SLCO Sovereign Lithium Inc (CE)

ITEM 1.

REPORT TO STOCKHOLDERS

 

Performance Summary May 31, 2013 (Unaudited)

Class A		1-Year				5-Year				10-Year
Average Annual Total Returns as of 5/31/13
Unadjusted for Sales Charge			32.82	%			9.87	%			9.53	%
Adjusted for the Maximum Sales Charge (max 5.75% load)			25.18	%			8.57	%			8.88	%
S&P 500 ® Index †			27.28	%			5.43	%			7.58	%
S&P ® North American Health Care Sector Index ††			36.88	%			12.06	%			9.37	%
Class B		1-Year				5-Year				10-Year
Average Annual Total Returns as of 5/31/13
Unadjusted for Sales Charge			31.83	%			9.02	%			8.65	%
Adjusted for the Maximum Sales Charge (max 4.00% CDSC)			28.83	%			8.88	%			8.65	%
S&P 500 ® Index †			27.28	%			5.43	%			7.58	%
S&P ® North American Health Care Sector Index ††			36.88	%			12.06	%			9.37	%
Class C		1-Year				5-Year				10-Year
Average Annual Total Returns as of 5/31/13
Unadjusted for Sales Charge			31.84	%			9.06	%			8.70	%
Adjusted for the Maximum Sales Charge (max 1.00% CDSC)			31.84	%			9.06	%			8.70	%
S&P 500 ® Index †			27.28	%			5.43	%			7.58	%
S&P ® North American Health Care Sector Index ††			36.88	%			12.06	%			9.37	%
Class S		1-Year				5-Year				10-Year
Average Annual Total Returns as of 5/31/13
No Sales Charges			33.19	%			10.18	%			9.81	%
S&P 500 ® Index †			27.28	%			5.43	%			7.58	%
S&P ® North American Health Care Sector Index ††			36.88	%			12.06	%			9.37	%
Institutional Class		1-Year				5-Year				10-Year
Average Annual Total Returns as of 5/31/13
No Sales Charges			33.23	%			10.36	%			9.99	%
S&P 500 ® Index †			27.28	%			5.43	%			7.58	%
S&P ® North American Health Care Sector Index ††			36.88	%			12.06	%			9.37	%

		Class A				Class B				Class C				Class S				Institutional Class
Net Asset Value
5/31/13		$	30.50			$	26.69			$	26.89			$	31.73			$	32.62
5/31/12		$	25.10			$	22.31			$	22.46			$	26.03			$	26.71
Distribution Information as of 5/31/13
Income Dividends, Twelve Months		$	.09			$	—			$	—			$	.17			$	.19
Capital Gain Distributions, Twelve Months		$	2.27			$	2.27			$	2.27			$	2.27			$	2.27

 

