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

**_____________________________________________________________________________________________**

 

**Cash Management Fund Institutional**

**Cash Reserve Fund, Inc.**

Prime Series

**Cash Reserve Fund Institutional**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**DWS Capital Growth Fund**

**DWS Climate Change Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Income Fund**

**DWS EAFE® Equity Index Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

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

**DWS Equity 500 Index Fund**

**DWS Equity Income Fund**

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Floating Rate Plus Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Health Care Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities Fund**

**DWS Investments VIT Funds**

DWS Equity 500 Index VIP

DWS RREEF Real Estate Securities VIP

DWS Small Cap Index VIP

**DWS Japan Equity Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS LifeCompass 2015 Fund**

**DWS LifeCompass 2020 Fund**

**DWS LifeCompass 2030 Fund**

**DWS LifeCompass 2040 Fund**

**DWS LifeCompass Retirement Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Money Market Series**

**DWS RREEF Global Real Estate Securities Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

 

----

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

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

**DWS Value Builder Fund**

**DWS Variable Series I**

DWS Bond VIP

DWS Capital Growth VIP

DWS Global Opportunities VIP

DWS Growth & Income VIP

DWS Health Care VIP

DWS International VIP

 

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

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

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

 

----

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

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

 

----

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

 

 

 

 

*Please Retain This Supplement for Future Reference*

 

November 26, 2007

DMF-3119

 

 

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

**_____________________________________________________**

 

**DWS Short Duration Plus Fund**

 

**Effective October 1, 2007, the following sections under            “Purchase and Redemption of Shares” in the Fund’s statement of            additional information are replaced as follows:**

*The following replaces related disclosure under “Purchases -            Financial Services Firms’ Compensation”:*

 

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

 

| **Compensation Schedule                            #1:**  **Retail Sales and DWS Scudder Flex                            Plan**(1) | **Compensation Schedule #2:                            DWS Scudder Retirement                            Plans**(2                            ) |
|----------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| **Amount of****Shares Sold**                                                                                                                 | **As a Percentage of Net****Asset Value**                                                                                                       | **Amount of****Shares Sold** | **As a****Percentage of Net****Asset Value** |
|                                                                                                                                         |                                                                                                                                            |   |   |
| $250,000 to $50 million                                                                                                                      | 0.50%                                                                                                                                           | Over $3 million | 0.00%-0.50% |
| Over $50 million                                                                                                                             | 0.25%                                                                                                                                           | — | — |

 

| **Compensation Schedule #3: DWS Scudder Choice                            Plan**(3) |
|-------------------------------------------------------------------------------------|
| **Amount of****Shares Sold**                                                        | **As a Percentage of Net****Asset Value** |
|                                                                                |   |
| All amounts                                                                         | 0.85% |

             

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

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

| (3) | DWS-SDI compensates UBS Financial 0.50%. |
|-----|------------------------------------------|

 

*The following replaces the sales charge table under “Class A            Purchases”:*

 

|  

                             

**Amount of Purchase**

                              |  

**As a Percentage of**

**Offering Price*, **** |  

**As a Percentage of Net Asset Value***** | **Allowed to Dealers as a Percentage of Offering                            Price** |
|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------|---------------------------------------------------|-------------------------------------------------------------------------------------|
| Less than $100,000                                                                                     | 2.75%                                                   | 2.83%                                             | 2.25%                                                                               |
| $100,000 but less than $250,000                                                                        | 2.50                                                    | 2.56                                              | 2.00                                                                                |
| $250,000 and over                                                                                      | 0.00****                                                | 0.00****                                          | 0.00*****                                                                           |

 

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

             

| ** | Because of rounding in the calculation of the offering                            price, the actual maximum front-end sales charge paid by an investor                            may be higher or lower than the percentages noted above. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

             

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

             

----

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

             

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

             

*The            following replaces disclosure under “Class A Purchases”:*

 

For            purposes of the Combined Purchases, Letter of Intent and Cumulative Discount features            described above, employer sponsored employee benefit plans using the Flex subaccount            record keeping system available through ADP, Inc. under an alliance with SDI and its            affiliates may include: (a) Money Market Funds as “DWS Funds”, (b) all            classes of shares of any DWS Fund and (c) the value of any other plan investments, such            as guaranteed investment contracts and employer stock, maintained on such subaccount            record keeping system. Once eligible plan assets under this provision reach the            $1,000,000 threshold ($250,000 threshold in the case of DWS Short Duration Plus Fund            and DWS Short-Term Municipal Bond Fund for the Large Order NAV Purchase Privilege), a            later decline in assets below the $1,000,000 threshold ($250,000 threshold in the case            of DWS Short Duration Plus Fund and DWS Short-Term Municipal Bond Fund) will not affect            the plan’s ability to continue to purchase Class A shares at net asset            value.

