0. Understanding one of the greatest risks to retirement savings
Inflation
Understanding one of the greatest risks to retirement savings
Good afternoon, everyone, and thank you for coming.
I’m Chuck Franckowiak, Senior Investment Consultant for DWS Retirement Services, and I’m glad to see so many familiar faces here this afternoon.
Today our topic is Inflation. We’ll look at the importance of understanding that inflation is one of the greatest risks to retirement saving.
PRESENTER NAME LOCATION, DATE

1. Agenda 1 Definitions of inflation and deflation 2
Understanding the Consumer Price Index (CPI) 3
Implications of inflation on retirement investing 4
Investment options: a focus on inflation portfolio strategies
Agenda
4.1
Floating-rate loans
4.2
Commodities and alternatives 5
Questions to ask and steps to help protect your plan

2. Risk information Risk information
DWS Floating Rate 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 Tactical Asset Allocation (GTAA) 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. DWS Enhanced Commodity Strategy Fund: The 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 Alternative Asset Allocation Fund: Although allocation among different asset categories generally limits risk, portfolio management may favor an asset category that underperforms other assets or markets as a whole. The fund expects to invest in underlying funds that emphasize alternatives or non-traditional asset categories or investment strategies, and as a result, it is subject to the risk factors of those underlying funds. Some of those risks include stock market risk, credit and interest rate risk, volatility in commodity prices and high-yield debt securities, short sales risk and the political, general economic, liquidity and currency risks of foreign investments, which may be particularly significant for emerging markets. The fund may use derivatives, including as part of its global tactical asset allocation (GTAA) strategy. The fund expects to have direct and indirect exposure to derivatives, which may be more volatile and less liquid than traditional securities. The fund could suffer losses on its derivative positions. See the prospectus for additional risks and specific details regarding the fund's risk profile. For performance information about these funds, please visit
Risk information

3. Index and term definitions
The Barclays Capital 1–3 Year U.S. Aggregate Index tracks the performance of domestic, taxable investment-grade bonds with average maturities of one to three years. The Barclays Capital 7-10 Year U.S. Aggregate Index tracks the performance of domestic, taxable investment-grade bonds with average maturities of seven to 10 years. The Barclays Capital 10-Plus Year Aggregate Index tracks the performance of domestic, taxable investment-grade bonds with average maturities of greater than 10 years. The Barclays Capital Corporate 1-Year Duration Index tracks the performance of the short term U.S. corporate bond market. The Barclays Capital Emerging Markets Bond Index tracks the performance of external-currency-denominated debt instruments of the emerging markets. The Barclays Capital TIPS Index tracks the performance of U.S. Treasury inflation-linked securities. The Barclays Capital U.S. Aggregate Index tracks the performance of the broad U.S. investment-grade, fixed-rate bond market, including both government and corporate bonds. The Barclays Capital U.S. Treasury Index tracks the performance of U.S. Treasury obligations with a remaining maturity of one year or more. The Credit Suisse High Yield Index tracks the performance of the global high-yield debt market. The Credit Suisse Leveraged Loan Index tracks the balance and current spread over LIBOR for fully funded term loans. The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. The FTSE EPRA/NAREIT Developed Index tracks the performance of developed-market REITs. The FTSE NAREIT All Equity REITs Index includes all tax-qualified REITs listed on the NYSE, AMEX, and NASDAQ National Market. The HFRI Equity Market Neutral Index tracks the performance of equity market neutral strategies. The JPMorgan Emerging Markets Bond Index tracks the performance of Brady bonds in the emerging markets. The Morningstar/Ibottson SBBI U.S. Inflation Index measures U.S. inflation. The Morningstar/Ibbotson SBBI U.S. 1-Year Treasury Constant Maturity Index tracks the performance of U.S. Treasuries with maturities of one year. The Morningstar/Ibbotson SBBI U.S. Intermediate-Term Government Bond Index tracks the performance of intermediate-term government bonds. The Morningstar/Ibottson SBBI U.S. Long-Term Government Index tracks the performance of a one-bond portfolio with a maturity near 20 years. The MSCI Emerging Markets Equity Index tracks the performance of stocks in select emerging markets. The MSCI World Energy Index tracks the performance of energy stocks in developed world markets. The MSCI World Infrastructure Index tracks the performance of infrastructure stocks. The MSCI World Materials Index tracks the performance of materials stocks in developed world markets. The S&P 500 Index tracks the performance of 500 leading U.S. stocks and is widely considered representative of the U.S. equity market. The S&P Goldman Sachs Commodity Index (GSCI) is a composite index of commodity sector returns representing an unleveraged, long-term investment in commodity futures. The S&P/Citigroup Global Gold Index tracks the performance of gold. The S&P/LSTA Leveraged Loan Index tracks outstanding balance and current spread over LIBOR for fully funded loan terms. Duration is a measure of a fund's sensitivity to interest-rate changes (the longer a fund's duration, the more sensitive it is to changes in interest rates). LIBOR, or the London Interbank Offered Rate, is the most widely used benchmark or reference rate for short-term interest rates. LIBOR is the rate of interest at which banks borrow funds from other banks, in large volume, in the international market. “Overweighting or underweighting” means having a higher or lower weighting, respectively, in a given sector or security than a benchmark. Shorting is borrowing, then selling, a security with the expectation that the security will fall in value. The security can then be purchased and repaid at a lower price. “Spread” refers to the excess yield a bond sector provides over another sector or index (such as U.S. Treasuries with similar maturities or LIBOR). A yield curve is a graphical representation of how yields on bonds of different maturities compare. Normally, yield curves slant up, as bonds with longer maturities typically offer higher yields than short-term bonds.
Index and term definitions
Equity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index.

