Supplement to the currently effective Statement of Additional            Information of each of the listed funds/portfolios:

**_____________________________________________________________________________________________**

 

**Cash Management Fund Institutional**

**Cash Reserve Fund, Inc.**

Prime Series

**Cash Reserve Fund Institutional**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**DWS Capital Growth Fund**

**DWS Climate Change Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Income Fund**

**DWS EAFE® Equity Index Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

**DWS Enhanced S&P 500 Index Fund**

**DWS Equity 500 Index Fund**

**DWS Equity Income Fund**

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Floating Rate Plus Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Health Care Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities Fund**

**DWS Investments VIT Funds**

DWS Equity 500 Index VIP

DWS RREEF Real Estate Securities VIP

DWS Small Cap Index VIP

**DWS Japan Equity Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS LifeCompass 2015 Fund**

**DWS LifeCompass 2020 Fund**

**DWS LifeCompass 2030 Fund**

**DWS LifeCompass 2040 Fund**

**DWS LifeCompass Retirement Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Money Market Series**

**DWS RREEF Global Real Estate Securities Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

 

----

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS U.S. Bond Index Fund**

**DWS Value Builder Fund**

**DWS Variable Series I**

DWS Bond VIP

DWS Capital Growth VIP

DWS Global Opportunities VIP

DWS Growth & Income VIP

DWS Health Care VIP

DWS International VIP

 

At            present, substantially all DWS mutual funds are overseen by one of two boards of            trustees/directors (the “Boards”). Each Board, including the Board that            oversees your Fund (the “New York Board”), has determined that the            formation of a single consolidated Board overseeing substantially all DWS mutual funds            is in the best interests of the Funds and their shareholders. In this connection, each            Board has approved a plan outlining the process for implementing the consolidation of            the New York Board with the other primary DWS mutual fund board (the “Chicago            Board”). (The geographic references in the preceding sentences merely indicate            where each Board historically held most of its meetings.)

The            consolidation of the two Boards is expected to take effect on or about April 1, 2008            (the “Consolidation Date”). To accomplish the consolidation, the New York            Board will nominate and elect four individuals (John W. Ballantine, Paul K. Freeman,            William McClayton and Robert H. Wadsworth) who currently serve on the Chicago Board to            the Board of your Fund and each other fund overseen by the New York Board. Information            regarding these four individuals is set forth below. In addition, the Chicago Board has            determined to nominate and recommend that shareholders of each fund overseen by that            Board elect eight members of your Fund’s Board (Henry P. Becton, Jr., Dawn-Marie            Driscoll, Keith R. Fox, Kenneth C. Froewiss, Richard J. Herring, Rebecca W. Rimel,            William N. Searcy, Jr. and Jean Gleason Stromberg). As a result, as of the            Consolidation Date, it is expected that the four Chicago Board members and eight New            York Board members named above (each of whom will be an Independent Board Member),            together with Axel Schwarzer, CEO of DWS Scudder, will constitute the Board of each DWS            Scudder mutual fund (134 funds), including your Fund.

To            facilitate the Board consolidation, three members of the New York Board (Martin J.            Gruber, Graham E. Jones and Carl W. Vogt) have agreed to resign as of the            Consolidation Date, which is prior to their normal retirement dates. Independent Board            Members of the New York Board do not receive benefits under any pension or retirement            plan. However, the New York Board has determined that it would be appropriate to            provide those three Independent Board Members who agreed to resign prior to the            Board’s normal retirement date with a retirement agreement, the terms of which            include a one-time benefit. As DIMA, the Funds’ investment adviser, will also            benefit from the administrative efficiencies of a consolidated Board, DIMA has agreed            to reimburse the Funds for the full cost of this one-time benefit (which for each            retiring Independent Board Member will equal his annual compensation immediately            preceding the Consolidation Date multiplied by the lesser of (i) two; or (ii) the            number of years (or portion thereof) from the Consolidation Date to his normal            retirement date). As consideration for this benefit, each retiring Independent Board            Member has agreed not to serve on the board of another mutual fund without prior            consent for a specified period. In addition, pursuant to an agreement between each            retiring Independent Board Member, the New York Funds and DIMA, each retiring            Independent

 

----

Board Member has received certain assurances regarding continuation of            insurance and indemnification rights.

Following the Consolidation Date, it is expected that the consolidated            Board will implement certain changes to the Fund’s current committee structure            and other governance practices, including the appointment of new committee chairs and            members. Additional information regarding these changes will be set forth in the            Fund’s statement of additional information upon implementation.

 

----

| **Name and Year of Birth**                                                           | **Business Experience and                            Directorships****During the Past 5 Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Position with the DWS Funds and Length of Time                            Served** |
|--------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|
| **Chicago Board Members                            to be Elected to New York Board** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                 |
| John W. Ballantine                            (1946)                                 | Retired; formerly,                            Executive Vice President and Chief Risk Management Officer, First                            Chicago NBD Corporation/The First National Bank of Chicago (1996-1998);                            Executive Vice President and Head of International Banking (1995-1996).                            Directorships: Healthways Inc. (provider of disease and care management                            services); Portland General Electric (utility company); Stockwell                            Capital Investments PLC (private equity). Former Directorships: First                            Oak Brook Bancshares, Inc. and Oak Brook Bank | Chicago Board Member                            since 1999.                          |
| Paul K. Freeman                            (1950)                                    | Consultant, World                            Bank/Inter-American Development Bank; formerly, Project Leader,                            International Institute for Applied Systems Analysis (1998-2001); Chief                            Executive Officer, The Eric Group, Inc. (environmental insurance)                            (1986-1998). Formerly, Trustee of funds managed by DIMA or its                            affiliates (1993-2002).                                                                                                                                                                                                                                       | Chicago Board Member                            since 2002, Chairperson since 2007.  |
| William McClayton                            (1944)                                  | Chief Administrative                            Officer, Diamond Management & Technology Consultants, Inc. (global                            management consulting firm) (2001-present); formerly, Senior Partner,                            Arthur Andersen LLP (accounting) (1966-2001). Directorships: Board of                            Managers, YMCA of Metropolitan Chicago; formerly, Trustee, Ravinia                            Festival.                                                                                                                                                                                                                                     | Chicago Board Member                            since 2004.                          |
| Robert H. Wadsworth                            (1940)                                | President, Robert H.                            Wadsworth & Associates, Inc. (consulting firm) (1983 to present).                            Formerly, Trustee of funds managed by DIMA or its affiliates                            (1999-2004).                                                                                                                                                                                                                                                                                                                                                                                                                                           | Chicago Board Member                            since 2004.                          |

 

 

 

 

*Please Retain This Supplement for Future Reference*

 

November 26, 2007

DMF-3119

 

 

Supplement to the currently effective Statements of Additional            Information of each of the listed funds/portfolios:

 

| **Cash Management Fund Institutional**

**Cash Reserves Fund Institutional**

**Daily Assets Fund Institutional**

**DWS Alternative Asset Allocation Plus                            Fund**

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax-Free Income Fund**

**DWS Capital Growth Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Conservative Allocation Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Allocation Fund**

**DWS Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS Disciplined Market Neutral Fund**

**DWS Dreman Concentrated Value Fund**

**DWS Dreman High Return Equity Fund**

**DWS Dreman Mid Cap Value Fund**

**DWS Dreman Small Cap Value Fund**

**DWS EAFE® Equity Index                            Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

**DWS Enhanced S&P 500 Index Fund**

**DWS Equity 500 Index Fund** | **DWS Equity Income Fund**

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Floating Rate Plus Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Growth Allocation Fund**

**DWS Growth Plus Allocation Fund**

**DWS Health Care Fund**

**DWS High Income Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities                            Fund**

**DWS Japan Equity Fund**

**DWS Large Cap Value Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

  | **DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Moderate Allocation Fund**

**DWS Money Market Prime Series**

**DWS Money Market Series**

**DWS New York Tax-Free Income Fund**

**DWS RREEF Global Real Estate Securities                            Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS Strategic Income Fund**

**DWS Technology Fund**

**DWS U.S. Bond Index Fund**

**DWS U.S. Government Securities Fund**

**DWS Value Builder Fund**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**Tax-Exempt California Money Market                            Fund**

**Treasury Money Fund**

**Treasury Money Fund Investment** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*The            following information replaces similar disclosure under “Revenue Sharing”            in the “Purchase and Redemption of Shares” section of each            Fund’s/Portfolio’s Statements of Additional Information:*

 

**Revenue Sharing**

In            light of recent regulatory developments, the Advisor, the Distributor and their            affiliates have undertaken to furnish certain additional information below regarding            the level of payments made by them to selected affiliated and unaffiliated brokers,            dealers, participating insurance companies or other financial intermediaries            (“financial advisors”) in connection with the sale and/or distribution of            Fund shares or the retention and/or servicing of investors and Fund shares            (“revenue sharing”).

The            Advisor, the Distributor and/or their affiliates may pay additional compensation, out            of their own assets and not as an additional charge to the Fund, to financial advisors            in connection with the sale and/or distribution of Fund shares or the retention and/or            servicing of Fund investors and Fund shares. Such revenue sharing payments are in            addition to any distribution or service fees payable under any Rule 12b-1 or service            plan of any fund, any record keeping/sub-transfer agency/networking fees payable by the            Fund (generally through the Distributor or an affiliate) and/or the Distributor to            certain financial advisors for performing such services and any sales charges,            commissions, non-cash compensation arrangements expressly permitted under applicable            rules of the NASD or other concessions described in the fee table or elsewhere in the            Prospectuses or the SAI as payable to all financial advisors. For example, the Advisor,            the Distributor and/or their affiliates may compensate financial advisors for providing            the Fund with “shelf space” or access to a third party platform or fund            offering list, or other marketing programs including, without limitation, inclusion of            the Fund on preferred or recommended sales lists, mutual fund “supermarket”            platforms and other formal sales programs; granting the Distributor access to the            financial advisor’s

 

----

sales force; granting the Distributor access to the financial            advisor’s conferences and meetings; assistance in training and educating the            financial advisor’s personnel; and, obtaining other forms of marketing support.            The level of revenue sharing payments made to financial advisors may be a fixed fee or            based upon one or more of the following factors: gross sales, current assets and/or            number of accounts of the Fund attributable to the financial advisor, the particular            fund or fund type or other measures as agreed to by the Advisor, the Distributor and/or            their affiliates and the financial advisors or any combination thereof. The amount of            these payments is determined at the discretion of the Advisor, the Distributor and/or            their affiliates from time to time, may be substantial, and may be different for            different financial advisors based on, for example, the nature of the services provided            by the financial advisor.

The            Advisor, the Distributor and/or their affiliates currently make revenue sharing            payments from their own assets in connection with the sale and/or distribution of DWS            Fund shares, or the retention and/or servicing of investors, to financial advisors in            amounts that generally range from .01% up to .50% of assets of the Fund serviced and            maintained by the financial advisor, .10% to .25% of sales of the Fund attributable to            the financial advisor, a flat fee of $12,500 up to $500,000, or any combination            thereof. These amounts are subject to change at the discretion of the Advisor, the            Distributor and/or their affiliates. Receipt of, or the prospect of receiving, this            additional compensation, may influence your financial advisor’s recommendation of            this Fund or of any particular share class of the Fund. You should review your            financial advisor’s compensation disclosure and/or talk to your financial advisor            to obtain more information on how this compensation may have influenced your financial            advisor’s recommendation of this Fund.

The            Advisor, the Distributor and/or their affiliates may also make such revenue sharing            payments to financial advisors under the terms discussed above in connection with the            distribution of both DWS funds and non-DWS funds by financial advisors to retirement            plans that obtain record keeping services from ADP, Inc. on the DWS Scudder branded            retirement plan platform (the “Platform") with the level of revenue sharing            payments being based upon sales of both the DWS funds and the non-DWS funds by the            financial advisor on the Platform or current assets of both the DWS funds and the            non-DWS funds serviced and maintained by the financial advisor on the            Platform.

As            of the date hereof, the Fund has been advised that the Advisor, the Distributor and            their affiliates expect that the following firms will receive revenue sharing payments            at different points during the coming year as described above:

**Channel: Broker-Dealers and Financial Advisors**

A G            Edwards & Sons Inc.

AIG            Advisors Group

Ameriprise

Cadaret, Grant & Co. Inc.

Capital            Analyst, Incorporated

Citigroup Global Markets, Inc. (dba Smith Barney)

Commonwealth Equity Services, LLP (dba Commonwealth Financial            Network)

First            Clearing/Wachovia Securities

HD Vest            Investment Securities, Inc.

ING            Group

LaSalle            Financial Services, Inc. (dba ABN Amro)

Linsco/Private Ledger Corp.

Marsh            Insurance and Investment Company

Merrill            Lynch, Pierce, Fenner & Smith Inc.

Morgan            Stanley

Oppenheimer & Co., Inc.

Pacific            Select Distributors Group

Raymond            James & Associates

Raymond            James Financial Services

RBC            Dain Rauscher, Inc

Securities America, Inc.

UBS            Financial Services

Wells            Fargo Investments, LLC

 

----

 

**Channel: Cash Product Platform**

ADP            Clearing & Outsourcing

Allegheny Investments LTD

Bank of            New York (Hare & Co.)

Bear,            Stearns Securities Corp.

Brown            Brothers Harriman

Brown            Investment Advisory & Trust Company

Cadaret            Grant & Co.

Chicago            Mercantile Exchange

Citibank NA

D.A.            Davidson & Company

Deutsche Bank Securities Inc.

Deutsche Bank Trust Company Americas

Emmett            A. Larkin Company

Fiduciary Trust Co. – International

H.C.            Denison Co.

Huntleigh Securities

Investors Bank & Trust

JPMorgan Chase

Lincoln            Investment Planning

Linsco            Private Ledger Financial Services

Mellon            Financial Markets LLC

Penson            Financial Services

Pershing Choice Platform

ProFunds Distributors, Inc.

Romano            Brothers and Company

SAMCO            Capital Markets (Fund Services, Inc.)

Smith            Moore & Company

State            Street Bank & Trust Co.

Sungard            Institutional Brokerage Inc.

US            Bancorp

UBS            Financial Services Inc.

William            Blair & Company

**Channel: Third Party Insurance Platforms**

Acacia            National Life Insurance

Allmerica Financial Life Insurance Company

Allstate Life Insurance Company of New York

Ameritas Life Insurance Group

American General Life Insurance Company

Annuity            Investors Life Insurance Company

Columbus Life Insurance Company

Commonwealth Annuity and Life Insurance Company

Companion Life Insurance Company

Connecticut General Life Insurance Company

Farmers            New World Life Insurance Company

Fidelity Security Life Insurance Company

First            Allmerica Financial Life Insurance Company

Genworth Life Insurance Company of New York

Genworth Life and Annuity Insurance Company

Great            West Life and Annuity Insurance Company

Hartford Life Insurance Company

ICMG            Registered Variable Life

Integrity Life Insurance Company

John            Hancock Life Insurance companies

 

----

Kemper            Investors Life Insurance Company

Lincoln            Benefit Life Insurance Company

Lincoln            Life & Annuity Company of New York

Lincoln            National Life Insurance Company

Massachusetts Mutual Life Insurance Group

MetLife            Group

Minnesota Life Insurance Company

Mutual            of America Life Insurance Company

National Life Insurance Company

National Integrity Life Insurance Company

Nationwide Group

New            York Life Insurance and Annuity Corporation

Phoenix            Life Insurance Company

Protective Life Insurance

Provident Mutual Life Insurance

Prudential Insurance Company of America

Sun            Life GroupSymetra Life Insurance Company

Transamerica Life Insurance Company

Union            Central Life Insurance Company

United            of Omaha Life Insurance Company

United            Investors Life Insurance Company

Western            Southern Life Assurance Company

Any            additions, modifications or deletions to the financial advisors identified above that            have occurred since the date hereof are not reflected.

The            Advisor, the Distributor or their affiliates may enter into additional revenue sharing            arrangements or change or discontinue existing arrangements with financial advisors at            any time without notice.

The            prospect of receiving, or the receipt of additional compensation or promotional            incentives described above by financial advisors may provide such financial advisors            and/or their salespersons with an incentive to favor sales of shares of the DWS Funds            or a particular DWS Fund over sales of shares of mutual funds (or non-mutual fund            investments) with respect to which the financial advisor does not receive additional            compensation or promotional incentives, or receives lower levels of additional            compensation or promotional incentives. Similarly, financial advisors may receive            different compensation or incentives that may influence their recommendation of any            particular share class of the Fund or of other funds. These payment arrangements,            however, will not change the price that an investor pays for Fund shares or the amount            that the Fund receives to invest on behalf of an investor and will not increase Fund            expenses. You may wish to take such payment arrangements into account when considering            and evaluating any recommendations relating to Fund shares and you should discuss this            matter with your financial advisor and review your financial advisor’s            disclosures.

 

 

*Please Retain This Supplement for Future Reference*

 

August            8, 2007

DMF-3911

 

 

 

Supplement to the currently effective Statement of Additional            Information of each of the listed funds:

**_____________________________________________________________________________________________**

 

**Class A and Class S**

 

**Cash            Account Trust**

|   | § | Tax-Exempt Portfolio |
|--------|--------|----------------------|

– DWS Tax Free Money Fund Class S

**DWS            Balanced Fund**

**DWS            Blue Chip Fund**

**DWS            California Tax-Free Income Fund**

**DWS            Capital Growth Fund**

**DWS            Commodity Securities Fund**

**DWS            Communications Fund**

**DWS            Conservative Allocation Fund**

**DWS            Core Fixed Income Fund**

**DWS            Core Plus Allocation Fund**

**DWS            Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS            Disciplined Market Neutral Fund**

**DWS            Dreman Concentrated Value Fund**

**DWS            Dreman High Return Equity Fund**

**DWS            Dreman Mid Cap Value Fund**

**DWS            Dreman Small Cap Value Fund**

**DWS            Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

**DWS            Enhanced S&P 500 Index Fund**

**DWS            Equity 500 Index Fund**

**DWS            Equity Income Fund**

**DWS            Equity Partners Fund**

**DWS            Europe Equity Fund**

**DWS            Global Bond Fund**

**DWS            Global Opportunities Fund**

**DWS            Global Thematic Fund**

**DWS            GNMA Fund**

**DWS            Gold & Precious Metals Fund**

**DWS            Growth & Income Fund**

**DWS            Growth Allocation Fund**

**DWS            Growth Plus Allocation Fund**

**DWS            Health Care Fund**

**DWS            High Income Fund**

**DWS            High Income Plus Fund**

**DWS            High Yield Tax Free Fund**

**DWS            Inflation Protected Plus Fund**

**DWS            Intermediate Tax/AMT Free Fund**

**DWS            International Fund**

**DWS            International Equity Fund**

**DWS            International Select Equity Fund**

**DWS International Value Opportunities Fund**

**DWS            Japan Equity Fund**

**DWS            Large Cap Value Fund**

**DWS            Large Company Growth Fund**

**DWS            Latin America Equity Fund**

**DWS            Lifecycle Long Range Fund**

**DWS            Managed Municipal Bond Fund**

**DWS            Massachusetts Tax-Free Fund**

 

----

**DWS            Micro Cap Fund**

**DWS            Mid Cap Growth Fund**

**DWS            Moderate Allocation Fund**

**DWS            Money Market Prime Series**

|   | § | DWS Cash Investment Trust Class A |
|--------|--------|-----------------------------------|

|   | § | DWS Cash Investment Trust Class S |
|--------|--------|-----------------------------------|

**DWS            New York Tax-Free Income Fund**

**DWS RREEF Global Real Estate Securities Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS            S&P 500 Index Fund**

**DWS            Short Duration Fund**

**DWS            Short Duration Plus Fund**

**DWS            Short-Term Municipal Bond Fund**

**DWS            Small Cap Core Fund**

**DWS            Small Cap Growth Fund**

**DWS            Small Cap Value Fund**

**DWS            Strategic Income Fund**

**DWS            Technology Fund**

**DWS            U.S. Government Securities Fund**

**DWS            Value Builder Fund**

**Investors Cash Trust**

|   | § | Treasury Portfolio - DWS U.S. Treasury Money Fund Class                            S |
|--------|--------|--------------------------------------------------------------------------------------|

 

*The            following supplements the “Purchase and Redemption of Shares” section of            each of the above-referenced funds’ Statement of Additional Information for Class            A and Class S shares only:*

 

**Minimum Subsequent Investment Policies.**For            current shareholders there is a $50 minimum investment requirement for subsequent            investments in the fund. There is no minimum subsequent investment requirement for            investments on behalf of participants in certain fee-based and wrap programs offered            through financial intermediaries approved by the Advisor.

 

*Please retain this supplement for future reference.*

 

June            12, 2007

DMF-3908

 

 

 

Supplement to the currently effective Statements of Additional            Information of each of the listed funds/portfolios:

 

| **Cash Account Trust**

Government & Agency Securities Portfolio

Money Market Portfolio

Tax-Exempt Portfolio

**Cash Management Fund Institutional**

**Cash Management Fund Investment**

**Cash Reserve Fund, Inc.**

Prime Series

Treasury Series

**Cash Reserves Fund Institutional**

**Daily Assets Fund Institutional**

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax-Free Income Fund**

**DWS Capital Growth Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Conservative Allocation Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Allocation Fund**

**DWS Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS Disciplined Market Neutral Fund**

**DWS Dreman Concentrated Value Fund**

**DWS Dreman High Return Equity Fund**

**DWS Dreman Mid Cap Value Fund**

**DWS Dreman Small Cap Value Fund**

**DWS EAFE® Equity Index                            Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

**DWS Enhanced S&P 500 Index Fund**

**DWS Equity 500 Index Fund** | **DWS Equity Income Fund**

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Growth Allocation Fund**

**DWS Growth Plus Allocation Fund**

**DWS Health Care Fund**

**DWS High Income Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Equity Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities                            Fund**

**DWS Japan Equity Fund**

**DWS Large Cap Value Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Moderate Allocation Fund**

**DWS Money Market Prime Series**

**DWS Money Market Series**

**DWS New York Tax-Free Income Fund**

**DWS Pacific Opportunities Equity Fund** | **DWS RREEF Global Real Estate Securities                            Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

**DWS Short Term Bond Fund**

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS Strategic Income Fund**

**DWS Target 2008 Fund**

**DWS Target 2010 Fund**

**DWS Target 2011 Fund**

**DWS Target 2012 Fund**

**DWS Target 2013 Fund**

**DWS Target 2014 Fund**

**DWS Technology Fund**

**DWS U.S. Bond Index Fund**

**DWS U.S. Government Securities Fund**

**DWS U.S. Treasury Money Fund**

**DWS Value Builder Fund**

**Investors Cash Trust**

Treasury Portfolio

**Money Market Fund Investment**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**Tax-Exempt California Money Market                            Fund**

**Treasury Money Fund**

**Treasury Money Fund Investment** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*The            following information supplements disclosure under “Custodian, Transfer Agent and            Shareholder Service Agent” or “Transfer Agent and Shareholder Service            Agent” in the “Fund Service Providers” section of each            Fund’s/Portfolio’s Statements of Additional Information:*

 

The            Transfer Agent receives an annual service fee for each account of the Fund, based on            the type of account. For open retail accounts, the fee is a flat fee ranging from            $20.00 to $27.50 per account, for open wholesale money funds the fee is $32.50 per            account, while for certain retirement accounts serviced on the recordkeeping system of            ADP, Inc., the fee is a flat fee up to $3.46 per account (as of October 2006, indexed            to inflation) plus an asset based fee of up to 0.25% of average net assets.            1/12th of the annual service charge for each account is charged and payable            to the Transfer Agent each month. A fee is charged for any account which at any time            during the month had a share balance in the Fund. Smaller fees are also charged for            closed accounts for which information must be retained on the Transfer Agent’s            system for up to 18 months after closing for tax reporting purposes.

 

Certain            out-of-pocket expenses incurred by the Transfer Agent, including expenses of printing            and mailing routine fund disclosure documents, costs of record retention and            transaction processing costs are reimbursed by the Fund or are paid directly by the            Fund. Certain additional out-of-pocket expenses, including costs of computer hardware            and software, third party record-keeping and processing of proxy statements, may only            be reimbursed by the Fund with the prior approval of the Fund’s Board.

 

----

Effective April 1, 2007, DWS Scudder Investments Service Company is the            Transfer Agent for all classes of all DWS funds.

 

 

*Please Retain This Supplement for Future Reference*

 

March            22, 2007

DMF-3905

 

 

 

Supplement to the currently effective statements of additional            information for Class A shares of the funds listed below:

 

|  

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax-Free Income Fund**

**DWS Capital Growth Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Conservative Allocation Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Allocation Fund**

**DWS Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS Disciplined Market Neutral Fund**

**DWS Dreman Concentrated Value Fund**

**DWS Dreman High Return Equity Fund**

**DWS Dreman Mid Cap Value Fund**

**DWS Dreman Small Cap Value Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

**DWS Enhanced S&P 500 Index Fund**

**DWS Equity Income Fund**

**DWS Equity Partners Fund**

                              |  

**DWS Europe Equity Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Growth Allocation Fund**

**DWS Growth Plus Allocation Fund**

**DWS Health Care Fund**

**DWS High Income Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Equity Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities                            Fund**

**DWS Japan Equity Fund**

**DWS Large Cap Value Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS Managed Municipal Bond Fund**

                              |  

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Moderate Allocation Fund**

**DWS New York Tax-Free Income Fund**

**DWS Pacific Opportunities Equity Fund**

**DWS RREEF Global Real Estate Securities                            Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

**DWS Short Term Bond Fund**

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS Strategic Income Fund**

**DWS Technology Fund**

**DWS U. S. Government Securities Fund**

**DWS Value Builder Fund**

                              |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*The following information replaces in its entirety the disclosure of            the list of “Class A NAV Sales” section of each Fund’s Statement of            Additional Information*.

**Class A NAV Sales.**Class A shares may be            sold at net asset value to:

| (a) | a current or former director or trustee of Deutsche or                            DWS mutual funds; |
|-----|-----------------------------------------------------------------------------------------------------|

| (b) | an employee (including the employee’s spouse or                            life partner and children or stepchildren age 21 or younger) of                            Deutsche Bank or its affiliates or of a subadvisor to any fund in the                            DWS family of funds or of a broker-dealer authorized to sell shares of                            the Fund or service agents of the Funds; |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | certain professionals who assist in the promotion of DWS                            mutual funds pursuant to personal services contracts with DWS-SDI, for                            themselves or members of their families. DWS-SDI in its |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

----

discretion may compensate financial services firms for sales of Class A            shares under this privilege at a commission rate of 0.50% of the amount of Class A            shares purchased;

| (d) | any trust, pension, profit-sharing or other benefit plan                            for only such persons listed under the preceding paragraphs (a) and                            (b); |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | persons who purchase such shares through bank trust                            departments that process such trades through an automated, integrated                            mutual fund clearing program provided by a third party clearing                            firm; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | selected employees (including their spouses or life                            partners and children or stepchildren age 21 or younger) of banks and                            other financial services firms that provide administrative services                            related to order placement and payment to facilitate transactions in                            shares of the Fund for their clients pursuant to an agreement with                            DWS-SDI or one of its affiliates. Only those employees of such banks                            and other firms who as part of their usual duties provide services                            related to transactions in Fund shares qualify; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | unit investment trusts sponsored by Ranson &                            Associates, Inc. and unitholders of unit investment trusts sponsored by                            Ranson & Associates, Inc. or its predecessors through reinvestment                            programs described in the prospectuses of such trusts that have such                            programs; |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | through certain investment advisors registered under the                            Investment Advisers Act of 1940 and other financial services firms                            acting solely as agent for their clients, that adhere to certain                            standards established by DWS-SDI, including a requirement that such                            shares be sold for the benefit of their clients participating in an                            investment advisory program or agency commission program under which                            such clients pay a fee to the investment advisor or other firm for                            portfolio management or agency brokerage services. Such shares are sold                            for investment purposes and on the condition that they will not be                            resold except through redemption or repurchase by the Fund; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (i) | employer sponsored employee benefit plans using the Flex                            subaccount recordkeeping system (“Flex Plans”) made                            available through ADP under an alliance with DWS-SDI and its                            affiliates, established prior to October 1, 2003, provided that the                            Flex Plan is a participant-directed plan that has not less than 200                            eligible employees; |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (j) | investors investing $1 million or more, either as a lump                            sum or through the “Combined Purchases,” “Letter of                            Intent” and “Cumulative Discount” features referred                            to above (collectively, the “Large Order NAV Purchase                            Privilege”). The Large Order NAV Purchase Privilege is not                            available if another net asset value purchase privilege is                            available; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (k) | defined contribution investment only plans with a                            minimum of $1,000,000 in plan assets regardless of the amount allocated                            to the DWS funds; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

In addition, Class A shares may be sold at net asset value in connection            with:

| (l) | the acquisition of the assets of or merger or                            consolidation with another investment company, or to shareholders in                            connection with the investment or reinvestment of income and capital                            gain dividends, and under other circumstances deemed appropriate by                            DWS-SDI and consistent with regulatory requirements; and |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (m) | a direct “roll over” of a distribution from                            a Flex Plan or from participants in employer sponsored employee benefit                            plans maintained on the OmniPlus subaccount record keeping system made                            available through ADP, Inc. under an alliance with DWS-SDI and its                            affiliates into a DWS Scudder IRA; |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n) | reinvestment of fund dividends and                            distributions; |
|-----|------------------------------------------------------------------------------|

 

----

| (o) | exchanging an investment in Class A shares of another                            fund in the DWS family of funds for an investment in the                            fund. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Class A shares also may be purchased at net asset value in any amount by            members of the plaintiff class in the proceeding known as Howard and Audrey Tabankin,            et al. v. Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL).            This privilege is generally non-transferable and continues for the lifetime of            individual class members and for a ten-year period for non-individual class members. To            make a purchase at net asset value under this privilege, the investor must, at the time            of purchase, submit a written request that the purchase be processed at net asset value            pursuant to this privilege specifically identifying the purchaser as a member of the            “Tabankin Class.” Shares purchased under this privilege will be maintained            in a separate account that includes only shares purchased under this privilege. For            more details concerning this privilege, class members should refer to the Notice of (i)            Proposed Settlement with Defendants; and (ii) Hearing to Determine Fairness of Proposed            Settlement, dated August 31, 1995, issued in connection with the aforementioned court            proceeding. For sales of Fund shares at net asset value pursuant to this privilege,            DWS-SDI may in its discretion pay investment dealers and other financial services firms            a concession, payable quarterly, at an annual rate of up to 0.25% of net assets            attributable to such shares maintained and serviced by the firm. A firm becomes            eligible for the concession based upon assets in accounts attributable to shares            purchased under this privilege in the month after the month of purchase and the            concession continues until terminated by DWS-SDI. The privilege of purchasing Class A            shares of the Fund at net asset value under this privilege is not available if another            net asset value purchase privilege also applies.

 

 

February 16, 2007

DMF-3903

 

 

 

Supplement to the currently effective Statements of Additional            Information of each of the listed funds/portfolios:

 

 

| **Cash Account Trust**

Government & Agency Securities Portfolio

Money Market Portfolio

Tax-Exempt Portfolio

**Cash Management Fund Institutional**

**Cash Management Fund Investment**

**Cash Reserve Fund, Inc.**

Prime Series

Tax-Free Series

Treasury Series

**Cash Reserves Fund Institutional**

**Daily Assets Fund Institutional**

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax–Free Income                            Fund**

**DWS Capital Growth Fund**

**DWS Cash Investment Trust**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Conservative Allocation Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Allocation Fund**

**DWS Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS Disciplined Market Neutral Fund**

**DWS Dreman Concentrated Value Fund**

**DWS Dreman High Return Equity Fund**

**DWS Dreman Mid Cap Value Fund**

**DWS Dreman Small Cap Value Fund**

**DWS EAFE® Equity Index                            Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

**DWS Enhanced S&P 500 Index Fund**

**DWS Equity 500 Index Fund**

**DWS Equity Income Fund**

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund** | **DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Growth Allocation Fund**

**DWS Growth Plus Allocation Fund**

**DWS Health Care Fund**

**DWS High Income Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Equity Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities                            Fund**

**DWS Japan Equity Fund**

**DWS Large Cap Value Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Moderate Allocation Fund**

**DWS Money Funds**

DWS Government & Agency Money Fund

DWS Money Market Prime Series

DWS Tax-Exempt Money Fund

**DWS Money Market Series**

**DWS New York Tax-Free Income Fund**

**DWS Pacific Opportunities Equity Fund**

**DWS RREEF Global Real Estate Securities                            Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund** | **DWS Short Term Bond Fund**

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS Strategic Income Fund**

**DWS Target 2008 Fund**

**DWS Target 2010 Fund**

**DWS Target 2011 Fund**

**DWS Target 2012 Fund**

**DWS Target 2013 Fund**

**DWS Target 2014 Fund**

**DWS Tax Free Money Fund**

**DWS Technology Fund**

**DWS U.S. Bond Index Fund**

**DWS U.S. Government Securities Fund**

**DWS U.S. Treasury Money Fund**

**DWS Value Builder Fund**

**Investors Cash Trust**

Government & Agency Securities Portfolio

Treasury Portfolio

**Investors Municipal Cash Fund**

Investors Florida Municipal Cash Fund

Investors Michigan Municipal Cash Fund

Investors New Jersey Municipal Cash Fund

Investors Pennsylvania Municipal Cash Fund

Tax-Exempt New York Money Market Fund

**Money Market Fund Investment**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**Tax-Exempt California Money Market                            Fund**

**Treasury Money Fund**

**Treasury Money Fund Investment** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

*The following information replaces and supplements similar language            under the “Portfolio Transactions” section of each            fund’s/portfolio’s Statements of Additional Information:*

 

 

 

----

The            Advisor is generally responsible for placing the orders for the purchase and sale of            portfolio securities, including the allocation of brokerage. With respect to those            funds for which a sub-investment advisor manages the fund’s investments,            references in this section to the “Advisor” should be read to mean the            Sub-Advisor, except as noted below.

The            policy of the Advisor in placing orders for the purchase and sale of securities for the            Funds is to seek best execution, taking into account such factors, among others, as            price; commission (where applicable); the broker-dealer’s ability to ensure that            securities will be delivered on settlement date; the willingness of the broker-dealer            to commit its capital and purchase a thinly traded security for its own inventory;            whether the broker-dealer specializes in block orders or large program trades; the            broker-dealer’s knowledge of the market and the security; the            broker-dealer’s ability to maintain confidentiality; the financial condition of            the broker-dealer; and whether the broker-dealer has the infrastructure and operational            capabilities to execute and settle the trade. The Advisor seeks to evaluate the overall            reasonableness of brokerage commissions with commissions charged on comparable            transactions and compares the brokerage commissions (if any) paid by the Funds to            reported commissions paid by others. The Advisor routinely reviews commission rates,            execution and settlement services performed and makes internal and external            comparisons.

Commission rates on transactions in equity securities on U.S. securities            exchanges are subject to negotiation. Commission rates on transactions in equity            securities on foreign securities exchanges are generally fixed. Purchases and sales of            fixed-income securities and certain over-the-counter securities are effected on a net            basis, without the payment of brokerage commissions. Transactions in fixed income and            certain over-the-counter securities are generally placed by the Advisor with the            principal market makers for these securities unless the Advisor reasonably believes            more favorable results are available elsewhere. Transactions with dealers serving as            market makers reflect the spread between the bid and asked prices. Purchases of            underwritten issues will include an underwriting fee paid to the underwriter. Money            market instruments are normally purchased in principal transactions directly from the            issuer or from an underwriter or market maker.

It            is likely that the broker-dealers selected based on the considerations described in            this section will include firms that also sell shares of the Funds to their customers.            However, the Advisor does not consider sales of shares of the Funds as a factor in the            selection of broker-dealers to execute portfolio transactions for the Funds and,            accordingly, has implemented policies and procedures reasonably designed to prevent its            traders from considering sales of shares of the Funds as a factor in the selection of            broker-dealers to execute portfolio transactions for the Funds.

The            Advisor is permitted by Section 28(e) of the Securities Exchange Act of 1934, as            amended (“1934 Act”), when placing portfolio transactions for a Fund, to            cause the Fund to pay brokerage commissions in excess of that which another            broker-dealer might charge for executing the same transaction in order to obtain            research and brokerage services if the Advisor determines that such commissions are            reasonable in relation to the overall services provided. The Advisor may from time to            time, in reliance on Section 28(e) of the 1934 Act, execute portfolio transactions with            broker-dealers that provide research and brokerage services to the Advisor. Consistent            with the Advisor’s policy regarding best execution, where more than one broker is            believed to be capable of providing best execution for a particular trade, the Advisor            may take into consideration the receipt of research and brokerage services in selecting            the broker-dealer to execute the trade. Although certain research and brokerage            services from broker-dealers may be useful to a Fund and to the Advisor, it is the            opinion of the Advisor that such information only supplements its own research effort            since the information must still be analyzed, weighed and reviewed by the            Advisor’s staff. Research and brokerage services received from a broker-dealer            may be useful to the Advisor in providing services to clients other than the Fund            making the trade, and not all such information is used by the Advisor in connection            with such Fund. Conversely, such information provided to the Advisor by broker-dealers            through which other clients of the Advisor effect securities transactions may be useful            to the Advisor in providing services to a Fund.

Research and brokerage services provided by broker-dealers may include,            but are not limited to, information on the economy, industries, groups of securities,            individual companies, statistical information, accounting and tax law interpretations,            political developments, legal developments affecting portfolio securities, technical            market action, pricing and appraisal services, credit analysis, risk measurement            analysis, performance analysis and measurement and analysis of corporate responsibility            issues. Research and brokerage services are typically received in the form of written            reports, access to specialized financial publications, telephone contacts and personal            meetings with

 

----

security analysts, but may also be provided in the form of access to            various computer software and associated hardware, and meetings arranged with corporate            and industry representatives.

The            Advisor may also select broker-dealers and obtain from them research and brokerage            services that are used in connection with executing trades provided that such services            are consistent with interpretations under Section 28(e) of the 1934 Act. Typically,            these services take the form of computer software and/or hardware used by the Advisor            to facilitate trading activity with those broker-dealers.

