Phantom Menace Client

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  • 1. The phantom menaceIs the inflation threat hype—or real?Concerns have been raised that the US government’s attempts to stimulate the economycould unleash a wave of runaway inflation. Is inflation in the future—and if it is, is yourportfolio prepared for one of the greatest risks to personal wealth?Many economists will tell you not to worry about Many investors agree. Consider the bond market:inflation. While the consumer price index (CPI), The 10-year Treasury note was yielding just 3.43% asa widely used gauge of consumer spending, rose of 1/24/11, according to the Federal Reserve. At the0.5% in December 2010, its largest monthly gain since same time, traditional hedges against inflation—TreasuryJune 2009, so-called core inflation (which eliminates inflation protected securities (TIPS) and gold—havevolatile food and energy costs) was a relatively weak recently fallen in price, according to the Barclays Capital0.1%. For 2010, the CPI rose just 1.5% and core inflation US TIPS Index and Dow Jones US Gold Mining Index.rose only 0.8%. That places core inflation well belowthe US Federal Reserve Board’s (Fed’s) target of 2%— But there are three reasons we call inflation “theand the 2% to 2.5% annualized rates prevailing before phantom menace”—meaning you need to be aware of it.the Great Recession of 2008 and 2009. WHAT IS INFLATION?Many inflation watchers argue that the downtrend does Inflation is a general rise in prices. It is often attributed tonot seem to have ended. They point out that with the the Fed’s monetary policy. Pumping more money intounemployment rate at 9.4% as of December 2010, the economy dilutes the buying power of the money inwages are going to stay low for a long time, which will the economy. So, in an inflationary environment, a dollarhelp rein in inflation. If anything, these economists say, buys less tomorrow than it does today.slack in the labor markets suggests that core inflationmight continue to fall for awhile.Investment products: No bank guarantee I Not FDIC insured I May lose value
  • 2. Rethinking inflationThree reasons we call inflation the phantom menace OFFICIAL INFLATION DATA On the following pages, we look more MAY BE UNDERSTATED deeply into the history, evolution and current Over the past 30 years, the government has composition of the CPI. made many changes to the way it calculates inflation. Because of these changes, inflation OFFICIAL INFLATION DATA today may not be the same thing as inflation LOOKS BACKWARD the last time we saw it. Inflation numbers calculate what has happened, not what is going to happen. But if you look beyond According to economist John Williams at Shadow labor costs and consider raw materials, you’ll see Government Statistics, if we still calculated inflation that prices are rising. Consider a 10/21/10 article in the way we did under the Carter presidency, The Wall Street Journal, “Dilemma Over Pricing,” today’s CPI would be closer to 10% than 1.5%. which points out what is obvious to anyone who Jim Grant, the host and editor of the newsletter follows commodities: The cost of nearly everything Grant’s Interest Rate Observer, has said that the is going up. As the article notes: “Corn is up 44%, Fed arguing that the inflation rate is too low is “like milk is up 6.5%, hot rolled coil steel is up 4%, copper the New York Police Department complaining is up 29% and oil is up 14% from a year ago.” about the lack of crimes.” Sooner or later, these raw material price How can this be the case? The way inflation increases are going to show up in consumer is calculated today, if steak prices boom, it’s goods. “Across Corporate America, more assumed that you will buy cheaper hamburger companies are wrestling with when and how instead—making inflation nonexistent. much to raise prices as raw materials costs climb,” says The Wall Street Journal article. Or, consider the case of hedonics, which is a method of estimating a product’s value. In fact, prices may already be rising. “There Hedonics asks the question, "How much of might not have been a second round of a products price increase is a function of quantitative easing if Federal Reserve Chairman inflation, and how much is a function of quality Ben Bernanke shopped at Walmart,” says a improvement?” Let’s say, for example, that you 1/11/10 CNBC.com article. “A new pricing survey purchase a television. The quality of televisions of products sold at the world’s largest retailer has increased over time, with many improved showed a 0.6% price increase in just the last features, such as plasma screens and HDMI two months, according to MKM Partners. At that connections. If you buy a more expensive TV rate, prices would be close to 4% higher a year today, then, is that the result of inflation? The from now, double the Fed’s mandate.” government says no—and uses a complex calculation to adjust inflation for product quality And it’s just not Walmart that is raising prices. enhancements. Its argument: In a way, the MKM surveyed 86 everyday grocery items such price of the improved TV is going down, not up, as food and detergent made by national brands, because you’re getting more for your money. and found a “meaningful increase.” 2 » The phantom menace
