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

**_____________________________________________________________________________________________**

 

**Cash Management Fund Institutional**

**Cash Reserve Fund, Inc.**

Prime Series

**Cash Reserve Fund Institutional**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**DWS Capital Growth Fund**

**DWS Climate Change Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Income Fund**

**DWS EAFE® Equity Index Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

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

**DWS Equity 500 Index Fund**

**DWS Equity Income Fund**

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Floating Rate Plus Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Health Care Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities Fund**

**DWS Investments VIT Funds**

DWS Equity 500 Index VIP

DWS RREEF Real Estate Securities VIP

DWS Small Cap Index VIP

**DWS Japan Equity Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS LifeCompass 2015 Fund**

**DWS LifeCompass 2020 Fund**

**DWS LifeCompass 2030 Fund**

**DWS LifeCompass 2040 Fund**

**DWS LifeCompass Retirement Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Money Market Series**

**DWS RREEF Global Real Estate Securities Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

 

----

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

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

**DWS Value Builder Fund**

**DWS Variable Series I**

DWS Bond VIP

DWS Capital Growth VIP

DWS Global Opportunities VIP

DWS Growth & Income VIP

DWS Health Care VIP

DWS International VIP

 

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

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

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

 

----

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

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

 

----

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

 

 

 

 

*Please Retain This Supplement for Future Reference*

 

November 26, 2007

DMF-3913

 

 

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

 

| **Cash Management Fund Institutional**

**Cash Reserves Fund Institutional**

**Daily Assets Fund Institutional**

**DWS Alternative Asset Allocation Plus                            Fund**

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax-Free Income Fund**

**DWS Capital Growth Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Conservative Allocation Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Allocation Fund**

**DWS Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS Disciplined Market Neutral Fund**

**DWS Dreman Concentrated Value Fund**

**DWS Dreman High Return Equity Fund**

**DWS Dreman Mid Cap Value Fund**

**DWS Dreman Small Cap Value Fund**

**DWS EAFE® Equity Index                            Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

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

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

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Floating Rate Plus Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Growth Allocation Fund**

**DWS Growth Plus Allocation Fund**

**DWS Health Care Fund**

**DWS High Income Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities                            Fund**

**DWS Japan Equity Fund**

**DWS Large Cap Value Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

  | **DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Moderate Allocation Fund**

**DWS Money Market Prime Series**

**DWS Money Market Series**

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

**DWS RREEF Global Real Estate Securities                            Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS Strategic Income Fund**

**DWS Technology Fund**

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

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

**DWS Value Builder Fund**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**Tax-Exempt California Money Market                            Fund**

**Treasury Money Fund**

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

 

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

 

**Revenue Sharing**

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

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

 

----

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

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

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

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

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

A G            Edwards & Sons Inc.

AIG            Advisors Group

Ameriprise

Cadaret, Grant & Co. Inc.

Capital            Analyst, Incorporated

Citigroup Global Markets, Inc. (dba Smith Barney)

Commonwealth Equity Services, LLP (dba Commonwealth Financial            Network)

First            Clearing/Wachovia Securities

HD Vest            Investment Securities, Inc.

ING            Group

LaSalle            Financial Services, Inc. (dba ABN Amro)

Linsco/Private Ledger Corp.

Marsh            Insurance and Investment Company

Merrill            Lynch, Pierce, Fenner & Smith Inc.

Morgan            Stanley

Oppenheimer & Co., Inc.

Pacific            Select Distributors Group

Raymond            James & Associates

Raymond            James Financial Services

RBC            Dain Rauscher, Inc

Securities America, Inc.

UBS            Financial Services

Wells            Fargo Investments, LLC

 

----

 

**Channel: Cash Product Platform**

ADP            Clearing & Outsourcing

Allegheny Investments LTD

Bank of            New York (Hare & Co.)

Bear,            Stearns Securities Corp.

Brown            Brothers Harriman

Brown            Investment Advisory & Trust Company

Cadaret            Grant & Co.

Chicago            Mercantile Exchange

Citibank NA

D.A.            Davidson & Company

Deutsche Bank Securities Inc.

Deutsche Bank Trust Company Americas

Emmett            A. Larkin Company

Fiduciary Trust Co. – International

H.C.            Denison Co.

Huntleigh Securities

Investors Bank & Trust

JPMorgan Chase

Lincoln            Investment Planning

Linsco            Private Ledger Financial Services

Mellon            Financial Markets LLC

Penson            Financial Services

Pershing Choice Platform

ProFunds Distributors, Inc.

Romano            Brothers and Company

SAMCO            Capital Markets (Fund Services, Inc.)

Smith            Moore & Company

State            Street Bank & Trust Co.

Sungard            Institutional Brokerage Inc.

US            Bancorp

UBS            Financial Services Inc.

William            Blair & Company

**Channel: Third Party Insurance Platforms**

Acacia            National Life Insurance

Allmerica Financial Life Insurance Company

Allstate Life Insurance Company of New York

Ameritas Life Insurance Group

American General Life Insurance Company

Annuity            Investors Life Insurance Company

Columbus Life Insurance Company

Commonwealth Annuity and Life Insurance Company

Companion Life Insurance Company

Connecticut General Life Insurance Company

Farmers            New World Life Insurance Company

Fidelity Security Life Insurance Company

First            Allmerica Financial Life Insurance Company

Genworth Life Insurance Company of New York

Genworth Life and Annuity Insurance Company

Great            West Life and Annuity Insurance Company

Hartford Life Insurance Company

ICMG            Registered Variable Life

Integrity Life Insurance Company

John            Hancock Life Insurance companies

 

----

Kemper            Investors Life Insurance Company

Lincoln            Benefit Life Insurance Company

Lincoln            Life & Annuity Company of New York

Lincoln            National Life Insurance Company

Massachusetts Mutual Life Insurance Group

MetLife            Group

Minnesota Life Insurance Company

Mutual            of America Life Insurance Company

National Life Insurance Company

National Integrity Life Insurance Company

Nationwide Group

New            York Life Insurance and Annuity Corporation

Phoenix            Life Insurance Company

Protective Life Insurance

Provident Mutual Life Insurance

Prudential Insurance Company of America

Sun            Life GroupSymetra Life Insurance Company

Transamerica Life Insurance Company

Union            Central Life Insurance Company

United            of Omaha Life Insurance Company

United            Investors Life Insurance Company

Western            Southern Life Assurance Company

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

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

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

 

 

*Please Retain This Supplement for Future Reference*

 

August            8, 2007

DMF-3911

 

 

 

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

**_____________________________________________________________________________________________**

 

**Class A and Class S**

 

**Cash            Account Trust**

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

– DWS Tax Free Money Fund Class S

**DWS            Balanced Fund**

**DWS            Blue Chip Fund**

**DWS            California Tax-Free Income Fund**

**DWS            Capital Growth Fund**

**DWS            Commodity Securities Fund**

**DWS            Communications Fund**

**DWS            Conservative Allocation Fund**

**DWS            Core Fixed Income Fund**

**DWS            Core Plus Allocation Fund**

**DWS            Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS            Disciplined Market Neutral Fund**

**DWS            Dreman Concentrated Value Fund**

**DWS            Dreman High Return Equity Fund**

**DWS            Dreman Mid Cap Value Fund**

**DWS            Dreman Small Cap Value Fund**

**DWS            Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

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

**DWS            Equity 500 Index Fund**

**DWS            Equity Income Fund**

**DWS            Equity Partners Fund**

**DWS            Europe Equity Fund**

**DWS            Global Bond Fund**

**DWS            Global Opportunities Fund**

**DWS            Global Thematic Fund**

**DWS            GNMA Fund**

**DWS            Gold & Precious Metals Fund**

**DWS            Growth & Income Fund**

**DWS            Growth Allocation Fund**

**DWS            Growth Plus Allocation Fund**

**DWS            Health Care Fund**

**DWS            High Income Fund**

**DWS            High Income Plus Fund**

**DWS            High Yield Tax Free Fund**

**DWS            Inflation Protected Plus Fund**

**DWS            Intermediate Tax/AMT Free Fund**

**DWS            International Fund**

**DWS            International Equity Fund**

**DWS            International Select Equity Fund**

**DWS International Value Opportunities Fund**

**DWS            Japan Equity Fund**

**DWS            Large Cap Value Fund**

**DWS            Large Company Growth Fund**

**DWS            Latin America Equity Fund**

**DWS            Lifecycle Long Range Fund**

**DWS            Managed Municipal Bond Fund**

**DWS            Massachusetts Tax-Free Fund**

 

----

**DWS            Micro Cap Fund**

**DWS            Mid Cap Growth Fund**

**DWS            Moderate Allocation Fund**

**DWS            Money Market Prime Series**

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

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

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

**DWS RREEF Global Real Estate Securities Fund**

**DWS RREEF Real Estate Securities Fund**

**DWS            S&P 500 Index Fund**

**DWS            Short Duration Fund**

**DWS            Short Duration Plus Fund**

**DWS            Short-Term Municipal Bond Fund**

**DWS            Small Cap Core Fund**

**DWS            Small Cap Growth Fund**

**DWS            Small Cap Value Fund**

**DWS            Strategic Income Fund**

**DWS            Technology Fund**

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

**DWS            Value Builder Fund**

**Investors Cash Trust**

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

 

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

 

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

 

*Please retain this supplement for future reference.*

 

June            12, 2007

DMF-3908

 

 

 

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

 

| **Cash Account Trust**

Government & Agency Securities Portfolio

Money Market Portfolio

Tax-Exempt Portfolio

**Cash Management Fund Institutional**

**Cash Management Fund Investment**

**Cash Reserve Fund, Inc.**

Prime Series

Treasury Series

**Cash Reserves Fund Institutional**

**Daily Assets Fund Institutional**

**DWS Balanced Fund**

**DWS Blue Chip Fund**

**DWS California Tax-Free Income Fund**

**DWS Capital Growth Fund**

**DWS Commodity Securities Fund**

**DWS Communications Fund**

**DWS Conservative Allocation Fund**

**DWS Core Fixed Income Fund**

**DWS Core Plus Allocation Fund**

**DWS Core Plus Income Fund**

**DWS Disciplined Long/Short Growth Fund**

**DWS Disciplined Long/Short Value Fund**

**DWS Disciplined Market Neutral Fund**

**DWS Dreman Concentrated Value Fund**

**DWS Dreman High Return Equity Fund**

**DWS Dreman Mid Cap Value Fund**

**DWS Dreman Small Cap Value Fund**

**DWS EAFE® Equity Index                            Fund**

**DWS Emerging Markets Equity Fund**

**DWS Emerging Markets Fixed Income Fund**

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

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

**DWS Equity Partners Fund**

**DWS Europe Equity Fund**

**DWS Global Bond Fund**

**DWS Global Opportunities Fund**

**DWS Global Thematic Fund**

**DWS GNMA Fund**

**DWS Gold & Precious Metals Fund**

**DWS Growth & Income Fund**

**DWS Growth Allocation Fund**

**DWS Growth Plus Allocation Fund**

**DWS Health Care Fund**

**DWS High Income Fund**

**DWS High Income Plus Fund**

**DWS High Yield Tax Free Fund**

**DWS Inflation Protected Plus Fund**

**DWS Intermediate Tax/AMT Free Fund**

**DWS International Equity Fund**

**DWS International Fund**

**DWS International Select Equity Fund**

**DWS International Value Opportunities                            Fund**

**DWS Japan Equity Fund**

**DWS Large Cap Value Fund**

**DWS Large Company Growth Fund**

**DWS Latin America Equity Fund**

**DWS Lifecycle Long Range Fund**

**DWS Managed Municipal Bond Fund**

**DWS Massachusetts Tax-Free Fund**

**DWS Micro Cap Fund**

**DWS Mid Cap Growth Fund**

**DWS Moderate Allocation Fund**

**DWS Money Market Prime Series**

**DWS Money Market Series**

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

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

**DWS RREEF Real Estate Securities Fund**

**DWS S&P 500 Index Fund**

**DWS Short Duration Fund**

**DWS Short Duration Plus Fund**

**DWS Short Term Bond Fund**

**DWS Short-Term Municipal Bond Fund**

**DWS Small Cap Core Fund**

**DWS Small Cap Growth Fund**

**DWS Small Cap Value Fund**

**DWS Strategic Income Fund**

**DWS Target 2008 Fund**

**DWS Target 2010 Fund**

**DWS Target 2011 Fund**

**DWS Target 2012 Fund**

**DWS Target 2013 Fund**

**DWS Target 2014 Fund**

**DWS Technology Fund**

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

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

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

**DWS Value Builder Fund**

**Investors Cash Trust**

Treasury Portfolio

**Money Market Fund Investment**

**NY Tax Free Money Fund**

**Tax Free Money Fund Investment**

**Tax-Exempt California Money Market                            Fund**

**Treasury Money Fund**

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

 

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

 

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

 

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

 

----

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

 

 

*Please Retain This Supplement for Future Reference*

 

March            22, 2007

DMF-3905

 

 

 

**DWS ADVISOR FUNDS**

**DWS International Select Equity Fund**

Class            A, Class B, Class C, Class R and Institutional Class

**STATEMENT OF ADDITIONAL INFORMATION**

 

**March 1, 2007, as Revised December 31, 2007**

 

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

The            Annual Report to Shareholders, dated October 31, 2006, is incorporated herein by            reference and is deemed to be part of this Statement of Additional Information. A copy            of the Fund’s Annual Report may be obtained without charge by calling the Fund at            the toll-free number 1-800-621-1048.

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

 

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**TABLE OF CONTENTS**

|   | **Page** |
|--------|----------|

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

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

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

|   | Portfolio                            Holdings | 39 |
|--------|-----------------------------------------------|----|

| MANAGEMENT OF                            THE FUND | 40 |
|---------------------------------------------------|----|

|   | Investment                            Advisor | 40 |
|--------|-----------------------------------------------|----|

|   | Compensation of                            Portfolio Managers | 42 |
|--------|---------------------------------------------------------------|----|

| FUND SERVICE                            PROVIDERS | 46 |
|---------------------------------------------------|----|

|   | Administrator | 46 |
|--------|---------------|----|

|   | Distributor | 47 |
|--------|-------------|----|

|   | Custodian | 49 |
|--------|-----------|----|

|   | Legal                            Counsel | 50 |
|--------|------------------------------------------|----|

|   | Independent                            Registered Public Accounting Firm | 50 |
|--------|--------------------------------------------------------------------------|----|

|   | Transfer                            Agent | 50 |
|--------|-------------------------------------------|----|

| PORTFOLIO                            TRANSACTIONS | 50 |
|---------------------------------------------------|----|

| PURCHASES AND                            REDEMPTIONS OF SHARES | 52 |
|----------------------------------------------------------------|----|

| DIVIDENDS | 69 |
|-----------|----|

| TAXES | 70 |
|-------|----|

| NET ASSET                            VALUE | 75 |
|--------------------------------------------|----|

| TRUSTEES AND                            OFFICERS | 76 |
|--------------------------------------------------|----|

| TRUST                            ORGANIZATION | 86 |
|-----------------------------------------------|----|

| PROXY VOTING                            GUIDELINES | 88 |
|----------------------------------------------------|----|

| FINANCIAL                            STATEMENTS | 89 |
|-------------------------------------------------|----|

| ADDITIONAL                            INFORMATION | 89 |
|---------------------------------------------------|----|

| APPENDIX | 91 |
|----------|----|

 

No            person has been authorized to give any information or to make any representations not            contained in this SAI or in the Prospectuses in connection with the offering made by            each Prospectus and, if given or made, such information or representations must not be            relied upon as having been authorized by the Trust or its Distributor. Each Prospectus            does not constitute an offering by the Fund or by the Distributor in any jurisdiction            in which such offering may not lawfully be made. Shares of the Fund may not available            in certain states. Please call 1-800-621-1048 to determine availability in your            state.