4. Asset class representation
On slide 29, asset classes are represented as follows: alternatives, 20% FTSE EPRA/NAREIT Developed Index, 20% HFRI Equity Market Neutral Index, 20% Barclays Capital TIPS Index, 15% commodities blend (see below), 10% MSCI Emerging Markets Equity Index, 10% JPMorgan Emerging Markets Bond Index, 5% S&P/Citigroup Global Gold Index; commodities, 50% S&P Goldman Sachs Commodity Index, 25% MSCI World Energy Index and 25% MSCI World Materials Index; emerging- market (EM) equity, MSCI Emerging Markets Equity Index; emerging-market (EM) income, JPMorgan Emerging Markets Bond Index; infrastructure, MSCI World Infrastructure Index; global real estate, FTSE EPRA/NAREIT Developed Index; gold, S&P/Citigroup Global Gold Index; floating-rate, S&P/LSTA Leveraged Loan Index; market neutral, HFRI Equity Market Neutral Index; TIPS, Barclays Capital TIPS Index; U.S. stocks, S&P 500 Index.
Asset class representation
Equity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index See Slide 3 for index definitions.

5. Inflation or deflation?
Definitions of inflation and deflation
Inflation or deflation?

6. Definitions of inflation and deflation
Economic environment
Recent occurrence
Deflation – A decrease in the money supply often accompanied by a decrease in prices
United States in the Great Depression
Disinflation – Prices are still increasing, but at a slower rate than before
United States in the 1990s
Inflation – An increase in the money supply often accompanied by an increase in prices
Most normal periods
Stagflation – High inflation and high unemployment rate accompanied by stagnant economic growth
United States in the 1970s
Hyperinflation – Prices increase rapidly (out of control) as a currency loses its value Often ends in extreme political turmoil
Germany post-World War I
Zimbabwe in the 2000s
Definitions: inflation or deflation?
The sources, opinions and forecasts expressed are those of DWS, are as of 3/31/12 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.

7. Understanding how inflation and deflation work
Deflationary spiral
Inflationary spiral
As prices fall, companies earn less money
In turn, they cut costs to remain profitable, which leads to layoffs and pay cuts
Consumers who earn less, spend less
Borrowing dries up and spending is depressed
This cycle can lock the economy into a period of decline from which it is hard to escape
High cost of living prompts demands for higher wages
Higher wages push production costs up forcing firms to increases prices
In turn, increased costs triggers calls for fresh wage increases
This cycle can lock the economy into a period of rapid price increases from which it is hard to escape
Understanding how inflation and deflation work
The sources, opinions and forecasts expressed are those of DWS, are as of 3/31/12 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.

8. What signs of inflation or deflation are we seeing today?1 2
What signs of inflation or deflation are we seeing today?
Deflation Checklist
Do we see it today?
Falling U.S. Treasury yields
Falling home prices
Rising dollar
Falling commodity prices
Falling consumer prices
Falling stock market
Rising savings rate
Cash hoarding by banks
Shrinking consumer credit
Capacity utilization slack
Inflation checklist
Do we see it today?
Growing economy
Rising consumer prices
Growing government stimulus
Excess reserves at banks
(dry powder)
Rising prices across the globe
Lower interest rates – U.S. Federal Reserve “easy money”
Higher commodity prices
Rising price of gold
Falling dollar
What signs of inflation or deflation are we seeing today?
Possibly present in today’s market
Present in today’s market
The sources, opinions and forecasts expressed are those of DWS, are as of 3/31/12 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. These tables are for informational purposes only and are not intended to be 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.

9. Inflation or deflation?
Understanding the Consumer Price Index (CPI)
Understanding the CPI

10. Consumer Price Index (CPI) basics
Annual change in cpi (1913–2011)
The CPI samples more than 80,000 items per month
CPI category
Weight
Housing
42%
Transportation
17%
Food and beverage
15%
Medical care 7%
Recreation 6%
Education and communication
Apparel 4%
Other goods and services 3%
Average CPI 3.4%
Consumer Price Index (CPI) basics
One-year CPI (as of 3/31/12) 2.7%
Source for chart: myinflationrate.com and U.S. Bureau of Labor Statistics as of 3/31/12. This chart shows annual changes in the value of the CPI since its inception in 1913 through The average change for the year measures the change in the average CPI value between the current year and the previous year.
Source for table: U.S. Bureau of Labor Statistics as of 12/31/11.

11. The impact of changes to inflation calculation
CHANGES TO CPI OVER THE YEARS
1917–1919
CPI calculation started
1983
Switched from housing prices to owners’ equivalent rent
1998
Broadened use of product quality enhancements
1999
Began product substitution (e.g., assumes if the price of beef tenderloin rises, a consumer may buy flank steak instead)
The impact of changes to inflation calculation
Sources for chart: U.S. Bureau of Labor Statistics for current CPI and Shadowstats.com for pre-1983 and pre-1990 estimates as of 3/31/12.

