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-3913

 

 

Supplement to the currently effective Statements of Additional            Information for Fund listed below:

 

**DWS Short Duration Plus Fund**

             

*The following information supplements the “Management of the            Fund” section of the Fund’s current Statements of Additional            Information*:

**Fund Ownership of 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 August 31, 2007.

 

| **Name of Portfolio                            Manager** | **Dollar Range of**

**Fund Shares Owned** | **Dollar Range of DWS                            Fund****Shares Owned** |
|----------------------------------------------------------|--------------------------------------------|-------------------------------------------------------------------------|
|                                                     |                                       |                                                                    |
| Thomas                            Picciochi              | $10,001-$50,000                            | $100,001-$500,000                                                       |

 

**Conflicts of Interest:**

In            addition to managing the assets of the Fund, the Fund’s portfolio managers may            have responsibility for managing other client accounts of the Advisor or its            affiliates. The tables below show, for each 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 individuals or organizations) managed by            each 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 August 31,            2007.

***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** |
|----------------------------------|--------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|                             |                                             |                                                   |                                                                                                                           |                                                  |
| Thomas Picciochi                 | 11                                               | $4,378,711,027                                         | 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** |
|----------------------------------|---------------------------------------------|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|                             |                                        |                                              |                                                                                                         |                                                  |
| Thomas Picciochi                 | 5                                           | $316,419,923                                      | 2                                                                                                            | $257,589,097                                          |

 

 

----

 

***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** |
|----------------------------------|---------------------------------|------------------------------------------------------------------|---------------------------------------------------------------------------------------|-------------------------------------------------------|
|                             |                            |                                                             |                                                                                  |                                                  |
| Thomas Picciochi                 | 11                              | $792,449,550                                                     | 2                                                                                     | $148,708,705                                          |

 

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 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 manage other mutual funds and separate accounts on a                            long-only 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 interest. 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.

 

 

 

*Please Retain This Supplement for Future Reference*

 

November 2, 2007

DSDPF-3904

 

 

 

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 Statement of Additional            Information of:

 

DWS            Short Duration Plus Fund

 

The            following supplements or replaces related disclosure in the “Investment Policies            and Techniques” section of the fund’s Statements of Additional            Information:

 

**Lending of Portfolio Securities.** The Fund may lend its            investment securities 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            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).

 

The            following replaces the non-fundamental investment policy of the fund relating to            securities lending:

 

As a            matter of non-fundamental policy, the Fund currently does not intend to lend portfolio            securities in an amount greater than 33 1/3% of its total assets.

 

 

Please Retain This Supplement for Future Reference

 

 

June 8,            2007

DSDPF-3902

 

 

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

 

| **Cash Account Trust**

Tax-Exempt Portfolio

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax-Free Income Fund**

**DWS Capital Growth Fund**

**DWS Commodity Securities 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 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 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 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 Cash Investment Trust Class S

**DWS Money Market Series Premium**

**DWS Money Market Series Prime Reserve**

**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 Tax Free Money Fund**

**DWS Technology Fund**

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

**Investors Cash Trust**

Treasury Portfolio

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

 

*The            following information replaces similar disclosure to the list of eligible Class S            investors in the “Purchases — Eligible Class S Investors” section of            each Fund’s Statement of Additional Information.*

Only            certain investors are eligible to buy Class S shares, as described in greater detail            below.

 

**Eligible Class S Investors**

| A. | The following investors may purchase Class S shares of                            DWS Funds either (i) directly from DWS Scudder Distributors, Inc.                            (“DWS-SDI”), the Fund’s principal underwriter; or                            (ii) through an intermediary relationship with a financial services                            firm established with respect to the DWS Funds as of December 31,                            2004. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Existing shareholders of Class S shares of any DWS Fund                            as of December 31, 2004, and household members residing at the same                            address. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Shareholders of Class S of any DWS Fund who became Class                            S shareholders in connection with the consolidation of Class AARP and                            Class S on July 17, 2006 and household members residing at the same                            address. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | Shareholders who have owned Class S shares continuously                            since December 31, 2004 and household members residing at the same                            address may open new accounts for Class S shares of any DWS                            Fund. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Any participant who has owned Class S shares of any DWS                            Fund through an employee sponsored retirement, employee stock, bonus,                            pension or profit sharing plan continuously since December 31, 2004 may                            open a new individual account for Class S shares of any DWS                            Fund. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

----

|   | 5. | Any participant who owns Class S shares of any DWS Fund                            through a retirement, employee stock, bonus, pension or profit sharing                            plan may complete a direct rollover to an IRA account that will hold                            Class S shares. This applies to individuals who begin their                            retirement plan investments with a DWS Fund at any time, including                            after December 31, 2004. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | Officers, Fund Trustees and Directors, and full-time                            employees and their family members, of the Advisor and its                            affiliates. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Class S shares are available to any accounts managed by                            the Advisor, any advisory products offered by the Advisor or DWS-SDI                            and to DWS Allocation Series or other fund of funds managed by the                            Advisor or its affiliates. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | Shareholders of Class S of DWS Emerging Markets Equity                            Fund who became shareholders of the fund in connection with the                            fund’s acquisition of Scudder New Asia Fund, Inc. on April 17,                            2006. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 9. | Shareholders of Class S of any DWS Fund who became Class                            S shareholders in connection with the consolidation of Class M and                            Class S on August 18, 2006 and household members residing at the same                            address. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10. | Shareholders of Class S of any DWS Fund who became Class                            S shareholders in connection with the renaming or conversion of                            Investment Class to Class S on October 23, 2006. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| B. | The following additional investors may purchase Class S                            shares of DWS Funds. |
|----|---------------------------------------------------------------------------------------------------------|

|   | 1. | Broker-dealers, banks and registered investment advisors                            (“RIAs”) may purchase Class S shares in connection with a                            comprehensive or “wrap” fee program or other fee based                            program. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Any group retirement, employee stock, bonus, pension or                            profit-sharing plans. |
|--------|----|----------------------------------------------------------------------------------------------------------|

|   | 3. | Persons who purchase shares as part of an investment                            only placement in a 529 College Savings Plan. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Persons who purchase shares through a Health Savings                            Account or a Voluntary Employees’ Benefit Association                            (“VEBA”) Trust. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

DWS-SDI may, at its discretion, require appropriate documentation that            shows an investor is eligible to purchase Class S shares.

 

*Please Retain This Supplement for Future Reference*

 

May 21,            2007

DMF-3906

 

 

**Supplement to the currently effective Statement of Additional            Information for the following fund:**

 

DWS            Advisor Funds

*DWS            Short Duration Plus Fund (the “Fund”)*

*The following information supplements the “Purchase and            Redemption of Shares” section of the Fund’s currently effective Statement            of Additional Information for the Fund’s Class S shares:*

 

**Checkwriting.**The checkwriting privilege is            available only to those shareholders of the Fund who became shareholders in connection            with the reorganization of DWS Short Term Bond Fund into the Fund on April 23, 2007 and            who had previously elected this privilege prior to August 19, 2002. Checks may be used            to pay any person, provided that each check is for at least $100 and not more than $5            million. A shareholder writing a check will receive a monthly dividend credit on his or            her shares until the check has cleared the banking system. Investors who purchased            shares by check may write checks against those shares only after they have been on the            Fund’s books for seven business days. Shareholders who use this service may also            use other redemption procedures. No shareholder may write checks against certificated            shares. The Fund pays the bank charges for this service. However, the Fund will review            the cost of operation periodically and reserves the right to determine if direct            charges to the persons who avail themselves of this service would be appropriate. The            Fund, DWS Scudder Investments Service Company (“DWS-SISC”), the            Fund’s transfer agent, and State Street Bank and Trust Company reserve the right            at any time to suspend or terminate the checkwriting privilege.

 

The            Fund accepts Automated Clearing House (“ACH”) debit entries for accounts            that have elected the checkwriting privilege. Examples of ACH debits are transactions            in which you have given your insurance company, mortgage company, credit card company,            utility company, health club, etc., the right to withdraw your monthly payment from            your Fund account or the right to convert your mailed check into an ACH debit.            Sometimes, you may give a merchant from whom you wish to purchase goods the right to            convert your check to an ACH debit. (Merchants are permitted to convert your checks            into ACH debits only with your prior consent.) You may also authorize a third party to            initiate an individual payment in a specific amount from your account by providing your            account information and authorization to such third party via the Internet or            telephone. You authorize the Fund upon receipt of an ACH debit entry referencing your            account number to redeem Fund shares in your account to pay the entry to the third            party originating the debit. The Fund will make the payment on the basis of the account            number that you provide to your merchant and will not compare this account number with            the name on the account. The Fund, DWS-SISC (acting as transfer agent or shareholder            service agent) or any other person or system handling the transaction is not required            to determine if there is a discrepancy between the name and the account number shown on            the transfer instructions.

 

The            payment of any ACH debit entry will be subject to sufficient funds being available in            the designated account; the Fund will not be able to honor an ACH debit entry if            sufficient funds are not available. ACH debit entry transactions to your Fund account            should not be initiated or authorized by you in amounts exceeding the value of the            shares of the Fund then in the account and available for redemption. The Fund may            refuse to honor ACH debit entry transactions whenever the right of redemption has been            suspended or postponed, or whenever the account is otherwise impaired. Your Fund            account statement will show any ACH debit entries in your account; you will not receive            any other separate notice.

 

You            may authorize payment of a specific amount to be made from your account directly by the            Fund to third parties on a continuing periodic basis. To arrange for this service, you            should contact the person or company you will be paying. Any preauthorized transfers            will be subject to sufficient funds being available in the designated account. A            preauthorized transfer will continue to be made from the account in the same amount and            frequency as initially established until you terminate the preauthorized transfer            instructions with the person or company whom you have been paying. If regular            preauthorized payments vary in amount, the person or company you are going to pay            should tell you ten (10) days before each payment will be made the amount of the            payment to be made.

April 23, 2007

B822-3900

 

----

If            you wish to terminate the periodic preauthorized transfers, you should do so with the            person or company to whom you have been making payments. If you have told the Fund in            advance to make regular payments out of your account, you may stop any of these            payments by writing or calling the Shareholder Service Agent at the address and            telephone number listed in the next paragraph in time for the Shareholder Service Agent            to receive your request three (3) business days or more before the payment is scheduled            to be made. If you call, the Fund may also require that you put your request in writing            so that the Fund will receive it within 14 days after you call. If you order the Fund            to stop one of these payments three (3) business days or more before the transfer is            scheduled and the Fund does not do so, the Fund will be liable for your loss or damages            but not in an amount exceeding the amount of the payment. A stop payment order will            stop only the designated periodic payment.

 

**In case of errors or questions about your ACH debit entry            transactions**please telephone (1-800-728-3337) or write (DWS            Scudder, P.O. Box 219669, Kansas City, MO 64121-9669) the Shareholder Service Agent as            soon as possible if you think your statement is wrong or shows an improper transfer or            if you need more information about a transfer listed on the statement. Our business            days are Monday through Friday except holidays. The Shareholder Service Agent must hear            from you no later than 60 days after the Fund sent you the first Fund account statement            on which the problem or error appeared. If you do not notify the Shareholder Service            Agent within sixty (60) days after the Fund sends you the account statement, you may            not get back any money you have lost, and you may not get back any additional money you            lose after the sixty (60) days if the Fund or Shareholder Service Agent could have            stopped someone from taking that money if you had notified the Shareholder Service            Agent in time.

 

When            you report a suspected transaction, we will need your name and account number, a            description of the error or the transfer you are unsure about, an explanation as to why            you believe it is an error or why you need more information and the dollar amount of            the suspected error. If you tell the Shareholder Service Agent orally, the Shareholder            Service Agent may require that you send your complaint or questions in writing within            ten (10) business days. Generally, the Shareholder Service Agent will determine whether            an error occurred within ten (10) business days after it hears from you (or receives            your written complaint, if requested) and will correct any error promptly. If the            Shareholder Service Agent needs more time, however, it may take up to 45 days (90 days            for certain types of transactions) to investigate your complaint or question. If the            Shareholder Service Agent decides to do this, your account will be credited with            escrowed Fund shares within ten (10) business days for the amount you think is in error            so that you will have the use of the money during the time it takes the Shareholder            Service Agent to complete its investigation. If the Shareholder Service Agent asks you            to put your complaint or questions in writing and the Shareholder Service Agent does            not receive it within ten (10) business days, your account may not be credited. The            Shareholder Service Agent will tell you the results within three (3) business days            after completing its investigation, and if your account was credited with escrowed Fund            shares, debit your account for those shares. If the Shareholder Service Agent            determines that there was no error, the Shareholder Service Agent will send you a            written explanation. You may ask for copies of documents that were used by the            Shareholder Service Agent in the investigation.

 

In            the event the Fund or DWS-SISC does not complete a transfer from your account on time            or in the correct amount according to the Fund’s agreement with you, the Fund may            be liable for your losses or damages. The Fund will not be liable to you if (i) there            are not sufficient funds available in your account to complete the transfer, (ii)            circumstances beyond our control (such as fire or flood or malfunction of equipment)            prevent the transfer, (iii) you or another shareholder have supplied a merchant with            incorrect account information, or (iv) a merchant has incorrectly formulated an ACH            debit entry. In any case, the Fund’s liability shall not exceed the amount of the            transfer in question.

 

The            Fund or DWS-SISC will disclose information to third parties about your account or the            transfers you make: (1) where it is necessary for completing the transfers, (2) in            order to verify the existence or condition of your account for a third party such as a            credit bureau or a merchant, (3) in order to comply with government agencies or court            orders or (4) if you have given the Fund written permission.

 

The            acceptance and processing of ACH debit entry transactions is established solely for            your convenience and the Fund reserves the right to suspend, terminate or modify your            ability to redeem Fund shares by ACH debit entry transactions at any time. ACH debit            entry transactions are governed by the National Automated Clearing House Association            Operating Rules and any local ACH operating rules then in effect, as well as Regulation            E of the Federal Reserve Board.

 

*Please Retain this Supplement for Future Reference.*

 

 

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 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:*

 

 

 

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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

 

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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 Short Duration Plus Fund**

Class            S (formerly Investment 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 prospectus dated February 1, 2007, as amended from time            to time, for DWS Short Duration Plus 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, (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 (800) 621-1048.

This Statement of Additional Information (“SAI”) is            incorporated by reference into the prospectus for the Fund.

 

 

**TABLE OF CONTENTS**

**Page**

| INVESTMENT                            RESTRICTIONS | 1 |
|----------------------------------------------------|---|

| INVESTMENT                            POLICIES AND TECHNIQUES | 2 |
|---------------------------------------------------------------|---|

|   | Investment                            Techniques | 2 |
|--------|--------------------------------------------------|---|

|   | Portfolio                            Holdings | 34 |
|--------|-----------------------------------------------|----|

| MANAGEMENT OF                            THE FUND | 35 |
|---------------------------------------------------|----|

|   | Investment                            Advisor | 35 |
|--------|-----------------------------------------------|----|

|   | Investment                            Management Agreement | 36 |
|--------|------------------------------------------------------------|----|

|   | Compensation of                            Portfolio Managers | 38 |
|--------|---------------------------------------------------------------|----|

| FUND SERVICE                            PROVIDERS | 42 |
|---------------------------------------------------|----|

|   | Administrator | 42 |
|--------|---------------|----|

|   | Distributor | 43 |
|--------|-------------|----|

|   | Custodian | 44 |
|--------|-----------|----|

|   | Transfer                            Agent | 44 |
|--------|-------------------------------------------|----|

|   | Service                            Plan | 44 |
|--------|-----------------------------------------|----|

|   | Legal                            Counsel | 45 |
|--------|------------------------------------------|----|

|   | Independent                            Registered Public Accounting Firm | 45 |
|--------|--------------------------------------------------------------------------|----|

| PORTFOLIO                            TRANSACTIONS | 45 |
|---------------------------------------------------|----|

| PURCHASE AND                            REDEMPTION OF SHARES | 47 |
|--------------------------------------------------------------|----|

| DIVIDENDS | 59 |
|-----------|----|

| TAXES | 60 |
|-------|----|

| NET ASSET                            VALUE | 65 |
|--------------------------------------------|----|

| TRUSTEES AND                            OFFICERS | 66 |
|--------------------------------------------------|----|

| TRUST                            ORGANIZATION | 75 |
|-----------------------------------------------|----|

| PROXY VOTING                            GUIDELINES | 76 |
|----------------------------------------------------|----|

| FINANCIAL                            STATEMENTS | 77 |
|-------------------------------------------------|----|

| ADDITIONAL                            INFORMATION | 77 |
|---------------------------------------------------|----|

| APPENDIX | 79 |
|----------|----|

 

**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) | borrow money, except as permitted under the 1940 Act,                            and as interpreted or modified by regulatory authority having                            jurisdiction, from time to time; |
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| (2) | issue senior securities, except as permitted under the                            1940 Act, and as interpreted or modified by regulatory authority having                            jurisdiction, from time to time; |
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| (3) | concentrate its investments in a particular industry, as                            that term is used in the 1940 Act, and as interpreted or modified by                            regulatory authority having jurisdiction, from time to time; |
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| (4) | engage in the business of underwriting securities issued                            by others, except to the extent that the Fund may be deemed to be an                            underwriter in connection with the disposition of portfolio                            securities; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | purchase or sell real estate, which term does not                            include (a) securities of companies which deal in real estate or                            mortgages or (b) 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; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (7) | make loans, except as permitted under the 1940 Act, 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.

***Non-Fundamental Restrictions***

In            order to comply with certain statutes and policies and for other reasons, the Fund will            not, as a matter of operating policy (these restrictions may be changed by a vote of            the Trustees of the Trust without shareholder approval):

| (i) | purchase any security or evidence of interest therein on                            margin, except that short-term credits necessary for the clearance of                            purchases and sales of securities may be obtained and deposits of                            initial and variation margin may be made in connection with the                            purchase, ownership, holding or sale of futures contracts; |
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| (ii) | sell securities it does not own (short sales). (This                            restriction does not preclude short sales “against the box”                            (that is, sales of securities (a) the Fund contemporaneously owns or                            (b) where the Fund has the right to obtain securities equivalent in                            kind and amount to those sold). (The Fund has no current intention to                            engage in short selling); |
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| (iii) | purchase securities issued by any investment company                            except to the extent permitted by the 1940 Act (including any                            exemptions or exclusions therefrom), except that this limitation does                            not apply to securities received or acquired as dividends, through                            offers of exchange, or as a result of reorganization, consolidation or                            merger; |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (iv) | invest more than 15% of the Fund’s net assets                            (taken at the greater of cost or market value) in securities that are                            illiquid or not readily marketable (excluding Rule 144A securities                            deemed by the Fund Trust Board to be liquid); and |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

An            investment restriction will not be considered violated if that restriction is complied            with at the time the relevant action is taken, notwithstanding a later change in the            market value of an investment, in net or total assets or in the change of securities            rating of the investment or any other later change.

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.

**Master/feeder Fund Structure.**The Board of            Trustees has the discretion to retain the current distribution arrangement for a Fund            while investing in a master fund in a master/feeder fund structure as described            below.