Research and brokerage services may include products obtained from third            parties if the Advisor determines that such product or service constitutes brokerage            and research as defined in Section 28(e) and interpretations thereunder. Currently, it            is the Advisor’s policy that Sub-Advisors may not execute portfolio transactions            on behalf of the Funds to obtain third party research and brokerage services. The            Advisor may, in the future, change this policy. Regardless, certain Sub-Advisors may,            as matter of internal policy, limit or preclude third party research and brokerage            services.

DIMA will monitor regulatory developments and market practice in the use            of client commissions to obtain research and brokerage services and may adjust its            portfolio transactions policies in response thereto.

Investment decisions for each Fund and for other investment accounts            managed by the Advisor are made independently of each other in light of differing            conditions. However, the same investment decision may be made for two or more of such            accounts. In such cases, simultaneous transactions are inevitable. To the extent            permitted by law, the Advisor may aggregate the securities to be sold or purchased for            a Fund with those to be sold or purchased for other accounts in executing transactions.            Purchases or sales are then averaged as to price and commission and allocated as to            amount in a manner deemed equitable to each account. While in some cases this practice            could have a detrimental effect on the price paid or received by, or on the size of the            position obtained or disposed of for, the Fund, in other cases it is believed that the            ability to engage in volume transactions will be beneficial to the Fund.

DIMA and its affiliates and the Funds’ management team manage            other mutual funds and separate accounts, some of which use short sales of securities            as a part of its investment strategy. The simultaneous management of long and short            portfolios creates potential conflicts of interest including the risk that short sale            activity could adversely affect the market value of the long positions (and vice            versa), the risk arising from sequential orders in long and short positions, and the            risks associated with receiving opposing orders at the same time.

DIMA has adopted procedures that it believes are reasonably designed to            mitigate these potential conflicts of interest. Incorporated in the procedures are            specific guidelines developed to ensure fair and equitable treatment for all clients.            DIMA and the investment team have established monitoring procedures and a protocol for            supervisory reviews, as well as compliance oversight to ensure that potential conflicts            of interest relating to this type of activity are properly addressed.

Deutsche Bank AG or one of its affiliates (or in the case of a            Sub-Advisor, the Sub-Advisor or one of its affiliates) may act as a broker for the            Funds and receive brokerage commissions or other transaction-related compensation from            the Funds in the purchase and sale of securities, options or futures contracts when, in            the judgment of the Advisor, and in accordance with procedures approved by the            Funds’ Boards, the affiliated broker will be able to obtain a price and execution            at least as favorable as those obtained from other qualified brokers and if, in the            transaction, the affiliated broker charges the Funds a rate consistent with that            charged to comparable unaffiliated customers in similar transactions.

 

 

February 7, 2007

DMF-3902

 

 

**DWS ADVISOR FUNDS**

**DWS Micro Cap Fund**

Class            A, Class B, Class C and Institutional Class

**STATEMENT OF ADDITIONAL INFORMATION**

**February 1, 2007, As Revised December 31, 2007**

This Statement of Additional Information is not a prospectus and should            be read in conjunction with the prospectuses dated February 1, 2007, as amended from            time to time, for DWS Micro Cap Fund (the “Fund”), a series of DWS Advisor            Funds (the “Trust”), copies of which may be obtained without charge by            contacting DWS Scudder Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois            60606, 1-800-621-1148, or from the firm from which this Statement of Additional            Information was obtained and are available along with other materials on the Securities            and Exchange Commission’s Internet Web site (http://www.sec.gov).

The            Annual Report to Shareholders, dated September 30, 2006, is incorporated herein by            reference and is deemed to be part of this Statement of Additional Information. A copy            of the Fund’s Annual Report may be obtained without charge by calling the Fund at            the toll-free number 1-800-621-1048.

This Statement of Additional Information (“SAI”) is            incorporated by reference into the corresponding prospectuses for each class of shares            of the Fund.

 

 

----

**TABLE OF CONTENTS**

**Page**

| INVESTMENT                            RESTRICTIONS | 2 |
|----------------------------------------------------|---|

| INVESTMENT POLICIES AND                            TECHNIQUES | 3 |
|---------------------------------------------------------------|---|

|   | Portfolio Holdings | 25 |
|--------|--------------------|----|

| MANAGEMENT OF THE                            FUND | 26 |
|---------------------------------------------------|----|

|   | Investment Advisor | 26 |
|--------|--------------------|----|

|   | Compensation of Portfolio                            Managers | 29 |
|--------|---------------------------------------------------------------|----|

| FUND SERVICE                            PROVIDERS | 32 |
|---------------------------------------------------|----|

|   | Administrator | 32 |
|--------|---------------|----|

|   | Distributor | 33 |
|--------|-------------|----|

|   | Transfer Agent | 36 |
|--------|----------------|----|

|   | Custodian | 36 |
|--------|-----------|----|

|   | Legal Counsel | 36 |
|--------|---------------|----|

|   | Independent Registered Public                            Accounting Firm | 36 |
|--------|--------------------------------------------------------------------------|----|

| PORTFOLIO                            TRANSACTIONS | 37 |
|---------------------------------------------------|----|

| PURCHASES AND REDEMPTIONS OF                            SHARES | 39 |
|----------------------------------------------------------------|----|

| DIVIDENDS | 56 |
|-----------|----|

| TAXES | 57 |
|-------|----|

| NET ASSET VALUE | 62 |
|-----------------|----|

| TRUSTEES AND                            OFFICERS | 63 |
|--------------------------------------------------|----|

| TRUST                            ORGANIZATION | 72 |
|-----------------------------------------------|----|

| PROXY VOTING                            GUIDELINES | 73 |
|----------------------------------------------------|----|

| FINANCIAL                            STATEMENTS | 74 |
|-------------------------------------------------|----|

| ADDITIONAL                            INFORMATION | 75 |
|---------------------------------------------------|----|

| APPENDIX | 76 |
|----------|----|

 

 

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**INVESTMENT RESTRICTIONS**

Except as otherwise indicated, the Fund’s investment objective and            policies are not fundamental and may be changed without a vote of shareholders. There            can be no assurance that the Fund’s objective will be met.

Any            investment restrictions herein which involve a maximum percentage of securities or            assets shall not be considered to be violated unless an excess over the percentage            occurs immediately after and is caused by an acquisition or encumbrance of securities            or assets of, or borrowings by, the Fund.

The            Fund has elected to be classified as a diversified series of separate open-end            investment management companies. A diversified Fund may not, with respect to 75% of            total assets, invest more than 5% of total assets in the securities of a single issuer            (other than US government securities or securities of investment companies) or invest            in more than 10% of the outstanding voting securities of such issuer.

**As a matter of fundamental policy the Fund may not:**

| (1) | issue senior securities, except as permitted under the                            1940 Act, as amended, and as interpreted or modified by regulatory                            authority having jurisdiction, from time to time. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | borrow money, except as permitted under the 1940 Act, as                            amended, and as interpreted or modified by regulatory authority having                            jurisdiction, from time to time. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | engage in the business of underwriting securities issues                            by others, except to the extent that a Fund may be deemed to be the                            underwriter in connection with the disposition of portfolio                            securities. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | purchase or sell real estate, which term does not                            include securities of companies which deal in real estate or mortgages                            or investments secured by real estate or interests therein, except that                            the Fund reserves freedom of action to hold and to sell real estate                            acquired as a result of the Fund’s ownership of                            securities. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | make loans except as permitted under the 1940 Act, as                            amended, and as interpreted or modified by regulatory authority having                            jurisdiction, from time to time. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | purchase or sell commodities, except as permitted by the                            1940 Act, as amended, and as interpreted or modified by the regulatory                            authority having jurisdiction from time to time. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | concentrate its investments in a particular industry, as                            that term is used in the 1940 Act, as amended, and as interpreted or                            modified by regulatory authority having jurisdiction, from time to                            time. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

A            fundamental policy may not be changed without the approval of a majority of the            outstanding voting securities of the Fund which, under the 1940 Act and the rules            thereunder and as used in this Statement of Additional Information, means the lesser of            (1) 67% or more of the voting securities present at a meeting, if the holders of            more than 50% of the outstanding voting securities of the Fund are present or            represented by proxy, or (2) more than 50% of the outstanding voting securities of the            Fund.

The            non-fundamental investment restrictions set forth below may be changed or amended by            the Trust’s Board of Trustees without shareholder approval.

As            a matter of non-fundamental policy the Fund may not:

| (a) | Participate on a joint-and-several basis in any                            securities trading account. The “bunching” of orders for                            the sale or purchase of marketable portfolio securities with other                            accounts under the management of the Advisor to save commissions or to                            average prices among them is not deemed to result in a securities                            trading account. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| (b) | Purchase securities of other investment companies,                            except as permitted by the 1940 Act and the rules, regulations and any                            applicable exemptive order issued thereunder. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | Invest for the purpose of exercising control over or                            management of any company. |
|-----|------------------------------------------------------------------------------------------------------------|

| (d) | Purchase any security, including any repurchase                            agreement maturing in more than seven days, which is illiquid, if more                            than 15% of the net assets of the Fund, taken at market value, would be                            invested in such securities. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | Acquire securities of registered open-end investment                            companies or registered unit investment trusts in reliance on Section                            12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The            staff of the SEC has taken the position that fixed time deposits maturing in more than            seven days that cannot be traded on a secondary market and participation interests in            loans are illiquid. Until such time (if any) as this position changes, the Trust, on            behalf of the Fund, will include such investments in determining compliance with the            15% limitation on investments in illiquid securities. Restricted securities (including            commercial paper issued pursuant to the Securities Act of 1933, as amended (“1933            Act”), which the Board of Trustees has determined are readily marketable will not            be deemed to be illiquid for purposes of the 15% limitation.

“Value” for the purposes of the foregoing investment            restrictions shall mean the market value used in determining the Fund’s net asset            value.

To            meet federal income tax requirements for qualification as a regulated investment            company, the Fund must, among other things, limit its investments so that at the close            of each quarter of its taxable year (1) no more than 25% of the value of its total            assets is invested in the securities (other than securities of the US Government or a            regulated investment company) of a single issuer or two or more issuers which the Fund            controls and which are engaged in the same, similar or related trades or businesses or            in the securities of one or more qualified publicly traded partnerships, and (2) at            least 50% of the value of its total assets is represented by cash, cash items            (including receivables), US Government securities, securities of other regulated            investment companies and other securities of any issuer that does not represent more            than 5% of the value of the Fund’s total assets and not more than 10% of the            issuer’s outstanding voting securities.

**INVESTMENT POLICIES AND TECHNIQUES**

**Investment Techniques**

Descriptions in this Statement of Additional Information of a particular            investment practice or technique in which the Fund may engage are meant to describe the            spectrum of investments that Deutsche Investment Management Americas Inc. (the            “Advisor”) in its discretion might, but is not required to, use in managing            the Fund’s portfolio assets. The Advisor may in its discretion at any time employ            such practice, technique or instrument for one or more Funds but not for all funds            advised by it. Furthermore, it is possible that certain types of financial instruments            or investment techniques described herein may not be available, permissible,            economically feasible or effective for their intended purposes in all markets. Certain            practices, techniques or instruments may not be principal activities of the Fund, but,            to the extent employed, could from time to time have a material impact on the            Fund’s performance.

***Equity Securities***

**General.**The Fund may invest in common            stock, warrants and other rights to acquire stock. The market value of an equity            security will increase or decrease depending on market conditions. This affects the            value of the shares of the Fund, and the value of your investment.

**Common Stocks.**Common stocks, the most            familiar type of equity securities, represent an equity            (i.e., ownership) interest in a            corporation. They may or may not pay dividends or carry voting rights. Common stock            occupies the most junior position in a company’s capital structure. Although            equity securities have a history of long-term growth in value, their prices fluctuate            based on changes in a company’s financial condition, as well as changes in            overall

 

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market and economic conditions. This affects the value of the shares of            the Fund, and thus the value of your investment. Smaller companies are especially            sensitive to these factors.

**Warrants.**The Fund may invest in warrants.            Warrants generally entitle the holder to buy a specified number of shares of common            stock at a specified price, which is often higher than the market price at the time of            issuance, for a period of years or in perpetuity. Warrants may be issued in units with            other securities or separately, and may be freely transferable and traded on exchanges.            While the market value of a warrant tends to be more volatile than that of the            securities underlying the warrant, the market value of a warrant may not necessarily            change with that of the underlying security. A warrant ceases to have value if it is            not exercised prior to any expiration date to which the warrant is subject. The            purchase of warrants involves a risk that the Fund could lose the purchase value of a            warrant if the right to subscribe to additional shares is not exercised prior to the            warrant’s expiration. Also, the purchase of warrants involves the risk that the            effective price paid for the warrant added to the subscription price of the related            security may exceed the value of the subscribed security’s market price such as            when there is no movement in the level of the underlying security.

**Preferred Securities.**The Fund, subject to            its investment objective, may purchase preferred stock. Preferred stocks are equity            securities, but possess certain attributes of debt securities and are generally            considered fixed income securities. Holders of preferred stocks normally have the right            to receive dividends at a fixed rate when and as declared by the issuer’s board            of directors, but do not participate in other amounts available for distribution by the            issuing corporation. Dividends on preferred stock may be cumulative, and in such cases            all cumulative dividends usually must be paid prior to dividend payments to common            stockholders. Because of this preference, preferred stocks generally entail less risk            than common stocks. Upon liquidation, preferred stocks are entitled to a specified            liquidation preference, which is generally the same as the par or stated value, and are            senior in right of payment to common stocks. However, preferred stocks are equity            securities in that they do not represent a liability of the issuer and, therefore, do            not offer as great a degree of protection of capital or assurance of continued income            as investments in corporate debt securities. In addition, preferred stocks are            subordinated in right of payment to all debt obligations and creditors of the issuer,            and convertible preferred stocks may be subordinated to other preferred stock of the            same issuer.

**Convertible Securities.**Subject to its            investment objectives and policies, the Fund may invest in convertible securities,            which are ordinarily preferred stock or long-term debt obligations of an issuer            convertible at a stated exchange rate into common stock of the issuer. The market value            of convertible securities tends to decline as interest rates increase and, conversely,            to increase as interest rates decline. Convertible securities generally offer lower            interest or dividend yields than non-convertible securities of similar quality.            However, when the market price of the common stock underlying a convertible security            exceeds the conversion price, the price of the convertible security tends to reflect            the value of the underlying common stock. As the market price of the underlying common            stock declines, the convertible security tends to trade increasingly on a yield basis,            and thus may not depreciate to the same extent as the underlying common stock.            Convertible securities generally rank senior to common stocks in an issuer’s            capital structure and are consequently of higher quality and entail less risk than the            issuer’s common stock. However, the extent to which such risk is reduced depends            in large measure upon the degree to which the convertible security sells above its            value as a fixed income security. The convertible debt securities in which the Fund may            invest are subject to the same rating criteria and downgrade policy as the Fund’s            investments in fixed income securities.

**Medium-Capitalization and Small-Capitalization Stocks.**Lesser known companies with medium- and small-market capitalizations            frequently offer greater growth potential than larger, better-known and more mature            companies. Investments in medium- and small-capitalization companies involve            considerations that are not applicable to investing in securities of established,            larger capitalization issuers, including reduced and less reliable information about            the issuer, less stringent financial disclosure requirements, higher brokerage            commissions and fees, and greater market risk in general.

In            addition, investing in the securities of these companies also involves the possibility            of greater portfolio price volatility. Among the reasons for the greater price            volatility of such companies are the less certain growth prospects of medium and            smaller firms, the greater illiquidity in the markets for the stocks of such companies            and the greater sensitivity of such companies to changing economic conditions in their            respective geographic regions.

 

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For            example, securities of these companies involve higher investment risk than that            normally associated with larger firms due to the greater business risks of smaller size            and limited product lines, markets, distribution channels and financial and managerial            resources.

In            addition, many medium- and small-market capitalization companies are not well-known to            the investing public, do not have significant institutional ownership and are followed            by relatively few securities analysts. Also, the securities of smaller capitalization            companies traded on the over-the-counter market (“OTC”) may have fewer            market makers, wider spreads between their quoted bid and ask prices and lower trading            volumes, resulting in comparatively greater price volatility and less liquidity than            exists for securities of larger capitalization companies.

**Small and Micro Capitalization Companies.**The Fund invests a significant portion of its assets in smaller,            lesser-known companies which the Advisor believes offer greater growth potential than            larger, more mature, better-known companies. Investing in the securities of these            companies, however, also involves significantly greater risk and the possibility of            greater portfolio price volatility. Among the reasons for the greater price volatility            of these small companies and unseasoned stocks are the less certain growth prospects of            smaller firms, the lower degree of liquidity in the markets for such stocks and the            greater sensitivity of small companies to changing economic conditions in their            geographic region. For example, securities of these companies involve higher investment            risk than that normally associated with larger firms due to the greater business risks            of small size and limited product lines, markets, distribution channels and financial            and managerial resources and, therefore, such securities may be subject to more abrupt            or erratic market movements than securities of larger, more established companies or            the market averages in general. Many smaller capitalization companies in which the Fund            may invest are not well known to the investing public, do not have significant            institutional ownership and are followed by relatively few securities analysts. As a            result, it may be difficult to obtain reliable information and financial data on such            companies and the securities of these small companies may not be readily marketable,            making it difficult to dispose of shares when desirable. As mentioned above, the            securities of smaller capitalization companies traded on the OTC market may have fewer            market makers, wider spreads between their quoted bid and asked prices and lower            trading volumes, resulting in comparatively greater price volatility and less liquidity            than exists for securities of larger capitalization companies. An additional risk of            investing in smaller emerging companies is that smaller issuers may face increased            difficulty in obtaining the capital necessary to continue operations and thus may go            into bankruptcy, which could result in a complete loss of an investment. Furthermore,            when the economy enters into recession there tends to be a “flight to            quality,” which exacerbates the increased risk and greater price volatility            normally associated with smaller companies.

***Fixed Income Securities & Money Market            Instruments***

**General.**The Fund may invest in fixed            income securities. To the extent that the Fund does so, in periods of declining            interest rates, the yield (income from portfolio investments over a stated period of            time) may tend to be higher than prevailing market rates, and in periods of rising            interest rates, the yield of the Fund may tend to be lower. Also, when interest rates            are falling, the inflow of net new money to the Fund will likely be invested in            portfolio instruments producing lower yields than the balance of the Fund’s            portfolio, thereby reducing the yield of the Fund. In periods of rising interest rates,            the opposite can be true. To the extent the Fund invests in fixed income securities,            the net asset value of the Fund can generally be expected to change as general levels            of interest rates fluctuate. The value of fixed income securities in the Fund’s            portfolio generally varies inversely with changes in interest rates. Prices of fixed            income securities with longer effective maturities are more sensitive to interest rate            changes than those with shorter effective maturities.

**US Government Securities.**The Fund may            invest in obligations issued or guaranteed as to both principal and interest by the US            Government, its agencies, instrumentalities or sponsored enterprises (“US            Government securities”). Some US Government securities, such as US Treasury            bills, notes and bonds, are supported by the full faith and credit of the United            States. Others, such as obligations issued or guaranteed by US Government agencies or            instrumentalities, are supported either by (i) the full faith and credit of the US            Government (such as securities of the Small Business Administration), (ii) the right of            the issuer to borrow from the US Treasury (such as securities of the Federal Home Loan            Banks), (iii) the discretionary authority of the US Government to purchase the            agency’s obligations (such as securities of the Federal National Mortgage            Association), or (iv) only the credit of the issuer

 

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(such as the Federal Home Loan Mortgage Corporation). No assurance can            be given that the US Government will provide financial support to US Government            agencies or instrumentalities in the future.

**Yields and Ratings.**The yields on certain            obligations, including the money market instruments in which the Fund may invest (such            as commercial paper and bank obligations), are dependent on a variety of factors,            including general money market conditions, conditions in the particular market for the            obligation, the financial condition of the issuer, the size of the offering, the            maturity of the obligation and the ratings of the issue. The ratings of the Standard            and Poor’s Division of The McGraw-Hill Companies, Inc. (“S&P”),            Moody’s Investors Service, Inc. (“Moody’s”) and other            nationally recognized securities rating organizations represent their respective            opinions as to the quality of the obligations they undertake to rate. Ratings, however,            are general and are not absolute standards of quality or value. Consequently,            obligations with the same rating, maturity and interest rate may have different market            prices.

Subsequent to its purchase by the Fund, a rated security may cease to be            rated or its rating may be reduced below the minimum rating required for purchase by            the Fund. The Advisor, pursuant to guidelines established by the Board of Trustees,            will consider such an event in determining whether the Fund should continue to hold the            security in accordance with the interests of the Fund and applicable regulations of the            SEC.

**Short-Term Instruments.**At the time of the            Fund’s investment in short-term instruments, the issuer (or the issuer’s            parent) must have outstanding debt rated within the top two rating categories by a            nationally recognized statistical rating organization (“NRSRO”) or, if not            so rated, must be believed by DIMA to be of comparable quality.

When the Fund experiences large cash inflows, for example, through the            sale of securities or of its shares and attractive investments are unavailable in            sufficient quantities, the Fund may hold short-term investments (or shares of money            market mutual funds) for a limited time pending availability of such investments. In            addition, when in the Advisor’s opinion, it is advisable to adopt a temporary            defensive position because of unusual and adverse market or other conditions, up to            100% of the Fund’s assets may be invested in such short-term            instruments.

Short-term instruments consist of foreign and domestic: (1) short-term            obligations of sovereign governments, their agencies, instrumentalities, authorities or            political subdivisions; (2) other investment grade short-term debt securities; (3)            investment grade commercial paper; (4) bank obligations, including negotiable            certificates of deposit, time deposits and banker’s acceptances; and (5)            repurchase agreements. At the time the Fund invests in commercial paper, bank            obligations or repurchase agreements, the issuer or the issuer’s parent must have            outstanding debt, commercial paper or bank obligations rated investment grade; or, if            no such ratings are available, the instrument must be deemed to be of comparable            quality in the opinion of the Advisor. These instruments may be denominated in US            dollars or in foreign currencies.

**Obligations of Banks and Other Financial Institutions.**The Fund may invest in US dollar-denominated fixed rate or variable rate            obligations of US or foreign financial institutions, including banks. Obligations of            domestic and foreign financial institutions in which the Fund may invest include (but            are not limited to) certificates of deposit, bankers’ acceptances, bank time            deposits, commercial paper, and other instruments issued or supported by the credit of            US or foreign financial institutions, including banks.

For            purposes of the Fund’s investment policies with respect to bank obligations, the            assets of a bank will be deemed to include the assets of its domestic and foreign            branches. Obligations of foreign branches of US banks and foreign banks may be general            obligations of the parent bank in addition to the issuing bank or may be limited by the            terms of a specific obligation and by government regulation. If the Advisor deems the            instruments to present minimal credit risk, the Fund may invest in obligations of            foreign banks or foreign branches of US banks, which include banks located in the            United Kingdom, Grand Cayman Island, Nassau, Japan and Canada.

Investments in these obligations may entail risks that are different            from those of investments in obligations of US domestic banks because of differences in            political, regulatory and economic systems and conditions. These risks include future            political and economic developments, currency blockage, the possible imposition of            withholding taxes on interest payments, possible seizure or nationalization of foreign            deposits, difficulty or inability of pursuing legal remedies and obtaining judgments in            foreign courts, possible establishment of exchange controls or the adoption of other            foreign governmental restrictions that might affect adversely the payment of principal            and interest

 

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on            bank obligations. Foreign branches of US banks and foreign banks may also be subject to            less stringent reserve requirements and to different accounting, auditing, reporting            and record keeping standards than those applicable to domestic branches of US            banks.

**Certificates of Deposit and Bankers’ Acceptances.**The Fund may invest in certificates of deposit and bankers’            acceptances. Certificates of deposit are receipts issued by a depository institution in            exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus            interest to the bearer of the receipt on the date specified on the certificate. The            certificate usually can be traded in the secondary market prior to maturity.

Bankers’ acceptances typically arise from short-term credit            arrangements designed to enable businesses to obtain funds to finance commercial            transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter            or an importer to obtain a stated amount of funds to pay for specific merchandise. The            draft is then “accepted” by a bank that, in effect, unconditionally            guarantees to pay the face value of the instrument on its maturity date. The acceptance            may then be held by the accepting bank as an earning asset or it may be sold in the            secondary market at the going rate of discount for a specific maturity. Although            maturities for acceptances can be as long as 270 days, most acceptances have maturities            of six months or less.

**Commercial Paper.**The Fund may invest in            commercial paper. The Fund may invest in fixed rate or variable rate commercial paper,            issued by US or foreign entities. Commercial paper consists of short-term (usually up            to one year) unsecured promissory notes issued by US or foreign corporations in order            to finance their current operations. Any commercial paper issued by a foreign entity            corporation and purchased by the Fund must be US dollar-denominated and must not be            subject to foreign withholding tax at the time of purchase. At the time of the            Fund’s investment in commercial paper, the issuer (or the issuer’s parent)            must have outstanding debt rated within the top two rating categories by a NRSRO or, if            not so rated, must be believed by the Advisor to be of comparable quality.

Commercial paper when purchased by the Fund must be rated in the highest            short-term rating category by any two NRSROs (or one NRSRO if that NRSRO is the only            such NRSRO which rates such security) or, if not so rated, must be believed by the            Advisor to be of comparable quality. Investing in foreign commercial paper generally            involves risks similar to those described above relating to obligations of foreign            banks or foreign branches and subsidiaries of US and foreign banks.

For            a description of commercial paper ratings, see the Appendix to this SAI.

***Derivative Securities***

**General.**The Fund may invest in various            instruments that are commonly known as “derivatives.” Generally, a            derivative is a financial arrangement, the value of which is based on, or            “derived” from, a traditional security, asset or market index. Some            “derivatives” such as mortgage-related and other asset-backed securities            are in many respects like any other investment, although they may be more volatile            and/or less liquid than more traditional debt securities. There are, in fact, many            different types of derivatives and many different ways to use them. For example, the            Fund may use futures and options as a low-cost method of gaining exposure to a            particular securities market without investing directly in those securities, for            speculative purposes, and for traditional hedging purposes to attempt to protect the            Fund from exposure to changing interest rates, securities prices or currency exchange            rates and for cash management or other investment purposes.

There is a range of risks associated with those uses. The use of            derivatives may result in leverage, which tends to magnify the effects of an            instrument’s price changes as market conditions change. Leverage involves the use            of a small amount of money to control a large amount of financial assets, and can in            some circumstances, lead to significant losses. The Fund will limit the leverage            created by its use of derivatives for investment purposes by “covering”            such positions as required by the SEC. The Advisor may use derivatives in circumstances            where the Advisor believes they offer an economical means of gaining exposure to a            particular asset class. Derivatives will not be used to increase portfolio risk above            the level that could be achieved using only traditional investment securities or to            acquire exposure to changes in the value of assets or indexes that by themselves could            not be purchased for the Fund. The use of derivatives for non-hedging purposes may be            considered speculative.

 

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The            Fund’s investment in options, futures or forward contracts, swaps and similar            strategies (collectively, “derivatives”) depends on the Advisor’s            judgment as to the potential risks and rewards of different types of strategies.            Derivatives can be volatile investments and may not perform as expected. If the Advisor            applies a hedge at an inappropriate time or judges price trends incorrectly, derivative            strategies may lower the Fund’s return. The Fund could also experience losses if            the prices of its derivative positions were poorly correlated with its other            investments, or if it could not close out its positions because of an illiquid            secondary market. Options and futures traded on foreign exchanges generally are not            regulated by US authorities, and may offer less liquidity and less protection to the            Fund in the event of default by the other party to the contract.

***Derivative Securities: Options***

**Options on Securities.**The Fund may            purchase and write (sell) put and call options on securities. A call option gives the            purchaser of the option the right to buy, and obligates the writer to sell, the            underlying security at the exercise price at any time during the option period.            Similarly, a put option gives the purchaser of the option the right to sell, and            obligates the writer to buy, the underlying security at the exercise price at any time            during the option period.

The            Fund may write (sell) covered call and put options to a limited extent on its portfolio            securities (“covered options”) in an attempt to increase income through the            premiums it receives for writing the option(s). However, in return for the premium, the            Fund may forgo the benefits of appreciation on securities sold or may pay more than the            market price on securities acquired pursuant to call and put options written by the            Fund.

A            call option written by the Fund is “covered” if the Fund owns the            underlying security covered by the call or has an absolute and immediate right to            acquire that security without additional cash consideration (or for additional cash            consideration held in a segregated account) upon conversion or exchange of other            securities held in its portfolio. A call option is also covered if the Fund holds a            call option on the same security and in the same principal amount as the written call            option where the exercise price of the call option so held (a) is equal to or less than            the exercise price of the written call option or (b) is greater than the exercise price            of the written call option if the difference is segregated by the Fund in cash or            liquid securities.

When the Fund writes a covered call option, it gives the purchaser of            the option the right to buy the underlying security at the price specified in the            option (the “exercise price”) by exercising the option at any time during            the option period. If the option expires unexercised, the Fund will realize income in            an amount equal to the premium received for writing the option. If the option is            exercised, a decision over which the Fund has no control, the Fund must sell the            underlying security to the option holder at the exercise price. By writing a covered            call option, the Fund forgoes, in exchange for the premium less the commission            (“net premium”), the opportunity to profit during the option period from an            increase in the market value of the underlying security above the exercise price. In            addition, the Fund may continue to hold a security which might otherwise have been sold            to protect against depreciation in the market price of the security.

A            put option written by the Fund is “covered” when, among other things, cash            or liquid securities are placed in a segregated account to fulfill the obligations            undertaken. When the Fund writes a covered put option, it gives the purchaser of the            option the right to sell the underlying security to the Fund at the specified exercise            price at any time during the option period. If the option expires unexercised, the Fund            will realize income in the amount of the net premium received for writing the option.            If the put option is exercised, a decision over which the Fund has no control, the Fund            must purchase the underlying security from the option holder at the exercise price. By            writing a covered put option, the Fund, in exchange for the net premium received,            accepts the risk of a decline in the market value of the underlying security below the            exercise price.

The            Fund may terminate its obligation as the writer of a call or put option by purchasing            an option with the same exercise price and expiration date as the option previously            written. This transaction is called a “closing purchase transaction.” The            Fund will realize a profit or loss on a closing purchase transaction if the amount paid            to purchase an option is less or more, as the case may be, than the amount received            from the sale thereof. To close out a position as a purchaser of an option, the Fund            may enter into a “closing sale transaction” which involves liquidating the            Fund’s position by selling the option previously purchased. Where the Fund cannot            effect a closing purchase

 

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transaction, it may be forced to incur brokerage commissions or dealer            spreads in selling securities it receives or it may be forced to hold underlying            securities until an option is exercised or expires.

The            current market value of a traded option is the last sale price or, in the absence of a            sale, the mean between the closing bid and asked price. If an option expires on its            stipulated expiration date or if the Fund enters into a closing purchase transaction,            the Fund will realize a gain (or loss if the cost of a closing purchase transaction            exceeds the premium received when the option was sold), and the deferred credit related            to such option will be eliminated. If a call option is exercised, the Fund will realize            a gain or loss from the sale of the underlying security and the proceeds of the sale            will be increased by the premium originally received.

The            Fund may also purchase call and put options on any securities in which it may invest.            The Fund would normally purchase a call option in anticipation of an increase in the            market value of such securities. The purchase of a call option would entitle the Fund,            in exchange for the premium paid, to purchase a security at a specified price during            the option period. The Fund would ordinarily have a gain if the value of the securities            increased above the exercise price sufficiently to cover the premium and would have a            loss if the value of the securities remained at or below the exercise price during the            option period.

**Protected Puts.**The Fund would normally            purchase put options in anticipation of a decline in the market value of securities in            its portfolio (“protective puts”) or securities of the type in which it is            permitted to invest. The purchase of a put option would entitle the Fund, in exchange            for the premium paid, to sell a security, which may or may not be held by the Fund at a            specified price during the option period. The purchase of protective puts is designed            merely to offset or hedge against a decline in the market value of the Fund. Put            options also may be purchased by the Fund for the purpose of affirmatively benefiting            from a decline in the price of securities that the Fund does not own. The Fund would            ordinarily recognize a gain if the value of the securities decreased below the exercise            price sufficiently to cover the premium and would recognize a loss if the value of the            securities remained at or above the exercise price. Gains and losses on the purchase of            protective put options would tend to be offset by countervailing changes in the value            of underlying portfolio securities.

The            hours of trading for options on securities may not conform to the hours during which            the underlying securities are traded. To the extent that the option markets close            before the markets for the underlying securities, significant price and rate movements            can take place in the underlying securities markets that cannot be reflected in the            option markets. It is impossible to predict the volume of trading that may exist in            such options, and there can be no assurance that viable exchange markets will develop            or continue.

The            Fund may enter into closing transactions in order to offset an open option position            prior to exercise or expiration by selling an option it has purchased or by entering            into an offsetting option. If the Fund cannot effect closing transactions, it may have            to retain a security in its portfolio it would otherwise sell or deliver a security it            would otherwise retain. The Fund may purchase and sell options traded on recognized            foreign exchanges. The Fund may also purchase and sell options traded on US exchanges            and, to the extent permitted by law, options traded in the OTC market.

The            Fund may also engage in options transactions in the OTC market with broker-dealers who            make markets in these options. The Fund will engage in OTC options only with            broker-dealers deemed by the Advisor to be creditworthy. The ability to terminate OTC            option positions is more limited than with exchange-traded option positions because the            predominant market is the issuing broker rather than an exchange, and may involve the            risk that broker-dealers participating in such transactions will not fulfill their            obligations. To reduce this risk, the Fund will purchase such options only from a            counter party approved for these purposes by the Advisor. The Advisor will monitor the            creditworthiness of dealers with whom the Fund enters into such options            transactions.

**Options on Securities Indices.**The Fund may            also purchase and write exchange-listed and OTC put and call options on securities            indices. A securities index measures the movement of a certain group of securities by            assigning relative values to the securities included in the index, fluctuating with            changes in the market values of the securities included in the index. Some securities            index options are based on a broad market index, such as the NYSE Composite Index, or a            narrower market index such as the Standard & Poor’s 100. Indices may also be            based on a particular industry or market segment.

 

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Options on securities indices are similar to options on securities            except that (1) the expiration cycles of securities index options are monthly, while            those of securities options are currently quarterly, and (2) the delivery requirements            are different. Instead of giving the right to take or make delivery of securities at a            specified price, an option on a securities index gives the holder the right to receive            a cash “exercise settlement amount” equal to (a) the amount, if any, by            which the fixed exercise price of the option exceeds (in the case of a put) or is less            than (in the case of a call) the closing value of the underlying index on the date of            exercise, multiplied by (b) a fixed “index multiplier.” Receipt of this            cash amount will depend upon the closing level of the securities index upon which the            option is based being greater than, in the case of a call, or less than, in the case of            a put, the exercise price of the index and the exercise price of the option times a            specified multiple. The writer of the option is obligated, in return for the premium            received, to make delivery of this amount. Securities index options may be offset by            entering into closing transactions as described above for securities            options.

As            discussed in “Options on Securities,” the Fund would normally purchase a            call option in anticipation of an increase in the market value of the relevant index.            The purchase of a call option would entitle the Fund, in exchange for the premium paid,            to receive upon exercise a cash payment based on the level of the index on the exercise            date. The Fund would ordinarily have a gain if the value of the index increased above            the exercise price sufficiently to cover the premium and would have a loss if the value            of the index remained at or below the exercise price during the option            period.

As            discussed in “Options on Securities,” the Fund would normally purchase            “protective puts” in anticipation of a decline in the market value of the            relevant index. The purchase of a put option would entitle the Fund, in exchange for            the premium paid, to receive upon exercise a cash payment based on the level of the            index on the exercise date. The purchase of protective puts is generally designed to            offset or hedge against a decline in the market value of the index. The Fund would            ordinarily recognize a gain if the value of the index decreased below the exercise            price sufficiently to cover the premium and would recognize a loss if the value of the            index remained at or above the exercise price. Gains and losses on the purchase of            protective put options would tend to be offset by countervailing changes in the value            of the index.

Because the value of an index option depends upon movements in the level            of the index rather than the price of a particular security, whether the Fund will            realize a gain or loss from the purchase or writing of options on an index depends upon            movements in the level of securities prices in the securities market generally or, in            the case of certain indices, in an industry or market segment, rather than movements in            the price of a particular security. Accordingly, successful use by the Fund of options            on securities indices will be subject to the Advisor’s ability to predict            correctly movements in the direction of the securities market generally or of a            particular industry. This requires different skills and techniques than predicting            changes in the price of individual securities.

Options on securities indices entail risks in addition to the risks of            options on securities. The absence of a liquid secondary market to close out options            positions on securities indices may be more likely to occur, although the Fund            generally will only purchase or write such an option if the Advisor believes the option            can be closed out. Use of options on securities indices also entails the risk that            trading in such options may be interrupted if trading in certain securities included in            the index is interrupted. The Fund will not purchase such options unless the Advisor            believes the market is sufficiently developed such that the risk of trading in such            options is no greater than the risk of trading in options on securities.

Price movements in the Fund’s portfolio may not correlate            precisely with movements in the level of an index and, therefore, the use of options on            indices cannot serve as a complete hedge. Because options on securities indices require            settlement in cash, the Advisor may be forced to liquidate portfolio securities to meet            settlement obligations. The Fund’s activities in index options may also be            restricted by the requirements of the Code for qualification as a regulated investment            company.

In            addition, the hours of trading for options on the securities indices may not conform to            the hours during which the underlying securities are traded. To the extent that the            option markets close before the markets for the underlying securities, significant            price and rate movements can take place in the underlying securities markets that            cannot be reflected in the option markets. It is impossible to predict the volume of            trading that may exist in such options, and there can be no assurance that viable            exchange markets will develop or continue.

 

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**Options on Non-US Securities Indices.**The            Fund may purchase and write put and call options on foreign securities indices listed            on domestic and foreign securities exchanges. The Fund may also purchase and write OTC            options on foreign securities indices.

The            Fund may, to the extent allowed by federal and state securities laws, invest in options            on non-US securities indices instead of investing directly in individual non-US            securities. The Fund may also use foreign securities index options for bona fide            hedging and non-hedging purposes.