 

*The following replaces item (j) under “Class A NAV            Sales”:*

 

(j)            investors investing $250,000 or more, either as a lump sum or through the            “Combined Purchases,” “Letter of Intent” and “Cumulative            Discount” features referred to above (collectively, the “Large Order NAV            Purchase Privilege”). The Large Order NAV Purchase Privilege is not available if            another net asset value purchase privilege is available.

             

*The following replaces disclosure under “Class A            Purchases”:*

 

**Multi-Class Suitability.**DWS-SDI has            established the following procedures regarding the purchase of Class A, Class B and            Class C shares. Orders to purchase Class B shares of $100,000 or more and orders to            purchase Class C shares of $250,000 or more will be declined with the exception of            orders received from financial representatives acting for clients whose shares will be            held in an omnibus account and employer-sponsored employee benefit plans using the            subaccount record keeping system (“System”) maintained for DWS-branded            plans under an alliance with DWS-SDI and its affiliates (“DWS Scudder Flex            Plans” and “DWS Scudder Choice Plans”).

 

 

***Please Retain This Supplement for Future            Reference***

 

 

September 14, 2007

DSDPF-3903

 

 

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 Statement of Additional            Information for the following fund:**

 

DWS            Short Duration Plus Fund

_____________________________________________________________________________________________

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

 

Class B            shares have been created especially for former Class B shareholders of DWS Short Term            Bond Fund. Class B shares of DWS Short Duration Plus Fund are closed to new investors            except as described below. Unless you fit into the investor eligibility categories            described below, you may not invest in Class B shares of the fund.

 

You may            purchase Class B shares of the fund through your existing fund account and reinvest            dividends and capital gains if you are a shareholder of Class B shares of DWS Short            Duration Plus Fund who became a shareholder of the fund in connection with the            fund’s acquisition of DWS Short Term Bond Fund on April 23, 2007.

 

New            accounts may be opened for:

 

|   | § | transfers of shares from existing accounts in this fund                            (including IRA rollovers); |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

             

|   | § | any group retirement, employee stock bonus, pension or                            profit sharing plan that offers the fund as an investment option as of                            April 23, 2007; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | § | purchases through any comprehensive or                            “wrap” fee program or other fee based program that offers                            the fund as an investment option as of April 23, 2007; or |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | § | accounts managed by Deutsche Investment Management                            Americas Inc. (“DIMA”), any advisory products offered by                            DIMA or DWS Scudder Distributors, Inc. (“DWS-SDI”) and for                            the Funds of DWS Allocation Series or other fund of funds managed by                            DIMA or its affiliates. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Except            as otherwise noted, these restrictions apply to investments made directly with DWS-SDI,            the fund’s principal underwriter or through an intermediary relationship with a            financial services firm established with respect to the DWS Funds. Institutions that            maintain omnibus account arrangements are not allowed to open new Class B sub-accounts            for new investors, unless the investor is one of the types listed above. Once an            account is closed, new investments in Class B will not be accepted unless you satisfy            one of the investor eligibility categories listed above.

 

Exchanges will not be permitted into Class B unless the exchange is            being made into an existing fund account.

 

 

 

 

*Please Retain this Supplement for Future Reference.*

 

 

April            13, 2007

DSDPF-3901

 

 

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

 

 

 

**DWS        ADVISOR FUNDS**

**DWS        Short Duration Plus Fund**

Class A,        Class B and Class C

**STATEMENT OF ADDITIONAL INFORMATION**

**February 1, 2007, as Revised February 20, 2007 (Class A and C Shares),        and Revised December 31, 2007**

**February 20, 2007 (Class B Shares), As Revised December 31,        2007**

This        Statement of Additional Information is not a prospectus and should be read in conjunction        with the prospectuses dated February 1, 2007 (Class A and C Shares) and February 20, 2007        (Class B Shares), 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 corresponding prospectuses for each class of shares of the Fund.

As of        the date of this SAI, Class B Shares are not operational. Class B Shares will become        operational upon the proposed merger of DWS Short Term Bond Fund into the Fund, which is        scheduled to take place on April 23, 2007. Class B Shares have been created especially for        the shareholders of DWS Short Term Bond Fund. Class B shares will not be available to new        investors.