A            master/feeder fund structure is one in which a fund (a “feeder fund”),            instead of investing directly in a portfolio of securities, invests most or all of its            investment assets in a separate registered investment company (the “master            fund”) with substantially the same investment objective and policies as the            feeder fund. Such a structure permits the pooling of assets of two or more feeder            funds, preserving separate identities or distribution channels at the feeder fund            level. Based on the premise that certain of the expenses of operating an investment            portfolio are relatively fixed, a larger investment portfolio may eventually achieve a            lower ratio of operating expenses to average net assets. An existing investment company            is able to convert to a feeder fund by selling all of its investments, which involves            brokerage and other transaction costs and realization of a taxable gain or loss, or by            contributing its assets to the master fund and avoiding transaction costs and, if            proper procedures are followed, the realization of taxable gain or loss.

**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.

***Short-Term Instruments***

When the Fund experiences large cash inflows — for example,            through the sale of securities — 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 and their agencies, instrumentalities, authorities            or political subdivisions; (2) other short-term debt securities rated AA or higher by            S&P or Aa or higher by Moody’s or, if unrated, deemed to be of comparable            quality in the opinion of the Advisor; (3) commercial paper; (4) bank obligations,            including negotiable certificates of deposit, time deposits and bankers’            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 rated AA or higher by the Standard & Poor’s            Division of The McGraw-Hill Companies, Inc. (“S&P”) or Aa or higher by            Moody’s Investors Service, Inc. (“Moody’s”); outstanding            commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody’s;            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.

Other US government securities the Fund may invest in include (but are            not limited to) securities issued or guaranteed by the Federal Housing Administration,            Farmers Home Loan Administration, Export-Import Bank of the US, Small Business            Administration, General Services Administration, Central Bank for Cooperatives, Federal            Farm Credit Banks, Federal Intermediate Credit Banks, Federal Land Banks, Maritime            Administration, Tennessee Valley Authority, District of Columbia Armory Board and            Student Loan Marketing Association. Because the US government is not obligated by law            to provide support to an instrumentality it sponsors, the Fund will invest in            obligations issued by such an instrumentality only if the Advisor determines that the            credit risk with respect to the instrumentality does not make its securities unsuitable            for investment by the Fund.

The            Fund may also invest in separately traded principal and interest components of            securities guaranteed or issued by the US government or its agencies, instrumentalities            or sponsored enterprises if such components trade independently under the Separate            Trading of Registered Interest and Principal of Securities program            (“STRIPS”) or any similar program sponsored by the US Government. STRIPS            may be sold as zero coupon securities. See “Zero Coupon Securities and Deferred            Interest Bonds.”

**US Government Securities.**The Fund may            invest in obligations issued or guaranteed by the US government including:            (1) direct obligations of the US Treasury and (2) obligations issued by US            government agencies and instrumentalities. Included among direct obligations of the US            are Treasury Bills, Treasury Notes and Treasury Bonds, which differ in terms of their            interest rates, maturities and dates of issuance. Treasury Bills have maturities of            less than one year, Treasury Notes have maturities of one to 10 years and Treasury            Bonds generally have maturities of greater than 10 years at the date of issuance.            Included among the obligations issued by agencies and instrumentalities of the United            States are: instruments that are supported by the full faith and credit of the United            States (such as certificates issued by the Government National Mortgage Association            (“GNMA” or “Ginnie Mae”)); instruments that are supported by            the right of the issuer to borrow from the US Treasury (such as securities of Federal            Home Loan Banks); and instruments that are supported solely by the credit of the agency            or instrumentality (such as Federal National Mortgage Association (“FNMA”            or “Fannie Mae”) and Federal Home Loan Mortgage Corporation            (“FHLMC” or “Freddie Mac”)).

**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 from            1 to 270 days) 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.

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, acting under the supervision of the Board of Trustees of the Fund, to be of            comparable quality. Investing in foreign commercial paper generally involves risks            similar to those described below relating to obligations of foreign banks or foreign            branches and subsidiaries of US and foreign banks.

The            Fund may also invest in variable rate master demand notes. A variable rate master            demand note (which is a type of commercial paper) represents a direct borrowing            arrangement involving periodically fluctuating rates of interest under a letter            agreement between a commercial paper issuer and an institutional lender pursuant to            which the lender may determine to invest varying amounts.

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

**US Dollar-Denominated Foreign Fixed Income Securities.**The Fund may invest in the 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 Sovereign and Supranational Fixed Income            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 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 renegotiations 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.            Foreign government securities also include mortgage-related securities issued or            guaranteed by national, state or provincial governmental instrumentalities, including            quasi-governmental agencies.

**Put Bonds.**A put bond (also referred to as            a tender option or third party bond) is a bond created by coupling an intermediate or            long-term fixed rate bond with an agreement giving the holder the option of tendering            the bond to receive its par value. As consideration for providing this tender option,            the sponsor of the bond (usually a bank,

 

broker-dealer or other financial intermediary) receives periodic fees            that equal the difference between the bond’s fixed coupon rate and the rate            (determined by a remarketing or similar agent) that would cause the bond, coupled with            the tender option, to trade at par. By paying the tender offer fees, the Fund in effect            holds a demand obligation that bears interest at the prevailing short-term            rate.

In            selecting put bonds, the Advisor takes into consideration the creditworthiness of the            issuers of the underlying bonds and the creditworthiness of the providers of the tender            option features. A sponsor may withdraw the tender option feature if the issuer of the            underlying bond defaults on interest or principal payments or the bond’s rating            is downgraded.

**Bank Loans.**The Fund may also invest in            bank loans, which are typically senior debt obligations of borrowers (issuers) and as            such, are considered to hold a senior position in the capital structure of the            borrower. These may include loans which hold the most senior position, that hold an            equal ranking with other senior debt, or loans that are, in the judgment of the            Advisor, in the category of senior debt of the borrower. This capital structure            position generally gives the holders of these loans a priority claim on some or all of            the borrower’s assets in the event of a default. In most cases, these loans are            either partially or fully collateralized by the assets of a corporation, partnership,            limited liability company or other business entity, or by cash flow that the Advisor            believes has a market value at the time of acquisition that equals or exceeds the            principal amount of the loan. These loans are often issued in connection with            recapitalizations, acquisitions, leveraged buy-outs and refinancings. It is important            to note that Moody’s and S&P may rate bank loans higher than high yield bonds            of the same issuer to reflect their more senior position. The Fund may invest in both            fixed- and floating-rate loans. In addition, bank loans can trade either as an            “assignment” or “participation.” When the Fund buys an            assignment, it is essentially becoming a party to the bank agreement. The vast majority            of all trades are assignments and would therefore generally represent the preponderance            of bank loans held by the Fund. In certain cases, the Fund may buy bank loans on a            participation basis, if for example, the Fund did not want to become party to the bank            agreement. However, in all cases, the Fund will not purchase bank loans where Deutsche            Bank, or an affiliate, serves as an agent bank.

Participations and assignments involve credit risk, interest rate risk,            liquidity risk, and the risk of being a lender. If the Fund purchases a participation,            it may only be able to enforce its rights through the lender, and may assume the credit            risk of both the lender and the borrower.

Investments in loans through direct assignment of a financial            institution’s interests with respect to a loan may involve additional risks. For            example, if a loan is foreclosed, the purchaser could become part owner of any            collateral, and would bear the costs and liabilities associated with owning and            disposing of the collateral. In addition, it is at least conceivable that under            emerging legal theories of lender liability, a purchaser could be held liable as a            co-lender.

In            the case of loans administered by a bank or other financial institution that acts as            agent for all holders, if assets held by the agent for the benefit of a purchaser are            determined to be subject to the claims of the agent’s general creditors, the            purchaser might incur certain costs and delays in realizing payment on the loan or loan            participation and could suffer a loss of principal or interest.

In            the case of loan participations where a bank or other lending institution serves as            financial intermediary between the Fund and the borrower, if the participation does not            shift to the Fund the direct debtor-creditor relationship with the borrower,            interpretations of the Securities and Exchange Commission (“SEC”) require            the Fund, in some circumstances, to treat both the lending bank or other lending            institution and the borrower as issuers for purposes of the Fund’s investment            policies. Treating a financial intermediary as an issuer of indebtedness may restrict            the Fund’s ability to invest in indebtedness related to a single financial            intermediary, or a group of intermediaries engaged in the same industry, even if the            underlying borrowers represent many different companies and industries.

**Variable and Floating Rate Instruments**. The            Fund may invest in variable or floating rate instruments and variable rate demand            instruments, including variable amount master demand notes. These instruments will            normally involve industrial development or revenue bonds that provide that the rate of            interest is set as a specific percentage of a designated base rate (such as the prime            rate) at a major commercial bank. In addition, the interest rate on these securities            may be reset daily, weekly or on some other reset period and may have a floor or            ceiling on interest rate

 

changes. The Fund can demand payment of the obligation at all times or            at stipulated dates on short notice (not to exceed 30 days) at par plus accrued            interest. Generally, changes in interest rates will have a smaller effect on the market            value of these instruments than on the market value of fixed income securities and,            thus, may allow for less opportunity for capital appreciation or            depreciation.

Debt instruments purchased by the Fund may be structured to have            variable or floating interest rates. These instruments may include variable amount            master demand notes that permit the indebtedness to vary in addition to providing for            periodic adjustments in the interest rates. The Advisor will consider the earning            power, cash flows and other liquidity ratios of the issuers and guarantors of such            instruments and, if the instrument is subject to a demand feature, will continuously            monitor their financial ability to meet payment on demand. Where necessary to ensure            that a variable or floating rate instrument is equivalent to the quality standards            applicable to the Fund’s fixed income investments, the issuer’s obligation            to pay the principal of the instrument will be backed by an unconditional bank letter            or line of credit, guarantee or commitment to lend. Any bank providing such a bank            letter, line of credit, guarantee or loan commitment will meet the Fund’s            investment quality standards relating to investments in bank obligations. The Advisor            will also continuously monitor the creditworthiness of issuers of such instruments to            determine whether the Fund should continue to hold the investments.

Other variable and floating rate instruments include but are not limited            to corporates, ABS, CMBS, MBS, CMOs, government and agency securities.

The            absence of an active secondary market for certain variable and floating rate notes            could make it difficult to dispose of the instruments, and the Fund could suffer a loss            if the issuer defaults or during periods in which the Fund is not entitled to exercise            its demand rights.

Variable and floating rate instruments held by the Fund will be subject            to the Fund’s limitation on investments in illiquid securities when a reliable            trading market for the instruments does not exist and the Fund may not demand payment            of the principal amount of such instruments within seven days.

**Warrants.**TheFund 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.

**Municipal Securities.**The Fund may invest            to a limited extent in municipal securities. Municipal securities consist of bonds,            notes and other instruments issued by or on behalf of states, territories and            possessions of the US (including the District of Columbia) and their political            subdivisions, agencies or instrumentalities, the interest on which is exempt from            regular federal income tax (i.e., excluded from gross income for federal income tax            purposes but not necessarily exempt from the federal alternative minimum tax or from            state and local taxes). Municipal securities may also be issued on a taxable basis            (i.e., the interest on such securities is not exempt from regular federal income            tax).

Municipal securities are often issued to obtain funds for various public            purposes, including the construction of a wide range of public facilities such as            bridges, highways, housing, hospitals, mass transportation, schools, streets and water            and sewer works. Other public purposes for which municipal securities may be issued            include refunding outstanding obligations, obtaining funds for general operating            expenses, and obtaining funds to lend to other public institutions and facilities.            Municipal securities also include “private activity” or industrial            development bonds, which are issued by or on behalf of public authorities to provide            financing aid to acquire sites or construct or equip facilities within a municipality            for privately or publicly owned corporations.

 

The            two principal classifications of municipal securities are “general            obligations” and “revenue obligations”. General obligations are            secured by the issuer’s pledge of its full faith and credit for the payment of            principal and interest although the characteristics and enforcement of general            obligations may vary according to the law applicable to the particular issuer. Revenue            obligations, which include, but are not limited to, private activity bonds, resource            recovery bonds, certificates of participation and certain municipal notes, are not            backed by the credit and taxing authority of the issuer and are payable solely from the            revenues derived from a particular facility or class of facilities or, in some cases,            from the proceeds of a special excise or other specific revenue source. Nevertheless,            the obligations of the issuer may also be backed by a letter of credit, guarantee or            insurance. General obligations and revenue obligations may be issued in a variety of            forms, including commercial paper, fixed, variable and floating rate securities, tender            option bonds, auction rate bonds and capital appreciation bonds.

In            addition to general obligations and revenue obligations, there are a variety of hybrid            and special types of municipal securities. There are also numerous differences in the            credit backing of municipal securities both within and between these two principal            classifications.

For            the purpose of applying the Fund’s investment restrictions, the identification of            the issuer of a municipal security which is not a general obligation is made by the            Advisor based on the characteristics of the municipal security, the most important of            which is the source of funds for the payment of principal and interest on such            securities.

One            or a small number of institutional investors such as the Fund may purchase an entire            issue of municipal securities. Thus, the issue may not be said to be publicly offered.            Unlike some securities that are not publicly offered, a secondary market exists for            many municipal securities that were not publicly offered initially and such securities            can be readily marketable.

The            obligations of an issuer to pay the principal of and interest on a municipal security            are subject to the provisions of bankruptcy, insolvency and other laws affecting the            rights and remedies of creditors, such as the Federal Bankruptcy Act, and laws, if any,            that may be enacted by Congress or state legislatures extending the time for payment of            principal or interest or imposing other constraints upon the enforcement of such            obligations. There is also the possibility that, because of litigation or other            conditions, the power or ability of the issuer to pay when due principal of or interest            on a municipal security may be materially affected.

**Municipal Leases, Certificates of Participation and other            Participation Interests.**A municipal lease is an obligation            in the form of a lease or installment purchase contract that is issued by a state or            local government to acquire equipment and facilities. Income from such obligations is            generally exempt from state and local taxes in the state of issuance (as well as            regular federal income tax). Municipal leases frequently involve special risks not            normally associated with general obligation or revenue bonds. Leases and installment            purchase or conditional sale contracts (which normally provide for title to the leased            asset to pass eventually to the governmental issuer) have evolved as a means for            governmental issuers to acquire property and equipment without meeting the            constitutional and statutory requirements for the issuance of debt. The debt issuance            limitations are deemed to be inapplicable because of the inclusion in many leases or            contracts of ‘non-appropriation’ clauses that relieve the governmental            issuer of any obligation to make future payments under the lease or contract unless            money is appropriated for such purpose by the appropriate legislative body on a yearly            or other periodic basis. Thus, the Fund’s investment in municipal leases will be            subject to the special risk that the governmental issuer may not appropriate funds for            lease payments.

In            addition, such leases or contracts may be subject to the temporary abatement of            payments in the event the issuer is prevented from maintaining occupancy of the leased            premises or utilizing the leased equipment. Although the obligations may be secured by            the leased equipment or facilities, the disposition of the property in the event of            nonappropriation or foreclosure might prove difficult, time consuming and costly, and            result in an unsatisfactory or delayed recoupment of the Fund’s original            investment.

Certificates of participation represent undivided interests in municipal            leases, installment purchase contracts or other instruments. The certificates are            typically issued by a trust or other entity that has received an assignment of the            payments to be made by the state or political subdivision under such leases or            installment purchase contracts.

 

Certain municipal lease obligations and certificates of participation            may be deemed illiquid for the purpose of the Fund’s limitations on investments            in illiquid securities. Other municipal lease obligations and certificates of            participation acquired by the Fund may be determined by the Advisor, pursuant to            guidelines adopted by the Trustees of the Trust, to be liquid securities for the            purpose of the Fund’s limitation on investments in illiquid securities. In            determining the liquidity of municipal lease obligations and certificates of            participation, the Advisor will consider a variety of factors including: (1) the            willingness of dealers to bid for the security; (2) the number of dealers willing to            purchase or sell the obligation and the number of other potential buyers; (3) the            frequency of trades or quotes for the obligation; and (4) the nature of the marketplace            trades. In addition, the Advisor will consider factors unique to particular lease            obligations and certificates of participation affecting the marketability thereof.            These include the general creditworthiness of the issuer, the importance to the issuer            of the property covered by the lease and the likelihood that the marketability of the            obligation will be maintained throughout the time the obligation is held by the Fund.            The Fund may not invest more than 5% of its net assets in municipal leases.

The            Fund may purchase participations in municipal securities held by a commercial bank or            other financial institution. Such participations provide the Fund with the right to a            pro rata undivided interest in the underlying municipal securities. In addition, such            participations generally provide the Fund with the right to demand payment, on not more            than seven days notice, of all or any part of the Fund’s participation interest            in the underlying municipal security, plus accrued interest.

**Municipal Notes.**Municipal securities in            the form of notes generally are used to provide for short-term capital needs, in            anticipation of an issuer’s receipt of other revenues or financing, and typically            have maturities of up to three years. Such instruments may include Tax Anticipation            Notes, Revenue Anticipation Notes, Bond Anticipation Notes, Tax and Revenue            Anticipation Notes and Construction Loan Notes. Tax Anticipation Notes are issued to            finance the working capital needs of governments. Generally, they are issued in            anticipation of various tax revenues, such as income, sales, property, use and business            taxes, and are payable from these specific future taxes. Revenue Anticipation Notes are            issued in expectation of receipt of other kinds of revenue, such as federal revenues            available under federal revenue sharing programs. Bond Anticipation Notes are issued to            provide interim financing until long-term bond financing can be arranged. In most            cases, the long-term bonds then provide the funds needed for repayment of the notes.            Tax and Revenue Anticipation Notes combine the funding sources of both Tax Anticipation            Notes and Revenue Anticipation Notes. Construction Loan Notes are sold to provide            construction financing. These notes are secured by mortgage notes insured by the            Federal Housing Authority; however, the proceeds from the insurance may be less than            the economic equivalent of the payment of principal and interest on the mortgage note            if there has been a default. The obligations of an issuer of municipal notes are            generally secured by the anticipated revenues from taxes, grants or bond financing. An            investment in such instruments, however, presents a risk that the anticipated revenues            will not be received or that such revenues will be insufficient to satisfy the            issuer’s payment obligations under the notes or that refinancing will be            otherwise unavailable.

**Tax-Exempt Commercial Paper.**Issues of            tax-exempt commercial paper typically represent short-term, unsecured, negotiable            promissory notes. These obligations are issued by state and local governments and their            agencies to finance working capital needs of municipalities or to provide interim            construction financing and are paid from general revenues of municipalities or are            refinanced with long-term debt. In most cases, tax-exempt commercial paper is backed by            letters of credit, lending agreements, note repurchase agreements or other credit            facility agreements offered by banks or other institutions.

**Pre-Refunded Municipal Securities.**The            principal of and interest on municipal securities that have been pre-refunded are no            longer paid from the original revenue source for the securities. Instead, after            pre-refunding the source of such payments of the principal of and interest on these            securities are typically paid from an escrow fund consisting of obligations issued or            guaranteed by the US Government. The assets in the escrow fund are derived from the            proceeds of refunding bonds issued by the same issuer as the pre-refunded municipal            securities. Issuers of municipal securities use this advance refunding technique to            obtain more favorable terms with respect to securities that are not yet subject to call            or redemption by the issuer. For example, advance refunding enables an issuer to            refinance debt at lower market interest rates, restructure debt to improve cash flow or            eliminate restrictive covenants in the indenture or other governing instrument for the            pre-refunded municipal securities. However, except for a change in the revenue source            from which principal and interest payments are made, the pre-refunded            municipal

 

securities remain outstanding on their original terms until they mature            or are redeemed by the issuer. Pre-refunded municipal securities are usually purchased            at a price which represents a premium over their face value.