**Derivative Securities: Futures Contracts and Options on Futures            Contracts**

**General.**The Fund may enter into futures            contracts on securities, securities indices, foreign currencies and interest rates, and            purchase and write (sell) options thereon which are traded on exchanges designated by            the Commodity Futures Trading Commission (the “CFTC”) or, if consistent            with CFTC regulations, on foreign exchanges. These futures contracts are standardized            contracts for the future delivery of, among other things, a commodity, a non-US            currency, an interest rate sensitive security or, in the case of index futures            contracts or certain other futures contracts, a cash settlement with reference to a            specified multiplier times the change in the index. An option on a futures contract            gives the purchaser the right, in return for the premium paid, to assume a position in            a futures contract.

The            Fund will engage in futures and related options transactions only for bona fide hedging            or other non-hedging purposes as permitted by CFTC regulations which permit principals            of an investment company registered under the 1940 Act to engage in such transactions            without registering as commodity pool operators. The Fund may, for example, enter into            futures contracts and options on futures contracts on securities, securities indices            and currencies to manage its exposure to changing interest rates, security prices and            currency exchange rates or as an efficient means of managing allocations between asset            classes. All futures contracts entered into by the Fund is traded on US exchanges or            boards of trade that are licensed and regulated by the CFTC or on foreign exchanges            approved by the CFTC. The Fund will determine that the price fluctuations in the            futures contracts and options on futures used for hedging purposes are substantially            related to price fluctuations in securities or instruments held by the Fund or            securities or instruments which they expect to purchase. The Fund has claimed exclusion            from the definition of the term “commodity pool operator” adopted by the            CFTC and the National Futures Association, which regulate trading in the futures            markets. Therefore, the Fund is not subject to commodity pool operator registration and            regulation under the Commodity Exchange Act (“CEA”).

The            Fund’s futures transactions may be entered into for traditional hedging purposes            — i.e., futures contracts will be sold to protect against a decline in the price            of securities (or the currency in which they are denominated) that the Fund owns or            futures contracts will be purchased to protect the Fund against an increase in the            price of securities (or the currency in which they are denominated) that the Fund            intends to purchase. As evidence of this hedging intent, the Fund expects that, on 75%            or more of the occasions on which it takes a long futures or option position (involving            the purchase of futures contracts), the Fund will have purchased, or will be in the            process of purchasing, equivalent amounts of related securities (or assets denominated            in the related currency) in the cash market at the time when the futures or option            position is closed out. However, in particular cases, when it is economically            advantageous for the Fund to do so, a long futures position may be terminated or an            option may expire without the corresponding purchase of securities or other assets. The            Fund may not invest more than 25% of its total assets in purchased protective put            options.

The            successful use of futures contracts and options thereon draws upon the Advisor’s            skill and experience with respect to such instruments and are subject to special risk            considerations. A liquid secondary market for any futures or options contract may not            be available when a futures or options position is sought to be closed. In addition,            there may be an imperfect correlation between movements in the securities or currency            in the Fund. Successful use of futures or options contracts is further dependent on the            Advisor’s ability to predict correctly movements in the securities or foreign            currency markets and no assurance can be given that its judgment will be            correct.

**Futures Contracts.**Futures contracts are            contracts to purchase or sell a fixed amount of an underlying instrument, commodity or            index at a fixed time and place in the future. US futures contracts have been designed            by exchanges which have been designated “contract markets” by the CFTC, and            must be executed through a futures commission merchant, or brokerage firm, which is a            member of the relevant contract market. Futures contracts trade on a

 

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number of exchange markets, and, through their clearing corporations,            the exchanges guarantee performance of the contracts as between the clearing members of            the exchange. The Fund may enter into contracts for the purchase or sale for future            delivery of fixed-income or equity securities, foreign currencies, or financial indices            including any index of US or foreign securities, US government securities, foreign            government securities, or corporate debt securities. Futures contracts on foreign            currencies may be used for speculative purposes or to hedge the value of securities            that are denominated in foreign currencies.

At            the same time a futures contract is entered into, the Fund must allocate cash or liquid            securities as a good faith deposit to maintain the position (“initial            margin”). Daily thereafter, the futures contract is valued and the payment of            “variation margin” may be required, since each day the Fund would provide            or receive cash that reflects any decline or increase in the contract’s            value.

Although futures contracts (other than those that settle in cash, such            as index futures) by their terms call for the actual delivery or acquisition of the            instrument underlying the contract, in most cases the contractual obligation is            fulfilled by offset before the date of the contract without having to make or take            delivery of the instrument underlying the contract. The offsetting of a contractual            obligation is accomplished by entering into an opposite position in an identical            futures contract on the commodities exchange on which the futures contract was entered            into (or a linked exchange) calling for delivery in the same month. Such a transaction,            which is effected through a member of an exchange, cancels the obligation to make or            take delivery of the instrument underlying the contract. Since all transactions in the            futures market are made, offset or fulfilled through a clearinghouse associated with            the exchange on which the contracts are traded, the Fund will incur brokerage fees when            it enters into futures contracts.

One            purpose of the acquisition or sale of a futures contract, in cases where the Fund holds            or intends to acquire fixed-income or equity securities, is to attempt to protect the            Fund from fluctuations in interest or foreign exchange rates or in securities prices            without actually buying or selling fixed-income or equity securities or foreign            currencies. For example, if interest rates were expected to increase (which thus would            cause the prices of debt securities to decline), the Fund might enter into futures            contracts for the sale of debt securities. Such a sale would have much the same effect            as selling an equivalent value of the debt securities owned by the Fund. If interest            rates did increase, the value of the debt security in the Fund would decline, but the            value of the futures contracts to the Fund would increase at approximately the same            rate, thereby keeping the net asset value of the Fund from declining as much as it            otherwise would have. The Fund could accomplish similar results by selling debt            securities and investing in bonds with short maturities when interest rates are            expected to increase. However, since the futures market is more liquid than the cash            market, the use of futures contracts as an investment technique allows the Fund to            maintain a defensive position without having to sell its portfolio            securities.

Similarly, when it is expected that interest rates may decline (thus            increasing the value of debt securities), futures contracts may be purchased to attempt            to hedge against anticipated purchases of debt securities at higher prices. Since the            fluctuations in the value of futures contracts should be similar to those of debt            securities, the Fund could take advantage of the anticipated rise in the value of debt            securities without actually buying them until the market had stabilized. At that time,            the futures contracts could be liquidated and the Fund could then buy debt securities            on the cash market. The segregated assets maintained to cover the Fund’s            obligations with respect to such futures contracts will consist of cash or liquid            securities in an amount equal to the difference between the fluctuating market value of            such futures contracts and the aggregate value of the initial and variation margin            payments made by the Fund with respect to such futures contracts.

The            ordinary spreads between prices in the cash and futures market, due to differences in            the nature of those markets, are subject to distortions. First, all participants in the            futures market are subject to initial and variation margin requirements. Rather than            meeting additional variation margin requirements, investors may close futures contracts            through offsetting transactions which could distort the normal relationship between the            cash and futures markets. Second, the liquidity of the futures market depends on most            participants entering into offsetting transactions rather than making or taking            delivery. To the extent that many participants decide to make or take delivery,            liquidity in the futures market could be reduced, thus producing distortion. Third,            from the point of view of speculators, the margin requirements in the futures market            are less onerous than margin requirements in the securities market. Therefore,            increased participation by speculators in the futures market may cause temporary            price

 

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distortions. Due to the possibility of distortion, a correct forecast of            securities price, general interest rate or currency exchange rate trends by the Advisor            may still not result in a successful transaction.

In            addition, futures contracts entail significant risks. Although the Advisor believes            that use of such contracts will benefit the Fund, if the Advisor’s investment            judgment about the general direction of securities prices, currency rates, interest            rates or an index is incorrect, the Fund’s overall performance would be poorer            than if it had not entered into any such contract. For example, if the Fund has hedged            against the possibility of an increase in interest rates or a decrease in an index            which would adversely affect the value of securities held in its portfolio and interest            rates decrease or securities prices increase instead, the Fund will lose part or all of            the benefit of the increased value of its securities which it has hedged because it            will have offsetting losses in its futures positions. In addition, in such situations,            if the Fund has insufficient cash, it may have to sell securities from its portfolio to            meet daily variation margin requirements. Such sales of securities may be, but will not            necessarily be, at increased prices which reflect the rising market. The Fund may have            to sell securities at a time when it may be disadvantageous to do so.

Futures contracts (and options thereon) are valued at the most recent            settlement price, if available, on the exchange on which they are traded most            extensively. With the exception of S&P 500 and NASDAQ 100 futures contracts,            closing settlement times are prior to the close of trading on the New York Stock            Exchange. For S&P 500 and NASDAQ 100 futures contracts, closing settlement prices            are normally available at approximately 4:20 Eastern time. If no settlement is            available, the last traded price on such exchange will be used.

**Futures Contracts on Securities Indices.**The Fund may also enter into futures contracts providing for the making            and acceptance of a cash settlement based upon changes in the value of an index of US            or non-US securities. Index futures may be used for speculative purposes, as a low-cost            method of gaining exposure to a particular securities market without investing directly            in those securities or to hedge against anticipated future changes in general market            prices which otherwise might either adversely affect the value of securities held by            the Fund or adversely affect the prices of securities which are intended to be            purchased at a later date for the Fund or as an efficient means of managing allocation            between asset classes. An index futures contract may also be entered into to close out            or offset an existing futures position.

When used for hedging purposes, each transaction in futures contracts on            a securities index involves the establishment of a position which, the Advisor            believes, will move in a direction opposite to that of the investment being hedged. If            these hedging transactions are successful, the futures positions taken for the Fund            will rise in value by an amount which approximately offsets the decline in value of the            portion of the Fund’s investments that are being hedged. Should general market            prices move in an unexpected manner, the full anticipated benefits of futures contracts            may not be achieved or a loss may be realized.

**Options on Futures Contracts (Including Futures Contracts on            Securities Indices).**The Fund may purchase and write (sell)            options on futures contracts for speculative or hedging purposes. For example, as with            the purchase of futures contracts, when the Fund is not fully invested, it may purchase            a call option on an interest rate sensitive futures contract to hedge against a            potential price increase on debt securities due to declining interest rates.

The            purchase of a call option on a futures contract is similar in some respects to the            purchase of a call option on an index or individual security. Depending on the pricing            of the option compared to either the price of the futures contract upon which it is            based or the price of the underlying debt securities, it may or may not be less risky            than ownership of the futures contract or underlying debt securities.

The            writing of a call option on a futures contract may constitute a partial hedge against            declining prices of the underlying portfolio securities which are the same as or            correlate with the security or foreign currency futures contract that is deliverable            upon exercise of the option on that futures contract. If the futures price at            expiration of the option is below the exercise price specified in the option, the Fund            will retain the full amount of the net premium (the premium received for writing the            option less any commission), which provides a partial hedge against any decline that            may have occurred in the Fund’s holdings.

The            writing of a put option on an index futures contract may constitute a partial hedge            against increasing prices of the underlying securities or foreign currency that are            deliverable upon exercise of the futures contract. If the futures

 

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price at expiration of the option is higher than the exercise price, the            Fund will retain the full amount of the option net premium, which provides a partial            hedge against any increase in the price of securities that the Fund intends to            purchase.

If            a put or call option the Fund has written is exercised, the Fund will incur a loss that            will be reduced by the amount of the net premium it receives. Depending on the degree            of correlation between changes in the value of its portfolio securities and changes in            the value of its futures positions, the Fund’s losses from existing options on            futures may to some extent be reduced or increased by changes in the value of portfolio            securities.

The            purchase of a call or put option on a futures contract with respect to an index is            similar in some respects to the purchase of a call or protective put option on an            index. For example, the Fund may purchase a put option on an index futures contract to            hedge against the risk of declining securities values.

The            amount of risk the Fund assumes when it purchases an option on an index futures            contract is the premium paid for the option plus related transaction costs. In addition            to the correlation risks discussed above, the purchase of such an option also entails            the risk that changes in the value of the underlying futures contract will not be fully            reflected in the value of the option purchased.

**Derivative Securities: Hedging Strategies**

**Hedging Strategies.**The Fund may use            certain strategies designed to adjust the overall risk of its investment portfolio.            These “hedging” strategies involve derivative contracts, including (but not            limited to) futures contracts and exchange-traded put and call options on such futures            contracts. New financial products and risk management techniques continue to be            developed and may be used if consistent with the Fund’s investment objectives and            policies. Among other purposes, these hedging strategies may be used to effectively            maintain a desired portfolio duration or to protect against market risk.

The            Fund might not use any hedging strategies, and there can be no assurance that any            strategy used will succeed. If the Advisor is incorrect in its judgment on market            values, interest rates, currency rates or other economic factors in using a hedging            strategy, the Fund may have lower net income and a net loss on the investment. Each of            these strategies involves certain risks, which include:

| **•** | the fact that the skills needed to use hedging                            instruments are different from those needed to select securities for                            the Fund; |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | the possibility of imperfect correlation, or even no                            correlation, between the price movements of hedging instruments and                            price movements of the securities or currencies being                            hedged; |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | possible constraints placed on the Fund’s ability                            to purchase or sell portfolio investments at advantageous times due to                            the need for the Fund to maintain “cover” or to segregate                            securities; and |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | the possibility that the Fund will be unable to close                            out or liquidate its hedged position. |
|------------|------------------------------------------------------------------------------------------------------------------------|

A            hedge is designed to offset a loss in a portfolio position with a gain in the hedged            position; at the same time, however, a properly correlated hedge will result in a gain            in the portfolio position being offset by a loss in the hedged position. As a result,            the use of derivative transactions for hedging purposes could limit any potential gain            from an increase in the value of the position hedged. With respect to futures            contracts, since the value of portfolio securities will generally far exceed the value            of the futures contracts sold by the Fund, an increase in the value of the futures            contracts could only mitigate, but not totally offset, the decline in the value of the            Fund’s assets.

In            hedging transactions based on an index, whether the Fund will realize a gain or loss            depends upon movements in the level of securities prices in the securities market            generally or, in the case of certain indexes, in an industry or market segment, rather            than movements in the price of a particular security. The risk of imperfect correlation            increases as the composition of the Fund’s portfolio varies from the composition            of the index. In an effort to compensate for imperfect correlation of relative            movements in the hedged position and the hedge, the Fund’s hedge

 

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positions may be in a greater or lesser dollar amount than the dollar            amount of the hedged position. Such “over hedging” or “under            hedging” may adversely affect the Fund’s net investment results if market            movements are not as anticipated when the hedge is established.

Securities index futures transactions may be subject to additional            correlation risks. First, all participants in the futures market are subject to margin            deposit and maintenance requirements. Rather than meeting additional margin deposit            requirements, investors may close futures contracts through offsetting transactions            which would distort the normal relationship between the securities index and futures            markets. Secondly, from the point of view of speculators, the deposit requirements in            the futures market are less onerous than margin requirements in the securities market.            Therefore, increased participation by speculators in the futures market also may cause            temporary price distortions. Because of the possibility of price distortions in the            futures market and the imperfect correlation between movements in a securities index            and movements in the price of securities index futures, a correct forecast of general            market trends by the Advisor still may not result in a successful hedging            transaction.

To            the extent that the Fund engages in the strategies described above, the Fund may            experience losses greater than if these strategies had not been utilized. In addition            to the risks described above, these instruments may be illiquid and/or subject to            trading limits, and the Fund may be unable to close out a position without incurring            substantial losses, if at all. The Fund is also subject to the risk of a default by a            counterparty to an off-exchange transaction. See “Illiquid            Securities.”

**Securities of Non-US Issuers**

**Foreign Securities**. Subject to its            investment objective and policies, the Fund may invest in securities of foreign issuers            and supranational entities. The non-US investments of the Fund may be denominated in            any currency. Foreign securities may offer investment opportunities not available in            the United States, but such investments also involve significant risks not typically            associated with investing in domestic securities. In many foreign countries, there is            less publicly available information about foreign issuers, and there is less government            regulation and supervision of foreign stock exchanges, brokers and listed companies.            Also, in many foreign countries, companies are not subject to uniform accounting,            auditing, and financial reporting standards comparable to those applicable to domestic            issuers. Security trading practices differ and there may be difficulty in enforcing            legal rights outside the United States. Settlement of transactions in some foreign            markets may be delayed or may be less frequent than in the United States, which could            affect the liquidity of the Fund’s portfolio. Additionally, in some foreign            countries, there is the possibility of expropriation or confiscatory taxation,            limitations on the removal of securities, property, or other Fund assets, political or            social instability or diplomatic developments that could affect investments in foreign            securities.

To            the extent the investments of the Fund are denominated in foreign currencies, the net            asset value of the Fund may be affected favorably or unfavorably by fluctuations in            currency exchange rates and by changes in exchange control regulations. For example, if            the Advisor increases the Fund’s exposure to a foreign currency, and that            currency’s value subsequently falls, the Advisor’s currency management may            result in increased losses to the Fund. Similarly, if the Advisor hedges the            Fund’s exposure to a foreign currency, and that currency’s value rises, the            Fund will lose the opportunity to participate in the currency’s appreciation. The            Fund will incur transaction costs in connection with conversions between            currencies.

**Investments in American, European, Global and International            Depository Receipts.**The Fund may invest in non-US securities            in the form of American Depository Receipts (“ADRs”), European Depository            Receipts (“EDRs”), Global Depository Receipts (“GDRs”), or            International Depository Receipts (“IDRs”). ADRs are receipts typically            issued by a US bank or trust company which evidence ownership of underlying securities            issued by a foreign corporation. EDRs and IDRs are receipts issued in Europe typically            by non-US banking and trust companies that evidence ownership of either foreign or US            securities. GDRs are receipts issued by either a US or non-US banking institution            evidencing ownership of the underlying non-US securities. Generally, ADRs, in            registered form, are designed for use in US securities markets and EDRs, GDRs and IDRs,            in bearer form, are designed for use in European and international securities markets.            An ADR, EDR, GDR or IDR may be denominated in a currency different from the currency in            which the underlying foreign security is denominated.

 

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**US Dollar-Denominated Foreign Debt Securities.**The Fund may invest in the US dollar-denominated debt securities of            foreign companies. Investing in the securities of foreign companies involves more risks            than investing in securities of US companies. Their value is subject to economic and            political developments in the countries where the companies operate and to changes in            foreign currency values. Values may also be affected by foreign tax laws, changes in            foreign economic or monetary policies, exchange control regulations and regulations            involving prohibitions on the repatriation of foreign currencies.

In            addition, the relative performance of various countries’ fixed income markets            historically has reflected wide variations relating to the unique characteristics of            each country’s economy. Year-to-year fluctuations in certain markets have been            significant, and negative returns have been experienced in various markets from time to            time.

**US Dollar-Denominated Foreign Government Debt Securities.**The Fund may invest in US dollar-denominated foreign government debt            securities which include debt obligations issued or guaranteed by national, state or            provincial governments or similar political subdivisions and quasi-governmental and            supranational entities (collectively, “sovereign debt obligations”).            Sovereign debt obligations, especially those of developing countries, may involve a            high degree of risk. The issuer of such an obligation or the governmental authorities            that control the repayment of the obligation may be unable or unwilling to repay            principal and interest when due and may require renegotiation or rescheduling of debt            payments. In addition, prospects for repayment of principal and interest may depend on            political as well as economic factors.

Quasi-governmental and supranational entities include international            organizations designated or supported by governmental entities to promote economic            reconstruction or development and international banking institutions and related            government agencies. Examples include (but are not limited to) the International Bank            for Reconstruction and Development (the “World Bank”), the Japanese            Development Bank, the Asian Development Bank and the Inter-American Development Bank.            Currently, the Portfolio intends to invest only in obligations issued or guaranteed by            the Asian Development Bank, the Inter-American Development Bank, the World Bank, the            African Development Bank, the European Coal and Steel Community, the European Economic            Community, the European Investment Bank and the Nordic Investment Bank. Foreign            government securities also include mortgage-related securities issued or guaranteed by            national, state or provincial governmental instrumentalities, including            quasi-governmental agencies.

**Foreign Government Securities.**The foreign            government securities in which the Fund may invest generally consist of debt            obligations issued or guaranteed by national, state or provincial governments or            similar political subdivisions. The Fund may invest in foreign government securities in            the form of American Depositary Receipts. Foreign government securities also include            debt securities of supranational entities. Quasi-governmental and supranational            entities include international organizations designated or supported by governmental            entities to promote economic reconstruction or development and international banking            institutions and related government agencies. Examples include the International Bank            for Reconstruction and Development (the “World Bank”), the Japanese            Development Bank, the Asian Development Bank and the Inter-American Development Bank.            Foreign government securities also include mortgage-related securities issued or            guaranteed by national, state or provincial governmental instrumentalities, including            quasi-governmental agencies.

**Currency Management Techniques.**To the            extent that the Fund invests in securities denominated or quoted in foreign currencies,            it may enter into forward currency exchange contracts (“forward contracts”)            and buy and sell currency options to hedge against currency exchange rate fluctuations.            The instruments involved in currency-related transactions may be considered derivative            instruments. The Fund may enter into currency-related transactions to attempt to            protect against an anticipated rise in the US dollar price of securities that it            intends to purchase. In addition, the Fund may enter into currency-related transactions            to attempt to protect against the decline in value of its foreign currency-denominated            or - quoted portfolio securities, or a decline in the value of anticipated dividends or            interest from such securities, due to a decline in the value of the foreign currency            against the US dollar. The forecasting of currency market movements is extremely            difficult and there can be no assurance that currency-hedging strategies will be            successful. If the Advisor is incorrect in its forecast, currency-hedging strategies            may result in investment performance worse than if the strategies were not attempted.            In addition, forward contracts and OTC currency options may be illiquid and are subject            to the risk that the counterparty will default on its obligations.

 

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Although the Advisor may attempt to manage currency exchange rate risks,            there is no assurance that the Advisor will do so.

**Forward Foreign Currency Exchange Contracts.**The Fund may exchange currencies in the normal course of managing its            investments in foreign securities and may incur costs in doing so because a foreign            exchange dealer will charge a fee for conversion. The Fund may conduct foreign currency            exchange transactions on a “spot” basis (i.e., for prompt delivery and            settlement) at the prevailing spot rate for purchasing or selling currency in the            foreign currency exchange market. The Fund also may enter into forward foreign currency            exchange contracts (“forward currency contracts”) or other contracts to            purchase and sell currencies for settlement at a future date. A foreign exchange            dealer, in that situation, will expect to realize a profit based on the difference            between the price at which a foreign currency is sold to the Fund and the price at            which the dealer will cover the purchase in the foreign currency market. Foreign            exchange transactions are entered into at prices quoted by dealers, which may include a            mark-up over the price that the dealer must pay for the currency.

A            forward currency contract involves an obligation to purchase or sell a specific            currency at a future date, which may be any fixed number of days from the date of the            contract agreed upon by the parties, at a price set at the time of the contract. These            contracts are traded in the interbank market conducted directly between currency            traders (usually large commercial banks) and their customers. A forward contract            generally has no deposit requirement, and no commissions are generally charged at any            stage for trades, but currency dealers seek to obtain a “spread” or profit            on each transaction.

At            the maturity of a forward contract, the Fund may either accept or make delivery of the            currency specified in the contract or, at or prior to maturity, enter into a closing            purchase transaction involving the purchase or sale of an offsetting contract. Closing            purchase transactions with respect to forward contracts are usually effected with the            currency trader who is a party to the original forward contract.

The            Fund may enter into forward currency contracts only for the following hedging purposes.            First, when the Fund enters into a contract for the purchase or sale of a security            denominated in a foreign currency, or when the Fund anticipates the receipt in a            foreign currency of dividend or interest payments on such a security that it holds, the            Fund may desire to “lock in” the US dollar price of the security or the US            dollar equivalent of such dividend or interest payment, as the case may be. By entering            into a forward contract for the purchase or sale, for a fixed amount of US dollars, of            the amount of foreign currency involved in the underlying transactions, the Fund will            attempt to protect itself against an adverse change in the relationship between the US            dollar and the subject foreign currency during the period between the date on which the            security is purchased or sold, or on which the dividend or interest payment is            declared, and the date on which such payments are made or received.

Additionally, when management of the Fund believes that the currency of            a particular foreign country may suffer a substantial decline against the US dollar, it            may cause the Fund to enter into a forward contract to sell, for a fixed amount of US            dollars, the amount of foreign currency approximating the value of some or all of the            Fund’s portfolio securities denominated in such foreign currency. The precise            matching of the forward contract amounts and the value of the securities involved will            not generally be possible because the future value of such securities in foreign            currencies will change as a consequence of market movements in the value of those            securities between the date on which the contract is entered into and the date it            matures.

Using forward currency contracts in an attempt to protect the value of            the Fund’s portfolio securities against a decline in the value of a currency does            not eliminate fluctuations in the underlying prices of the securities. It simply            establishes a rate of exchange that the Fund can achieve at some future point in time.            The precise projection of short-term currency market movements is not possible, and            short-term hedging provides a means of fixing the dollar value of only a portion of the            Fund’s foreign assets.

The            Fund and the Fund’s custodian will segregate cash or liquid securities in an            amount equal to the value of the Fund’s total assets committed to the            consummation of forward currency contracts requiring the Fund to purchase foreign            currencies. If the value of the securities placed in the segregated account declines,            additional cash or liquid securities will be placed in the account on a daily basis so            that the value of the account will equal the amount of the Fund’s commitments            with respect to such contracts. The segregated account will be marked-to-market on a            daily

 

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basis. Although forward currency contracts are not presently regulated            by the CFTC, the CFTC may in the future assert authority to regulate these contracts.            In such event, the Fund’s ability to utilize forward currency contracts may be            restricted. In addition, a particular forward currency contract and assets used to            cover such contract may be illiquid.

The            Fund generally will not enter into a forward currency contract with a term of greater            than one year. The forecasting of short-term currency market movements is extremely            difficult and there can be no assurance that short-term hedging strategies will be            successful.

While the Fund will enter into forward currency contracts to reduce            currency exchange rate risks, transactions in such contracts involve certain other            risks. Thus, while the Fund may benefit from currency transactions, unanticipated            changes in currency prices may result in a poorer overall performance for the Fund than            if it had not engaged in any such transactions. Moreover, there may be an imperfect            correlation between the Fund’s portfolio holdings of securities denominated in a            particular currency and forward contracts entered into by the Fund. Such imperfect            correlation may cause the Fund to sustain losses, which will prevent the Fund from            achieving a complete hedge, or expose the Fund to risk of foreign currency exchange            loss. Forward currency contracts may be considered derivative instruments.

The            Fund’s activities in forward currency exchange contracts, currency futures            contracts and related options and currency options (see below) may be limited by the            requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the            “Code”), for qualification as a regulated investment company.

***Other Investments and Investment Practices***

**Illiquid Securities.**Historically, illiquid            securities have included securities subject to contractual or legal restrictions on            resale because they have not been registered under the 1933 Act, securities which            are otherwise not readily marketable and repurchase agreements having a maturity of            longer than seven days. Securities which have not been registered under the            1933 Act are referred to as private placements or restricted securities and are            purchased directly from the issuer or in the secondary market. Investments in            non-publicly traded securities (including Rule 144A Securities) may involve a high            degree of business and financial risk and may result in substantial losses. These            securities may be less liquid than publicly traded securities, and it may take longer            to liquidate these positions than would be the case for publicly traded securities.            Companies whose securities are not publicly traded may not be subject to the disclosure            and other investor protection requirements applicable to companies whose securities are            publicly traded. Limitations on resale may have an adverse effect on the marketability            of portfolio securities and a mutual fund might be unable to dispose of restricted or            other illiquid securities promptly or at reasonable prices and might thereby experience            difficulty satisfying redemptions within seven days. An investment in illiquid            securities is subject to the risk that, should the Fund desire to sell any of these            securities when a ready buyer is not available at a price that is deemed to be            representative of their value, the value of the Fund’s net assets could be            adversely affected.

Mutual funds do not typically hold a significant amount of these            restricted or other illiquid securities because of the potential for delays on resale            and uncertainty in valuation. A mutual fund might also have to register such restricted            securities in order to dispose of them resulting in additional expense and delay.            Adverse market conditions could impede such a public offering of securities.

A            large institutional market has developed for certain securities that are not registered            under the 1933 Act, including repurchase agreements, commercial paper, non-US            securities and corporate bonds and notes. Institutional investors depend on an            efficient institutional market in which the unregistered security can be readily resold            or on an issuer’s ability to honor a demand for repayment. The fact that there            are contractual or legal restrictions on resale of such investments to the general            public or to certain institutions may not be indicative of their            liquidity.

The            SEC has adopted Rule 144A, which allows a broader institutional trading market for            securities otherwise subject to restriction on their resale to the general public.            Rule 144A establishes a “safe harbor” from the registration            requirements of the 1933 Act for resales of certain securities to qualified            institutional buyers. The Advisor anticipates that the market for certain restricted            securities such as institutional commercial paper will

 

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expand further as a result of this regulation and the development of            automated systems for the trading, clearance and settlement of unregistered securities            of domestic and non-US issuers, such as the PORTAL System sponsored by the National            Association of Securities Dealers, Inc.

An            investment in Rule 144A Securities will be considered illiquid and therefore subject to            the Fund’s limit on the purchase of illiquid securities unless the Advisor            determines that the Rule 144A Securities are liquid. In reaching liquidity decisions,            the Advisor may consider,*inter            alia*, the following factors: (i) the unregistered nature of            the security; (ii) the frequency of trades and quotes for the security; (iii) the            number of dealers wishing to purchase or sell the security and the number of other            potential purchasers; (iv) dealer undertakings to make a market in the security and (v)            the nature of the security and the nature of the marketplace trades            (*e.g.*, the time needed to dispose of            the security, the method of soliciting offers and the mechanics of the            transfer).

Investing in Rule 144A Securities could have the effect of increasing            the level of illiquidity in the Fund to the extent that qualified institutional buyers            are unavailable or uninterested in purchasing such securities from the Fund. The Board            has adopted guidelines and delegated to the Advisor the daily function of determining            and monitoring the liquidity of Rule 144A Securities, although the Board will retain            ultimate responsibility for any liquidity determinations.

The            Fund will not invest more than 15% of its net assets in illiquid securities, which            include repurchase agreements and time deposits maturing in more than seven days and            securities that are not readily marketable.

**“When-issued” Purchases and Forward Commitments (Delayed            Delivery).**The Fund may purchase securities on a when-issued,            delayed delivery or forward commitment basis. When these transactions are negotiated,            the price of the securities is fixed at the time of the commitment, but delivery and            payment may take place up to 90 days after the date of the commitment to purchase for            equity securities, and up to 45 days after such date for fixed income securities.            When-issued securities or forward commitments involve a risk of loss if the value of            the security to be purchased declines prior to the settlement date.

These transactions, which involve a commitment by the Fund to purchase            or sell particular securities with payment and delivery taking place at a future date,            permit the Fund to lock in a price or yield on a security, regardless of future changes            in interest rates. The Fund will purchase securities on a “when-issued” or            forward commitment basis only with the intention of completing the transaction and            actually purchasing the securities. If deemed appropriate by the Advisor, however, the            Fund may dispose of or renegotiate a commitment after it is entered into, and may sell            securities it has committed to purchase before those securities are delivered to the            Fund on the settlement date. In these cases the Fund may realize a gain or loss, and            distributions attributable to any such gain would be taxable to            shareholders.

When the Fund agrees to purchase securities on a            “when-issued” or forward commitment basis, the Fund and the Fund’s            custodian will set aside cash or liquid securities equal to the amount of the            commitment in a separate account. Normally, the custodian will set aside portfolio            securities to satisfy a purchase commitment, and in such a case the Fund may be            required subsequently to place additional assets in the separate account in order to            ensure that the value of the account remains equal to the amount of the Fund’s            commitments. The market value of the Fund’s net assets will generally fluctuate            to a greater degree when it sets aside portfolio securities to cover such purchase            commitments than when it sets aside cash. Because the Fund’s liquidity and            ability to manage its portfolio might be affected when it sets aside cash or portfolio            securities to cover such purchase commitments, the Fund expects that its commitments to            purchase when-issued securities and forward commitments will not exceed            331/3% of the value of its total assets. When the Fund engages in            “when-issued” and forward commitment transactions, it relies on the other            party to the transaction to consummate the trade. Failure of such party to do so may            result in the Fund’s incurring a loss or missing an opportunity to obtain a price            considered to be advantageous.

The            market value of the securities underlying a “when-issued” purchase or a            forward commitment to purchase securities, and any subsequent fluctuations in their            market value, are taken into account when determining the market value of the Fund            starting on the day the Fund agrees to purchase the securities. The Fund does not earn            interest or dividends on the securities it has committed to purchase until the            settlement date.

 

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**Repurchase Agreements.**The Fund may enter            into repurchase agreements. In a repurchase agreement, the Fund buys a security subject            to the right and obligation to sell it back to the other party at the same price plus            accrued interest. The Fund’s custodian will hold the security as collateral for            the repurchase agreement. Collateral must be maintained at a value at least equal to            102% of the repurchase price, but repurchase agreements involve some credit risk to the            Fund if the other party defaults on its obligation and the Fund is delayed in or            prevented from liquidating the collateral. The Fund will enter into repurchase            agreements only with financial institutions deemed to present minimal risk of            bankruptcy during the term of the agreement based on guidelines established and            periodically reviewed by the Trust’s Board of Trustees.

For            purposes of the 1940 Act and, generally, for tax purposes, a repurchase agreement is            considered to be a loan from the Fund to the seller of the obligation. For other            purposes, it is not clear whether a court would consider such an obligation as being            owned by the Fund or as being collateral for a loan by the Fund to the seller. In the            event of the commencement of bankruptcy or insolvency proceedings with respect to the            seller of the obligation before its repurchase under the repurchase agreement, the Fund            may encounter delay and incur costs before being able to sell the security. Such delays            may result in a loss of interest or decline in price of the obligation.

If            the court characterizes the transaction as a loan and the Fund has not perfected a            security interest in the obligation, the Fund may be treated as an unsecured creditor            of the seller and required to return the obligation to the seller’s estate. As an            unsecured creditor, the Fund would be at risk of losing some or all of the principal            and income involved in the transaction. As with any unsecured debt instrument purchased            for the Fund, the Advisor seeks to minimize the risk of loss from repurchase agreements            by analyzing the creditworthiness of the obligor, in this case, the seller of the            obligation. In addition to the risk of bankruptcy or insolvency proceedings, there is            the risk that the seller may fail to repurchase the security. However, if the market            value of the obligation falls below an amount equal to 102% of the repurchase price            (including accrued interest), the seller of the obligation will be required to deliver            additional securities so that the market value of all securities subject to the            repurchase agreement equals or exceeds the repurchase price.

**Reverse Repurchase Agreements.**The Fund may            borrow funds for temporary or emergency purposes, such as meeting larger than            anticipated redemption requests, and not for leverage, by among other things, agreeing            to sell portfolio securities to financial institutions such as member banks of the            Federal Reserve System and certain non-bank dealers and to repurchase them at a            mutually agreed date and price (a “reverse repurchase agreement”). At the            time the Fund enters into a reverse repurchase agreement, it will segregate cash or            liquid securities having a value equal to the repurchase price, including accrued            interest. The segregated assets will be marked-to-market daily and additional assets            will be segregated on any day in which the assets fall below the repurchase price (plus            accrued interest). The Fund’s liquidity and ability to manage its assets might be            affected when it sets aside cash or portfolio securities to cover such commitments.            Reverse repurchase agreements involve the risk that the market value of the securities            sold by the Fund may decline below the repurchase price of those securities. In the            event the buyer of securities under a reverse repurchase agreement files for bankruptcy            or becomes insolvent, such buyer or its trustee or receiver may receive an extension of            time to determine whether to enforce the Fund’s obligation to repurchase the            securities, and the Fund’s use of the proceeds of the reverse repurchase            agreement may effectively be restricted pending such decision. Reverse repurchase            agreements are considered to be borrowings by the Fund.

**Borrowing.**The Fund may borrow for            temporary or emergency purposes. This borrowing may be unsecured. Among the forms of            borrowing in which the Fund may engage is entering into reverse repurchase agreements.            The 1940 Act requires the Fund to maintain continuous asset coverage (that is, total            assets including borrowings, less liabilities exclusive of borrowings) of 300% of the            amount borrowed. If the asset coverage should decline below 300% as a result of market            fluctuations or for other reasons, the Fund is required to sell some of its portfolio            securities within three days to reduce its borrowings and restore the 300% asset            coverage, even though it may be disadvantageous from an investment standpoint to sell            securities at that time. Borrowing may exaggerate the effect on net asset value of any            increase or decrease in the market value of the portfolio. Money borrowed will be            subject to interest costs which may or may not be recovered by appreciation of the            securities purchased. The Fund also may be required to maintain minimum average            balances in connection with such borrowing or to pay a commitment or other fee to            maintain a line of credit; either of these requirements would increase the cost of            borrowing over the stated interest rate. See “Investment            Restrictions.”

 

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**Lending of Portfolio Securities.**The Fund            may lend portfolio securities in an amount not to exceed 33 1/3% of the value of the            Fund’s total assets to approved institutional borrowers who need to borrow            securities in order to complete certain transactions, such as covering short sales,            avoiding failures to deliver securities or completing arbitrage operations. By lending            its investment securities, the Fund attempts to increase its net investment income            through the receipt of interest on the loan. Any gain or loss in the market price of            the securities loaned that might occur during the term of the loan would belong to the            Fund. The Fund may lend its investment securities so long as the terms, structure and            the aggregate amount of such loans are not inconsistent with the 1940 Act or the rules            and regulations or interpretations of the SEC thereunder, which currently require that            (a) the borrower pledge and maintain with the Fund collateral consisting of liquid,            unencumbered assets having a value at all times not less than 100% of the value of the            securities loaned, (b) the borrower add to such collateral whenever the price of the            securities loaned rises (i.e., the borrower “marks to the market” on a            daily basis), (c) the loan be made subject to termination by the Fund at any time, and            (d) the Fund receives reasonable interest on the loan (which may include the            Fund’s investing any cash collateral in interest-bearing short-term investments),            and distributions on the loaned securities and any increase in their market value.            There may be risks of delay in recovery of the securities or even loss of rights in the            collateral should the borrower of the securities fail financially. However, loans will            be made only to borrowers selected by the Fund’s delegate after a commercially            reasonable review of relevant facts and circumstances, including the creditworthiness            of the borrower.