  • 3. ECONOMICS 101 article in The Wall Street Journal, “Choosing theThe Fed, in an attempt to stimulate the US economy, 1970s Over the 1930s.”has engaged in another round of quantitativeeasing. This easing, dubbed QE2, would involve WHY DOES IT MATTER?massive purchases of US Treasuries—which is Inflation is near a historical low. As a result, wedesigned to push down yields on Treasuries and believe it will eventually rise and pose a threat.bonds and drive up investment and consumption. That may not happen immediately—but in our opinion, it will happen.There are many fancy names for what the Fedis doing, but essentially, the policymakers are When inflation does show up, by the time thecreating more money—and in doing so, diluting the bond market notices it is here, we believe it maypurchasing power of the dollar. be too late for many investors—specifically, those who are invested in asset classes that typicallyWhat the economy needs, the Fed’s thinking perform poorly in inflationary environments,goes, is some inflation. Indeed, according to which is most of them, as we explain on page 9.some insiders, the Fed is seeking an inflationrate in the 4% to 6% range for just “a couple of What can investors do in such a challengingyears”—but if this spills over into 1970s-style economic environment? In our opinion, what wedouble-digit inflation, then so be it. have always encouraged them to do. First, don’t remain on the sidelines, as leaving assets in cash“That’s because the central thinking at the Fed could eat away at their value in an inflationaryis that while it knows how to deal with inflation environment. Second, invest intelligently, in assetand recognizes the problems associated with classes and mutual funds that could preparefairly high rates of price appreciation, embedded a portfolio for the threat of rising inflation—deflation is…harder to defeat,” says a 10/14/10 whenever it occurs. INFLAT ION FEARS ARE GLOBAL Inflation fears aren’t just domestic. In an interview with The Wall Street Journal, European Central Bank President Jean-Claude Trichet warned that inflation pressures in the Eurozone must be watched closely, and urged central bankers everywhere to ensure that higher energy and food prices dont gain a foothold in the global economy. Why should Americans care? Because inflation abroad could be exported back to the United States in the form of higher prices for consumer goods.The sources, opinions and forecasts expressed are those of DWS Investments, are as of 12/31/10 and any forward-lookingstatements may not actually come to pass. This information is subject to change at any time based on market and otherconditions and should not be construed as investment advice. All opinions and estimates reflect our judgement as of the date ofthis report and are subject to change without notice. Such opinions and estimates, including forecast returns, involve a numberof assumptions that may not prove valid. The phantom menace » 3
  • 4. CPI basicsUnderstanding the index that defines inflation The CPI, which is produced by the US Bureau of Labor Statistics, measures changes in the prices of consumer goods and services. It samples more than 80,000 items per month—everything from laundry detergent to apparel to vehicles. ONE-YEAR CPI PERCENTAGE (12/31/26–12/31/10) 25% 20% 15% 10% Average CPI 3.11% 5% 0% –5% 2010 CPI –10% 1.50% –15% 12/26 12/38 12/50 12/62 12/74 12/86 12/98 12/10 CPI category Weight The CPI "market basket" is developed from detailed expenditure information provided by Housing 42% individuals from around the country. For the Transportation 17% current CPI, this information was collected Food and beverage 15% from the Consumer Expenditure Surveys for Medical care 7% 2007 and 2008. Recreation 6% Education and communication 6% Over the two-year period, expenditure information from approximately 28,000 weekly Apparel 4% diaries and 60,000 quarterly interviews was used Other goods and services 3% to determine the importance, or weight, of the more than 200 items in the CPI. Sources for chart and table: US Bureau of Labor Statistics as of 12/31/10. 4 » The phantom menace