 

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**INVESTMENT RESTRICTIONS**

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

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

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

**Fundamental Investment Restrictions**

| (1) | The Fund may not issue senior securities, except as                            permitted under the 1940 Act, as amended, and as interpreted or                            modified by regulatory authority having jurisdiction, from time to                            time. |
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| (2) | The Fund may not borrow money, except as permitted under                            the 1940 Act, as amended, and as interpreted or modified by regulatory                            authority having jurisdiction, from time to time. |
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| (3) | The Fund may not engage in the business of underwriting                            securities issues by others, except to the extent that a Fund may be                            deemed to be the underwriter in connection with the disposition of                            portfolio securities. |
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| (4) | The Fund may not 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. |
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| (5) | The Fund may not make loans except as permitted under                            the 1940 Act, as amended, and as interpreted or modified by regulatory                            authority having jurisdiction, from time to time. |
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| (6) | The Fund may not purchase or sell commodities, except as                            permitted by the 1940 Act, as amended, and as interpreted or modified                            by the regulatory authority having jurisdiction, from time to                            time. |
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| (7) | The Fund may not concentrate its investments in a                            particular industry, as that term is used in the 1940 Act, as amended,                            and as interpreted or modified by regulatory authority having                            jurisdiction, from time to time. |
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| (8) | The Fund has elected to be treated as a diversified                            investment company, as that term is used in the 1940 Act, as amended,                            and as interpreted or modified by regulatory authority having                            jurisdiction from time to time. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Non-Fundamental Investment Restrictions**

In            addition to the fundamental policies mentioned above, the Board of Trustees of the            Trust has adopted the following non-fundamental policies that may be changed or amended            by action of the Board of Trustees without shareholder approval.

 

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The            Fund may not:

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

| (b) | Purchase securities of other investment companies,                            except as permitted by the 1940 Act and the rules, regulations and any                            applicable exemptive order issued thereunder. |
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| (c) | Invest for the purpose of exercising control over or                            management of any company. |
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| (d) | Purchase any security, including any repurchase                            agreement maturing in more than seven days, which is illiquid, if more                            than 15% of the net assets of the Fund, taken at market value, would be                            invested in such securities. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

The            staff of the SEC has taken the position that fixed time deposits maturing in more than            seven days that cannot be traded on a secondary market and participation interests in            loans are illiquid. Until such time (if any) as this position changes, the Trust, on            behalf of the Fund, will include such investments in determining compliance with the            15% limitation on investments in illiquid securities. Restricted securities (including            commercial paper issued pursuant to Section 4(2) of the 1933 Act) which the Advisor has            determined are readily marketable will not be deemed to be illiquid for purposes of            such restriction.

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.

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

**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.

 

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***Equity Securities***

**General.**The Fund may invest in equity            securities listed on any domestic or non-US securities exchange or traded in the            over-the-counter (or “OTC”) market as well as certain restricted or            unlisted securities. As used herein, “equity securities” include common            stock, preferred stock, trust or limited partnership interests, rights and warrants (to            subscribe to or purchase such securities) and convertible securities (consisting of            debt securities or preferred stock that may be converted into common stock or that            carry the right to purchase common stock).

**Common Stocks.**Common stocks, the most            familiar type of equity securities, represent an equity            (i.e., ownership) interest in a            corporation. They may or may not pay dividends or carry voting rights. Common stock            occupies the most junior position in a company’s capital structure. Although            equity securities have a history of long-term growth in value, their prices fluctuate            based on changes in a company’s financial condition, as well as changes in            overall market and economic conditions. This affects the value of the shares of the            Fund, and thus the value of your investment. Smaller companies are especially sensitive            to these factors.

**Warrants.**The Fund may invest in warrants.            Warrants are securities that give the holder the right but not the obligation 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 specified period (or in            perpetuity). Warrants may be issued in units with other securities or separately, and            may be freely transferable and traded on exchanges. Investing in warrants can provide a            greater potential for profit or loss than an equivalent investment in the underlying            security, and, thus is a speculative investment. At the time of issue, the cost of a            warrant is substantially less than the cost of the underlying security itself, and            price movements in the underlying security are generally magnified in the price            movements of the warrant. This leveraging effect enables the investor to gain exposure            to the underlying security with a relatively low capital investment. This leveraging            increases an investor’s risk, however, in the event of a decline in the value of            the underlying security and can result in a complete loss of the amount invested in the            warrant.

While the market value of a warrant tends to be more volatile than that            of the securities underlying the warrant, changes in the market value of a warrant may            not necessarily correlate with that of the underlying security. A warrant ceases to            have value if it is not exercised prior to the expiration date, if any, 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. The value of a            warrant may decline because of a decline in the value of the underlying security, the            passage of time, changes in interest rates or in the dividend or other policies of the            company whose equity underlies the warrant or a change in the perception as to the            future price of the underlying security, or any combination thereof. Also, warrants do            not entitle the holder to dividends or voting rights with respect to the underlying            securities and do not represent any rights in the assets of the issuing            company.

**Preferred Stock.**The Fund may invest in            preferred stock. Preferred stock has a preference            (i.e., ranks higher) in liquidation            (and generally dividends) over common stock but is subordinated            (i.e., ranks lower) in liquidation            to fixed income securities. Dividends on preferred stock may be cumulative, and in such            cases, all cumulative dividends usually must be paid prior to dividend payments to            common stockholders. Because of this preference, preferred stocks generally entail less            risk than common stocks. As a general rule the market value of preferred stocks with            fixed dividend rates and no conversion rights moves inversely with interest rates and            perceived credit risk, with the price determined by the dividend rate. Some preferred            stocks are convertible into other securities            (e.g., common stock) at a fixed            price and ratio or upon the occurrence of certain events. The market price of            convertible preferred stocks generally reflects an element of conversion value. Because            many preferred stocks lack a fixed maturity date, these securities generally fluctuate            substantially in value when interest rates change; such fluctuations often exceed those            of long-term bonds of the same issuer. Some preferred stocks pay an adjustable dividend            that may be based on an index, formula, auction procedure or other dividend rate reset            mechanism. In the absence of credit deterioration, adjustable rate preferred stocks            tend to have more stable market values than fixed rate preferred stocks.

 

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All            preferred stocks are also subject to the same types of credit risks as corporate bonds.            In addition, because preferred stock is subordinate to debt securities and other            obligations of an issuer, deterioration in the credit rating of the issuer will cause            greater changes in the value of a preferred stock than in a more senior debt security            with similar yield characteristics. Preferred stocks may be rated by the Standard &            Poor’s Division of The McGraw-Hill Companies, Inc. (“S&P”) and            Moody’s Investors Service, Inc. (“Moody’s”) although there is            no minimum rating which a preferred stock must have to be an eligible investment for            the Fund.

**Convertible Securities.**The Fund may invest            in convertible securities. A convertible security is a bond or preferred stock which            may be converted at a stated price within a specific period of time into a specified            number of shares of common stock of the same or different issuer. Convertible            securities are senior to common stock in a corporation’s capital structure, but            are generally subordinate to non-convertible debt securities. While providing a fixed            income stream, generally higher in yield than in the income derived from a common stock            but lower than that afforded by a non-convertible debt security, a convertible security            also affords an investor the opportunity, through its conversion feature, to            participate in the capital appreciation of common stock into which it is            convertible.

The            terms of any convertible security determine its ranking in a company’s capital            structure. In the case of subordinated convertible debentures, the holders’            claims on assets and earnings are subordinated to the claims of other creditors, and            are senior to the claims of preferred and common shareholders. In the case of            convertible preferred stock, the holders’ claims on assets and earnings are            subordinated to the claims of all creditors and are senior to the claims of common            shareholders.

In            general, the market value of a convertible security is the greater of its investment            value (its value as a fixed income security) or its conversion value (the value of the            underlying shares of common stock if the security is converted). Because a convertible            security is a fixed income security, its market value generally increases when interest            rates decline and generally decreases when interest rates rise; however, the price of a            convertible security also generally increases as the market value of the underlying            stock increases, and generally decreases as the market value of the underlying stock            declines. Investments in convertible securities generally entail less risk than            investments in the common stock of the same issuer.

***Medium-Capitalization, Small-Capitalization and            Micro-Capitalization Stocks***

The            Fund may invest in lesser-known companies with medium-, small- and micro-market            capitalizations. Such companies frequently offer greater growth potential than larger,            more mature, better-known companies. Investments in such companies involve            considerations that are not applicable to investing in securities of established,            larger capitalization issuers including reduced and less reliable information about the            issuer, less stringent financial disclosure requirements and higher brokerage            commissions and fees and greater market risk in general.

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

For            example, securities of these companies involve higher investment risk than that            normally associated with larger firms due to the greater business risks of small size            and limited product lines, markets, distribution channels and financial and managerial            resources. Therefore such securities may be subject to more abrupt or erratic market            movements than securities of larger, more established companies or the market averages            in general.

In            addition, many medium-, small- and micro market capitalization companies in which the            Fund may invest are not well-known to the investing public, do not have significant            institutional ownership and are followed by relatively few securities analysts. As a            result, it may be difficult to obtain reliable information and financial data on such            companies and the securities of smaller capitalization companies may not be readily            marketable, making it difficult to dispose of shares when desirable. Also, the            securities of smaller capitalization companies traded on the OTC market may have fewer            market makers, wider spreads between their quoted bid and asked prices and lower            trading volumes, resulting in comparatively greater price volatility and less liquidity            than exists for securities of larger capitalization companies.

 

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An            additional risk of investing in smaller emerging companies is that smaller issuers may            face increased difficulty in obtaining the capital necessary to continue operations and            thus may go into bankruptcy, which could result in a complete loss of an investment.            Furthermore, when the economy enters into recession there tends to be a “flight            to quality” which exacerbates the increased risk and greater price volatility            normally associated with smaller capitalization companies.

All            of these risks are heightened for micro-capitalization companies.

***Fixed Income Securities and Money Market            Instruments***

**General.**The Fund may invest in a broad            range of domestic and foreign fixed income (debt) securities. Fixed income securities,            including (but not limited to) bonds, are used by issuers to borrow money from            investors. The issuer pays the investor a fixed or variable rate of interest, and must            repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds,            do not pay current interest, but are purchased at a discount from their face            values.

The            value of fixed income securities in the Fund’s portfolio generally varies            inversely with changes in interest rates. Prices of fixed income securities with longer            effective maturities are more sensitive to interest rate changes than those with            shorter effective maturities.

In            periods of declining interest rates, the yield (the income generated over a stated            period of time) of the Fund that invests in fixed income securities may tend to be            higher than prevailing market rates, and in periods of rising interest rates, the yield            of the Fund may tend to be lower. Also, when interest rates are falling, the inflow of            net new money to the Fund from the continuous sale of its shares will likely be            invested in portfolio instruments producing lower yields than the balance of the            Fund’s portfolio, thereby reducing the yield of the Fund. In periods of rising            interest rates, the opposite can be true. To the extent it invests in fixed income            securities, the net asset value of the Fund can generally be expected to change as            general levels of interest rates fluctuate.

**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); (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);            and (5) extension risk (the likelihood that as interest rates increase, slower            than expected principal payments may extend the average life of fixed income            securities, which will have the effect of locking in a below-market interest rate,            increasing the security’s duration and reducing the value of the            security).

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

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

 

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

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

Investments in these obligations may entail risks that are different            from those of investments in obligations of US domestic banks because of differences in            political, regulatory and economic systems and conditions. These risks include future            political and economic developments, currency blockage, the possible imposition of            withholding taxes on interest payments, possible seizure or nationalization of foreign            deposits, difficulty or inability of pursuing legal remedies and obtaining judgments in            foreign courts, possible establishment of exchange controls or the adoption of other            foreign governmental restrictions that might affect adversely the payment of principal            and interest on bank obligations. Foreign branches of US banks and foreign banks may            also be subject to less stringent reserve requirements and to different accounting,            auditing, reporting and record keeping standards that those applicable to domestic            branches of US banks.

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

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

**Commercial Paper.**The Fund may invest in            commercial paper. The Fund may invest in fixed rate or variable rate commercial paper,            issued by US or foreign entities. Commercial paper consists of short-term (usually up            to one year) unsecured promissory notes issued by US or foreign corporations in order            to finance their current operations. Any commercial paper issued by a foreign entity            corporation and purchased by the Fund must be US dollar-denominated and must not be            subject to foreign withholding tax at the time of purchase.

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

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

**Variable Rate Master Demand Notes**. The Fund            may also invest in variable rate master demand notes. A variable value 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.

 

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**US Government Securities.**The Fund may            invest in obligations issued or guaranteed by the US government which include:            (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 US are:            instruments that are supported by the full faith and credit of the US (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 by the credit of the instrumentality (such as            Federal National Mortgage Association (“FNMA” or “Fannie Mae”)            and Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie            Mac”)).

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 component 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            are sold as zero coupon securities. See “Zero Coupon            Securities.”

**Custodial Receipts.**The Fund may invest in            custodial receipts which are interests in separately traded interest and principal            component parts of US government securities that are issued by banks or brokerage firms            and are created by depositing US government securities into a special account at a            custodian bank. The custodian holds the interest and principal payments for the benefit            of the registered owners of the certificates or receipts. The custodian arranges for            the issuance of the certificates or receipts evidencing ownership and maintains the            register. Custodial receipts include Treasury Receipts (“TRs”), Treasury            Investment Growth Receipts (“TIGRs”), and Certificates of Accrual on            Treasury Securities (“CATS”). TIGRs and CATS are interests in private            proprietary accounts while TRs and STRIPS are interests in accounts sponsored by the US            Treasury. Receipts are sold as zero coupon securities. See “Zero Coupon            Securities and Deferred Interest Bonds.”