At            the present time, the staff of the SEC does not object if an investment company pays            reasonable negotiated fees in connection with loaned securities, so long as such fees            are set forth in a written contract and approved by the investment company’s            Board of Trustees. In addition, voting rights may pass with the loaned securities, but            if a material event occurs affecting an investment on loan, the loan must be called and            the securities voted. Pursuant to an exemptive order granted by the SEC, cash            collateral received by the Fund may be invested in a money market fund managed by the            Advisor (or one of its affiliates).

Payments received by the Fund in lieu of any dividends paid on the            loaned securities will not be treated as “qualified dividend income” for            purposes of determining what portion of the Fund’s dividends received by            individuals may be taxed at the rates generally applicable to long-term capital gains.            See “Taxes.”

**Short Sales.**The Fund may engage in short            sales with respect to securities that it owns or has the right to obtain (for example,            through conversion of a convertible bond). These transactions, known as short sales            “against the box,” allow the Fund to hedge against price fluctuations by            locking in a sale price for securities it does not wish to sell immediately. In a short            sale, the Fund sells a borrowed security and has a corresponding obligation to the            lender to return the identical security. The seller does not immediately deliver the            securities sold and is said to have a short position in those securities until delivery            occurs. If the Fund engages in a short sale, the collateral for the short position will            be segregated.

The            Fund does not intend to engage in short sales against the box for investment purposes.            The Fund may, however, make a short sale as a hedge, when it believes that the price of            a security may decline, causing a decline in the value of a security owned by the Fund            (or a security convertible or exchangeable for such security). In such case, any future            losses in the Fund’s long position should be offset by a gain in the short            position and, conversely, any gain in the long position should be reduced by a loss in            the short position. The extent to which such gains or losses are reduced will depend            upon the amount of the security sold short relative to the amount the Fund owns. There            will be certain additional transaction costs associated with short sales against the            box, but the Fund will endeavor to offset these costs with the income from the            investment of the cash proceeds of short sales.

**Impact of Large Redemptions and Purchases of Fund shares.**From time to time, shareholders of the Fund may make relatively large            redemptions or purchases of Fund shares. These transactions may cause the Fund to have            to sell securities or invest additional cash, as the case may be. While it is            impossible to predict the overall impact of these transactions over time, there could            be adverse effects on the Fund’s performance to the extent that the Fund may be            required to sell securities or invest cash at times when it would not otherwise do so.            These transactions could also accelerate the realization of taxable income if sales of            securities resulted in gains and could also increase transaction costs.

 

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**Investment Company Securities.**A fund may            acquire securities of other investment companies to the extent consistent with its            investment objective and subject to the limitations of the 1940 Act. A fund will            indirectly bear its proportionate share of any management fees and other expenses paid            by such other investment companies.

For            example, a fund may invest in a variety of investment companies which seek to track the            composition and performance of specific indexes or a specific portion of an index.            These index-based investments hold substantially all of their assets in securities            representing their specific index. Accordingly, the main risk of investing in            index-based investments is the same as investing in a portfolio of equity securities            comprising the index. The market prices of index-based investments will fluctuate in            accordance with both changes in the market value of their underlying portfolio            securities and due to supply and demand for the instruments on the exchanges on which            they are traded (which may result in their trading at a discount or premium to their            NAVs). Index-based investments may not replicate exactly the performance of their            specified index because of transaction costs and because of the temporary            unavailability of certain component securities of the index.

Examples of index-based investments include:

SPDRs®: SPDRs, an acronym            for “Standard & Poor’s Depositary Receipts,” are based on the            S&P 500 Composite Stock Price Index. They are issued by the SPDR Trust, a unit            investment trust that holds shares of substantially all the companies in the S&P            500 in substantially the same weighting and seeks to closely track the price            performance and dividend yield of the Index.

MidCap SPDRs®: MidCap SPDRs            are based on the S&P MidCap 400 Index. They are issued by the MidCap SPDR Trust, a            unit investment trust that holds a portfolio of securities consisting of substantially            all of the common stocks in the S&P MidCap 400 Index in substantially the same            weighting and seeks to closely track the price performance and dividend yield of the            Index.

Select Sector SPDRs®: Select            Sector SPDRs are based on a particular sector or group of industries that are            represented by a specified Select Sector Index within the Standard & Poor’s            Composite Stock Price Index. They are issued by The Select Sector SPDR Trust, an            open-end management investment company with nine portfolios that each seeks to closely            track the price performance and dividend yield of a particular Select Sector            Index.

DIAMONDSSM: DIAMONDS are based            on the Dow Jones Industrial AverageSM. They are issued by the DIAMONDS            Trust, a unit investment trust that holds a portfolio of all the component common            stocks of the Dow Jones Industrial Average and seeks to closely track the price            performance and dividend yield of the Dow.

Nasdaq-100 Shares: Nasdaq-100 Shares are            based on the Nasdaq-100 Index. They are issued by the Nasdaq-100 Trust, a unit            investment trust that holds a portfolio consisting of substantially all of the            securities, in substantially the same weighting, as the component stocks of the            Nasdaq-100 Index and seeks to closely track the price performance and dividend yield of            the Index.

WEBsSM: WEBs, an acronym for            “World Equity Benchmark Shares,” are based on 17 country-specific Morgan            Stanley Capital International Indexes. They are issued by the WEBs Index Fund, Inc., an            open-end management investment company that seeks to generally correspond to the price            and yield performance of a specific Morgan Stanley Capital International            Index.

**Temporary Defensive Investments.**For            temporary defensive purposes during periods when the Advisor determines that conditions            warrant, the Fund may invest up to 100% of its assets in cash and money market            instruments, including securities issued or guaranteed by the US Government, its            agencies or instrumentalities; certificates of deposit, time deposits, and            bankers’ acceptances issued by banks or savings and loans associations having net            assets of at least $500 million as of the end of their most recent fiscal year;            commercial paper rated at the time of purchase at least A-1 by S&P or P-1 by            Moody’s, or unrated commercial paper determined by the Advisor to be of            comparable quality; repurchase agreements involving any of the foregoing; and, to the            extent permitted by applicable law, shares of other investment companies investing            solely in money market instruments.

 

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**Restricted Securities.**The Fund may invest            to a limited extent in restricted securities. Restricted securities are securities that            may not be sold freely to the public without prior registration under federal            securities laws or an exemption from registration. Restricted securities will be            considered illiquid unless they are restricted securities offered and sold to            “qualified institutional buyers” under Rule 144A under the 1933 Act and the            Advisor determines that these securities are liquid pursuant to policies adopted by the            Board of Trustees.

**Commercial Paper.**The Fund may purchase            commercial paper. Commercial paper is a short-term, unsecured negotiable promissory            note of a US or non-US issuer. The Fund may also invest in variable rate master demand            notes, which typically are issued by large corporate borrowers and which provide for            variable amounts of principal indebtedness and periodic adjustments in the interest            rate. Demand notes are direct lending arrangements between the Fund and an issuer, and            are not normally traded in a secondary market. The Fund, however, may demand payment of            principal and accrued interest at any time. In addition, while demand notes generally            are not rated, their issuers must satisfy the same criteria as those that apply to            issuers of commercial paper. The Advisor will consider the earning power, cash flow and            other liquidity ratios of issuers of demand notes and continually will monitor their            financial ability to meet payment on demand. See also “Fixed Income Securities            — Variable and Floating Rate Instruments.”

**Bank Obligations.**The Fund’s            investments in money market instruments may include certificates of deposit, time            deposits and bankers’ acceptances. Certificates of Deposit (“CDs”)            are short-term negotiable obligations of commercial banks. Time Deposits            (“TDs”) are non-negotiable deposits maintained in banking institutions for            specified periods of time at stated interest rates. Bankers’ acceptances are time            drafts drawn on commercial banks by borrowers usually in connection with international            transactions.

US            commercial banks organized under federal law are supervised and examined by the            Comptroller of the Currency and are required to be members of the Federal Reserve            System and to be insured by the Federal Deposit Insurance Corporation (the            “FDIC”). US banks organized under state law are supervised and examined by            state banking authorities but are members of the Federal Reserve System only if they            elect to join. Most state banks are insured by the FDIC (although such insurance may            not be of material benefit to the Fund, depending upon the principal amount of CDs of            each bank held by the Fund) and are subject to federal examination and to a substantial            body of federal law and regulation. As a result of governmental regulations, US            branches of US banks, among other things, generally are required to maintain specified            levels of reserves, and are subject to other supervision and regulation designed to            promote financial soundness. US savings and loan associations, the CDs of which may be            purchased by the Fund, are supervised and subject to examination by the Office of            Thrift Supervision. US savings and loan associations are insured by the Savings            Association Insurance Fund, which is administered by the FDIC and backed by the full            faith and credit of the US Government.

**Investment of Uninvested Cash.**The Fund may            have cash balances that have not been invested in portfolio securities            (“Uninvested Cash”). Uninvested Cash may result from a variety of sources,            including dividends or interest received from portfolio securities, unsettled            securities transactions, reserves held for investment strategy purposes, scheduled            maturity of investments, liquidation of investment securities to meet anticipated            redemptions or dividend payments, and new cash received from investors. Uninvested Cash            may be invested directly in money market instruments or other short-term debt            obligations. Pursuant to an exemptive order issued by the SEC, the Fund may use            Uninvested Cash to purchase shares of affiliated funds, including money market funds            and the Cash Management QP Trust, or entities for which the Advisor may act as            investment advisor now or in the future that operate as cash management investment            vehicles but are excluded from the definition of an investment company pursuant to            Section 3(c)(1) or 3(c)(7) of the 1940 Act (collectively, the “Central            Funds”) in excess of the limitations of Section 12(d)(1) of the 1940 Act.            Investment by the Fund in shares of the Central Funds will comply with rule 2a-7 under            the 1940 Act and will be in accordance with the Fund’s investment policies and            restrictions.

The            Fund will invest Uninvested Cash in Central Funds only to the extent that its aggregate            investment in the Central Funds does not exceed 25% of its total assets. Purchases and            sales of shares of Central Funds are made at net asset value.

The            following is a chart of the various types of securities and investment strategies            employed by the Fund. Unless otherwise indicated, the Fund is permitted, but not            obligated, to pursue any of the following strategies and does not

 

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represent that these techniques are available now or will be available            at any time in the future. If the Fund’s investment in a particular type of            security is limited to a certain percentage of the Fund’s assets, that percentage            limitation is listed in the chart. Following the chart, there is a description of how            each type of security and investment strategy may be used by the Fund. As a matter of            non-fundamental operating policy, the Fund may be subject to additional restrictions.            See the section entitled “Investment Restrictions.”

 

| **INVESTMENT PRACTICE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **Micro Cap Fund** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|
| KEY TO TABLE:

+            Permitted                            without stated limit

o            Permitted                            without stated limit, but not expected to be used to a significant                            extent

X           Not                            permitted

*20%*Italic type (e.g.,*20%*) represents an                            investment limitation as a percentage of net Fund assets; does not                            indicate actual use

20% Roman type (e.g., 20%)                            represents an investment limitation as a percentage of total Fund                            assets; does not indicate actual use |
| **EQUITY                            SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | +                  |
| Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | +                  |
| Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | *5%*               |
| Convertible                            Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | +                  |
| Medium-Capitalization                            Stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | o                  |
| Small Capitalization                            Stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | +                  |
| Micro Capitalization                            Stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | At least 80%       |
| **FIXED INCOME SECURITIES                            & MONEY MARKET INSTRUMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| US Government                            Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 20%                |
| Short-Term                            Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 20%                |
| Obligations of Banks and                            Other Financial Institutions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 20%                |
| Certificates of Deposit and                            Bankers’ Acceptances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 20%                |
| Commercial Paper                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 20%                |
| Other Debt                            Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 20%                |
| **DERIVATIVE SECURITIES                            (OPTIONS)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Options on                            Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | +                  |
| Protective Puts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 20%                |
| Options on Securities                            Indices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | +                  |
| Options on Non-US Securities                            Indices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | +                  |
| **DERIVATIVE SECURITIES                            (FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Futures Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | +                  |
| Futures Contracts on                            Securities Indices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | +                  |
| Options on Futures Contracts                            (including Contracts on Securities Indices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | +                  |
| Purchased protective                            puts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 25%                |
| **DERIVATIVE SECURITIES                            (HEDGING STRATEGIES)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Hedging Strategies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | +                  |
| **SECURITIES OF NON-US                            ISSUERS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

 

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| Foreign Securities &                            Depository Receipts(ADRs, EDRs, GDRs and IDRs) | 20%    |
|----------------------------------------------------------------------------------------------------|--------|
| Foreign Corporate Debt                            Securities                                       | 20%    |
| Foreign Government Debt                            Securities                                      | 20%    |
| **CURRENCY                            MANAGEMENT**                                                 |
| Currency Exchange                            Transactions                                          | o      |
| Currency Hedging                            Transactions                                           | o      |
| Cross Hedging                                                                                      | o      |
| Forward Currency Exchange                            Contracts                                     | o      |
| Options on Foreign                            Currencies                                           | o      |
| **OTHER INVESTMENTS AND                            INVESTMENT PRACTICES**                          |
| Illiquid                            Securities                                                     | *15%*  |
| When-Issued and Delayed                            Delivery Securities                             | 33 1/3 |
| Repurchase                            Agreements                                                   | 20%    |
| Reverse Repurchase                            Agreements                                           | 33%    |
| Borrowing                                                                                          | 33%    |
| Lending of Portfolio                            Securities                                         | 33 1/3 |
| Short Sales                                                                                        | o      |
| Other Investment                            Companies                                              | 10%    |
| Temporary Defensive                            Investments                                         | 100%   |
| Non-Diversification                                                                                | 25%    |
| Concentration in Any One                            Industry                                       | 25%    |

 

**Portfolio Holdings**

In            addition to the public disclosure of the Fund’s portfolio holdings through            required Securities and Exchange Commission ("SEC") quarterly filings, the Fund may            make its portfolio holdings information publicly available on the DWS Funds’ Web            site as described in the Fund's prospectus. The Fund does not disseminate non-public            information about portfolio holdings except in accordance with policies and procedures            adopted by the Fund.

The            Fund’s procedures permit non-public portfolio holdings information to be shared            with Deutsche Asset Management and its affiliates (collectively “DeAM”),            subadvisors, if any, custodians, independent registered public accounting firms,            attorneys, officers and trustees/directors and each of their respective affiliates and            advisers who require access to this information to fulfill their duties to the Fund and            are subject to the duties of confidentiality, including the duty not to trade on            non-public information, imposed by law or contract, or by the Fund’s procedures.            This non-public information may also be disclosed, subject to the requirements            described below, to securities lending agents, financial printers, proxy voting firms,            mutual fund analysts and rating and tracking agencies, or to shareholders in connection            with in-kind redemptions (collectively, “Authorized Third            Parties”).

Prior to any disclosure of the Fund’s non-public portfolio            holdings information to Authorized Third Parties, a person authorized by the            Fund’s Trustees must make a good faith determination in light of the facts then            known that a fund has a legitimate business purpose for providing the information, that            the disclosure is in the best interest of the Fund, and that the recipient assents or            otherwise has a duty to keep the information confidential and to not trade based on the            information receivedwhile the information remains non-public. No            compensation is received by the Fund or

 

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DeAM for disclosing non-public holdings information. Periodic reports            regarding these procedures will be provided to the Fund’s Trustees.

Portfolio holdings information distributed by the trading desks of DeAM            or a subadvisor for the purpose of facilitating efficient trading of such securities            and receipt of relevant research is not subject to the foregoing requirements.            Non-public portfolio holding information does not include portfolio characteristics            (other than holdings or subsets of holdings) about each fund and information derived            therefrom, including, but not limited to, how each fund’s investments are divided            among various sectors, industries, countries, value and growth stocks, bonds,            currencies and cash, types of bonds, bond maturities, duration, bond coupons and bond            credit quality ratings so long as a fund’s holdings could not be derived from            such information.

Registered investment companies that are subadvised by DeAM may be            subject to different portfolio holdings disclosure policies, and neither DeAM nor a            fund’s Trustees exercise control over such policies. In addition, separate            account clients of DeAM have access to their portfolio holdings and are not subject to            a fund’s portfolio holdings disclosure policy. The portfolio holdings of some of            the funds subadvised by DeAM and some of the separate accounts managed by DeAM may            substantially overlap with the portfolio holdings of a fund.

DeAM also manages certain unregistered commingled trusts and creates            model portfolios, the portfolio holdings of which may substantially overlap with the            portfolio holdings of a fund. To the extent that investors in these commingled trusts            or recipients of model portfolio holdings information may receive portfolio holdings            information of their trust or of a model portfolio on a different basis from that on            which fund portfolio holdings information is made public, DeAM has implemented            procedures reasonably designed to encourage such investors and recipients to keep such            information confidential, and to prevent those investors from trading on the basis of            non-public holdings information.

There is no assurance that a fund’s policies and procedures with            respect to the disclosure of portfolio holdings information will protect a fund from            the potential misuse of portfolio holdings information by those in possession of that            information.

**MANAGEMENT OF THE FUND**

**Investment Advisor**

Deutsche Investment Management Americas Inc. (“DIMA” or the            “Advisor”), which is part of Deutsche Asset Management, is the investment            advisor for the Fund. Under the supervision of the Board of Trustees of the Fund, with            headquarters at 345 Park Avenue, New York, New York 10154, DIMA makes the Fund’s            investment decisions, buys and sells securities for the Fund and conducts research that            leads to these purchase and sale decisions. The Advisor manages the Fund’s daily            investment and business affairs subject to the policies established by each            Corporation’s Board of Directors. DIMA and its predecessors have more than 80            years of experience managing mutual funds. DIMA provides a full range of investment            advisory services to institutional and retail clients. The Fund’s investment            advisoris also responsible for selecting brokers and dealers and            for negotiating brokerage commissions and dealer charges. On December 31, 2006,            Deutsche Asset Management, Inc. (“DAMI’’) merged into DIMA. Prior to            December 31, 2006 DAMI was the investment advisor to the Fund. As a result of the            merger, DIMA is now the investment advisor to the Fund.

DeAM is the marketing name in the US for the asset management activities            of Deutsche Bank AG, DIMA, Deutsche Bank Trust Company Americas and DWS Trust Company.            DeAM is a global asset management organization that offers a wide range of investing            expertise and resources, including hundreds of portfolio managers and analysts and an            office network that reaches the world’s major investment centers. This            well-resourced global investment platform brings together a wide variety of experience            and investment insight, across industries, regions, asset classes and investing styles.            DIMA is an indirect, wholly-owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a            major global banking institution that is engaged in a wide range of financial services,            including investment management, mutual fund, retail, private and commercial banking,            investment banking and insurance. The term “DWS Scudder” is the designation            given to the products and services provided by DIMA and its affiliates to the DWS            Mutual Funds.

 

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The            Advisor provides investment counsel for many individuals and institutions, including            insurance companies, industrial corporations, and financial and banking organizations,            as well as providing investment advice to open- and closed-end SEC registered            funds.

**Investment Management Agreement**

The            Board and the shareholders of the Fund approved an amended and restated investment            management agreement (the “Investment Management Agreement”) for the Fund.            In addition, the Board and the shareholders also approved an amended and restated            Investment Management Agreement (the “DIMA Agreement”) between the Fund and            DIMA. The fees charged and the services provided by DIMA under the DIMA Agreement are            identical to the fees and services that were provided by DAMI under the Investment            Management Agreement. The DIMA Agreement became effective on December 31, 2006.            Pursuant to the DIMA Agreement, the Advisor provides continuing investment management            of the assets of the Fund. In addition to the investment management of the assets of            the Fund, the Advisor determines the investments to be made for the Fund, including            what portion of its assets remain uninvested in cash or cash equivalents, and with whom            the orders for investments are placed, consistent with the Fund’s policies as            stated in its Prospectuses and SAIs, or as adopted by the Fund’s Board. The            Advisor will also monitor, to the extent not monitored by the Fund’s            administrator or other agent, the Fund’s compliance with its investment and tax            guidelines and other compliance policies.

Prior to July 1, 2006, the Fund paid the Advisor the monthly fee of            1.50% of average daily net assets. Effective July 1, 2006, under the Investment            Management Agreement, the Fund pays the Advisor a monthly fee at an annual rate            of:

 

| **Average Daily Net Assets**     | **Micro Cap Fund** |
|----------------------------------|--------------------|
|                             |               |
| first $250 million               | 1.250%             |
| over $250 million - $500 million | 1.100%             |
| over $500 million - $1 billion   | 0.950%             |
| over $1 billion                  | 0.800%             |

 

The            Advisor provides assistance to the Board in valuing the securities and other            instruments held by the Fund, to the extent reasonably required by valuation policies            and procedures that may be adopted by the Fund. Pursuant to the Investment Management            Agreement (unless otherwise provided in the agreement or as determined by the Board and            to the extent permitted by applicable law), the Advisor pays the compensation and            expenses of all the Trustees, officers, and executive employees of the Fund, including            the Fund’s share of payroll taxes, who are affiliated persons of the            Advisor.

The            DIMA Agreement provides that the Fund is generally responsible for expenses that            include: fees payable to the Advisor outside legal, accounting or auditing expenses            including with respect to expenses related to negotiation, acquisition or distribution            of portfolio investments; maintenance of books and records that are maintained by the            Fund, the Fund’s custodian, or other agents of the Fund; taxes and governmental            fees; fees and expenses of the Fund’s accounting agent, custodian,            sub-custodians, depositories, transfer agents, dividend reimbursing agents and            registrars; payments for portfolio pricing or valuation services to pricing agents,            accountants, bankers and other specialists, if any; brokerage commissions or other            costs of acquiring or disposing of any fund securities or other instruments of the            Fund; and litigation expenses and other extraordinary expenses not incurred in the            ordinary course of the Fund’s business.

The            DIMA Agreement allows the Advisor to delegate any of its duties under the Agreement to            a sub-advisor, subject to a majority vote of the Board of Trustees, including a            majority of the Board of Trustees who are not interested persons of the Trust, and, if            required by applicable law, subject to a majority vote of the Fund’s            shareholders.

The            DIMA Agreement provides that the Advisor shall not be liable for any error of judgment            or mistake of law or for any loss suffered by the Fund in connection with matters to            which the Agreement relates, except a loss resulting from willful malfeasance, bad            faith or gross negligence on the part of the Advisor, Inc. in the performance of            its

 

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duties or from reckless disregard by the Advisor of its obligations and            duties under the agreement. The DIMA Agreement may be terminated at any time, without            payment of penalty, by either party or by vote of a majority of the outstanding voting            securities of the Fund on 60 days’ written notice.

In            addition, the Board and shareholders approved a subadvisor approval policy for the Fund            (the “Sub-advisor Approval Policy”). The Sub-advisor Approval Policy            permits the Advisor, subject to the approval of the Board, including a majority of its            independent board members, to appoint and replace sub-advisors and to amend            sub-advisory contracts without obtaining shareholder approval. Under the Sub-advisor            Approval Policy, the Board, including its independent board members, will continue to            evaluate and approve all new sub-advisory contracts between the Advisor and any            subadvisor, as well as all changes to any existing sub-advisory contract. The Fund            cannot implement the Sub-advisor Approval Policy without the SEC either adopting            revisions to certain existing rules (as it proposed to do in October 2003) or granting            the Fund exemptive relief from such existing rules. In the event that the Fund received            exemptive relief or the SEC adopted revisions to its current rules, the Fund and the            Advisor would be subject to certain conditions imposed by the SEC (and certain            conditions that may be imposed in the future within either exemptive relief or a rule)            to ensure that the interests of the Fund and its shareholders are adequately protected            whenever the Advisor acts under the Sub-advisor Approval Policy, including any            shareholder notice requirements.

For            the fiscal years ended September 2006, 2005* and 2004*, the Fund paid the            Advisor’s predecessor net advisory fees of $1,464,791, $1,512,672 and $1,502,860,            respectively. The amounts waived were $342,282, $499,138 and $550,447 for fiscal years            ended 2006, 2005 and 2004, respectively. The waived amounts include fees waived by            DAMI, as investment advisor.

| * | Prior to June 1, 2006, these fees included an                            administrative service fee. |
|---|------------------------------------------------------------------------------------------------------|

The            Advisor has contractually agreed to waive its fees and reimburse expenses so that total            expenses will not exceed those set forth below:

Through January 31, 2008, the Advisor contractually agreed to waive all            or a portion of its management fee and reimburse or pay operating expenses of the fund            to the extent necessary to maintain the Fund’s total annual operating expenses            will not exceed 1.63%, 2.38%, 2.38% and 1.38% for Class A, Class B, Class C and            Institutional Class shares, respectively, excluding certain expenses such as            extraordinary expenses, taxes, brokerage, interest, and organization and offering            expenses, and proxy expenses.

Only the Fund’s Board of Trustees may change these contractual fee            waivers.

In            reviewing the terms of the Investment Management Agreement and in discussions with the            Advisor concerning such Agreement, the Trustees of the Trust who are not            “interested persons” of the Advisor are represented by independent counsel            at the Fund’s expense.

The            Advisor may enter into arrangements with affiliates and third party service providers            to perform various administrative, back-office and other services relating to client            accounts. Such service providers may be located in the US or in non-US            jurisdictions.

Under a separate agreement between Deutsche Bank AG and the Fund,            Deutsche Bank AG has granted a license to the Fund to utilize the trademark            “DWS.”

**Compensation of Portfolio Managers**

The            Fund has been advised that the Advisor seeks to offer its investment professionals            competitive short-term and long-term compensation. The portfolio manager and research            professionals are paid (i) fixed base salaries, which are linked to job function,            responsibilities and financial services industry peer comparison and (ii) variable            compensation, which is linked to investment performance, individual contributions to            the team and DWS Scudder’s and Deutsche Bank’s financial results. Variable            compensation may include a cash bonus incentive and participation in a variety of            long-term equity programs (usually in the form of Deutsche Bank equity).

 

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Bonus and long-term incentives comprise a greater proportion of total            compensation as an investment professional’s seniority and compensation levels            increase. Top performing investment professionals earn a total compensation package            that is highly competitive, including a bonus that is a multiple of their base salary.            The amount of equity awarded under the long-term equity programs is generally based on            the individual’s total compensation package and may comprise from 0%—40% of            the total compensation award. As incentive compensation increases, the percentage of            compensation awarded in Deutsche Bank equity also increases. Certain senior investment            professionals may be subject to a mandatory diverting of a portion of their equity            compensation into proprietary mutual funds that they manage.

To            evaluate its investment professionals, the Advisor uses a Performance Management            Process. Objectives evaluated by the process are related to investment performance and            generally take into account peer group and benchmark related data. The ultimate goal of            this process is to link the performance of investment professionals with client            investment objectives and to deliver investment performance that meets or exceeds            clients’ risk and return objectives. When determining total compensation, the            Advisor considers a number of quantitative and qualitative factors such as:

| **•** | DWS Scudder’s performance and the performance of                            Deutsche Asset Management; quantitative measures which include 1, 3 and                            5 year pre-tax returns versus benchmark (such as the benchmark used in                            the prospectus) and appropriate peer group, taking into consideration                            risk targets. Additionally, the portfolio manager’s                            retail/institutional asset mix is weighted, as appropriate for                            evaluation purposes. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Qualitative measures include adherence to the investment                            process and individual contributions to the process, among other                            things. In addition, the Advisor assesses compliance, risk management                            and teamwork skills. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Other factors, including contributions made to the                            investment team as well as adherence to compliance, risk management,                            and “living the values” of the Advisor, are part of a                            discretionary component which gives management the ability to reward                            these behaviors on a subjective basis through bonus                            incentives. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

In            addition, the Advisor analyzes competitive compensation levels through the use of            extensive market data surveys. Portfolio manager compensation is reviewed and may be            modified each year as appropriate to reflect changes in the market, as well as to            adjust the factors used to determine overall compensation to promote good sustained            investment performance.

**Fund Ownership of the Portfolio Managers**

The            following table shows the dollar range of shares owned beneficially and of record by            each member of the Fund’s portfolio management team in the Fund as well as in all            DWS Funds as a group (i.e. those funds advised by Deutsche Asset Management or its            affiliates), including investments by their immediate family members sharing the same            household and amounts invested through retirement and deferred compensation plans. This            information is provided as of the Fund’s most recent fiscal year end and as of            November 30, 2006 for Joseph Axtell.

 

| **Name                            of****Portfolio Manager** | **Dollar Range of****Fund Shares Owned** | **Dollar Range of All DWS Fund****Shares Owned** |
|-------------------------------------------------------------|------------------------------------------|--------------------------------------------------|
|                                                        |                                     |                                             |
| Joseph Axtell                                               | $0                                       | $100,001 - $500,000                              |
| Robert S. Janis                                             | $100,001 - $500,000                      | $500,001 - $1,000,000                            |

 

**Conflicts of Interest**

In            addition to managing the assets of the Fund, the Fund’s portfolio manager may            have responsibility for managing other client accounts of the Advisor or its            affiliates. The tables below show, for the portfolio manager, the number and asset size            of (1) SEC registered investment companies (or series thereof) other than the Fund, (2)            pooled investment vehicles that are not registered investment companies and (3) other            accounts (e.g., accounts managed for

 

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individuals or organizations) managed by the portfolio manager. The            tables also show the number of performance based fee accounts, as well as the total            assets of the accounts for which the advisory fee is based on the performance of the            account. This information is provided as of the Fund’s most recent fiscal year            end.

***Other SEC Registered Investment Companies            Managed:***

 

| **Name of****Portfolio Manager** | **Number of Registered Investment****Companies** | **Total Assets of Registered Investment****Companies** | **Number of Investment Company Accounts with                            Performance-****Based Fee** | **Total Assets of Performance-Based Fee****Accounts** |
|----------------------------------|--------------------------------------------------|--------------------------------------------------------|-----------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|                             |                                             |                                                   |                                                                                                |                                                  |
| Joseph Axtell                    | 2                                                | $1,112,895,390                                         | 0                                                                                                   | $0                                                    |
| Robert S. Janis                  | 6                                                | $3,258,181,815                                         | 0                                                                                                   | $0                                                    |

 

***Other Pooled Investment Vehicles Managed:***

 

| **Name of****Portfolio Manager** | **Number of Pooled Investment****Vehicles** | **Total Assets of Pooled Investment****Vehicles** | **Number of Pooled Investment Vehicle Accounts                            with****Performance-Based                            Fee** | **Total Assets of Performance-Based Fee****Accounts** |
|----------------------------------|---------------------------------------------|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|                             |                                        |                                              |                                                                                                                                 |                                                  |
| Joseph Axtell                    | 0                                           | $0                                                | 0                                                                                                                                    | $0                                                    |
| Robert S. Janis                  | 0                                           | $0                                                | 0                                                                                                                                    | $0                                                    |

 

***Other Accounts Managed:***

 

| **Name                            of****Portfolio Manager** | **Number of****Other                            Accounts** | **Total Assets of****Other                            Accounts** | **Number of Other Accounts with****Performance-Based Fee** | **Total Assets of Performance-Based Fee****Accounts** |
|-------------------------------------------------------------|------------------------------------------------------------|------------------------------------------------------------------|------------------------------------------------------------|-------------------------------------------------------|
|                                                        |                                                       |                                                             |                                                       |                                                  |
| Joseph Axtell                                               | 0                                                          | $0                                                               | 0                                                          | $0                                                    |
| Robert S. Janis                                             | 1                                                          | $91,088,451                                                      | 0                                                          | $0                                                    |

 

In            addition to the accounts above, an investment professional may manage accounts in a            personal capacity that may include holdings that are similar to, or the same as, those            of the funds. The Advisor has in place a Code of Ethics that is designed to address            conflicts of interest and that, among other things, imposes restrictions on the ability            of portfolio managers and other “access persons” to invest in securities            that may be recommended or traded in the funds and other client accounts.

Real, potential or apparent conflicts of interest may arise when a            portfolio manager has day-to-day portfolio management responsibilities with respect to            more than one fund or account, including the following:

| **•** | Certain investments may be appropriate for the Fund and                            also for other clients advised by the Advisor, including other client                            accounts managed by the Fund’s portfolio management team.                            Investment decisions for the Fund and other clients are made with a                            view to achieving their respective investment objectives and after                            consideration of such factors as their current holdings, availability                            of cash for investment and the size of their investments generally. A                            particular security may be bought or sold for only one client or in                            different amounts and at different times for more than one but less                            than all clients. Likewise, because clients of the Advisor may have                            differing investment strategies, a particular security may be bought                            for one or more clients when one or more other clients are selling the                            security. The investment results achieved for the Fund may differ from                            the results achieved for other clients of the Advisor. In addition,                            purchases or sales of the same security may be made for two or more                            clients on the same day. In such event, such transactions will be                            allocated among the clients in a manner believed by the Advisor to be                            most equitable to |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

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each client, generally utilizing a pro rata allocation methodology. In            some cases, the allocation procedure could potentially have an adverse effect or            positive effect on the price or amount of the securities purchased or sold by the Fund.            Purchase and sale orders for the Fund may be combined with those of other clients of            the Advisor in the interest of achieving the most favorable net results to the Fund and            the other clients.

| **•** | To the extent that a portfolio manager has                            responsibilities for managing multiple client accounts, a portfolio                            manager will need to divide time and attention among relevant accounts.                            The Advisor attempts to minimize these conflicts by aligning its                            portfolio management teams by investment strategy and by employing                            similar investment models across multiple client accounts. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | In some cases, an apparent conflict may arise where the                            Advisor has an incentive, such as a performance-based fee, in managing                            one account and not with respect to other accounts it manages. The                            Advisor will not determine allocations based on whether it receives a                            performance-based fee from the client. Additionally, the Advisor has in                            place supervisory oversight processes to periodically monitor                            performance deviations for accounts with like strategies. |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | The Advisor and its affiliates and the investment team                            of the Funds may manage other mutual funds and separate accounts on a                            long-short basis. The simultaneous management of long and short                            portfolios creates potential conflicts of interest including the risk                            that short sale activity could adversely affect the market value of the                            long positions(and vice versa), the risk arising from sequential orders                            in long and short positions, and the risks associated with receiving                            opposing orders at the same time. The Advisor has adopted procedures                            that it believes are reasonably designed to mitigate these potential                            conflicts of interest. Included in these procedures are specific                            guidelines developed to ensure fair and equitable treatment for all                            clients whose accounts are managed by each Fund’s portfolio                            management team. The Advisor and the portfolio management team have                            established monitoring procedures, a protocol for supervisory reviews,                            as well as compliance oversight to ensure that potential conflicts of                            interest relating to this type of activity are properly                            addressed. |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The            Advisor is owned by Deutsche Bank AG, a multi-national financial services company.            Therefore, the Advisor is affiliated with a variety of entities that provide, and/or            engage in commercial banking, insurance, brokerage, investment banking, financial            advisory, broker-dealer activities (including sales and trading), hedge funds, real            estate and private equity investing, in addition to the provision of investment            management services to institutional and individual investors. Since Deutsche Bank AG,            its affiliates, directors, officers and employees (the “Firm”) are engaged            in businesses and have interests other than managing asset management accounts, such            other activities involve real, potential or apparent conflicts of interests. These            interests and activities include potential advisory, transactional and financial            activities and other interests in securities and companies that may be directly or            indirectly purchased or sold by the Firm for its clients’ advisory accounts.            These are considerations of which advisory clients should be aware and which may cause            conflicts that could be to the disadvantage of the Advisor’s advisory clients.            The Advisor has instituted business and compliance policies, procedures and disclosures            that are designed to identify, monitor and mitigate conflicts of interest and, as            appropriate, to report them to the Fund’s Board.

***Regulatory Matters***

On            September 28, 2006, the SEC and the National Association of Securities Dealers            (“NASD”) announced final agreements in which Deutsche Investment Management            Americas Inc. (“DIMA”), Deutsche Asset Management, Inc. (“DeAM,            Inc.”) and Scudder Distributors, Inc. (“DWS-SDI”) (now known as DWS            Scudder Distributors, Inc.) settled administrative proceedings regarding disclosure of            brokerage allocation practices in connection with sales of the Scudder Funds’            (now known as the DWS Scudder Funds) shares during 2001-2003. The agreements with the            SEC and NASD are reflected in orders which state, among other things, that DIMA and            DeAM, Inc. failed to disclose potential conflicts of interest to the fund Boards and to            shareholders relating to DWS-SDI’s use of certain funds’ brokerage            commissions to reduce revenue sharing costs to broker-dealer firms with whom it had            arrangements to market and distribute Scudder Fund shares. These directed brokerage            practices were discontinued in October 2003.

 

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Under the terms of the settlements, in which DIMA, DeAM, Inc. and            DWS-SDI neither admitted nor denied any of the regulators’ findings, DIMA, DeAM,            Inc. and DWS-SDI agreed to pay disgorgement, prejudgment interest and civil penalties            in the total amount of $19.3 million. The portion of the settlements distributed to the            funds was approximately $17.8 million and was paid to the funds as prescribed by the            settlement orders based upon the amount of brokerage commissions from each fund used to            satisfy revenue sharing agreements with broker-dealers who sold fund shares.

As            part of the settlements, DIMA, DeAM, Inc. and DWS-SDI also agreed to implement certain            measures and undertakings relating to revenue sharing payments including making            additional disclosures in the fund Prospectuses or Statements of Additional            Information, adopting or modifying relevant policies and procedures and providing            regular reporting to the fund Boards.

Additional information announced by DeAM regarding the terms of the            expected settlements will be made available at            www.dws-scudder.com/regulatory.settlements, which will also disclose the terms of any            final settlement agreements once they are announced. For discussion of other regulatory            matters see the Funds' prospectuses.

***Codes of Ethics***

The            Fund, the Advisor and the Fund’s principal underwriter have each adopted codes of            ethics under Rule 17j-1 under the 1940 Act. Board members, officers of the Trust and            employees of the Advisor and principal underwriter are permitted to make personal            securities transactions, including transactions in securities that may be purchased or            held by the Fund, subject to requirements and restrictions set forth in the applicable            Code of Ethics. The Advisor’s Code of Ethics contains provisions and requirements            designed to identify and address certain conflicts of interest between personal            investment activities and the interests of the Fund. Among other things, the            Advisor’s Code of Ethics prohibits certain types of transactions absent prior            approval, imposes time periods during which personal transactions may not be made in            certain securities, and requires the submission of duplicate broker confirmations and            quarterly reporting of securities transactions. Additional restrictions apply to            portfolio managers, traders, research analysts and others involved in the investment            advisory process. Exceptions to these and other provisions of the Advisor’s Code            of Ethics may be granted in particular circumstances after review by appropriate            personnel.