**Tender Option Bonds.**A tender option bond            is a municipal security (generally held pursuant to a custodial arrangement) having a            relatively long maturity and bearing interest at a fixed rate substantially higher than            prevailing short-term tax-exempt rates. The bond is typically issued in conjunction            with the agreement of a third party, such as a bank, broker-dealer or other financial            institution, pursuant to which such institution grants the security holders the option,            at periodic intervals, to tender their securities to the institution and receive the            face value thereof.

As            consideration for providing the option, the financial institution receives periodic            fees equal to the difference between the bond’s fixed coupon rate and the rate,            as determined by a remarketing or similar agent at or near the commencement of such            period, that would cause the securities, coupled with the tender option, to trade at            par on the date of such determination. Thus, after payment of this fee, the security            holder effectively holds a demand obligation that bears interest at the prevailing            short-term tax-exempt rate.

However, an institution will not be obligated to accept tendered bonds            in the event of certain defaults or a significant downgrade in the credit rating            assigned to the issuer of the bond. The liquidity of a tender option bond is a function            of the credit quality of both the bond issuer and the financial institution providing            liquidity. Tender option bonds are deemed to be liquid unless, in the opinion of the            Advisor, the credit quality of the bond issuer and the financial institution is deemed,            in light of the Fund’s credit quality requirements, to be inadequate. The Fund            intends to invest only in tender option bonds the interest on which will, in the            opinion of bond counsel, counsel for the issuer of interests therein or counsel            selected by the Advisor, be exempt from regular federal income tax. However, because            there can be no assurance that the Internal Revenue Service (the “IRS”)            will agree with such counsel’s opinion in any particular case, there is a risk            that the Fund will not be considered the owner of such tender option bonds and thus            will not be entitled to treat such interest as exempt from such tax. Additionally, the            federal income tax treatment of certain other aspects of these investments, including            the proper tax treatment of tender option bonds and the associated fees, in relation to            various regulated investment company tax provisions is unclear. The Fund intends to            manage its portfolio in a manner designed to eliminate or minimize any adverse impact            from the tax rules applicable to these investments.

**Auction Rate Securities.**Auction rate            securities in which the Fund may invest consist of auction rate municipal securities            and auction rate preferred securities issued by closed-end investment companies that            invest primarily in municipal securities. Provided that the auction mechanism is            successful, auction rate securities usually permit the holder to sell the securities in            an auction at par value at specified intervals. The dividend is reset by            “Dutch” auction in which bids are made by broker-dealers and other            institutions for a certain amount of securities at a specified minimum yield. The            dividend rate set by the auction is the lowest interest or dividend rate that covers            all securities offered for sale. While this process is designed to permit auction rate            securities to be traded at par value, there is the risk that an auction will fail due            to insufficient demand for the securities.

Dividends on auction rate preferred securities issued by a closed-end            fund may be designated as exempt from federal income tax to the extent they are            attributable to tax-exempt interest income earned by the fund on the securities in its            portfolio and distributed to holders of the preferred securities, provided that the            preferred securities are treated as equity securities for federal income tax purposes            and the closed-end fund complies with certain requirements under the Internal Revenue            Code of 1986, as amended (the “Code”).

The            Fund’s investments in auction rate preferred securities of closed-end funds are            subject to limitations on investments in other US registered investment companies,            which limitations are prescribed by the Investment Company Act of 1940, as amended (the            “1940 Act”). These limitations include prohibitions against acquiring more            than 3% of the voting securities of any other such investment company, and investing            more than 5% of the Fund’s assets in securities of any one such investment            company or more than 10% of its assets in securities of all such investment            companies.

**Private Activity Bonds.**Certain types of            municipal securities, generally referred to as industrial development bonds (and            referred to under current tax law as private activity bonds), are issued by or on            behalf of public

 

authorities to obtain funds for privately-operated housing facilities,            airport, mass transit or port facilities, sewage disposal, solid waste disposal or            hazardous waste treatment or disposal facilities and certain local facilities for water            supply, gas or electricity. Other types of industrial development bonds, the proceeds            of which are used for the construction, equipment, repair or improvement of privately            operated industrial or commercial facilities, may constitute municipal securities,            although the current federal tax laws place substantial limitations on the size of such            issues. The payment of the principal and interest on such bonds is generally dependent            solely on the ability of the facility’s user to meet its financial obligations            and the pledge, if any, of real and personal property so financed as security for such            payment. The interest from certain private activity bonds owned by the Fund (including            the Fund’s distributions attributable to such interest) may be a preference item            for purposes of the alternative minimum tax.

**Fixed Income Security Risk.**Fixed income            securities generally expose the Fund to four types of risk: (1) interest rate risk (the            potential for fluctuations in bond prices due to changing interest rates); (2) income            risk (the potential for a decline in the Fund’s income due to falling market            interest rates); (3) credit risk (the possibility that a bond issuer will fail to make            timely payments of either interest or principal to the Fund); and (4) prepayment risk            or call risk (the likelihood that, during a period of falling interest rates,            securities with high stated interest rates will be prepaid, or “called”            prior to maturity, requiring the Fund to invest the proceeds at generally lower            interest rates).

**Foreign Securities Risk.**The Fund may            invest a portion of its assets in US dollar-denominated and non-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            general, less information may be available about foreign companies than about US            companies, and foreign companies are generally not subject to the same accounting,            auditing and financial reporting standards as are US companies. Foreign securities            markets may be less liquid and subject to less regulation than the US securities            markets. The costs of investing outside the United States frequently are higher than            those in the United States. These costs include relatively higher brokerage commissions            and foreign custody expenses.

***Mortgage-Backed and Asset-Backed Securities***

**Mortgage-Backed Securities.**The Fund may            invest in mortgage-backed securities. A mortgage-backed security consists of a pool of            mortgage loans evidenced by promissory notes secured by first mortgages or first deeds            of trust or other similar security instruments creating a first lien on owner-occupied            and non-owner-occupied one-unit to four-unit residential properties, multifamily (i.e.,            five or more units) properties, agricultural properties, commercial properties and            mixed use properties.

The            investment characteristics of adjustable and fixed rate mortgage-backed securities            differ from those of traditional fixed-income securities. The major differences include            the payment of interest and principal on mortgage-backed securities on a more frequent            (usually monthly) schedule, and the possibility that principal may be prepaid at any            time due to prepayments on the underlying mortgage loans or other assets. These            differences can result in significantly greater price and yield volatility than is the            case with traditional fixed-income securities. As a result, if the Fund purchases            mortgage-backed securities at a premium, a faster-than-expected prepayment rate will            decrease both the market value and the yield to maturity from those which were            anticipated. A prepayment rate that is slower than expected will have the opposite            effect of increasing yield to maturity and market value. Conversely, if the Fund            purchases mortgage-backed securities at a discount, faster-than-expected prepayments            will increase, while slower-than-expected prepayments will decrease, yield to maturity            and market values. To the extent that the Fund invests in mortgage-backed securities,            the Advisor may seek to manage these potential risks by investing in a variety of            mortgage-backed securities and by using certain hedging techniques.

**Asset-Backed Securities.**The Fund may            invest in securities generally referred to as asset-backed securities. Asset-backed            securities are secured by and payable from, or directly or indirectly represent            undivided fractional interests in, pools of corporate, consumer and/or commercial loans            held in a trust. Asset-backed securities may provide periodic payments that consist of            interest and/or principal payments. Consequently, the life of an            asset-backed

 

security can vary with the prepayment and loss experience of the            underlying assets. Payments of principal and interest are typically supported by some            form of credit enhancement, such as a letter of credit, surety bond, limited guarantee            or senior/subordination. The degree of credit enhancement varies, but generally amounts            to only a fraction of the asset-backed security’s par value until exhausted. If            the credit enhancement is exhausted, certificate holders may experience losses or            delays in payment if the required payments of principal and interest are not made to            the trust with respect to the underlying loans. The value of the securities also may            fluctuate because of changes in the market’s perception of creditworthiness of            the servicing agent for the loan pool, the originator of the loans or the financial            institution providing the credit enhancement. Asset-backed securities are ultimately            dependent upon payment of business, government, corporate and consumer loans, leases,            etc., and the certificate holder generally has no recourse against the entity that            originated the loans.

Asset-backed securities have structural characteristics similar to            mortgage-backed securities. Asset-backed securities include assets such as (but not            limited to) motor vehicle installment sale contracts, other installment sale contracts,            home equity loans, leases of various types of real and personal property, and            receivables from revolving credit (credit card) agreements. Such assets are securitized            through the use of trusts or special purpose corporations. Payments or distributions of            principal and interest on asset-backed securities may be guaranteed up to certain            amounts and for a certain time period by a letter of credit or a pool insurance policy            issued by a financial institution unaffiliated with the issuer, or other credit            enhancements may be present.

Asset-backed securities present certain additional risks that are not            presented by mortgage-backed securities. Primarily, these securities do not have the            benefit of the same type of security interest in the related collateral. Credit card            receivables are generally unsecured, and the debtors are entitled to the protection of            a number of state and federal consumer credit laws, many of which give such debtors the            right to avoid payment of certain amounts owed on the credit cards, thereby reducing            the balance due. Most issuers of automobile receivables permit the servicer to retain            possession of the underlying obligations. If the servicer were to sell these            obligations to another party, there is a risk that the purchaser would acquire an            interest superior to that of the holders of the related automobile receivables. In            addition, because of the large number of vehicles involved in a typical issuance and            technical requirements under state laws, the trustee for the holders of the automobile            receivables may not have a proper security interest in all of the obligations backing            such receivables. Therefore, there is the possibility that recoveries on repossessed            collateral may not, in some cases, be available to support payments on these            securities.

The            market for privately issued asset-backed securities is smaller and less liquid than the            market for US government mortgage-backed securities. The asset-backed securities in            which the Fund may invest are limited to those which usually are readily marketable,            dollar-denominated and rated BBB category or higher by S&P or Baa category or            higher by Moody’s.

The            yield characteristics of the mortgage- and asset-backed securities in which the Fund            may invest differ from those of traditional debt securities. Among the major            differences are that interest and principal payments are made more frequently on the            mortgage- and asset-backed securities (usually monthly) and that principal may be            prepaid at any time because the underlying assets generally may be prepaid at any time.            As a result, if the Fund purchases these securities at a premium, a prepayment rate            that is faster than expected will reduce their yield, while a prepayment rate that is            slower than expected will have the opposite effect of increasing yield. Conversely, if            the Fund purchases these securities at a discount, faster-than-expected prepayments            will increase, while slower-than-expected prepayments will reduce, the yield on these            securities. Amounts available for reinvestment by the Fund are likely to be greater            during a period of declining interest rates and, as a result, are likely to be            reinvested at lower interest rates than during a period of rising interest            rates.

**Mortgage-Backed Securities and Asset-Backed Securities — Types            of Credit Support.**Mortgage-backed securities and            asset-backed securities are often backed by a pool of assets representing the            obligations of a number of different parties. To lessen the effect of failure by            obligors on underlying assets to make payments, such securities may contain elements of            credit support. Such credit support falls into two categories: (1) liquidity            protection and (2) protection against losses resulting from ultimate default by an            obligor on the underlying assets. Liquidity protection refers to the provision of            advances, generally by the entity administering the pool of assets, to ensure that the            pass-through of payments due on the underlying pool occurs in a timely fashion.            Protection against losses resulting from ultimate default enhances the likelihood of            ultimate payment of the obligations on at least a

 

portion of the assets in the pool. Such protection may be provided            through guarantees, insurance policies or letters of credit obtained by the issuer or            sponsor from third parties; through various means of structuring the transaction; or            through a combination of such approaches. The Fund may pay any additional fees for such            credit support, although the existence of credit support may increase the price of a            security.

The            ratings of mortgage-backed securities and asset-backed securities for which third-party            credit enhancement provides liquidity protection or protection against losses from            default are generally dependent upon the continued creditworthiness of the provider of            the credit enhancement. The ratings of such securities could be subject to reduction in            the event of deterioration in the creditworthiness of the credit enhancement provider            even in cases where the delinquency and loss experience on the underlying pool of            assets is better than expected.

Examples of credit support arising out of the structure of the            transaction include “senior-subordinated securities” (multiple class            securities with one or more classes subordinate to other classes as to the payment of            principal thereof and interest thereon, with the result that defaults on the underlying            assets are borne first by the holders of the subordinated class), creation of            “reserve funds” (where cash or investments, sometimes funded from a portion            of the payments on the underlying assets, are held in reserve against future losses)            and “over-collateralization” (where the scheduled payments on, or the            principal amount of, the underlying assets exceed those required to make payment of the            securities and pay any servicing or other fees). The degree of credit support provided            for each issue is generally based on historical information with respect to the level            of credit risk associated with the underlying assets. Delinquency or loss in excess of            that which is anticipated could adversely affect the return on an investment in such a            security.

**Government Guaranteed Mortgage-Backed Securities.**The Fund’s investments in mortgage-backed securities may include            securities issued or guaranteed by the US government or one of its agencies,            authorities, instrumentalities or sponsored enterprises, such as Ginnie Mae, Fannie Mae            and Freddie Mac. There are several types of guaranteed mortgage-backed securities            currently available, including guaranteed mortgage pass-through certificates and            multiple class securities, which include guaranteed Real Estate Mortgage Investment            Conduit Certificates (“REMIC Certificates”), collateralized mortgage            obligations and stripped mortgage-backed securities. The Fund is permitted to invest in            other types of mortgage-backed securities that may be available in the future to the            extent consistent with its investment policies and objective.

**Ginnie Mae Certificates.**Ginnie Mae is a            wholly owned corporate instrumentality of the United States within the Department of            Housing and Urban Development. The National Housing Act of 1934, as amended (the            “Housing Act”), authorizes Ginnie Mae to guarantee the timely payment of            the principal of and interest on certificates that are based on and backed by a pool of            mortgage loans insured by the Federal Housing Administration under the Housing Act, or            Title V of the Housing Act of 1949 (“FHA Loans”), or guaranteed by the            Department of Veterans Affairs under the Servicemen’s Readjustment Act of 1944,            as amended (“VA Loans”), or by pools of other eligible mortgage loans. The            Housing Act provides that the full faith and credit of the US government is pledged to            the payment of all amounts that may be required to be paid under any Ginnie Mae            guaranty. In order to meet its obligations under such guaranty, Ginnie Mae is            authorized to borrow from the US Treasury with no limitations as to amount.

The            Ginnie Mae Certificates in which the Fund invests will represent a pro rata interest in            one or more pools of the following types of mortgage loans: (1) fixed-rate level            payment mortgage loans; (2) fixed-rate graduated payment mortgage loans;            (3) fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans            secured by manufactured (mobile) homes; (5) mortgage loans on multifamily            residential properties under construction; (6) mortgage loans on completed            multifamily projects; (7) fixed-rate mortgage loans as to which escrowed funds are            used to reduce the borrower’s monthly payments during the early years of the            mortgage loans (“buy down” mortgage loans); (8) mortgage loans that            provide for adjustments in payments based on periodic changes in interest rates or in            other payment terms of the mortgage loans; and (9) mortgage-backed serial            notes.

**Fannie Mae Certificates.**Fannie Mae is a            federally chartered and privately owned corporation organized and existing under the            Federal National Mortgage Association Charter Act of 1938. The obligations of Fannie            Mae are obligations solely of Fannie Mae and are not backed by the full faith and            credit of the US government.

 

Each Fannie Mae Certificate will represent a pro rata interest in one or            more pools of FHA Loans, VA Loans or conventional mortgage loans            (i.e., mortgage loans that are not            insured or guaranteed by any governmental agency) of the following types:            (1) fixed-rate level payment mortgage loans; (2) fixed-rate growing equity            mortgage loans; (3) fixed-rate graduated payment mortgage loans; (4) variable            rate mortgage loans; (5) other adjustable rate mortgage loans; and            (6) fixed-rate and adjustable mortgage loans secured by multifamily            projects.

**Freddie Mac Certificates.**Freddie Mac is a            federally chartered and privately owned corporation of the United States created            pursuant to the Emergency Home Finance Act of 1970, as amended (the “FHLMC            Act”). The obligations of Freddie Mac are obligations solely of Freddie Mac and            are not backed by the full faith and credit of the US government.

Freddie Mac Certificates represent a pro rata interest in a group of            mortgage loans (a “Freddie Mac Certificate group”) purchased by Freddie            Mac. The mortgage loans underlying the Freddie Mac Certificates will consist of            fixed-rate or adjustable rate mortgage loans with original terms to maturity of between            ten and thirty years, substantially all of which are secured by first liens on one- to            four-family residential properties or multifamily projects. Each mortgage loan must            meet the applicable standards set forth in the FHLMC Act. A Freddie Mac Certificate            group may include whole loans, participating interests in whole loans and undivided            interests in whole loans and participations comprising another Freddie Mac Certificate            group.

**Multiple Class Mortgage-Backed Securities.**The Fund may invest in multiple class mortgage-backed securities            including collateralized mortgage obligations (“CMOs”) and REMIC            Certificates. These securities may be issued by US government agencies and            instrumentalities such as Fannie Mae or Freddie Mac or by trusts formed by private            originators of, or investors in, mortgage loans, including savings and loan            associations, mortgage bankers, commercial banks, insurance companies, investment banks            and special purpose subsidiaries of the foregoing. In general, CMOs are debt            obligations of a legal entity that are collateralized by a pool of mortgage loans or            mortgage-backed securities the payments on which are used to make payments on the CMOs            or multiple class mortgage-backed securities. REMIC Certificates represent beneficial            ownership interests in a REMIC trust, generally consisting of mortgage loans or Fannie            Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the            “Mortgage Assets”). The obligations of Fannie Mae or Freddie Mac under            their respective guaranty of the REMIC Certificates are obligations solely of Fannie            Mae or Freddie Mac, respectively. Although investors may purchase beneficial interests            in REMICs, which are known as “regular” interests or “residual”            interests, the Fund does not intend to purchase such residual interests in            REMICs.

Fannie Mae REMIC Certificates are issued and guaranteed as to timely            distribution of principal and interest by Fannie Mae. These certificates are            obligations solely of Fannie Mae and are not backed by the full faith and credit of the            US government. In addition, Fannie Mae will be obligated to distribute the principal            balance of each class of REMIC Certificates in full, whether or not sufficient funds            are otherwise available.

Freddie Mac guarantees the timely payment of interest on Freddie Mac            REMIC Certificates and also guarantees the payment of principal as payments are            required to be made on the underlying mortgage participation certificates            (“PCs”). These certificates are obligations solely of Freddie Mac and are            not backed by the full faith and credit of the US government. PCs represent undivided            interests in specified level payment residential mortgages or participations therein            purchased by Freddie Mac and placed in a PC pool. With respect to principal payments on            PCs, Freddie Mac generally guarantees ultimate collection of all principal of the            related mortgage loans without offset or deduction. Freddie Mac also guarantees timely            payment of principal of certain PCs.

CMOs and REMIC Certificates are issued in multiple classes. Each class            of CMOs or REMIC Certificates, often referred to as a “tranche,” is issued            at a specific adjustable or fixed interest rate and must be fully retired no later than            its final distribution date. Principal prepayments on the underlying mortgage loans or            the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or all of            the classes of CMOs or REMIC Certificates to be retired substantially earlier than            their final distribution dates. Generally, interest is paid or accrues on all classes            of CMOs or REMIC Certificates on a monthly basis.