  • 5. The impact of changes to the CPINew calculation methodologies understate inflation CPI calculations have not remained constant since 1917, when the index started. In 1983, the index stopped using housing prices, switching instead to owners’ equivalent rent, which is the amount of rent that could be paid to substitute a currently owned house for an equivalent rental property. It is now the largest part of the CPI. In 1998, the index broadened the use of product quality enhancements, or hedonics. As we have already noted, hedonics is a method of estimating a product’s value. Let’s say, for example, that you purchase a television. The quality of televisions has increased over time, with many improved features, such as plasma screens and HDMI connections. If you buy a more expensive television today, then, is that the result of inflation? The government says no—and uses a complex calculation to adjust inflation for product quality enhancements. Its argument: In a way, the price of the improved television is going down, not up, because you’re getting more for your money. In 1999, the CPI began using product substitutions (assuming, for example, that if the price of steak rises, consumers will buy hamburger instead). These changes may have led the CPI to significantly understate inflation. Below we show what the CPI would be today using older methods of calculating CPI. HAVE CPI CHANGES LED TO UNDERSTATED INFLATION? 10% 8% 6% 4% 2% 0% 1.50% 4.80% 8.90% Current CPI Pre-1990 Pre-1983 CPI method estimate CPI method estimate Sources for chart: Morningstar (except pre-1983 and pre-1990 CPI method estimates, which are from Shadowstats.com, BLS and S&P) as of 12/31/10. The phantom menace » 5
  • 6. Behind changing CPI numbersThe impact of owners’ equivalent rent and hedonics OWNERS’ EQUIVALENT RENT MITIGATES HOUSING PRICE SWINGS (12/31/01–12/31/10) 20% Is the housing market 10% decline understating deflation? 0% The CPI understated –10% inflation during the housing market bubble. –20% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Housing prices CPI owners’ equivalent rent PRICES ARE ADJUSTED HIGHER TO REFLECT PRODUCT QUALITY ENHANCEMENTS How is price adjusted? $3,000 TV A is no longer available and has been replaced by TV B. Rather than use the 400% price difference between the two TVs to measure inflation, the US Bureau $2,500 of Labor Statistic uses a complex formula to determine TV A’s “quality-adjusted” price. When this formula is applied, TV A costs not $250, but $1,345. $2,000 Implied inflation $1,500 –7.25% $1,000 Implied inflation $500 400% $0 $250 $1,250 $1,345 $1,250 TV A 27-inch, TV B 42-inch, TV A 27-inch, TV B 42-inch, CRT, HDTV plasma, HDTV CRT, HDTV plasma, HDTV Original price Adjusted price Sources for top chart: US Bureau of Labor Statistics and S&P, as of 12/31/10 (for housing prices) and 11/30/10 (for owners’ equivalent rent). Source for bottom chart: US Bureau of Labor Statistics as of 12/31/10. Past performance is no guarantee of future results. 6 » The phantom menace
  • 7. Inflation or deflation?In today’s economy, it’s both While core consumer inflation rose just 0.1% in December 2010, suggesting that inflation is tame, that number belies what many consumers feel in their wallets: Raw material prices are climbing, and as a result, across America, companies are raising the prices of their goods and services. The reason inflation isn’t obvious, perhaps, is that not all prices are rising. We’re currently seeing inflation in the prices of goods we need, and deflation in the prices of goods we want. The tables below illustrate. NEEDS (BASIC GOODS) WANTS (LUXURY ITEMS) HAVE INCREASED IN PRICE HAVE DECREASED IN PRICE 10 largest category increases in Inflation 10 largest category decreases in Inflation price the last 12 months rate price the last 12 months rate Butter +21.88% Televisions –19.06% Fuel oil +16.51% Photographic equipment –13.55% Lamb and organ meats +16.23% Other video equipment –13.48% Lamb and mutton +15.93% Other furniture –11.40% Gasoline (all types) +13.85% Computer software and accessories –10.50% Bacon and related products +13.73% Tomatoes –10.50% Other pork +12.82% Window coverings –8.22% Delivery services +12.67% Dishes and flatware –7.64% Ham, excluding canned +11.41% Video casettes and discs –7.59% Uncooked beef and veal +10.81% Lettuce –7.45% FAST FACTS ■■ General Mills, a global food company, said it increased the prices of a quarter of its breakfast cereals in November 2010 as a result of rising grain and other commodity prices. ■■ United Technologies, which builds helicopters, jet engines, elevators and air conditioners, says that higher prices for commodities will represent a $40 million to $50 million expense headwind in 2011. ■■ Supervalu, a grocery retailer, lowered its fiscal 2011 earnings outlook in October 2010 because the prices it pays for its products are rising. Sources for charts: US Bureau of Labor Statistics and myinflationrate.com, as of December 2010. Source for fast facts: The Wall Street Journal, “Dilemma Over Pricing,” 10/21/10. Highlighted rows are the items of most interest to the average consumer based on the opinions of DWS Investments. The sources, opinions and forecasts expressed are those of DWS Investments, are as of 12/31/10 and any forward-looking statements may not actually come to pass. This information is subject to change at any time based on market and other conditions and should not be construed as investment advice. All opinions and estimates reflect our judgement on the date of this report and are subject to change without notice. Such opinions and estimates, including forecast returns, involve a number of assumptions that may not prove valid. The phantom menace » 7