The            Fund may acquire US government securities and their unmatured interest coupons that            have been separated (“stripped”) by their holder, typically a custodian            bank or investment brokerage firm. Having separated the interest coupons from the            underlying principal of the US government securities, the holder will resell the            stripped securities in custodial receipt programs with a number of different names,            including TIGRs, and CATS. The stripped coupons are sold separately from the underlying            principal, which is usually sold at a deep discount because the buyer receives only the            right to receive a future fixed payment on the security and does not receive any rights            to periodic interest (cash) payments. The underlying US Treasury bonds and notes            themselves are generally held in book-entry form at a Federal Reserve Bank. Counsel to            the underwriters of these certificates or other evidences of ownership of US Treasury            securities have stated that, in their opinion, purchasers of the stripped securities            most likely will be deemed the beneficial holders of the underlying US government            securities for federal tax and securities purposes. In the case of CATS and TIGRS, the            Internal Revenue Service ( the “IRS”) has reached this conclusion for the            purpose of applying the tax diversification requirements applicable to regulated            investment companies such as the Fund. CATS and TIGRS are not considered US government            securities by the staff of the SEC. Further, the IRS conclusion noted above is            contained only in a general counsel memorandum, which is an internal document of no            precedential value or binding effect, and a private letter ruling, which also may not            be relied upon by the Fund. The Trust is not aware of any binding legislative, judicial            or administrative authority on this issue.

 

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**Zero Coupon Securities and Deferred Interest Bonds.**The Fund may invest in zero coupon securities and deferred interest            bonds. 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            “Taxes.”

**Inverse Floating Rate Securities.**The Fund            may invest up to 5% of its net assets in inverse floating rate securities            (“inverse floaters”). The interest rate on an inverse floater resets in the            opposite direction from the market rate of interest to which the inverse floater is            indexed. An inverse floater may be considered to be leveraged to the extent that its            interest rate varies by a magnitude that exceeds the magnitude of the change in the            index rate of interest. The higher degree of leverage inherent in inverse floaters is            associated with greater volatility in their market values. See “Illiquid            Securities.”

**Yields and Ratings.**The yields on certain            obligations in which the Fund may invest (such as commercial paper and bank            obligations) are dependent on a variety of factors, including the ratings of the issue.            The ratings of S&P, Moody’s and other recognized rating organizations            represent their respective opinions as to the quality of the obligations they undertake            to rate. Ratings, however, are general and are not absolute standards of quality or            value. Consequently, obligations with the same rating, maturity and interest rate may            have different market prices. See Appendix A for a description of the ratings provided            by recognized statistical ratings organizations.

**Lower-Rated Debt Securities (“Junk Bonds” or “High            Yield Debt Securities”).**The Fund may invest in debt            securities rated in the fifth and sixth long-term rating categories by S&P,            Moody’s and Duff & Phelps Credit Rating Company, or comparably rated by            another NRSRO, or if not rated by an 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, 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 are 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

 

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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 yielding 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.

**Rating Downgrades.**Subsequent to its            purchase by the Fund, a rated security may cease to be rated or its rating may be            reduced below the minimum rating required for purchase by the Fund. The Advisor will            consider such an event in determining whether the Fund should continue to hold the            security in accordance with the interests of the Fund and applicable regulations of the            SEC. The Fund will not continue to hold fixed income securities that have been            downgraded below investment grade if more than 5% of the Fund’s net assets would            consist of such securities.

**Registered Loans.**The Fund may invest in            loan obligations issued or guaranteed by sovereign governments or their agencies and            instrumentalities. The ownership of these loans is registered in the books of an agent            bank and/or the borrower, and transfers of ownership are effected by assignment            agreements. Documentation for these assignments includes a signed notice of assignment,            which is sent to the agent and/or borrower for registration shortly after the execution            of the assignment agreement. Prior to the notice of assignment being registered with            the agent and/or borrower, the borrower or its agent will make any payments of            principal and interest to the last registered owner.

Given the volume of secondary market trading in registered loans, the            agent and/or borrower’s books may be out of date, making it difficult for the            Fund to establish independently whether the seller of a registered loan is the owner of            the loan. Generally, registered loans trade in the secondary market with interest            (i.e., the right to accrued but unpaid interest is transferred to            purchasers).

**Other Debt Obligations.**The Fund may invest            in deposits, bonds, notes and debentures and other debt obligations that at the time of            purchase have, or are comparable in priority and security to other securities of such            issuer which have, outstanding short-term obligations meeting the above short-term            rating requirements, or if there are no such short-term ratings, are determined by the            Advisor to be of comparable quality.

**Derivative Securities**

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

 

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

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

**Derivative Securities: Options**

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

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

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

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

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

 

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control, the Fund must purchase the underlying security from the option            holder at the exercise price. By writing a covered put option, the Fund, in exchange            for the net premium received, accepts the risk of a decline in the market value of the            underlying security below the exercise price.

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

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

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

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

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

 

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will purchase such options only from a counter party approved for these            purposes by the Advisor. The Advisor will monitor the creditworthiness of dealers with            whom the Fund enters into such options transactions.

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

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

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

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

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

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

Price movements in the Fund’s portfolio may not correlate            precisely with movements in the level of an index and, therefore, the use of options on            indices cannot serve as a complete hedge. Because options on securities            indices

 

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require settlement in cash, the Advisor may be forced to liquidate            portfolio securities to meet settlement obligations. The Fund’s activities in            index options may also be restricted by the requirements of the Code for qualification            as a regulated investment company.

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

**Options on Non-US Securities Indices.**The            Fund may purchase and write put and call options on foreign securities indices listed            on domestic and foreign securities exchanges. The Fund will write call options only if            they are “covered.” The Fund may also purchase and write OTC options on            foreign securities indices.

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

**Yield Curve Options**. The Fund may enter            into options on the yield spread or yield differential between two securities. These            options are referred to as yield curve options. In contrast to other types of options,            a yield curve option is based on the difference between the yields of designated            securities, rather than the prices of the individual securities, and is settled through            cash payments. Accordingly, a yield curve option is profitable to the holder if this            differential widens (in the case of a call) or narrows (in the case of a put),            regardless of whether the yields of the underlying securities increase or            decrease.

**Spreadlocks.**The Fund may enter into            spreadlocks. A spreadlock is a form of swap contract which is an exchange of a one-time            cash payment between the Fund and another party which is based on a specific financial            index. A spreadlock allows an interest rate swap user to lock in the forward            differential between the interest rate swap rate and the yield of the government bond            underlying the swap. Essentially, a spreadlock allows the investor to buy or sell the            spread forward by entering into a forward contract on the swap spread (i.e., the spread            between the government yield and the swap rate (or yield)) for a given maturity. The            price of a spreadlock is determined by the yield spread between a forward starting            fixed/floating swap and a forward transaction in a government bond. The value of the            swap is adjusted daily and the change in value is recorded as unrealized appreciation            or depreciation up until the agreement matures at which time the cash payment, based on            the value of the swap on the maturity date, is exchanged between the two            parties.

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

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

The            Fund will engage in futures and related options transactions only for bona fide hedging            or other non-hedging purposes as permitted by CFTC regulations which permit principals            of an investment company registered under the Investment Company Act of 1940            (“1940 Act”) to engage in such transactions without registering as            commodity pool operators. The Fund may, for example, enter into futures contracts and            options on futures contracts on securities, securities indices and currencies to manage            its exposure to changing interest rates, security prices and currency exchange rates or            as an efficient means of managing allocations between asset classes. All futures            contracts entered into by the Fund is traded on US exchanges or boards of trade that            are licensed and regulated by the CFTC or on foreign exchanges approved by the CFTC.            The Fund will determine that the price fluctuations in the futures contracts and            options on futures used for hedging purposes are substantially related to price            fluctuations in securities or instruments held by the Fund or securities or instruments            which they expect to purchase. The Fund

 

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has            claimed exclusion from the definition of the term “commodity pool operator”            adopted by the CFTC and the National Futures Association, which regulate trading in the            futures markets. Therefore, the Fund is not subject to commodity pool operator            registration and regulation under the Commodity Exchange Act            (“CEA”).

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

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

**Futures Contracts.**Futures contracts are            contracts to purchase or sell a fixed amount of an underlying instrument, commodity or            index at a fixed time and place in the future. US futures contracts have been designed            by exchanges which have been designated “contract markets” by the CFTC, and            must be executed through a futures commission merchant, or brokerage firm, which is a            member of the relevant contract market. Futures contracts trade on a number of exchange            markets, and, through their clearing corporations, the exchanges guarantee performance            of the contracts as between the clearing members of the exchange. The Fund may enter            into contracts for the purchase or sale for future delivery of fixed-income or equity            securities, foreign currencies, or financial indices including any index of US or            foreign securities, US government securities, foreign government securities, or            corporate debt securities. Futures contracts on foreign currencies may be used for            speculative purposes or to hedge the value of securities that are denominated in            foreign currencies.

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

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

One            purpose of the acquisition or sale of a futures contract, in cases where the Fund holds            or intends to acquire fixed-income or equity securities, is to attempt to protect the            Fund from fluctuations in interest or foreign exchange rates or in securities prices            without actually buying or selling fixed-income or equity securities or foreign            currencies. For example, if interest rates were expected to increase (which thus would            cause the prices of debt securities to decline), the Fund might enter into futures            contracts for the sale of debt securities. Such a sale would have much the same effect            as selling an equivalent value of the debt securities owned by the Fund. If interest            rates did increase, the value of the debt security in the Fund would decline, but the            value of the futures contracts to the Fund would

 

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increase at approximately the same rate, thereby keeping the net asset            value of the Fund from declining as much as it otherwise would have. The Fund could            accomplish similar results by selling debt securities and investing in bonds with short            maturities when interest rates are expected to increase. However, since the futures            market is more liquid than the cash market, the use of futures contracts as an            investment technique allows the Fund to maintain a defensive position without having to            sell its portfolio securities.

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

The            ordinary spreads between prices in the cash and futures market, due to differences in            the nature of those markets, are subject to distortions. First, all participants in the            futures market are subject to initial and variation margin requirements. Rather than            meeting additional variation margin requirements, investors may close futures contracts            through offsetting transactions which could distort the normal relationship between the            cash and futures markets. Second, the liquidity of the futures market depends on most            participants entering into offsetting transactions rather than making or taking            delivery. To the extent that many participants decide to make or take delivery,            liquidity in the futures market could be reduced, thus producing distortion. Third,            from the point of view of speculators, the margin requirements in the futures market            are less onerous than margin requirements in the securities market. Therefore,            increased participation by speculators in the futures market may cause temporary price            distortions. Due to the possibility of distortion, a correct forecast of securities            price, general interest rate or currency exchange rate trends by the Advisor may still            not result in a successful transaction.

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

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

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

When used for hedging purposes, each transaction in futures contracts on            a securities index involves the establishment of a position which, the Advisor            believes, will move in a direction opposite to that of the investment

 

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being hedged. If these hedging transactions are successful, the futures            positions taken for the Fund will rise in value by an amount which approximately            offsets the decline in value of the portion of the Fund’s investments that are            being hedged. Should general market prices move in an unexpected manner, the full            anticipated benefits of futures contracts may not be achieved or a loss may be            realized.

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

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

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

The            writing of a put option on an index futures contract may constitute a partial hedge            against increasing prices of the underlying securities or foreign currency that are            deliverable upon exercise of the futures contract. If the futures price at expiration            of the option is higher than the exercise price, the Fund will retain the full amount            of the option net premium, which provides a partial hedge against any increase in the            price of securities that the Fund intends to purchase.

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

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

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

**Derivative Securities: Swap Agreements**

**General.**The Fund may enter into swaps            relating to indices, currencies, interest rates, equity and debt interests without            limit. A swap transaction is an agreement between the Fund and a counter party to act            in accordance with the terms of the swap contract. Interest rate swaps involve the            exchange by the Fund with another party of their respective commitments to pay or            receive interest, such as an exchange of fixed rate payments for floating rate            payments. Mortgage swaps are similar to interest rate swaps in that they represent            commitments to pay and receive interest. The notional principal amount, however, is            tied to a reference pool or pools of mortgages. Index swaps involve the exchange by the            Fund with another party of the respective amounts payable with respect to a notional            principal amount related to one or more indexes. Currency swaps involve the exchange of            cash flows on a notional amount of two or more currencies based on their relative            future values. An equity swap is an agreement to exchange streams of payments computed            by reference to a notional amount based on the performance of a basket of stocks or a            single stock. The purchase of an interest rate cap entitles the purchaser, to the            extent that a specified index exceeds

 

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a            predetermined interest rate, to receive payment of interest on a notional principal            amount from the party selling such interest rate cap. The purchase of an interest rate            floor entitles the purchaser, to the extent that a specified index falls below a            predetermined interest rate, to receive payments of interest on a notional principal            amount from the party selling the interest rate floor. An interest rate collar is the            combination of a cap and a floor that preserves a certain return within a predetermined            range of interest rates.

The            Fund may enter into these transactions to preserve a return or spread on a particular            investment or portion of its assets, 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 may also use such            transactions for speculative purposes, such as to obtain the price performance of a            security without actually purchasing the security in circumstances, for example, where            the subject security is illiquid, is unavailable for direct investment or available            only on less attractive terms. Swaps have special risks associated including possible            default by the counterpart to the transaction, illiquidity and, where swaps are used as            hedges, the risk that the use of a swap could result in losses greater than if the swap            had not been employed. See “Illiquid Securities.”

The            Fund will usually enter into swaps on a net basis (i.e. the two payment streams are            netted out in a cash settlement on the payment date or dates specified in the            agreement, with the Fund receiving or paying, as the case may be, only the net amount            of the two payments). Swaps do not involve the delivery of securities, other underlying            assets or principal. Accordingly, the risk of loss with respect to swaps is limited to            the net amount of payments that the Fund is contractually obligated to make or receive.            If the counter party to a swap defaults, the Fund’s risk of loss consists of the            net amount of payments that the Fund is contractually entitled to receive. Where swaps            are entered into for good faith hedging purposes, the Advisor believes such obligations            do not constitute senior securities under the 1940 Act and, accordingly, will not treat            them as being subject to the Fund’s borrowing restrictions. Where swaps are            entered into for other than hedging purposes, the Fund will segregate an amount of cash            or other liquid securities having a value equal to the accrued excess of its            obligations over entitlements with respect to each swap on a daily basis.

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 counter            party. In addition, the Fund will enter into swap agreements only with counter parties            that would be eligible for consideration as repurchase agreement counter parties under            the Fund’s repurchase agreement guidelines. Certain restrictions imposed on the            Fund by the Code may limit the Fund’s ability to use swap agreements. The swaps            market is a relatively new market and is largely unregulated. It is possible that            developments in the swaps market, including potential government regulation, could            adversely affect the Fund’s ability to terminate existing swap agreements or to            realize amounts to be received under such agreements.

Certain swap agreements are exempt from most provisions of the CEA and,            therefore, are not regulated as futures or commodity option transactions under the CEA,            pursuant to regulations approved by the CFTC effective February 22, 1993. To qualify            for this exemption, a swap agreement must be entered into by eligible participants,            which includes the following, provided the participant’s total assets exceed            established levels: a bank or trust company, savings association or credit union,            insurance company, investment company subject to regulation under the 1940 Act,            commodity pool, corporation, partnership, proprietorship, organization, trust or other            entity, employee benefit plan, governmental entity, broker-dealer, futures commission            merchant, natural person, or regulated foreign person. To be eligible, natural persons            and most other entities must have total assets exceeding $10 million; commodity pools            and employee benefit plans must have asset exceeding $5 million. In addition, an            eligible swap transaction must meet three conditions. First, the swap agreement may not            be part of a fungible class of agreements that are standardized as to their material            economic terms. Second, the creditworthiness of parties with actual or potential            obligations under the swap agreement must be a material consideration in entering into            or determining the terms of the swap agreement, including pricing, cost or credit            enhancement terms. Third, swap agreements may not be entered into and traded on or            through a multilateral transaction execution facility.