Investment Portfolio as of May 31, 2013

		Shares				Value ($)
Common Stocks 98.6%
Health Care 98.6%
Biotechnology 23.4%
Acorda Therapeutics, Inc.*			20,112				672,746
Alexion Pharmaceuticals, Inc.*			28,690				2,798,423
Alkermes PLC*			65,737				2,054,281
Alnylam Pharmaceuticals, Inc.*			25,520				781,678
Amarin Corp. PLC (ADR)* (a)			44,414				310,454
Amgen, Inc.			69,581				6,994,978
Anacor Pharmaceuticals, Inc.* (a)			112,769				616,846
ARIAD Pharmaceuticals, Inc.* (a)			89,169				1,635,359
Biogen Idec, Inc.*			18,641				4,427,051
BioMarin Pharmaceutical, Inc.*			29,305				1,837,424
Celgene Corp.*			51,025				6,309,241
Cubist Pharmaceuticals, Inc.* (a)			27,102				1,489,255
Gilead Sciences, Inc.*			189,086				10,301,405
Incyte Corp., Ltd.* (a)			50,297				1,115,085
Infinity Pharmaceuticals, Inc.*			16,725				450,739
KaloBios Pharmaceuticals, Inc.*			40,000				226,400
Medivation, Inc.*			31,119				1,511,139
Momenta Pharmaceuticals, Inc.*			63,524				835,976
Neurocrine Biosciences, Inc.*			67,778				876,370
Onyx Pharmaceuticals, Inc.*			22,127				2,112,022
Pharmacyclics, Inc.*			10,388				951,956
Regeneron Pharmaceuticals, Inc.* (a)			8,209				1,985,511
TESARO, Inc.*			13,601				465,290
United Therapeutics Corp.*			9,809				652,004
Vertex Pharmaceuticals, Inc.* (a)			27,178				2,182,665
							53,594,298
Health Care Services 17.9%
Aetna, Inc.			61,400				3,707,332
AmerisourceBergen Corp.			47,510				2,569,341
athenahealth, Inc.*			7,810				660,336
Cardinal Health, Inc.			43,292				2,032,992
Catamaran Corp.*			29,611				1,457,453
Centene Corp.*			20,685				1,023,908
Cerner Corp.*			18,772				1,844,912
CIGNA Corp.			51,904				3,524,282
CVS Caremark Corp.			34,637				1,994,399
Express Scripts Holding Co.*			59,386				3,689,058
HCA Holdings, Inc.			49,189				1,921,322
Humana, Inc.			21,748				1,756,804
McKesson Corp.			35,523				4,044,649
Quest Diagnostics, Inc. (a)			22,766				1,407,849
Team Health Holdings, Inc.*			30,604				1,195,698
UnitedHealth Group, Inc.			89,202				5,586,721
Universal Health Services, Inc. "B"			30,449				2,105,244
WellCare Health Plans, Inc.*			10,985				572,758
							41,095,058
Life Sciences Tools & Services 4.4%
Agilent Technologies, Inc.			45,783				2,080,837
Analogic Corp.			10,247				814,534
Illumina, Inc.* (a)			20,208				1,421,026
PAREXEL International Corp.* (a)			26,069				1,191,093
Thermo Fisher Scientific, Inc.			35,487				3,133,502
Waters Corp.*			13,970				1,351,039
							9,992,031
Medical Supply & Specialty 13.8%
ArthroCare Corp.*			23,716				804,684
AtriCure, Inc.*			57,189				517,560
Baxter International, Inc.			61,562				4,329,655
Boston Scientific Corp.*			223,823				2,068,125
CareFusion Corp.*			31,745				1,166,629
CONMED Corp.			45,327				1,492,618
Covidien PLC			54,042				3,437,071
HeartWare International, Inc.*			16,991				1,550,769
Hologic, Inc.* (a)			52,074				1,080,535
Medtronic, Inc.			73,554				3,751,990
Sirona Dental Systems, Inc.*			23,400				1,659,996
St. Jude Medical, Inc. (a)			20,113				869,485
Stryker Corp.			38,103				2,529,658
The Cooper Companies, Inc.			13,953				1,576,829
Thoratec Corp.*			14,961				466,334
Vascular Solutions, Inc.*			23,807				361,152
Volcano Corp.*			63,974				1,221,903
Zimmer Holdings, Inc.			35,072				2,753,503
							31,638,496
Pharmaceuticals 39.1%
Abbott Laboratories			81,295				2,981,088
AbbVie, Inc.			97,472				4,161,080
Achillion Pharmaceuticals, Inc.*			32,354				269,832
Actavis, Inc.*			27,018				3,331,049
Allergan, Inc.			28,770				2,862,327
Astex Pharmaceuticals, Inc.*			83,221				403,622
Bayer AG (Registered)			16,829				1,810,286
BioDelivery Sciences International, Inc.* (a)			81,171				357,152
Bristol-Myers Squibb Co.			126,888				5,838,117
DepoMed, Inc.*			134,468				774,536
Elan Corp. PLC (ADR)* (a)			84,557				1,070,492
Eli Lilly & Co.			110,194				5,857,913
Endo Health Solutions, Inc.*			31,872				1,156,954
Endocyte, Inc.*			48,000				657,120
Forest Laboratories, Inc.*			54,611				2,170,787
Furiex Pharmaceuticals, Inc.*			13,806				510,408
Hi-Tech Pharmacal Co., Inc. (a)			23,626				755,087
Johnson & Johnson (a)			105,288				8,863,144
Medicines Co.*			20,649				665,104
Merck & Co., Inc. (a)			192,559				8,992,505
Mylan, Inc.* (a)			70,663				2,153,808
Novartis AG (Registered)			43,186				3,094,525
NPS Pharmaceuticals, Inc.* (a)			45,732				720,279
Optimer Pharmaceuticals, Inc.* (a)			30,401				452,367
Pacira Pharmaceuticals, Inc.*			29,161				854,417
Perrigo Co.			14,915				1,728,798
Pfizer, Inc.			333,219				9,073,553
Roche Holding AG (Genusschein)			16,925				4,187,927
Salix Pharmaceuticals Ltd.*			18,867				1,144,661
Sanofi (ADR)			79,612				4,226,601
Shire PLC (ADR)			14,199				1,398,176
Teva Pharmaceutical Industries Ltd. (ADR) (a)			34,839				1,330,850
UCB SA			22,496				1,233,025
Valeant Pharmaceuticals International, Inc.*			18,312				1,668,589
VIVUS, Inc.* (a)			36,919				542,709
Warner Chilcott PLC "A"			84,050				1,613,760
Zoetis, Inc. (a)			17,292				553,344
							89,465,992
Total Common Stocks (Cost $133,698,197)							225,785,875
Securities Lending Collateral 16.1%
Daily Assets Fund Institutional, 0.12% (b) (c) (Cost $37,028,919)			37,028,919				37,028,919
Cash Equivalents 0.1%
Central Cash Management Fund, 0.07% (b) (Cost $181,235)			181,235				181,235

 

		% of Net Assets				Value ($)
Total Investment Portfolio (Cost $170,908,351) †			114.8				262,996,029
Other Assets and Liabilities, Net			(14.8	)			(33,969,284	)
Net Assets			100.0				229,026,745

Assets		Level 1				Level 2				Level 3				Total
Common Stocks
Biotechnology		$	53,594,298			$	—			$	—			$	53,594,298
Health Care Services			41,095,058				—				—				41,095,058
Life Sciences Tools & Services			9,992,031				—				—				9,992,031
Medical Supply & Specialty			31,638,496				—				—				31,638,496
Pharmaceuticals			79,140,229				10,325,763				—				89,465,992
Short-Term Investments (d)			37,210,154				—				—				37,210,154
Total		$	252,670,266			$	10,325,763			$	—			$	262,996,029