  • 8. Floating-rate loans and commoditiesYour best options for fighting inflation? We’ve explained why many people believe inflation could rise—and with inflation expectations high and interest rates near historic lows, do you really want to keep your money on the sidelines? What can investors do in such a challenging economic environment? As we noted previously, we recommend what we have always recommended: Invest intelligently. Consider floating-rate loans and commodities. Historically, floating-rate loans and commodities have been positively correlated to inflation—meaning that as inflation has risen so too have the returns of floating-rate loans and commodities. 15-YEAR CORRELATION OF ASSET CLASSES TO INFLATION (as of 12/31/10) Inflation 1.00 Floating-rate loans 0.37 Commodities 0.25 US TIPS 0.11 Short-term bonds 0.07 Large-cap equities 0.03 Intermediate-term bonds –0.06 –0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 FAST FACTS ■■ Floating-rate loans, also referred to as senior-secured loans, are debt instruments with floating-rate coupons. Coupons for floating-rate loans are tied to a variable rate, most commonly the London Interbank Offered Rate (LIBOR), and generally reset every 30 to 90 days. ■■ Commodities are basic goods such as oil, metals and livestock. They can be broken down into five broad sub-sectors: energy, base metals (also referred to as industrial metals), precious metals, agriculture and livestock. Source for chart: Morningstar, as of 12/31/10. Correlation is historical and does not guarantee future results. Asset classes are represented as follows: floating-rate loans, Morningstar Bank Loan category; commodities, Dow Jones UBS Commodity Index; US TIPS, Morningstar Inflation Protected Bond category; short-term bonds, Morningstar Short-Term Bond category; large-cap equities, Morningstar Large Blend category; intermediate-term bonds, Morningstar Intermediate-Term Bond category; large-cap equities, inflation, US Bureau of Labor Statistics, CPI All Urban NSA. Data is for illustrative purposes and does not represent any DWS fund. It is not possible to invest directly in a category. Correlation refers to how securities or asset classes perform in relation to each another and/or the market. A 1.0 correlation indicates that two security types move in exactly the same direction. A –1.0 correlation indicates movement in exactly opposite directions. A zero correlation implies no relation in the movements. 8 » The phantom menace
  • 9. How prepared are you?Investors are underweight inflation-fighting asset classes Different asset classes perform differently in inflationary environments. We divided Morningstar categories into those that we believe will perform well in inflationary or deflationary environments—or neither. What did we find? That only 17% of investor assets are allocated to inflation-fighting categories. INVESTORS ARE UNDERWEIGHT POTENTIAL INFLATION FIGHTERS 30% Deflation Neither Deflation Inflation 53% Neither $6.7 trillion $3.8 trillion $2.1 trillion 17% 53.00% 30.38% 16.62% Inflation WHAT ASSET CLASSES POTENTIALLY WORK DURING INFLATION OR DEFLATION? For inflation, consider international stocks and For deflation, consider cash, US Treasury and bonds, high-yield bonds, hard assets and agency securities, high-grade corporate bonds alternative asset classes. and some alternatives (such as market neutral). Source for table and chart: DWS Investments (for inflation indicators and category representation) and Strategic Insight (for assets) as of 12/31/10. “Underweight” means an investor or investment holds a lower weighting in a given sector or security than in another sector, security or benchmark. “Overweight” means the fund has a higher weighting. Deflation includes the Morningstar Intermediate Government, Intermediate-Term Bond, Long Government, Long-Term Bond, Market Neutral, Money Market Tax-Free, Money Market Taxable, Muni National Long and Short Government categories. Inflation includes the Morningstar Bank Loan, Commodities Agriculture, Commodities Broad Basket, Commodities Energy, Commodities Industrial Metal, Commodities Miscellaneous, Commodities Precious Metals, Diversified Emerging Markets, Diversified Pac/Asia, Emerging Markets Bond, Equity Energy, Equity Precious Metals, Europe Stock, Foreign Large Blend, Foreign Large Growth, Foreign Large Value, Foreign Small/Mid Growth, Foreign Small/Mid Value, Global Real Estate, High Yield Bond, Inflation-Protected Bond, Japan