**FUND SERVICE PROVIDERS**

**Administrator**

 

DIMA, located at 345 Park Avenue, New York, New York 10154, serves as            the Fund’s administrator. The Fund recently entered into a new administrative            services agreement with DIMA (the “Administrative Services Agreement”),            pursuant to which DIMA provides most administrative services to the Fund including,            among others, providing the Fund with personnel, preparing and making required filings            on behalf of the Fund, maintaining books and records for the Fund, and monitoring the            valuation of Fund securities. For all services provided under the Administrative            Services Agreement, the Fund pays DIMA a fee of 0.100% of the Fund’s net            assets.

Under the Administrative Services Agreement, DIMA is obligated on a            continuous basis to provide such administrative services as the Board of the Fund            reasonably deems necessary for the proper administration of the Fund. DIMA provides the            Fund with personnel; arranges for the preparation and filing of the Fund’s tax            returns; prepares and submits reports and meeting materials to the Board and the            shareholders; prepares and files updates to the Fund’s prospectus and statement            of additional information as well as other reports required to be filed by the SEC;            maintains the Fund’s records; provides the Fund with office space, equipment and            services; supervises, negotiates the contracts of and monitors the performance of third            parties contractors; oversees the tabulation of proxies; monitors the valuation of            portfolio securities and monitors compliance with Board-approved valuation procedures;            assists in establishing the accounting and tax policies of the Fund; assists in the            resolution of accounting issues that may arise with respect to the Fund; establishes            and monitors the Fund’s operating expense budgets; reviews and processes the            Fund’s bills; assists in determining the amount of dividends and distributions            available to be paid by the Fund, prepares and arranges dividend notifications and            provides information to agents to effect payments thereof; provides to the Board            periodic and special reports; provides assistance with investor and public relations            matters; and monitors the registration of shares under applicable federal and state            law. The Administrative

 

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Services Agreement provides that the Advisor will not be liable under            the Administrative Services Agreement except for willful misfeasance, bad faith or            negligence in the performance of its duties or from the reckless disregard by it of its            duties and obligations thereunder.

Prior to July 1, 2006, DeAM, Inc., serving as the Fund’s            administrator, paid transfer agency fees out of the administration fee it received from            the Fund. For the fiscal years ended September 30, 2006*, 2005 and 2004, the Fund paid            the DeAM, Inc. administration fees of $180,337, $222,333 and $301,154, respectively.            For the fiscal year ended September 30, 2006 and 2005 130,711 and $172,823 was not            imposed.

*For the period from October 1, 2005 through June 30, 2006.

For            the period from July 1, 2006 through September 30, 2006 the Advisor received an            Administration fee of $23, 088, of which $7,332 is unpaid.

The            fees paid by a Fund to the Advisor pursuant to the Administrative Services Agreement            are reduced by the amount of any credits received from a Fund’s custodian for            cash balances.

Pursuant to DeAM procedures approved by the Boards on behalf of the DWS            funds, proof of claim forms are routinely filed on behalf of the DWS funds by a third            party service provider, with certain limited exceptions. The Boards of the DWS funds            receive periodic reports regarding the implementation of these procedures.

**Distributor**

The            Trust, on behalf of the Fund, has entered into a distribution agreement (the            “Distribution Agreement”) pursuant to which DWS Scudder Distributors, Inc.,            222 South Riverside Plaza, Chicago, IL 60606 (“DWS-SDI” or the            “Distributor”), as agent, serves as principal underwriter for the            continuous offering of shares of the Fund. DWS-SDI, an affiliate of the Advisor, is a            wholly owned subsidiary of Deutsche Bank AG. The Distributor has agreed to use its best            efforts to solicit orders for the purchase of shares of the Fund, although it is not            obligated to sell any particular amount of shares. Class A, B and C shares of the Fund            are subject to sales loads and distribution fees.

The            Distribution Agreement will remain in effect for one year from its effective date and            will continue in effect thereafter only if such continuance is specifically approved            annually by the Trustees, including a majority of the Trustees who are not parties to            the Distribution Agreement or “interested persons” of such parties. The            Distribution Agreement was most recently approved on August 5, 2004 by a vote of the            Trust’s Board of Trustees, including a majority of those Trustees who were not            parties to the Distribution Agreement or “interested persons” of any such            parties. The Distribution Agreement is terminable, as to the Fund, by vote of the Board            of Trustees, or by the holders of a majority of the outstanding shares of the Fund, at            any time without penalty on 60 days’ written notice to the Distributor. The            Distributor may terminate the Distribution Agreement at any time without penalty on 60            days’ written notice to the Trust.

The            terms and conditions of the Distribution Agreement are exactly the same as the            Distribution Agreement with ICC Distributors, Inc., the former distributor of the Fund.            DWS-SDI enters into a Selling Group Agreement with certain broker-dealers (each a            “Participating Dealer”). If a Participating Dealer previously had            agreements in place with DWS-SDI and ICC Distributors, Inc., the DWS-SDI Agreement            controls. If the Participating Dealer did not have an agreement with DWS-SDI, then the            terms of the assigned ICC Distributors, Inc. agreement remain in effect. These Selling            Group Agreements may be terminated by their terms or by the terms of the Distribution            Agreement, as applicable. DWS-SDI is a wholly owned subsidiary of Deutsche Bank AG. The            address for DWS-SDI is 222 South Riverside Plaza, Chicago, IL 60606.

**Class A, B and C Shares.**With respect to            Class A, B and C shares of the Fund, the Trust may enter into shareholder servicing            agreements with certain financial institutions to act as shareholder servicing agents,            pursuant to which the Distributor will allocate a portion of its distribution fee as            compensation for such financial institution’s ongoing shareholder services. The            Fund may also enter into shareholder servicing agreements pursuant to which the Advisor            or its affiliates will provide compensation out of its own resources for ongoing            shareholder services.

 

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Currently, banking laws and regulations do not prohibit a financial            holding company affiliate from acting as distributor or shareholder servicing agent or            in other capacities for investment companies. Should future legislative, judicial or            administrative action prohibit or restrict the activities of the shareholder servicing            agents in connection with the shareholder servicing agreements, the Trust may be            required to alter materially or discontinue its arrangements with the shareholder            servicing agents. Such financial institutions may impose separate fees in connection            with these services and investors should review the Prospectuses and this SAI in            conjunction with any such institution’s fee schedule.

Effective January 1, 2006, DWS-SDI will no longer advance the first year            distribution fee and service fee to firms for sales of Class C shares to employer            sponsored benefit plans using the OmniPlus subaccount record keeping system made            available through ADP, Inc. under an alliance with DWS-SDI and it affiliates. DWS-SDI            is compensated by the Fund for services as distributor and principal underwriter for            Class C shares.

As            compensation for providing distribution and shareholder services, the Distributor            expects to allocate up to all of its fee to Participating Dealers and Shareholder            Servicing Agents. As compensation for providing distribution and shareholder services            as described above for the Class A, Class B, and Class C, the Distributor receives an            annual fee, accrued daily and payable monthly, equal to 0.25%, 1.00% and 1.00%,            respectively, of their average average daily assets. (See the Prospectuses.) Prior to            July 1, 2006, Class B and Class C shares paid shareholder services fees of 0.25% of            their average daily net assets pursuant to administrative service plans.

For            the fiscal year ended September 30, 2006, the Fund paid shareholder servicing and            distribution fees as follows:

 

| **Distribution Fee** | **Total** | **Amount Waived** |
|----------------------|-----------|-------------------|
|                 |      |              |
| Class A              | $70,655   | NA                |
| Class B              | $36,312   | NA                |
| Class C              | $68,743   | NA                |

 

| **Shareholder Servicing Fee** | **Total** | **Amount Waived** |
|-------------------------------|-----------|-------------------|
|                          |      |              |
| Class B                       | $11,843   | NA                |
| Class C                       | $22,408   | NA                |

 

From            the Distribution Fee, Micro Cap Fund (Class B) paid the following expenses: $398 for            marketing and sales, $1,428 for media advertising, $184 for sales literature, $267 for            sales promotions, $107 for prospectus printing and $1148 for postage and            mailings.

From the Distribution Fee, Micro Cap Fund (Class C) paid the following            expenses: $1,856 for marketing and sales, $6,499, for media advertising, $996 for sales            literature, $1,334for sales promotions, $593 for prospectus printing and $572 for            postage and mailings.

Pursuant to Rule 12b-1 under the 1940 Act, investment companies may pay            distribution expenses, directly or indirectly, only pursuant to a plan adopted by the            investment company’s board trustees and approved by its shareholders. The Fund            has adopted plans of distribution for its Class A, B and C Shares (the            “Plans”). Under each plan, the Fund pays a fee to the Distributor for            distribution and other shareholder servicing assistance as set forth in the            Distribution Agreement, and the Distributor is authorized to make payments out of its            fee to Participating Dealers and Shareholder Servicing Agents. The Plans will remain in            effect from year to year as specifically approved (a) at least annually by the Board of            Trustees and (b) by the affirmative vote of a majority of the Independent Trustees, by            votes cast in person at a meeting called for such purpose.

In            approving the Plans, the Trustees concluded, in the exercise of reasonable business            judgment, that there was a reasonable likelihood that the Plans would benefit the Fund            and its shareholders. The Plans will be renewed only if the Trustees make a similar            determination in each subsequent year. The Plans may not be amended to increase            materially the fee to be paid pursuant to the Distribution Agreement without the            approval of the shareholders of the

 

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Fund. The Plans may be terminated at any time by the vote of a majority            of the Independent Trustees or by a vote of a majority of the Fund’s outstanding            shares.

During the continuance of the Plans, the Trustees will be provided for            their review, at least quarterly, a written report concerning the payments made under            the Plans to the Distributor pursuant to the Distribution Agreement and to            Participating Dealers pursuant to any Sub-Distribution Agreements. Such reports shall            be made by the persons authorized to make such payments. In addition, during the            continuance of the Plans, the selection and nomination of the Independent Trustees will            be committed to the discretion of the Independent Trustees then in office.

Under the Plans, amounts allocated to Participating Dealers and            Shareholder Servicing Agents may not exceed amounts payable to the Distributor under            the Plans. Payments under the Plans are made as described above regardless of the            Distributor’s actual cost of providing distribution services and may be used to            pay the Distributor’s overhead expenses. If the cost of providing shareholder            services to the Class A Shares is less than 0.25% of the Class A Shares’ average            daily net assets for any period or if the cost of providing shareholder services to the            Class B and C Shares is less than 1.00% of the classes’ respective average daily            net assets for any period, the unexpended portion of the distribution fees may be            retained by the Distributor. The Plans do not provide for any charges to the Fund for            excess amounts expended by the Distributor and, if any of the Plans is terminated in            accordance with its terms, the obligation of the Fund to make payments to the            Distributor pursuant to such Plan will cease and the Fund will not be required to make            any payments past the date the Distribution Agreement terminates with respect to that            class. In return for payments received pursuant to the Plans, the Distributor pays the            distribution-related expenses of the Fund including one or more of the following:            advertising expenses; printing and mailing of prospectuses to other than current            shareholders; compensation to dealers and sales personnel; and interest, carrying or            other financing charges.

If            a Rule 12b-1 Plan is terminated in accordance with its terms, the obligation of the            applicable Fund to make payments to DWS-SDI pursuant to the Rule 12b-1 Plan will cease            and the Fund will not be required to make any payments not previously accrued past the            termination date. Thus, there is no legal obligation for a Fund to pay any expenses            incurred by DWS-SDI other than fees previously accrued and payable under a Rule 12b-1            Plan, if for any reason the Rule 12b-1 Plan is terminated in accordance with its terms.            Future fees under the Rule 12b-1 Plan may or may not be sufficient to cover DWS-SDI for            its expenses incurred. On the other hand, under certain circumstances, DWS-SDI might            collect in the aggregate over certain periods more in fees under the Rule 12b-1 Plan            than it has expended over that same period in providing distribution services for a            Fund. In connection with Class B shares, for example, if shares of a Fund were to            appreciate (resulting in greater asset base against which Rule 12b-1 fees are charged)            and sales of the Fund’s shares were to decline (resulting in lower expenditures            by DWS-SDI under the Rule 12b-1 Plan), fees payable could exceed expenditures. This may            also happen over certain periods shorter than the life of the Rule 12b-1 Plan simply            due to the timing of expenses incurred by DWS-SDI that is not matched to the timing of            revenues received (e.g., a sales commission may be paid by DWS-SDI related to an            investment in year 1, while the Rule 12b-1 fee to DWS-SDI related to that investment            may accrue during year 1 through year 6 prior to conversion of the investment to Class            A shares). As a result, if DWS-SDI’s expenses are less than the Rule 12b-1 fees,            DWS-SDI will retain its full fees and make a profit.

During the fiscal year ended September 30, 2006, the Distributor            received commissions on the sale of the Fund’s Class A and contingent deferred            sales charges on the Fund’s Class A, Class B and Class C shares as            follows:

 

| Class A Commissions                      | $5,690  |
|------------------------------------------|---------|
| Class A Contingent Deferred Sales Charge | $10,864 |
| Class B Contingent Deferred Sales Charge | $10,864 |
| Class C Contingent Deferred Sales Charge | $711    |

 

**Transfer Agent**

DWS-SISC serves as the Fund’s transfer and dividend disbursing            agent. As the Fund’s transfer agent, DWS-SISC (i) maintains record shareholder            accounts and (ii) makes periodic reports to the Trust’s Board of Trustees            concerning the operations of the Fund.

 

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For            fiscal year ended June 30, 2006, the amount charged by DWS-SISC to the Fund aggregated            $18,172 (of which $17,122 was waived) for Class A shares; $3,690 (of which $3,145 was            waived) for Class B shares; $3,796 (of which $3,121 was waived) for Class C shares; and            $6,930 for Institutional Class shares (of which $5,726 was waived).

Pursuant to a sub-transfer agency agreement between DWS-SISC and DST            Systems, Inc. (“DST”), DWS-SISC has delegated certain transfer agent and            dividend paying agent functions to DST. Prior to July 1, 2006 the costs and expenses of            such delegation were born by DWS-SISC, not by the Fund.

The            Fund, or the Advisor (including any affiliate of the Advisor), or both, may pay            unaffiliated third parties for providing recordkeeping and other administrative            services with respect to beneficial owners of Fund shares whose interests are generally            held in an omnibus account.

**Custodian**

The            Fund employs State Street Bank and Trust Company (“SSB”) 225 Franklin            Street, Boston, Massachusetts 02110 as custodian. SSB has entered into agreements with            foreign subcustodians approved by the Trustees pursuant to Rule 17f-5 under the 1940            Act. SSB uses Deutsche Bank AG, an affiliate of the Investment Advisor, as subcustodian            (“DB Subcustodian”) in certain countries. To the extent the Fund holds any            securities in the countries in which SSB uses DB Subcustodian as a subcustodian, those            securities will be held by DB Subcustodian as part of a larger omnibus account in the            name of SSB (the “Omnibus Account”). For its services, DB Subcustodian            receives (1) an annual fee based on a percentage of the average daily net assets of the            Omnibus Account and (2) transaction charges with respect to transactions that occur            within the Omnibus Account.

The            Custodian is authorized to select one or more foreign or domestic banks or companies to            serve as sub-custodian on behalf of the Fund. Prior to April 7, 2003, Brown Brothers            Harriman & Co. served as the Fund’s custodian.

**Legal Counsel**

Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York            10019, serves as counsel to the Trust and the Fund.

Ropes & Gray LLP, One International Place, Boston, Massachusetts            02110-2624, serves as counsel to the Independent Trustees to the Trust.

**Independent Registered Public Accounting            Firm**

PricewaterhouseCoopers LLP, 125 High Street, Boston, Massachusetts 02110            acts as Independent Registered Public Accounting Firm for the Fund.

**PORTFOLIO TRANSACTIONS**

The Advisor is generally responsible for placing the orders for the            purchase and sale of portfolio securities, including the allocation of            brokerage.

The policy of the Advisor in placing orders for the purchase and sale of            securities for the Fund is to seek best execution, taking into account such factors,            among others, as price; commission (where applicable); the broker-dealer’s            ability to ensure that securities will be delivered on settlement date; the willingness            of the broker-dealer to commit its capital and purchase a thinly traded security for            its own inventory; whether the broker-dealer specializes in block orders or large            program trades; the broker-dealer’s knowledge of the market and the security; the            broker-dealer’s ability to maintain confidentiality; the financial condition of            the broker-dealer; and whether the broker-dealer has the infrastructure and operational            capabilities to execute and settle the trade. The Advisor seeks to evaluate the overall            reasonableness of brokerage commissions with commissions charged on comparable            transactions and compares the brokerage commissions (if any) paid by the Fund to            reported commissions paid by others. The Advisor routinely reviews commission rates,            execution and settlement services performed and makes internal and external            comparisons.

 

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Commission rates on transactions in equity securities on US securities            exchanges are subject to negotiation. Commission rates on transactions in equity            securities on foreign securities exchanges are generally fixed. Purchases and sales of            fixed-income securities and other OTC securities are effected on a net basis, without            the payment of brokerage commissions. Transactions in fixed income and other OTC            securities are generally placed by the Advisor with the principal market makers for            these securities unless the Advisor reasonably believes more favorable results are            available elsewhere. Transactions with dealers serving as market makers reflect the            spread between the bid and asked prices. Purchases of underwritten issues will include            an underwriting fee paid to the underwriter. Money market instruments are normally            purchased in principal transactions directly from the issuer or from an underwriter or            market maker.

It            is likely that the broker-dealers selected based on the considerations described in            this section will include firms that also sell shares of the Fund to their customers.            However, the Advisor does not consider sales of shares of the Fund as a factor in the            selection of broker-dealers to execute portfolio transactions for the Fund and,            accordingly, has implemented policies and procedures reasonably designed to prevent its            traders from considering sales of shares of the Fund as a factor in the selection of            broker-dealers to execute portfolio transactions for the Fund.

The Advisor is permitted by Section 28(e) of the Securities Exchange Act            of 1934, as amended (“1934 Act”), when placing portfolio transactions for a            fund, to cause the fund to pay brokerage commissions in excess of that which another            broker-dealer might charge for executing the same transaction in order to obtain            research and brokerage services. The Advisor, however, does not as a matter of policy            execute transactions with broker-dealers for the fund in order to obtain research from            such broker-dealers that is prepared by third parties            (*i.e.*, “third party            research”). However, the Advisor may from time to time, in reliance on Section            28(e) of the 1934 Act, obtain proprietary research prepared by the executing            broker-dealer in connection with a transaction or transactions through that            broker-dealer (*i.e.,*“proprietary research”). Consistent with the Advisor’s            policy regarding best execution, where more than one broker is believed to be capable            of providing best execution for a particular trade, the Advisor may take into            consideration the receipt of proprietary research in selecting the broker-dealer to            execute the trade.Proprietary research provided by broker-dealers            may include, but is not limited to, information on the economy, industries, groups of            securities, individual companies, statistical information, accounting and tax law            interpretations, political developments, legal developments affecting portfolio            securities, technical market action, pricing and appraisal services, credit analysis,            risk measurement analysis, performance analysis and measurement and analysis of            corporate responsibility issues. Proprietary research is typically received in the form            of written reports, telephone contacts and personal meetings with security analysts,            but may also be provided in the form of access to various computer software and            associated hardware, and meetings arranged with corporate and industry            representatives.

In            reliance on Section 28(e) of the 1934 Act, the Advisor may also select broker-dealers            and obtain from them brokerage services in the form of software and/or hardware that is            used in connection with executing trades. Typically, this computer software and/or            hardware is used by the Advisor to facilitate trading activity with those            broker-dealers.

Proprietary research and brokerage services received from a            broker-dealer chosen to execute a particular trade may be useful to the Advisor in            providing services to clients other than the fund making the trade, and not all such            information is used by the Advisor in connection with such fund. Conversely, such            information provided to the Advisor by broker-dealers through which other clients of            the Advisor effect securities transactions may be useful to the Advisor in providing            services to the fund.

The Advisor will monitor regulatory developments and market practice in            the use of client commissions to obtain research and brokerage services, whether            proprietary or third party.

Investment decisions for the Fund and for other investment accounts            managed by the Advisor are made independently of each other in light of differing            conditions. However, the same investment decision may be made for two or more of such            accounts. In such cases, simultaneous transactions are inevitable. To the extent            permitted by law, the Advisor may aggregate the securities to be sold or purchased for            a fund with those to be sold or purchased for other accounts in executing transactions.            Purchases or sales are then averaged as to price and commission and allocated as to            amount in a manner deemed equitable to each account. While in some cases this practice            could have a detrimental effect on the price paid or received by, or on the size of the            position obtained or

 

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disposed of for, the fund, in other cases it is believed that the            ability to engage in volume transactions will be beneficial to the fund.

Deutsche Bank AG or one of its affiliates may act as a broker for the            Fund and receive brokerage commissions or other transaction-related compensation from            the Fund in the purchase and sale of securities, options or futures contracts when, in            the judgment of the Advisor, and in accordance with procedures approved by the            Fund’s Board, the affiliated broker will be able to obtain a price and execution            at least as favorable as those obtained from other qualified brokers and if, in the            transaction, the affiliated broker charges the fund a rate consistent with that charged            to comparable unaffiliated customers in similar transactions.

Pursuant to procedures determined by the Trustees and subject to the            general policies of the Fund and Section 17(e) of the 1940 Act, the Advisor may place            securities transactions with brokers with whom it is affiliated (“Affiliated            Brokers”).

For            the fiscal year ended September 30, 2006, the Fund paid aggregate brokerage commissions            of $389,581. For the fiscal year ended September 30, 2005, the Fund paid aggregate            brokerage commissions of $458,539. For the fiscal years ended September 30, 2004 the            Fund paid aggregate brokerage commissions of $597,356.

The            Fund did not pay any affiliated brokerage commissions for its most recent fiscal year            end.

**Securities of Regular Broker-Dealers.**The            Fund is required to identify any securities of its “regular brokers or            dealers” (as such term is defined in the 1940 Act) which the Fund has acquired            during its most recent fiscal year. At September 30, 2006, the Fund held the following            securities of its regular brokers or dealers:

 

| **Name of Regular Broker or Dealer or Parent                            (Issuer)** | **Value of Securities Owned as of September 30,                            2006** |
|------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------|
|                                                                               |                                                                              |
| Bear                            Stearns & Co.                                  | $5,375,000                                                                        |
| Goldman Sachs                            & Co                                  | $3,406,000                                                                        |
| Capital One Financial                            Corp                              | $2,950,000                                                                        |
| HSBC                            Finance Corp.                                      | $4,402,000                                                                        |
| MBNA                            Corp                                               | $5,040,000                                                                        |
| JPMorgan Chase Co.                                                                 | $6,521,000                                                                        |
| Merrill Lynch & Co.                                                            | $3,971,000                                                                        |
| Wachovia Bank                                                                      | $9,141,000                                                                        |
| Lehman Brothers Holdings, Inc.                                                     | $3,062,000                                                                        |
| E-Trade Financial Corp.                                                            | $6,400,000                                                                        |

 

***Portfolio Turnover***

It            is estimated that, under normal circumstances, the portfolio turnover rate of the Fund            will not exceed 150%. A high rate of portfolio turnover (i.e., 100% or higher) will            result in correspondingly higher transaction costs to the Fund. A high rate of            portfolio turnover will also increase the likelihood of net short-term capital gains            (distributions which are taxable to shareholders as ordinary income).

The            Fund’s portfolio turnover rate is calculated by dividing the lesser of the dollar            amount of sales or purchases of portfolio securities by the average monthly value of            the Fund’s portfolio securities, excluding securities having a maturity at the            date of purchase of one year or less. For the fiscal years ended September 30, 2006 and            2005, the portfolio turnover rates for the Fund were 100% and 108%,            respectively.

**PURCHASES AND REDEMPTIONS OF            SHARES**

***General Information***

Policies and procedures affecting transactions in Fund shares can be            changed at any time without notice, subject to applicable law. Transactions may be            contingent upon proper completion of application forms and other documents

 

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by            shareholders and their receipt by the Fund’s agents. Transaction delays in            processing (and changing account features) due to circumstances within or beyond the            control of the Fund and its agents may occur. Shareholders (or their financial service            firms) are responsible for all losses and fees resulting from bad checks, cancelled            orders or the failure to consummate transactions effected pursuant to instructions            reasonably believed to be genuine.

A            distribution will be reinvested in shares of the same Fund and class if the            distribution check is returned as undeliverable.

Orders will be confirmed at a price based on the net asset value of the            Fund next determined after receipt in good order by DWS-SDI of the order accompanied by            payment. Orders received by dealers or other financial services firms prior to the            determination of net asset value and received in good order by DWS-SDI prior to the            determination of net asset value will be confirmed at a price based on the net asset            value next determined after receipt by DWS-SDI (“trade date”).

**Certificates.**Share certificates will not            be issued. Share certificates now in a shareholder’s possession may be sent to            the transfer agent for cancellation and book-entry credit to such shareholder’s            account. Certain telephone and other procedures require book-entry holdings.            Shareholders with outstanding certificates bear the risk of loss.

**Use of Financial Services Firms.**Investment            dealers and other firms provide varying arrangements for their clients to purchase and            redeem the Fund’s shares, including higher minimum investments, and may assess            transaction or other fees. Firms may arrange with their clients for other investment or            administrative services. Such firms may independently establish and charge additional            amounts to their clients for such services. Firms also may hold the Fund’s shares            in nominee or street name as agent for and on behalf of their customers. In such            instances, the Fund’s transfer agent, DWS Scudder Investments Service Company            (“DWS-SISC”), will have no information with respect to or control over the            accounts of specific shareholders. Such shareholders may obtain access to their            accounts and information about their accounts only from their firm. Certain of these            firms may receive compensation from the Fund through the Shareholder Service Agent for            record-keeping and other expenses relating to these nominee accounts. In addition,            certain privileges with respect to the purchase and redemption of shares or the            reinvestment of dividends may not be available through such firms. Some firms may            participate in a program allowing them access to their clients’ accounts for            servicing including, without limitation, transfers of registration and dividend payee            changes, and may perform functions such as generation of confirmation statements and            disbursement of cash dividends. Such firms, including affiliates of DWS-SDI, may            receive compensation from the Fund through the Shareholder Service Agent for these            services.

The            Fund will be deemed to have received a purchase or redemption order when an authorized            broker, service organization or, if applicable, an authorized designee, accepts the            order. Shares of the Fund may be purchased or redeemed on any business day at the net            asset value next determined after receipt of the order, in good order, by the Transfer            Agent. Investors who invest through authorized brokers, service organizations or their            designated intermediaries would submit purchase and redemption orders directly to their            broker, service organization or designated intermediary. The broker or intermediary may            charge you a transaction fee.

The            Fund has authorized one or more financial service institutions, including certain            members of the NASD other than the Distributor (“financial institutions”),            to accept purchase and redemption orders for the Fund’s shares. Such financial            institutions may also designate other parties, including plan administrator            intermediaries, to accept purchase and redemption orders on the Fund’s behalf.            Orders for purchases or redemptions will be deemed to have been received by the Fund            when such financial institutions or, if applicable, their authorized designees accept            the orders. Subject to the terms of the contract between the Fund and the financial            institution, ordinarily orders will be priced at the Fund’s net asset value next            computed after acceptance by such financial institution or its authorized designees and            accepted by the Fund. Further, if purchases or redemptions of the Fund’s shares            are arranged and settlement is made at an investor’s election through any other            authorized financial institution, that financial institution may, at its discretion,            charge a fee for that service. The Board of Trustees and the Distributor, also the            Fund’s principal underwriter, each has the right to limit the amount of purchases            by, and to refuse to sell to, any person. The Trustees and the Distributor may suspend            or terminate the offering of shares of the Fund at any time for any reason.

 

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DWS-SDI, the Fund’s distributor, has adopted an Incentive Plan            (the “Plan”) covering wholesalers that are regional vice presidents            (“DWS Scudder Wholesalers”). Generally, DWS Scudder Wholesalers market            shares of the DWS funds to your financial advisor, who in turn may recommend that you            purchase shares of a DWS fund. The Plan is an incentive program that combines a monthly            incentive component with a quarterly strategic bonus component. Under the Plan, DWS            Scudder Wholesalers will receive a monetary monthly incentive based on the amount of            sales generated from their marketing of the Fund, and that incentive will differ            depending on the product category of the Fund. The Fund is assigned to one of three            product categories — “Core,” “Satellite” or            “Non-Core/Satellite” — taking into consideration, among other things,            the following criteria, where applicable:

| **•** | The Fund’s 3 year performance; |
|------------|--------------------------------------|

| **•** | The Fund’s Morningstar rating; |
|------------|--------------------------------------|

| **•** | Market size for the fund category; |
|------------|------------------------------------|

| **•** | The Fund’s size, including sales and redemptions                            of the fund’s shares; |
|------------|---------------------------------------------------------------------------------------------------------------|

| **•** | The length of time the Fund’s Portfolio Manager                            has managed the fund; and |
|------------|------------------------------------------------------------------------------------------------------------|

| **•** | The Fund’s consistency with DWS Scudder’s                            branding. |
|------------|--------------------------------------------------------------------------------------------|

This information and other factors are presented to a committee            comprised of representatives from various groups within DWS Scudder, who review on a            quarterly basis the funds assigned to each product category described above, and make            any changes to those assignments at that time. No one factor, whether positive or            negative, determines a fund’s placement in a given category; all these factors            together are considered, and the designation of funds in the Core and Satellite            categories represents management’s judgment based on the above criteria. In            addition, management may consider a fund’s profile over the course of several            review periods before making a change to its category assignment. These category            assignments will be posted quarterly to the DWS fund website at www.dws-scudder.com,            approximately one month after the end of each quarter. DWS Scudder Wholesalers will            receive the highest compensation for Core funds, less for Satellite funds and the            lowest for Non-Core/Satellite funds.

In            the normal course of business, DWS Scudder will from time to time introduce new funds            into the DWS family of funds. As a general rule, all new funds will be placed in a New            Fund compensation category for a minimum period of four consecutive quarters, and DWS            Scudder Wholesalers will be paid at a rate that is equivalent to that of the Core Fund            category. After that four quarter period, each fund in the New Fund category will be            reviewed by the committee and either assigned to one of the three categories or            continued as a New Fund at that time.

The            prospect of receiving, or the receipt of, additional compensation by a DWS Scudder            Wholesaler under the Plan may provide an incentive to favor marketing the Core or            Satellite funds over the Non-Core/Satellite funds. The Plan, however, will not change            the price that you pay for shares of the fund. The DWS Scudder Compliance Department            monitors DWS Scudder Wholesaler sales and other activity in an effort to detect unusual            activity in the context of the compensation structure under the Plan. However,            investors may wish to take the Plan and the product category of the fund into account            when considering purchasing a fund or evaluating any recommendations relating to fund            shares.

**Telephone and Electronic Transaction Procedures.**Shareholders have various telephone, Internet, wire and other electronic            privileges available. The Fund or its agents may be liable for any losses, expenses or            costs arising out of fraudulent or unauthorized instructions pursuant to these            privileges unless the Fund or its agents reasonably believe, based upon reasonable            verification procedures, that the instructions were genuine. Verification procedures            include recording instructions, requiring certain identifying information before acting            upon instructions and sending written confirmations. During periods when it is            difficult to contact the Shareholder Service Agent, it may be difficult to use            telephone, wire and other privileges.

**QuickBuy and QuickSell.**QuickBuy and            QuickSell permits the transfer of money via the Automated Clearing House System            (minimum $50, maximum $250,000) from or to a shareholder’s bank, savings and            loan, or credit union account in connection with the purchase or redemption of Fund            shares. Shares purchased by check or through QuickBuy and QuickSell or Direct Deposit            may not be redeemed under this privilege until such shares have been owned for at least            10 calendar days. QuickBuy and QuickSell cannot be used with passbook savings accounts            or for certain tax-deferred plans such as IRAs.

 

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**Tax-Sheltered Retirement Plans.**The            Shareholder Service Agent provides retirement plan services and documents and DWS-SDI            can establish investor accounts in any of the following types of retirement            plans:

| **•** | Traditional, Roth and Education                            IRAs*.*This                            includes Savings Incentive Match Plan for Employees of Small Employers                            (“SIMPLE”), Simplified Employee Pension Plan                            (“SEP”) IRA accounts and prototype documents. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | 403(b)(7) Custodial                            Accounts*.*This                            type of plan is available to employees of most non-profit                            organizations. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Prototype money purchase pension and profit-sharing                            plans may be adopted by employers. |
|------------|-------------------------------------------------------------------------------------------------------------------|

Brochures describing these plans as well as model defined benefit plans,            target benefit plans, 457 plans, 401(k) plans, SIMPLE 401(k) plans and materials for            establishing them are available from the Shareholder Service Agent upon request.            Additional fees and transaction policies and procedures may apply to such plans.            Investors should consult with their own tax advisors before establishing a retirement            plan.

***Purchases***

The            Fund reserves the right to withdraw all or any part of the offering made by the            Prospectuses and to reject purchase orders for any reason. Also, from time to time, the            Fund may temporarily suspend the offering of any class of its shares to new investors.            During the period of such suspension, persons who are already shareholders of such            class of such Fund may be permitted to continue to purchase additional shares of such            class and to have dividends reinvested.

To            help the government fight the funding of terrorism and money laundering activities,            federal law requires all financial institutions to obtain, verify and record            information that identifies each person who opens an account. For more information,            please see “Policies You Should Know About” in the prospectus.

**Financial Services Firms’            Compensation.**Banks and other financial services firms may            provide administrative services related to order placement and payment to facilitate            transactions in shares of each Fund for their clients, and DWS-SDI may pay them a            transaction fee up to the level of the discount or commission allowable or payable to            dealers.

DWS-SDI may, from time to time, pay or allow to firms a 1% commission on            the amount of shares of each Fund sold under the following conditions: (i) the            purchased shares are held in a DWS Scudder IRA account, (ii) the shares are purchased            as a direct “roll over” of a distribution from a qualified retirement plan            account maintained on the subaccount record keeping system maintained for DWS-branded            plans by ADP, Inc. under an alliance with DWS-SDI and its affiliates, (iii) the            registered representative placing the trade is a member of the Executive Council, a            group of persons designated by DWS-SDI in acknowledgment of their dedication to the            employee benefit plan area and (iv) the purchase is not otherwise subject to a            commission. Furthermore, DWS-SDI may, from time to time, pay or allow to firms a 0.25%            commission on the amount of Class R shares of each Fund sold.

In            addition to the discounts or commissions described herein and in the Prospectuses,            DWS-SDI may pay or allow additional discounts, commissions or promotional incentives,            in the form of cash, to firms that sell shares of each Fund. In some instances, such            amounts may be offered only to certain firms that sell or are expected to sell during            specified time periods certain minimum amounts of shares of each Fund, or other Funds            underwritten by DWS-SDI.

Upon notice to all dealers, DWS-SDI may re-allow to dealers up to the            full applicable Class A sales charge during periods and for transactions specified            in such notice and such re-allowances may be based upon attainment of minimum sales            levels. During periods when 90% or more of the sales charge is re-allowed, such dealers            may be deemed to be underwriters as that term is defined in the 1933 Act.

 

----

DWS-SDI may at its discretion compensate investment dealers or other            financial services firms in connection with the sale of Class A shares of the Fund            in accordance with the Large Order NAV Purchase Privilege and one of the three            compensation schedules up to the following amounts:

 

| **Compensation Schedule #1:****Retail Sales and DWS Scudder Flex                            Plan**(1)                                         | **Compensation Schedule #2:****DWS Scudder Retirement                            Plan**(2) |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------|
| **Amount of****Shares Sold**                                                                                                                  | **As a Percentage of Net****Asset Value**                                                  | **Amount of****Shares Sold** | **As a****Percentage****of Net****Asset Value** |
|                                                                                                                                          |                                                                                       |   |   |
| $1 million to $3 million (equity funds)                                                                                                       | 1.00%                                                                                      | Over $3 million | 0.00% - 0.50% |
| $1 million - $3 million (fixed income funds)                                                                                                  | 0.85%                                                                                      |   |   |
| $1 million - $3 million (DWS Short Term Bond Fund, DWS                            Short Duration Fund and DWS Short-Term Municipal Bond Fund) | 0.75%                                                                                      |   |   |
| Over $3 million to $50 million                                                                                                                | 0.50%                                                                                      | — | — |
| Over $50 million                                                                                                                              | 0.25%                                                                                      | — | — |

 

| **Compensation Schedule #3:****DWS Scudder Choice                            Plan**(3)        |
|-----------------------------------------------------------------------------------------------|
| **Amount of****Shares Sold**                                                                  | **As a Percentage of Net****Asset Value** |
|                                                                                          |   |
| All amounts (equity funds)                                                                    | 1.00% |
| All amounts (fixed income funds)                                                              | 0.85% |
| All amounts (DWS Short Duration Fund and DWS Short Term                            Bond Fund) | 0.75% |

             

| (1) | For purposes of determining the appropriate commission                            percentage to be applied to a particular sale under the foregoing                            schedule, DWS-SDI will consider the cumulative amount invested by the                            purchaser in a Fund and other Funds listed under “Special                            Features — Class A Shares — Combined Purchases,”                            including purchases pursuant to the “Combined Purchases,”                            “Letter of Intent” and “Cumulative Discount”                            features referred to below. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Compensation Schedules 2 applies to employer sponsored                            employee benefit plans using the OmniPlus subaccount record keeping                            system made available through ADP, Inc. under an alliance with DWS-SDI                            and its affiliates. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | DWS-SDI compensates UBS Financial at a rate of                            0.50%. |
|-----|----------------------------------------------------------------------------------|

DWS-SDI compensates firms for sales of Class B shares at the time            of sale at a commission rate of up to 3.75% of the amount of Class B shares            purchased. DWS-SDI is compensated by the Fund for services as distributor and principal            underwriter for Class B shares. Except as provided below, for sales of Class C            shares, DWS-SDI advances to firms the first year distribution fee at a rate of 0.75% of            the purchase price of such shares, and, for periods after the first year, DWS-SDI            currently pays firms for sales of Class C shares a distribution fee, payable            quarterly, at an annual rate of 0.75% of net assets attributable to Class C shares            maintained and serviced by the firm. For sales of Class C shares to employer sponsored            employee benefit plans using the OmniPlus subaccount record keeping system made            available through ADP, Inc. under an alliance with DWS-SDI and its affiliates, DWS-SDI            does not advance the first year distribution fee and for periods after the date of            sale, DWS-SDI currently pays firms a distribution fee, payable quarterly, at an annual            rate of 0.75% based on netassets as of the last business day of            the month attributable to Class C shares maintained and serviced by the firm.            DWS-SDI is compensated by the Fund for services as distributor and principal            underwriter for Class C shares.