The            principal of and interest on the Mortgage Assets may be allocated among the several            tranches in various ways. In certain structures (known as “sequential pay”            CMOs or REMIC Certificates), payments of principal, including

 

any            principal prepayments, on the Mortgage Assets generally are applied to the classes of            CMOs or REMIC Certificates in the order of their respective final distribution dates.            Thus, no payment of principal will be made on any class of sequential pay CMOs or REMIC            Certificates until all other classes having an earlier final distribution date have            been paid in full. Additional structures of CMOs and REMIC Certificates include, among            others, “parallel pay” CMOs and REMIC Certificates. Parallel pay CMOs or            REMIC Certificates are those which are structured to apply principal payments and            prepayments of the Mortgage Assets to two or more classes concurrently on a            proportionate or disproportionate basis. These simultaneous payments are taken into            account in calculating the final distribution date of each class.

A            wide variety of REMIC Certificates may be issued in parallel pay or sequential pay            structures. These securities include accrual certificates (also known as            “Z-Bonds”), which only accrue interest at a specified rate until all other            certificates having an earlier final distribution date have been retired and are            converted thereafter to an interest-paying security, and planned amortization class            (“PAC”) certificates, which are parallel pay REMIC Certificates that            generally require that specified amounts of principal be applied on each payment date            to one or more classes or REMIC Certificates (the “PAC Certificates”), even            though all other principal payments and prepayments of the Mortgage Assets are then            required to be applied to one or more other classes of the PAC Certificates. The            scheduled principal payments for the PAC Certificates generally have the highest            priority on each payment date after interest due has been paid to all classes entitled            to receive interest currently. Shortfalls, if any, are added to the amount payable on            the next payment date. The PAC Certificate payment schedule is taken into account in            calculating the final distribution date of each class of PAC. In order to create PAC            tranches, one or more tranches generally must be created that absorb most of the            volatility in the underlying Mortgage Assets. These tranches tend to have market prices            and yields that are much more volatile than other PAC classes.

**Stripped Mortgage-Backed Securities.**The            Fund may purchase stripped mortgage-backed securities (“SMBS”), which are            derivative multiclass mortgage securities. Although the market for such securities is            increasingly liquid, certain SMBS may not be readily marketable and will be considered            illiquid for purposes of the Fund’s limitation on investments in illiquid            securities. The market value of the class consisting entirely of principal payments            generally is highly volatile in response to changes in interest rates. The yields on a            class of SMBS that receives all or most of the interest from the Mortgage Assets are            generally higher than prevailing market yields on other mortgage-backed securities            because their cash flow patterns are more volatile and there is a greater risk that the            initial investment will not be fully recouped.

**Adjustable Rate Mortgages-Interest Rate Indices.**Adjustable rate mortgages in which the Fund invests may be adjusted on            the basis of one of several indices. The One Year Treasury Index is the figure derived            from the average weekly quoted yield on US Treasury Securities adjusted to a constant            maturity of one year. The Cost of Funds Index reflects the monthly weighted average            cost of funds of savings and loan associations and savings banks whose home offices are            located in Arizona, California and Nevada (the “FHLB Eleventh District”)            that are member institutions of the Federal Home Loan Bank of San Francisco (the            “FHLB of San Francisco”), as computed from statistics tabulated and            published by the FHLB of San Francisco. The FHLB of San Francisco normally announces            the Cost of Funds Index on the last working day of the month following the month in            which the cost of funds was incurred.

A            number of factors affect the performance of the Cost of Funds Index and may cause the            Cost of Funds Index to move in a manner different from indices based upon specific            interest rates, such as the One Year Treasury Index. Because of the various origination            dates and maturities of the liabilities of members of the FHLB Eleventh District upon            which the Cost of Funds Index is based, among other things, the Cost of Funds Index may            not reflect at any given time the average prevailing market interest rates on new            liabilities of similar maturities. There can be no assurance that the Cost of Funds            Index will necessarily move in the same direction or at the same rate as prevailing            interest rates since as longer term deposits or borrowings mature and are renewed at            market interest rates, the Cost of Funds Index will rise or fall depending upon the            differential between the prior and the new rates on such deposits and borrowings. In            addition, dislocations in the thrift industry in recent years have caused and may            continue to cause the cost of funds of thrift institutions to change for reasons            unrelated to changes in general interest rate levels. Furthermore, any movement in the            Cost of Funds Index as compared to other indices based upon specific interest rates may            be affected by changes instituted by the FHLB of San Francisco in the method used to            calculate the Cost of Funds Index. To the extent that the Cost of Funds Index may            reflect interest changes on a more delayed basis

 

than other indices, in a period of rising interest rates, any increase            may produce a higher yield later than would be produced by such other indices, and in a            period of declining interest rates, the Cost of Funds Index may remain higher than            other market interest rates, which may result in a higher level of principal            prepayments on mortgage loans which adjust in accordance with the Cost of Funds Index            than mortgage loans which adjust in accordance with other indices.

LIBOR, the London interbank offered rate, is the interest rate that the            most creditworthy international banks dealing in US dollar-denominated deposits and            loans charge each other for large dollar-denominated loans. LIBOR is also usually the            base rate for large dollar-denominated loans in the international market. LIBOR is            generally quoted for loans having rate adjustments at one, three, six or twelve month            intervals.

**Zero Coupon Securities and Deferred Interest Bonds.**The Fund may invest in zero coupon securities that are            “stripped” US Treasury notes and bonds and in deferred interest bonds. Zero            coupon securities are the separate income or principal components of a debt instrument.            Zero coupon and deferred interest bonds are debt obligations which are issued at a            significant discount from face value. The original discount approximates the total            amount of interest the bonds will accrue and compound over the period until maturity or            the first interest accrual date at a rate of interest reflecting the market rate of the            security at the time of issuance. Zero coupon securities are redeemed at face value at            their maturity date without interim cash payments of interest or principal. The amount            of this discount is accrued over the life of the security, and the accrual constitutes            the income earned on the security for both accounting and tax purposes. Because of            these features, the market prices of zero coupon securities are generally more volatile            than the market prices of securities that have similar maturity but that pay interest            periodically.

While zero coupon bonds do not require the periodic payment of interest,            deferred interest bonds generally provide for a period of delay before the regular            payment of interest begins. Although this period of delay is different for each            deferred interest bond, a typical period is approximately one-third of the bond’s            term to maturity. Such investments benefit the issuer by mitigating its initial need            for cash to meet debt service, but some also provide a higher rate of return to attract            investors who are willing to defer receipt of such cash.

The            Fund will accrue income on such investments for tax and accounting purposes, as            required, which is distributable to shareholders and which, because no cash is            generally received at the time of accrual, may require the liquidation of other            portfolio securities to satisfy the Fund’s distribution obligations. See            “Federal Income Taxes.”

**Illiquid Securities.**Historically, illiquid            securities have included securities subject to contractual or legal restrictions on            resale because they have not been registered under the Securities Act of 1933, as            amended (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. 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 but not limited to repurchase agreements, commercial            paper, non-US securities, municipal 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 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 NASD 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 Board or its            delegates determines that the Rule 144A Securities are liquid. In reaching liquidity            decisions, the Board and its delegates 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.

**TBA Purchase Commitments.**The Fund may            enter into “To Be Announced” (“TBA”) purchase commitments to            purchase securities for a fixed price at a future date, typically not exceeding 75-90            days. TBA purchase commitments may be considered securities in themselves, and involve            a risk of loss if the value of the security to be purchased declines prior to            settlement date, which risk is in addition to the risk of decline in the value of the            Fund’s other assets. Unsettled TBA purchase commitments are valued at the current            market value of the underlying securities. To facilitate such acquisitions, the Fund            identifies on its book cash or liquid assets in an amount at least equal to such            commitments. It may be expected that the Fund’s net assets will fluctuate to a            greater degree when it sets aside portfolio securities to cover such purchase            commitments than when it sets aside cash. On delivery dates for such transactions, the            Fund will meet its obligations from maturities or sales of the segregated securities            and/or from cash flow. If the Fund chooses to dispose of the TBA security prior to its            settlement, it could, as with the disposition of any other portfolio obligation, incur            a gain or loss due to market fluctuation.

**When-Issued and Delayed Delivery Securities.**The Fund may purchase securities on a when-issued or delayed delivery            basis. Delivery of and payment for these securities can take place a month or more            after the date of the purchase commitment. The payment obligation and the interest rate            that will be received on when-issued and delayed delivery securities are fixed at the            time the buyer enters into the commitment. Due to fluctuations in the value of            securities purchased or sold on a when-issued or delayed delivery basis, the yields            obtained on such securities may be higher or lower than the yields available in the            market on the dates when the investments are actually delivered to the buyers.            When-issued securities may include securities purchased on a “when, as and if            issued” basis, under which the issuance of the security depends on the occurrence            of a subsequent event, such as approval of a merger, corporate reorganization or debt            restructuring. The value of such securities is subject to market fluctuation during            this period and no interest or income, as applicable, accrues to the Fund until            settlement takes place.

At            the time the Fund makes the commitment to purchase securities on a when-issued or            delayed delivery basis, it will record the transaction, reflect the value each day of            such securities in determining its net asset value and, if applicable, calculate the            maturity for the purposes of average maturity from that date. At the time of settlement            a when-issued security may be valued at less than the purchase price. To facilitate            such acquisitions, the Fund

 

identifies on its books cash or liquid assets in an amount at least            equal to such commitments. It may be expected that the Fund’s net assets will            fluctuate to a greater degree when it sets aside portfolio securities to cover such            purchase commitments than when it sets aside cash. On delivery dates for such            transactions, the Fund will meet its obligations from maturities or sales of the            segregated securities and/or from cash flow. If the Fund chooses to dispose of the            right to acquire a when-issued security prior to its acquisition, it could, as with the            disposition of any other portfolio obligation, incur a gain or loss due to market            fluctuation. It is the current policy of the Fund not to enter into when-issued            commitments exceeding in the aggregate 15% of the market value of the Fund’s            total assets, less liabilities other than the obligations created by when-issued            commitments. When the Fund engages in when-issued or delayed-delivery transactions, it            relies on the other party to consummate the trade. Failure of the seller to do so may            result in the Fund’s incurring a loss or missing an opportunity to obtain a price            considered advantageous.

**Additional US Government Obligations.**The            Fund may invest in obligations issued or guaranteed by US government agencies or            instrumentalities. US government securities are high-quality debt securities issued or            guaranteed by the US Treasury or by an agency or instrumentality of the US government.            These obligations may or may not be backed by the “full faith and credit”            of the United States. In the case of securities not backed by the full faith and credit            of the United States, the Fund must look principally to the federal agency or            instrumentality issuing or guaranteeing the obligation for ultimate repayment and may            not be able to assert a claim against the United States itself in the event the agency            or instrumentality does not meet its commitments. Securities in which the Fund may            invest that are not backed by the full faith and credit of the United States include            obligations of the Tennessee Valley Authority and the US Postal Service, each of which            has the right to borrow from the US Treasury to meet its obligations, and obligations            of the Federal Farm Credit System and the Federal Home Loan Banks, both of whose            obligations may be satisfied only by the individual credit of the issuing agency.            Securities that are backed by the full faith and credit of the United States include            obligations of GNMA, the Farmers Home Administration and the Export-Import            Bank.

**Lower-Rated Debt Securities (“Junk Bonds”).**The Fund may invest in debt securities rated in the fifth and sixth            long-term rating categories by S&P, Moody’s and Fitch Inc.            (“Fitch”), or comparably rated by another NRSRO, or if not rated by a            NRSRO, of comparable quality as determined by the Advisor in its sole            discretion.

These securities, often referred to as “junk bonds” or            “high yield debt securities,” are considered speculative and, while            generally offering greater income than investments in higher quality securities,            involve greater risk of loss of principal and income, including the possibility of            default or bankruptcy of the issuers of such securities, and have greater price            volatility, especially during periods of economic uncertainty or change. These lower            quality bonds tend to be affected by economic changes and short-term corporate and            industry developments, as well as public perception of those changes and developments,            to a greater extent than higher quality securities, which react primarily to            fluctuations in the general level of interest rates.

In            addition, the market for lower-rated debt securities may be thinner and less active            than that for higher-rated debt securities, which can adversely affect the prices at            which the former are sold. If market quotations are not available, lower-rated debt            securities will be valued in accordance with procedures established by the Board of            Trustees of the Fund, including the use of outside pricing services. Judgment plays a            greater role in valuing high yield corporate debt securities than is the case for            securities for which more external sources for quotations and last sale information is            available. Adverse publicity and changing investor perception may also affect the            availability of outside pricing services to value lower-rated debt securities and the            Fund’s ability to dispose of these securities. In addition, such securities            generally present a higher degree of credit risk. Issuers of lower-rated debt            securities are often highly leveraged and may not have more traditional methods of            financing available to them so that their ability to service their obligations during            an economic downturn or during sustained periods of rising interest rates may be            impaired. The risk of loss due to default by such issuers is significantly greater            because below investment grade securities generally are unsecured and frequently are            subordinated to the prior payment of senior indebtedness.

Since the risk of default is higher for lower-rated debt securities, the            Advisor’s research and credit analysis are an especially important part of            managing securities of this type held by the Fund. In considering investments for the            Fund, the Advisor will attempt to identify those issuers of high yield debt securities            whose financial conditions are adequate to meet future obligations, have improved or            are expected to improve in the future. The Advisor’s analysis

 

focuses on relative values based on such factors as interest on dividend            coverage, asset coverage, earnings prospects and the experience and managerial strength            of the issuer.

While the market for high yield corporate debt securities has been in            existence for many years and has weathered previous economic downturns, past experience            may not provide an accurate indication of future performance of the high yield bond            market, especially during periods of economic recession.

The            Fund may choose, at its expense or in conjunction with others, to pursue litigation or            otherwise exercise its rights as a security holder to seek to protect the interest of            security holders if it determines this to be in the interest of the Fund.

The            Fund may invest in an affiliated mutual fund to gain exposure to lower rated debt            securities. The affiliated fund is permitted to invest in securities of lower credit            ratings than the Fund could invest in if it makes direct purchases of high yield debt            securities.

**Inverse Floaters.**The Fund may invest in            inverse floaters. Inverse floaters are debt instruments with a floating rate of            interest that bears an inverse relationship to changes in short-term market interest            rates. Investments in this type of security involve special risks as compared to            investments in, for example, a fixed rate municipal security. The Fund could lose money            and its NAV could decline if movements in interest rates are incorrectly anticipated.            Moreover, the markets for securities of this type may be less developed and may have            less liquidity than the markets for more traditional municipal securities.

***Securities of Foreign Issuers***

**Investment in Emerging Markets.**The Fund            may invest to varying degrees in one or more countries with emerging securities            markets. These countries are generally located in Latin America, Europe, the Middle            East, Africa and Asia. Political and economic structures in many of these countries may            be undergoing significant evolution and rapid development, and these countries may lack            the social, political and economic stability characteristic of more developed            countries. Certain of these countries may have in the past failed to recognize private            property rights and, at times, may have nationalized, or expropriated the assets of            private companies. As a result, these risks, including the risk of nationalization or            expropriation of assets, may be heightened. In addition, unanticipated political or            social developments may affect the value of the Fund’s investments in these            countries, as well as the availability of additional investments in these countries.            The small size and inexperience of the securities markets in certain of these countries            and the limited volume of trading in securities in these countries may make the            Fund’s investments in these countries illiquid and more volatile than investments            in most Western European countries, and the Fund may be required to establish special            custodial or other arrangements before making certain investments in some of these            countries. There may be little financial or accounting information available with            respect to issuers located in certain of these countries, and may be difficult as a            result to assess the value or prospects of an investment in those countries. The laws            of some foreign countries may limit the Fund’s ability to invest in securities of            certain issuers located in those countries.

***Derivatives***

**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. There are a range of risks            associated with those uses. 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 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. The Fund may use            derivatives for non-hedging purpose, such as to enhance return. 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. The use of derivatives for non-hedging purposes may be considered            speculative.

The            Fund’s investments in options, futures, forward contracts and similar strategies            depend on the Advisor’s judgment as to the potential risks and rewards of            different types of strategies. Options and futures 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, options and futures strategies may lower the            Fund’s return. The Fund could also experience losses if the prices of its options            and futures 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.

The            Fund is operated by persons who have claimed an exclusion from the definition of the            term “commodity pool operator” under the Commodity Exchange Act and,            therefore, who are not subject to registration or regulation under the Commodity            Exchange Act.

**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 by its custodian) 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 a 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 acceptable to the broker 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 will only write

 

put            options involving securities for which a determination is made at the time the option            is written that the Fund wishes to acquire the securities at 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. When the Fund cannot            effect a closing purchase 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.

When the Fund writes an option, an amount equal to the net premium            received by the Fund is included in the liability section of the Fund’s Statement            of Assets and Liabilities as a deferred credit. The amount of the deferred credit will            be subsequently marked to market to reflect the current market value of the option            written. 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 writing            of covered call options may be deemed to involve the pledge of the securities against            which the option is being written. Securities against which call options are written            will be identified on the Fund’s books.

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.

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 and 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.

The            Fund may also engage in options transactions in the over-the-counter            (“OTC”) market with broker-dealers who make markets in these options. 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 broker-dealers who are primary US government securities            dealers recognized by the Federal Reserve Bank of New York and who agree to (and are            expected to be capable of) entering into closing transactions, although there can be no            guarantee that any such option will be liquidated at a

 

favorable price prior to expiration. The Advisor will monitor the            creditworthiness of dealers with whom the Fund enters into such options transactions            under the general supervision of the Fund’s Board of Trustees. Unless the            Trustees conclude otherwise, the Fund intends to treat OTC options purchased and the            assets used to “cover” OTC options written as not readily marketable and,            therefore, subject to the Fund’s limit on investments in illiquid            securities.

**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, which will fluctuate            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 S&P 100. Indices may also be based            on a particular industry or market segment.

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 stock 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 purchase the underlying securities at a specified price during the option period.            The Fund would ordinarily have a gain if the value of the underlying 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.

As            discussed in “Options on Securities,” the Fund would normally purchase put            options in anticipation of a decline in the market value of the relevant index            (“protective puts”). The purchase of a put option would entitle the Fund,            in exchange for the premium paid, to sell the underlying securities 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 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 puts 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 stock, 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 stock prices in the stock market generally or, in the case of            certain indices, in an industry or market segment, rather than movements in the price            of a particular stock. Accordingly, successful use by the Fund of options on stock            indices will be subject to the Advisor’s ability to predict correctly movements            in the direction of the stock market generally or of a particular industry. This            requires different skills and techniques than predicting changes in the price of            individual stocks.

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 is 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 investment 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.

**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) US Treasury and Eurodollar 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 objective and policies. Among other purposes, these hedging strategies may            be used to effectively maintain desired portfolio duration or to protect against market            risk should the Fund reallocate its investments among different types of Fixed Income            Securities

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 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 options, futures and currency exchange 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 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.

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 default by a            counterparty to an off-exchange transaction. See “Illiquid            Securities.”

**Currency Management Techniques.**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            over-the-counter currency options may be illiquid and are subject to the risk that the            counterparty will default on its obligations.