12. The impact of changes to headline inflation
In 1983, the CPI 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, and is now the largest part of CPI. Historically, owners’ equivalent rent has increased at a significantly lower pace than housing prices, which means the change may have led the CPI to significantly understate inflation.
Owners’ equivalent rent mitigates housing price swings (2001–2011)
Is the housing market decline understating deflation?
The impact of changes to headline inflation
The CPI understated inflation during the housing market bubble
Sources: U.S. Bureau of Labor Statistics and S&P as of 12/31/11. Performance is historical and does not guarantee future results.

13. Quality enhancements, including “hedonics” Hedonics used on more than one third of CPI items
How is price adjusted?
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 U.S. Bureau 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.
Original price
Adjusted price
Implied inflation -7.25%
Quality enhancements, including “hedonics”
Implied inflation 400%
Source: U.S. Bureau of Labor Statistics as of 12/31/11.

14. Quality enhancements, including “hedonics” Hedonics are used on more than one third of CPI items
Most items in the CPI are adjusted for quality changes
Some items use a technique known as hedonic quality adjustment
Hedonic quality adjustment is a method of adjusting prices whenever the characteristics of the products included in the CPI change due to innovation or the introduction of completely new products
The word “hedonics” stems from the word’s Greek origin, meaning “of or related to pleasure”
Examples of items in the CPI getting a quality adjustment through hedonics
Men’s suits, sport coats and outerwear
Men’s pants and shorts
Women's dresses
Women’s footwear
Educational books and supplies
Major appliances
Televisions
Other video equipment
Quality enhancements, including “hedonics”
College textbooks receive a quality adjustment if they have fewer pages than the previous version
Source: U.S. Bureau of Labor Statistics as of 3/31/12.

15. What’s going up and down in price?
Needs
(basic items) have seen the greatest price increases
10 largest 12-month item (category) increases
Inflation
Lamb and mutton (food)
+39.28%
Fuel oil (housing)
+38.43%
Gasoline (transportation)
+34.28%
Peanut butter (food)
+33.96%
Lamb and organ meats (food)
+27.82%
Bacon and related products (food)
+26.23%
Roasted coffee (food)
+22.55%
Uncooked other beef and veal (food)
+21.18%
Uncooked ground beef (food)
+20.74%
Video tape rental (recreation)
+20.69%
Needs!
7 food items
2 energy-related related items
1 recreation item
Wants
(luxury items) have seen the greatest price decreases
10 largest 12-month item (category) decreases
Inflation
Televisions (recreation)
–29.97%
Other video equipment (recreation)
–22.61%
PCs and equipment (education and comm.)
–17.03%
Utility (piped) gas service (housing)
–15.17%
Photographic equipment (recreation)
–14.60%
Software and accessories (education and comm.)
–14.12%
Video cassettes and discs (recreation)
–11.99%
Clock, lamps and decorate items (housing)
–11.66%
Dishes and flatware (housing)
–11.41%
Audio equipment (recreation)
–10.16%
Wants!
3 housing-related luxury item
5 recreation items
2 education and communication items
What’s going up and down in price?
Source: myinflationrate.com as of February 2012.

16. Inflation or deflation?
Implications for retirement investing
Inflation or deflation?

17. Understanding the impact of inflation
Asset-Class performance during years with the highest inflation (since 1921)
Inflation averaged only 2.79% a year from 1921 through 2011, according to myinflationrate.com – but even that relatively low rate may decrease the returns of traditional investments. Below we show returns for stocks and bonds during years with significant inflation as well as the inflation-adjusted return for the same years.
Understanding the impact of the phantom menace
Source: Morningstar as of 12/30/11. Performance is historical and does not guarantee future results. Inflation is represented by the consumer price index. Stocks are represented by the S&P 500 Index. Bonds are represented by the Morningstar/Ibbotson SBBI U.S. Intermediate-Term Government Bond Index. The values of equity investments are more volatile than those of other securities. Bond investments are subject to interest-rate risk, and their values will decline as interest rates rise. 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. See slide 4 for index definitions. The chart above is for illustrative purposes only and does not represent any DWS fund.

18. Pre-retirees and retirees
The inflation problem
Investors face different challenges depending on their ages. According to E*Trade, investors in their 20s and 30s are starting a career and building a family; investors in their 40s and 50s are climbing the career ladder and planning for retirement; and investors in their 60s and 70s are living in retirement. We asked how inflation affects each of those 20-year market segments.
Younger workers
Mid-lifers
Pre-retirees and retirees
Individuals in their 20s and 30s will see inflation cut into their purchasing power. The cost of many basic items, such as food and fuel, has risen in the double digits over the past year, according to myinflationrate.com. Fuel oil – up 38%. Gasoline – up 34%. Coffee – up 23%. And more money spent on necessities means less money saved for retirement
Surveys of investors in their 40s and 50s have revealed that most want to maintain their pre- retirement lifestyle after retirement, but many haven’t accounted for the effects of inflation. As a result, they may not have saved enough money – and with fewer years left until retirement, they may not be able to ride out the ups and downs of the stock market
The average life expectancy at age 65 is 82.3 for a man and for a woman, according to the Centers for Disease Control as of 2007 – much higher than it was just 10 years ago. This increase in life expectancy means that many older investors simply haven’t saved enough. Add inflation to the mix, and you’ve aggravated the problem
The inflation problem
Source: myinflationrate.com as of February 2012.