 

**TABLE        OF CONTENTS**

**Page**

                                               

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

|   | INVESTMENT                        POLICIES AND                        TECHNIQUES     | 4 |
|--------|----------------------------------------------------------------------------------------------------------|---|

|   | Investment                        Techniques | 4 |
|--------|----------------------------------------------|---|

|   | Investment                        Advisor | 36 |
|--------|-------------------------------------------|----|

|   | Compensation of Portfolio                        Managers | 40 |
|--------|-----------------------------------------------------------|----|

|   | FUND SERVICE                    PROVIDERS | 44 |
|--------|-------------------------------------------|----|

|   | Administrator | 44 |
|--------|---------------|----|

|   | Distributor | 45 |
|--------|-------------|----|

|   | Custodian | 48 |
|--------|-----------|----|

|   | Transfer                        Agent | 48 |
|--------|---------------------------------------|----|

|   | Service                        Agent | 48 |
|--------|--------------------------------------|----|

|   | Legal                        Counsel | 49 |
|--------|--------------------------------------|----|

|   | Independent Registered                        Public Accounting Firm | 49 |
|--------|----------------------------------------------------------------------|----|

|   | PORTFOLIO                    TRANSACTIONS | 49 |
|--------|-------------------------------------------|----|

|   | PURCHASE AND                        REDEMPTION OF                        SHARES                                  | 51 |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----|

|   | DIVIDENDS | 68 |
|--------|-----------|----|

|   | TAXES    | 69 |
|--------|-------------------------|----|

|   | NET ASSET                        VALUE | 74 |
|--------|----------------------------------------|----|

|   | TRUSTEES AND                        OFFICERS | 75 |
|--------|----------------------------------------------|----|

|   | TRUST                        ORGANIZATION | 84 |
|--------|-------------------------------------------|----|

|   | PROXY VOTING                        GUIDELINES  | 85 |
|--------|------------------------------------------------------|----|

|   | FINANCIAL                    STATEMENTS | 86 |
|--------|-----------------------------------------|----|

|   | ADDITIONAL INFORMATION | 86 |
|--------|------------------------|----|

|   | APPENDIX | 88 |
|--------|----------|----|

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

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

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

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

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

**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.

***Fundamental Restrictions***

The        Fund has elected to be treated as a diversified investment company, as that term is used in        the Investment Company Act of 1940, as amended (the “1940 Act”), and as        interpreted or modified by regulatory authority having jurisdiction, from time to        time.

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; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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; |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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                        securities of companies which deal in real estate or mortgages or                        investments secured by real estate or interests therein, except that the                        Fund reserves freedom of action to hold and to sell real estate acquired as                        a result of the Fund’s ownership of securities; |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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); |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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 now or in the future that operate as        cash management investment vehicles but 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 Prospectuses 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 receivedwhile 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 (the “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, DAMI provided continuing investment management of the assets of the        Fund. In addition to the investment management of the assets of the Fund, DAMI determined        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. DAMI also monitored, 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 DIMA        Agreement may be terminated at any time, without payment of penalty, by either party or by        vote of a majority of the outstanding voting securities of the Fund on 60 days’        written notice.

In        addition, the Board and shareholders approved a subadvisor approval policy for the Fund        (the “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        0.97% and 1.72%, for Class A and Class C shares, respectively, 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        investment advisor has voluntarily agreed to waive a portion of its fees and reimburse        expenses so that total annual operating expenses will not exceed 0.86% and 1.61%, for Class        A and Class C shares, respectively, excluding certain expenses such as extraordinary        expenses, taxes, brokerage, interest and organizational and offering expenses and proxy        expenses. The investment advisor, at its discretion, may revise or discontinue this        arrangement at any time.

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. DAMI also performs certain fund accounting services under the Administrative        Services Agreement. The Administrative Services Agreement provides that DAMI 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.

*Rule        12b-1 Plans*

The        Fund may enter into Shareholder Servicing Agreements with respect to its Class A Shares        with certain financial institutions to act as Shareholder Servicing Agents, pursuant to        which the Distributor will allocate a portion of its distribution fee as compensation for        such financial institutions’ ongoing shareholder services. The Fund may enter into        Shareholder Servicing Agreements with respect to its Class A 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 Prospectuses and this SAI in conjunction with any such        institution’s fee schedule.

Class A        Shares are sold subject to a distribution plan adopted in accordance with Rule 12b-1 under        the 1940 Act (the “Class A Distribution Plan”). Under the Class A Distribution        Plan, Class A Shares will pay a fee to the Distributor in an amount computed at an annual        rate of up to 0.25% of the average daily net assets of Class A Shares.

The        Fund has adopted a plan of distribution for its Class B shares (the “Class B        Plan”). Under the Class B Plan, the Fund will pay a shareholder servicing fee at an        annual rate of up to 0.25% of the average daily net assets of its Class B shares to        its Distributor in addition to a distribution fee at an annual rate of up to 0.75% of such        assets. Pursuant to the Class B Plan, shareholder and administrative services are provided        to the Fund on behalf of its Class B shareholders under the Fund’s Services Agreement        with its Distributor.