Statement of Assets and Liabilities

as of May 31, 2013
Assets
Investments: Investments in non-affiliated securities, at value (cost $133,698,197) — including $35,595,902 of securities loaned		$	225,785,875
Investment in Daily Assets Fund Institutional (cost $37,028,919)*			37,028,919
Investment in Central Cash Management Fund (cost $181,235)			181,235
Total investments in securities, at value (cost $170,908,351)			262,996,029
Foreign currency, at value (cost $25,632)			25,483
Receivable for investments sold			2,859,837
Receivable for Fund shares sold			338,496
Dividends receivable			402,954
Interest receivable			14,080
Foreign taxes recoverable			115,212
Due from Advisor			3,276
Other assets			26,695
Total assets			266,782,062
Liabilities
Payable upon return of securities loaned			37,028,919
Payable for investments purchased			318,678
Payable for Fund shares redeemed			67,837
Accrued management fee			151,850
Accrued Trustees' fees			2,698
Accrued expenses			185,335
Total liabilities			37,755,317
Net assets, at value		$	229,026,745
Net Assets Consist of
Net unrealized appreciation (depreciation) on: Investments			92,087,678
Foreign currency			(3,782	)
Accumulated net realized gain (loss)			10,352,068
Paid-in capital			126,590,781
Net assets, at value		$	229,026,745

 

* Represents collateral on securities loaned.

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Assets and Liabilities as of May 31, 2013 (continued)
Net Asset Value
Class A Net Asset Value and redemption price (a) per share ($45,161,485 ÷ 1,480,527 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)		$	30.50
Maximum offering price per share (100 ÷ 94.25 of $30.50)		$	32.36
Class B Net Asset Value, offering and redemption price (a) (subject to contingent deferred sales charge) per share ($768,209 ÷ 28,786 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)		$	26.69
Class C Net Asset Value, offering and redemption price (a) (subject to contingent deferred sales charge) per share ($7,719,517 ÷ 287,045 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)		$	26.89
Class S Net Asset Value, offering and redemption price (a) per share ($168,006,899 ÷ 5,295,095 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)		$	31.73
Institutional Class Net Asset Value, offering and redemption price (a) per share ($7,370,635 ÷ 225,963 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)		$	32.62

 

(a) Redemption price per share for shares held less than 15 days is equal to net asset value less a 2% redemption fee.

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Operations

for the year ended May 31, 2013
Investment Income
Income: Dividends (net of foreign taxes withheld of $72,809)		$	3,079,407
Income distributions — Central Cash Management Fund			7,951
Securities lending income, including income from Daily Assets Fund Institutional, net of borrower rebates			72,913
Total income			3,160,271
Expenses: Management fee			1,498,989
Administration fee			195,946
Services to shareholders			395,033
Distribution and service fees			160,555
Custodian fee			12,809
Professional fees			80,738
Reports to shareholders			45,228
Registration fees			64,729
Trustees' fees and expenses			8,538
Other			16,971
Total expenses before expense reductions			2,479,536
Expense reductions			(120,770	)
Total expenses after expense reductions			2,358,766
Net investment income (loss)			801,505
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from: Investments			17,000,247
Foreign currency			6,513
			17,006,760
Change in net unrealized appreciation (depreciation) on: Investments			38,580,031
Foreign currency			(4,192	)
			38,575,839
Net gain (loss)			55,582,599
Net increase (decrease) in net assets resulting from operations		$	56,384,104

 

The accompanying notes are an integral part of the financial statements.

 

Statement of Changes in Net Assets

		Years Ended May 31,
Increase (Decrease) in Net Assets		2013				2012
Operations: Net investment income (loss)		$	801,505			$	91,087
Net realized gain (loss)			17,006,760				13,501,424
Change in net unrealized appreciation (depreciation)			38,575,839				(15,033,133	)
Net increase (decrease) in net assets resulting from operations			56,384,104				(1,440,622	)
Distributions to shareholders from: Net investment income: Class A			(113,585	)			—
Class S			(818,531	)			—
Institutional Class			(39,040	)			—
Net realized gains: Class A			(2,907,980	)			(2,506,117	)
Class B			(72,813	)			(102,354	)
Class C			(546,565	)			(543,014	)
Class S			(10,880,011	)			(10,048,565	)
Institutional Class			(459,275	)			(404,973	)
Total distributions			(15,837,800	)			(13,605,023	)
Fund share transactions: Proceeds from shares sold			48,682,974				23,552,586
Reinvestment of distributions			15,234,106				13,118,158
Payments for shares redeemed			(48,195,197	)			(40,816,553	)
Redemption fees			6,883				1,878
Net increase (decrease) in net assets from Fund share transactions			15,728,766				(4,143,931	)
Increase (decrease) in net assets			56,275,070				(19,189,576	)
Net assets at beginning of period			172,751,675				191,941,251
Net assets at end of period (including undistributed net investment income and distributions in excess of net investment income of $0 and $78,894, respectively)		$	229,026,745			$	172,751,675

 

The accompanying notes are an integral part of the financial statements.

 

Financial Highlights

		Years Ended May 31,
Class A		2013				2012				2011				2010				2009
Selected Per Share Data
Net asset value, beginning of period		$	25.10			$	27.51			$	21.56			$	18.33			$	24.20
Income (loss) from investment operations: Net investment income (loss) a			.07				(.03	)			(.05	)			(.07	)			(.03	)
Net realized and unrealized gain (loss)			7.69				(.25	)			6.52				3.30				(5.19	)
Total from investment operations			7.76				(.28	)			6.47				3.23				(5.22	)
Less distributions from: Net investment income			(.09	)			—				—				—				—
Net realized gains			(2.27	)			(2.13	)			(.52	)			—				(.65	)
Total distributions			(2.36	)			(2.13	)			(.52	)			—				(.65	)
Redemption fees			.00	*			.00	*			.00	*			.00	*			.00	*
Net asset value, end of period		$	30.50			$	25.10			$	27.51			$	21.56			$	18.33
Total Return (%) b			32.82	c			(.03	)			30.48				17.62				(21.45	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)			45				32				35				30				31
Ratio of expenses before expense reductions (%)			1.45				1.49				1.55				1.61				1.58
Ratio of expenses after expense reductions (%)			1.37				1.49				1.55				1.61				1.58
Ratio of net investment income (loss) (%)			.24				(.13	)			(.22	)			(.34	)			(.18	)
Portfolio turnover rate (%)			40				27				21				33				29
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005.