This exemption is not exclusive, and participants may continue to rely            on existing exclusions for swaps, such as the Policy Statement issued in July 1989            which recognized a “safe harbor” for swap transactions from regulation            as

 

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futures or commodity option transactions under the CEA or its            regulations. The Policy Statement applies to swap transactions settled in cash that:            (1) have individually tailored terms; (2) lack exchange style offset and the use of a            clearing organization or margin system; (3) are undertaken in conjunction with a line            of business; and (4) are not marketed to the public.

The            Fund will not enter into any swap, cap or floor transaction unless the unsecured            commercial paper, senior debt or the claims-paying ability of the other party thereto            is considered to be investment grade by the Advisor. If there is a default by the other            party to such a transaction, the Fund will have contractual remedies pursuant to the            agreements related to the transaction. The swap market has grown substantially in            recent years with a large number of banks and investment banking firms acting both as            principals and as agents utilizing standardized swap documentation. As a result, the            swap market has become relatively liquid in comparison with the markets for other            similar instruments which are traded in the interbank market. See “Illiquid            Securities.” Restrictions adopted by the CFTC may in the future restrict the            Fund’s ability to enter into swap transactions.

**Derivative Securities: Hedging Strategies**

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

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

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

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

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

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

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

In            hedging transactions based on an index, whether the Fund will realize a gain or loss            depends upon movements in the level of securities prices in the securities market            generally or, in the case of certain indexes, in an industry or market segment, rather            than movements in the price of a particular security. The risk of imperfect correlation            increases as the composition of the Fund’s portfolio varies from the composition            of the index. In an effort to compensate for imperfect correlation of relative            movements in the hedged position and the hedge, the Fund’s hedge positions may be            in a greater or lesser dollar amount than the dollar amount of the hedged position.            Such “over hedging” or “under hedging” may adversely affect the            Fund’s net investment results if market movements are not as anticipated when the            hedge is established.

 

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

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

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

**General Characteristics.**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) properties,            agriculture 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.

**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 are permitted to invest            in other types of mortgage-backed securities that may be available in the future to the            extent consistent with the Fund’s investment policies and objectives.

**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.

 

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The            Ginnie Mae Certificates in which the Fund may invest 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 Fund 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 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            corporate instrumentality 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 (Collateralized Mortgage            Obligations and REMIC Certificates).**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. In addition, Fannie Mae will be            obligated to distribute the principal balance of each class of REMIC Certificates in            full, whether or not sufficient Fund 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”). PCs represent undivided interests in specified level payment,            residential mortgages or participation 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.

 

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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 mortgaged 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 mortgaged 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 mortgaged 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 or 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.

**Privately Issued Mortgage-Backed Securities.**The Fund may also invest in mortgage-backed securities issued by trusts            or other entities formed or sponsored by private originators of and institutional            investors in mortgage loans and other foreign or domestic non-governmental entities (or            representing custodial arrangements administered by such institutions). These private            originators and institutions include domestic and foreign savings and loan            associations, mortgage bankers, commercial banks, insurance companies, investment banks            and special purpose subsidiaries of the foregoing. Privately issued mortgage-backed            securities are generally backed by pools of conventional (i.e., non-government            guaranteed or insured) mortgage loans. Since such mortgage-backed securities are not            guaranteed by an entity having the credit standing of Ginnie Mae, Fannie Mae or Freddie            Mac, in order to receive a high quality rating, they normally are structured with one            or more types of “credit enhancement.” Such credit enhancements fall            generally into two categories; (1) liquidity protection and (2) protection against            losses resulting after default by a borrower and liquidation of the collateral.            Liquidity protection refers to the providing of cash advances to holders of            mortgage-backed securities when a borrower on an underlying mortgage fails to make its            monthly payment on time.

Protection against losses resulting after default and liquidation is            designed to cover losses resulting when, for example, the proceeds of a foreclosure            sale are insufficient to cover the outstanding amount on the mortgage. Such protection            may be provided through guarantees, insurance policies or letters of credit, through            various means of structuring the transaction or through a combination of such            approaches.

**Mortgage Pass-Through Securities.**The Fund            may invest in mortgage pass-through securities, which are fixed or adjustable rate            mortgage-backed securities that provide for monthly payments that are a            “pass-through” of the monthly interest and principal payments (including            any prepayments) made by the individual borrowers on the pooled mortgage loans, net of            any fees or other amounts paid to any guarantor, administrator and/or servicers of the            underlying mortgage loans.

 

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**Stripped Mortgage-Backed Securities.**The            Fund may purchase stripped mortgage-backed securities (“SMBS”), which are            derivative multi-class mortgage securities. The market value of the class consisting            entirely of principal payments generally is unusually 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 mortgaged 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. See            “Illiquid Securities.”

In            accordance with a requirement imposed by the staff of the Commission, the Advisor will            consider privately issued fixed rate IOs and POs to be illiquid securities for purposes            of the Fund’s limitation on investments in illiquid securities. Unless the            Advisor determines that a particular government-issued fixed rate IO or PO is liquid,            it will also consider these IOs and POs to be illiquid.

**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, at any time the Cost of            Funds Index may not reflect 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.

**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 consumer loans (unrelated to mortgage            loans), trade receivables or other types of 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 varies 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

 

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also may change 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 loans and receivables by individuals,            businesses and other borrowers, 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. However, the underlying assets are not first lien mortgage            loans or interests therein but 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, receivables from            revolving credit (credit card) agreements and trade receivables. 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 are readily marketable and rated            investment grade by S&P or Moody’s.

The            yield characteristics of the 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 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 — 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 will not usually 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

 

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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.

***Securities of Non-US Issuers***

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

With respect to certain countries in which capital markets are either            less developed or not easily accessed, investments by the Fund may be made through            investment in other registered investment companies that in turn are authorized to            invest in the securities of such countries. Investment in other registered investment            companies is generally limited in amount by the 1940 Act, will involve the indirect            payment of a portion of the expenses (including advisory fees) of such other investment            companies and may result in a duplication of fees and expenses. See “Other            Investment Companies.”

**Investments in American, European, Global and International            Depository Receipts.**The Fund may invest in non-US securities            in the form of American Depositary Receipts (“ADRs”), European Depositary            Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) and            International Depository Receipts (“IDRs”) or other similar securities            representing ownership of securities of non-US issuers held in trust by a bank or            similar financial institution. ADRs are receipts typically issued by a US bank or trust            company which evidence ownership of underlying securities issued by a foreign            corporation. EDRs and IDRs are receipts issued in Europe typically by non-US banking            and trust companies that evidence ownership of either foreign or US securities. GDRs            are receipts issued by either a US or non-US banking institution evidencing ownership            of the underlying non-US securities. Generally, ADRs, in registered form, are designed            for use in US securities markets and EDRs, GDRs and IDRs, in bearer form, are designed            for use in European and international securities markets. An ADR, EDR, GDR or IDR may            be denominated in a currency different from the currency in which the underlying            foreign security is denominated. ADRs, EDRs, GDRs and IDRs are alternatives to the            purchase of the underlying securities in their national markets and currencies, but are            subject to the same risks as the non-US securities to which they relate.

**Foreign Corporate Debt Securities.**The Fund            may invest in 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

 

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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.

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

Quasi-governmental and supranational entities include international            organizations designated or supported by governmental entities to promote economic            reconstruction or development and international banking institutions and related            government agencies. Examples include (but are not limited to) the International Bank            for Reconstruction and Development (the “World Bank”), the Japanese            Development Bank, the Asian Development Bank and the Inter-American Development Bank.            Foreign government securities also include mortgage-related securities issued or            guaranteed by national, state or provincial governmental instrumentalities, including            quasi-governmental agencies.

**Brady Bonds.**The Fund may invest in            so-called “Brady Bonds,” which have been issued by Argentina, Brazil,            Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, the            Philippines, Poland, Uruguay and Venezuela and which may be issued by other countries.            Brady Bonds are issued as part of a debt restructuring in which the bonds are issued in            exchange for cash and certain of the country’s outstanding commercial bank loans.            Brady Bonds may be collateralized or uncollateralized, are issued in various currencies            (primarily the US dollar) and are actively traded in the OTC secondary            market.

US            dollar-denominated collateralized Brady Bonds, which may be fixed rate par bonds or            floating rate discount bonds, are collateralized in full as to principal by US Treasury            zero coupon bonds that have the same maturity as the stated bonds. Interest payments on            such bonds generally are collateralized by cash or liquid securities in an amount that,            in the case of fixed rate bonds, is equal to at least one year of rolling interest            payments or, in the case of floating rate bonds, initially is equal to at least one            year’s rolling interest payments based on the applicable interest rate at the            time and is adjusted at regular intervals thereafter.

Investors should recognize that, in light of the history of commercial            bank loan defaults by Latin American public and private entities, investments in Brady            Bonds may be viewed as speculative.

**Investments 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, Eastern 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.

 

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Securities markets of emerging countries may also have less efficient            clearance and settlement procedures than US markets, making it difficult to conduct and            complete transactions. Delays in settlement could result in temporary periods when a            portion of the Fund’s assets is uninvested and no return is earned thereon.            Inability to make intended security purchases could cause the Fund to miss attractive            investment opportunities. Inability to dispose of portfolio securities could result            either in losses to the Fund due to subsequent declines in value of the portfolio            security or, if the Fund has entered into a contract to sell the security, could result            in possible liability of the Fund to the purchaser. In addition, transaction costs,            including brokerage commissions and dealer mark-ups, in emerging countries may be            higher than in the US and other developed securities markets. See “Illiquid            Securities.”

As            legal systems in emerging countries develop, the Fund may be adversely affected by new            or amended laws and regulations. In circumstances where adequate laws exist, it may not            be possible to obtain swift and equitable enforcement of the law. Furthermore, with            respect to investments in certain emerging countries, archaic legal systems may have an            adverse impact on the Fund. For example, while the potential liability of a shareholder            in a US corporation with respect to acts of the corporation is generally limited to the            amount of the shareholder’s investment, the notion of limited liability is less            clear in certain emerging countries. Similarly, the rights of investors in emerging            country companies may be more limited than those of shareholders of US            corporations.

In            addition, there may be little financial or accounting information available with            respect to issuers located in certain of these countries, and it may be difficult as a            result to assess the value or prospects of an investment in these countries. The laws            of some foreign countries may limit the Fund’s ability to invest in securities of            certain issuers located in those countries.

**Region and Country Investing.**The Fund may            focus its investments in a particular region and/or in one or more foreign countries.            Focusing the Fund’s investments in a particular region or country will subject            the Fund (to a greater extent than if its investments in such region or country were            more diversified) to the risks of adverse securities markets, exchange rates and            social, political or economic developments which may occur in that particular region or            country.

For            purposes of the Fund’s investment objectives, a company is considered to be            located in a particular country if it (1) is organized under the laws of that country            and has a principal place of business in that country or (2) derives 50% or more of its            total revenues from business in that country.

**Currency Management**

**General.**In connection with the            Fund’s investments denominated in foreign currencies, the Advisor may choose to            utilize a variety of currency management (hedging) strategies. The Advisor seeks to            take advantage of different yield, risk and return characteristics that different            currencies, currency denominations and countries can provide to US investors. In doing            so, the Advisor will consider such factors as the outlook for currency relationships;            current and anticipated interest rates; levels of inflation within various countries;            prospects for relative economic growth; and government policies influencing currency            exchange rates and business conditions. Although the Advisor may attempt to manage            currency exchange rate risks, there is no assurance that the Advisor will do so, or do            so at an appropriate time or that the Advisor will be able to predict exchange rates            accurately.

**Currency Exchange Transactions.**Because the            Fund may buy and sell securities denominated in currencies other than the US dollar and            receives interest, dividends and sale proceeds in currencies other than the US dollar,            the Fund from time to time may enter into currency exchange transactions to convert to            and from different currencies and to convert foreign currencies to and from the US            dollar. The Fund either enters into these transactions on a spot            (i.e., cash) basis at the spot rate            prevailing in the currency exchange market or uses forward currency exchange contracts            (discussed below) to purchase or sell currencies. Neither spot transactions nor forward            currency exchange contracts eliminate fluctuations in the prices of the Fund’s            securities or in foreign exchange rates, or prevent loss if the prices of these            securities should decline.

**Currency Hedging Transactions.**The            Fund’s currency hedging strategies may include hedging involving either specific            transactions or portfolio positions. Transaction hedging is the purchase or sale of            forward currency with respect to specific receivables or payables of the Fund generally            accruing in connection with the purchase or sale of its portfolio securities. Position            hedging is the sale of forward currency with respect to portfolio security            positions.

 

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Proper currency hedging is important because a decline in the US dollar            value of a foreign currency in which the Fund’s securities are denominated will            reduce the US dollar value of the securities, even if their value in the foreign            currency remains constant. The use of currency hedges does not eliminate fluctuations            in the underlying prices of the securities, but it does establish a rate of exchange            that can be achieved in the future. For example, in order to protect against            diminutions in the US dollar value of non-dollar denominated securities it holds, the            Fund may purchase foreign currency put options. If the value of the foreign currency            does decline, the Fund will have the right to sell the currency for a fixed amount in            dollars and will thereby offset, in whole or in part, the adverse effect on the US            dollar value of its securities that otherwise would have resulted. Conversely, if a            rise in the US dollar value of a currency in which securities to be acquired are            denominated is projected, thereby potentially increasing the cost of the securities,            the Fund may purchase call options on the particular currency. The purchase of these            options could offset, at least partially, the effects of the adverse movements in            exchange rates. The benefit to the Fund derived from purchases of currency options,            like the benefit derived from other types of options, will be reduced by premiums and            other transaction costs.

Because transactions in currency exchange are generally conducted on a            principal basis, no fees or commissions are generally involved. Currency hedging            involves some of the same risks and considerations as other transactions with similar            instruments. Although currency hedges limit the risk of loss due to a decline in the            value of a hedged currency, at the same time, they also limit any potential gain that            might result should the value of the currency increase. If a devaluation is generally            anticipated, the Fund may not be able to contract to sell a currency at a price above            the devaluation level it anticipates.

Securities held by the Fund are generally denominated in the currency of            the foreign market in which the investment is made. However, securities held by the            Fund may be denominated in the currency of a country other than the country in which            the security’s issuer is located.

**Cross Hedging.**At the discretion of the            Advisor, the Fund may employ the currency hedging strategy known as            “cross-hedging” by using forward currency contracts, currency options or a            combination of both. When engaging in cross-hedging, the Fund seeks to protect against            a decline in the value of a foreign currency in which certain of its portfolio            securities are denominated by selling that currency forward into a different foreign            currency for the purpose of diversifying the Fund’s total currency exposure or            gaining exposure to a foreign currency that is expected to appreciate.