**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 may 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.

The            Fund may use forward currency transactions in an attempt to hedge against losses, or            where possible, to add to investment returns. For the purposes of hedging, 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 which 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 which 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 will cover the amount of its commitments to purchase foreign currencies under            forward currency contracts with liquid securities. If the value of such securities            declines below the value of the Fund’s commitments under forward currency            contracts, additional liquid securities will be used as cover so that the value of such            securities will equal the amount of the Fund’s commitments. The securities will            be marked-to-market on a daily basis.

 

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 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.

***Futures Contracts and Related Options***

**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 may 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, as an efficient means of managing            allocations between asset classes and to enhance return.

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 “contracts 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 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            securities, foreign currencies, or financial indices, including any index of US            government securities, foreign government securities or corporate debt securities. The            Fund may enter into futures contracts which are based on debt securities that are            backed by the full faith and credit of the US government, such as long-term US Treasury            Bonds, Treasury Notes and US Treasury Bills. The Fund may also enter into futures            contracts which are based on bonds issued by governments other than the US government.            Futures contracts on foreign currencies may be used to hedge against 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 deposit payment (“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.

At            the time of delivery of securities pursuant to such a contract, adjustments are made to            recognize differences in value arising from the delivery of securities with a different            interest rate from that specified in the contract. In some,

 

but            not many, cases, securities called for by a futures contract may not have been issued            when the contract was written.

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 the Fund’s 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.

The            purpose of the acquisition or sale of a futures contract, in cases where the Fund holds            or intends to acquire fixed-income securities, is to attempt to protect the Fund from            fluctuations in interest or foreign exchange rates without actually buying or selling            fixed-income 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.

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 acceptable to the broker from its portfolio 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 deposit 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 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 may cause            temporary price 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 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, 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 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. This investment technique may be used 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 that            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. A futures contract may also be entered into to close out or offset an existing            futures position.

When used for hedging purposes, each futures contract on a securities            index transaction 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 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 that is deliverable upon exercise of            the futures contract. If the futures price at expiration of the option is below the            price specified in the premium received for writing the option (“exercise            price”), 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 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 a 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 lowering securities values.

The            amount of risk the Fund assumes when it purchases an option on a futures contract with            respect to an index 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.

 

**Swaps.**The Fund may enter into currency and            other types of swaps and the purchase or sale of related caps, floors and collars. The            Fund expects to enter into these transactions primarily to preserve a return or spread            on a particular investment or portion of its portfolio, to protect against currency            fluctuations, as a duration management technique or to protect against any increase in            the price of securities the Fund anticipates purchasing at a later date. The Fund will            not sell interest rate caps or floors where it does not own securities or other            instruments providing the income stream the Fund may be obligated to pay. Interest rate            swaps involve the exchange by the Fund with another party of their respective            commitments to pay or receive interest, e.g., an exchange of floating rate payments for            fixed rate payments with respect to a notional amount of principal. A currency swap is            an agreement to exchange cash flows on a notional amount of two or more currencies            based on the relative value differential among them and an index swap is an agreement            to swap cash flows on a notional amount based on changes in the values of the reference            indices. The purchase of a cap entitles the purchaser to receive payments on a notional            principal amount from the party selling such cap to the extent that a specified index            exceeds a predetermined interest rate or amount. The purchase of a floor entitles the            purchaser to receive payments on a notional principal amount from the party selling            such floor to the extent that a specified index falls below a predetermined interest            rate or amount. A collar is a combination of a cap and a floor that preserves a certain            return within a predetermined range of interest rates or values.

Swaps have special risks associated including possible default by the            counterparty to the transaction, illiquidity and, where swaps are used for hedges, the            risk that the use of a swap could result in losses greater than if the swap had not            been employed. Whether the use of swap agreements will be successful in furthering its            investment objective will depend on the Advisor’s ability to correctly predict            whether certain types of investments are likely to produce greater returns than other            investments. Certain swap agreements may be considered to be illiquid because they are            two party contracts and because they may have terms of greater than seven days.            Moreover, the Fund bears the risk of loss of the amount expected to be received under a            swap agreement in the event of the default or bankruptcy of a swap agreement            counterparty.

**Credit Default Swaps.**The Fund may invest            up to 15% of its total assets in credit default swaps. A credit default swap is a            contract between a buyer and a seller of protection against a pre-defined credit event.            The buyer of protection pays the seller a fixed regular fee provided that no event of            default on an underlying reference obligation has occurred. If an event of default            occurs, the seller must pay the buyer the full notional value, or “par            value.” of the reference obligation in exchange for the reference obligation.            Credit default swaps are used as a means of “buying” credit protection,            i.e., attempting to mitigate the risk of default or credit quality deterioration in            some portion of the Fund’s holdings, or “selling” credit protection,            i.e., attempting to gain exposure to an underlying issuer’s credit quality            characteristics without directly investing in that issuer. No more than 5% of the            Fund’s assets may be invested in credit default swaps for purposes of buying            credit protection for non-hedging purposes. Where the Fund is a seller of credit            protection, it effectively adds leverage to its portfolio because, in addition to its            total net assets, the Fund would be subject to investment exposure on the notional            amount of the swap. The Fund will only sell credit protection with respect to            securities in which it would be authorized to invest directly. The Fund currently            considers credit default swaps to be illiquid and treats the market value of the            contract as illiquid for purposes of determining compliance with the Fund’s            restrictions on investing in illiquid securities.

If            the Fund is a buyer of a credit default swap and no event of default occurs, the Fund            will lose its investment and recover nothing. However, if the Fund is a buyer and an            event of default occurs, the Fund will receive the full notional value of the reference            obligation that may have little or no value. As a seller, the Fund receives a fixed            rate of income through the term of the contract (typically between six months and three            years), provided that there is no default event. If an event of default occurs, the            seller must pay the buyer the full notional value of the reference obligation. Credit            default swaps involve greater risks than if the Fund had invested in the reference            obligation directly.

The            Fund may use credit default swaps to gain exposure to particular issuers or particular            markets through investments in portfolios of credit default swaps, such as Dow Jones            CDX.NA.HY certificates. By investing in certificates representing interests in a basket            of credit default swaps, the Fund is taking credit risk with respect to an entity or            group of entities and providing credit protection to the swap counterparties. For            example, the CDX EM is a tradable basket of 19 credit default swaps on country credits            which seeks to replicate the returns on the indices of a broad group of emerging            markets countries. The credits are a subset of the countries represented by the            JPMorgan

 

Emerging Markets Bond Index Global Diversified. By purchasing interests            in CDX EM, the Fund is gaining emerging markets exposure through a single investment.            Unlike other types of credit default swaps which are generally considered illiquid,            credit default swap certificates generally can be sold within seven days and are not            subject to the Fund’s restrictions on investing in illiquid            securities.

**Other Considerations.**The Fund will            determine that the price fluctuations in the futures contracts and options on futures            used by it for hedging purposes are substantially related to price fluctuations in            securities or instruments held by the Fund or securities or instruments which it            expects to purchase.

The            Fund will be required, in connection with transactions in futures contracts and the            writing of options on futures contracts, to make margin deposits, which will be held by            its custodian for the benefit of the futures commission merchant through whom the Fund            engages in such futures and option transactions. These transactions involve brokerage            costs, require margin deposits and, in the case of futures contracts and options            obligating the Fund to purchase securities, require the Fund to segregate cash or            liquid securities in an account maintained with its custodian to cover such contracts            and options.

While transactions in futures contracts and options on futures may            reduce certain risks, such transactions themselves entail certain other risks. Thus,            unanticipated changes in interest rates or securities prices may result in a poorer            overall performance for the Fund than if it had not entered into any futures contracts            or options transactions. The other risks associated with the use of futures contracts            and options thereon are (i) imperfect correlation between the change in market value of            the securities held by the Fund and the prices of the futures and options and (ii) the            possible absence of a liquid secondary market for a futures contract or option and the            resulting inability to close a futures position prior to its maturity date.

In            the event of an imperfect correlation between a futures position and portfolio position            which is intended to be protected, the desired protection may not be obtained and the            Fund may be exposed to risk of loss. The risk of imperfect correlation may be minimized            by investing in contracts whose price behavior is expected to resemble that of the            Fund’s underlying securities. The Fund will attempt to minimize the risk that it            will be unable to close out futures positions by entering into such transactions on a            national exchange with an active and liquid secondary market.

***Limitations and Risks Associated with Transactions in Options,            Futures Contracts and Options on Futures Contracts***

Options and futures transactions involve (1) liquidity risk that            contractual positions cannot be easily closed out in the event of market changes or            generally in the absence of a liquid secondary market, (2) correlation risk that            changes in the value of hedging positions may not match the securities market            fluctuations intended to be hedged, and (3) market risk that an incorrect prediction of            securities prices by the Advisor may cause the Fund to perform worse than if such            positions had not been taken. The ability to terminate over-the-counter options is more            limited than with exchange traded options and may involve the risk that the            counterparty to the option will not fulfill its obligations. In accordance with a            position taken by the SEC, the Fund will limit its investments in illiquid securities            to 15% of the Fund’s net assets.

Options and futures transactions are highly specialized activities which            involve investment techniques and risks that are different from those associated with            ordinary portfolio transactions. Gains and losses on investments in options and futures            depend on the Advisor’s ability to predict the direction of interest rates,            security prices, currencies and other economic factors. The loss that may be incurred            by the Fund in entering into futures contracts and written options thereon is            potentially unlimited. There is no assurance that higher than anticipated trading            activity or other unforeseen events might not, at times, render certain facilities of            an options clearing entity or other entity performing the regulatory and liquidity            functions of an options clearing entity inadequate, and thereby result in the            institution by an exchange of special procedures which may interfere with the timely            execution of customers’ orders. Most futures exchanges limit the amount of            fluctuation permitted in a futures contract’s prices during a single trading day.            Once the limit has been reached no further trades may be made that day at a price            beyond the limit. The price limit will not limit potential losses, and may in fact            prevent the prompt liquidation of futures positions, ultimately resulting in further            losses.

 

**Global Asset Allocation Strategy (“GAA            Strategy”).**In connection with the GAA Strategy and in            addition to the securities described above, the Fund may invest in indexed securities,            futures contracts on securities indices, securities representing securities of foreign            issuers (e.g., ADRs, GDRs and EDRs), options on stocks, options on futures contracts,            foreign currency exchange transactions and options on foreign currencies. These are            discussed below, to the extent not already described above.

*Indexed Securities.*The indexed securities            in which the Fund may invest include debt securities whose value at maturity is            determined by reference to the relative prices of various currencies or to the price of            a stock index. The value of such securities depends on the price of foreign currencies,            securities indices or other financial values or statistics. These securities may be            positively or negatively indexed; that is, their value may increase or decrease if the            underlying instrument appreciates.

*Securities Representing Securities of Foreign            Issuers*.The Fund’s investments            in the securities of foreign issuers may be made directly or in the form of American            Depositary Receipts (“ADRs”), Global Depositary Receipts            (“GDRs,” also referred to as International Depositary Receipts or            “IDRs”), European Depositary Receipts (“EDRs”) or other similar            securities representing securities of foreign issuers. These securities may not            necessarily be denominated in the same currency as the securities they represent, and            while designed for use as alternatives to the purchase of the underlying securities in            their national markets and currencies, are subject to the same risks as the foreign            securities to which they relate.

ADRs are receipts, typically issued by a US bank or trust company, which            evidence ownership of underlying securities issued by a foreign corporation. EDRs,            which are sometimes referred to as Continental Depository Receipts            (“CDRs”), are receipts issued in Europe, and GDRs or IDRs are issued            outside the United States. EDRs (CDRs) and GDRs (IDRs) are typically issued by non-US            banks and trust companies and evidence ownership of either foreign or domestic            securities. Generally, ADRs in registered form are designed for use in US securities            markets, and EDRs (CDRs) and GDRs (IDRs) in bearer form are designed for use in            European and non-US securities markets, respectively. For purposes of the Fund’s            investment policies, depository receipts generally are deemed to have the same            classification as the underlying securities they represent. Thus, a depository receipt            representing ownership of common stock will be treated as common stock.

ADRs are publicly traded on exchanges or over-the-counter in the United            States and are issued through “sponsored” or “unsponsored”            arrangements. In a sponsored ADR arrangement, the foreign issuer assumes the obligation            to pay some or all of the depository’s transaction fees, whereas under an            unsponsored arrangement, the foreign issuer assumes no obligations and the            depository’s transaction fees are paid directly by the ADR holders. In addition,            less information is available in the United States about an unsponsored ADR than about            a sponsored ADR.

Investments in foreign securities incur higher costs than investments in            US securities, including higher costs in making securities transactions as well as            foreign government taxes which may reduce the investment return of the Fund. In            addition, foreign investments may include risks associated with currency exchange            rates, less complete information about additional companies, less market liquidity and            political instability.

**Repurchase Agreements.**The Fund may engage            in repurchase agreement transactions with member banks of the Federal Reserve System            and certain non-bank dealers, including governmental securities dealers approved by the            Fund Trust Board. Under the terms of a typical repurchase agreement, the Fund would            acquire any underlying security for a relatively short period (usually not more than            one week), subject to an obligation of the seller to repurchase, and the Fund to            resell, the obligation at an agreed price and time, thereby determining the yield            during the Fund’s holding period. This arrangement results in a fixed rate of            return that is not subject to market fluctuations during the Fund’s holding            period. The value of the underlying securities will be at least equal at all times to            the total amount of the repurchase obligations, including interest. The Fund bears a            risk of loss in the event of default by or bankruptcy of the other party to a            repurchase agreement. The Fund may be delayed in, or prevented from, exercising its            rights to dispose of the collateralized securities. To the extent that, in the            meantime, the value of the securities repurchased had decreased or the value of the            securities had increased, the Fund could experience a loss. The Advisor reviews the            creditworthiness of those banks and dealers with which the Fund enters into repurchase            agreements and monitors on an ongoing basis the value of the securities subject to            repurchase agreements to ensure that it is maintained at the required level. A            repurchase agreement is considered to be a loan under the 1940 Act.

 

**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.

**Mortgage Dollar Rolls.**The Fund may enter            into mortgage “dollar rolls” in which the Fund sells securities for            delivery in the current month and simultaneously contracts to repurchase substantially            similar (same dealer, type, coupon and maturity), but not identical, securities on a            specified future date. During the roll period, the Fund forgoes principal and interest            paid on the securities. The Fund is compensated by the difference between the current            sales price and the lower forward price for the future purchase (often referred to as            the “drop”) or fee income and by the interest earned on the cash proceeds            of the initial sale. A “covered roll” is a specific type of dollar roll for            which there is an offsetting cash position or a cash equivalent security position which            matures on or before the forward settlement date of the dollar roll transaction. The            Fund may enter into both covered and uncovered rolls. At the time the Fund enters into            a dollar roll transaction, it will segregate, with an approved custodian, cash or            liquid securities having a value not less than the repurchase price (including accrued            interest) and will subsequently monitor the segregated assets to ensure that its value            is maintained.

**Borrowing.**The Fund may not borrow money,            except as permitted under the 1940 Act, and as interpreted or modified by regulatory            authority having jurisdiction, from time to time. ’Under the 1940 Act, the Fund            is required to maintain continuous asset coverage of 300% with respect to such            borrowings and to sell (within three days) sufficient portfolio holdings to restore            such coverage if it should decline to less than 300% due to market fluctuations or            otherwise, even if such liquidation of the Fund’s holdings may be disadvantageous            from an investment standpoint.

Leveraging by means of borrowing may exaggerate the effect of any            increase or decrease in the value of the Fund’s securities and the Fund’s            NAV per share, and money borrowed by the Fund will be subject to interest and other            costs (which may include commitment fees and/or the cost of maintaining minimum average            balances) that may exceed the income received from the securities purchased with the            borrowed funds.

**Other Investment Companies.**Securities of            other investment companies may be acquired by the Fund to the extent permitted under            the 1940 Act, that is, the Fund may invest a maximum of up to 10% of its total assets            in securities of other investment companies so long as not more than 3% of the total            outstanding voting stock of any one investment company is held by the Fund. In            addition, not more than 5% of the Fund’s total assets may be invested in the            securities of any one investment company. The Fund may be permitted to exceed these            limitations by an exemptive order of the SEC. Pursuant to exemptive orders granted by            the SEC, the Fund may invest up to 25% of its total assets in affiliated money market            funds. It should be noted that investment companies incur certain expenses such as            management, custodian, and transfer agency fees, and therefore any investment by the            Fund in shares of other investment companies would be subject to such duplicate            expenses. The Fund will indirectly bear its proportionate share of any management or            other fees paid by investment companies in which it invests, in addition to its own            fees. No advisory fee is charged on assets invested in affiliated money market            funds.

**Investment of Uninvested Cash Balances.**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

 

and            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 Cash Management            QP Trust, or entities for which the Advisor may act as investment advisor that operate            as cash management investment vehicles and that are excluded from the definition of            “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 the            Fund’s 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.

**Asset Coverage**. The Fund will comply with            the segregation or coverage guidelines established by the SEC and other applicable            regulatory bodies with respect to certain transactions, including (but not limited to)            options written on securities and indexes; currency, interest rate and security index            futures contracts and options on these futures contracts; and forward currency            contracts. These guidelines may, in certain instances, require the Fund to cover the            Fund’s obligations with respect to these strategies with cash or liquid            securities to the extent they are not otherwise covered through ownership of the            underlying security or financial instrument, by other portfolio positions or by other            means consistent with applicable regulatory policies. The assets used as cover must at            all times equal or exceed the Fund’s obligations with respect to these            strategies. Assets used as cover cannot be sold or transferred unless equivalent assets            are substituted in their place or cover is no longer necessary. As a result, there is a            possibility that using a large percentage of the Fund’s assets as cover could            impede the Advisor or the Fund’s ability to meet redemption requests or other            current obligations.

For            example, a call option written on securities may require the Fund to hold the            securities subject to the call (or securities convertible into such securities without            additional consideration) or to use assets as cover (as described above) sufficient to            purchase and deliver the securities if the call is exercised. A call option written on            an index may require the Fund to own portfolio securities that correlate with the index            or to use assets as cover (as described above) equal to the excess of the index value            over the exercise price on a current basis. A put option written by the Fund may            require the Fund to use assets as cover (as described above) equal to the exercise            price. The Fund could purchase a put option if the strike price of that option is the            same or higher than the strike price of a put option sold by the Fund. If the Fund            holds a futures contract, the Fund could purchase a put option on the same futures            contract with a strike price as high or higher than the price of the contract held. The            Fund may enter into fully or partially offsetting transactions so that its net            position, coupled with any assets used as cover (equal to any remaining obligation),            equals its net obligation. Asset coverage may be achieved by other means when            consistent with applicable regulatory policies.

There is no limit on the percentage of the assets of the Fund that may            be at risk with respect to futures contracts and related options or forward currency            contracts. The Fund may not invest more than 15% of its total assets in purchased            protective put options. The Fund’s transactions in options, forward currency            contracts, futures contracts and options on futures contracts may be limited by the            requirements for qualification of the Fund as a regulated investment company for tax            purposes. See “Taxes.” There can be no assurance that the use of these            portfolio strategies will be successful.

**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.

**Investment Objective.**The Fund’s            investment objective is not a fundamental policy and may be changed upon notice to, but            without the approval of, the Fund’s shareholders. If there is a change in the            Fund’s investment

 

objective, the Fund’s shareholders should consider whether the            Fund remains an appropriate investment in light of their then-current needs.            Shareholders of the Fund will receive 30 days’ prior written notice with respect            to any change in the investment objective of the Fund.