Stock, Latin America Stock, Natural Resources, Pac/Asia ex-Japan Stock and Real Estate categories. Neither includes the Morningstar Bear Market, Communications, Conservative Allocation, Consumer Discretionary, Consumer Staples, Convertibles, Currency, Financial, Health, High Yield Muni, Industrials, Large Blend, Large Growth, Large Value, Long-Short, Mid Blend, Mid Growth, Mid Value, Miscellaneous Sector, Moderate Allocation, Multisector Bond, Muni CA Intermediate/Short, Muni CA Long, Muni MA, Muni MN, Muni National Intermediate, Muni National Short, Muni NJ, Muni NY Intermediate/Short, Muni NY Long, Muni OH, Muni PA, Muni Single State Intermediate, Muni Single State Long, Muni Single State Short, Retirement Income, Short- Term Bond, Small Blend, Small Growth, Small Value, Target Date 2000-2010, Target Date 2011-2015, Target Date 2016-2020, Target Date 2021-2025, Target Date 2026-2030, Target Date 2031-2035, Target Date 2036-2040, Target Date 2041-2045, Target Date 2050+, Technology, Ultrashort Bond, Utilities, World Allocation, World Bond and World Stock categories. The phantom menace » 9
  • 10. DWS Enhanced Commodity Strategy FundA history of inflation-fighting power Commodities may help provide a measure of potential protection against rising inflation because they are real assets,so their prices typically rise with inflation. In fact, going back to 1976, commodities have outperformed stocks and bonds in years when inflation has increased. COMMODITIES HAVE PERFORMED WELL WHEN INFLATION HAS RISEN (average annual total return, 12/31/76–12/31/10) 45% Average inflation is represented by the average US Consumer Price Index (CPI) inflation growth rate from 12/31/76 through 12/31/10, which was 4.4%. Inflation was considered rising when it was higher than it was one year prior. 30% 15% 0% 27.8% 6.2% 6.1% 28.3% 8.4% 5.9% Commodities Stocks Bonds Commodities Stocks Bonds Below average and rising Above average and rising DWS ENHANCED COMMODITY STRATEGY FUND: A UNIQUE STRATEGY ■■ DWS Enhanced Commodity Strategy Fund invests in derivatives representing 19 different commodities.1 ■■ The commodities allocation is adjusted using three active management strategies: A tactical strategy reduces net commodity exposure when trends suggest that commodities are overvalued; a relative value strategy actively overweights, underweights or shorts each commodity depending on how “cheap” or “expensive” portfolio managers think it is; and a roll enhancement strategy seeks to roll into the futures contract that may have the potential to optimize returns.2, 3, 4 ■■ Remaining assets are invested in a diversified fixed-income portfolio. Source for chart: Morningstar, Bloomberg, FactSet as of 12/31/10. Past performance is no guarantee of future results. The chart above is for illustrative purposes only and do not represent any DWS fund. Commodities, bonds and stocks are represented by the S&P Goldman Sachs Commodities Index (which measures an unleveraged, long-only investment in futures that are broadly diversified across the spectrum of commodities), the Barclays Capital US Aggregate Index (which is widely considered representative of the US bond market) and the S&P 500 Index (which is widely considered representative of the US stock market), respectively. Equity index returns include reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. The values of equity investments are more volatile than those of other securities. Fixed-income investments are subject to interest-rate risk, and their value will decline as interest rates rise. Commodities are long-term investments and should be considered part of a diversified portfolio; market-price movements, regulatory changes, economic changes and adverse political or financial factors could have a significant impact on performance. 10 » The phantom menace
  • 11. DWS Floating Rate Plus FundPoised to perform regardless of when inflation rises? Floating-rate loans may provide a potential measure of protection against rising inflation because their coupons “float.” In other words, the coupon rate is set at a premium over a going market interest rate (such as LIBOR), and thus will tend to rise if market interest rates rise. History shows that floating-rate loans have performed well as long as inflation has risen—regardless of how much level of inflation has risen. FLOATING-RATE LOANS’ AVERAGE ANNUAL TOTAL RETURN (2/31/89–12/31/10) 10% 8% 6% 4% 2% 9.7% 3.9% 0% Rising inflation Falling inflation DWS FLOATING RATE PLUS FUND: A COMPELLING OPTION FOR CURRENT TIMES ■■ DWS Floating Rate Plus Fund seeks to deliver attractive returns over time by maximizing yield while maintaining relative stability of principal. The fund does this by utilizing a “par-loan” approach, which focuses on loans portfolio managers believe will repay at face value. Portfolio managers look at the entire credit spectrum with an emphasis on relatively