Shareholders of Class C of the Fund have recently approved an Amended and        Restated Rule 12b-1 Plan (the “Amended Plan” and, together with the Class A        Distribution Plan and the Class B Plan, the “Distribution Plans”) for that        class. Under the Amended Plan, the Fund will pay a shareholder servicing fee at an annual        rate of up to 0.25% of the average daily net assets of its Class C shares to its        Distributor in addition to a distribution fee at an annual rate of up to 0.75% of such        assets. Pursuant to the Amended Plan, shareholder and administrative services are provided        to the Fund on behalf of its Class C shareholders under the Fund’s Service Agreement        with its Distributor. Because 12b-1 fees are paid out of Fund assets on an ongoing basis,        they will, over time, increase the cost of an investment and may cost more than other types        of sales charges.

 

The        Class B Plan and the Amended Plan for Class C shares provides alternative methods for        paying sales charges and may help the Fund grow or maintain asset levels to provide        operational efficiencies and economies of scale. Rule 12b-1 service plans provide        compensation to the Fund’s Distributor for post-sales servicing. Since the        Distribution Agreement provides for fees payable as an expense of Class B and C shares that        are used by the Distributor to pay for distribution and services for those classes, the        agreement is approved and reviewed for Class B and C shares in accordance with Rule        12b-1 under the 1940 Act, which regulates the manner in which an investment company may,        directly or indirectly, bear the expenses of distributing its shares. The Distribution        Agreement may not be amended to increase the fee to be paid by the Fund with respect to a        class without approval by a majority of the outstanding voting securities of such class of        the Fund. Similarly, the Services Agreement is approved and reviewed separately for the        Class A shares, Class B shares and Class C shares in accordance with Rule 12b-1.

The        Distributor uses these fees to finance any activity which is principally intended to result        in the sale of Class A Shares, Class B Shares and Class C Shares of the Fund. If an        Amended Plan is terminated in accordance with its terms, the obligation of the Fund to make        payments to DWS-SDI pursuant to the Amended Plan will cease and the Fund will not be        required to make any payments not previously accrued past the termination date. Thus, there        is no legal obligation for the Fund to pay any expenses incurred by DWS-SDI other than fees        previously accrued and payable under an Amended Plan, if for any reason the Amended Plan is        terminated in accordance with its terms. Future fees under the Amended Plan may or may not        be sufficient to reimburse DWS-SDI for its expenses incurred.

Prior        to the shareholders approving the Amended Plan, the Fund had adopted a service plan for its        Class C 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 $286,411, $420,410 and $625,026, respectively, of which $286,411, $420,410        and $0, respectively, was waived, in shareholder servicing fees for Class C        shares.

 

Expenses of the Fund paid in connection with the Rule 12b-1 Plans for each        class of shares are set forth below. A portion of the marketing and sales and operating        expenses shown below could be considered overhead expenses.

 

| **Compensation to Underwriter and Firms****for Calendar Year 2006** | **Other Distribution Expenses Paid by****Underwriter for Calendar Year                        2006** |
|---------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
|                                                                | **12b-1 Fees (Distribution                        Fee) Paid****to DWS-SDI**                          | **12b-1 Fees (Shareholder                        Servicing Fee) Paid****to DWS-SDI** | **Compensation Paid                        by****DWS-SDI****to Firms from****Distribution Fee** | **Compensation Paid by                        DWS-SDI****to Firms from Shareholder****Servicing Fee** | **Advertising,                        Sales,****Literature                        and****Promotional****Materials** | **Prospectus****Printing** | **Marketing and Sales****Expenses** | **Postage and****Mailing** | **Interest****Expenses** |
|                                                                |                                                                                                 |   |   |   |   |   |   |   |   |
| **DWS Short Duration Plus Fund**                                    |                                                                                                 |   |   |   |   |   |   |   |   |
| Class A                                                             | N/A                                                                                                  | $2,597 | N/A | $200,144 | N/A | N/A | N/A | N/A | N/A |
| Class C                                                             | $802,034                                                                                             | $78 | $807,655 | $213,281 | $16,864 | $383 | $2,713 | $3,302 | $0 |
|                                                                |                                                                                                 |   |   |   |   |   |   |   |   |

 

 

DWS-SDI        no longer advances the first year distribution fee and service fee to firms for sales of        Class C shares to employer-sponsored employee benefit plans using the OmniPlus subaccount        record keeping system made available through ADP, Inc. under an alliance with DWS-SDI and        its affiliates.