 

		Years Ended May 31,
Class B		2013				2012				2011				2010				2009
Selected Per Share Data
Net asset value, beginning of period		$	22.31			$	24.92			$	19.74			$	16.90			$	22.54
Income (loss) from investment operations: Net investment income (loss) a			(.14	)			(.22	)			(.23	)			(.18	)			(.16	)
Net realized and unrealized gain (loss)			6.79				(.26	)			5.93				3.02				(4.83	)
Total from investment operations			6.65				(.48	)			5.70				2.84				(4.99	)
Less distributions from: Net realized gains			(2.27	)			(2.13	)			(.52	)			—				(.65	)
Redemption fees			.00	*			.00	*			.00	*			.00	*			.00	*
Net asset value, end of period		$	26.69			$	22.31			$	24.92			$	19.74			$	16.90
Total Return (%) b,c			31.83				(.88	)			29.37				16.80				(22.01	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)			1				1				1				2				3
Ratio of expenses before expense reductions (%)			2.35				2.37				2.47				2.46				2.46
Ratio of expenses after expense reductions (%)			2.18				2.33				2.39				2.34				2.34
Ratio of net investment income (loss) (%)			(.57	)			(1.00	)			(1.06	)			(1.07	)			(.93	)
Portfolio turnover rate (%)			40				27				21				33				29
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005.

 

		Years Ended May 31,
Class C		2013				2012				2011				2010				2009
Selected Per Share Data
Net asset value, beginning of period		$	22.46			$	25.04			$	19.81			$	16.96			$	22.63
Income (loss) from investment operations: Net investment income (loss) a			(.12	)			(.19	)			(.20	)			(.18	)			(.15	)
Net realized and unrealized gain (loss)			6.82				(.26	)			5.95				3.03				(4.87	)
Total from investment operations			6.70				(.45	)			5.75				2.85				(5.02	)
Less distributions from: Net realized gains			(2.27	)			(2.13	)			(.52	)			—				(.65	)
Redemption fees			.00	*			.00	*			.00	*			.00	*			.00	*
Net asset value, end of period		$	26.89			$	22.46			$	25.04			$	19.81			$	16.96
Total Return (%) b			31.84	c			(.75	)			29.52				16.80				(22.06	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)			8				6				7				6				7
Ratio of expenses (%)			2.18				2.21				2.28				2.31				2.32
Ratio of expenses after expense reductions (%)			2.13				2.21				2.28				2.31				2.32
Ratio of net investment income (loss) (%)			(.51	)			(.84	)			(.95	)			(1.04	)			(.91	)
Portfolio turnover rate (%)			40				27				21				33				29
a Based on average shares outstanding during the period. b Total return does not reflect the effect of any sales charges. c Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005.

 

		Years Ended May 31,
Class S		2013				2012				2011				2010				2009
Selected Per Share Data
Net asset value, beginning of period		$	26.03			$	28.37			$	22.15			$	18.77			$	24.70
Income (loss) from investment operations: Net investment income (loss) a			.14				.04				.02				(.01	)			.02
Net realized and unrealized gain (loss)			8.00				(.25	)			6.72				3.39				(5.30	)
Total from investment operations			8.14				(.21	)			6.74				3.38				(5.28	)
Less distributions from: Net investment income			(.17	)			—				—				—				—
Net realized gains			(2.27	)			(2.13	)			(.52	)			—				(.65	)
Total distributions			(2.44	)			(2.13	)			(.52	)			—				(.65	)
Redemption fees			.00	*			.00	*			.00	*			.00	*			.00	*
Net asset value, end of period		$	31.73			$	26.03			$	28.37			$	22.15			$	18.77
Total Return (%)			33.19	b			.22				30.89				18.01				(21.25	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)			168				129				136				118				106
Ratio of expenses before expense reductions (%)			1.18				1.22				1.25				1.31				1.30
Ratio of expenses after expense reductions (%)			1.12				1.22				1.25				1.31				1.30
Ratio of net investment income (loss) (%)			.49				.15				.08				(.04	)			.11
Portfolio turnover rate (%)			40				27				21				33				29
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005.

 

		Years Ended May 31,
Institutional Class		2013				2012				2011				2010				2009
Selected Per Share Data
Net asset value, beginning of period		$	26.71			$	29.05			$	22.62			$	19.12			$	25.08
Income (loss) from investment operations: Net investment income (loss) a			.15				.04				.06				.04				.07
Net realized and unrealized gain (loss)			8.22				(.25	)			6.89				3.46				(5.38	)
Total from investment operations			8.37				(.21	)			6.95				3.50				(5.31	)
Less distributions from: Net investment income			(.19	)			—				—				—				—
Net realized gains			(2.27	)			(2.13	)			(.52	)			—				(.65	)
Total distributions			(2.46	)			(2.13	)			(.52	)			—				(.65	)
Redemption fees			.00	*			.00	*			.00	*			.00	*			.00	*
Net asset value, end of period		$	32.62			$	26.71			$	29.05			$	22.62			$	19.12
Total Return (%)			33.23	b			.22				31.18				18.31				(21.02	)
Ratios to Average Net Assets and Supplemental Data
Net assets, end of period ($ millions)			7				6				13				10				9
Ratio of expenses (%)			1.15				1.16				1.04				1.06				1.05
Ratio of expenses after expense reductions (%)			1.10				1.16				1.04				1.06				1.05
Ratio of net investment income (loss) (%)			.51				.14				.26				.21				.36
Portfolio turnover rate (%)			40				27				21				33				29
a Based on average shares outstanding during the period. b Total return would have been lower had certain expenses not been reduced. * Amount is less than $.005.