19. Morningstar categories
A traditional portfolio may not be a resilient and stable retirement portfolio?
Cash and stable value investments offer no defense against inflation
The traditional portfolio diversifiers (stocks and bonds) increasingly move up or down together – offer less diversification – and they are not adequate inflation-fighters
Morningstar categories
Large
Value
1.00
Blend
Growth
0.98
Short-Term Bond
0.53
Target Date
Mid-Cap
0.97
0.96
Multisector Bond
0.77
Moderate Allocation
Small
0.95
Small Blend
Small Growth
High Yield Bond
0.78
Foreign Large Blend
0.93
Diversified
Emer. Markets
0.86
We’ve seen why inflation is a problem for participants – but why is it a special problem for retirement plans?
Because the investment options your plan offers right now may not be the right ones to fight inflation.
As we’ve discussed, cash and stable value investment offer no defense against inflation.
But the traditional portfolio diversifiers like stocks and bonds increasingly move up or down together. They offer less diversification than they used to, and in general, they are not adequate inflation-fighters.
Stocks and bonds moving up or down together means they are increasingly correlated. The closer they are to 1.00, the more correlated they are, and the more difficult it is to achieve true diversification in a retirement portfolio.
The closer the correlation is to 1.00, the weaker the asset class's effect on portfolio diversification relative to the S&P 500.
Source: Morningstar as of 12/31/2011. All categories are that of Morningstar. 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. Correlation is historical and does not guarantee future results.

20. Investors are underweight potential inflation-fighters
ASSET ALLOCATION BY INFLATION-FIGhting POTENTIAL BASED ON MORNINGSTAR CATEGORIES
Assets by inflation/deflation profile
Neither inflation- nor deflation-fighting categories (evidence mixed): Includes U.S. equity fund categories, all allocation and target-date categories, all intermediate-, short- and high-yield muni categories, Multisector Bond and World Bond
Deflation fighters: Includes intermediate and long-term bond categories, all government bond categories, money markets (tax-Free and taxable) and Market Neutral
Inflation fighters: Includes Bank Loans, all commodity categories, all emerging-market- related categories, all international stock categories, High Yield Bond, Inflation-Protected Bond, real estate categories, Short-Term Bond and Ultrashort Bond
Stocks not an inflation fighter?
While stocks long-term have been the best way to outpace inflation, the near-term performance is mixed during inflationary periods
The five worst years for inflation have been 1941, 1946, 1974, 1979 and Three of these five years were difficult years for the stock market (1941, 1946 and 1974)
Less than 1% of assets are in floating-rate funds and only 1.2% of assets in commodity-related funds (including equities)
Investors are underweight potential inflation-fighters
Source: Strategic Insight, as of 12/31/11. Deflation includes the Morningstar Intermediate Government, Intermediate-Term Bond, Long Government, Long-Term Bond, Money Market Tax-Free, Money Market Taxable 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, Multialternative, 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 Muni CA Long, Muni MA, Muni MN, Muni National Intermediate, Muni National Long, Muni National Short, Muni NJ, Muni NY Intermediate Muni NY Long, Muni OH, Muni PA, Muni Single State Intermediate, Muni Single State Long, Retirement Income, Short-Term Bond, Small Blend, Small Growth, Small Value, Target Date , Target Date , Target Date , Target Date , Target Date , Target Date , Target Date , Target Date , Target Date 2050+, Technology, Ultrashort Bond, Utilities, World Allocation, World Bond and World Stock categories. 20

21. Investment options for inflation and deflation
Investments options for inflation and deflation

22. Asset-class performance and inflation/deflation
during years with the highest levels of U.S. inflation and deflation (since 1926)
DEFLATION
Year
U.S. inflation
Real returns: stocks
Real returns: bonds
1930
-6.03%
-18.87%
+12.75%
1931
-9.52%
-33.82%
+7.20%
1932
-10.30%
+2.11%
+19.11%
INFLATION
Year
U.S. inflation
Real returns: stocks
Real returns: bonds
1946
+18.16%
-26.23%
-17.16%
1979
+13.31%
+5.13%
-9.22%
1980
+12.40%
+20.02%
-8.49%
Asset class performance and inflation/deflation
Real return is the total return for the asset class minus inflation
Source: Morningstar as of 12/31/11. Performance is historical and does not guarantee future results. The chart above is for illustrative purposes only and does not represent any DWS fund. Stocks are represented by the S&P 500 Index. Bonds are represented by the Barclays Capital U.S. Aggregate Index. The values of equity investments are more volatile than those of other securities. Bond investments are subject to interest-rate risk, and their value will decline as interest rates rise. 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. See slide 4 for index definitions.