 

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**Revenue Sharing**

In            light of recent regulatory developments, the investment advisor (the            “Advisor”), DWS Scudder Distributors, Inc. (the “Distributor”)            and their affiliates have undertaken to furnish certain additional information below            regarding the level of payments made by them to selected affiliated and unaffiliated            brokers, dealers, participating insurance companies or other financial intermediaries            (“financial advisors”) in connection with the sale and/or distribution of            Fund shares or the retention and/or servicing of investors and Fund shares            (“revenue sharing”).

The            Advisor, the Distributor and/or their affiliates may pay additional compensation, out            of their own assets and not as an additional charge to the Fund, to financial advisors            in connection with the sale and/or distribution of Fund shares or the retention and/or            servicing of Fund investors and Fund shares. Such revenue sharing payments are in            addition to any distribution or service fees payable under any Rule 12b-1 or service            plan of any fund, any record keeping/sub-transfer agency fees payable by the Fund            (generally by reimbursement to the Distributor or an affiliate) to certain financial            advisors for performing such services and any sales charges, commissions, non-cash            compensation arrangements expressly permitted under applicable rules of the NASD or            other concessions described in the fee table or elsewhere in the prospectus or the SAI            as payable to all financial advisors. For example, the Advisor, the Distributor and/or            their affiliates may compensate financial advisors for administrative, sub-accounting            or shareholder processing services and/or for providing a fund with “shelf            space” or access to a third party platform or fund offering list, or other            marketing programs including, without limitation, inclusion of the Fund on preferred or            recommended sales lists, mutual fund “supermarket” platforms and other            formal sales programs; granting the Distributor access to the financial advisor’s            sales force; granting the Distributor access to the financial advisor’s            conferences and meetings; assistance in training and educating the financial            advisor’s personnel; and, obtaining other forms of marketing support. The level            of revenue sharing payments made to financial advisors may be a fixed fee or based upon            one or more of the following factors: gross sales, current assets and/or number of            accounts of the Fund attributable to the financial advisor, the particular fund or fund            type or other measures as agreed to by the Advisor, the Distributor and/or their            affiliates and the financial advisors or any combination thereof. The amount of these            payments is determined at the discretion of the Advisor, the Distributor and/or their            affiliates from time to time, may be substantial, and may be different for different            financial advisors based on, for example, the nature of the services provided by the            financial advisor.

The            Advisor, the Distributor and/or their affiliates currently make revenue sharing            payments from their own assets in connection with the sale and/or distribution of DWS            Fund shares, or the retention and/or servicing of investors and DWS Fund shares to            financial advisors in amounts that generally range from .01% up to .50% of assets of            the Fund serviced and maintained by the financial advisor, .05% to .40% of sales of the            Fund attributable to the financial advisor, a flat fee of $12,500 up to $500,000, or            any combination thereof. These amounts are subject to change at the discretion of the            Advisor, the Distributor and/or their affiliates. Receipt of, or the prospect of            receiving, this additional compensation, may influence your financial advisor’s            recommendation of this Fund or of any particular share class of the Fund. You should            review your financial advisor’s compensation disclosure and/or talk to your            financial advisor to obtain more information on how this compensation may have            influenced your financial advisor’s recommendation of this Fund.

The            Advisor, the Distributor and/or their affiliates may also make such revenue sharing            payments to financial advisors under the terms discussed above in connection with the            distribution of both DWS funds and non-DWS funds by financial advisors to retirement            plans that obtain record keeping services from ADP, Inc. on the DWS Scudder branded            retirement plan platform (the “Platform") with the level of revenue sharing            payments being based upon sales of both the DWS funds and the non-DWS funds by the            financial advisor on the Platform or current assets of both the DWS funds and the            non-DWS funds serviced and maintained by the financial advisor on the            Platform.

As            of the date hereof, the Advisor, the Distributor and their affiliates expect that the            following firms will receive revenue sharing payments at different points during the            coming year as described above:

 

**Channel: Broker-Dealers and Financial Advisors**

 

A G            Edwards & Sons Inc.

AIG            Advisors Group

 

----

Cadaret, Grant & Co. Inc.

Brown            Brothers Harriman

Capital            Analyst, Incorporated

Citicorp Investment Services

Citigroup Global Markets, Inc. (dba Smith Barney)

Commonwealth Equity Services, LLP (dba Commonwealth Financial            Network)

HD Vest            Investment Securities, Inc.

ING            Group

LaSalle            Financial Services, Inc.

Linsco/Private Ledger Corp.

McDonald Investments Inc.

Merrill            Lynch, Pierce, Fenner & Smith Inc.

Morgan            Stanley

Oppenheimer & Co., Inc.

Pacific            Select Distributors Group

The            Principal Financial Group

Prudential Investments

Raymond            James & Associates

Raymond            James Financial Services

RBC            Dain Rauscher, Inc

Securities America, Inc.

UBS            Financial Services

Wachovia Securities

Wells            Fargo Investments, LLC

 

**Channel: Fund Supermarket Platforms**

 

ADP            Clearing

Charles            Schwab & Co., Inc.

E*Trade

Fidelity Investments

First            Trust

National Financial

National Investor Services Corporation

Pershing LLC

USAA            Investment Management

 

**Channel: Defined Contribution Investment Only            Platforms**

 

401K            Investment Services

ACS /            Buck Consultants

ADP,            Inc.

Alliance Benefit Group Financial Services Corp.

American Express Financial Advisors, Inc.

AMG            Service Corp. / Lincoln Retirement Services Company, LLC

AST            Trust Company

Benefit            Administration

BISYS

Ceridian Retirement Plan Services

Charles            Schwab & Co., Inc.

Charles            Schwab Trust Company

City            National Bank

Citistreet

C.N.A.            Trust

Compusys/ERISA Group Inc.

 

----

Copeland Companies

CPI            Qualified Plans Daily Access.Com Inc.

Digital            Retirement Solutions

Edgewood Services

Expert            Plan Inc.

Federated Securities Corp.

Fidelity Institutional Retirement Services Company

Fisserv

Franklin Templeton Defined Contribution

GoldK

Great            West Life and Annuity / BenefitsCorp Equities Inc.

Hand            Securities

Hartford Life Insurance Company

Hewitt            Assoc. LLC

INGAetna Trust Company

Invesmart

JPMorgan Retirement Plan Services LLC

John            Hancock

Lincoln            National Life

Marsh            Insurance & Investment Company

Marshall & Ilsley Trust Company

Maryland Supplemental Retirement Plan

Matrix            Settlement & Clearance

Mercer            HR Services

Merrill            Lynch, Pierce, Fenner & Smith Inc.

Met            Life

MFS

Mid            Atlantic Capital Corporation

Nationwide Trust Company

Nationwide Financial

Neuberger Berman

New            York Life Investment Management Service Company

Nyhart/Alliance Benefit Group Indiana

PFPC,            Inc.

Plan            Administrators, Inc.

PNC            Bank N.A.

Principal Life Insurance Company

Prudential Investments

Reliance Trust Company

Resource Trust (IMS)

Retirement Financial Services

State            Street Bank and Trust Company

SunGard            Investment Products Inc.

The            Princeton Retirement Group, Inc.

T. Rowe            Price

Union            Bank of California

UMB            Bank

Valic/Virsco Retirement Services Co

Vanguard Group

Wachovia Bank (First Union National Bank)

Wells            Fargo

Wilmington Trust

 

----

 

**Channel: Cash Product Platform**

 

ADP            Clearing & Outsourcing

Allegheny Investments LTD

Bank of            New York (Hare & Co.)

Bear            Stearns

Brown            Investment Advisory & Trust Company

Brown            Brothers Harriman

Cadaret            Grant & Co.

Chase            Manhattan Bank

Chicago            Mercantile Exchange

| Citibank, N.A. |
|----------------|

D.A.            Davidson & Company

DB Alex            Brown/Pershing

DB            Securities

Deutsche Bank Trust Company Americas

Emmett            A. Larkin Company

Fiduciary Trust Co. – International

Huntleigh Securities

Lincoln            Investment Planning

Linsco            Private Ledger Financial Services

Mellon            Bank

Nesbitt            Burns Corp.

Penson            Financial Services

Pershing Choice Platform

Profunds Distributors, Inc.

SAMCO            Capital Markets (Fund Services, Inc.)

Saturn            & Co. (Investors Bank & Trust Company)

Smith            Moore & Company

Sungard            Financial

Turtle            & Co. (State Street)

UBS

US            Bank

William            Blair & Company

 

**Channel: Third Party Insurance Platforms**

 

Allmerica Financial Life Insurance Company

Allstate Life Insurance Company of New York

Ameritas Life Insurance Group

American General Life Insurance Company

Annuity            Investors Life Insurance Company

Columbus Life Insurance Company

Companion Life Insurance Company

Connecticut General Life Insurance Company

Farmers            New World Life Insurance Company

Fidelity Security Life Insurance Company

First            Allmerica Financial Life Insurance Company

First            Great-West Life and Annuity Insurance Company

First            MetLife Investors Insurance Company

Genworth Life Insurance Company of New York

Genworth Life and Annuity Insurance Company

Great            West Life and Annuity Insurance Company

Hartford Life Insurance Company

 

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Hartford Life and Annuity Insurance Company

ICMG            Registered Variable Life

John            Hancock Life Insurance Company of New York

John            Hancock Life Insurance Company (U.S.A.)

Kemper            Investors Life Insurance Company

Lincoln            Benefit Life Insurance Company

Lincoln            Life & Annuity Company of New York

Lincoln            National Life Insurance Company

Massachusetts Mutual Life Insurance Company

MetLife            Group

Minnesota Life Insurance Company

Mutual            of America Life Insurance Company

National Life Insurance Company

Nationwide Financial Services Inc.

Nationwide Life and Annuity Company of America

Nationwide Life Insurance Company of America

New            York Life Insurance and Annuity Corporation

Phoenix            Life Insurance Company

Protective Life Insurance

Prudential Insurance Company of America

Sun            Life Assurance Company of Canada (U.S.)

Sun            Life Assurance and Annuity Company of New York

Symetra            Life Insurance Company

Transamerica Life Insurance Company

Union            Central Life Insurance Company

United            of Omaha Life Insurance Company

United            Investors Life Insurance Company

Western            Southern Life Assurance Company

Any            additions, modifications or deletions to the financial advisors identified above that            have occurred since the date hereof are not reflected.

The            Advisor, the Distributor or their affiliates may enter into additional revenue sharing            arrangements or change or discontinue existing arrangements with financial advisors at            any time without notice.

The            prospect of receiving, or the receipt of additional compensation or promotional            incentives described above by financial advisors may provide such financial advisors            and/or their salespersons with an incentive to favor sales of shares of the DWS Funds            or a particular DWS Fund over sales of shares of mutual funds (or non-mutual fund            investments) with respect to which the financial advisor does not receive additional            compensation or promotional incentives, or receives lower levels of additional            compensation or promotional incentives. Similarly, financial advisors may receive            different compensation or incentives that may influence their recommendation of any            particular share class of the Fund or of other funds. These payment arrangements,            however, will not change the price that an investor pays for Fund shares or the amount            that a Fund receives to invest on behalf of an investor and will not increase Fund            expenses. You may wish to take such payment arrangements into account when considering            and evaluating any recommendations relating to Fund shares and you should discuss this            matter with your financial advisor and review your financial advisor’s            disclosures.

It            is likely that broker-dealers that execute portfolio transactions for the Fund will            include firms that also sell shares of the DWS funds to their customers. However, the            Advisor will not consider sales of DWS fund shares as a factor in the selection of            broker-dealers to execute portfolio transactions for the DWS funds. Accordingly, the            Advisor has implemented policies and procedures reasonably designed to prevent its            traders from considering sales of DWS fund shares as a factor in the selection of            broker-dealers to execute portfolio transactions for the Funds. In addition, the            Advisor, the Distributor and/or their affiliates will not use fund brokerage to pay for            their obligation to provide additional compensation to financial advisors as described            above.

 

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**Class** **A            Purchases.**The public offering price of Class A shares for            purchasers choosing the initial sales charge alternative is the net asset value plus a            sales charge, as set forth below.

 

|                              | **Sales                            Charge**                                                       |
|-----------------------------------|---------------------------------------------------------------------------------------------------|
| **Amount of Purchase**            | **As a                            Percentage**

**of                            Offering Price*** | **As a                            Percentage of****Net Asset                            Value**** | **Allowed                            to Dealers**

**as a                            Percentage of****Offering                            Price** |
|                              |                                                                                              |   |   |
| Less than $50,000                 | 5.75%                                                                                             | 6.10% | 5.20% |
| $50,000 but less than $100,000    | 4.50                                                                                              | 4.71 | 4.00 |
| $100,000 but less than $250,000   | 3.50                                                                                              | 3.63 | 3.00 |
| $250,000 but less than $500,000   | 2.60                                                                                              | 2.67 | 2.25 |
| $500,000 but less than $1 million | 2.00                                                                                              | 2.04 | 1.75 |
| $1 million and over               | 0.00***                                                                                           | 0.00*** | 0.00**** |

 

| * | The Offering Price includes sales charge. |
|---|-------------------------------------------|

| ** | Rounded to the nearest one-hundredth percent. |
|----|-----------------------------------------------|

| *** | Redemption of shares may be subject to a contingent                            deferred sales charge, as discussed below. |
|-----|---------------------------------------------------------------------------------------------------------------------------|

| **** | Commission is payable by DWS-SDI, as discussed                            below. |
|------|----------------------------------------------------------------------------------|

**Class A Quantity Discounts.**An investor or            the investor’s dealer or other financial services firm must notify the            Shareholder Service Agent or DWS-SDI whenever a quantity discount or reduced sales            charge is applicable to a purchase. In order to qualify for a lower sales charge, all            orders from an organized group will have to be placed through a single investment            dealer or other firm and identified as originating from a qualifying            purchaser.

**Combined Purchases.**The Fund’s Class A            shares may be purchased at the rate applicable to the sales charge discount bracket            attained by combining same day investments in Class A shares of any DWS Funds that bear            a sales charge.

**Letter of Intent.**The reduced sales charges            for Class A shares, as shown in the applicable prospectus, also apply to the aggregate            amount of purchases of Class A shares of DWS Funds that bear a sales charge made by any            purchaser within a 24-month period under a written Letter of Intent            (“Letter”) provided by DWS-SDI. The Letter, which imposes no obligation to            purchase or sell additional Class A shares, provides for a price adjustment depending            upon the actual amount purchased within such period. The Letter provides that the first            purchase following execution of the Letter must be at least 5% of the amount of the            intended purchase, and that 5% of the amount of the intended purchase normally will be            held in escrow in the form of shares pending completion of the intended purchase. If            the total investments under the Letter are less than the intended amount and thereby            qualify only for a higher sales charge than actually paid, the appropriate number of            escrowed shares are redeemed and the proceeds used toward satisfaction of the            obligation to pay the increased sales charge. The Letter for an employer-sponsored            employee benefit plan maintained on the subaccount record keeping system available            through ADP, Inc. under an allowance with DWS-SDI and its affiliates may have special            provisions regarding payment of any increased sales charge resulting from a failure to            complete the intended purchase under the Letter. A shareholder may include the value            (at the maximum offering price, which is determined by adding the maximum applicable            sales load charged to the net asset value) of all Class A shares of such DWS Funds held            of record as of the initial purchase date under the Letter as an “accumulation            credit” toward the completion of the Letter, but no price adjustment will be made            on such shares.

**Class A Cumulative Discount.**Class A shares            of the Fund may also be purchased at the rate applicable to the discount bracket            attained by adding to the cost of shares being purchased, the value of all Class A            shares of DWS Funds that bear a sales charge (computed at the maximum offering price at            the time of the purchase for which the discount is applicable) already owned by the            investor or his or her immediate family member (including the investor’s spouse            or life partner and children or stepchildren age 21 or younger.)

 

----

For            purposes of the Combined Purchases, Letter of Intent and Cumulative Discount features            described above, employer sponsored employee benefit plans using the Flex subaccount            record keeping system available through ADP, Inc. under an allowance with DWS-SDI and            its affiliates may include: (a) Money Market Funds as “DWS Funds,” (b) all            classes of shares of any DWS Fund and (c) the value of any other plan investments, such            as guaranteed investment contracts and employer stock, maintained on such subaccount            record keeping system. Once eligible plan assets under this provision reach the            $1,000,000 threshold, a later decline in assets below the $1,000,000 threshold will not            affect the plan’s ability to continue to purchase Class A shares at net asset            value.

**Class A NAV Sales.**Class A shares may be            sold at net asset value to:

| (a) | a current or former director or trustee of Deutsche or                            DWS family of funds; |
|-----|--------------------------------------------------------------------------------------------------------|

| (b) | an employee (including the employee’s spouse or                            life partner and children or stepchildren age 21 or younger) of                            Deutsche Bank or its affiliates or of a subadvisor to any fund in the                            DWS family of funds or of a broker-dealer authorized to sell shares of                            the Fund or service agents of the Funds; |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | certain professionals who assist in the promotion of DWS                            family of funds pursuant to personal services contracts with DWS-SDI,                            for themselves or members of their families. DWS-SDI in its discretion                            may compensate financial services firms for sales of Class A shares                            under this privilege at a commission rate of 0.50% of the amount of                            Class A shares purchased; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | any trust, pension, profit-sharing or other benefit plan                            for only such persons listed under the preceding paragraphs (a) and                            (b); |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | persons who purchase such shares through bank trust                            departments that process such trades through an automated, integrated                            mutual fund clearing program provided by a third party clearing                            firm; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | selected employees (including their spouses or life                            partners and children or stepchildren age 21 or younger) of banks and                            other financial services firms that provide administrative services                            related to order placement and payment to facilitate transactions in                            shares of the Fund for their clients pursuant to an agreement with                            DWS-SDI or one of its affiliates. Only those employees of such banks                            and other firms who as part of their usual duties provide services                            related to transactions in Fund shares qualify; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | unit investment trusts sponsored by Ranson &                            Associates, Inc. and unitholders of unit investment trusts sponsored by                            Ranson & Associates, Inc. or its predecessors through reinvestment                            programs described in the prospectuses of such trusts that have such                            programs; |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | through certain investment advisors registered under the                            Investment Advisers Act of 1940 and other financial services firms                            acting solely as agent for their clients, that adhere to certain                            standards established by DWS-SDI, including a requirement that such                            shares be sold for the benefit of their clients participating in an                            investment advisory program or agency commission program under which                            such clients pay a fee to the investment advisor or other firm for                            portfolio management or agency brokerage services. Such shares are sold                            for investment purposes and on the condition that they will not be                            resold except through redemption or repurchase by the Fund; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (i) | employer sponsored employee benefit plans using the Flex                            subaccount recordkeeping system (“Flex Plans”) made                            available through ADP under an alliance with DWS-SDI and its                            affiliates, established prior to October 1, 2003, provided that the                            Flex Plan is a participant-directed plan that has not less than 200                            eligible employees; |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (j) | investors investing $1 million or more, either as a lump                            sum or through the “Combined Purchases,” “Letter of                            Intent” and “Cumulative Discount” features referred                            to above (collectively, the “Large Order NAV Purchase                            Privilege”). The Large Order NAV Purchase Privilege is not                            available if another net asset value purchase privilege is                            available; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| (k) | in connection with the acquisition of the assets of or                            merger or consolidation with another investment company, or to                            shareholders in connection with the investment or reinvestment of                            income and capital gain dividends, and under other circumstances deemed                            appropriate by DWS-SDI and consistent with regulatory requirements;                            and |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (l) | in connection with a direct “roll over” of a                            distribution from a Flex Plan or from participants in employer                            sponsored employee benefit plans maintained on the OmniPlus subaccount                            record keeping system made available through ADP, Inc. under an                            alliance with DWS-SDI and its affiliates into a DWS Scudder                            IRA. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Class A shares also may be purchased at net asset value in any amount by            members of the plaintiff class in the proceeding known as Howard and Audrey Tabankin,            et al. v. Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL).            This privilege is generally non-transferable and continues for the lifetime of            individual class members and for a ten-year period for non-individual class members. To            make a purchase at net asset value under this privilege, the investor must, at the time            of purchase, submit a written request that the purchase be processed at net asset value            pursuant to this privilege specifically identifying the purchaser as a member of the            “Tabankin Class.” Shares purchased under this privilege will be maintained            in a separate account that includes only shares purchased under this privilege. For            more details concerning this privilege, class members should refer to the Notice of (i)            Proposed Settlement with Defendants; and (ii) Hearing to Determine Fairness of Proposed            Settlement, dated August 31, 1995, issued in connection with the aforementioned court            proceeding. For sales of Fund shares at net asset value pursuant to this privilege,            DWS-SDI may in its discretion pay investment dealers and other financial services firms            a concession, payable quarterly, at an annual rate of up to 0.25% of net assets            attributable to such shares maintained and serviced by the firm. A firm becomes            eligible for the concession based upon assets in accounts attributable to shares            purchased under this privilege in the month after the month of purchase and the            concession continues until terminated by DWS-SDI. The privilege of purchasing Class A            shares of the Fund at net asset value under this privilege is not available if another            net asset value purchase privilege also applies.

**Class B Purchases.**Class B shares of a Fund            are offered at net asset value. No initial sales charge is imposed. Class B shares            sold without an initial sales charge allow the full amount of the investor’s            purchase payment to be invested in Class B shares for his or her account. Class B            shares have a contingent deferred sales charge of 4.00% that declines (for shares sold            within six years of purchase) and Rule 12b-1 fees, as described in the Funds’            Prospectuses and SAI. Class B shares automatically convert to Class A shares after six            years.

**Class C Purchases.**Class C shares of the            fund are offered at net asset value. No initial sales charge is imposed, which allows            the full amount of the investor’s purchase payment to be invested in Class C            shares for his or her account. Class C shares are subject to a contingent deferred            sales charge of 1.00% (for shares sold within one year of purchase) and Rule 12b-1            fees, as described in the Fund’s Prospectuses and this SAI.

**Multi-Class Suitability.**DWS-SDI has            established the following procedures regarding the purchase of Class A, Class B and            Class C shares. Orders to purchase Class B shares of $100,000 or more and orders to            purchase Class C shares of $500,000 or more will be declined with the exception of            orders received from firms acting for clients whose shares will be held in an omnibus            account and employer-sponsored employee benefit plans using the Flex subaccount record            keeping system (“Flex System”) maintained by ADP under an alliance with            DWS-SDI and its affiliates (“DWS Scudder Flex Plans”).

The            following provisions apply to DWS Scudder Flex Plans.

| a. | *Class B Share DWS Scudder Flex Plans.*Class B shares have not been sold to DWS Scudder Flex                            Plans that were established on the Flex System after October 1, 2003.                            Orders to purchase Class B shares for a DWS Scudder Flex Plan                            established on the Flex System prior to October 1, 2003 that has                            regularly been purchasing Class B shares will be invested instead in                            Class A shares at net asset value when the combined subaccount value in                            DWS Funds or other eligible assets held by the plan is $100,000 or                            more. This provision will be imposed for the first purchase after                            eligible plan assets reach the $100,000 threshold. A later decline in                            assets below the $100,000 threshold will not affect the plan’s                            ability to continue to purchase Class A shares at net asset                            value. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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| b. | *Class C Share DWS Scudder Flex Plans.*Orders to purchase Class C shares for a DWS Scudder Flex                            Plan, regardless of when such plan was established on the Flex System,                            will be invested instead in Class A shares at net asset value when the                            combined subaccount value in DWS Funds or other eligible assets held by                            the plan is $1,000,000 or more. This provision will be imposed for the                            first purchase after eligible plan assets reach the $1,000,000                            threshold. A later decline in assets below the $1,000,000 threshold                            will not affect the plan’s ability to continue to purchase Class                            A shares at net asset value. |
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| c. | *Class C Share DWS Scudder Choice Plans.*Orders to purchase Class C shares for a DWS Scudder                            Choice Plan that has been regularly purchasing Class C shares will be                            invested instead in Class A shares at net asset value when the combined                            subaccount value in DWS Funds or other eligible assets held by the plan                            is $1,000,000 or more. This provision will be imposed for purchases                            made beginning in the month after eligible plan assets reach the                            $1,000,000 threshold. In addition, as a condition to being permitted to                            use the Choice Plan platform, plans must agree that, within one month                            after eligible plan assets reach the $1,000,000 threshold, all existing                            Class C shares held in the plan will be automatically converted to                            Class A shares. |
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The            procedures above described in (a), (b) and (c) do not reflect in any way the            suitability of a particular class of shares for a particular investor and should not be            relied upon as such. A suitability determination must be made by investors with the            assistance of their financial representative.

**Purchase of Institutional Class Shares.**Information on how to buy Institutional Class shares is set forth in the            section entitled “Buying and Selling Shares” in the Fund’s            prospectus. The following supplements that information. The minimum initial investment            for Institutional Class shares is $1,000,000. The minimum initial investment            requirement is waived for shareholders with existing accounts prior to August 13, 2004            who met the previous minimum investment eligibility requirement.

There is no minimum subsequent investment requirement for the            Institutional Class shares. This minimum amount may be changed at any time in            management’s discretion.

To            sell shares in a retirement account other than an IRA, your request must be made in            writing, except for exchanges to other eligible funds in the DWS family of funds, which            can be requested by phone or in writing.

**Automatic Investment Plan.**A shareholder            may purchase shares of the Fund through an automatic investment program. With the            Direct Deposit Purchase Plan (“Direct Deposit”), investments are made            automatically (minimum $50 and maximum $250,000 for both initial and subsequent            investments) from the shareholder’s account at a bank, savings and loan or credit            union into the shareholder’s Fund account. Termination by a shareholder will            become effective within thirty days after the Shareholder Service Agent has received            the request. The Fund may immediately terminate a shareholder’s Direct Deposit in            the event that any item is unpaid by the shareholder’s financial            institution.

**Payroll Investment Plans.**A shareholder may            purchase shares through Payroll Direct Deposit or Government Direct Deposit. Under            these programs, all or a portion of a shareholder’s net pay or government check            is invested each payment period. A shareholder may terminate participation in these            programs by giving written notice to the shareholder’s employer or government            agency, as appropriate. (A reasonable time to act is required.) The Fund is not            responsible for the efficiency of the employer or government agency making the payment            or any financial institutions transmitting payments.

It            is our policy to offer purchase privileges to current or former directors or trustees            of the Deutsche or DWS Scudder mutual funds, employees, their spouses or life partners            and children or step-children age 21 or younger of Deutsche Bank or its affiliates or a            sub-advisor to any fund in the DWS family of funds or a broker-dealer authorized to            sell shares of the funds. Qualified individuals will generally be allowed to purchase            shares in the class with the lowest expense ratio, usually the Institutional Class            shares. If a fund does not offer Institutional Class shares, these individuals will be            allowed to buy Class A shares at NAV. The funds also reserve the right to waive the            minimum account balance requirement for employee and director accounts. Fees generally            charged to IRA accounts will be charged to accounts of employees and            directors.

 

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***Redemptions***

**Redemption fee.**The Fund imposes a            redemption fee of 2% of the total redemption amount (calculated at net asset value,            without regard to the effect of any contingent deferred sales charge; any contingent            deferred sales charge is also assessed on the total redemption amount without regard to            the assessment of the 2% redemption fee) on all Fund shares redeemed or exchanged            within 15 days of buying them (either by purchase or exchange). The redemption fee is            paid directly to the Fund, and is designed to encourage long-term investment and to            offset transaction and other costs associated with short-term or excessive trading. For            purposes of determining whether the redemption fee applies, shares held the            longesttime will be treated as being redeemed first and shares            held the shortest time will be treated as being redeemed last. The redemption fee is            applicable to Fund shares purchased either directly or through a financial            intermediary, such as a broker-dealer. Transactions through financial intermediaries            typically are placed with the Fund on an omnibus basis and include both purchase and            sale transactions placed on behalf of multiple investors. These purchase and sale            transactions are generally netted against one another and placed on an aggregate basis;            consequently the identities of the individuals on whose behalf the transactions are            placed generally are not known to the Fund. For this reason, the Fund has undertaken to            notify financial intermediaries of their obligation to assess the redemption fee on            customer accounts and to collect and remit the proceeds to the Fund. However, due to            operational requirements, the intermediaries’ methods for tracking and            calculating the fee may be inadequate or differ in some respects from the            Fund’s.

**General.**Policies and procedures affecting            transactions in Fund shares can be changed at any time without notice, subject to            applicable law. Transactions may be contingent upon proper completion of application            forms and other documents by shareholders and their receipt by the Fund’s agents.            Transaction delays in processing (and changing account features) due to circumstances            within or beyond the control of a Fund and its agents may occur. Shareholders (or their            financial service firms) are responsible for all losses and fees resulting from bad            checks, cancelled orders or the failure to consummate transactions effected pursuant to            instructions reasonably believed to be genuine.

In            addition, the fund reserves the right to suspend or postpone redemptions as permitted            pursuant to Section 22(e) of the Investment Company Act of 1940. Generally, those            circumstances are when 1) the New York Stock Exchange is closed other than customary            weekend or holiday closings; 2) trading on the New York Stock Exchange is restricted;            3) an emergency exists which makes the disposal of securities owned by a fund or the            fair determination of the value of the fund's net assets not reasonably practicable; or            4) the SEC, by order, permits the suspension of the right of redemption. Redemption            payments by wire may also be delayed in the event of a non-routine closure of the            Federal Reserve wire payment system.

A            request for repurchase (confirmed redemption) may be communicated by a shareholder            through a financial services firm to DWS-SDI, which firms must promptly submit orders            to be effective.

Redemption requests must be unconditional. Redemption requests (and a            stock power for certificated shares) must be duly endorsed by the account holder. As            specified in the Prospectuses, signatures may need to be guaranteed by a commercial            bank, trust company, savings and loan association, federal savings bank, member firm of            a national securities exchange or other financial institution permitted by SEC rule.            Additional documentation may be required, particularly from institutional and fiduciary            account holders, such as corporations, custodians (e.g., under the Uniform Transfers to            Minors Act), executors, administrators, trustees or guardians.

If            the proceeds of the redemption (prior to the imposition of any contingent deferred            sales charge) are $100,000 or less and the proceeds are payable to the shareholder of            record at the address of record, normally a telephone request or a written request by            any one account holder without a signature guarantee is sufficient for redemptions by            individual or joint account holders, and trust, executor and guardian account holders,            provided the trustee, executor or guardian is named in the account registration. Other            institutional account holders may exercise this special privilege of redeeming shares            by telephone request or written request without signature guarantee subject to the same            conditions as individual account holders, provided that this privilege has been            pre-authorized by the institutional account holder by written instruction to the            Shareholder Service Agent with signatures guaranteed. This privilege may not be used to            redeem shares held in certificated form and may not be used if the shareholder’s            account has had an address change within 15 days of the redemption request.

 

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**Wires.**Delivery of the proceeds of a wire            redemption of $250,000 or more may be delayed by the Fund for up to seven days if the            Fund or the Shareholder Service Agent deems it appropriate under then-current market            conditions. The ability to send wires is limited by the business hours and holidays of            the firms involved. The Fund is not responsible for the efficiency of the federal wire            system or the account holder’s financial services firm or bank. The account            holder is responsible for any charges imposed by the account holder’s firm or            bank. To change the designated account to receive wire redemption proceeds, send a            written request to the Shareholder Service Agent with signatures guaranteed as            described above or contact the firm through which Fund shares were            purchased.

**Automatic Withdrawal Plan.**The owner of            $5,000 or more of a class of the Fund’s shares at the offering price (net asset            value plus, in the case of Class A, the initial sales charge) may provide for the            payment from the owner’s account of any requested dollar amount to be paid to the            owner or a designated payee monthly, quarterly, semiannually or annually. The $5,000            minimum account size is not applicable to IRAs. The minimum periodic payment is $50.            The maximum annual rate at which shares subject to CDSC may be redeemed is 12% of the            net asset value of the account. Shares are redeemed so that the payee should receive            payment approximately the first of the month. Investors using this Plan must reinvest            Fund distributions.

Non-retirement plan shareholders may establish an Automatic Withdrawal            Plan (the “Plan”) to receive monthly, quarterly or periodic redemptions            from his or her account for any designated amount of $50 or more. Shareholders may            designate which day they want the automatic withdrawal to be processed. The check            amounts may be based on the redemption of a fixed dollar amount, fixed share amount,            percent of account value or declining balance. The Plan provides for income dividends            and capital gains distributions, if any, to be reinvested in additional shares. Shares            are then liquidated as necessary to provide for withdrawal payments. Since the            withdrawals are in amounts selected by the investor and have no relationship to yield            or income, payments received cannot be considered as yield or income on the investment            and the resulting liquidations may deplete or possibly extinguish the initial            investment and any reinvested dividends and capital gains distributions. Any such            requests must be received by the transfer agent ten days prior to the date of the first            automatic withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the            shareholder, the Trust or its agent on written notice, and will be terminated when all            Fund shares under the Plan have been liquidated or upon receipt by the Trust of notice            of death of the shareholder.

The            purchase of Class A shares while participating in a systematic withdrawal plan            will ordinarily be disadvantageous to the investor because the investor will be paying            a sales charge on the purchase of shares at the same time that the investor is            redeeming shares upon which a sales charge may have already been paid. Therefore, the            Fund will not knowingly permit additional investments of less than $2,000 if the            investor is at the same time making systematic withdrawals.

**Contingent Deferred Sales Charge (CDSC).**The following example will illustrate the operation of the CDSC. Assume            that an investor makes a single purchase of $10,000 of the Fund’s Class B shares            and that 16 months later the value of the shares has grown by $1,000 through reinvested            dividends and by an additional $1,000 of share appreciation to a total of $12,000. If            the investor were then to redeem the entire $12,000 in share value, the CDSC would be            payable only with respect to $10,000 because neither the $1,000 of reinvested dividends            nor the $1,000 of share appreciation is subject to the charge. The charge would be at            the rate of 3.00% ($300) because it was in the second year after the purchase was            made.

The            rate of the CDSC is determined by the length of the period of ownership. Investments            are tracked on a monthly basis. The period of ownership for this purpose begins the            first day of the month in which the order for the investment is received. For example,            an investment made in March of the year of investment will be eligible for the second            year’s charge if redeemed on or after March of the following year. In the event            no specific order is requested when redeeming shares subject to a CDSC, the redemption            will be made first from shares representing reinvested dividends and then from the            earliest purchase of shares. DWS-SDI receives any CDSC directly. The charge will not be            imposed upon redemption of reinvested dividends or share appreciation.

The            Class A CDSC will be waived in the event of:

| (a) | redemptions by a participant-directed qualified                            retirement plan described in Code Section 401(a), a                            participant-directed non-qualified deferred compensation plan described                            in Code Section 457 or a |
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participant-directed qualified retirement plan described in Code Section            403(b)(7) which is not sponsored by a K-12 school district;

| (b) | redemptions by employer-sponsored employee benefit plans                            using the subaccount record keeping system made available through ADP,                            Inc. under an alliance with DWS-SDI and its affiliates; |
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| (c) | redemption of shares of a shareholder (including a                            registered joint owner) who has died; |
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| (d) | redemption of shares of a shareholder (including a                            registered joint owner) who after purchase of the shares being redeemed                            becomes totally disabled (as evidenced by a determination by the                            federal Social Security Administration); |
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| (e) | redemptions under the Fund’s Automatic Withdrawal                            Plan at a maximum of 12% per year of the net asset value of the                            account; and |
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| (f) | redemptions of shares whose dealer of record at the time                            of the investment notifies DWS-SDI that the dealer waives the                            discretionary commission applicable to such Large Order NAV                            Purchase. |
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The            Class B CDSC will be waived for the circumstances set forth in items (c), (d) and (e)            for Class A shares. In addition, this CDSC will be waived:

| (g) | for redemptions made pursuant to any IRA systematic                            withdrawal based on the shareholder’s life expectancy including,                            but not limited to, substantially equal periodic payments described in                            the Code Section 72(t)(2)(A)(iv) prior to age 59 1/2; |
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| (h) | for redemptions to satisfy required minimum                            distributions after age 70 1/2 from an IRA account (with the maximum                            amount subject to this waiver being based only upon the                            shareholder’s DWS Scudder IRA accounts); and |
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| (i) | in connection with the following redemptions of shares                            held by employer sponsored employee benefit plans maintained on the                            subaccount record keeping system made available through ADP under an                            alliance with DWS-SDI and its affiliates: (1) to satisfy participant                            loan advances (note that loan repayments constitute new purchases for                            purposes of the CDSC and the conversion privilege), (2) in connection                            with retirement distributions (limited at any one time to 12% of the                            total value of plan assets invested in the Fund), (3) in connection                            with distributions qualifying under the hardship provisions of the                            Code, (4) representing returns of excess contributions to such                            plans and (5) in connection with direct “roll over”                            distributions from a Flex Plan into a DWS Scudder IRA under the Class A                            net asset value purchase privilege. |
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The            Class C CDSC will be waived for the circumstances set forth in items (b), (c), (d) and            (e) for Class A shares and for the circumstances set forth in items (g) and (h) for            Class B shares. In addition, this CDSC will be waived for:

| (j) | redemption of shares by an employer sponsored employee                            benefit plan that offers funds in addition to DWS Funds and whose                            dealer of record has waived the advance of the first year                            administrative service and distribution fees applicable to such shares                            and agrees to receive such fees quarterly, and |
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| (k) | redemption of shares purchased through a                            dealer-sponsored asset allocation program maintained on an omnibus                            record-keeping system provided the dealer of record had waived the                            advance of the first year administrative services and distribution fees                            applicable to such shares and has agreed to receive such fees                            quarterly. |
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**In-kind Redemptions.**The Fund reserves the            right to honor any request for redemption or repurchase by making payment in whole or            in part in securities. These securities will be chosen by the Fund and valued as they            are for purposes of computing the Fund’s net asset value. A shareholder may incur            transaction expenses in converting these securities to cash.