The        table below sets forth, for the fiscal year ended September 30, 2006, the distribution and        shareholder servicing fees paid by the Fund:

 

|    | **Distribution                        Fee** | **Amount                        Waived** | **Shareholder Servicing                        Fee** | **Amount                        Waived** |
|---------|---------------------------------------------|------------------------------------------|------------------------------------------------------|------------------------------------------|
|    |                                        |                                     |                                                 |                                     |
| Class A | $241,808                                    | $225,120                                 | N/A                                                  | N/A                                      |
| Class C | $884,793                                    | $143,884                                 | $286,411                                             | $286,411                                 |

 

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

| Class A Commissions | $10,618 |
|---------------------|---------|

| Class A Contingent Deferred Sales Charge | $3,391 |
|------------------------------------------|--------|

| Class C Contingent Deferred Sales Charge | $10,163 |
|------------------------------------------|---------|

**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 Agent**

Prior        to July 1, 2006, ICCC acted as a Service Agent pursuant to its Administration Agreement        with the Trust and received no additional compensation from the Fund for such shareholder        services. ICCC from its fees paid the service fees of any other Service Agents, including        broker-dealers. The services provided by a Service Agent may have included establishing and        maintaining shareholder accounts, processing purchase and redemption transactions,        arranging for bank wires, performing shareholder sub-accounting, answering client inquiries        regarding the Trust, assisting clients in changing dividend options, account designations        and addresses, providing periodic statements showing the client’s account balance,        transmitting proxy statements, periodic reports, updated prospectuses and

 

other        communications to shareholders and, with respect to meetings of shareholders, collecting,        tabulating and forwarding to the Trust executed proxies and obtaining such other        information and performing such other services as the administrator or the Service        Agent’s clients may reasonably have requested and agreed upon with the Service Agent.        Service Agents may have separately charged their clients additional fees only to cover        provision of additional or more comprehensive services not already provided under the        Administration Agreement with ICCC, or of the type or scope not generally offered by a        mutual fund, such as cash management services or enhanced retirement or trust reporting. In        addition, investors may have been charged a transaction fee if they effected transactions        in Fund shares through a Service Agent. Each Service Agent had agreed to transmit to        shareholders, which were its customers, appropriate disclosures of any fees that it charged        them directly.

**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. With respect to those funds for        which a sub-investment advisor manages thefund’s investments, references in this        section to the “Advisor” should be read to mean the Sub-Advisor, except asnoted        below.

The        policy of the Advisor in placing orders for the purchase and sale of securities for*the Fund*is to seek bestexecution, taking into        account such factors, among others, as price; commission (where applicable); the        broker*-*dealer’sability to ensure that securities will be delivered on settlement date; the        willingness of the broker-dealer tocommit its capital and purchase a thinly traded security        for its own inventory; whether the broker-dealer specializesin block orders or large        program trades; the broker-dealer’s knowledge of the market and the security; the        broker*-*dealer’sability to maintain confidentiality; the financial condition of the        broker-dealer; and whether the        broker*-*dealerhas the infrastructure and        operational capabilities to execute and settle the trade. The Advisor seeks toevaluate the        overall reasonableness of brokerage commissions with commissions charged on        comparabletransactions and compares the brokerage commissions (if any) paid by*the Fund*to reported commissions paid byothers.        The Advisor routinely reviews commission rates, execution and settlement services        performed*,*and makesinternal 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. Purchasesand sales of fixed-income        securities and certain over-the-counter securities are effected on a net basis, without        thepayment of brokerage commissions. Transactions in fixed income and certain        over-the-counter securities aregenerally placed by the Advisor with the principal market        makers for these securities unless the Advisor reasonablybelieves more favorable results        are available elsewhere. Transactions with dealers serving as market makers reflectthe        spread between the bid and asked prices. Purchases of underwritten issues will include an        underwriting fee paidto the underwriter. Money market instruments are normally purchased in        principal transactions directly from theissuer 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 firmsthat 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 sharesof*the Fund*as a factor in the selection of broker-dealers to execute portfolio        transactions for*the Fund*.

The        Advisor is permitted by Section 28(e) of the Securities Exchange Act of 1934, as amended        (“1934 Act”), whenplacing portfolio transactions for*the Fund*, to cause the Fund to pay brokerage        commissions in excess of that whichanother broker-dealer might charge for executing the        same transaction in order to obtain research and brokerageservices 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 withbroker-dealers that provide research and brokerage        services to the Advisor. Consistent with the Advisor’s policyregarding best        execution, where more than one broker is believed to be capable of providing best execution        for aparticular trade, the Advisor may take into consideration the receipt of research and        brokerage services in selectingthe broker-dealer to execute the trade. Although certain        research and brokerage services from broker-dealers may beuseful to*the Fund*and to the Advisor, it is the opinion        of the Advisor that such information only supplements its ownresearch effort since the        information must still be analyzed, weighed and reviewed by the Advisor’s staff.        Researchand brokerage services received from a broker-dealer may be useful to the Advisor        in providing services to clientsother than the Fund making the trade, and not all such        information is used by the Advisor in connection with suchFund. Conversely, such        information provided to the Advisor by broker-dealers through which other clients of        theAdvisor effect securities transactions may be useful to the Advisor in providing        services to*the Fund*.