23. What has the potential to work during inflation/deflation?
U.S. stocks
International
stocks
Treasury, agency and
high-grade
corporate bonds
High-yield bonds and
floating-rate loans
bonds
Hard assets and
commodities
Alternatives
Cash
Deflation
Inflation
Often works
Sometimes works
Rarely works
Summary of what potentially works
Deflation: Cash, U.S. Treasuries, agency mortgages, high-grade corporate bonds and some alternatives (such as market neutral) may work
Inflation: International stocks and bonds (as the dollar declines), high-yield bonds and floating-rate loans, hard assets and alternative asset classes may work
This slide reflects our opinions about what may potentially work during inflation/deflation
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. Alternative investments can be less liquid and more volatile than traditional investments, and often lack longer-term track records. The sources, opinions and forecasts expressed are those of DWS, are as of 3/31/12 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. This table is for informational purposes only and is not intended to be 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.

24. Inflation-protected securities (TIPs)
Morningstar Bank Loan and Ultrashort Bond categories have offered high correlation to inflation
10-year correlation with inflation (Top five AND bottom five ASSET CLASSES
Top 5
Bank Loan
Ultrashort Bond
Commodities
High Yield Muni
Equity Energy
Bottom 5
Intermediate-Term Bond
Short Government
Long-Term Bond
Intermediate Government
Long Government
Inflation-protected securities (TIPs)
correlation = just 0.09
Morningstar Bank Loan and Ultrashort Bond categories have offered the highest correlation to inflation
Source: Morningstar as of 3/31/12. Inflation is represented by the Morningstar/Ibbotson SBBI U.S. Inflation Index, which tracks U.S. inflation. Correlation is historical and does not guarantee future results. The chart above is for illustrative purposes only and does not represent any DWS fund. Correlation is a measure of how closely two variables move together over time. A 1.0 equals perfect correlation. A –1.0 equals total negative correlation. Asset classes are represented by Morningstar categories. All asset classes are Morningstar categories, except commodities, which are represented by the Dow Jones UBS Commodities Index. See slide 4 for index definitions. 24

25. The direction, not the level, of inflation is what matters
average annual returnS OF floating-rate loans AND ULTRA-SHORT-TERM BONDS
(12/31/90–12/31/11)
Floating-rate loans
Ultra-short-term bonds
Floating-rate loans
The direction, not the level, of inflation is what matters
Ultra-short-term bonds
Source: Morningstar as of 12/31/11. Performance is historical and does not guarantee future results. This information is for illustrative purposes and does not represent any DWS fund. Floating-rate loans are represented by the Morningstar Bank Loan category. Ultra-short-term bonds are represented by the Morningstar Ultrashort category. Compared to other fixed-income asset classes, floating-rate loans are typically more vulnerable to and are more sensitive to credit and default risks. Floating-rate loans are debt instruments with a variable rate that generally resets every 30 to 90 days. Because of their shorter maturities, short-term bonds are typically less vulnerable to rising interest rates than longer-term bonds.

26. The potential benefits of minimizing duration exposure
POTENTIAL BENEFITS OF MINIMIZING DURATION EXPOSURE DURING RISING-RATE ENVIRONMENTS (2/1/60–9/30/81)
During the last secular rising-rate environment, an investment with low duration exposure outperformed bonds with longer duration exposure in 88% of rolling five-year periods, according to Morningstar as of 3/31/12.
The potential benefits of minimizing duration exposure
Source: Morningstar as of 3/31/12. Performance is historical and does not guarantee future results. Asset class representation is as follows: ultra-short duration bonds, Morningstar/Ibbotson SBBI U.S. 1-Year Treasury Constant Maturity Index; longer-duration bonds, Morningstar/Ibbotson SBBI U.S. Long-Term Government Index. Data is for illustrative purposes and does not represent any DWS fund. Performance for other time periods may not be as favorable. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. See slide 4 for index definitions. Fixed-income investments are subject to interest-rate risk, and their value will decline as interest rates rise. Because of their shorter maturities, short-term bonds are typically less vulnerable to rising interest rates than longer-term bonds.

27. Floating-rate loans offered a measure of protection from recent rising market rates
TOTAL RETURN OF ASSET CLASSES (10/8/10–2/8/11, THE LAST INTEREST-RATE SPIKE)
From 10/8/10 to 2/8/11, the 10-year U.S. Treasury yield increased by 134 basis points, from 2.38% to 3.72%.
During this period, floating-rate loans were the best-performing fixed-income asset class, outperforming intermediate-term bonds by 10.82%.
Floating-rate loans offered a measure of protection from recent rising market rates
Source: Morningstar as of 3/31/12. Past performance is historical and does not guarantee future results. Asset class representation: floating-rate loans, Credit Suisse Leveraged Loan Index; high-yield bonds, Credit Suisse High Yield Index; ultra-short bonds, Barclays Capital Corporate 1-Year Duration Index; short-term bonds, Barclays Capital 1–3 Year U.S. Aggregate Index; TIPS, Barclays Capital TIPS Index; intermediate-term bonds, Barclays Capital 7-10 Year U.S. Aggregate Index; longer-term bonds, Barclays Capital 10-Plus Year Aggregate Index. This data is for illustrative purposes and does not represent any DWS fund. Index returns do not reflect fees or expenses. See slide 4 for index definitions. It is not possible to invest directly in an index. Performance for other time periods may not be as favorable. Fixed-income investments are subject to interest-rate risk, and their value will decline as interest rates rise. Because of their shorter maturities, short-term bonds are typically less vulnerable to rising interest rates than longer-term bonds. Floating-rate loans are typically more vulnerable to and are more sensitive to credit and default risks. Floating-rate loans are debt instruments with a variable rate that generally resets every 30 to 90 days.