***Rating Services***

The            ratings of rating services represent their opinions as to the quality of the securities            that they undertake to rate. It should be emphasized, however, that ratings are            relative and subjective and are not absolute standards of quality. Although these            ratings are an initial criterion for selection of portfolio investments, the Advisor            also makes its own evaluation of these securities, subject to review by the Board of            Trustees of the Trust. After purchase by the Fund, an obligation may cease to be rated            or its rating may be reduced below the minimum required for purchase by the Fund.            Neither event would require the Fund to eliminate the obligation from its portfolio,            but the Advisor will consider such an event in its determination of whether the Fund            should continue to hold the obligation. A description of the ratings referred to herein            and in the Prospectus is set forth in the Appendix of this SAI.

The            following is a chart of the various types of securities and investment strategies            employed by the Fund. Unless otherwise indicated, the Fund is not obligated to pursue            any of the following strategies and does not 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 nonfundamental operating policy, the Fund may be            subject to additional restrictions. See the section entitled “Investment            Restrictions.”

 

| **INVESTMENT PRACTICE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **DWS Short Duration Plus Fund** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| KEY TO TABLE:

+ Permitted without stated limito 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | X                                |
| Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | *20%*                            |
| Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | X                                |
| Convertible Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | X                                |
| **FIXED INCOME SECURITIES & MONEY MARKET                                INSTRUMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Short-Term Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | +                                |
| Obligations of Banks and Other Financial                                Institutions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | +                                |
| Certificates of Deposit and Banker’s                                Acceptances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | +                                |
| Commercial Paper                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | +                                |
| Variable Rate Master Demand Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | +                                |
| US Government Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | +                                |
| Corporate Debt Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | +                                |
| Custodial Receipts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | o                                |
| Zero Coupon Securities and Deferred Interest                                Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | +                                |
| Variable Rate Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | +                                |
| Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | +                                |
| Inverse Floating Rate Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | o                                |
| Lower-Rated Debt Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 10%                              |
| Registered Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | X                                |
| Put Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | +                                |
| Bank Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | +                                |
| Other Debt Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | +                                |
| **MUNICIPAL SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Municipal Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | o                                |
| Tax Anticipation Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | o                                |
| Revenue Anticipation Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | o                                |
| Bond Anticipation Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | o                                |
| Tax and Revenue Anticipation Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | o                                |
| Construction Loan Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | o                                |
| Miscellaneous, Temporary and Anticipatory                                Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | o                                |
| Tax-Exempt Commercial Paper                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | o                                |
| Municipal Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | o                                |
| General Obligation Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | o                                |
| Revenue Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | o                                |
| Private Activity Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | o                                |
| Tender Option Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | o                                |
| Municipal Leases, Certificates of Participation and                                Other Participation Interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | *5%*                             |
| Pre-Refunded Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | o                                |
| Auction Rate Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | o                                |
| Pay-in-Kind Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | o                                |

 

| **DERIVATIVE SECURITIES (OPTIONS)**                                                                           |
|---------------------------------------------------------------------------------------------------------------|
| Options on Securities                                                                                         | + |
| 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, Foreign                                Currency and Interest Rates   | + |
| Options on Futures Contracts (including Contracts on                                Securities Indices)       | + |
| **DERIVATIVE SECURITIES (HEDGING                                STRATEGIES)**                                 |
| Hedging Strategies                                                                                            | + |
| Swap Agreements                                                                                               | + |
| Credit Default Swaps                                                                                          | 15% |
| **MORTGAGE-BACKED AND ASSET-BACKED                                SECURITIES**                                |
| Government Guaranteed Mortgage-Backed                                Securities                               | + |
| Ginnie Mae Certificates                                                                                       | + |
| Fannie Mae Certificates                                                                                       | + |
| Freddie Mac Certificates                                                                                      | + |
| Multi-Class Mortgage-Backed Securities (CMOs and                                REMICs)                       | + |
| Privately Issued Commercial Mortgage-Backed                                Securities                         | + |
| Agency Commercial Mortgage-Backed                                Securities                                   | + |
| Mortgage Pass-Through Securities                                                                              | + |
| Stripped Mortgage-Backed Securities                                                                           | + |
| Adjustable Rate Mortgages                                                                                     | + |
| Asset-Backed Securities                                                                                       | + |
| **SECURITIES OF NON-US ISSUERS**                                                                              |
| Foreign Securities and Depository Receipts (ADRs,                                EDRs, GDRs and IDRs)         | +1 |
| Foreign Corporate Debt Securities                                                                             | +1 |
| Foreign Government Debt Securities                                                                            | +1 |
| Investments in Emerging Markets                                                                               | + |
| **CURRENCY MANAGEMENT**                                                                                       |
| Currency Exchange Transactions                                                                                | + |
| Currency Hedging Transactions                                                                                 | + |
| Cross Hedging                                                                                                 | X |
| Forward Currency Exchange Contracts                                                                           | + |
| Options on Foreign Currencies                                                                                 | + |
| **OTHER INVESTMENTS AND INVESTMENT                                PRACTICES**                                 |
| Illiquid Securities                                                                                           | *15%* |
| TBA Commitments                                                                                               | + |
| When-Issued and Delayed Delivery                                Securities                                    | 15% |
| Repurchase Agreements                                                                                         | + |
| Reverse Repurchase Agreements                                                                                 | 5% |
| Mortgage Dollar Rolls                                                                                         | 5% |
| Lending of Portfolio Securities                                                                               | 30% |
| Borrowing                                                                                                     | 33 1/3% |
|                                                                                                               |  |  |

 

| Short Sales                                                                    | +           |
|--------------------------------------------------------------------------------|-------------|
| Other Investment Companies                                                     | limits vary |
| Temporary Defensive Investments                                                | +           |
| Dow Jones CDX.NA.HY.3 and similar                                products      | +           |
| Concentration of Investment in Any One                                Industry | 25%         |

 

 

 

 

| 1 | May be denominated in any currency. |
|---|-------------------------------------|

**Portfolio Holdings**

In            addition to the public disclosure of fund 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 the 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 received while the information remains non-public. No compensation is            received by the Fund or 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 the Fund and information derived            therefrom, including, but not limited to, how the 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 the 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 the            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            the 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 the 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 the 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 the Fund’s policies and procedures with            respect to the disclosure of portfolio holdings information will protect the 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            advisor is 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.

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.

The            Fund is managed by a team of investment professionals, each of whom plays an important            role in the Fund’s management process. Team members work together to develop            investment strategies and select securities for the Fund’s portfolio. This team            works for the Advisor or its affiliates and is supported by a large staff of            economists, research analysts, traders and other investment specialists. The Advisor or            its affiliates believe(s) its team approach benefits fund investors by bringing            together many disciplines and leveraging its extensive resources. Team members with            primary responsibility for management of the Fund, as well as team members who have            other ongoing management responsibilities for the Fund, are identified in the            Fund’s prospectus, as of the date of the Fund’s prospectus. Composition of            the team may change over time, and fund shareholders and investors will be notified of            changes affecting individuals with primary fund management responsibility.

**Investment Management Agreement**

The            Board and the shareholders of the Fund approved an amended and restated investment            management agreement (“Investment Management Agreement”) for the Fund with            DAMI. 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, 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 Prospectus and this SAI, 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.

The            Advisor provides assistance to the Fund’s 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 DIMA Agreement, (unless otherwise provided in the            agreement or as determined by the Fund’s Board and to the extent permitted by            applicable law), the Advisor pays the compensation and expenses of all the Board            members, 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; payment 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 portfolio 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 subadvisor, subject to a majority vote of the Board of the Fund, including a majority            of the Board who are not interested persons of the Fund, 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 in the performance of its duties            or from reckless disregard by the Advisor of its obligations and duties under the            agreement. The Investment Management 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 “Subadvisor Approval Policy”). The Subadvisor Approval Policy permits            the Advisor, subject to the approval of the Board, including a majority of its            Independent Board Members, to appoint and replace subadvisors and to amend sub-advisory            contracts without obtaining shareholder approval. Under the Subadvisor 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            Subadvisor 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 Subadvisor Approval Policy, including any shareholder notice            requirements.

For all services provided under the Investment Management Agreement, the            Fund pays the Advisor a fee, computed daily and paid monthly, at the annual rate as a            percentage of net assets shown below:

 

| **Average Daily Net Assets** |   | **Fee Rate** |
|------------------------------|--------|--------------|
|                         |   |         |
| $0 - $500 million            |   | 0.500%       |
| $500 million - $1 billion    |   | 0.485%       |
| $1 billion - $2 billion      |   | 0.470%       |
| Over $2 billion              |   | 0.455%       |

 

Prior to the approval of the new Investment Management Agreement, the            fee was equal to an annual rate of 0.70% of the Fund’s average daily net assets,            computed and accrued daily and paid monthly.

Effective on or about April 23, 2007, upon the proposed merger with DWS            Short Term Bond Fund, the Fund will pay the Advisor under the Investment Management            Agreement a fee, calculated daily and paid monthly, at the annual rates shown            below:

 

| **Average Daily Net Assets** | **Fee Rate** |
|------------------------------|--------------|
|                         |         |
| $0 - $1.5 billion            | 0.365%       |
| $1.5 billion - $2 billion    | 0.340%       |
| $2 billion - $3 billion      | 0.315%       |
| $3 billion - $4 billion      | 0.300%       |
| $4 billion - $5 billion      | 0.285%       |
| $5 billion - $6 billion      | 0.270%       |
| Over $6 billion              | 0.255%       |

 

 

The            advisory fees paid to the Advisor’s predecessor by the Fund for the period            January 14, 2006 through September 30, 2006* was equal to $2,452,759.

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

The            investment advisor has contractually agreed through September 30, 2007 to waive a            portion of its fees and reimburse expenses so that total annual operating expenses will            not exceed 0.86% for Class S shares, excluding certain expenses such as extraordinary            expenses, taxes, brokerage, interest and organizational and offering expenses and proxy            expenses. Although there can be no assurances that the current waiver/expense            reimbursement arrangement will be maintained beyond September 30, 2007, the investment            advisor has committed to review the continuance of waiver/expense reimbursement            arrangements by September 30, 2007.

The advisory fees paid to the PreservationPlus Income Portfolio, the            master portfolio in which the Fund previously invested all of its assets, for its last            three fiscal years ended September 30 are shown in the table below.

 

|   | **2006*,**** | **2005**** | **2004****  |
|--------|--------------|------------|-------------|
|   |         |       |        |
|   | $1,517,873   | $9,183,185 | $16,152,288 |

 

| * | For the period October 1, 2005 through January 13,                            2006. |
|---|-------------------------------------------------------------------------------------|

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

For            the same periods, the Advisor reimbursed the following amounts to the Portfolio to            cover expenses:

 

|   | **2006*** | **2005**   | **2004**   |
|--------|-----------|------------|------------|
|   |      |       |       |
|   | $625,126  | $3,508,421 | $2,487,526 |

 

| * | For the period October 1, 2005 through January 13,                            2006. |
|---|-------------------------------------------------------------------------------------|

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.

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.”

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.

**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. Portfolio managers 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).

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 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 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 September 30, 2006.

 

| **Name of Portfolio Manager** | **Dollar Range of****Fund Shares Owned**     | **Dollar Range of All DWS****Fund Shares Owned** |
|-------------------------------|----------------------------------------------|--------------------------------------------------|
|                          |                                         |                                             |
| William Chepolis              | $0                                           | $100,001 -                            $500,000   |
| Matthew F. MacDonald          | $0                                           | $0                                               |
| Gary Sullivan                 | $0                                           | $10,001 -                            $50,000     |
| Robert Wang                   | $10,001 -                            $50,000 | $50,001 -                            $100,000    |

 

***Conflicts of Interest***

In            addition to managing the assets of the Fund, the Fund’s portfolio managers may            have responsibility for managing other client accounts of the Advisor or its            affiliates. The tables below show, for each 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

 

individuals or organizations) managed by each 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 September 30, 2006.

***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** |
|-------------------------------|--------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|
|                          |                                             |                                                   |                                                                                                                           |                                                   |
| William Chepolis              | 16                                               | $9,336,086,050                                         | 0                                                                                                                              | $0                                                     |
| Matthew F. MacDonald          | 15                                               | $9,310,759,838                                         | 0                                                                                                                              | $0                                                     |
| Gary Sullivan                 | 11                                               | $6,901,113,223                                         | 0                                                                                                                              | $0                                                     |
| Robert Wang                   | 24                                               | $7,445,669,726                                         | 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** |
|-------------------------------|---------------------------------------------|---------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|
|                          |                                        |                                              |                                                                                                                                  |                                                   |
| William Chepolis              | 1                                           | $1,166,428,010                                    | 0                                                                                                                                     | $0                                                     |
| Matthew F. MacDonald          | 0                                           | $0                                                | 0                                                                                                                                     | $0                                                     |
| Gary Sullivan                 | 0                                           | $0                                                | 0                                                                                                                                     | $0                                                     |
| Robert Wang                   | 40                                          | $7,015,573,048                                    | 3                                                                                                                                     | $370,004,316                                           |

 

***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** |
|-------------------------------|---------------------------------|------------------------------------------------------------------|-------------------------------------------------------------|--------------------------------------------------------|
|                          |                            |                                                             |                                                        |                                                   |
| William Chepolis              | 2                               | $773,882,540                                                     | 0                                                           | $0                                                     |
| Matthew F. MacDonald          | 0                               | $0                                                               | 0                                                           | $0                                                     |
| Gary Sullivan                 | 0                               | $0                                                               | 0                                                           | $0                                                     |
| Robert Wang                   | 16                              | $689,975,846                                                     | 1                                                           | $162,260,436                                           |

 

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 Fund. 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 Fund 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 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 Fund 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 the 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 interest. 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.

 

***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.

***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.

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 Fund’s prospectuses.

**FUND SERVICE PROVIDERS**

**Administrator**

The            Fund recently entered into a new administrative services agreement (the            “Administrative Services Agreement”) with DIMA, 345 Park Avenue, New York,            New York 10154, 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

 

0.10% of the Fund’s average daily net assets. DIMA pays the            Accounting Agency and Transfer Agency fees out of such Administrative Services            Agreement fee.

Under the Administrative Services Agreement, DIMA, as administrator, 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 Prospectuses            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 Advisor also performs certain fund accounting services under the            Administrative Services Agreement. The Administrative 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.

For            the period July 1, 2006 through September 30, 2006, DIMA received $122,624 as            compensation for adminstrative services.

Prior to July 1, 2006, ICCC received a fee of 0.35% of the Fund’s            average daily net assets for serving as administrator of the Fund. For the years ended            September 30, 2004, September 30, 2005 and September 30, 2006*, ICCC earned            $7,192,789, $3,660,465 and $1,672,070, respectively, as compensation for administrative            and other services provided to the Fund. During the same periods, ICCC waived            $6,208,838, $453,691 and $680,008, respectively, to the Fund to cover expenses. For the            years ended September 30, 2004, September 30, 2005 and September 30, 2006**, ICCC            earned $1,319,427, $661,100 and $108,420, respectively, for administrative and other            services provided to the Portfolio.

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

| ** | For the period October 1, 2005 through January 13,                            2006. |
|----|-------------------------------------------------------------------------------------|

Pursuant to an agreement between the Administrator and State Street Bank            and Trust Company (“SSB”), the Administrator has delegated certain            administrative functions to SSB. The costs and expenses of such delegation are borne by            the Administrator, not by the Fund.

Various third-party service providers (the “Service            Providers”), some of which are affiliated with the Advisor, provide certain            services to the Fund pursuant to separate agreements with the Fund.

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

Pursuant to Deutsche Asset Management 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**

DWS-SDI, an affiliate of the Advisor, is the principal distributor for            shares of the Fund. DWS-SDI is a registered broker-dealer. The principal business            address of DWS-SDI is 222 South Riverside Plaza, Chicago, IL 60606-5808.

Under the underwriting agreement, each Fund is responsible for: the            payment of all fees and expenses in connection with the preparation and filing with the            SEC of its registration statement and prospectus and any amendments and supplements            thereto; the registration and qualification of shares for sale in the various states,            including registering the Fund as a broker or dealer in various states, as required;            the fees and expenses of preparing, printing and mailing prospectuses annually to            existing shareholders (see below for expenses relating to prospectuses paid by the            Distributor); notices, proxy statements, reports or other communications to            shareholders of the Fund; the cost of printing and mailing confirmations of purchases            of shares and any prospectuses accompanying such confirmations; any issuance taxes            and/or any initial transfer taxes; a portion of shareholder toll-free telephone charges            and expenses of shareholder service representatives; the cost of wiring funds for share            purchases and redemptions (unless paid by the shareholder who initiates the            transaction); the cost of printing and postage of business reply envelopes; and a            portion of the cost of computer terminals used by both the Fund and the            Distributor.

The            Distributor will pay for printing and distributing prospectuses or reports prepared for            its use in connection with the offering of the Fund’s shares to the public and            preparing, printing and mailing any other literature or advertising in connection with            the offering of shares of the fund to the public. The Distributor will pay all fees and            expenses in connection with its qualification and registration as a broker or dealer            under federal and state laws, a portion of the cost of toll-free telephone service and            expenses of shareholder service representatives, a portion of the cost of computer            terminals, and expenses of any activity which is primarily intended to result in the            sale of shares issued by the fund, unless a Rule 12b-1 Plan is in effect which provides            that a Fund shall bear some or all of such expenses.

Although the Fund does not currently have a 12b-1 Plan for this classes,            and the Trustees of each Trust have no current intention of adopting one, the Fund will            also pay those fees and expenses permitted to be paid or assumed by the applicable            Trust pursuant to a 12b-1 Plan, if any, adopted by the Trust, notwithstanding any other            provision to the contrary in the underwriting agreement.

The            Distributor currently offers shares of the Fund on a continuous basis to investors in            all states in which shares of the Fund may from time to time be registered or where            permitted by applicable law. The underwriting agreement provides that the Distributor            accepts orders for shares at net asset value because no sales commission or load is            charged to the investor. The Distributor has made no firm commitment to acquire shares            of the Fund.

 

**Custodian**

The            Fund employs 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 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.

**Transfer Agent**

DWS-SISC serves as the Fund’s Transfer Agent. DWS-SISC is located            at 222 South Riverside Plaza, Chicago, IL 60606-5808. Under its transfer agency            agreement with the Trust, DWS-SISC maintains the shareholder account records for the            Fund, handles certain communications between shareholders and the Trust and causes to            be distributed any dividends and distributions payable by the Trust. DWS-SISC may be            reimbursed by the Fund for its out-of-pocket expenses.

 

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. The costs and expenses of such delegation are            born by DWS-SISC, not by the Fund.

**Service Plan**

The            Fund may enter into Shareholder Servicing Agreements with respect to its Class S Shares            pursuant to which the Advisor or its affiliates will provide compensation out of their            own resources for ongoing shareholder services. 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            Prospectus and this SAI in conjunction with any such institution’s fee            schedule.

Prior to the Fund renaming Investment Class shares to Class S shares,            the Fund had adopted a service plan for its Investment Class shares, under which the            Fund paid Investment Company Capital Corp. (“ICCC”) service fees at an            aggregate annual rate of up to 0.25% of the class’s average daily net assets.            ICCC provided information and administrative services to the Fund. ICCC in turn had            various agreements with financial services firms to provide personal services and/or            account maintenance services to their customers and paid these fees based upon the            assets of shareholder accounts the firms serviced. For the fiscal years ended September            30, 2006, September 30, 2005 and September 30, 2004, the Fund incurred            $696,348, $1,221,644 and $3,859,730, respectively, of which $621,888, $1,221,644 and            $1,101,950, respectively, was waived, in shareholder servicing fees for Class S            (former Investment Class) shares.