Research and brokerage services provided by broker-dealers may include, but        are not limited to, information on theeconomy, industries, groups of securities, individual        companies, statistical information, accounting and tax lawinterpretations, political        developments, legal developments affecting portfolio securities, technical market        action,pricing and appraisal services, credit analysis, risk measurement analysis,        performance analysis and measurementand analysis of corporate responsibility issues.        Research and brokerage services are typically received in the formof written reports,        access to specialized financial publications, telephone contacts and personal meetings        withsecurity analysts, but may also be provided in the form of access to various computer        software and associatedhardware, 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 inconnection 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 Advisorto facilitate trading activity        with those broker-dealers.

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

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

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

DIMA        and its affiliates and the Fund*’*s        management team manage other mutual funds and separate accounts, someof 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 affectthe market value of the long positions (and vice versa), the        risk arising from sequential orders in long and shortpositions, 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 ofinterest. Incorporated in the procedures are specific guidelines developed to        ensure fair and equitable treatment forall clients. DIMA and the investment team have        established monitoring procedures and a protocol for supervisoryreviews, as well as        compliance oversight to ensure that potential conflicts of interest relating to this type        of activityare 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 Fund*and receive brokerage commissions or        other transaction-related compensationfrom*the Fund*in the purchase and sale of securities, options or futures contracts when,        in the judgment of theAdvisor, and in accordance with procedures approved by the        Fund*’*s Board, the affiliated        broker will be able toobtain a price and execution at least as favorable as those obtained        from other qualified brokers and if, in thetransaction, the affiliated broker        charges*the Fund*a rate consistent with        that charged to comparable unaffiliatedcustomers 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.

**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.

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

 

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

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

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

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

***Purchases***

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

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

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

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

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

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

 

 

| **Compensation Schedule                        #1:**  **Retail Sales and DWS Scudder Flex                        Plan**(1) | **Compensation Schedule #2:                        DWS Scudder Retirement                        Plans**(2) |
|--------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
| **Amount of****Shares Sold**                                                                                                         | **As a Percentage of Net****Asset Value**                                                                   | **Amount of****Shares Sold** | **As a****Percentage of Net****Asset Value** |
|                                                                                                                                 |                                                                                                        |   |   |
| $1 million — $3 million                                                                                                        | 0.85%                                                                                                       | Over $3 million | 0.00% — 0.50% |
|                                                                                                                                 |                                                                                                        |   |   |
| Over $3 million to $50 million                                                                                                       | 0.50%                                                                                                       | — | — |
|                                                                                                                                 |                                                                                                        |   |   |
| Over $50 million                                                                                                                     | 0.25%                                                                                                       | — | — |

 

| **Compensation Schedule #3: DWS Scudder Choice                        Plan**(3) |
|---------------------------------------------------------------------------------|
| **Amount of****Shares Sold**                                                    | **As a Percentage of Net****Asset Value** |
|                                                                            |   |
| All amounts                                                                     | 0.85% |

         

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

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

| (3) | DWS-SDI compensates UBS Financial 0.50%. |
|-----|------------------------------------------|

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

**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 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 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.

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

 

|                              | **Sales                        Charge**                          |
|-----------------------------------|------------------------------------------------------------------|
| **Amount of Purchase**            | **As a                        Percentage of****Offering Price*** | **As a                        Percentage of****Net Asset                        Value**** | **Allowed to                        Dealers****as a Percentage of****Offering Price** |
|                              |                                                             |   |   |
| Less than $100,000                | 2.75%                                                            | 2.83% | 2.25% |
| $100,000 but less than $250,000   | 2.50%                                                            | 2.56% | 2.00% |
| $250,000 but less than $500,000   | 2.00%                                                            | 2.04% | 1.75% |
| $500,000 but less than $1 million | 1.50%                                                            | 1.52% | 1.25% |
| $1 million and over               | 0.00***                                                          | 0.00*** | 0.00**** |

         

 