 

Notes to Financial Statements

 

A. Organization and Significant Accounting Policies

 

DWS Health Care Fund (the "Fund") is a diversified series of DWS Securities Trust (the "Trust"), which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company organized as a Massachusetts business trust.

 

The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares of the Fund are closed to new purchases, except exchanges or the reinvestment of dividends or other distributions. Class B shares were offered to investors without an initial sales charge and are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not automatically convert into another class. Institutional Class shares are generally available only to qualified institutions, are not subject to initial or contingent deferred sales charges and generally have lower ongoing expenses than other classes. Class S shares are not subject to initial or contingent deferred sales charges and are only available to a limited group of investors.

 

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution and service fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.

 

The Fund's 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.

 

Equity securities 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 securities. Securities 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. For certain international equity securities, in order to adjust for events which may occur between the close of the foreign exchanges and the close of the New York Stock Exchange, a fair valuation model may be used. This fair valuation model takes into account comparisons to the valuation of American Depository Receipts (ADRs), exchange-traded funds, futures contracts and certain indices and these securities are categorized as Level 2.

 

Investments in open-end investment companies are valued at their net asset value each business day and are categorized as Level 1.

 

Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Board and are generally categorized as Level 3. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security; the size of the holding; the initial cost of the security; the existence of any contractual restrictions on the security's disposition; the price and extent of public trading in similar securities of the issuer or of comparable companies; quotations or evaluated prices from broker-dealers and/or pricing services; information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); an analysis of the company's or issuer's financial statements; an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities; the maturity, coupon, creditworthiness, currency denomination and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

 

Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.

 

New Accounting Pronouncement. In January 2013, Accounting Standard Update 2013-01 (ASU 2013-01), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, replaced Accounting Standards Update 2011-11 (ASU 2011-11), Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 was intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. The ASU 2013-01 limits the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. Management is currently evaluating the application of ASU 2013-01 and its impact, if any, on the Fund's financial statements.

 

Securities Lending. The Fund lends securities to certain financial institutions. The Fund retains the benefits of owning the securities it has loaned and continues to receive interest and dividends generated by the securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of either cash or liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agent will use its best effort to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The Fund is also subject to all investment risks associated with the reinvestment of any cash collateral received, including, but not limited to, interest rate, credit and liquidity risk associated with such investments.

 

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.

 

The Fund has reviewed the tax positions for the open tax years as of May 31, 2013 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

 

Distribution of Income and Gains. Distributions from net investment income of the Fund, if any, are declared and distributed to shareholders annually. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually. The Fund may also make additional distributions for tax purposes if necessary

 

The timing and characterization of certain income and capital gain distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in passive foreign investment companies 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 May 31, 2013, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:

Undistributed ordinary income		$	1,103,355
Undistributed long-term capital gains		$	9,681,317
Unrealized appreciation (depreciation) on investments		$	91,655,073

 

In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:

		Years Ended May 31,
		2013				2012
Distributions from ordinary income*		$	1,701,229			$	627,776
Distributions from long-term capital gains		$	14,136,571			$	12,977,247

 

*   For tax purposes, short-term capital gain distributions are considered ordinary income distributions.

 

Redemption Fees. The Fund imposes a redemption fee of 2% of the total redemption amount on the Fund shares redeemed or exchanged within 15 days of buying them, either by purchase or exchange. This fee is assessed and retained by the Fund for the benefit of the remaining shareholders. The redemption fee is accounted for as an addition to paid-in capital.

 

Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust based upon the relative net assets or other appropriate measures.

 

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

 

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Certain dividends from foreign securities may be recorded subsequent to the ex-dividend date as soon as the Fund is informed of such dividends. Realized gains and losses from investment transactions are recorded on an identified cost basis and may include proceeds from litigation.

 

B. Purchases and Sales of Securities

 

During the year ended May 31, 2013, purchases and sales of investment securities (excluding short-term investments) aggregated $79,944,768 and $76,943,587, respectively.

 

C. Related Parties

 

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

 

Under the Investment Management Agreement with the Advisor, the Fund pays a monthly management fee based on the Fund's average daily net assets, computed and accrued daily and payable monthly, at the following annual rates:

First $500 million of the Fund's average daily net assets			.765	%
Over $500 million of such net assets			.715	%

 

Accordingly, for the year ended May 31, 2013, the fee pursuant to the investment management agreement was equivalent to an annual effective rate of 0.765% of the Fund's average daily net assets.

 

For the period from June 1, 2012 through September 30, 2012, the Advisor had contractually agreed to waive its fees and/or reimburse certain operating expenses of Class B shares to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) at 2.37%.

 

For the period from October 1, 2012 through September 30, 2013, 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 follows:

Class A	1.33%
Class B	2.08%
Class C	2.08%
Class S	1.08%
Institutional Class	1.08%

 

Administration Fee. Pursuant to an Administration 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 May 31, 2013, the Administration Fee was $195,946, of which $19,850 is unpaid.