**Forward Currency Exchange Contracts.**A            forward currency exchange contract is an obligation by the Fund 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. Forward currency exchange contracts establish an exchange rate at a            future date. These contracts are transferable in the interbank market conducted            directly between currency traders (usually large commercial banks and brokerages) and            their customers. A forward currency exchange contract may not have a deposit            requirement and may be traded at a net price without commission. The Fund maintains a            segregated account of cash or liquid securities in an amount at least equal to its            obligations under each forward currency exchange contract.

The            Fund may enter into foreign currency hedging transactions in an attempt to protect            against changes in currency exchange rates between the trade and settlement dates of            specific securities transactions or changes in currency exchange rates that would            adversely affect a portfolio position or an anticipated investment position. Since            consideration of the prospect for currency parities will be incorporated into the            Advisor’s long-term investment decisions, the Fund will not routinely enter into            currency hedging transactions with respect to security transactions; however, the            Advisor believes that it is important to have the flexibility to enter into currency            hedging transactions when it determines that the transactions would be in the            Fund’s best interest. Although these transactions tend to minimize the risk of            loss due to a decline in the value of the hedged currency, at the same time they tend            to limit any potential gain that might be realized should the value of the hedged            currency increase. 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 such securities between the date the forward contract is entered into            and the date it matures. The projection of currency market movements is extremely            difficult, and the successful execution of a hedging strategy is highly            uncertain.

 

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While these contracts are not presently regulated by the CFTC, the CFTC            may in the future assert authority to regulate forward contracts. In such event the            Fund’s ability to utilize forward contracts may be restricted. Forward contracts            may reduce the potential gain from a positive change in the relationship between the US            dollar and foreign currencies. Unanticipated changes in currency prices may result in            poorer overall performance for the Fund than if it had not entered into such contracts.            The use of currency forward contracts may not eliminate fluctuations in the underlying            US dollar equivalent value of the prices of or rates of return on the Fund’s            foreign currency denominated portfolio securities and the use of such techniques will            subject the Fund to certain risks.

The            matching of the increase in value of a forward contract and the decline in the US            dollar equivalent value of the foreign currency denominated asset that is the subject            of the hedge generally will not be precise. In addition, the Fund may not always be            able to enter into currency forward contracts at attractive prices, and this will limit            the Fund’s ability to use such contracts to hedge or cross-hedge its assets.            Also, with regard to the Fund’s use of cross-hedges, there can be no assurance            that historical correlations between the movement of certain foreign currencies            relative to the US dollar will continue. Thus, at any time poor correlation may exist            between movements in the exchange rates of the foreign currencies underlying the            Fund’s cross-hedges and the movements in the exchange rates of the foreign            currencies in which the Fund’s assets that are the subject of such cross-hedges            are denominated.

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

The            Fund may sell US dollars and buy a foreign currency forward in order to gain exposure            to a currency which is expected to appreciate against the US dollar. This speculative            strategy allows the Fund to benefit from currency appreciation potential without            requiring it to purchase a local fixed income instrument, for which prospects may be            relatively unattractive. It is the Advisor’s intention that the Fund’s net            US dollar currency exposure generally will not fall below zero (i.e., that net short            positions in the US dollar generally will not be taken).

The            Fund may also utilize forward foreign currency contracts to establish a synthetic            investment position designed to change the currency characteristics of a particular            security without the need to sell such security. Synthetic investment positions will            typically involve the purchase of US dollar-denominated securities together with a            forward contract to purchase the currency to which the Fund seeks exposure and to sell            US dollars. This may be done because the range of highly liquid short-term instruments            available in the US may provide greater liquidity to the Fund than actual purchases of            foreign currency-denominated securities in addition to providing superior returns in            some cases. Depending on (a) the Fund’s liquidity needs, (b) the relative yields            of securities denominated in different currencies and (c) spot and forward currency            rates, a significant portion of the Fund’s assets may be invested in synthetic            investment positions, subject to compliance with the tax requirements for qualification            as a regulated investment company.

There is a risk in adopting a synthetic investment position. It is            impossible to forecast with absolute precision what the market value of a particular            security will be at any given time. If the value of the US dollar-denominated security            is not exactly matched with the Fund’s obligation under a forward currency            contract on the date of maturity, the Fund may be exposed to some risk of loss from            fluctuations in the value of the US dollar. Although the Advisor will attempt to hold            such mismatching to a minimum, there can be no assurance that the Advisor will be able            to do so.

**Options on Foreign Currencies.**The Fund may            write covered put and call options and purchase put call options on foreign currencies            for the purpose of protecting against declines in the dollar value of portfolio            securities and against increases in the dollar cost of securities to be acquired. The            Fund may also use currency options to achieve a desired currency weighting in a            cost-effective manner. The Fund may use options on currencies to cross-hedge, which            involves writing or purchasing options on one currency to hedge against changes in            exchange rates for a different, but related currency. As with other types of options,            however, the writing of an option on foreign currency will constitute only a partial            hedge up to the amount of the premium received, and the Fund could be required to            purchase or sell foreign currencies at disadvantageous exchange rates, thereby            incurring losses. The purchase of an

 

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option on foreign currency may be used to hedge against fluctuations in            exchange rates although, in the event of exchange rate movements adverse to the            Fund’s position, it may forfeit the entire amount of the premium plus related            transaction costs. In addition the Fund may purchase call options on currency when the            Advisor anticipates that the currency will appreciate in value.

The            Fund may also write options on foreign currencies for the same types of hedging or            currency management purposes. For example, where the Fund anticipates a decline in the            dollar value of foreign currency denominated securities due to adverse fluctuations in            exchange rates it could, instead of purchasing a put option, write a call option on the            relevant currency. If the expected decline occurs, the options will most likely not be            exercised, and the diminution in value of portfolio securities will be offset by the            amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an            anticipated increase in the dollar cost of securities to be acquired, the Fund could            write a put option on the relevant currency which, if rates move in the manner            projected, will expire unexercised and allow the Fund to hedge such increased cost up            to the amount of the premium. As in the case of other types of options, however, the            writing of a foreign currency option will constitute only a partial hedge up to the            amount of the premium, and only if rates move in the expected direction. If this does            not occur, the option may be exercised and the Fund would be required to purchase or            sell the underlying currency at a loss which may not be offset by the amount of the            premium. Through the writing of options on foreign currencies, the Fund also may be            required to forego all or a portion of the benefits which might otherwise have been            obtained from favorable movements in exchange rates.

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

The            Fund also may write call options on foreign currencies that are not covered for            cross-hedging purposes. A call option on a foreign currency is for cross-hedging            purposes if it is not covered, but is designed to provide a hedge against a decline in            the US dollar value of a security which the Fund owns or has the right to acquire and            which is denominated in the currency underlying the option due to an adverse change in            the exchange rate. In such circumstances, the Fund collateralizes the option by            segregating cash or liquid securities in an amount not less than the value of the            underlying foreign currency in US dollars marked to market daily.

There is no assurance that a liquid secondary market will exist for any            particular option, or at any particular time. If the Fund is unable to effect a closing            purchase transaction with respect to covered options it has written, the Fund will not            be able to sell the underlying currency or dispose of assets held in a segregated            account until the options expire or are exercised. Similarly, if the Fund is unable to            effect a closing sale transaction with respect to options it has purchased, it would            have to exercise the options in order to realize any profit and will incur transaction            costs upon the purchase or sale of underlying currency. The Fund pays brokerage            commissions or spreads in connection with its options transactions.

Certain options on foreign currencies are traded over-the-counter and            involve liquidity and credit risks which may not be present in the case of            exchange-traded currency options. In some circumstances, the Fund’s ability to            terminate OTC options may be more limited than with exchange-traded options. It is also            possible that broker-dealers participating in OTC options transactions will not fulfill            their obligations. See “Illiquid Securities.”

***Additional Limitations and Risk Factors***

In            addition to the risks discussed above, the Fund’s investments may be subject to            the following limitations and risk factors:

 

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**Additional Risks Related to Transactions in Options, Futures            Contracts, Options on Futures Contracts, Swaps and Forward Foreign Currency Exchange            Contracts.**The Fund’s active management techniques            involve (1) liquidity risk (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 (changes in the value of hedging positions may not match the            securities market and foreign currency fluctuations intended to be hedged), and            (3) market risk (an incorrect prediction of securities prices or exchange rates by            the Advisor may cause the Fund to perform worse than if such positions had not been            taken). In addition, the ability to terminate OTC derivatives is more limited than with            exchange traded derivatives and may involve the risk that the counterparty to the            option will not fulfill its obligations.

**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; forward currency contracts;            and swaps, caps, floors and collars. These guidelines may, in certain instances,            require segregation by the Fund of cash or liquid securities to the extent the            Fund’s obligations with respect to these strategies 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.            Unless the transaction is covered, the segregated assets must at all times equal or            exceed the Fund’s obligations with respect to these strategies. Segregated assets            cannot be sold or transferred unless equivalent assets are substituted in their place            or it is no longer necessary to segregate them. As a result, there is a possibility            that segregation of a large percentage of the Fund’s assets could impede            portfolio management 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 the securities without            additional consideration) or to segregate assets (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 segregate assets (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 segregate assets (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 segregated assets (equal to any remaining obligation), equals its net obligation.            Asset coverage may be achieved by other means when consistent with applicable            regulatory policies.

The            use of derivatives is a highly specialized activity which involves investment            techniques and risks that are different from those associated with ordinary portfolio            transactions. Gains and losses on these derivatives depend on the Advisor’s            ability to predict the direction of stock prices, interest rates, currency movements            and other economic factors. The loss that may be incurred by the Fund in entering into            futures contracts, written options, forward currency contracts and certain swaps 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. 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.

Except as set forth above under “Derivative Securities: Futures            Contracts and Options on Futures Contracts,” 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’s transactions in            options, forward currency contracts, futures contracts, options on futures contracts            and swaps may be limited by the requirements for qualification of the Fund            as

 

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a            regulated investment company for tax purposes. See “Taxes.” There can be no            assurance that the use of these portfolio strategies will be successful.

**Non-US Securities.**The value of the            Fund’s investments may be adversely affected by changes in political or social            conditions, diplomatic relations, confiscatory taxation, expropriation,            nationalization, limitation on the removal of funds or assets, or imposition of (or            change in) exchange control or tax regulations in those foreign countries. In addition,            changes in government administrations or economic or monetary policies in the United            States or abroad could result in appreciation or depreciation of portfolio securities            and could favorably or unfavorably affect the Fund’s operations. Furthermore, the            economies of individual foreign nations may differ from the US economy, whether            favorably or unfavorably, in areas such as growth of gross national product, rate of            inflation, capital reinvestment, resource self-sufficiency and balance of payments            position; it may also be more difficult to obtain and enforce a judgment against a            foreign issuer. In general, less information is publicly available with respect to            non-US issuers than is available with respect to US companies. Most foreign companies            are also not subject to the uniform accounting and financial reporting requirements            applicable to issuers in the United States. Any foreign investments made by the Fund            must be made in compliance with US and foreign currency restrictions and tax laws            restricting the amounts and types of foreign investments.

Because non-US securities generally are denominated and pay dividends or            interest in foreign currencies, and the Fund may hold various foreign currencies from            time to time, the value of the net assets of the Fund as measured in US dollars will be            affected favorably or unfavorably by changes in exchange rates. Generally, the            Fund’s currency exchange transactions will be conducted on a spot (i.e., cash)            basis at the spot rate prevailing in the currency exchange market. The cost of the            Fund’s currency exchange transactions will generally be the difference between            the bid and offer spot rate of the currency being purchased or sold. In order to            protect against uncertainty in the level of future foreign currency exchange rates, the            Fund is authorized to enter into certain foreign currency exchange            transactions.

In            addition, while the volume of transactions effected on foreign securities exchanges has            increased in recent years, in most cases it remains appreciably below that of NYSE.            Accordingly, the Fund’s foreign investments may be less liquid and their prices            may be more volatile than comparable investments in securities of US issuers. Moreover,            the settlement periods for non-US securities, which are often longer than those for            securities of US issuers, may affect portfolio liquidity. In buying and selling            securities on foreign exchanges, the Fund normally pays fixed commissions that are            generally higher than the negotiated commissions charged in the United States. In            addition, there is generally less government supervision and regulation of securities            exchanges, brokers and issuers in foreign countries than in the United            States.

**Emerging Markets.**The world’s            industrialized markets generally include (but are not limited to) the following:            Australia, Austria, Bermuda, Belgium, Canada, Cayman Islands, Cyprus, Denmark, Finland,            France, Germany, Hong Kong, Iceland, Ireland, Italy, Japan, Kuwait, Luxembourg, the            Netherlands, New Zealand, Norway, Portugal, Qatar, Singapore, Spain, Sweden,            Switzerland, the United Arab Emirates, the United Kingdom, and the United States. The            world’s emerging markets generally include (but are not limited to) the            following: Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Bhutan,            Bolivia, Botswana, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, Cote            d’Ivoire, Croatia, the Czech Republic, the Dominican Republic, Ecuador, Egypt, El            Salvador, Estonia, Fiji, Ghana, Greece, Guatemala, Honduras, Hungary, India, Indonesia,            Iran, Israel, Jamaica, Jordan, Kazakhstan, Kenya, Korea, Latvia, Lebanon, Lithuania,            Macedonia, Malta, Malaysia, Mauritius, Mexico, Moldova, Mongolia, Morocco, Namibia,            Nepal, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Romania,            Russia, Saudi Arabia, Slovakia, Slovenia, South Africa, Sri Lanka, Taiwan, Tanzania,            Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, Uruguay, Uzbekistan,            Venezuela, West Bank and Gaza, Yugoslavia, Zambia and Zimbabwe.

Investment in securities of issuers based in emerging markets entails            all of the risks of investing in securities of non-US issuers outlined above but to a            heightened degree. These heightened risks include: (1) greater risks of expropriation,            confiscatory taxation, nationalization, and less social, political and economic            stability; (2) the smaller size of the market for such securities and a low or            nonexistent volume of trading, resulting in lack of liquidity and in price volatility;            and (3) certain national policies which may restrict the Fund’s investment            opportunities including restrictions on investing in issuers or industries deemed            sensitive to relevant national interests.

 

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In            addition to brokerage commissions, custodial services and other costs relating to            investment in emerging markets are generally more expensive than in the United States.            Such markets have been unable to keep pace with the volume of securities transactions,            making it difficult to conduct such transactions. The inability of the Fund to make            intended securities purchases due to settlement problems could cause the Fund to miss            attractive investment opportunities. Inability to dispose of a security due to            settlement problems could result either in losses to the Fund due to subsequent            declines in the value of the security or, if the Fund has entered into a contract to            sell the security, could result in possible liability to the purchaser. See            “Illiquid Securities.”

**Special Considerations Concerning the Pacific Basin.**Many Asian countries may be subject to a greater degree of social,            political and economic instability than is the case in the United States and European            countries. Such instability may result from (1) authoritarian governments or military            involvement in political and economic decision-making; (2) popular unrest associated            with demands for improved political, economic and social conditions; (3) internal            insurgencies; (4) hostile relations with neighboring countries; and (5) ethnic,            religious and racial disaffection.