**Legal Counsel**

Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York            10019-6099, serves as counsel to the Trust.

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

**Independent Registered Public Accounting            Firm**

PricewaterhouseCoopers LLP, 125 High Street, Boston, MA 02110, acts as            Independent Registered Public Accounting Firm of the Fund for the fiscal year ended            September 30, 2006.

**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.

 

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 over-the-counter securities are effected on a net            basis, without the payment of brokerage commissions. Transactions in fixed income and            other 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 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 Funds 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 the 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 the 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            the 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.

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            Trust’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.

For            the fiscal year ended September 30, 2006, the Fund and/or the Portfolio paid brokerage            commissions in the amount of $91,836.

For            the fiscal years ended September 30, 2004 and September 30, 2005, the Portfolio paid            brokerage commissions in the amount of $0 and $0, respectively.

**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) that the Fund has acquired            during the most recent fiscal year. As of September 30, 2006, the Fund did not hold any            securities of its regular brokers or dealers.

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

***Portfolio Turnover***

Portfolio turnover rate is defined by the SEC as the ratio of the lesser            of sales or purchases to the monthly average value of such securities owned during the            year, excluding all securities whose remaining maturities at the time of acquisition            were one year or less.

Higher levels of activity by the Fund result in higher transaction costs            and may also result in taxes on realized capital gains to be borne by the Fund’s            shareholders. Purchases and sales are made whenever necessary, in the Advisor’s            discretion, to meet the Fund’s objective.

Portfolio turnover rate measures the frequency that the Fund sells and            replaces the value of its securities within a given period. A 100% annual turnover rate            would occur, for example, if all portfolio securities (excluding short-term            obligations) were replaced once in a period of one year, or if 10% of the portfolio            securities were replaced ten times in one year. The rate of portfolio turnover of the            Fund may exceed that of certain other mutual funds with the same investment objectives.            High turnover can increase the Fund’s transaction costs, thereby lowering its            returns. For the fiscal years ended September 30, 2004, September 30, 2005 and            September 30, 2006, the Fund and/or the Portfolio’s turnover rates were 120%,            298% and 129%, respectively. The portfolio turnover rate for the Fund was significantly            higher in fiscal year 2005 primarily because of a growth in assets of the            Fund.

**PURCHASE AND REDEMPTION 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 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 (including any applicable sales charge) next determined after receipt in good            order by DWS Scudder Distributors Inc., the Fund’s distributor            (“DWS-SDI” or the “Distributor”) 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.

**Additional Minimum Balance Policies**. For            fiduciary accounts such as IRAs, and custodial accounts such as Uniform Gifts to Minor            Act and Uniform Transfers to Minor Act accounts, the minimum balance is $1,000 for            Class S. A shareholder may open an account with at least $1,000 ($500 for            fiduciary/custodial accounts), if an automatic investment plan (AIP) of $50/month is            established. DWS Scudder group retirement plans and certain other accounts have similar            or lower minimum share balance requirements.

Reductions in value that result solely from market activity will not            trigger an annual fee or involuntary redemption. Shareholders with a combined household            account balance in any of the DWS Funds of $100,000 or more, as well as group            retirement and certain other accounts, will not be subject to a fee or automatic            redemption.

Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or            UTMA) with balances below $100 are subject to automatic redemption following 60            days’ written notice to applicable shareholders.

**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            (the “Transfer Agent” or “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 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.

 

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 funds, and that incentive will differ            depending on the product category of the fund. Each 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 Managers                            have 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 funds’ Web site atwww.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 a 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 and 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.

 

**Share Pricing**. Purchases will be filled at            the net asset value per share next computed after receipt of the application in good            order. Net asset value normally will be computed for each class as of the close of            regular trading on the Exchange on each day during which the Exchange is open for            trading. Orders received after the close of regular trading on the Exchange will be            executed at the next business day’s net asset value. If the order has been placed            by a member of the NASD, other than the Distributor, it is the responsibility of the            member broker, rather than the Fund, to forward the purchase order to DWS-SISC in            Kansas City by the close of regular trading on the Exchange.

**Dividend Payment Option**. Investors may have            dividends and distributions automatically deposited to their predesignated bank account            through DWS Scudder’s Dividend Payment Option request form. Shareholders whose            predesignated checking account of record is with a member bank of Automated Clearing            House Network (ACH) can have income and capital gain distributions automatically            deposited to their personal bank account usually within three business days after a            Fund pays its distribution. A Dividend Payment Option request form can be obtained by            visiting our Web site at: www.dws-scudder.com or calling (800) 728-3337. Confirmation            Statements will be mailed to shareholders as notification that distributions have been            deposited.

**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 its            prospectus 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 the 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 Fund’s            Prospectuses.

**Eligible Class S Investors.**

| A. | The following investors may purchase Class S shares of                            DWS Funds either (i) directly from DWS Scudder Distributors, Inc.                            (“DWS-SDI”), the Fund’s principal underwriter; or                            (ii) through an intermediary relationship with a financial services                            firm established with respect to the DWS Funds as of December 31,                            2004. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | Existing shareholders of Class S shares of any DWS Fund                            as of December 31, 2004, and household members residing at the same                            address. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Shareholders who own Class S shares continuously since                            December 31, 2004, and household members residing at the same address                            may open new accounts for Class S shares of any DWS Fund. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | 3. | Any participant who owns Class S shares of any DWS Fund                            through an employee sponsored retirement, employee stock, bonus,                            pension or profit sharing plan continuously since December 31, 2004 may                            open a new individual account for Class S shares of any DWS                            Fund. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4. | Any participant who owns Class S shares of any DWS Fund                            through a retirement, employee stock, bonus, pension or profit sharing                            plan may complete a direct rollover to an IRA account that will hold                            Class S shares. This applies to individuals who begin their retirement                            plan investments with a DWS Fund at any time, including after December                            31, 2004. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | Existing shareholders of Class AARP shares of any DWS                            Fund as of July 17, 2006, and household members residing at the same                            address. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6. | Officers, Fund Trustees and Directors, and full-time                            employees and their family members, of the Advisor and its                            affiliates. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 7. | Class S shares are available to any accounts managed by                            the Advisor, any advisory products offered by the Advisor or DWS-SDI                            and to DWS Allocation Series or other fund of funds managed by the                            Advisor or its affiliates. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8. | Shareholders of Class S of DWS Emerging Markets Equity                            Fund who became shareholders of the fund in connection with the                            fund’s acquisition of Scudder New Asia Fund, Inc. on April 17,                            2006. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 9. | Existing shareholders of Class M of any DWS Fund as of                            August 18, 2006, and household members residing at the same                            address. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10. | Shareholders of Investment Class of any DWS Fund who                            became shareholders of Class S shares of the Fund with the renaming or                            conversion of Investment Class to Class S on October 23,                            2006. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| B. | The following additional investors may purchase Class S                            shares of DWS Funds. |
|----|---------------------------------------------------------------------------------------------------------|

|   | 1. | Broker-dealers and registered investment advisors                            (“RIAs”) may purchase Class S shares in connection with a                            comprehensive or “wrap” fee program or other fee based                            program. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | Any group retirement, employee stock, bonus, pension or                            profit-sharing plans. |
|--------|----|----------------------------------------------------------------------------------------------------------|

DWS-SDI may, at its discretion, require appropriate documentation that            shows an investor is eligible to purchase Class S shares.

Clients having a regular investment counsel account with the Advisor or            its affiliates and members of their immediate families, officers and employees of the            Advisor or of any affiliated organization and members of their immediate families,            members of the National Association of Securities Dealers, Inc. (“NASD”)            and banks may, if they prefer, subscribe initially for at least $2,500 for Class S            through DWS Scudder Distributors, Inc. by letter, fax, or telephone.

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 stepchildren age 21 or younger of Deutsche Bank or its affiliates or a            subadvisor 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 Fund also reserves the right to waive the minimum            account balance requirement for employees and director accounts. Fees generally charged            to IRA accounts will be charged to accounts of employees and directors.

**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.

**Expedited Purchase Procedures for Existing Shareholders.**Shareholders of other DWS funds who have submitted an account            application and have certified a tax identification number, clients having a regular            investment counsel account with the Advisor or its affiliates and members of their            immediate families, officers and employees of the Advisor or of any affiliated            organization and their immediate families, members of the NASD, and banks may open an            account by wire by calling (800) 728-3337 for instructions. The investor must send            a duly completed and signed application to the Fund promptly. A subsequent purchase            order for $10,000 or more that is not greater than four times an account value may be            placed by telephone, etc. by established shareholders (except by DWS Scudder Individual            Retirement Account (IRA), DWS Scudder Horizon Plan, DWS Scudder Profit Sharing and            Money Purchase Pension Plans, DWS Scudder 401(k) and DWS Scudder 403(b) Plan holders),            members of the NASD, and banks.

**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 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

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 Fund. 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.

***Redemptions***

**Redemption fee.**The Fund imposes a            redemption fee of 2% of the total redemption amount (calculated at net asset value) 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 longest time 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 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.

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.

 

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 Prospectus, 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.

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.

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.

**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 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. 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 Fund’s 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 shares of the Fund under the Plan have been liquidated or upon            receipt by the Trust of notice of death of the shareholder.

**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.

 

**Sale or Redemption of Shares.**The sale,            exchange or redemption of shares of the Fund may give rise to a gain or loss equal to            the difference between the amount realized and the basis in such shares. 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 shares of the Fund 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 shares of the Fund 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.

***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.

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 a Prospectus of the Fund 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 a Fund terminates the privilege. Exchanges are subject to the terms and            conditions described above.

**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.

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 and to have been paid by the Fund not later than such December            31.

Prior to August 28, 2006, net investment income was declared as a daily            dividend and distributed to shareholders monthly. Effective August 28, 2006, net            investment income is declared and distributed to shareholders monthly.

 

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                            distributions in cash and long-term capital gain distributions in                            shares of the same class at net asset value; or |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | To receive income and capital gain distributions 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. 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            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 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 gains in order to satisfy the minimum distribution requirements            contained in the Code.

**Dividends received deduction.**Dividends            from domestic corporations may comprise a 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-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 less than 46 days during the 91-day period beginning 45 days            before the shares become ex-dividend.

**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,            some of which may be subject to special tax rules. 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 SAI and existing judicial and            administrative interpretations thereof, all of which are subject to change, possibly            with retroactive effect.

***Taxation of the Fund***

The            Fund intends to continue to qualify to be treated as a regulated investment company            under Subchapter M of the Code 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:

 

| (a) | The Fund must derive at least 90% of its annual gross                            income from dividends, interest, payments with respect to certain                            securities loans, and gains from the sale of stock, securities and                            foreign currencies, 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 or                            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); |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 of which the Fund                            owns 20% or more of the voting securities 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. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | The Fund is required to distribute to its shareholders                            at least 90% of its investment company taxable income and net                            tax-exempt 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. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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            the Fund retains for investment an amount equal to all or a portion of its net            long-term capital gains in excess of its net short-term capital losses (including any            capital loss carryovers), it will be subject to tax at regular corporate rates,            currently at a maximum rate of 35%, on the amount retained. In that event, the Fund            will designate such retained amounts as undistributed capital gains in a notice to its            shareholders who (a) will be required to include in income for US federal income            tax purposes, as long-term capital gains, their proportionate shares of the            undistributed amount, (b) will be entitled to credit their proportionate shares of            the 35% tax paid by the Fund on the undistributed amount against their US federal            income tax liabilities, if any, and to claim refunds to the extent their credits exceed            their liabilities, if any, and (c) will be entitled to increase their tax basis,            for US federal income tax purposes, in their shares by an amount equal to 65% of the            amount of undistributed capital gains included in the shareholder’s income.            Organizations or persons not subject to US federal income tax on such capital gains            will be entitled to a refund of their pro rata share of such taxes paid by the Fund            upon filing appropriate returns or claims for refund with the IRS.

The            Code imposes a 4% nondeductible excise tax on the Fund to the extent it does not            distribute by the end of any calendar year at least 98% of its ordinary income for that            year and at least 98% of its capital gain net income (both long-term and short-term)            for the one-year period ending, as a general rule, on October 31 of that year. For this            purpose, however, any ordinary income or capital gain net income retained by the Fund            that is subject to corporate income tax will be considered to have been distributed by            year-end. In addition, the minimum amounts that must be distributed in any year to            avoid the excise tax will be increased or decreased to reflect any underdistribution or            overdistribution, as the case may be, from the previous 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 gains or            other income if it appears to be in the interest of the Fund.

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,            would 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.

***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 before            January 1, 2011

For            taxable years beginning before January 1, 2011, “qualified dividend            income” received by an individual will be taxed at the rates applicable to            long-term capital gain assuming certain holding period and other requirements are met.            For this purpose, “qualified dividend income” generally means income from            dividends received by the Fund from US corporations and qualified foreign corporations,            provided that the Fund satisfies certain holding period requirements in respect of the            stock of such corporations and has not hedged its position in the stock in certain            ways. However, qualified dividend income does not include any dividends received from            tax exempt corporations. Also, dividends received by the Fund from a real estate            investment trust or another regulated investment company generally are qualified            dividend income only to the extent the dividend distributions are made out of qualified            dividend income received by such real estate investment trust or other regulated            investment company. In the case of securities lending transactions, payments in lieu of            dividends are not qualified dividend income. If a shareholder elects to treat Fund            dividends as investment income for purposes of the limitation on the deductibility of            investment interest, such dividends would not be a qualified dividend income. The Fund            does not expect to generate substantial amounts of qualified dividend            income.

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            semiannual 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.

The            Fund is permitted to pay “exempt-interest dividends” to its shareholders in            any year that, at the close of each quarter, at least 50% of the value of the            Fund’s assets consists of obligations the interest on which is exempt from            federal income tax. Distributions that the Fund properly designates as exempt-interest            dividends are generally treated as interest excludable from the shareholders’            gross income for federal income tax purposes; exempt-interest dividends may, however,            be taxable for alternative minimum tax purposes. If the Fund were to qualify to pay            exempt-interest dividends, it would be required to inform its shareholders of the            percentage of its distributions that qualify as exempt-interest dividends within 60            days of its fiscal year end. The Fund does not expect to pay any exempt-interest            dividends.

**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.

If            any dividends from domestic corporations 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 assuming certain holding period and            other requirements are met. The Fund does not expect to earn a substantial amount of            dividend income.

**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 the Fund and its 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.

***Tax Effects of Certain Transactions***

The            Fund’s use of options, futures contracts and forward contracts (to the extent            permitted) 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. These rules also (a) will require            the Fund to mark-to-market certain types of the positions in its portfolio            (*i.e*., treat them as if they were            closed out at the end of each year) and (b) may cause the Fund to recognize income            without receiving cash with which to pay dividends or make distributions in amounts            necessary to satisfy the distribution requirements for avoiding income and excise            taxes. The Fund will monitor its transactions, make the appropriate tax elections and            make the appropriate entries in its books and records in order to mitigate the effect            of these rules and prevent disqualification of the Fund as a regulated investment            company.

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 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.

 

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

Certain types of income received by the Fund from real estate investment            trusts, REMICs, taxable mortgage pools or other investments may cause the Fund to            designate some or all of its distributions as “excess inclusion income.” To            Fund shareholders such excess inclusion income may (1) constitute taxable income, as            UBTI for those shareholders who would otherwise be tax-exempt such as individual            retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable            entities; (2) not be offset against net operating losses for tax purposes; (3) not be            eligible for reduced US withholding for non-US shareholders even from tax treaty            countries; and (4) cause the Fund to be subject to tax if certain “disqualified            organizations” as defined by the Code are Fund shareholders.

In            addition, a tax-exempt shareholder could realize UBTI by virtue of its investment in            the Fund if shares in the Fund constitute debt-financed property in the hands of the            tax-exempt shareholder within the meaning of Section 514(b) of the Code. If a            charitable remainder trust (as defined in Section 664 of the Code) 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. Certain shareholders            are exempt from backup withholding. Backup withholding is not an additional tax and any            amount withheld may be credited against a shareholder’s US Federal income tax            liability.

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 IRS 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.

The            Trust is organized as a Massachusetts business trust and, under current law, neither            the Trust nor the Fund will be liable for any income or franchise tax in the            Commonwealth of Massachusetts, provided that the Fund continues to qualify as a            regulated investment company under Subchapter M of the Code (and, in the case of the            Trust, provided that each of its other series continues to qualify as a regulated            investment company under Subchapter M of the Code).

***Non-US Shareholders***

Taxation of 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            a lower treaty rate). A 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 the 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.

Every non-US shareholder is urged to consult his own tax advisor with            respect to the application of this legislation to his own circumstances.

*The foregoing is only a summary of certain material federal income            tax consequences affecting the Fund. Prospective shareholders are advised to consult            their Plan documents and their own tax advisers with respect to the particular tax            consequences to them of an investment in the Fund.*

**NET ASSET VALUE**

The            net asset value of Shares of the Fund is computed as of the close of regular trading on            the New York Stock Exchange (“the Exchange”) on each day the Exchange is            open for trading (the “Value Time”). The Exchange 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 over-the-counter (“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 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 not addressed above 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 Exchange. For stock index futures contracts that trade on the Chicago            Mercantile Exchange, closing settlement prices are normally available at approximately            4:20 p.m. Eastern time. If no settlement price is available, the last traded price on            such exchange will be used. If market quotations for a portfolio asset are not readily            available or the value of a portfolio asset as determined in accordance with            Board-approved procedures does not represent the fair market value of the portfolio            asset, the value of the portfolio 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 portfolio holdings owned            by the Fund 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.

 

***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                                                                          |

 

 

 

| 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 |

 

 

 

***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, 2003-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                                                                         |

 

 

 

| 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 ten (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.

 

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 (6) 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 Funds, including            the handling of pending or threatened litigation or regulatory action involving the            Funds, (ii) general compliance matters relating to the Funds 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 Fund and received no compensation from            the Fund or any fund in the DWS fund complex during the relevant periods.

| **Name of Board Member**        | **Aggregate Compensation****from Fund** | **Total** **Compensation** **from Fund** **and** **DWS Fund Complex(1)** |
|---------------------------------|-----------------------------------------|----------------------------------------------------------------------------------------------|
|                            |                                    |                                                                                         |
| Henry P. Becton, Jr.(3)(5)      | $801                                    | $189,000                                                                                     |
| Dawn-Marie Driscoll(2)(3)(4)(5) | $1,010                                  | $251,000                                                                                     |
| Keith R. Fox(3)(4)(5)           | $801                                    | $195,000                                                                                     |
| Kenneth C. Froewiss(3)(4)(5)    | $845                                    | $234,988                                                                                     |
| Martin J. Gruber(3)(5)          | $2,489                                  | $188,000                                                                                     |
| Richard J. Herring(3)(4)(5)     | $2,469                                  | $184,000                                                                                     |
| Graham E. Jones(3)(4)(5)        | $2,726                                  | $206,000                                                                                     |
| Rebecca W. Rimel(3)(5)          | $2,470                                  | $185,000                                                                                     |
| Philip Saunders, Jr.(3)(4)(5)   | $2,751                                  | $207,000                                                                                     |
| William N. Searcy, Jr.(3)(4)(5) | $2,726                                  | $206,000                                                                                     |
| Jean Gleason Stromberg(3)(4)(5) | $819                                    | $202,000                                                                                     |
| Carl W. Vogt(3)(5)              | $801                                    | $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                            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 Funds’                            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 Fund and DWS Fund Complex as of December 31, 2006.