 

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***Exchanges***

Shareholders may request a taxable exchange of their shares for shares            of the corresponding class of other DWS Funds without imposition of a sales charge,            subject to the provisions below. For purposes of calculating any CDSC, amounts            exchanged retain their original cost and purchase date.

Shares of money market funds that were acquired by purchase (not            including shares acquired by dividend reinvestment) are subject to the applicable sales            charge on exchange.

Shares of money market funds that were acquired by purchase (not            including shares acquired by dividend reinvestment) are subject to the applicable sales            charge on exchange. Certain series of DWS Target Fund are available on exchange only            during the offering period for such series as described in the applicable prospectus.            Tax Free Money Fund — Investment Class, NY Tax-Free Money Fund —Investment            Class, Treasury Money Fund —Investment Class, Money Market Fund —            Investment Class, Cash Management Fund Institutional, Cash Reserves Fund Institutional,            Treasury Money Fund — Institutional Class, Cash Reserve Fund, Inc. Prime Series,            Cash Reserve Fund, Inc. Treasury Series, Tax-Exempt California Money Market Fund, Cash            Account Trust and Investors Cash Trust are available on exchange but only through a            financial services firm having a services agreement with DWS-SDI. All exchanges among            money funds must meet applicable investor eligibility and investment requirements.            Exchanges may only be made for funds that are available for sale in the            shareholder’s state of residence. Currently, Tax-Exempt California Money Market            Fund is available for sale only in California.

Shareholders must obtain prospectuses of the funds they are exchanging            into from dealers, other firms or DWS-SDI. Exchanges are taxable transactions for            federal income tax purposes.

**Automatic Exchange Plan.**The owner of            $1,000 or more of any class of shares of a DWS Fund may authorize the automatic            exchange of a specified amount ($50 minimum) of such shares for shares of the same            class of another such DWS Fund. Exchanges will be made automatically until the            shareholder or the Fund terminates the privilege. Exchanges are subject to the terms            and conditions described above.

**Multi-Class** **Conversions.**For purposes of conversion to            Class A shares, shares purchased through the reinvestment of dividends and other            distributions paid with respect to Class B shares in a shareholder’s Fund            account will be converted to Class A shares on a pro rata basis.

**DIVIDENDS**

The            Fund intends to follow the practice of distributing substantially all of its investment            company taxable income, which includes any excess of net realized short-term capital            gains over net realized long-term capital losses. The Fund may follow the practice of            distributing the entire excess of net realized long-term capital gains over net            realized short-term capital losses. However, the Fund may retain all or part of such            gain for reinvestment after paying the related federal taxes, for which shareholders            may then be able to claim a credit against their federal tax liability. If the Fund            does not distribute the amount of capital gain and/or ordinary income required to be            distributed by an excise tax provision of the Code, the Fund may be subject to that            excise tax. In certain circumstances, the Fund may determine that it is in the interest            of shareholders to distribute less than the required amount.

The            Fund intends to distribute dividends from its net investment income, excluding            short-term capital gains, annually in December. The Fund intends to distribute net            realized capital gains after utilization of capital loss carryforwards, if any, in            December to prevent application of a federal excise tax. An additional distribution may            be made, if necessary.

Any            dividends or capital gains distributions declared in October, November or            December with a record date in such a month and paid during the following            January will be treated by shareholders for federal income tax purposes as if            received on December 31 of the calendar year declared.

 

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The            level of income dividends per share (as a percentage of net asset value) will be lower            for Class B and Class C shares than for Class A shares primarily as a            result of the higher distribution services fee applicable to Class B and            Class C shares. Distributions of capital gains, if any, will be paid in the same            amount for each class.

Income and capital gain dividends, if any, of the Fund will be credited            to shareholder accounts in full and fractional shares of the same class of the Fund at            net asset value on the reinvestment date, except that, upon written request to the            Shareholder Service Agent, a shareholder may select one of the following            options:

| 1. | To receive income and short-term capital gain dividends                            in cash and long-term capital gain dividends in shares of the same                            class at net asset value; or |
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| 2. | To receive income and capital gain dividends in                            cash. |
|----|----------------------------------------------------------------------------------|

Dividends will be reinvested in shares of the same class of the Fund            unless shareholders indicate in writing that they wish to receive them in cash or in            shares of other DWS Funds with multiple classes of shares or DWS Funds as provided in            the Prospectuses. To use this privilege of investing dividends of the Fund in shares of            another DWS Fund, shareholders must maintain a minimum account value of $1,000 in the            Fund distributing the dividends. The Fund will reinvest dividend checks (and future            dividends) in shares of that same Fund and class if checks are returned as            undeliverable. Dividends and other distributions of the Fund in the aggregate amount of            $10 or less are automatically reinvested in shares of the Fund unless the shareholder            requests that such policy not be applied to the shareholder’s account.

If            an investment is in the form of a retirement plan, all dividends and capital gains            distributions must be reinvested into the shareholder’s account.

If            a shareholder has elected to reinvest any dividends and/or other distributions, such            distributions will be made in shares of the Fund and confirmations will be mailed to            each shareholder. If a shareholder has chosen to receive cash, a check will be sent.            Distributions of investment company taxable income and net realized capital gains are            taxable, whether made in shares or cash.

Each distribution is accompanied by a brief explanation of the form and            character of the distribution. The characterization of distributions on such            correspondence may differ from the characterization for federal tax purposes. In            January of each year, the Fund issues to each shareholder a statement of the            federal income tax status of all distributions in the prior calendar year.

The            Fund may at any time vary its foregoing dividend practices and, therefore, reserves the            right from time to time to either distribute or retain for reinvestment such of its net            investment income and its net short-term and long-term capital gains as its Board            determines appropriate under the then-current circumstances. In particular, and without            limiting the foregoing, the Fund may make additional distributions of net investment            income or capital gain net income in order to satisfy the minimum distribution            requirements contained in the Code.

**TAXES**

The            following is intended to be a general summary of certain federal income tax            consequences of investing in the Fund. It is not intended as a complete discussion of            all such consequences, nor does it purport to deal with all categories of investors.            Investors are therefore advised to consult with their tax advisors before making an            investment in the Fund. The summary is based on the laws in effect on the date of this            statement of additional information and existing judicial and administrative            interpretations thereof, all of which are subject to change, possibly with retroactive            effect.

**Taxation of the Fund.**The Fund has elected            to be treated as a regulated investment company under Subchapter M of the Code and has            qualified as such since its inception. The Fund intends to continue to so qualify in            each taxable year as required under the Code in order to avoid payment of federal            income tax at the Fund level. In order to qualify as a regulated investment company,            the Fund must meet certain requirements regarding the source of its income, the            diversification of its assets, and the distribution of its income:

 

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| (a) | The Fund must derive at least 90% of its gross income                            from dividends, interest, payments with respect to certain securities                            loans, and gains from the sale of stock, securities and foreign                            currencies, or other income (including but not limited to gains from                            options, futures, or forward contracts) derived with respect to its                            business of investing in such stock, securities, or currencies and, net                            income derived from interests in “qualified publicly traded                            partnerships” (i.e., partnerships that are traded on an                            established securities market or tradable on a secondary market, other                            than partnerships that derive 90% of their income from interest,                            dividends, capital gains, and other traditional permitted mutual fund                            income). |
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| (b) | The Fund must diversify its holdings so that, at the end                            of each quarter of its taxable year, (i) at least 50% of the market                            value of the Fund’s assets is represented by cash and cash items,                            US government securities, securities of other regulated investment                            companies, and other securities limited in respect of any one issuer of                            such other securities to a value not greater than 5% of the value of                            the Fund’s total assets and to not more than 10% of the                            outstanding voting securities of such issuer, and (ii) not more than                            25% of the value of its assets is invested in the securities (other                            than those of the US Government or other regulated investment                            companies) of any one issuer, of two or more issuers that the Fund                            controls and that are engaged in the same, similar, or related trades                            or businesses or in the securities of one or more qualified publicly                            traded partnerships. |
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| (c) | The Fund is required to distribute to its shareholders                            at least 90% of its taxable and tax-exempt net investment income                            (including the excess of net short-term capital gain over net long-term                            capital losses) and generally is not subject to federal income tax to                            the extent that it distributes annually such net investment income and                            net realized capital gains in the manner required under the                            Code. |
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Fund investments in partnerships, including in qualified publicly traded            partnerships, may result in the Fund’s being subject to state, local or foreign            income, franchise or withholding tax liabilities. If for any taxable year the Fund does            not qualify for the special federal income tax treatment afforded regulated investment            companies, all of its taxable income will be subject to federal income tax at regular            corporate rates (without any deduction for distributions to its shareholders), and all            distributions from earnings and profits, including any distributions of net tax-exempt            income and net long-term capital gains, will be taxable to shareholders as ordinary            income. Such distributions would be eligible (i) to be treated as qualified dividend            income in the case of shareholders taxed as individuals and (ii) for the dividends            received deduction in the case of corporate shareholders. In addition, the Fund could            be required to recognize unrealized gains, pay substantial taxes and interest and make            substantial distributions before requalifying as a regulated investment company that is            accorded special tax treatment. If the Fund fails to qualify as a regulated investment            company for a period greater than two taxable years, such Fund may be required to            recognize any net built-in gains with respect to certain of its assets (i.e., the            excess of the aggregate gains, including items of income, over aggregate losses that            would have been realized with respect to such assets if the Fund had been liquidated)            if it qualifies as a regulated investment company in a subsequent year.

The            Fund is subject to a 4% nondeductible excise tax on amounts required to be but that are            not distributed under a prescribed formula. The formula requires payment to            shareholders during a calendar year of distributions representing at least 98% of the            Fund’s taxable ordinary income for the calendar year and at least 98% of the            excess of its capital gains over capital losses realized during the one-year period            ending October 31 (in most cases) of such year as well as amounts that were            neither distributed nor taxed to the Fund during the prior calendar year. Although the            Fund’s distribution policies should enable it to avoid excise tax liability, the            Fund may retain (and be subject to income or excise tax on) a portion of its capital            gain or other income if it appears to be in the interest of the Fund.

**Taxation of Fund Distributions.**Distributions from the Fund generally will be taxable to shareholders as            ordinary income to the extent derived from investment income and net short-term capital            gains. Distributions of net capital gains (that is, the excess of net gains from the            sale of capital assets held more than one year over net losses from the sale of capital            assets held for not more than one year) properly designated as capital gain dividends            will be taxable to shareholders as long-term capital gain, regardless of how long a            shareholder has held the shares in the Fund.

Long-term capital gain rates applicable to individuals have been            temporarily reduced — in general, to 15% with a lower rate applying to taxpayers            in the 10% and 15% rate brackets — for taxable years beginning on or before            December 31, 2010.

 

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For            taxable years beginning on or before December 31, 2010, “qualified dividend            income” received by an individual will be taxed at the rates applicable to            long-term capital gain. Qualified dividend income does not include interest from            fixed-income securities. In order for some portion of the dividends received by the            Fund shareholder to be qualified dividend income, the Fund must meet holding period and            other requirements with respect to some portion of the dividend-paying stocks in its            portfolio and the shareholder must meet holding period and other requirements with            respect to the Fund’s shares. A dividend will not be treated as qualified            dividend income (at either the Fund or shareholder level) (1) if the dividend is            received with respect to any share of stock held for fewer than 61 days during the            121-day period beginning on the date which is 60 days before the date on which such            share becomes ex-dividend with respect to such dividend (or, in the case of certain            preferred stock, for fewer than 91 days during the 181-day period beginning 90 days            before such date), (2) to the extent that the recipient is under an obligation (whether            pursuant to a short sale or otherwise) to make related payments with respect to            positions in substantially similar or related property, or (3) if the recipient elects            to have the dividend income treated as investment income for purposes of the limitation            on deductibility of investment interest. In order for a dividend paid by a foreign            corporation to constitute “qualified dividend income,” the foreign            corporation must (1) be eligible for the benefits of a comprehensive income tax treaty            with the United States (or the stock on which the dividend is paid must be readily            tradable on an established securities market in the United States), and (2) not be            treated as a passive foreign investment company.

In            general, distributions of investment income designated by the Fund as derived from            qualified dividend income will be treated as qualified dividend income by a shareholder            taxed as an individual, provided the shareholder meets the holding period and other            requirements described above with respect to the Fund’s shares.

If            the aggregate qualified dividends received by the Fund during any taxable year are 95%            or more of its gross income (excluding net long-term capital gain over net short-term            capital loss), then 100% of the Fund’s dividends (other than properly designated            capital gain dividends) will be eligible to be treated as qualified dividend income.            For this purpose, the only gain included in the term “gross income” is the            excess of net short-term capital gain over net long-term capital loss.

Capital gains distributions may be reduced if Fund capital loss            carryforwards are available. Any capital loss carryforwards and any post-October loss            deferrals to which the Fund is entitled are disclosed in the Fund’s annual and            semi-annual reports to shareholders.

All            distributions by the Fund result in a reduction in the net asset value of the            Fund’s shares. Should a distribution reduce the net asset value below a            shareholder’s cost basis, such distribution would nevertheless be taxable to the            shareholder as ordinary income or capital gain as described above, even though, from an            investment standpoint, it may constitute a partial return of capital. In particular,            investors should be careful to consider the tax implications of buying shares just            prior to a distribution. The price of shares purchased at that time includes the amount            of the forthcoming distribution. Those purchasing just prior to a distribution will            receive a partial return of capital upon the distribution, which will nevertheless be            taxable to them.

**Sale or Redemption of Shares.**The sale,            exchange or redemption of Fund shares may give rise to a gain or loss. In general, any            gain or loss realized upon a taxable disposition of shares will be treated as long-term            capital gain or loss if the shares have been held for more than one year. Otherwise,            the gain or loss on the taxable disposition of Fund shares will be treated as            short-term capital gain or loss. However, any loss realized upon a taxable disposition            of shares held for six months or less will be treated as long-term, rather than            short-term, to the extent of any long-term capital gain distributions received (or            deemed received) by the shareholder with respect to the shares. All or a portion of any            loss realized upon a taxable disposition of Fund shares will be disallowed if other            substantially identical shares of the Fund are purchased within 30 days before or after            the disposition. In such a case, the basis of the newly purchased shares will be            adjusted to reflect the disallowed loss.

**Dividends Received Deduction.**Dividends            from domestic corporations may comprise a substantial part of the Fund’s gross            income. If any such dividends constitute a portion of the Fund’s gross income, a            portion of the income distributions of the Fund may be eligible for the 70% deduction            for dividends received by corporations. Shareholders will be informed of the portion of            dividends which so qualify. The dividends-received deduction is reduced to the extent            the shares of the Fund with respect to which the dividends are received are treated as            debt-

 

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financed under federal income tax law and is eliminated if either those            shares or the shares of the Fund are deemed to have been held by the Fund or the            shareholder, as the case may be, for fewer than 46 days during the 91-day period            beginning 45 days before the shares become ex-dividend.

**Foreign Taxation.**Foreign withholding or            other foreign taxes with respect to income (possibly including, in some cases, capital            gains) on certain foreign securities may occur. These taxes may be reduced or            eliminated under the terms of an applicable US income tax treaty. As it is not expected            that more than 50% of the value of the Fund’s total assets will consist of            securities issued by foreign corporations, the Fund will not be eligible to pass            through to shareholders their proportionate share of any foreign taxes paid, with the            result that shareholders will not be able to include in income, and will not be            entitled to take any credits or deductions for, such foreign taxes.

**Passive Foreign Investment Companies.**Equity investments by the Fund in certain “passive foreign            investment companies” (“PFICs”) could potentially subject the Fund to            a US federal income tax (including interest charges) on distributions received from the            company or on proceeds received from the disposition of shares in the company, which            tax cannot be eliminated by making distributions to Fund shareholders. However, the            Fund may elect to avoid the imposition of that tax. For example, the Fund may elect to            treat a PFIC as a “qualified electing fund” (a “QEF election”),            in which case the Fund will be required to include its share of the company’s            income and net capital gains annually, regardless of whether it receives any            distribution from the company. The Fund also may make an election to mark the gains            (and to a limited extent losses) in such holdings “to the market” as though            it had sold and repurchased its holdings in those PFICs on the last day of the            Fund’s taxable year. The election must be made separately for each PFIC owned by            the Fund and, once made, would be effective for all subsequent taxable years, unless            revoked with the consent of the Internal Revenue Service (the “IRS”). Such            gains and losses are treated as ordinary income and loss. The QEF and mark-to-market            elections may accelerate the recognition of income (without the receipt of cash) and            increase the amount required to be distributed by the Fund to avoid taxation. Making            either of these elections therefore may require the Fund to liquidate other investments            (including when it is not advantageous to do so) to meet its distribution requirement,            which also may accelerate the recognition of gain and affect the Fund’s total            return. Dividends paid by PFICs will not be eligible to be treated as “qualified            dividend income.”

**Tax Effects of Certain Transactions.**The            Fund’s use of options, futures contracts, forward contracts (to the extent            permitted) and certain other strategic transactions will be subject to special tax            rules (including mark-to-market, constructive sale, straddle, wash sale, short sale and            other rules), the effect of which may be to accelerate income, defer losses, cause            adjustments in the holding periods of portfolio securities, convert capital gains into            ordinary income and convert short-term capital losses into long-term capital losses.            These rules could therefore affect the amount, timing and character of distributions to            investors.

The            Fund’s investment in so-called “section 1256 contracts,” such as            regulated futures contracts, most foreign currency forward contracts traded in the            interbank market and options on most stock indices, are subject to special tax rules.            All section 1256 contracts held by the Fund at the end of its taxable year are required            to be marked to their market value, and any unrealized gain or loss on those positions            will be included in the Fund’s income as if each position had been sold for its            fair market value at the end of the taxable year. The resulting gain or loss will be            combined with any gain or loss realized by the Fund from positions in section 1256            contracts closed during the taxable year. Provided such positions were held as capital            assets and were not part of a “hedging transaction” nor part of a            “straddle,” 60% of the resulting net gain or loss will be treated as            long-term capital gain or loss, and 40% of such net gain or loss will be treated as            short-term capital gain or loss, regardless of the period of time the positions were            actually held by the Fund.

As            a result of entering into swap contracts, the Fund may make or receive periodic net            payments. The Fund may also make or receive a payment when a swap is terminated prior            to maturity through an assignment of the swap or other closing transaction. Periodic            net payments will generally constitute ordinary income or deductions, while termination            of a swap will generally result in capital gain or loss (which will be a long-term            capital gain or loss if the Fund has been a party to the swap for more than one year).            The tax treatment of many types of credit default swaps is uncertain.

 

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In            general, gain or loss on a short sale is recognized when the Fund closes the sale by            delivering the borrowed property to the lender, not when the borrowed property is sold.            Gain or loss from a short sale is generally considered as capital gain or loss to the            extent that the property used to close the short sale constitutes a capital asset in            the Fund’s hands. Except with respect to certain situations where the property            used by the Fund to close a short sale has a long-term holding period on the date of            the short sale, special rules would generally treat the gains on short sales as            short-term capital gains. These rules may also terminate the running of the holding            period of “substantially identical property” held by the Fund. Moreover, a            loss on a short sale will be treated as a long-term capital loss if, on the date of the            short sale, “substantially identical property” has been held by the Fund            for more than one year. In general, the Fund will not be permitted to deduct payments            made to reimburse the lender of securities for dividends paid on borrowed stock if the            short sale is closed on or before the 45th day after the short sale is entered            into.

Transactions in foreign currencies, foreign investment            currency-denominated debt securities and certain foreign currency options, futures            contracts, forward contracts and similar instruments (to the extent permitted) may give            rise to ordinary income or loss to the extent such income or loss results from            fluctuations in the value of the foreign currency concerned.

The            Fund’s investment in zero coupon bonds and other debt obligations having original            issue discount may cause the Fund to recognize taxable income in excess of any cash            received from the investment.

Under current law, the Fund serves to block unrelated business taxable            income (“UBTI”) from being realized by its tax-exempt shareholders.            Notwithstanding the foregoing, a tax-exempt shareholder could realize UBTI by virtue of            its investment in the Fund if either: (1) the Fund invests in real estate investment            trusts that hold residual interests in real estate mortgage investment conduits; or (2)            shares in the Fund constitute debt-financed property in the hands of the tax-exempt            shareholder within the meaning of Code Section 514(b). If a charitable remainder trust            (as defined in Code Section 664) realizes any UBTI for a taxable year, it will lose its            tax-exempt status for the year.

**Other Tax Considerations.**Under the backup            withholding provisions of the Code, redemption proceeds as well as distributions may be            subject to federal income tax withholding for certain shareholders, including those who            fail to furnish the Fund with their taxpayer identification numbers and certifications            as to their tax status.

Shareholders of the Fund may be subject to state and local taxes on            distributions received from the Fund and on redemptions of the Fund’s            shares.

Special tax rules apply to investments through defined contribution            plans and other tax-qualified plans. Shareholders should consult their tax advisers to            determine the suitability of shares of the Fund as an investment through such plans and            the precise effect of an investment on their particular tax situation.

If            a shareholder recognizes a loss with respect to the Fund’s shares of $2 million            or more for an individual shareholder or $10 million or more for a corporate            shareholder, the shareholder must file with the Internal Revenue Service a disclosure            statement on Form 8886. Direct shareholders of portfolio securities are in many cases            excepted from this reporting requirement, but under current guidance, shareholders of a            regulated investment company are not excepted. The fact that a loss is reportable under            these regulations does not affect the legal determination of whether the            taxpayer’s treatment of the loss is proper. Shareholders should consult their tax            advisors to determine the applicability of these regulations in light of their            individual circumstances.

**Taxation of Non-US Shareholders.**Dividends            paid by the Fund to non-US shareholders are generally subject to withholding tax at a            30% rate or a reduced rate specified by an applicable income tax treaty to the extent            derived from investment income and short-term capital gains. In order to obtain a            reduced rate of withholding, a non-US shareholder will be required to provide an IRS            Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax            does not apply to regular dividends paid to a non-US shareholder who provides a Form            W-8ECI, certifying that the dividends are effectively connected with the non-US            shareholder’s conduct of a trade or business within the United States. Instead,            the effectively connected dividends will be subject to regular US income tax as if the            non-US shareholder were a US shareholder. A non-US corporation receiving effectively            connected dividends may also be subject to additional “branch profits tax”            imposed at a rate of 30% (or lower treaty rate). A

 

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non-US shareholder who fails to provide an IRS Form W-8BEN or other            applicable form may be subject to backup withholding at the appropriate            rate.

In            general, United States federal withholding tax will not apply to any gain or income            realized by a non-US shareholder in respect of any distributions of net long-term            capital gains over net short-term capital losses, exempt-interest dividends, or upon            the sale or other disposition of shares of a Fund.

For            taxable years beginning before January 1, 2008, properly-designated dividends are            generally exempt from United States federal withholding tax where they (i) are paid in            respect of the Fund’s “qualified net interest income” (generally, the            Fund’s US source interest income, other than certain contingent interest and            interest from obligations of a corporation or partnership in which the Fund is at least            a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are            paid in respect of the Fund’s “qualified short-term capital gains”            (generally, the excess of the Fund’s net short-term capital gain over the            Fund’s long-term capital loss for such taxable year). However, depending on its            circumstances, the Fund may designate all, some or none of its potentially eligible            dividends as such qualified net interest income or as qualified short-term capital            gains, and/or treat such dividends, in whole or in part, as ineligible for this            exemption from withholding. In order to qualify for this exemption from withholding, a            non-US shareholder will need to comply with applicable certification requirements            relating to its non-US status (including, in general, furnishing an IRS Form W-8BEN or            substitute Form). In the case of shares held through an intermediary, the intermediary            may withhold even if the Fund designates the payment as qualified net interest income            or qualified short-term capital gain. Non-US shareholders should contact their            intermediaries with respect to the application of these rules to their            accounts.

Foreign shareholders of the Fund must treat a distribution attributable            to the Fund’s sale of a real estate investment trust or other U.S. real property            holding corporation as real property gain if 50% or more of the value of the            Fund’s assets are invested in real estate investment trusts and other U.S. real            property holding corporations and if the foreign shareholder has held more than 5% of a            class of stock at any time during the one year period ending on the date of the            distribution. After December 31, 2007, a distribution from the Fund will be treated as            attributable to a U.S. real property interest only if such distribution is attributable            to a distribution received by the Fund from a real estate investment trust.            Restrictions apply regarding wash sales and substitute payment transactions.

The            foregoing is only a summary of certain material US federal income tax consequences            affecting the Fund and its shareholders. Current and prospective shareholders are            advised to consult their own tax advisors with respect to the particular tax            consequences to them of an investment in the Fund.

**NET ASSET VALUE**

The            net asset value per share of the Fund is computed as of the close of regular trading on            the NYSE on each day the NYSE is open for trading (the “Value Time”). The            NYSE is scheduled to be closed on the following holidays: New Year’s Day, Dr.            Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day,            Independence Day, Labor Day, Thanksgiving and Christmas, and on the preceding Friday or            subsequent Monday when one of these holidays falls on a Saturday or Sunday,            respectively. Net asset value per share is determined separately for each class of            shares by dividing the value of the total assets of the Fund attributable to the shares            of that class, less all liabilities attributable to that class, by the total number of            shares of that class outstanding. The per share net asset value may be lower for            certain classes of the Fund because of higher expenses borne by these            classes.

An            equity security is valued at its most recent sale price on the security’s primary            exchange or OTC market as of the Value Time. Lacking any sales, the security is valued            at the calculated mean between the most recent bid quotation and the most recent asked            quotation (the “Calculated Mean”) on such exchange or OTC market as of the            Value Time. If it is not possible to determine the Calculated Mean, the security is            valued at the most recent bid quotation on such exchange or OTC market as of the Value            Time. In the case of certain foreign exchanges or OTC markets, the closing price            reported by the exchange or OTC market (which may sometimes be referred to as the            “official close” or the “official closing price” or other            similar term) will be considered the most recent sale price.

Debt securities are valued as follows. Money market instruments            purchased with an original or remaining maturity of 60 days or less, maturing at par,            are valued at amortized cost. Other money market instruments are valued            based

 

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on            information obtained from an approved pricing agent or, if such information is not            readily available, by using matrix pricing techniques (formula driven calculations            based primarily on current market yields). Bank loans are valued at prices supplied by            an approved pricing agent (which are intended to reflect the mean between the bid and            asked prices), if available, and otherwise at the mean of the most recent bid and asked            quotations or evaluated prices, as applicable, based on quotations or evaluated prices            obtained from one or more broker-dealers. Privately placed debt securities, other than            Rule 144A debt securities, initially are valued at cost and thereafter based on all            relevant factors, including type of security, size of holding and restrictions on            disposition. Municipal debt securities are valued at prices supplied by an approved            pricing agent (which are intended to reflect the mean between the bid and asked            prices), if available, and otherwise at the mean of the most recent bid and asked            quotations or evaluated price obtained from a broker-dealer. Other debt securities are            valued at prices supplied by an approved pricing agent, if available, and otherwise at            the most recent bid quotation or evaluated price, as applicable, obtained from one or            more broker-dealers. If it is not possible to value a particular debt security pursuant            to the above methods, the security is valued on the basis of factors including (but not            limited to) maturity, coupon, creditworthiness, currency denomination, and the movement            of the market in which the security is normally traded.

An            exchange-traded option contract on securities, currencies and other financial            instruments is valued at its most recent sale price on the relevant exchange. Lacking            any sales, the option contract is valued at the Calculated Mean. If it is not possible            to determine the Calculated Mean, the option contract is valued at the most recent bid            quotation in the case of a purchased option contract or the most recent asked quotation            in the case of a written option contract, in each case as of the Value Time. An option            contract on securities, currencies and other financial instruments traded in the OTC            market is valued on the Value Date at the evaluated price provided by the broker-dealer            with which it was traded. Futures contracts (and options thereon) are valued at the            most recent settlement price, if available, on the exchange on which they are traded            most extensively. With the exception of stock index futures contracts which trade on            the Chicago Mercantile Exchange, closing settlement times are prior to the close of            trading on the Chicago Mercantile Exchange. For stock index futures contracts which            trade on the Chicago Mercantile Exchange, closing settlement prices are normally            available at approximately 4:20 pm Eastern time. If no settlement price is available,            the last traded price on such exchange will be used.

If            market quotations for Fund assets are not readily available or the value of the Fund            asset as determined in accordance with Board-approved procedures does not represent the            fair market value of the Fund asset, the value of the Fund asset is taken to be an            amount which, in the opinion of the Fund’s Pricing Committee (or, in some cases,            the Board’s Valuation Committee), represents fair market value. The value of            other holdings is determined in a manner which is intended to fairly reflect the fair            market value of the asset on the valuation date, based on valuation procedures adopted            by the Fund’s Board and overseen primarily by the Fund’s Pricing            Committee.

**TRUSTEES AND OFFICERS**

The            following table presents certain information regarding the Board Members of the Trust.            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 Board Member that is not            an “interested person” (as defined in the 1940 Act) of the Trust or the            Advisor (each, an “Independent Board Member”), is c/o Dawn-Marie Driscoll,            PO Box 100176, Cape Coral, FL 33904. 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 Trust.            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 DWS fund complex.

 

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***Independent Board Members***

 

| **Name, Year of                            Birth, Position with the Trust and Length of Time Served** | **Business                            Experience and****Directorships During the Past 5 Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **Number of                            Funds in DWS Fund Complex Overseen** |
|-------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
| Dawn-Marie Driscoll (1946)Chairperson since 2006Board Member since2006                           | President, Driscoll Associates (consulting firm);                            Executive Fellow, Center for Business Ethics, Bentley College;                            formerly, Partner, Palmer & Dodge (1988-1990); Vice President of                            Corporate Affairs and General Counsel, Filene’s (1978-1988).                            Directorships: Advisory Board, Center for Business Ethics, Bentley                            College; Trustee, Southwest Florida Community Foundation (charitable                            organization); Former Directorships: Investment Company Institute                            (audit, executive, nominating committees) and Independent Directors                            Council (governance, executive committees)                | 87                                                                          |
| Henry P. Becton, Jr. (1943)Board Member since2006                                                     | President, WGBH Educational Foundation. Directorships:                            Association of Public Television Stations; Becton Dickinson and                            Company(1) (medical technology company); Belo                            Corporation(1) (media company); Boston Museum of Science;                            Public Radio International. Former Directorships: American Public                            Television; Concord Academy; New England Aquarium; Mass. Corporation                            for Educational Telecommunications; Committee for Economic Development;                            Public Broadcasting Service                                                                                                                                                   | 85                                                                          |
| Keith R. Fox (1954)Board Member since2006                                                             | Managing General Partner, Exeter Capital Partners (a                            series of private equity funds). Directorships: Progressive Holding                            Corporation (kitchen goods importer and distributor); Natural History,                            Inc. (magazine publisher); Box Top Media Inc. (advertising). Former                            Directorships: The Kennel Shop (retailer)                                                                                                                                                                                                                                                                                                                                                                                                | 87                                                                          |
| Kenneth C. Froewiss(1945)Board Member since2006                                                       | Clinical Professor of Finance, NYU Stern School of                            Business (1997-present); 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)                                                                                                                                                                                                                                                                                                                                                                                                     | 87                                                                          |
| Martin J. Gruber(1937)Board Member since1999                                                          | Nomura Professor of Finance, Leonard N. Stern School of                            Business, New York University (since September 1965); Director, Japan                            Equity Fund, Inc. (since January 1992), Thai Capital Fund, Inc. (since                            January 2000), Singapore Fund, Inc. (since January 2000). National                            Bureau of Economic research (since January 2006), Formerly, Trustee,                            TIAA (pension funds) (January 1996-January 2000); Trustee, CREF and                            CREF Mutual Funds (January 2000-March 2005); Chairman, CREF and CREF                            Mutual Funds (February 2004-March 2005); and Director, S.G. Cowen                            Mutual Funds (January 1985-January 2001) | 87                                                                          |
| Richard J. Herring(1946)Board Member since1999                                                        | 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). Formerly, Vice Dean and                            Director, Wharton Undergraduate Division (July 1995-June 2000);                            Director Lauder Institute of International Management Studies (July                            2000-June 2006)                                                                                                                                                                                                                                                | 87                                                                          |
| Graham E. Jones(1933)Board Member since2002                                                           | Senior Vice President, BGK Realty, Inc. (commercial real                            estate) (since 1995). Formerly, Trustee of various investment companies                            managed by Sun Capital Advisors, Inc. (1998-2005), Morgan Stanley Asset                            Management (1985-2001) and Weiss, Peck and Greer (1985-2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 87                                                                          |

 

 

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| Rebecca W. Rimel(1951)Board Member since2002                           | President and Chief Executive Officer, The Pew                            Charitable Trusts (charitable foundation) (1994 to present); Trustee,                            Thomas Jefferson Foundation (charitable organization) (1994 to                            present); Trustee, Executive Committee, Philadelphia Chamber of                            Commerce (2001 to present). Director, Viasys Health Care(1)                            (since January 2007). Formerly, Executive Vice President, The Glenmede                            Trust Company (investment trust and wealth management) (1983 to 2004);                            Board Member, Investor Education (charitable organization)                            (2004-2005)                                                                                                                                                                                                                       | 87 |
|------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----|
| Philip Saunders, Jr.(1935)Board Member since1986                       | Principal, Philip Saunders Associates (economic and                            financial consulting) (since November 1988). Formerly, Director,                            Financial Industry Consulting, Wolf & Company (consulting)                            (1987-1988); President, John Hancock Home Mortgage Corporation                            (1984-1986); Senior Vice President of Treasury and Financial Services,                            John Hancock Mutual Life Insurance Company, Inc. (1982-1986)                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 87 |
| William N. Searcy, Jr.(1946)Board Member since2002 | Private investor since October 2003; Trustee of 8                            open-end mutual funds managed by Sun Capital Advisers, Inc. (since                            October 1998). Formerly, Pension & Savings Trust Officer, Sprint                            Corporation(1) (telecommunications) (November 1989-September                            2003)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 87 |
| Jean Gleason Stromberg(1943)Board Member since2006                     | Retired. Formerly, Consultant (1997-2001); Director, US                            Government Accountability Office (1996-1997); Partner, Fulbright &                            Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and                            Flora Hewlett Foundation; Service Source, Inc. Former Directorships:                            Mutual Fund Directors Forum (2002-2004), American Bar Retirement                            Association (funding vehicle for retirement plans) (1987-1990 and                            1994-1996)                                                                                                                                                                                                                                                                                                                                                                                        | 87 |
| Carl W. Vogt(1936)Board Member since2006                               | Retired Senior Partner, Fulbright & Jaworski, L.L.P.                            (law firm); formerly, President (interim) of Williams College                            (1999-2000); formerly, President of certain funds in the Deutsche Asset                            Management family of funds (formerly, Flag Investors family of funds)                            (registered investment companies) (1999-2000). Directorships: Yellow                            Corporation (trucking); American Science & Engineering (x-ray                            detection equipment). Former Directorships: ISI Family of Funds                            (registered investment companies, 4 funds overseen); National Railroad                            Passenger Corporation (Amtrak); Waste Management, Inc (solid waste                            disposal); formerly, Chairman and Member, National Transportation                            Safety Board | 85 |

 

 

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***Interested Board Member***

 

| **Name, Year of                            Birth, Position with the Trust and Length of Time Served** | **Business                            Experience and****Directorships During the Past 5 Years**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **Number of                            Funds in DWS Fund Complex Overseen** |
|-------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
| Axel Schwarzer(2)(1958)Board Member since2006                                                         | Managing Director(4), Deutsche Asset                            Management; Head of Deutsche Asset Management Americas; CEO of DWS                            Scudder; formerly board member of DWS Investments, Germany (1999-2005);                            formerly, Head of Sales and Product Management for the Retail and                            Private Banking Division of Deutsche Bank in Germany (1997-1999);                            formerly, various strategic and operational positions for Deutsche Bank                            Germany Retail and Private Banking Division in the field of investment                            funds, tax driven instruments and asset management for corporates                            (1989-1996) | 86                                                                          |

 

***Officers*****(3)**

 

| **Name, Year of                            Birth, Position with the Trust and Length of Time Served**             | **Business                            Experience and****Directorships During the Past 5 Years**                                                                                                                                                                                                                                                                                                                                                                  | **Number of                            Funds in DWS Fund Complex Overseen** |
|-------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------|
| Michael G. Clark(5) (1965)President, 2006-present                                                                 | Managing Director(4), Deutsche Asset                            Management (2006-present); President of DWS family of funds; formerly,                            Director of Fund Board Relations (2004-2006) and Director of Product                            Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice                            President Operations, Merrill Lynch Asset Management                            (1999-2000) | n/a                                                                         |
| John                            Millette(6) (1962)Vice President and Secretary, 1999-present                      | Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                                                                                                | n/a                                                                         |
| Paul                            H. Schubert(5) (1963)Chief Financial Officer, 2004-presentTreasurer, 2005-present | Managing Director(4), Deutsche Asset                            Management (since July 2004); formerly, Executive Director, Head of                            Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004);                            Vice President and Director of Mutual Fund Finance at UBS Global Asset                            Management (1994-1998)                                                                       | n/a                                                                         |
| Patricia DeFilippis(5) (1963)Assistant Secretary, 2005-present                                                    | Vice President, Deutsche Asset Management (since June                            2005); Counsel, New York Life Investment Management LLC (2003-2005);                            legal associate, Lord, Abbett & Co. LLC (1998-2003)                                                                                                                                                                                                                         | n/a                                                                         |
| Elisa                            D. Metzger(5) (1962)Assistant Secretary, 2005-present                            | Director(4), Deutsche Asset Management (since                            September 2005); Counsel, Morrison and Foerster LLP                            (1999-2005)                                                                                                                                                                                                                                                                                              | n/a                                                                         |
| Caroline Pearson(6) (1962)Assistant Secretary, 2002-present                                                       | Managing Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                                                                                       | n/a                                                                         |
| Scott                            M. McHugh(6) (1971)Assistant Treasurer, 2005-present                             | Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                                                                                                | n/a                                                                         |

 

 

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| Kathleen Sullivan D’Eramo(6)(1957)Assistant Treasurer, 2003-present                                                          | Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                    | n/a |
|------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----|
| John                            Robbins(5) (1966)Anti-Money Laundering Compliance Officer,                            2005-present | Managing Director(4), Deutsche Asset                            Management (since 2005); formerly, Chief Compliance Officer and                            Anti-Money Laundering Compliance Officer for GE Asset Management                            (1999-2005)                                                                                                                   | n/a |
| Robert                            Kloby(5) (1962)Chief Compliance Officer, 2006-present                                            | Managing Director(4), Deutsche Asset                            Management (2004-present); formerly, Chief Compliance Officer/Chief                            Risk Officer, Robeco USA (2000-2004); Vice President, The Prudential                            Insurance Company of America (1988-2000); E.F. Hutton and Company                            (1984-1988)              | n/a |
| J.                            Christopher Jackson(5) (1951)Chief Legal Officer, 2006-present                                       | Director(4), Deutsche Asset Management                            (2006-present); formerly, Director, Senior Vice President, General                            Counsel and Assistant Secretary, Hansberger Global Investors, Inc.                            (1996-2006); Director, National Society of Compliance Professionals                            (2002-2005) (2006-2009) | n/a |

             

| (1) | A publicly held company with securities registered                            pursuant to Section 12 of the Securities Exchange Act of                            1934. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The mailing address of Axel Schwarzer is c/o Deutsche                            Investment Management Americas Inc., 345 Park Avenue, New York, New                            York 10154. Mr. Schwarzer is an interested Board Member by virtue of                            his positions with Deutsche Asset Management. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | 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 Funds. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Executive title, not a board directorship. |
|-----|--------------------------------------------|

| (5) | Address: 345 Park Avenue, New York, New York                            10154. |
|-----|--------------------------------------------------------------------------------|

| (6) | Address: Two International Place, Boston, Massachusetts                            02110. |
|-----|-------------------------------------------------------------------------------------------|

Each Officer also holds similar positions for other investment companies            for which DIMA or an affiliate serves as the advisor.