The            economies of most of the Asian countries are heavily dependent upon international trade            and are accordingly affected by protective trade barriers and the economic conditions            of their trading partners, principally, the United States, Japan, China and the            European Community. The enactment by the United States or other principal trading            partners of protectionist trade legislation, reduction of foreign investment in the            local economies and general declines in the international securities markets could have            a significant adverse effect upon the securities markets of the Asian            countries.

The            securities markets in Asia are substantially smaller, less liquid and more volatile            than the major securities markets in the United States. A high proportion of the shares            of many issuers may be held by a limited number of persons and financial institutions,            which may limit the number of shares available for investment by the Fund. Similarly,            volume and liquidity in the bond markets in Asia are less than in the United States            and, at times, price volatility can be greater than in the United States. A limited            number of issuers in Asian securities markets may represent a disproportionately large            percentage of market capitalization and trading value. The limited liquidity of            securities markets in Asia may also affect the Fund’s ability to acquire or            dispose of securities at the price and time it wishes to do so. The Fund’s            inability to dispose fully and promptly of positions in declining markets will cause            the Fund’s net asset value to decline as the value of the unsold positions is            marked to lower prices. In addition, the Asian securities markets are susceptible to            being influenced by large investors trading significant blocks of securities. Also,            many stock markets are undergoing a period of growth and change which may result in            trading volatility and difficulties in the settlement and recording of transactions,            and in interpreting and applying the relevant law and regulations. See “Illiquid            Securities.”

Furthermore, the Fund may invest in securities denominated in currencies            of Asian countries. Accordingly, changes in the value of these currencies against the            US dollar will result in corresponding changes in the US dollar value of the            Fund’s assets denominated in those currencies.

**Rating Services.**The ratings of            Moody’s and S&P 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 Fund investments, the Advisor also            makes its own evaluation of these securities, subject to review by the Board of            Trustees. 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 used herein and in the Prospectus is set            forth in the Appendix A to this SAI.

***Other Investments and Investment Practices***

**Illiquid Securities.**Historically, illiquid            securities have included securities subject to contractual or legal restrictions on            resale because they have not been registered under the 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.

 

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Investments in non-publicly traded securities (including Rule 144A            Securities) may involve a high degree of business and financial risk and may result in            substantial losses. These securities may be less liquid than publicly traded            securities, and it may take longer to liquidate these positions than would be the case            for publicly traded securities. Companies whose securities are not publicly traded may            not be subject to the disclosure and other investor protection requirements applicable            to companies whose securities are publicly traded. Limitations on resale may have an            adverse effect on the marketability of portfolio securities and a mutual fund might be            unable to dispose of restricted or other illiquid securities promptly or at reasonable            prices and might thereby experience difficulty satisfying redemptions within seven            days. An investment in illiquid securities is subject to the risk that, should the Fund            desire to sell any of these securities when a ready buyer is not available at a price            that is deemed to be representative of their value, the value of the Fund’s net            assets could be adversely affected.

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

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

The            SEC has adopted Rule 144A, which allows a broader institutional trading market for            securities otherwise subject to restriction on their resale to the general public.            Rule 144A establishes a “safe harbor” from the registration            requirements of the 1933 Act for resales of certain securities to qualified            institutional buyers. The Advisor anticipates that the market for certain restricted            securities such as institutional commercial paper will expand further as a result of            this regulation and the development of automated systems for the trading, clearance and            settlement of unregistered securities of domestic and non-US issuers, such as the            PORTAL System sponsored by the National Association of Securities Dealers,            Inc.

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

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

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

**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, which may            impact the Fund’s expense ratio.

 

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**TBA Purchase Commitments.**The Fund may            enter into TBA purchase commitments to purchase securities for a fixed price at a            future date, typically not exceeding 45 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.

**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. 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 to be advantageous.

**Repurchase Agreements.**The Fund may engage            in repurchase agreement transactions only with US or foreign banks having total assets            of at least US$100 million (or its foreign currency equivalent). 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 by, among other things, agreeing to sell portfolio securities to financial            institutions that meet the standards described under “Repurchase            Agreements” and to repurchase them at a mutually agreed date and price (a            “reverse repurchase agreement”). The Fund may enter into reverse repurchase            agreements with banks and domestic broker-dealers. 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

 

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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, but not identical (same type, coupon and maturity), 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 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 their value is maintained.

**Lending of Portfolio Securities.**The Fund            has the authority to lend up to 33 1/3% of the total value of its portfolio securities            (taken at market value). 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. Payments received by the Fund in lieu of any dividends paid on the            loaned securities will not be treated as “qualified dividend income” for            purposes of determining what portion of the Fund's dividends received by individuals            may be taxed at the rates generally applicable to long-term capital gains. See            “Taxes”.

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).

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

 

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other fee to maintain a line of credit; either of these requirements            would increase the cost of borrowing over the stated interest rate. See            “Investment Restrictions.”

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

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

**Other Investment Companies.**The Fund may            invest in the aggregate no more than 10% of its total assets, calculated at the time of            purchase, in the securities of other US-registered investment companies. In addition,            the Fund may not invest more than 5% of its total assets in the securities of any one            such investment company or acquire more than 3% of the voting securities of any other            such investment company. 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.

**Temporary Defensive Investments.**For            temporary defensive purposes during periods when the Advisor determines that conditions            warrant, the Fund may invest up to 100% of its assets in cash and investment grade            money market instruments, including (but not limited to) securities issued or            guaranteed by the US government, its agencies or instrumentalities; certificates of            deposit, time deposits, and bankers’ acceptances issued by banks or savings and            loans associations having net assets of at least $100 million as of the end of their            most recent fiscal year; commercial paper rated at the time of purchase at least A-2 by            S&P or P-2 by Moody’s, or unrated commercial paper determined by the Advisor            to be of comparable quality; repurchase agreements involving any of the foregoing; and,            to the extent permitted by applicable law, shares of other investment companies            investing solely in money market instruments.

**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 or dividend payments, and new cash received from investors. Uninvested Cash            may be invested directly in money market instruments or other short-term debt            obligations. Pursuant to an exemptive order issued by the SEC, the Fund may use            Uninvested Cash to purchase shares of affiliated funds, including money market funds            and Cash Management QP Trust, or entities for the 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 a fund in            shares of the Central Funds will comply with Rule 2a-7 under the 1940 Act and will be            in accordance with a 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. Purchase and sales of shares of Central Funds are made at net asset            value.

 

----

 

***Investment Policies***

The            following is a chart of the various types of securities and investment strategies            employed by the Fund. Unless otherwise indicated, the Fund is permitted, but not            obligated, to pursue any of the following strategies and does not 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 is a description of how each type of security and investment            strategy may be used by the Fund.

 

| **INVESTMENT PRACTICE**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **DWS                            International Select Equity Fund** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------|
| **KEY TO                            TABLE:**

+ Permitted                            without stated limito Permitted without stated limited, but not expected to                            be used to a significant extentX Not permitted

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

20% Roman type                            (e.g. 20%) represents an investment limitation as a percentage of total                            fund assets; does not indicate actual use |
| **EQUITY SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | +                                                                   |
| Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | +                                                                   |
| Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | +                                                                   |
| Convertible Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | +                                                                   |
| Medium Capitalization Stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | +                                                                   |
| Small Capitalization Stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | +                                                                   |
| Micro Capitalization Stocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | +                                                                   |
| **FIXED INCOME SECURITIES & MONEY MARKET                            INSTRUMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Short-Term Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | *20%*                                                               |
| Obligations of Banks and Other Financial                            Institutions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | *20%*                                                               |
| Certificates of Deposit and Bankers’                            Acceptances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | *20%*                                                               |
| Commercial Paper                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | *20%*                                                               |
| Variable Rate Master Demand Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | o                                                                   |
| US Government Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | *20%*                                                               |
| Custodial Receipts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | o                                                                   |
| Zero Coupon Securities and Deferred Interest                            Bonds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | o                                                                   |
| Variable Rate Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | *20%*                                                               |
| Inverse Floating Rate Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | *5%*                                                                |
| Lower-Rated Debt Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | *5%*                                                                |
| Registered Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | o                                                                   |
| Other Debt Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | o                                                                   |
| **DERIVATIVE SECURITIES (OPTIONS)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Options on Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | +                                                                   |
| Options on Securities Indices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | +                                                                   |
| Options on Non-US Securities Indices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | +                                                                   |
| Yield Curve Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | +                                                                   |
| Spreadlocks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | +                                                                   |
| **DERIVATIVE SECURITIES (FUTURES CONTRACTS AND OPTIONS                            ON FUTURES CONTRACTS)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Futures Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | +                                                                   |
| Futures Contracts on Securities Indices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | +                                                                   |
| Options on Futures Contracts (including Contracts on                            Securities Indices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | +                                                                   |

 

 

----

 

 

| **DERIVATIVE SECURITIES**                                                                           |
|-----------------------------------------------------------------------------------------------------|
| Swaps Agreements                                                                                    | + |
| **DERIVATIVE SECURITIES (HEDGING                            STRATEGIES)**                           |
| Hedging Strategies                                                                                  | + |
| **MORTGAGE-BACKED AND ASSET-BACKED                            SECURITIES**                          |
| Government Guaranteed Mortgage-Backed                            Securities                         | o |
| Ginnie Mae Certificates                                                                             | o |
| Fannie Mae Certificates                                                                             | o |
| Freddie Mac Certificates                                                                            | o |
| Multi-Class Mortgage-Backed Securities (CMOs and                            REMICs)                 | o |
| Privately Issued Mortgage-Backed                            Securities                              | o |
| Mortgage Pass-Through Securities                                                                    | o |
| Stripped Mortgage-Backed Securities                                                                 | o |
| Adjustable Rate Mortgages                                                                           | o |
| Asset-Backed Securities                                                                             | o |
| **SECURITIES OF NON-US ISSUERS**                                                                    |
| Foreign Securities & Depositary Receipts (ADRs,                            EDRs, GDRs and IDRs) | + |
| Foreign Corporate Debt Securities                                                                   | o |
| Foreign Government Debt Securities                                                                  | o |
| Brady Bonds                                                                                         | o |
| Investments in Emerging Markets                                                                     | + |
| Region and Country Investing                                                                        | + |
| **CURRENCY MANAGEMENT**                                                                             |
| Currency Exchange Transactions                                                                      | + |
| Currency Hedging Transactions                                                                       | + |
| Cross Hedging                                                                                       | + |
| Forward Currency Exchange Contracts                                                                 | + |
| Options on Foreign Currencies                                                                       | + |
| **OTHER INVESTMENTS AND INVESTMENT                            PRACTICES**                           |
| Illiquid Securities                                                                                 | *15%* |
| TBA Purchase Commitments                                                                            | o |
| When-Issued and Delayed Delivery                            Securities                              | + |
| Repurchase Agreements                                                                               | *20%* |
| Reverse Repurchase Agreements                                                                       | 33                            1/3% |
| Mortgage Dollar Rolls                                                                               | o |
| Lending of Portfolio Securities                                                                     | 33                            1/3% |
| Borrowing                                                                                           | 33                            1/3% |
| Short Sales                                                                                         | o |
| Other Investment Companies                                                                          | 10% |
| Temporary Defensive Investments                                                                     | 100% |

 

**Portfolio Holdings**

In            addition to the public disclosure of Fund portfolio holdings through required 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/Directors 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/Directors.

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 the Advisor or            its affiliates may be subject to different portfolio holdings disclosure policies, and            neither the Advisor or its affiliated nor Trustees exercise control over such policies.            In addition, separate account clients of the Advisor or its affiliates 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 the            Advisor and its affiliates and some of the separate accounts managed by the Advisor or            its affiliates may substantially overlap with the portfolio holdings of the            Fund.

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

Prior to June 1, 2006, the Trust, on behalf of the Fund, paid the            Advisor the monthly fee of 0.70% of average daily net assets. Effective June 1, 2006,            under the Investment Management Agreement, the Fund paid DeAM, Inc. a monthly fee at an            annual rate of:

 

| **Assets Daily Net Assets**       | **Management Fee Rate** |
|-----------------------------------|-------------------------|
|                              |                    |
| $ 0 to $1.5 billion               | 0.700%                  |
| Over $1.5 billion - $3.25 billion | 0.685%                  |
| Over $3.25 billion - $5 billion   | 0.670%                  |
| Over $5 billion                   | 0.655%                  |

 

 

----

 

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

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

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

The            DIMA Agreement provides that the Advisor shall not be liable for any error of judgment            or mistake of law or for any loss suffered by the Fund in connection with matters to            which the Agreement relates, except a loss resulting from willful malfeasance, bad            faith or gross negligence on the part of the Advisor in the performance of its duties            or from reckless disregard by the Advisor of its obligations and duties under the            agreement. The Investment Management Agreement may be terminated at any time, without            payment of penalty, by either party or by vote of a majority of the outstanding voting            securities of the Fund on 60 days’ written notice.

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

The            Advisor has contractually through September 30, 2007 to waive all or a portion of its            fees and reimburse expenses to maintain total annual operating expenses at 1.60%,            2.35%, 2.35%, 1.85% and 0.92% for Class A, Class B, Class C, Class R and Institutional            Class shares, respectively, excluding certain expenses such as extraordinary expenses,            taxes, brokerage, interest, proxy and organizational and offering expenses. Although            there can be no assurances that the current waiver/expense reimbursement arrangements            will be maintained beyond September 30,2007, the investment Advisor has committed            to review the continuance of waiver/reimbursement arrangements by September 30,            2007.

On            October 1, 2006, the Advisor has agreed to voluntary waive a portion of it’s fees            and reimburse or pay operating expenses of the Fund, so that total annual operating            expenses of the Fund will not exceed 1.50%, 2.25%, 2.25%, and 1.75% for Class A, Class            B, Class C and Class R, respectively, excluding certain expenses such as extraordinary            expenses, taxes, brokerage, interest, proxy and organizational and offering expenses.            This voluntary waiver or reimbursement may be terminated at any time at the option of            the Advisor.

 

----

 

Prior to September 30, 2005, Deutsche Asset Management Investment            Services (“DeAMIS”), an indirect, wholly owned subsidiary of Deutsche Bank,            served as the Fund’s investment advisor.

For            the fiscal year ended October 31, 2004 and for the period November 1, 2004 to            September 30, 2005, the Fund paid advisory fees to DeAMIS of $6,186,589 and $7,729,533,            respectively. During the period from September 30, 2005 to October 30, 2005, the            advisory fees for the Fund were held in escrow until shareholders approved a new            advisory agreement with DeAM, Inc. on December 2, 2005. Pursuant to Board and            shareholder approval, the Investment Management Agreement became effective on June 1,            2006.

For            the fiscal years ended October 31, 2004, 2005 and 2006, DeAM, Inc. waived fees and/or            reimbursed expenses of the Fund in the amounts of $442,797, $316,612 and $207,191,            respectively.