28. Over the long term, floating-rate loans also offered protection from rising market rates
Returns during all one-year periods when interest rates have risen by 1% or more (2/92–12/10)
Asset class
Return
Floating-rate loans
11.70%
Emerging-market bonds
9.07%
High-yield bonds
8.34%
Multi-sector bonds
3.26%
Short-term bonds
2.38%
Global bonds
0.96%
Intermediate-term bonds
-1.11%
TIPS
-1.75%
Because they are less sensitive to changes in interest rates (they are of shorter duration) than intermediate-term bonds, short-term bond and floating-rate notes have outperformed with less volatility when interest rates have risen by one percentage point or more.
Source: Morningstar as of 3/31/12. Performance is historical and does not guarantee future results. Asset class representation is as follows: floating-rate loans, Credit Suisse Leveraged Loan Index; emerging-market bonds, Barclays Capital Emerging Markets Bond Index; high-yield bonds, Credit Suisse High Yield Index; multi-sector bonds, Morningstar Multi-Sector Category; short-term bonds, Barclays Capital 1-3 Year U.S. Aggregate Index; global bonds, Barclays Capital Global Aggregate Index; intermediate-term bonds, Barclays Capital 7-10 Year U.S. Aggregate Index; TIPS, Barclays Capital U.S. Treasury Index. This information is for illustrative purposes and does not represent any DWS fund. Index returns do not reflect fees or expenses. It is not possible to invest directly in an index. See slide 4 for index definitions. Performance for other time periods may not be as favorable. Fixed income investments are subject to interest rate risk and their value will decline as interest rates rise. Compared to other fixed-income asset classes, floating-rate loans are typically more vulnerable to and are more sensitive to credit and default risks. Floating-rate loans are debt instruments with a variable rate that generally resets every 30 to 90 days. Because of their shorter maturities, short-term bonds are typically less vulnerable to rising interest rates than longer-term bonds. 28

29. Commodities have performed well when inflation has risen
Commodities have performed well when inflation has risen (average annual total return, 12/31/76 – 12/31/11)
Average inflation is represented by the average US Consumer Price Index (CPI) inflation growth rate from 12/31/76 through 12/31/11, which was 4.4%. Inflation was considered rising when it was higher than it was one year prior.
Commodities have performed well when inflation has risen
Source: Morningstar, Bloomberg, FactSet as of 12/31/11. Performance is historical and does not guarantee future results. This information is for illustrative purposes and does not represent any DWS fund. Commodities, bonds and stocks are represented by the S&P Goldman Sachs Commodity Index, Barclays Capital U.S. Aggregate Index and S&P 500 Index, respectively. Fixed-income investments are subject to interest-rate risk, and their value will decline as interest rates rise. The values of equity investments are more volatile than those of other securities. 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. Equity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. See slide 4 for index definitions.

30. Alternatives are potentially well positioned relative to traditional asset classes for rising inflation
CALENDAR-YEAR RETURNS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Gold
52.61%
EM equity
55.82%
Gbl. real est.
37.96%
34.00%
42.35%
39.39%
TIPS
–2.35%
78.51%
35.06%
13.56%
TIPs
16.57%
45.58%
25.55%
28.35%
32.17%
Commodities
32.45%
Market neutral
–5.92%
Floating rate
51.62%
20.40%
EM income
9.20%
14.24%
40.69%
Infrastructure
21.31%
25.54%
29.06%
19.58%
–9.70%
38.26%
18.88%
5.54%
12.81%
29.08%
Commodities 20.82%
15.35%
20.13%
18.62%
–23.10%
35.74%
Alternatives
13.03%
1.52%
Alternatives 9.65%
EM income 28.83%
16.63%
14.91%
15.30%
12.04%
–26.52%
28.03%
12.55%
0.73%
2.82%
24.70%
11.77%
11.86%
10.49%
11.64%
–29.10%
26.67%
11.83%
–1.02%
1.91%
24.40%
8.46%
6.22%
7.32%
6.45%
–32.66%
25.95%
10.13%
–5.48%
0.98%
9.97%
5.17%
5.06%
6.74%
5.29%
–44.76%
14.75%
6.60%
–5.82%
–6.17%
8.40%
4.15%
4.97%
2.77%
2.08%
–47.72%
11.41%
6.31%
–17.23%
–17.95%
2.44%
–5.54%
2.84%
0.41%
–6.96%
–53.33%
1.17%
3.79%
–20.41%
U.S. stocks
–22.10%
28.68%
10.88%
4.91%
15.79%
5.49%
–37.00%
26.46%
15.06%
2.11%
Excess out performance or underperformance of alternatives vs. stocks
31.75%
–3.98%
5.75%
10.00%
–0.49%
6.55%
10.48%
0.21%
–2.03%
–3.13%
Alternatives are potentially well positioned relative to traditional asset classes for rising inflation
Source: Morningstar as of 12/31/11. Performance is historical and does not guarantee future results. See Slide 3 for asset class representation. Please see Slides 32 and 33 for asset class risks. Equity index returns assume reinvestment of all distributions. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. See slide 4 for index definitions. Returns during certain time periods were negative. Excess return calculation is the mathematical difference between the alternative blend (orange) and U.S. stocks (light blue

