E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audit of the Fund. In reaching this conclusion, E&Y noted a number of factors, including that the shares of the DWS Fund were already an asset of the estate when the Covered Person became executor, the Covered Person caused the shares of the DWS Fund to be sold immediately upon detection in the estate, and the Covered Person was not involved with the provision of audit services to the Fund.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS | |
| Not applicable | ||
| ITEM 6. | SCHEDULE OF INVESTMENTS | |
| Not applicable | ||
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES | |
| Not applicable | ||
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES | |
| Not applicable | ||
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS | |
| Not applicable | ||
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | |
| There were no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board. The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Paul K. Freeman, Independent Chairman, DWS Funds, P.O. Box 101833, Denver, CO 80250-1833. | ||
| ITEM 11. | CONTROLS AND PROCEDURES | |
| (a) | The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. | |
| (b) | There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. | |
| ITEM 12. | EXHIBITS | |
| (a)(1) | Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. | |
| (a)(2) | Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. | |
| (b) | Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. | |
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Registrant: | DWS Alternative Asset Allocation Fund, a series of DWS Market Trust |
| By: | /s/W. Douglas Beck W. Douglas Beck President |
| Date: | May 29, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/W. Douglas Beck W. Douglas Beck President |
| Date: | May 29, 2012 |
| By: | /s/Paul Schubert Paul Schubert Chief Financial Officer and Treasurer |
| Date: | May 29, 2012 |