 

Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended May 31, 2013, the amounts charged to the Fund by DISC were as follows:

Services to Shareholders		Total Aggregated				Waived				Unpaid at May 31, 2013
Class A		$	47,237			$	26,280			$	—
Class B			2,294				1,354				22
Class C			6,138				3,731				—
Class S			189,177				86,264				3,615
Institutional Class			8,992				3,141				372
		$	253,838			$	120,770			$	4,009

 

Distribution and Service Fees. Under the Fund's Class B and Class C 12b-1 Plans, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of each of Class B and C shares. In accordance with the Fund's Underwriting and Distribution Services Agreement, DIDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended May 31, 2013, the Distribution Fee was as follows:

Distribution Fee		Total Aggregated				Unpaid at May 31, 2013
Class B		$	6,109			$	514
Class C			47,664				4,874
		$	53,773			$	5,388

 

In addition, DIDI provides information and administrative services for a fee ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DIDI in turn has various agreements with financial services firms that provide these services and pays these fees based upon the assets of shareholder accounts the firms service. For the year ended May 31, 2013, the Service Fee was as follows:

Service Fee		Total Aggregated				Unpaid at May 31, 2013				Annual Effective Rate
Class A		$	88,887			$	17,970				.24	%
Class B			2,021				341				.25	%
Class C			15,874				3,188				.25	%
		$	106,782			$	21,499

 

Underwriting Agreement and Contingent Deferred Sales Charge. DIDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended May 31, 2013, aggregated $20,369.

 

In addition, DIDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended May 31, 2013, the CDSC for Class B and C shares aggregated $771 and $537, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the year ended May 31, 2013, DIDI received $321 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 May 31, 2013, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $15,912, of which $6,273 is unpaid.

 

Trustees' Fees and Expenses. The Fund paid retainer fees to each Trustee not affiliated with the Advisor, plus specified amounts to the Board Chairperson and Vice Chairperson and to each committee Chairperson.

 

Affiliated Cash Management Vehicles. The Fund may invest uninvested cash balances in Central Cash Management Fund and DWS Variable NAV Money Fund, affiliated money market funds which are managed by the Advisor. Each affiliated money market fund seeks to provide a high level of current income consistent with liquidity and the preservation of capital. Each affiliated money market fund is managed in accordance with Rule 2a-7 under the Investment Company Act of 1940, which governs the quality, maturity, diversity and liquidity of instruments in which a money market fund may invest. Central Cash Management Fund seeks to maintain a stable net asset value, and DWS Variable NAV Money Fund maintains a floating net asset value. The Fund indirectly bears its proportionate share of the expenses of each affiliated money market fund in which it invests. Central Cash Management Fund does not pay the Advisor an investment management fee. To the extent that DWS Variable NAV Money Fund pays an investment management fee to the Advisor, the Advisor will waive an amount of the investment management fee payable to the Advisor by the Fund equal to the amount of the investment management fee payable on the Fund's assets invested in DWS Variable NAV Money Fund.

 

Securities Lending Agent Fees. Deutsche Bank AG serves as securities lending agent for the Fund. For the year ended May 31, 2013, the Fund incurred securities lending agent fees to Deutsche Bank AG in the amount of $8,075.

 

D. Line of Credit

 

The Fund and other affiliated funds (the "Participants") share in a $375 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement. The Fund had no outstanding loans at May 31, 2013.

 

E. Share Transactions

 

The following table summarizes share and dollar activity in the Fund:

		Year Ended May 31, 2013								Year Ended May 31, 2012
		Shares				Dollars				Shares				Dollars
Shares sold
Class A			484,745			$	13,503,265				284,833			$	7,139,009
Class B			7,950				193,785				3,335				73,367
Class C			69,945				1,725,133				26,005				589,158
Class S			1,107,497				31,740,716				560,535				14,516,583
Institutional Class			51,248				1,520,075				46,477				1,234,469
						$	48,682,974							$	23,552,586
Shares issued to shareholders in reinvestment of distributions
Class A			113,042			$	2,866,734				107,248			$	2,391,653
Class B			3,156				70,294				4,902				97,532
Class C			22,058				494,984				25,109				502,677
Class S			428,986				11,303,779				420,837				9,721,323
Institutional Class			18,395				498,315				17,087				404,973
						$	15,234,106							$	13,118,158
Shares redeemed
Class A			(387,018	)		$	(10,488,370	)			(399,230	)		$	(10,049,527	)
Class B			(20,062	)			(489,390	)			(30,260	)			(667,088	)
Class C			(68,384	)			(1,649,346	)			(58,617	)			(1,320,845	)
Class S			(1,182,504	)			(34,129,261	)			(825,081	)			(21,171,136	)
Institutional Class			(50,188	)			(1,438,830	)			(297,767	)			(7,607,957	)
						$	(48,195,197	)						$	(40,816,553	)
Redemption fees						$	6,883							$	1,878
Net increase (decrease)
Class A			210,769			$	5,883,928				(7,149	)		$	(518,083	)
Class B			(8,956	)			(225,311	)			(22,023	)			(496,189	)
Class C			23,619				572,064				(7,503	)			(229,010	)
Class S			353,979				8,918,525				156,291				3,067,866
Institutional Class			19,455				579,560				(234,203	)			(5,968,515	)
						$	15,728,766							$	(4,143,931	)

 

Report of Independent Registered Public Accounting Firm

 

To the Trustees of DWS Securities Trust and Shareholders of DWS Health Care Fund:

 

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of DWS Health Care Fund (the "Fund") at May 31, 2013, the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2013   by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

 

Boston, Massachusetts July 24, 2013

PricewaterhouseCoopers LLP

 

Information About Your Fund's Expenses

 

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (December 1, 2012 to May 31, 2013).