higher-quality issues (B and BB), cash flow and hard asset value. They also seek to mitigate downside risk. ■■ The fund (Class S shares) ranked in the top 30% and 7% of the Morningstar Bank Loan category over the one- and three-year periods (as of 12/31/10; based on total returns; of 43/140 and 8/116 funds, respectively). ■■ The fund (Class S shares) was the only fund in the Morningstar Bank Loan category to rank in the top 35% during the 2008 bear market, the top 24% during the 2009 bull market and top 30% in 2010 (as of 12/31/10; based on total returns; of 46/127, 32/134 and 43/140 funds, respectively. Source for chart and text: Morningstar as of 12/31/10. Past performance is no guarantee of future results. This chart is for illustrative purposes only and does not represent any DWS fund. Floating-rate loans are represented by the Morningstar Bank Loan category. Rankings and ratings are historical and do not guarantee future results. Class S shares of DWS Floating Rate Plus Fund were ranked as follows in the Morningstar Bank Loan category: one-year, 43/140 funds; three-year, 8/116 funds; five year, not available; 10-year, not available. Rankings are based on a fund’s total return with distributions reinvested. Rankings of other share classes may vary. The phantom menace » 11
  • 12. Nasdaq symbols Class A Class C Class S Class INST DWS Floating Rate Plus Fund DFRAX DFRCX DFRPX DFRTX DWS Enhanced Commodity Strategy Fund SKNRX SKCRX SKSRX SKIRX1 A derivative is a security whose price is based on an underlying asset. Common derivatives include futures, which are contracts obligating someone to buy or sell another asset (such as a stock or commodity) at a predetermined future date and price.2 “Overweight” means the fund holds a higher weighting in a given sector or security than the benchmark; “underweight” means the fund holds a lower weighting.3 Shorting is borrowing, then selling, a security with the expectation that the security will fall in value.4 Direct commodities investing entails buying a contract to buy or sell a specific commodity on a specific date. This contract, called a future, typically expires monthly. When a contract expires, passive commodity investing strategies automatically purchase—or “roll into”—the next available contract. IMPORTANT RISK INFORMATION DWS Enhanced Commodity Strategy Fund: This fund invests in commodity-linked derivatives, which may subject the fund to special risks. Market price movements or regulatory and economic changes will have a significant impact on the fund’s performance. Any fund that concentrates in a particular segment of the market will generally be more volatile than a fund that invests more broadly. A counterparty with whom the fund does business may decline in financial health and become unable to honor its commitments, which could cause losses for the fund. Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. This fund is non-diversified and can take larger positions in fewer issues, increasing its potential risk. See the prospectus for details. DWS Floating Rate Plus Fund: Loan investments are subject to interest- rate and credit risks. Floating-rate loans tend to be rated below investment grade and may be more vulnerable to economic or business changes than issuers with investment-grade credit. Adjustable rate loans are more sensitive to interest rate changes. The fund may use derivatives, including as part of its global alpha strategy. Investing in derivatives entails special risks relating to liquidity, leverage and credit that may reduce returns and/or increase volatility. In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This fund is non-diversified and can take larger positions in fewer issues, increasing its potential risk. See the prospectus for details. OBTAIN A PROSPECTUS To obtain a summary prospectus, if available, or prospectus, download one from www.dws-investments.com, talk to your financial representative or call (800) 621-1048. We advise you to carefully consider the product’s objectives, risks, charges and expenses before investing. The summary prospectus and prospectus contain this and other important information about the investment product. Please read the prospectus carefully before you invest. All investments involve risk, including potential loss of principal.Investment products offered through DWS Investments is part of Deutsche Bank’sDWS Investments Distributors, Inc. Advisory Asset Management division and, within the US,services offered through Deutsche Investment represents the retail asset management activities ofManagement Americas, Inc. Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company. DWS Investments Distributors, Inc. 222 South Riverside Plaza Chicago, IL 60606-5808 www.dws-investments.com inquiry.info@dws.com Tel (800) 621-1148 C000000© 2011 DWS Investments Distributors, Inc. All rights reserved. PM113158 (02/11) R-20789-1 INFLATION-600