**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 the Fund’s most recent fiscal year end.

 

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

**Fund Shares Owned** | **Dollar Range of All DWS**

**Fund Shares Owned** |
|-------------------------------|--------------------------------------------|----------------------------------------------------|
|                          |                                       |                                               |
| Matthias Knerr                | $100,001 - $500,000                        | $500,001 - $1,000,000                              |

 

***Conflicts of Interest***

In            addition to managing the assets of the Fund, the Fund’s portfolio manager may            have responsibility for managing other client accounts of the Advisor or its            affiliates. The tables below show, for the portfolio manager, the number and asset size            of (1) SEC registered investment companies (or series thereof) other than the Fund, (2)            pooled investment vehicles that are not registered investment companies and (3) other            accounts (e.g., accounts managed for individuals or organizations) managed by the            portfolio manager. The tables also show the number of performance based fee accounts,            as well as the total assets of the accounts for which the advisory fee is based on the            performance of the account. This information is provided as of the Fund’s most            recent fiscal year end.

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

 

| **Name of Portfolio Manager** | **Number of Registered Investment****Companies** | **Total Assets of Registered Investment****Companies** | **Number of Investment Company Accounts with                            Performance-****Based                            Fee** | **Total Assets of Performance- Based Fee****Accounts** |
|-------------------------------|--------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|
|                          |                                             |                                                   |                                                                                                                           |                                                   |
| Matthias Knerr                | 3                                                | $1,297,899,260                                         | 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** |
|-------------------------------|---------------------------------------------|---------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------|
|                          |                                        |                                              |                                                                                                                                  |                                                   |
| Matthias Knerr                | 0                                           | $0                                                | 0                                                                                                                                     | $0                                                     |

 

***Other Accounts Managed:***

 

| **Name of Portfolio Manager** | **Number of Other****Accounts** | **Total Assets of****Other                            Accounts** | **Number of Other Accounts with Performance-****Based Fee** | **Total Assets of Performance- Based Fee****Accounts** |
|-------------------------------|---------------------------------|------------------------------------------------------------------|-------------------------------------------------------------|--------------------------------------------------------|
|                          |                            |                                                             |                                                        |                                                   |
| Matthias Knerr                | 3                               | $556,982,239                                                     | 0                                                           | $0                                                     |

 

 

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

The            Advisor is owned by Deutsche Bank AG, a multi-national financial services company.            Therefore, the Advisor is affiliated with a variety of entities that provide, and/or            engage in commercial banking, insurance, brokerage, investment banking, financial            advisory, broker-dealer activities (including sales and trading), hedge funds, real            estate and private equity investing, in addition to the provision of investment            management services to institutional and individual investors. Since Deutsche Bank AG,            its affiliates, directors, officers and employees (the “Firm”) are engaged            in businesses and have interests other than managing asset management accounts, such            other activities involve real, potential or apparent conflicts of interest. These            interests and activities include potential advisory,

 

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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            Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1            under the 1940 Act. The Trust’s Code of Ethics permits access persons of the Fund            (Board members, officers of the Trust and employees of the Advisor), to make personal            securities transactions for their own accounts. This include transactions in securities            that may be purchased or held by the Fund, but requires compliance with the            Code’s preclearance requirements, subject to certain exceptions. In addition, the            Trust’s Code provides for trading blackout periods that prohibit trading by            personnel within periods of trading by the Fund in the same security. The Trust’s            Code prohibits short-term trading profits, prohibits personal investment in initial            public offerings and requires prior approval with respect to purchases of securities in            private placements.

The            Fund’s advisor and its affiliates (including the Fund’s Distributor,            DWS-SDI) have each adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act            (the “Consolidated Code”). The Consolidated Code permits access persons to            trade in securities for their own accounts, subject to compliance with the Consolidated            Code’s preclearance requirements, that may be purchased or held by the Fund. In            addition, the Consolidated Code also provides for trading “blackout            periods” that prohibit trading by personnel within periods of trading by the Fund            in the same security. The Consolidated Code also prohibits short-term trading profits,            and personal investment in initial public offerings and requires prior approval with            respect to purchases of securities in private placements. 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.            (“DAMI”) 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 DAMI failed to disclose potential conflicts of interest to the            funds’ 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, DAMI and DWS-SDI            neither admitted nor denied any of the regulators’ findings, DIMA, DAMI 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, DAMI and DWS-SDI also agreed to implement certain            measures and undertakings relating to revenue sharing payments including making            additional disclosures in the funds’ Prospectuses or Statements of Additional            Information, adopting or modifying relevant policies and procedures and providing            regular reporting to the Fund’s 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.

 

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For            discussion of other regulatory matters, see the Fund’s Prospectuses.

**FUND SERVICE PROVIDERS**

**Administrator**

DIMA, located at 345 Park Avenue, New York, New York 10154, serves as            the Fund’s administrator. The Fund recently entered into a new administrative            services agreement with the Advisor (the “Administrative Services            Agreement”), pursuant to which the Advisor 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 the Advisor a fee of 0.100% of the            Fund’s net assets.

Under the Administrative Services Agreement, DIMA, Inc. 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, Inc.            provides the Fund with personnel; arranges for the preparation and filing of the            Fund’s tax returns; prepares and submits reports and meeting materials to the            Board and the shareholders; prepares and files updates to the Fund’s prospectus            and statement of additional information as well as other reports required to be filed            by the SEC; maintains the Fund’s records; provides the Fund with office space,            equipment and services; supervises, negotiates the contracts of and monitors the            performance of third parties contractors; oversees the tabulation of proxies; monitors            the valuation of portfolio securities and monitors compliance with Board-approved            valuation procedures; assists in establishing the accounting and tax policies of the            Fund; assists in the resolution of accounting issues that may arise with respect to the            Fund; establishes and monitors the Fund’s operating expense budgets; reviews and            processes the Fund’s bills; assists in determining the amount of dividends and            distributions available to be paid by the Fund, prepares and arranges dividend            notifications and provides information to agents to effect payments thereof; provides            to the Board periodic and special reports; provides assistance with investor and public            relations matters; and monitors the registration of shares under applicable federal and            state law. The Advisor also performs certain fund accounting services under the            Administrative Services Agreement. The Administrative Services Agreement provides that            the Advisor will not be liable under the Administrative Services Agreement except for            willful misfeasance, bad faith or negligence in the performance of its duties or from            the reckless disregard by it of its duties and obligations thereunder.

Prior to June 1, 2006, DeAM, Inc. served as the Fund’s            administrator and received a fee for serving as administrator of 0.30% of the            Fund’s average daily net assets and paid transfer agency fees out of its            Administration fee. For the fiscal years ended October 31, 2004 and 2005 and for the            period November 1, 2005 through May 31, 2006, the Fund paid DeAM, Inc. $2,505,022,            $3,193,014 and $773,343, respectively.

**Distributor**

Shares of the Fund are distributed by DWS Scudder Distributors, Inc.            (“DWS-SDI” or the “Distributor”). The Fund offers six classes            of shares: Institutional Class and Class A, B, C, R and S shares. Class S shares are            offered in a separate statement of additional information. General information on how            to buy shares of the Fund is set forth in “Buying and Selling Fund Shares”            in the Fund’s Prospectuses. The following supplements that            information.

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

The            Distribution Agreement will remain in effect for one year from its effective date and            will continue in effect thereafter only if such continuance is specifically approved            annually by the Trustees, including a majority of the Trustees who are not parties to            the Distribution Agreement or “interested persons” of such parties. The            Distribution

 

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Agreement with respect to Class A, Class B, Class C and Class R shares            of the Fund was most recently approved on September 28, 2005 by a vote of the            Trust’s Board of Trustees, including a majority of those Trustees who were not            parties to the Distribution Agreement or “interested persons” of any such            parties. The Distribution Agreement is terminable, as to the Fund, by vote of the Board            of Trustees, or by the holders of a majority of the outstanding shares of the Fund, at            any time without penalty on 60 days’ written notice to the Distributor. The            Distributor may terminate the Distribution Agreement at any time without penalty on 60            days’ written notice to the Trust.

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

As            compensation for providing distribution and shareholder services, the Distributor            expects to allocate up to all of its fee to Participating Dealers and Shareholder            Servicing Agents. As compensation for providing distribution and shareholder services            as described above for the Class B, Class C and Class R shares, the Distributor            receives an annual fee, accrued daily and payable monthly, equal to 0.75%, 0.75% and            0.25%. respectively, of their average daily net assets. In addition, with respect to            the Class B, Class C and Class R shares, the Distributor receives a shareholder            servicing fee at an annual rate of 0.25% of their respective average daily net assets.            (See the Prospectuses.) For the fiscal year ended October 31, 2006, the Fund paid            shareholder servicing fees and distribution fees to the Distributor fees as            follows:

 

| **Distribution Fee** | **Total                            Aggregated** | **Waived** |
|----------------------|-------------------------------------------------|------------|
|                 |                                            |       |
| Class A              | $276,164                                        | —    |
| Class B              | $75,421                                         | $6,412     |
| Class C              | $119,094                                        | $9,186     |
| Class R              | $7,593                                          | $1,045     |

 

| **Shareholder Servicing Fee** | **Total                            Aggregated** | **Effective Rate** |
|-------------------------------|-------------------------------------------------|--------------------|
|                          |                                            |               |
| Class A                       | $78,641                                         | 0.25%              |
| Class B                       | $24,677                                         | 0.25%              |
| Class C                       | $38,853                                         | 0.24%              |
| Investment Class              | $69,295                                         | 0.19%              |
| Class R                       | $6,860                                          | 0.23%              |

 

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

In            approving the Plans, the Trustees concluded, in the exercise of their reasonable            business judgment, that there was a reasonable likelihood that the Plans would benefit            the Fund and its shareholders. The Plans will be renewed only if the Trustees make a            similar determination in each subsequent year. The Plans may not be amended to            increase

 

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materially the fee to be paid pursuant to the Distribution Agreement            without the approval of the shareholders of the applicable sales of the Fund. The Plans            may be terminated at any time by the vote of a majority of the Independent Trustees or            by a vote of a majority of the Fund’s outstanding shares.

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

Under the Plans, amounts allocated to participating dealers and            shareholder servicing agents may not exceed amounts payable to the Distributor under            the Plans. Payments under the Plans are made as described above regardless of the            Distributor’s actual cost of providing distribution services and may be used to            pay the Distributor’s overhead expenses. If the cost of providing distribution            services to the Class A and Class R shares is less than 0.25% of the classes’            respective average daily net assets for any period or if the cost of providing            distribution services to the Class B and Class C shares is less than 0.75% of the            classes’ respective average daily net assets for any period, the unexpended            portion of the distribution fees may be retained by the Distributor. The Plans do not            provide for any charges to the Fund for excess amounts expended by the Distributor and,            if any of the Plans is terminated in accordance with its terms, the obligation of the            Fund to make payments to the Distributor pursuant to such Plan will cease and the Fund            will not be required to make any payments past the date the Distribution Agreement            terminates with respect to that class. In return for payments received pursuant to the            Plans, the Distributor pays the shareholding servicing and distribution-related            expenses of the Fund including one or more of the following: advertising expenses;            printing and mailing of prospectuses to other than current shareholders; compensation            to dealers and sales personnel; and interest, carrying or other financing            charges.

In            accordance with the terms of the Plan, the officers of the Trust provide to the            Trust’s Board of Trustees for their review periodically a written report of            services performed by and fees paid to each Service Organization under the Service            Agreements and Service Plan.

Shareholders of Class B 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, 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 B 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.

Conflict of interest restrictions (including the Employee Retirement            Income Security Act of 1974 (“ERISA”) may apply to a service            organization’s receipt of compensation paid by the Fund in connection with the            investment of fiduciary assets in Investment shares of the Fund. Service organizations            that are subject to the jurisdiction of the SEC, the Department of Labor or state            securities commissions are urged to consult their own legal Advisors before investing            fiduciary assets in Investment shares and receiving service fees.

The            Trust believes that fiduciaries of ERISA plans may properly receive fees under a Plan            if the plan fiduciary otherwise properly discharges its fiduciary duties, including (if            applicable) those under ERISA. Under ERISA, a plan fiduciary, such as a trustee or            investment manager, must meet the fiduciary responsibility standards set forth in part            4 of Title I of ERISA. Those standards are designed to help ensure that the            fiduciary’s decisions are made in the best interests of the plan and are not            colored by self-interest.

Section 403(c)(1) of ERISA provides, in part, that the assets of a            plan shall be held for the exclusive purpose of providing benefits to the plan’s            participants and their beneficiaries and defraying reasonable expenses of administering            the plan. Section 404(a)(1) sets forth a similar requirement on how a plan            fiduciary must discharge his or her duties with respect to the plan, and provides            further that such fiduciary must act prudently and solely in the interests of the            participants and beneficiaries. These basic provisions are supplemented by the per se            prohibitions of certain classes of transactions set forth in Section 406 of            ERISA.

 

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Section 406(a)(1)(D) of ERISA prohibits a fiduciary of an ERISA            plan from causing that plan to engage in a transaction if he knows or should know that            the transaction would constitute a direct or indirect transfer to, or use by or for the            benefit of, a party in interest, of any assets of that plan. Section 3(14)            includes within the definition of “party in interest” with respect to a            plan any fiduciary with respect to that plan. Thus, Section 406(a)(1)(D) would not            only prohibit a fiduciary from causing the plan to engage in a transaction which would            benefit a third person who is a party in interest, but it would also prohibit the            fiduciary from similarly benefiting himself. In addition, Section 406(b)(1)            specifically prohibits a fiduciary with respect to a plan from dealing with the assets            of that plan in his own interest or for his own account. Section 406(b)(3)            supplements these provisions by prohibiting a plan fiduciary from receiving any            consideration for his own personal account from any party dealing with the plan in            connection with a transaction involving the assets of the plan.

In            accordance with the foregoing, however, a fiduciary of an ERISA plan may properly            receive service fees under a Service Plan if the fees are used for the exclusive            purpose of providing benefits to the plan’s participants and their beneficiaries            or for defraying reasonable expenses of administering the plan for which the plan would            otherwise be liable. See, e.g., Department of Labor ERISA Technical Release No. 86-1            (stating a violation of ERISA would not occur where a broker-dealer rebates commission            dollars to a plan fiduciary who, in turn, reduces its fees for which plan is otherwise            responsible for paying). Thus, the fiduciary duty issues involved in a plan            fiduciary’s receipt of the service fee must be assessed on a case-by-case basis            by the relevant plan fiduciary.

**Custodian**

Brown Brothers Harriman and Co. (the “Custodian”), 40 Water            Street, Boston, Massachusetts 02109, serves as the Fund’s custodian pursuant to a            Custodian Agreement. Under its custody agreement with the Trust, the Custodian            (i) maintains separate accounts in the name of the Fund, (ii) holds and            transfers portfolio securities on account of the Fund, (iii) accepts receipts and            makes disbursements of money on behalf of the Fund, (iv) collects and receives all            income and other payments and distributions on account of the Fund’s portfolio            securities and (v) makes periodic reports to the Trust’s Board of Trustees            concerning the Fund’s operations. The Custodian is authorized to select one or            more foreign or domestic banks or companies to serve as sub-custodian on behalf of the            Fund, pursuant to Rule 17f-5 of the 1940 Act.