 

The tables illustrate your Fund's expenses in two ways:

 

• Actual Fund Return. This helps you estimate the actual dollar amount of ongoing expenses (but not transaction costs) paid on a $1,000 investment in the Fund using the Fund's actual return during the period. To estimate the expenses you paid over the period, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid per $1,000" line under the share class you hold.

 

• Hypothetical 5% Fund Return. This helps you to compare your Fund's ongoing expenses (but not transaction costs) with those of other mutual funds using the Fund's actual expense ratio and a hypothetical rate of return of 5% per year before expenses. Examples using a 5% hypothetical fund return may be found in the shareholder reports of other mutual funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

 

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. Subject to certain exceptions, an account maintenance fee of $20.00 assessed once per calendar year for Classes A, B, C and S shares may apply for accounts with balances less than $10,000. This fee is not included in these tables. If it was, the estimate of expenses paid for Classes A, B, C and S shares during the period would be higher, and account value during the period would be lower, by this amount.

 

Expenses and Value of a $1,000 Investment for the six months ended May 31, 2013 (Unaudited)
Actual Fund Return		Class A				Class B				Class C				Class S				Institutional Class
Beginning Account Value 12/1/12		$	1,000.00			$	1,000.00			$	1,000.00			$	1,000.00			$	1,000.00
Ending Account Value 5/31/13		$	1,215.40			$	1,210.80			$	1,210.60			$	1,216.90			$	1,217.00
Expenses Paid per $1,000*		$	7.35			$	11.46			$	11.46			$	5.97			$	5.97
Hypothetical 5% Fund Return		Class A				Class B				Class C				Class S				Institutional Class
Beginning Account Value 12/1/12		$	1,000.00			$	1,000.00			$	1,000.00			$	1,000.00			$	1,000.00
Ending Account Value 5/31/13		$	1,018.30			$	1,014.56			$	1,014.56			$	1,019.55			$	1,019.55
Expenses Paid per $1,000*		$	6.69			$	10.45			$	10.45			$	5.44			$	5.44

 

* 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 182 (the number of days in the most recent six-month period), then divided by 365.

 

Annualized Expense Ratios	Class A	Class B	Class C	Class S	Institutional Class
DWS Health Care Fund	1.33%	2.08%	2.08%	1.08%	1.08%

 

For more information, please refer to the Fund's prospectus.

 

For an analysis of the fees associated with an investment in the Fund or similar funds, please refer to http://apps.finra.org/fundanalyzer/1/fa.aspx.

 

Tax Information (Unaudited)

 

The Fund paid distributions of $2.159 per share from net long-term capital gains during its year ended May 31, 2013, of which 100% represents 15% rate gains.

 

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $16,456,000 as capital gain dividends for its year ended May 31, 2013, of which 100% represents 15% rate gains.

 

For corporate shareholders, 100% of the ordinary dividends (i.e., income dividends plus short-term capital gains) paid during the Fund's fiscal year ended May 31, 2013, qualified for the dividends received deduction.

 

For federal income tax purposes, the Fund designates $3,468,000, 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) 728-3337.

 

Summary of Management Fee Evaluation by Independent Fee Consultant

 

September 17, 2012

 

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 2012, 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, 2010 and 2011.

 

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 103 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 "fallout" 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 considered how aggregated DWS Fund performance measures relative to appropriate peers had varied by asset class and over time.

 

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.

Board Members and Officers

 

The following table presents certain information regarding the Board Members and Officers of the fund. 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 Kenneth C. Froewiss, Chairman, DWS Mutual Funds, P.O. Box 78, Short Hills, NJ 07078. 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.

 

Independent Board Members
Name, Year of Birth, Position with the Fund and Length of Time Served 1		Business Experience and Directorships During the Past Five Years	Number of Funds in DWS Fund Complex Overseen	Other Directorships Held by Board Member
Kenneth C. Froewiss (1945) Chairperson since 2013, 9 and 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)	102	—
William McClayton (1944) Vice Chairperson since 2013, 9 and 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	102	—
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); former Directorships: Stockwell Capital Investments PLC (private equity); First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International	102	Chairman of the Board, Healthways, Inc. 2 (provider of disease and care management services) (2003- present); Portland General Electric 2 (utility company) (2003- present)
Henry P. Becton, Jr. (1943) Board Member since 1990		Vice Chair and former President, WGBH Educational Foundation. Directorships: Public Radio International; Public Radio Exchange (PRX); The PBS Foundation; North Bennett Street School (Boston); former Directorships: Association of Public Television Stations; Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service; Connecticut College	102	Lead Director, Becton Dickinson and Company 2 (medical technology company); Lead Director, Belo Corporation 2 (media company)
Dawn-Marie Driscoll (1946) Board Member since 1987		President, Driscoll Associates (consulting firm); Emeritus 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; Chairman of the Board of Trustees, Southwest Florida Community Foundation (charitable organization); former Directorships: Sun Capital Advisers Trust (mutual funds) (2007-2012), Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)	102	—
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); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies; former Directorships: BoxTop Media Inc. (advertising); Sun Capital Advisers Trust (mutual funds) (2011-2012)	102	—
Paul K. Freeman (1950) Board Member since 1993, and Chairperson (2009-Jan. 8, 2013)		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); Directorships: Denver Zoo Foundation (December 2012-present); former Directorships: Prisma Energy International	102	—
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)	102	Director, Japan Equity Fund, Inc. (since September 2007), Thai Capital Fund, Inc. (since 2007), Singapore Fund, Inc. (since September 2007), Independent Director of Barclays Bank Delaware (since September 2010)
Rebecca W. Rimel (1951) Board Member since 1995		President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 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); Director, Viasys Health Care 2 (January 2007-June 2007); Trustee, Thomas Jefferson Foundation (charitable organization) (1994-2012)	102	Director, Becton Dickinson and Company 2 (medical technology company) (2012- present); Director, CardioNet, Inc. 2 (health care) (2009- present)
William N. Searcy, Jr. (1946) Board Member since 1993		Private investor since October 2003; formerly: Pension & Savings Trust Officer, Sprint Corporation 2 (telecommunications) (November 1989-September 2003); Trustee, Sun Capital Advisers Trust (mutual funds) (1998-2012)	102	—
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)	102	—
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	105	—