**Officer’s Role with Principal Underwriter: DWS Scudder            Distributors, Inc.**

 

| Paul H. Schubert: | Vice President |
|-------------------|----------------|
| Caroline Pearson: | Secretary      |

 

***Information Concerning Committees and Meetings of Board            Members***

The            Board of the Trust met 10 times during the calendar year ended December 31, 2006            and each Board Member attended at least 80% of the meetings of the Board and meetings            of the committees of the Board on which such Board Member served.

**Board Committees.**Ms. Driscoll has            served as Chair of the Board of the Funds since May 2006.

 

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The            Board has established the following standing committees: Audit Committee,            Nominating/Corporate Governance Committee, Valuation Committee, Equity Oversight            Committee, Fixed Income Oversight Committee, Marketing/Distribution/Shareholder Service            Committee, Legal/Regulatory/Compliance Committee and Expense/Operations            Committee.

**The Audit Committee**assists the Board in            fulfilling its responsibility for oversight of the quality and integrity of the            accounting, auditing and financial reporting practices of the applicable Fund. It also            makes recommendations regarding the selection of an independent registered public            accounting firm for a Fund, reviews the independence of such firm, reviews the scope of            audit and internal controls, considers and reports to the Board on matters relating to            a Fund’s accounting and financial reporting practices, and performs such other            tasks as the full Board deems necessary or appropriate. The Audit Committee receives            annual representations from the independent registered public accounting firm as to its            independence. The members of the Audit Committee are Keith R. Fox (Chair and Audit            Committee Financial Expert), Kenneth C. Froewiss, Richard J. Herring, Graham E. Jones,            Philip Saunders, Jr., William N. Searcy, Jr. and Jean Gleason Stromberg. The Audit            Committee held eight (8) meetings during the calendar year 2006.

**The Nominating/Corporate Governance Committee**(i) recommends to the Board candidates to serve as Board Members            and (ii) oversees and, as appropriate, makes recommendations to the Board            regarding other fund governance-related matters, including but not limited to Board            compensation practices, retirement policies, self-evaluations of effectiveness, review            of possible conflicts of interest and independence issues involving Board Members,            allocations of assignments and functions of committees of the Board, and share            ownership policies. The members of the Nominating/Corporate Governance Committee are            Henry P. Becton, Jr. (Chair), Graham E. Jones, Rebecca W. Rimel and Jean Gleason            Stromberg. The Nominating/Corporate Governance Committee (previously known as the            Committee on Independent Directors) held three (3) meetings during the calendar year            2006.

**The Valuation Committee**oversees Fund            valuation matters, reviews valuation procedures adopted by the Board, determines the            fair value of the Fund’s securities as needed in accordance with the valuation            procedures when actual market values are unavailable and performs such other tasks as            the full Board deems necessary or appropriate. The members of the Valuation Committee            are Keith R. Fox, Kenneth C. Froewiss, Martin J. Gruber, Richard J. Herring and Philip            Saunders, Jr. (Chair). The Valuation Committee held six meetings during the calendar            year 2006.

The            Board has established two**Investment Oversight            Committees**, one focusing on Funds primarily investing in            equity securities (the “Equity Oversight Committee”) and one focusing on            Funds primarily investing in fixed income securities (the “Fixed Income Oversight            Committee”). These Committees meet regularly with Fund portfolio managers and            other investment personnel to review the relevant Funds’ investment strategies            and investment performance. The members of the Equity Oversight Committee are Henry P.            Becton, Jr., Martin J. Gruber (Chair), Richard J. Herring, Rebecca W. Rimel, Philip            Saunders, Jr. and Carl W. Vogt. The members of the Fixed Income Oversight Committee are            Dawn-Marie Driscoll, Keith R. Fox, Kenneth C. Froewiss, Graham E. Jones, William N.            Searcy, Jr. (Chair) and Jean Gleason Stromberg. Each Investment Oversight Committee            held six (6) meetings during the calendar year 2006.

**The Marketing/Distribution/Shareholder Service Committee**oversees (i) the quality, costs and types of shareholder services            provided to the Funds and their shareholders, and (ii) the distribution-related            services provided to the Funds and their shareholders. The members of the            Marketing/Distribution/Shareholder Service Committee are Martin J. Gruber, Richard J.            Herring (Chair), Rebecca W. Rimel, Jean Gleason Stromberg and Carl W. Vogt. The            Marketing/Distribution/Shareholder Service Committee held six (6) meetings during            the calendar year 2006.

**The Legal/Regulatory/Compliance Committee**oversees (i) the significant legal affairs of the Fund, including            the handling of pending or threatened litigation or regulatory action involving the            Fund, (ii) general compliance matters relating to the Fund and (iii) proxy            voting. The members of the Legal/Regulatory/Compliance Committee are Henry P. Becton,            Jr., Dawn-Marie Driscoll, Rebecca W. Rimel, William N. Searcy, Jr., Jean Gleason            Stromberg and Carl W. Vogt (Chair). The Legal/Regulatory/Compliance Committee held            six (6) meetings during the calendar year 2006.

 

----

**The Expense/Operations Committee**(i) monitors the Fund’s total operating expense levels,            (ii) oversees the provision of administrative services to the Fund, including the            Fund's custody, fund accounting and insurance arrangements, and (iii) reviews the            Fund's investment advisers’ brokerage practices, including the implementation of            related policies. The members of the Expense/Operations Committee are Henry P. Becton,            Jr., Dawn-Marie Driscoll, Keith R. Fox, Kenneth C. Froewiss, Graham E. Jones (Chair),            Philip Saunders, Jr. and William N. Searcy, Jr. This committee held seven            (7) meetings during the calendar year 2006.

**Ad Hoc Committees.**In addition to the            standing committees described above, from time to time the Board also forms ad hoc            committees to consider specific issues. In 2006, various ad hoc committees of the Board            held an additional seven (7) meetings.

**Remuneration.**Each Independent Board Member            receives compensation from the Fund for his or her services, which includes an annual            retainer and an attendance fee for each meeting attended. No additional compensation is            paid to any Independent Board Member for travel time to meetings, attendance at            directors' educational seminars or conferences, service on industry or association            committees, participation as speakers at directors' conferences or service on special            fund industry director task forces or subcommittees. Independent Board Members do not            receive any employee benefits such as pension or retirement benefits or health            insurance from the Fund or any fund in the DWS fund complex.

Members of the Board who are officers, directors, employees or            stockholders of Deutsche Asset Management or its affiliates receive no direct            compensation from a Fund, although they are compensated as employees of Deutsche Asset            Management, or its affiliates, and as a result may be deemed to participate in fees            paid by the Funds. The following tables show compensation from the Fund and aggregate            compensation from all of the funds in the DWS fund complex received by each Board            Member during the calendar year 2006. Mr. Schwarzer became a member of the Board            on May 5, 2006, is an interested person of the Funds and received no compensation from            the Funds or any fund in the DWS fund complex during the relevant periods.

 

| **Name of Board Member**        | **Aggregate Compensation****from DWS Micro                            Cap****Fund** | **Total** **Compensation** **from Fund** **and** **DWS Fund Complex(1)** |
|---------------------------------|-------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------|
|                            |                                                                                |                                                                                         |
| Henry P. Becton, Jr.(3)(4)      | $137                                                                                | $189,000                                                                                     |
| Dawn-Marie Driscoll(2)(3)(4)(5) | $181                                                                                | $251,000                                                                                     |
| Keith R. Fox(3)(4)(5)           | $139                                                                                | $195,000                                                                                     |
| Kenneth C. Froewiss(3)(5)(6)    | $153                                                                                | $234,988                                                                                     |
| Martin J. Gruber(7)(9)          | $379                                                                                | $188,000                                                                                     |
| Richard J. Herring(7)(8)(9)     | $374                                                                                | $184,000                                                                                     |
| Graham E. Jones(7)(9)           | $415                                                                                | $206,000                                                                                     |
| Rebecca W. Rimel(7)(8)(9)       | $375                                                                                | $185,000                                                                                     |
| Philip Saunders, Jr.(7)(9)      | $418                                                                                | $207,000                                                                                     |
| William N. Searcy, Jr.(7)(9)    | $415                                                                                | $206,000                                                                                     |
| Jean Gleason Stromberg(3)(4)(5) | $149                                                                                | $202,000                                                                                     |
| Carl W. Vogt(3)(4)(5)           | $137                                                                                | $189,000                                                                                     |

             

| (1) | The DWS Fund Complex is composed of 155                            funds. |
|-----|---------------------------------------------------------------------------|

| (2) | Includes $50,000 in annual retainer fees in                            Ms. Driscoll’s role as Chairman of the Board. |
|-----|---------------------------------------------------------------------------------------------------------------------------------|

| (3) | For each Board Member, except Mr. Becton, Mr.                            Froewiss and Mr. Vogt, total compensation includes compensation for                            service on the boards of 34 trusts/corporations comprised of 87                            funds/portfolios. For Messrs. Becton and Vogt total compensation                            includes compensation for service on the boards of 32 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

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trusts/corporations comprised of 85 funds/portfolios. For Mr. Froewiss            total compensation includes compensation for services on the boards of 37            trusts/corporations comprised of 90 funds/portfolios.

| (4) | Aggregate compensation includes amounts paid to the                            Board Members for special meetings of ad hoc committees of the board in                            connection with the possible consolidation of the various DWS Fund                            boards and funds, meetings for considering fund expense simplification                            initiatives, and consideration of issues specific to the Fund’s                            direct shareholders (i.e., those shareholders who did not purchase                            shares through financial intermediaries). Such amounts totaled $16,000                            for Ms. Driscoll, $1,000 for Mr. Fox, $17,000 for Mr.                            Froewiss, $1,000 for Dr. Herring, $16,000 for Mr. Jones,                            $17,000 for Dr. Saunders, $16,000 for Mr. Searcy and $16,000                            for Ms. Stromberg. These meeting fees were borne by the applicable                            DWS Funds. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | During calendar year 2006, the total number of funds                            overseen by each Board Member was 87 funds, except for Mr. Becton and                            Mr. Vogt, who oversaw 85 funds, and Mr. Froewiss, who oversaw 90                            funds. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Board Member Ownership in the            Fund***(1)

The            following table shows the dollar range of equity securities beneficially owned by each            Board Member in the Funds and DWS Fund Complex as of December 31, 2006.

 

| **Board                            Member**              | **Dollar Range of Beneficial****Ownership****in DWS Micro Cap Fund** | **Aggregate Dollar Range of****Ownership in all Funds Overseen****by Board Member****in the DWS Fund                            Complex(2)** |
|----------------------------------------------------------|----------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                     |                                                                 |                                                                                                                                         |
| **Independent                            Board Member:** |                                                                 |                                                                                                                                         |
| Henry P. Becton, Jr.                                     | None                                                                 | Over $100,000                                                                                                                                |
| Dawn-Marie Driscoll                                      | None                                                                 | Over $100,000                                                                                                                                |
| Keith R. Fox                                             | None                                                                 | Over $100,000                                                                                                                                |
| Kenneth C. Froewiss                                      | None                                                                 | Over $100,000                                                                                                                                |
| Martin J. Gruber                                         | $10,001-$50,000                                                      | Over $100,000                                                                                                                                |
| Richard J. Herring                                       | $10,001-$50,000                                                      | Over $100,000                                                                                                                                |
| Graham E. Jones                                          | $10,001-$50,000                                                      | Over $100,000                                                                                                                                |
| Rebecca W. Rimel                                         | None                                                                 | Over $100,000                                                                                                                                |
| Philip Saunders, Jr.                                     | None                                                                 | Over $100,000                                                                                                                                |
| William N. Searcy, Jr.                                   | None                                                                 | Over $100,000                                                                                                                                |
| Jean Gleason Stromberg                                   | None                                                                 | Over $100,000                                                                                                                                |
| Carl W. Vogt                                             | None                                                                 | Over $100,000                                                                                                                                |
|                                                     |                                                                 |                                                                                                                                         |
| **Interested Board Member:**                             |                                                                 |                                                                                                                                         |
| Axel Schwarzer                                           | None                                                                 | Over $100,000                                                                                                                                |

             

| (1) | The amount shown includes share equivalents of funds                            which the Board Member is deemed to be invested pursuant to the                            Fund’s deferred compensation plan. The inclusion therein of any                            shares deemed beneficially owned does not constitute an admission of                            beneficial ownership of the shares. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Securities beneficially owned as defined under the 1934                            Act include direct and/or indirect ownership of securities where the                            Board Member’s economic interest is tied to the securities,                            employment ownership and securities when the Board Member can exert                            voting power and when the Board Member has authority to sell the                            securities. The dollar ranges are: None, $1-$10,000, $10,001-$50,000,                            $50,001-$100,000, over $100,000. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Ownership in Securities of the Advisor and Related            Companies***

As            reported to the Fund, the information in the following table reflects ownership by the            Independent Board Members and their immediate family members of certain securities as            of December 31, 2006. An immediate family

 

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member can be a spouse, children residing in the same household            including step and adoptive children and any dependents. The securities represent            ownership in an investment advisor or principal underwriter of the Fund and any persons            (other than a registered investment company) directly or indirectly controlling,            controlled by, or under common control with an investment advisor or principal            underwriter of the Fund (including Deutsche Bank AG).

             

| **Independent****Board Member**                   | **Owner and Relationship to****Board Member** | **Company** | **Title of****Class** | **Value of Securities on an Aggregate****Basis** | **Percent of Class on an Aggregate****Basis** |
|---------------------------------------------------|-----------------------------------------------|-------------|-----------------------|--------------------------------------------------|-----------------------------------------------|
|                                              |                                          |        |                  |                                             |                                          |
| Henry P. Becton, Jr.                              |                                          | None        |                  |                                             |                                          |
| Dawn-Marie Driscoll                               |                                          | None        |                  |                                             |                                          |
| Keith R. Fox                                      |                                          | None        |                  |                                             |                                          |
| Kenneth C. Froewiss                               |                                          | None        |                  |                                             |                                          |
| Martin J. Gruber                                  |                                          | None        |                  |                                             |                                          |
| Richard J. Herring                                |                                          | None        |                  |                                             |                                          |
| Graham E. Jones                                   |                                          | None        |                  |                                             |                                          |
| Rebecca W. Rimel                                  |                                          | None        |                  |                                             |                                          |
| Philip Saunders, Jr.                              |                                          | None        |                  |                                             |                                          |
| William N. Searcy, Jr.                            |                                          | None        |                  |                                             |                                          |
| Jean                            Gleason Stromberg |                                          | None        |                  |                                             |                                          |
| Carl                            W. Vogt           |                                          | None        |                  |                                             |                                          |

 

***Securities Beneficially Owned***

As            of January 17, 2007, the Trustees and officers of the Trust owned, as a group, less            than 1% percent of the outstanding shares of the Fund.

To            the Fund’s knowledge, as of January 17, 2007, no person owned of record or            beneficially 5% or more of any class of the Fund’s outstanding shares, except as            noted below.

**DWS Micro Cap Fund**

 

| **Name and Address of Investor                            Ownership**                                   | **Shares** | **% of Total Shares**         |
|---------------------------------------------------------------------------------------------------------|------------|-------------------------------|
|                                                                                                    |       |                          |
| AST TRUST COMPANY NA TTEEFBO RANGE RESOURCES CORPORATIONDEFERRED COMPENSATION PLANPHOENIX AZ 85072-2129 | 178,897.62 | 11.31% of Class A             |
|                                                                                                    |       |                          |
| STATE STREET BANK & TRUST CO CUSTFBO ADP/MORGAN STANLEY DWWESTWOOD MA 02090-2318                    | 118,911.62 | 7.52% of Class A              |
|                                                                                                    |       |                          |
| NATIONAL FINANCIAL SERVICES CORPFOR THE EXCLUSIVE BENEFIT OF OURNEW YORK NY 10281-1003                  | 251,373.86 | 34.04% of Institutional Class |
|                                                                                                    |       |                          |
| CHARLES SCHWAB & CO INCSPECIAL CUSTODY ACCOUNTMUTUAL FUNDS DEPARTMENTSAN FRANCISCO CA 94104-4151    | 243,172.43 | 32.93% of Institutional Class |
|                                                                                                    |       |                          |

 

 

----

 

| MORGAN STANLEY DWATTN MUTUAL FUND OPERATIONSJERSEY CITY NJ 07311-3907                        | 49,681.22  | 10.53% of Class C |
|----------------------------------------------------------------------------------------------|------------|-------------------|
|                                                                                         |       |              |
| MLPF&S FOR THE SOLE BENEFIT OFITS CUSTOMERSATTN FUND ADMINISTRATIONJACKSONVILLE FL 32246 | 41,531.06  | 8.80% of Class C  |
|                                                                                         |       |              |
| CHARLES SCHWAB & CO INCREINVEST ACCOUNTSAN FRANCISCO CA 94104-4151                       | 248,053.28 | 32.60% of Class S |
|                                                                                         |       |              |
| CEBANTCO CASHLEXINGTON KY 40507-1621                                                         | 77,816.99  | 10.23% of Class S |

 

***Agreement to Indemnify Independent Trustees for Certain            Expenses***

In            addition to customary indemnification rights provided by the governing instruments of            the Trust, Trustees may be eligible to seek indemnification from the Advisor in            connection with certain matters as follows. In connection with litigation or regulatory            action related to possible improper market timing or other improper trading activity or            possible improper marketing and sales activity in the Fund, the Fund’s investment            advisor has agreed, subject to applicable law and regulation, to indemnify and hold            harmless the Fund against any and all loss, damage, liability and expense, arising from            market timing or marketing and sales matters alleged in any enforcement actions brought            by governmental authorities involving or potentially affecting the Fund or the            investment adviser (“Enforcement Actions”) or that are the basis for            private actions brought by shareholders of the Fund against the Fund, their Board            Members and officers, the investment adviser and/or certain other parties            (“Private Litigation”), or any proceedings or actions that may be            threatened or commenced in the future by any person (including governmental            authorities), arising from or similar to the matters alleged in the Enforcement Actions            or Private Litigation. In recognition of its undertaking to indemnify the Funds and in            light of the rebuttable presumption generally afforded to Independent Board Members of            investment companies that they have not engaged in disabling conduct, the Fund’s            investment adviser has also agreed, subject to applicable law and regulation, to            indemnify the Fund’s Independent Board Members against certain liabilities the            Independent Board Members may incur from the matters alleged in any Enforcement Actions            or Private Litigation or arising from or similar to the matters alleged in the            Enforcement Actions or Private Litigation, and advance expenses that may be incurred by            the Independent Board Members in connection with any Enforcement Actions or Private            Litigation. The Fund’s investment adviser is not, however, required to provide            indemnification and advancement of expenses: (1) in connection with any proceeding or            action with respect to which the Fund’s Board determines that the Independent            Board Member ultimately would not be entitled to indemnification or (2) for any            liability of the Independent Board Member to the Fund or its shareholders to which the            Independent Board Member would otherwise be subject by reason of willful misfeasance,            bad faith, gross negligence or reckless disregard of the Independent Board            Members’ duties as a director or trustee of the Fund as determined in a final            adjudication in such action or proceeding. The estimated amount of any expenses that            may be advanced to the Independent Board Members or indemnity that may be payable under            the indemnity agreements is currently unknown. These agreements by the investment            adviser will survive the termination of the investment management agreements between            the applicable Deutsche Asset Management entity and the Fund.

**TRUST ORGANIZATION**

The            Fund is a series of DWS Advisor Funds (the “Trust”), an open-end management            investment company. The Trust is a Massachusetts business trust organized under the            laws of Massachusetts and is governed by an Amended and Restated Declaration of Trust            dated June 27, 2006, as may be further amended from time to time (the            “Declaration of Trust”). The Trust was organized on July 21, 1986 under the            laws of The Commonwealth of Massachusetts. The Trust was organized under the name BT            Tax-Free Investment Trust and assumed its former

 

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name of BT Investment Funds on May 16, 1988. The Trust’s name was            changed to Scudder Advisor Funds effective May 16, 2003. The Trust’s name was            changed to DWS Advisor Funds effective February 6, 2006. The Board of Trustees of the            Trust is responsible for the overall management and supervision of the affairs of the            Trust. The Declaration of Trust authorizes the Board of Trustees to create a separate            investment series or portfolios of shares. On or about July 10, 2006, the Micro Cap            Predecessor Fund transferred all its assets and liabilities from DWS Investments Trust,            a Delaware statutory trust, into a new series of the Trust, under the same fund name.            The Trust offers shares of beneficial interest of separate series, par value $0.001 per            share. The shares of the other series of the Trust are offered through separate            prospectuses and statements of additional information. No series of shares has any            preference over any other series. All shares issued and outstanding are fully paid and            non-assessable, transferable, have no pre-emptive or conversion rights (except as may            be determined by the Board of Trustees) and are redeemable as described in the SAI and            a Fund’s prospectus. Each share has equal rights with each other share of the            same class of the Fund as to voting, dividends, exchanges, conversion features and            liquidation. The Trust also reserves the right to issue more than one class of shares            of the Fund.

On            October 23, 2006 Investment Class shares of the Fund merged into Class S shares of the            Fund and are no longer available for investment.

Prior to or about July 10, 2006, the Fund was a series of DWS            Investments Trust — an open-end, management investment company, organized as a            Delaware statutory trust, which was formerly known as Scudder MG Investments Trust. On            or about July 10, 2006, the Fund acquired all the assets and assumed all the            liabilities of the DWS Micro Cap Fund, a series of DWS Investments Trust, (the            “Micro Cap Predecessor Fund”) in a reorganization.

A            Fund generally is not required to hold meetings of its shareholders. Under the            Declaration of Trust, however, shareholder meetings will be held in connection with the            following matters to the extent and as provided in the Declaration of Trust and as            required by applicable law: (a) the election or removal of trustees if a meeting is            called for such purpose; (b) the termination of the Trust or a Fund; (c) an amendment            of the Declaration of Trust; (d) to the same extent as stockholders of Massachusetts            business corporation as to whether or not a court action, proceeding or claims should            or should not be brought or maintained derivatively or as a class action on behalf of            the Trust*or any series or class thereof*or the Shareholders; and (e) such additional matters as may be required            by law, the Declaration of Trust, the By-laws of a Fund, or any registration of a Fund            with the SEC or any state, or as the Trustees may determine to be necessary or            desirable. Shareholders also vote upon changes in fundamental policies or            restrictions.

On            any matter submitted to a vote of shareholders, all shares of the Trust entitled to            vote shall, except as otherwise provided in the Trust’s By-Laws, be voted in the            aggregate as a single class without regard to series or classes of shares, except (a)            when required by applicable law or when the Trustees shall have determined that the            matter affects one or more series or classes of shares materially differently, shares            shall be voted by individual series or class; and (b) when the Trustees have determined            that the matter affects only the interests of one or more series or classes, only            shareholders of such series or classes shall be entitled to vote thereon.

The            Declaration of Trust provides that the Board of Trustees may, in its discretion,            establish minimum investment amounts for shareholder accounts, impose fees on accounts            that do not exceed a minimum investment amount and involuntarily redeem shares in any            such account in payment of such fees. The Board of Trustees, in its sole discretion,            also may cause the Trust to redeem all of the shares of the Trust or one or more series            or classes held by any shareholder for any reason, to the extent permissible by the            1940 Act, including (a) if the shareholder owns shares having an aggregate net asset            value of less than a specified minimum amount, (b) if a particular shareholder’s            ownership of shares would disqualify a series from being a regulated investment            company, (c) upon a shareholder’s failure to provide sufficient identification to            permit the Trust to verify the shareholder’s identity, (d) upon a            shareholder’s failure to pay for shares or meet or maintain the qualifications            for ownership of a particular class or series of shares, (e) if the Board of Trustees            determines (or pursuant to policies established by the Board it is determined) that            share ownership by a particular shareholder is not in the best interests of remaining            shareholders, (f) when a Fund is requested or compelled to do so by governmental            authority or applicable law and (g) upon a shareholder’s failure to comply with a            request for information with respect to the direct or indirect ownership of shares of            the Trust. The Declaration of Trust also authorizes the Board of Trustees to terminate            a Fund or any class

 

----

without shareholder approval, and the Trust may suspend the right of            shareholders to require the Trust to redeem shares to the extent permissible under the            1940 Act.

Under Massachusetts law, shareholders of a Massachusetts business trust            could, under certain circumstances, be held personally liable for obligations of a            Fund. The Declaration of Trust, however, disclaims shareholder liability for acts or            obligations of the Fund and requires that notice of such disclaimer be given in each            agreement, obligation, or instrument entered into or executed by the Fund or the            Fund’s trustees. Moreover, the Declaration of Trust provides for indemnification            out of Fund property for all losses and expenses of any shareholder held personally            liable for the obligations of the Fund and the Fund may be covered by insurance which            the Trustees consider adequate to cover foreseeable tort claims. Thus, the risk of a            shareholder incurring financial loss on account of shareholder liability is considered            by the Advisor remote and not material, since it is limited to circumstances in which a            disclaimer is inoperative and the Fund itself is unable to meet its            obligations.

**PROXY VOTING GUIDELINES**

The            Fund has delegated proxy voting responsibilities to its investment advisor, subject to            the Board’s general oversight. The Fund has delegated proxy voting to the Advisor            with the direction that proxies should be voted consistent with the Fund’s best            economic interests. The Advisor has adopted its own Proxy Voting Policies and            Procedures (“Policies”), and Proxy Voting Guidelines            (“Guidelines”), for this purpose. The Policies address, among other things,            conflicts of interest that may arise between the interests of the Fund and the            interests of the Advisor and its affiliates, including the Fund’s principal            underwriter. The Guidelines set forth the Advisor’s general position on various            proposals, such as:

| **•** | Shareholder Rights—                            The Advisor generally votes against proposals that restrict shareholder                            rights. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Corporate Governance— The Advisor generally votes for confidential and                            cumulative voting and against supermajority voting requirements for                            charter and bylaw amendments. The Advisor generally votes for proposals                            to restrict a chief executive officer from serving on more than three                            outside boards of directors. The Advisor generally votes against                            proposals that require a company to appoint a Chairman who is an                            independent director. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Anti-Takeover Matters— The Advisor generally votes for proposals that                            require shareholder ratification of poison pills or that request boards                            to redeem poison pills, and votes against the adoption of poison pills                            if they are submitted for shareholder ratification. The Advisor                            generally votes for fair price proposals. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Compensation Matters— The Advisor generally votes for executive cash                            compensation proposals, unless they are unreasonably excessive. The                            Advisor generally votes against stock option plans that do not meet the                            Advisor’s criteria. |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Routine Matters— The                            Advisor generally votes for the ratification of auditors, procedural                            matters related to the annual meeting and changes in company name, and                            against bundled proposals and adjournment. |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The            general provisions described above do not apply to investment companies. The Advisor            generally votes proxies solicited by investment companies in accordance with the            recommendations of an independent third party, except for proxies solicited by or with            respect to investment companies for which the Advisor or an affiliate serves as            investment advisor or principal underwriter (“affiliated investment            companies”). The Advisor votes affiliated investment company proxies in the same            proportion as the vote of the investment company’s other shareholders (sometimes            called “mirror” or “echo” voting). Master fund proxies            solicited from feeder funds are voted in accordance with applicable requirements of the            1940 Act.

Although the Guidelines set forth the Advisor’s general voting            positions on various proposals, the Advisor may, consistent with the Fund’s best            interests, determine under some circumstances to vote contrary to those            positions*.*

The            Guidelines on a particular issue may or may not reflect the view of individual members            of the Board or of a majority of the Board. In addition, the Guidelines may reflect a            voting position that differs from the actual practices

 

----

of            the public companies within the Deutsche Bank organization or of the investment            companies for which the Advisor or an affiliate serves as investment advisor or            sponsor.

The            Advisor may consider the views of a portfolio company’s management in deciding            how to vote a proxy or in establishing general voting positions for the Guidelines, but            management’s views are not determinative.

As            mentioned above, the Policies describe the way in which the Advisor resolves conflicts            of interest. To resolve conflicts, the Advisor, under normal circumstances, votes            proxies in accordance with its Guidelines. If the Advisor departs from the Guidelines            with respect to a particular proxy or if the Guidelines do not specifically address a            certain proxy proposal, a proxy voting committee established by the Advisor will vote            the proxy. Before voting any such proxy, however, the Advisor’s conflicts review            committee will conduct an investigation to determine whether any potential conflicts of            interest exist in connection with the particular proxy proposal. If the conflicts            review committee determines that the Advisor has a material conflict of interest, or            certain individuals on the proxy voting committee should be recused from participating            in a particular proxy vote, it will inform the proxy voting committee. If notified that            the Advisor has a material conflict, or fewer than three voting members are eligible to            participate in the proxy vote, typically the Advisor will engage an independent third            party to vote the proxy or follow the proxy voting recommendations of an independent            third party.

Under certain circumstances, the Advisor may not be able to vote proxies            or the Advisor may find that the expected economic costs from voting outweigh the            benefits associated with voting. For example, the Advisor may not vote proxies on            certain foreign securities due to local restrictions or customs. The Advisor generally            does not vote proxies on securities subject to share blocking restrictions.

You            may obtain information about how a Fund voted proxies related to its portfolio            securities during the 12-month period ended June 30 by visiting the SEC’s Web            site at www.sec.gov or by visiting our Web site at: www.dws-scudder.com (type            “proxy voting” in the search field).

**FINANCIAL STATEMENTS**

**Registration Statement.**The Trust has filed            with the SEC a Registration Statement under the 1933 Act with respect to the securities            of the Fund and certain other series of the Trust. If further information is desired            with respect to the Trust, the Fund or such other series, reference is made to the            Registration Statement and the exhibits filed as a part thereof.

The            financial statements, including the portfolio of investments, of Micro Cap Fund,            together with the Report of Independent Registered Public Accounting Firm, Financial            Highlights and Notes to Financial Statements in the Annual Report to the Shareholders            of each Fund dated September 30, 2006, are incorporated herein by reference and are            hereby deemed to be a part of this Statement of Additional Information.

**Annual and Semiannual Reports.**Shareholders            of the Fund receive an annual report containing audited financial statements and a            semiannual report. All transactions in Institutional shares of the Fund and dividends            and distributions paid by the Fund are reflected in confirmations issued by the            Transfer Agent at the time of the transaction and/or in monthly statements issued by            the Transfer Agent. The Transfer Agent will provide a year-to-date            statement.

 

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**ADDITIONAL INFORMATION**

The            CUSIP numbers for each class of DWS Micro Cap Fund are:

Class A: 23339E616

Class B: 23339E590

Class C: 23339E582

Institutional Class: 23339E566

DWS            Micro Cap Fund has a fiscal year ending September 30.

Many of the investment changes in the Fund will be made at prices            different from those prevailing at the time they may be reflected in a regular report            to shareholders of the Fund. These transactions will reflect investment decisions made            by the Advisor in light of the Fund’s investment objective and policies, its            other portfolio holdings and tax considerations, and should not be construed as            recommendations for similar action by other investors.

The            Fund’s prospectuses and this Statement of Additional Information omit certain            information contained in the Registration Statement and its amendments which the Fund            has filed with the SEC under the Securities Act of 1933 and reference is hereby made to            the Registration Statement for further information with respect to a Fund and the            securities offered hereby. The Registration Statement and its amendments are available            for inspection by the public at the offices of the SEC in Washington, D.C.

 

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**APPENDIX**

**THE ADVISOR’S MICRO CAP INVESTMENT RESULTS**

Set            forth below are investment results for the Fund and a composite of accounts managed by            the Micro Cap Equity Team of the Advisor in accordance with the Micro Cap investment            strategy (the “DIMA Micro Cap Composite”). For comparison purposes,            performance information is also shown for the Fund and the Russell 2000 (an index of            small capitalization stocks). The Russell 2000 is comprised of issuers that are ranked            according to market capitalization in the bottom 10% of the US equity market. In            contrast, the Fund’s principal investments are common stocks of issuers that are            ranked (at time of purchase) in the bottom 5% of the US equity market.

Each of the Advisor’s discretionary, micro cap accounts (other            than the Fund, which commenced operations on December 18, 1996) is included in the DIMA            Micro Cap Composite. These accounts had the same investment objective as the Fund and            were managed using substantially similar, though not necessarily identical, investment            strategies and techniques as those contemplated for the Fund. Because of the            similarities in investment strategies and techniques, the Advisor believes that the            accounts included in the DIMA Micro Cap Composite are sufficiently comparable to the            Fund to make the performance data listed below relevant to prospective            investors.

The            investment results below for the DIMA Micro Cap Composite do not include the            Fund’s investment results and are not intended to predict or suggest the returns            that will be experienced by the Fund or the return an investor may achieve by investing            in shares of the Fund. Most of the accounts included in the DIMA Micro Cap Composite            were not subject to the investment limitations, diversification requirements and other            restrictions imposed on registered mutual funds by the 1940 Act and the Code. If more            of the accounts had been subject to these requirements, the performance of the DIMA            Micro Cap Composite might have been lower.

The            investment results of the DIMA Micro Cap Composite were calculated in accordance with            the Association for Investment Management and Research (AIMR) Performance Presentation            Standards and are shown net of commissions and transaction costs (including custody            fees) and net of the investment advisory fee charged to accounts included in the            Composite (1.50%). AIMR has not been involved with the preparation or review of this            report. The Fund’s estimated total annual operating expenses are higher than the            investment advisory fee charged to accounts included in the DIMA Micro Cap Composite.            As a result, it is expected that fees and expenses will reduce the Fund’s            performance to a greater extent than investment advisory fees have reduced the            performance of accounts included in the DIMA Micro Cap Composite.

Performance of DIMA, Inc. Micro Cap Composite and Russell 2000 Growth            Total Return Index

**COMPOSITE SIZE-WEIGHTED RATES OF RETURN**

**DIMA MICRO CAP COMPOSITE**

 

| **Year** | **Net                            of Fees**(a) | **Russell 2000 Growth Total Return                            Index** |
|----------|-----------------------------------------------|-----------------------------------------------------------------------|
|     |                                          |                                                                  |
| 2006     |                                          | **5.88%**                                                             |
| 2005     | 8.16%                                         | 4.15%                                                                 |
| 2004     | 12.84%                                        | 14.31%                                                                |
| 2003     | 41.75%                                        | 48.54%                                                                |
| 2002     | -28.62%                                       | -30.26%                                                               |
| 2001     | 17.76%                                        | -9.23%                                                                |
| 2000     | 3.07%                                         | -22.43%                                                               |
| 1999     | 75.56%                                        | 43.09%                                                                |

 

 

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| 1998 | -0.21% | 1.23%  |
|------|--------|--------|
| 1997 | 18.68% | 12.95% |
| 1996 | 50.83% | 11.26% |
| 1995 | 54.29% | 31.04% |

             

| (a) | Rates of Return - Net are calculated using a monthly fee                            ratio of 12.50 basis points. |
|-----|------------------------------------------------------------------------------------------------------------------|

 

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**STATEMENT OF ADDITIONAL INFORMATION**

 

**INVESTMENT ADVISOR AND ADMINISTRATOR**

Deutsche Investment Management Americas, Inc.

345 Park Avenue

New York, NY 10154

             

**DISTRIBUTOR**

DWS Scudder Distributors, Inc.

222 South Riverside Plaza

Chicago, IL 60606

**CUSTODIAN**

State Street Bank and Trust Company

225 Franklin Street

Boston, MA 02110

**TRANSFER AGENT**

DWS Scudder Investments Service Company

222 South Riverside Plaza

Chicago, IL 60606

**INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

PricewaterhouseCoopers LLP

125 High Street

Boston, MA 02110

**LEGAL COUNSEL**

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, NY 10019

No person has been authorized to give any information to give any            information or to make any representations other than those contained in the            Trust’s Prospectuses, its Statements of Additional Information or the            Trust’s official sales literature in connection with the offering of the            Trust’s shares and, if given or made, such other information or representations            must not be relied on as having been authorized by the Trust. Neither the Prospectuses            nor this Statement of Additional Information constitutes an offer in any state in            which, or to any person to whom, such offer may not lawfully be made.

             

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