 

| **Board                            Member**              | **Dollar Range of Beneficial Ownership****in DWS Short Duration****Plus 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                                      | $10,001 - $50,000                                                              | Over $100,000                                                                                                                                |
| Martin J. Gruber                                         | None                                                                           | Over $100,000                                                                                                                                |
| Richard J. Herring                                       | None                                                                           | Over $100,000                                                                                                                                |
| Graham E. Jones                                          | None                                                                           | 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 member can be a spouse, children residing in            the same household including step and adoptive children and any dependents. The            securities represent ownership in the 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 the 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.                              | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Dawn-Marie Driscoll                               | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Keith R. Fox                                      | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Kenneth C. Froewiss                               | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Martin J. Gruber                                  | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Richard J. Herring                                | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Graham E. Jones                                   | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Rebecca W. Rimel                                  | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Philip Saunders, Jr.                              | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| William N. Searcy, Jr.                            | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Jean                            Gleason Stromberg | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |
| Carl                            W. Vogt           | N/A                                           | None        | N/A                   | N/A                                              | N/A                                           |

 

***Securities Beneficially Owned***

As            of January 16, 2007, the Board Members and officers of the Trust owned, as a group,            less than 1% of the outstanding shares of the Fund.

To            the best of the Fund’s knowledge, as of January 16, 2007, no person owned of            record or beneficially 5% or more of any class of the Fund’s outstanding shares,            except as noted below.

As            of January 16, 2007, 515,657.11 shares in the            aggregate, or 6.08% of the outstanding shares of**DWS Short Duration Plus Fund, Class A**were            held in the name of Morgan Stanley DW, ATTN: Mutual Fund Operations, Jersey            City, NJ 07311-3907 who may be deemed as the beneficial owner of certain            of these shares.

As            of January 16, 2007, 1,656,361.69 shares in the            aggregate, or 17.19% of the outstanding shares of**DWS Short Duration Plus Fund, Class C**were            held in the name of Morgan Stanley DW, ATTN: Mutual Fund Operations, Jersey            City, NJ 07311-3907 who may be deemed as the beneficial owner of certain            of these shares.

As            of January 16, 2007, 5,761,121.84 shares in the            aggregate, or 20.20% of the outstanding shares of**DWS Short Duration Plus Fund, Class S**were            held in the name of Charles Schwab & Co, Omnibus Account Reinvest, ATTN:            Mutual Fund Acct Mgmt Team, San Francisco, CA 94104-4151 who may be            deemed as the beneficial owner of certain of these shares.

**Agreement to Indemnify Independent Trustees for Certain            Expenses.**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 advisor (“Enforcement Actions”) or that are the basis for            private actions brought by shareholders of the Fund against the Fund, its trustees and            officers, the Fund’s investment advisor 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 Fund and in            light of the rebuttable presumption generally afforded to independent trustees of            investment

 

companies that they have not engaged in disabling conduct, the            Fund’s investment advisor has also agreed, subject to applicable law and            regulation, to indemnify the Fund’s Independent Trustees against certain            liabilities the Independent Trustees 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 Trustees in connection with any Enforcement Actions or            Private Litigation. The investment advisor is not, however, required to provide            indemnification and advancement of expenses: (1) with respect to any proceeding or            action with respect to which the Trust’s Board determines that the Independent            Trustee ultimately would not be entitled to indemnification or (2) for any liability of            the Independent Trustee to the Fund or its shareholders to which the Independent            Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross            negligence or reckless disregard of the Independent Trustee’s 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 Trustees or indemnity that may be payable under the indemnity agreements is            currently unknown. These agreements by the Fund’s investment advisor will survive            the termination of the investment management agreement between the investment advisor            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 on July 21, 1986, and is governed by an Amended and Restated            Declaration of Trust that was approved by shareholders in the second quarter of 2006,            as may be further amended from time to time (the “Declaration of Trust”).            The Trust was organized under the name BT Tax-Free Investment Trust and assumed its            former name of BT Investment Funds on May 16, 1988. The Trust’s name was changed            to Scudder Advisor Funds effective May 16, 2003 and to DWS Advisor Funds as of February            6, 2006. 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 the 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.            Shareholders are entitled to one vote for each full share held and fractional votes for            fractional shares held.

The            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 the Fund; (c) an amendment            of the Declaration of Trust; and (d) such additional matters as may be required by law            or as the Trustees may determine to be necessary or desirable. Shareholders also vote            upon changes in fundamental policies or restrictions.

The            Declaration of Trust provides that shareholder meeting quorum requirements shall be            established in the Trust’s By-laws. The By-laws currently in effect provide that            the presence in person or by proxy of the holders of thirty percent of the shares            entitled to vote at a meeting (or of an individual series or class if required to vote            separately) shall constitute a quorum for the transaction of business at meetings of            shareholders of the Trust.

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 the 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 the Fund or any class of the            Fund 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.

Upon the termination of the Trust or any series, after paying or            adequately providing for the payment of all liabilities which may include the            establishment of a liquidating trust or similar vehicle, and upon receipt of such            releases, indemnities and refunding agreements as they deem necessary for their            protection, the Trustees may distribute the remaining Trust property or property of the            series, in cash or in kind or partly each, to the shareholders of the Trust or the            series involved, ratably according to the number of shares of the Trust or such series            held by the several shareholders of the Trust or such series on the date of            termination, except to the extent otherwise required or permitted by the preferences            and special or relative rights and privileges of any classes of shares of a series            involved, provided that any distribution to the shareholders of a particular class of            shares shall be made to such shareholders pro rata in proportion to the number of            shares of such class held by each of them. The composition of any such distribution            (e.g., cash, securities or other assets) shall be determined by the Trust in its sole            discretion, and may be different among shareholders (including differences among            shareholders in the same series or class).

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 the 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 (click on            “proxy voting” at the bottom of the page).

**FINANCIAL STATEMENTS**

The            financial statements for the Fund for the fiscal year ended September 30, 2006 are            incorporated herein by reference to the Annual Report to shareholders of the Fund dated            September 30, 2006. A copy of the Annual Report may be obtained without charge by            contacting the Fund.

 

**ADDITIONAL INFORMATION**

The            CUSIP numbers for each class of DWS Short Duration Plus Fund are:

Class S: 23336Y755

DWS            Short Duration Plus 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.

 

**APPENDIX**

***Description of Moody’s Corporate Bond            Ratings***

Aaa            — Bonds rated Aaa are judged to be of the best quality. They carry the smallest            degree of investment risk and are generally referred to as “gilt edge.”            Interest payments are protected by a large or by an exceptionally stable margin and            principal is secure. While the various protective elements are likely to change, such            changes as can be visualized are most unlikely to impair the fundamentally strong            position of such issues.

Aa            — Bonds rated Aa are judged to be of high quality by all standards. Together with            the Aaa group they comprise what are generally known as high-grade bonds. They are            rated lower than the best bonds because margins of protection may not be as large as in            Aaa securities or fluctuation of protective elements may be of greater amplitude or            there may be other elements present which make the long-term risks appear somewhat            larger than in Aaa securities.

A            — Bonds rated A possess many favorable investment attributes and are to be            considered as upper-medium-grade obligations. Factors giving security to principal and            interest are considered adequate but elements may be present which suggest a            susceptibility to impairment sometime in the future.

Baa            — Bonds rated Baa are considered as medium-grade obligations, i.e. they are            neither highly protected nor poorly secured. Interest payments and principal security            appear adequate for the present but certain protective elements may be lacking or may            be characteristically unreliable over any great length of time. Such bonds lack            outstanding investment characteristics and in fact have speculative characteristics as            well.

Ba            — Bonds rated Ba are judged to have speculative elements. Their future cannot be            considered as well assured. Often the protection of interest and principal payments may            be very moderate and thereby not well safeguarded during both good and bad times over            the future. Uncertainty of position characterizes bonds in this class.

B            — Bonds rated B generally lack characteristics of a desirable investment.            Assurance of interest and principal payments or of maintenance of other terms of the            contract over any long period of time may be small.

Caa            — Bonds rated Caa are of poor standing. Such issues may be in default or there            may be present elements of danger with respect to principal or interest.

Ca            — Bonds rated Ca represent obligations which are speculative in a high degree.            Such issues are often in default or have other marked shortcomings.

C            — Bonds rated C are the lowest-rated class of bonds and issued so rated can be            regarded as having extremely poor prospects of ever attaining any real investment            standing.

Moody’s applies numerical modifiers, 1, 2, and 3, in each generic            rating classification from Aa through B in its corporate bond system. The modifier 1            indicates that the security ranks in the higher end of its generic rating category; the            modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue            ranks in the lower end of its generic rating category.

***Description of S&P’s Corporate Bond            Ratings***

AAA            — Debt rated AAA has the highest rating assigned by S&P to a debt obligation.            Capacity to pay interest and repay principal is extremely strong.

AA            — Debt rated AA has a very strong capacity to pay interest and repay principal            and differs from the higher-rated issues only in small degree.

 

A            — Debt rated A has a strong capacity to pay interest and repay principal,            although it is somewhat more susceptible to the adverse effects of changes in            circumstances and economic conditions.

BBB            — Debt rated BBB is regarded as having an adequate capacity to pay interest and            repay principal. Whereas it normally exhibits adequate protection parameters, adverse            economic conditions or changing circumstances are more likely to lead to weakened            capacity to pay interest and repay principal for debt in this category than in            higher-rated categories.

BB            — Debt rate BB has less near-term vulnerability to default than other speculative            issues. However, it faces major ongoing uncertainties or exposure to adverse business,            financial, or economic conditions which could lead to inadequate capacity to meet            timely interest and principal payments.

B            — Debt rated B has a greater vulnerability to default but currently has the            capacity to meet interest payments and principal repayments. Adverse business,            financial, or economic conditions will likely impair capacity or willingness to pay            interest and repay principal. The B rating category is also used for debt subordinated            to senior debt that is assigned an actual or implied BB- rating.

CCC            — Debt rated CCC has a currently identifiable vulnerability to default, and is            dependent upon favorable business, financial, and economic conditions to meet timely            payment of interest and repayment of principal. In the event of adverse business,            financial, or economic conditions, it is not likely to have the capacity to pay            interest and repay principal.

CC            — Debt rated CC is typically applied to debt subordinated to senior debt which is            assigned an actual or implied CCC debt rating.

C            — The rating C is typically applied to debt subordinated to senior debt which is            assigned an actual or implied CCC- debt rating. The C rating may be used to cover a            situation where a bankruptcy petition has been filed but debt service payments are            continued.

CI            — The rating CI is reserved for income bonds on which no interest is being            paid.

D            — Debt rated D is in payment default. The D rating category is used when interest            payments or principal payments are not made on the date due even if the applicable            grace period has not expired, unless S&P believes that such payments will be made            during such grace period. The D rating will also be used upon the filing of a            bankruptcy petition if debt service payments are jeopardized.

Plus (+) or minus (-): The ratings from “AA” to            “CCC” may be modified by the addition of a plus or minus sign to show            relative standing within the major rating categories.

***Fitch’s Long-Term Debt Ratings***

***Investment Grade***

**AAA**

**Highest credit quality.**“AAA”            ratings denote the lowest expectation of credit risk. They are assigned only in case of            exceptionally strong capacity for timely payment of financial commitments. This            capacity is highly unlikely to be adversely affected by foreseeable events.

**AA**

**Very high credit quality.**“AA”            ratings denote a very low expectation of credit risk. They indicate very strong            capacity for timely payment of financial commitments. This capacity is not            significantly vulnerable to foreseeable events.

 

**A**

**High credit quality.**“A”            ratings denote a low expectation of credit risk. The capacity for timely payment of            financial commitments is considered strong. This capacity may, nevertheless, be more            vulnerable to changes in circumstances or in economic conditions than is the case for            higher ratings.

**BBB**

**Good credit quality.**“BBB”            ratings indicate that there is currently a low expectation of credit risk. The capacity            for timely payment of financial commitments is considered adequate, but adverse changes            in circumstances and in economic conditions are more likely to impair this capacity.            This is the lowest investment-grade category.

***Speculative Grade***

**BB**

**Speculative.**“BB” ratings            indicate that there is a possibility of credit risk developing, particularly as the            result of adverse economic change over time; however, business or financial            alternatives may be available to allow financial commitments to be met. Securities            rated in this category are not investment grade.

**B**

**Highly speculative.**“B” ratings            indicate that significant credit risk is present, but a limited margin of safety            remains. Financial commitments are currently being met; however, capacity for continued            payment is contingent upon a sustained, favorable business and economic            environment.

**CCC, CC, C**

**High default risk.**Default is a real            possibility. Capacity for meeting financial commitments is solely reliant upon            sustained, favorable business or economic developments. A “CC” rating            indicates that default of some kind appears probable. “C” ratings signal            imminent default.

**DDD, DD, D**

**Default.**The ratings of obligations in this            category are based on their prospects for achieving partial or full recovery in a            reorganization or liquidation of the obligor. While expected recovery values are highly            speculative and cannot be estimated with any precision, the following serve as general            guidelines. “DDD” obligations have the highest potential for recovery,            around 90%-100% of outstanding amounts and accrued interest. “DD” indicates            potential recoveries in the range of 50%-90% and “D” the lowest recovery            potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their            obligations. Entities rated “DDD” have the highest prospect for resumption            of performance or continued operation with or without a formal reorganization process.            Entities rated “DD” and “D” are generally undergoing a formal            reorganization or liquidation process; those rated “DD” are likely to            satisfy a higher portion of their outstanding obligations, while entities rated            “D” have a poor prospect of repaying all obligations.

***Notes:***

“+” or “-” may be appended to a rating to denote            relative status within major rating categories. Such suffixes are not added to the            “AAA” category or to categories below “CCC”.

“NR” indicates that Fitch Ratings does not publicly rate the            issuer or issue in question.

“Withdrawn”: A rating is withdrawn when Fitch Ratings deems            the amount of information available to be inadequate for rating purposes, or when an            obligation matures, is called, or refinanced.

Rating Watch: Ratings are placed on Rating Watch to notify investors            that there is a reasonable probability of a rating change and the likely direction of            such change. These are designated as “Positive,” indicating a potential            upgrade, “Negative,” for a potential downgrade, or “Evolving,”            if ratings may be raised, lowered or maintained. Rating Watch is typically resolved            over a relatively short period.

 

A            Rating Outlook indicates the direction a rating is likely to move over a one to            two-year period. Outlooks may be positive, stable, or negative. A positive or negative            Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for            which outlooks are “stable” could be upgraded or downgraded before an            outlook moves to positive or negative if circumstances warrant such an action.            Occasionally, Fitch may be unable to identify the fundamental trend and in these cases,            the Rating Outlook may be described as “evolving.”

***Description of Moody’s Short-Term Debt            Ratings***

Issuers rated Prime-1 (or related supporting institutions) have a            superior capacity for repayment of short-term promissory obligations. Prime-1 repayment            capacity will normally be evidenced by the following characteristics: leading market            positions in well-established industries; high rates of return on funds employed;            conservative capitalization structures with moderate reliance on debt and ample asset            protection; broad margins in earnings coverage of fixed financial charges and high            internal cash generation; well-established access to a range of financial markets and            assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong            capacity for repayment of short-term promissory obligations. This will normally be            evidenced by many of the characteristics cited above but to a lesser degree. Earnings            trends and coverage ratios, while sound, will be more subject to variation.            Capitalization characteristics, while still appropriate, may be more affected by            external conditions. Ample alternate liquidity is maintained.

Issuers rates Prime-3 (or related supporting institutions) have an            acceptable capacity for repayment of short-term promissory obligations. The effect of            industry characteristics and market composition may be more pronounced. Variability in            earnings and profitability may result in changes in the level of debt protection            measurements and the requirement for relatively high financial leverage. Adequate            alternate liquidity is maintained.

***Description of S&P Short-Term Issuer Credit            Ratings***

**A-1**      An            obligor rated “A-1” has STRONG capacity to meet its financial commitments.            It is rated in the highest category by Standard & Poor’s. Within this            category, certain obligors are designated with a plus sign (+). This indicates that the            obligor’s capacity to meet its financial commitments is EXTREMELY            STRONG.

**A-2**      An            obligor rated “A-2” has SATISFACTORY capacity to meet its financial            commitments. However, it is somewhat more susceptible to the adverse effects of changes            in circumstances and economic conditions than obligors in the highest rating            category.

**A-3**      An            obligor rated “A-3” has ADEQUATE capacity to meet its financial            obligations. However, adverse economic conditions or changing circumstances are more            likely to lead to a weakened capacity of the obligor to meet its financial            commitments.

***Description of Fitch’s Commercial Paper            Ratings***

**F1**

**Highest credit quality.**Indicates the            strongest capacity for timely payment of financial commitments; may have an added            “+” to denote any exceptionally strong credit feature.

**F2**

**Good credit quality.**A satisfactory            capacity for timely payment of financial commitments, but the margin of safety is not            as great as in the case of the higher ratings.

**F3**

**Fair credit quality.**The capacity for            timely payment of financial commitments is adequate; however, near-term adverse changes            could result in a reduction to non-investment grade.

 

**B**

**Speculative.**Minimal capacity for timely            payment of financial commitments, plus vulnerability to near-term adverse changes in            financial and economic conditions.

**C**

**High default risk.**Default is a real            possibility. Capacity for meeting financial commitments is solely reliant upon a            sustained, favorable business and economic environment.

**D**

**Default.**Denotes actual or imminent payment            default.

***Notes***

“+” or “-” may be appended to an            “F1” rating class to denote relative status within the category.

“NR” indicates that Fitch Ratings does not publicly rate the            issuer or issue in question.

“Withdrawn”: A rating is withdrawn when Fitch Ratings deems            the amount of information available to be inadequate for rating purposes, or when an            obligation matures, is called, or refinanced.Rating Watch: Ratings are placed on            Rating

Watch to notify investors that there is a reasonable probability of a            rating change and the likely direction of such change. These are designated as            “Positive,” indicating a potential upgrade, “Negative,” for a            potential downgrade, or “Evolving,” if ratings may be raised, lowered or            maintained. Rating Watch is typically resolved over a relatively short            period.

             

**STATEMENT OF ADDITIONAL INFORMATION**

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

 

**Investment Advisor**

DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.

345            Park Avenue

New            York, NY 10154

**Administrator**

DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC.

345            Park Avenue

New            York, NY 10154

**Transfer Agent**

DWS            SCUDDER INVESTMENTS SERVICE COMPANY

222            South Riverside Plaza

Chicago, IL 60606-5808

**Custodian**

STATE            STREET BANK AND TRUST COMPANY

225            Franklin Street

Boston, MA 02110

**Distributor**

DWS            SCUDDER DISTRIBUTORS, INC.

222            South Riverside Plaza

Chicago, IL 60606-5808

**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 10019-6099

No            person has been authorized to give any information or to make any representations other            than those contained in the Fund’s Prospectus, its SAI or the Fund’s            official sales literature in connection with the offering of the Fund’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 Prospectus nor this SAI constitute            an offer in any state in which, or to any person to whom, such offer may not lawfully            be made.