31. Alternatives potentially perform well when inflation rises
Alternative-asset-class diversification Alternatives are potentially well positioned relative to traditional asset classes for rising inflation
Category
Rising inflation
Stocks
Earnings often deteriorate, real rates of return decrease
Bonds
Interest rates often rise, real rates of return decrease
Alternatives potentially perform well when inflation rises
Commodities
Historically an inflation hedge
Market neutral
No correlation to inflation
Global real estate
Property value and rents can rise with inflation
TIPs
Yields rise with inflation and interest rates
Infrastructure
Floating-rate loans
Gold
Emerging-market equity and income
Commodity-based economies potentially benefit
Alternative-asset-class diversification
The sources, opinions and forecasts expressed are those of DWS Investments Product management, are as of 3/31/12 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.

32. Asset class risks
Gold/commodities: Market price movements or regulatory and economic changes will have a significant impact on commodity performance. Commodity-linked derivatives may subject a fund to special risks. International equity/emerging market income/emerging market equity: Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Stocks may decline in value. Floating-rate loans: 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. In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. Infrastructure: Various stages of an infrastructure project involve specific risks, such as development, construction and operating risks. Other potential risks include demand, financial, market and political risks. Global real estate: Any investment concentrated in a particular segment of the market will generally be more volatile than one that invests more broadly. There are special risks associated with an investment in real estate, including REITS. These risks include credit risk, interest rate fluctuations and the impact of varied economic conditions. TIPS: Although inflation- indexed bonds are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. U.S. stocks/U.S. fixed income: 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. Alternatives: Alternative investments can be less liquid and more volatile than traditional investments and often lack longer- term track records. Market neutral: While market neutral funds may outperform the market during periods of sever downturn, they may underperform the market during periods of market rallies.
Asset class risks

33. Asset class risks
Stocks: The values of equity investments are more volatile than those of other securities. Bonds: Fixed-income investments are subject to interest-rate risk, and their value will decline as interest rates rise. Commodities: Market price movements or regulatory and economic changes will have a significant impact on commodity performance; commodity-linked derivatives may subject a fund to special risks. Market neutral: While market neutral funds may outperform the market during periods of severe downturn, they may also underperform the market during periods of market rallies. Global real estate: Any investment concentrated in a particular segment of the market will generally be more volatile than one that invests more broadly. There are special risks associated with an investment in real estate, including REITS. These risks include credit risk, interest rate fluctuations and the impact of varied economic conditions. Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. TIPS: Although inflation-indexed bonds are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. Infrastructure: Various stages of an infrastructure project involve specific risks. Development risk includes the initial very high-risk phase where only equity capital can be used for financing. Construction risk includes cost and time spillovers may distort future revenue generation and profitability. Operating risk emerges due to underestimation of operating costs and occasionally, an overestimation of the output from the proposed infrastructure facility. Other potential risks include demand risk, relating to the demand and "willingness to pay" for the proposed infrastructure facility; financial risk, such as foreign exchange and interest rate risks; market risk, which occurs when consumers can choose alternative services; and political risk, which relates to government policies and selection procedures. Floating-rate loans: 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. In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. Gold: Assets concentrated in the gold industry can be significantly affected by international economic, monetary and political developments. Emerging market equity and income: Investing in foreign securities, particularly those of emerging markets, presents certain risks, such as currency fluctuations, political and economic changes, and market risks. Stocks may decline in value.
Asset class risks

34. Actions for Plan Sponsors
Investments options for inflation and deflation

35. Three questions every plan sponsor should ask
Does your plan’s current lineup of investment options offer inflation-fighting power? 1
At what ages will participants benefit most from inflation-aware investing? 2
What kind of options should you consider adding in your lineup? 3
What can we do with these ideas as far as our retirement plans are concerned?
Here are three questions that every plan sponsor should ask himself or herself:
Does your plan’s current lineup of investment options offer inflation-fighting power?
At what ages will participants benefit most from inflation-aware investing?
What kind of options should you consider adding in your lineup?
Let’s answer them one by one.

36. Strategy: Offer a more progressive more diverse retirement line-up
Does your plan’s current lineup of investment options offer inflation-fighting power?
Question 1
Most plans do not offer inflation-fighting alternative investments1
If your investment menu consists solely of equities, fixed-income and stable- value investments (stocks, bonds and cash), the answer is probably NO
A brokerage option may offer complex options for inflation protection, but they will be strictly do-it-yourself investing – unlike a fund dedicated to nontraditional assets
Some target-date funds may have inflation-fighting asset classes (such as commodities) built into their glide paths – to be certain, check the fund prospectuses
Question 1 is: Does your current plan lineup offer inflation-fighting investments?
Nationwide, most plans do not offer inflation-fighting alternative investments.
If your investment menu is like nearly every other investment menu out there, then it consists almost exclusively of equities, fixed-income and stable-value investments (stocks, bonds and cash) in various combinations. So the answer is probably no.
Although there are unexpected exceptions. A brokerage option may offer complex options for inflation protection, but they will be strictly do-it-yourself investing – unlike a fund dedicated to nontraditional assets
Here’s another example. Some target-date funds may have inflation-fighting asset classes (such as commodities) built into their glide paths. There’s no way to know for sure just by looking at the fund name. To be certain, you need to check the fund prospectuses.
Source:
Strategy: Offer a more progressive more diverse retirement line-up
1. “Alternatives absent from company retirement plans,” Jeff Benjamin, Investment News, May 1, 2011.