 

Interested Board Member and Officer 4
Name, Year of Birth, Position with the Fund and Length of Time Served 1,6		Business Experience and Directorships During the Past Five Years	Number of Funds in DWS Fund Complex Overseen	Other Directorships Held by Board Member
Michael J. Woods 5 (1967) Board Member since 2013, 9 and Executive Vice President since 2013 9		Managing Director, 3 Deutsche Asset & Wealth Management (2009-present); Head of the Americas Asset Management Business for Deutsche Bank, Member of the Asset and Wealth Management ("AWM") Extended Executive Committee, AWM Global Client Group Executive Committee and the AWM Active Asset Management Executive Committee; CEO and US Regional Head of DWS Investments; formerly: Sr. VP, Head of the Financial Intermediaries and Investments Group of Evergreen Investments (2007-2009), CEO and Vice Chairman of Board of Directors of XTF Global Asset Management (2006-2007), Managing Director — US Head of Sub-Advisory and Investment Only Business at Citigroup Asset Management (2000-2006). Mr. Woods is currently a board member of The Children's Village, The Big Brothers Big Sisters Organization, and The Mutual Fund Education Alliance.	38	—

 

Officers 4
Name, Year of Birth, Position with the Fund and Length of Time Served 6		Business Experience and Directorships During the Past Five Years
W. Douglas Beck, CFA 7 (1967) President, 2011-present		Managing Director, 3 Deutsche Asset & Wealth 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 Millette 8 (1962) Vice President and Secretary, 1999-present		Director, 3 Deutsche Asset & Wealth Management
Paul H. Schubert 7 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present		Managing Director, 3 Deutsche Asset & Wealth 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 Pearson 8 (1962) Chief Legal Officer, 2010-present		Managing Director, 3 Deutsche Asset & Wealth Management; formerly: Assistant Secretary for DWS family of funds (1997-2010)
Melinda Morrow 7 (1970) Vice President, 2012-present		Director, 3 Deutsche Asset & Wealth Management
Hepsen Uzcan 8 (1974) Assistant Secretary, since 2013 9		Vice President, Deutsche Asset & Wealth Management
Paul Antosca 8 (1957) Assistant Treasurer, 2007-present		Director, 3 Deutsche Asset & Wealth Management
Jack Clark 8 (1967) Assistant Treasurer, 2007-present		Director, 3 Deutsche Asset & Wealth Management
Diane Kenneally 8 (1966) Assistant Treasurer, 2007-present		Director, 3 Deutsche Asset & Wealth Management
John Caruso 7 (1965) Anti-Money Laundering Compliance Officer, 2010-present		Managing Director, 3 Deutsche Asset & Wealth Management
Robert Kloby 7 (1962) Chief Compliance Officer, 2006-present		Managing Director, 3 Deutsche Asset & Wealth 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 mailing address of Mr. Woods is 60 Wall Street, New York, New York 10005. Mr. Woods is an interested Board Member by virtue of his positions with Deutsche Asset & Wealth Management. As an interested person, Mr. Woods receives no compensation from the fund. Mr. Woods is a board member of the following trusts and corporations: Cash Account Trust, DWS Market Trust, DWS Money Funds, DWS State Tax-Free Income Series, DWS Target Fund, DWS Value Series, Inc., DWS Variable Series II, Investors Cash Trust, Tax-Exempt California Money Market Fund, DWS Global High Income Fund, Inc., DWS High Income Opportunities Fund, Inc., DWS High Income Trust, DWS Multi-Market Income Trust, DWS Municipal Income Trust, DWS Strategic Income Trust and DWS Strategic Municipal Income Trust.

 

6 The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.

 

7 Address: 60 Wall Street, New York, NY 10005.

 

8 Address: One Beacon Street, Boston, MA 02108.

 

9 Effective as of January 9, 2013.

 

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) 728-3337.

 

Account Management Resources

For More Information		The automated telephone system allows you to access personalized account information and obtain information on other DWS funds using either your voice or your telephone keypad. Certain account types within Classes A, B, C and S also have the ability to purchase, exchange or redeem shares using this system. For more information, contact your financial advisor. You may also access our automated telephone system or speak with a DWS Investments representative by calling: (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) 728-3337.
Portfolio Holdings		Following the fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. This form will be available on the SEC's Web site at 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 & Wealth Management, is the investment advisor for the fund. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to both institutional and retail clients. DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution engaged in a wide variety of financial services, including investment management, retail, private and commercial banking, investment banking and insurance. 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 B	Class C	Class S	Institutional Class
Nasdaq Symbol		SUHAX	SUHBX	SUHCX	SCHLX	SUHIX
CUSIP Number		23337G 100	23337G 209	23337G 308	23337G 506	23337G 605
Fund Number		452	652	752	2352	1452

 

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