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

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

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

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

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

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

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

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

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

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

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

| (b) | an employee (including the employee’s spouse or life                        partner and children or stepchildren age 21 or younger) of Deutsche Bank or                        its affiliates or of a subadvisor to any fund in the DWS family of funds or                        of a broker-dealer authorized to sell shares of the Fund or service agents                        of the Funds; |
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| (c) | certain professionals who assist in the promotion of DWS                        mutual funds pursuant to personal services contracts with DWS-SDI, for                        themselves or members of their families. DWS-SDI in its discretion may                        compensate financial services firms for sales of Class A shares under this                        privilege at a commission rate of 0.50% of the amount of Class A shares                        purchased; |
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| (d) | any trust, pension, profit-sharing or other benefit plan for                        only such persons listed under the preceding paragraphs (a) and                        (b); |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (f) | selected employees (including their spouses or life partners                        and children or stepchildren age 21 or younger) of banks and other                        financial services firms that provide administrative services related to                        order placement and payment to facilitate transactions in shares of the                        Fund for their clients pursuant to an agreement with DWS-SDI or one of its                        affiliates. Only those employees of such banks and other firms who as part                        of their usual duties provide services related to transactions in Fund                        shares qualify; |
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| (g) | unit investment trusts sponsored by Ranson & Associates,                        Inc. and unitholders of unit investment trusts sponsored by Ranson &                        Associates, Inc. or its predecessors through reinvestment programs                        described in the prospectuses of such trusts that have such                        programs; |
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| (h) | through certain investment advisors registered under the                        Investment Advisers Act of 1940 and other financial services firms acting                        solely as agent for their clients, that adhere to certain standards                        established by DWS-SDI, including a requirement that such shares be sold                        for the benefit of their clients participating in an investment advisory                        program or agency commission program under which such clients pay a fee to                        the investment advisor or other firm for portfolio management or agency                        brokerage services. Such shares are sold for investment purposes and on the                        condition that they will not be resold except through redemption or                        repurchase by the Fund; |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (i) | employer sponsored employee benefit plans using the Flex                        subaccount recordkeeping system (“Flex Plans”) made available                        through ADP under an alliance with DWS-SDI and its affiliates, established                        prior to October 1, 2003, provided that the Flex Plan is a                        participant-directed plan that has not less than 200 eligible                        employees; |
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| (j) | investors investing $1 million or more, either as a lump sum                        or through the “Combined Purchases,” “Letter of                        Intent” and “Cumulative Discount” features referred to                        above (collectively, the “Large Order NAV Purchase Privilege”).                        The Large Order NAV Purchase Privilege is not available if another net                        asset value purchase privilege is available; |
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| (k) | defined contribution investment only plans with a minimum of                        $1,000,000 in plan assets regardless of the amount allocated to the DWS                        funds; In addition, Class A shares may be sold at net asset value in                        connection with: |
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| (l) | the acquisition of the assets of or merger or consolidation                        with another investment company, or to shareholders in connection with the                        investment or reinvestment of income and capital gain dividends, and under                        other circumstances deemed appropriate by DWS-SDI and consistent with                        regulatory requirements; and |
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| (m) | a direct “roll over” of a distribution from a                        Flex Plan or from participants in employer sponsored employee benefit plans                        maintained on the OmniPlus subaccount record keeping system made available                        through ADP, Inc. under an alliance with DWS-SDI and its affiliates into a                        DWS Scudder IRA; |
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| (n) | reinvestment of fund dividends and distributions; |
|-----|---------------------------------------------------|

 

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

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

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

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

The        following provisions apply to DWS Scudder Flex Plans and DWS Scudder Choice        Plans.

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

 

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

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

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

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

***Redemptions***

**Redemption fee.**The Fund imposes a redemption        fee of 2% of the total redemption amount (calculated at net asset value, without regard to        the effect of any contingent deferred sales charge; any contingent deferred sales charge is        also assessed on the total redemption amount without regard to the assessment of the 2%        redemption fee) on all Fund shares redeemed or exchanged within 15 days of buying them        (either by purchase or exchange). The redemption fee is paid directly to the Fund, and is        designed to encourage long-term investment and to offset transaction and other costs        associated with short-term or excessive trading. For purposes of determining whether the        redemption fee applies, shares held the 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.

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

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

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

**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 Fund        Shareholder Service Agent with signatures guaranteed as described above or contact the firm        through which Fund shares were purchased.

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

Non-retirement plan shareholders may establish an Automatic Withdrawal Plan        (the “Plan”) to receive monthly, quarterly or periodic redemptions from his or        her account for any designated amount of $50 or more. Shareholders

 

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

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

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

| (a) | redemptions by a participant-directed qualified retirement                        plan described in Code Section 401(a), a participant-directed non-qualified                        deferred compensation plan described in Code Section 457 or a                        participant-directed qualified retirement plan described in Code Section                        403(b)(7) which is not sponsored by a K-12 school district; |
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| (b) | redemptions by employer-sponsored employee benefit plans                        using the subaccount record keeping system made available through ADP, Inc.                        under an alliance with DWS-SDI and its affiliates; |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | redemption of shares of a shareholder (including a                        registered joint owner) who has died; |
|-----|-----------------------------------------------------------------------------------------------------------------|