37. Strategy: Offer age-segmented education across your plan
At what ages will participants benefit most from inflation-aware investing?
Question 2
Inflation-aware investing can benefit every age group: Younger employees will probably see the greatest effects of inflation because their retirements are furthest away – and current inflation in the prices of necessities now (food, fuel) hurts their ability to save for retirement
Mid-career employees are facing the catch-up years: saving more to support their lifestyle in retirement, but few have calculated inflation’s impairment of their ability to pay for it
Employees approaching retirement are faced not only with the prospect of making their savings last for decades, but also with the possibility that inflation will rob them of buying power for necessities like food and healthcare
Next question: At what ages will participants benefit most from inflation-aware investing?
As we saw with our own results in the DWS retirement plan we discussed a minute ago, it’s apparent that inflation-aware investing can benefit every age group:
Younger employees will probably see the greatest effects of inflation because their retirements are furthest away – and current inflation in the prices of necessities now (such as food and fuel) hurts their ability to save for retirement. So whatever level of savings they do manage to put away will benefit in the distant future from inflation-aware investing today.
Mid-career employees are facing the catch-up years: saving more to support their lifestyle in retirement, but few have calculated inflation’s impairment of their ability to pay for it. The simple solution is to recalculate your savings rate today based on your future financial needs – but to do so by factoring in the potential for an average inflation rate of, say, 4% annually.
People approaching retirement are faced not only with the prospect of making their savings last for decades, but also with the possibility that inflation will rob them of buying power for necessities like food and healthcare. We believe that investing for inflation will not only affect your working years, but also your retirement years. Because many of us are facing the possibility of a 20- or 30-year retirement, thanks to longer life spans, we will continue to need to think investing for the long term well into retirement.
Strategy: Offer age-segmented education across your plan
1. “Alternatives absent from company retirement plans,” Jeff Benjamin, Investment News, May 1, 2011.

38. What kind of investment options should you consider adding in your lineup?
Question 3
These asset classes can help portfolios protect against inflation
Look for funds that include inflation-fighting asset classes:
Commodities
Global real estate
TIPs
Floating-rate loans
Emerging-market equity and income
Last question: What kinds of investment options should you consider adding to your lineup?
As we saw earlier, these are the best asset classes to help portfolios protect against inflation. Look for funds that include some or all of the inflation-fighting asset classes:
Commodities
Global real estate
TIPs
Floating-rate loans
Emerging-market equity and income
We’ve seen that stocks and bonds and cash won’t be of much help to our plan participants when it comes to offsetting the bad effects of inflation on their buying power.
As plan sponsors, what can we do now to help them prepare for this serious potential threat?

39. What plan sponsors can do
Ask your Investment Committee (and financial advisor) to evaluate your current lineup of investment options for ability to combat inflation
Consider the age demographics of your participants
Select additional or replacement investment options that offer inflation-fighting potential
Change and document your Investment Policy Statement accordingly
Communicate new options, the importance of fighting inflation, and new inflation-fighting model portfolios to participants
Here are five simple steps you can take right away.
First, ask your Investment Committee — and, if you work with one, your plan’s financial advisor — to evaluate your current lineup of investment options for their ability to combat inflation.
Then, consider the age demographics of your participants. If the average age of your workforce is especially old or young, it may affect the kinds of inflation-fighting asset classes you may want to add. Although they are all historically better at fighting inflation that traditional investments, each of those classes has its own risk and reward characteristics that may play a role in your decision.
Next, select additional or replacement investment options that offer inflation-fighting potential. You can simply add to your current lineup, or replace funds you may have been considering terminating anyway.
Fourth, and very important: Don’t forget to change and document your Investment Policy Statement accordingly.
Finally, communicate your new options, demonstrate the importance of fighting inflation, and show these new inflation-fighting model portfolios to participants.

40. Summary Definitions of inflation and deflation
Understanding the Consumer Price Index (CPI)
Changes to index over the years have created some controversy
Within the inflation index, basic needs items are where we are seeing inflation
Investments options: a focus on inflation strategies
Floating-rate loans – have the highest correlation to inflation and have been the best- performing fixed-income category when interest rates have risen
Commodities and alternatives – have historically performed well in higher-inflation environments
Participants may be underweight inflation-fighting asset classes!
Summary

41. Important information
OBTAIN A PROSPECTUS
To obtain a summary prospectus, if available, or prospectus, download one from talk to your financial representative or call (800) 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 Distributors, Inc. Advisory services offered through Deutsche Investment Management Americas, Inc.
Important information
DWS Investments is part of Deutsche Bank's Asset Management division and, within the U.S., represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
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