| (d) | redemption of shares of a shareholder (including a                        registered joint owner) who after purchase of the shares being redeemed                        becomes totally disabled (as evidenced by a determination by the federal                        Social Security Administration); |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | redemptions under the Fund’s Automatic Withdrawal Plan                        at a maximum of 12% per year of the net asset value of the account;                        and |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | redemptions of shares whose dealer of record at the time of                        the investment notifies DWS-SDI that the dealer waives the discretionary                        commission applicable to such Large Order NAV Purchase. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (a) | the redemption of shares of a shareholder (including a                        registered joint owner) who has died; |
|-----|---------------------------------------------------------------------------------------------------------------------|

| (b) | redemption of shares of a shareholder (including a                        registered joint owner) who after purchase of the shares being redeemed                        becomes totally disabled (as evidenced by a determination by the federal                        Social Security Administration); |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | redemptions under the Fund’s Automatic Withdrawal Plan                        at a maximum of 12% per year of the net asset value of the                        account; |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | for redemptions made pursuant to any IRA systematic                        withdrawal based on the shareholder’s life expectancy including, but                        not limited to, substantially equal periodic payments described in Code                        Section 72(t)(2)(A)(iv) prior to age 59 1/2; |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| (e) | for redemptions to satisfy required minimum distributions                        after age 70 1/2 from an IRA account (with the maximum amount subject to                        this waiver being based only upon the shareholder’s DWS Scudder IRA                        accounts); and |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f) | in connection with the following redemptions of shares held                        by employer sponsored employee benefit plans maintained on the subaccount                        record keeping system made available by ADP under an alliance with DWS-SDI                        and its affiliates: (1) to satisfy participant loan advances (note that                        loan repayments constitute new purchases for purposes of the CDSC and the                        conversion privilege), (2) in connection with retirement distributions                        (limited at any one time to 12% of the total value of plan assets invested                        in the Fund), (3) in connection with distributions qualifying under                        the hardship provisions of the Internal Revenue Code, (4) representing                        returns of excess contributions to such plans and (5) in connection with                        direct “roll over” distributions from a Flex Plan into a DWS                        Scudder IRA under the Class A net asset value purchase                        privilege. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

The        Class C CDSC will be waived for the circumstances set forth in items (b), (c), (d) and        (e) for Class A shares. In addition, this CDSC will be waived for:

| (a) | for redemptions made pursuant to any IRA systematic                        withdrawal based on the shareholder’s life expectancy including, but                        not limited to, substantially equal periodic payments described in Internal                        Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2; |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | for redemptions to satisfy required minimum distributions                        after age 70 1/2 from an IRA account (with the maximum amount subject to                        this waiver being based only upon the shareholder’s DWS Scudder IRA                        accounts); and |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | redemption of shares by an employer sponsored employee                        benefit plan that offers funds in addition to DWS Funds and whose dealer of                        record has waived the advance of the first year administrative service and                        distribution fees applicable to such shares and agrees to receive such fees                        quarterly, and |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | redemption of shares purchased through a dealer-sponsored                        asset allocation program maintained on an omnibus record-keeping system                        provided the dealer of record had waived the advance of the first year                        administrative services and distribution fees applicable to such shares and                        has agreed to receive such fees quarterly. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**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. For purposes of calculating any CDSC, amounts exchanged retain their        original cost and purchase date.

 

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

Shareholders must obtain prospectuses of the 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 gross annual 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 semi-annual reports to        shareholders.

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

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 |
| Paul                        Antosca(6) (1957)Assistant Treasurer, 2007-present                                              | Director(4), Deutsche Asset Management (since                        2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.)                        (1990-2006)                                                                                                                                                                                           | n/a |
| Kathleen                        Sullivan D’Eramo(6)(1957)Assistant Treasurer, 2003-present                            | Director(4), Deutsche Asset Management                                                                                                                                                                                                                                                                                                                                     | n/a |
| Jason                        Vazquez(5) (1966)Anti-Money Laundering Compliance Officer,                        2007-present | Vice President, Deutsche Asset Management (since 2006);                        formerly, AML Operations Manager for Bear Stearns (2004-2006); Supervising                        Compliance Principal and Operations Manager for AXA Financial                        (1999-2004)                                                                                          | 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 26, 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 26, 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 26, 2007, 480,843.014 shares in the aggregate, or 5.64% 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 26, 2007, 1,633,163.826 shares in the aggregate, or 17.12% 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 26, 2007, 5,745,505.014 shares in the aggregate, or 20.18% 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        A: 23336Y748

Class        B: 23336Y623

Class        C: 23336Y730

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        February** **20,** **2007 (Class        A and C Shares),**and Revised December 31, 2007

**February 20, 2007 (Class B Shares),**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 Prospectuses, 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 Prospectuses nor this SAI constitute an offer in any        state in which, or to any person to whom, such offer may not lawfully be made.