**Legal Counsel**

Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York            10019-6099, serves as legal counsel to the Trust and the Fund and from time to time            provides certain legal services to Deutsche Bank AG and its affiliates.

**Independent Registered Public Accounting            Firm**

PricewaterhouseCoopers LLP, 125 High Street, Boston, MA 02110, serves as            the Fund’s independent registered public accounting firm.

**Transfer Agent**

DWS            Scudder Investments Service Company (“DWS-SISC”) serves as transfer agent            of the Trust on behalf of the Fund pursuant to a transfer agency agreement. Under its            transfer agency agreement with the Trust, the Transfer Agent maintains the shareholder            account records for the Fund, handles certain communications between shareholders and            the Fund and causes to be distributed any dividends and distributions payable by the            Fund.

As            of July 1, 2006, the Fund pays transfer agency fees directly. The Fund will pay            DWS-SISC for its services as transfer agent to the Fund according to the following            table:

 

|                                                                      | **Class                            A1** | **Class                            B** | **Class                            C** | **Class                            R** | **Institutional** |
|---------------------------------------------------------------------------|-----------------------------------------|----------------------------------------|----------------------------------------|----------------------------------------|-------------------|
|                                                                      |                                    |                                   |                                   |                                   |              |
| **Annual Per Account Fee (Retail &                            IRA)**  | $10.00                                  | $10.00                                 | $10.00                                 | $10.00                                 | $10.00            |
| **Annual Per Account Fee (401(k)                            Retirement)** | $18.00                                  | $18.00                                 | $18.00                                 | $18.00                                 | $18.00            |

 

 

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| **Annual Asset Based Fee**              | 0.08% | 0.08% | 0.08% | 0.08% | 0.08% |   |
|-----------------------------------------|-------|-------|-------|-------|-------|--------|
|                                    |
| **Account Processing Fees:**            |
| CDSC                                    | N/A   | $2.00 | N/A   | N/A   | N/A   |   |
| New Account Fee                         | $5.00 | $5.00 | $5.00 | $5.00 | $5.00 |   |
| Redemption Fee                          | $2.00 | $2.00 | $2.00 | $2.00 | $2.00 |   |
| Closed Accounts Fee (Retail & IRA)  | N/A   | N/A   | N/A   | N/A   | N/A   |   |
| Closed Accounts Fee (401(k) Retirement) | N/A   | N/A   | N/A   | N/A   | N/A   |   |

             

| 1. | The “new account fee” is not applicable to                            Class A accounts established from a conversion from a Class B                            account. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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.

**PORTFOLIO TRANSACTIONS**

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

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

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

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

The            Advisor is permitted by Section 28(e) of the Securities Exchange Act of 1934, as            amended (“1934 Act”), when placing portfolio transactions for a fund, to            cause the fund to pay brokerage commissions in excess of that which another            broker-dealer might charge for executing the same transaction in order to obtain            research and brokerage

 

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

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

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

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

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

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

For            the fiscal years ended October 31, 2004, 2005 and 2006, the Fund paid aggregate            brokerage commissions of $4,125,458, $3,945,557 and $1,523,015,            respectively.

**Securities of Regular Broker Dealers.**The            Fund is required to identify any securities of its “regular broker or            dealers” (as such term is defined in the 1940 Act) that the Fund has acquired            during the most recent year. As of October 31, 2005, the Fund did not hold any            securities of its regular broker dealers.

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

 

----

 

**Portfolio Turnover**. Although the Fund does            not intend to invest for the purpose of seeking short-term profits, securities in the            Fund will be sold whenever the Advisor believes it is appropriate to do so in light of            the investment objectives of the Fund, without regard to the length of time a            particular security may have been held The Fund may sell securities held for a short            time in order to take advantage of what the Advisor believes to be temporary            disparities in normal yield relationships between securities. A high rate of portfolio            turnover (i.e., 100% or higher) will result in correspondingly higher transaction costs            to the Fund, particularly if the Fund’s primary investments are equity            securities. A high rate of portfolio turnover will also increase the likelihood of net            short-term capital gains (distributions of which are taxable to shareholders as            ordinary income).

For            the fiscal years ended October 31, 2005 and 2006, the Fund’s portfolio turnover            rates were 122% and 140%, respectively.

**PURCHASES AND REDEMPTIONS OF            SHARES**

***General Information***

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

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

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

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

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

The            Fund will be deemed to have received a purchase or redemption order when an authorized            broker, service organization or, if applicable, an authorized designee, accepts the            order. Shares of the Fund may be purchased or redeemed on any business day at the net            asset value next determined after receipt of the order, in good order, by            the

 

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Transfer Agent. Investors who invest through authorized brokers, service            organizations or their designated intermediaries should submit purchase and redemption            orders directly to their broker, service organization or designated intermediary. The            broker or intermediary may charge you a transaction fee.

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 (not applicable to Class R shares).**QuickBuy and QuickSell permits the transfer of money via the Automated            Clearing House System (minimum $50, maximum $250,000) from or to a shareholder’s            bank, savings and loan, or credit union account in connection with the purchase or            redemption of Fund shares.

 

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

***Purchases***

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

To            help the government fight the funding of terrorism and money laundering activities,            federal law requires all financial institutions to obtain, verify and record            information that identifies each person who opens an account. For more information,            please see “Policies You Should Know About” in the Fund’s            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 the Executive Council, a group of            persons designated by DWS-SDI in acknowledgment of their dedication to the employee            benefit plan area and (iv) the purchase is not otherwise subject to a commission.            Furthermore, DWS-SDI may, from time to time, pay or allow to firms a 0.25% commission            on the amount of Class R shares of the Fund sold.

In            addition to the discounts or commissions described herein and in the Prospectuses,            DWS-SDI may pay or allow additional discounts, commissions or promotional incentives,            in the form of cash, to firms that sell shares of 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.

 

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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 to $3                            million                                                   | 1.00%                                                                                    | 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                                                                            | 1.00% |

             

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

| (2) | Compensation Schedules 2 and 3 apply 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 2. |
|-----|--------------------------------------|

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.

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

**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

 

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in            the fee table or elsewhere in the Prospectuses or the SAIs 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

 

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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

 

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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

 

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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

 

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

             

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

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

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

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

 

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**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 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 member.

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

| (l) | the acquisition of the assets of or merger or                            consolidation with another investment company, or to shareholders in                            connection with the investment or reinvestment of income and capital                            gain dividends, and under other circumstances deemed appropriate by                            DWS-SDI and consistent with regulatory requirements; and |
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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; |
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| (o) | exchanging an investment in Class A shares of another                            fund in the DWS family of funds for an investment in the                            fund. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Class A shares also may be purchased at net asset value in any amount by            members of the plaintiff class in the proceeding known as Howard and Audrey Tabankin,            et al. v. Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL).            This privilege is generally non-transferable and continues for the lifetime of            individual class members and for a ten-year period for non-individual class members. To            make a purchase at net asset value under this privilege, the investor must, at the time            of purchase, submit a written request that the purchase be

 

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processed at net asset value pursuant to this privilege specifically            identifying the purchaser as a member of the “Tabankin Class.” Shares            purchased under this privilege will be maintained in a separate account that includes            only shares purchased under this privilege. For more details concerning this privilege,            class members should refer to the Notice of (i) Proposed Settlement with Defendants;            and (ii) Hearing to Determine Fairness of Proposed Settlement, dated August 31, 1995,            issued in connection with the aforementioned court proceeding. For sales of Fund shares            at net asset value pursuant to this privilege, DWS-SDI may in its discretion pay            investment dealers and other financial services firms a concession, payable quarterly,            at an annual rate of up to 0.25% of net assets attributable to such shares maintained            and serviced by the firm. A firm becomes eligible for the concession based upon assets            in accounts attributable to shares purchased under this privilege in the month after            the month of purchase and the concession continues until terminated by DWS-SDI. The            privilege of purchasing Class A shares of the Fund at net asset value under this            privilege is not available if another net asset value purchase privilege also It is our            policy to offer purchase privileges to current or former directors or trustees of the            DWS mutual funds, employees, their spouses or life partners and children or            step-children age 21 or younger of Deutsche Bank or its affiliates or a sub-advisor to            any fund in the DWS family of funds or a broker-dealer authorized to sell shares of the            funds. Qualified individuals will generally be allowed to purchase shares in the class            with the lowest expense ratio, usually the Institutional Class shares. If a fund does            not offer Institutional Class shares, these individuals will be allowed to buy Class A            shares at NAV. The Fund also reserves 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.

**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 over time (for            shares sold within six years of purchase) and Rule 12b-1 fees, as described in the            Fund’s Prospectus 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. Class C shares            sold without an initial sales charge will allow the full amount of the investor's            purchase payment to be invested in Class C shares for his or her account. Class C            shares continue to be 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 firms acting for clients whose shares will be held in an omnibus            account and employer-sponsored employee benefit plans using the Flex subaccount record            keeping system (“Flex System”) maintained by ADP under an alliance with            DWS-SDI and its affiliates (“DWS Scudder Flex Plans”).

The            following provisions apply to DWS Scudder Flex Plans.

| a. | *Class B Share DWS Scudder Flex Plans.*Class B shares have not been sold to DWS Scudder Flex                            Plans that were established on the Flex System after October 1, 2003.                            Orders to purchase Class B shares for a DWS Scudder Flex Plan                            established on the Flex System prior to October 1, 2003 that has                            regularly been purchasing Class B shares will be invested instead in                            Class A shares at net asset value when the combined subaccount value in                            DWS Funds or other eligible assets held by the plan is $100,000 or                            more. This provision will be imposed for the first purchase after                            eligible plan assets reach the $100,000 threshold. A later decline in                            assets below the $100,000 threshold will not affect the plan’s                            ability to continue to purchase Class A shares at net asset                            value. |
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| b. | *Class C Share DWS Scudder Flex Plans.*Orders to purchase Class C shares for a DWS Scudder Flex                            Plan, regardless of when such plan was established on the Flex System,                            will be invested instead in Class A shares at net asset value when the                            combined subaccount value in DWS Funds or other eligible assets held by                            the plan is $1,000,000 or more. This provision will be imposed for the                            first purchase after eligible plan assets reach the $1,000,000                            threshold. A later decline in assets below the $1,000,000 threshold                            will not affect the plan’s ability to continue to purchase Class                            A shares at net asset value. |
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| c. | *Class C Share DWS Scudder Choice Plans.*Orders to purchase Class C shares for a DWS Scudder                            Choice Plan that has been regularly purchasing Class C shares will be                            invested instead in Class A shares at net asset value when the combined                            subaccount value in DWS Funds or other eligible assets held by the plan                            is $1,000,000 or more. This provision will be imposed for purchases                            made beginning in the month after eligible plan assets reach the                            $1,000,000 threshold. In addition, as a condition to being permitted to                            use the Choice Plan platform, plans must agree that, within one month                            after eligible plan assets reach the $1,000,000 threshold, all existing                            Class C shares held in the plan will be automatically converted to                            Class A shares. |
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The            procedures above 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.

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

**Purchase of Institutional Class Shares.**Information on how to buy Institutional Class shares is set forth in the            section entitled “Buying and Selling Shares” in the Fund’s            Prospectuses. The following supplements that information. The minimum initial            investment for Institutional Class shares is $1,000,000. There is no minimum subsequent            investment requirement for the Institutional Class shares. This minimum amount may be            changed at any time in management’s discretion.

**Purchase of Class R Shares.**Information on            how to buy Class R shares is set forth in the section entitled “Buying and            Selling Shares” in the Fund’s Prospectus. There are no minimum investments            for Class R shares. Class R shares are subject to an annual distribution and            shareholder servicing fee of 0.50%. These minimum amounts may be changed at any time in            management’s discretion.

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

**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

 

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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.

**Consideration for Purchases of Shares.**The            Trust generally will not issue shares of the Fund for consideration other than cash. At            the Trust’s sole discretion, however, it may issue Fund shares for consideration            other than cash in connection with an acquisition of portfolio securities (other than            municipal debt securities issued by state political subdivisions or their agencies or            instrumentalities) or pursuant to a bona fide purchase of assets, merger or other            reorganization, provided the securities meet the investment objectives and policies of            the Fund and are acquired by the Fund for investment and not for resale. An exchange of            securities for fund shares will generally be a taxable transaction to the            shareholder.

***Redemptions***

**Redemption Fee.**The Fund will impose 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.

**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.

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

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,

 

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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            (excluding custodial accounts for gifts and transfers to minors), provided the trustee,            executor or guardian is named in the account registration. Other institutional account            holders and guardian account holders of custodial accounts for gifts and transfers to            minors 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 or guardian 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 on the first of the month. Investors using this Plan must            reinvest Fund distributions.

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

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

**Contingent Deferred Sales Charge (CDSC).**The following example will illustrate the operation of the CDSC. Assume            that an investor makes a single purchase of $10,000 of the Fund’s Class B shares            and that 16 months later the value of the shares has grown by $1,000 through reinvested            dividends and by an additional $1,000 of share appreciation to a total of $12,000. If            the investor were then to redeem the entire $12,000 in share value, the CDSC

 

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would be payable only with respect to $10,000 because neither the $1,000            of reinvested dividends nor the $1,000 of share appreciation is subject to the charge.            The charge would be at the rate of 3.00% ($300) because it was in the second year after            the purchase was made.

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

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

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

| (b) | redemptions by employer-sponsored employee benefit plans                            using the subaccount record keeping system made available through ADP,                            Inc. under an alliance with DWS-SDI and its affiliates; |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

| (i) | in connection with the following redemptions of shares                            held by employer sponsored employee benefit plans maintained on the                            subaccount record keeping system made available through ADP under an                            alliance with DWS-SDI and its affiliates: (1) to satisfy participant                            loan advances (note that loan repayments constitute new purchases for                            purposes of the CDSC and the conversion privilege), (2) in connection                            with retirement distributions (limited at any one time to 12% of the                            total value of plan assets invested in the Fund), (3) in connection                            with distributions qualifying under the hardship provisions of the                            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. |
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The            Class C CDSC will be waived for the circumstances set forth in items (b), (c), (d) and            (e) for Class A shares and for the circumstances set forth in items (g) and (h) for            Class B shares. In addition, this CDSC will be waived for:

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

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

***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,            Tax-Exempt California Money Market Fund, Cash Account Trust and Investors Cash Trust            are available on exchange but only through a financial services firm having a services            agreement with DWS-SDI. All exchanges among money funds must meet applicable investor            eligibility and investment requirements. Exchanges may only be made for funds that are            available for sale in the shareholder’s state of residence. Currently, Tax-Exempt            California Money Market Fund is available for sale only in California.

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

**Automatic Exchange Plan (not applicable to Class R            shares).**The owner of $1,000 or more of any class of shares            of a DWS Fund may authorize the automatic exchange of a specified amount ($50 minimum)            of such shares for shares of the same class of another such DWS Fund. Exchanges will be            made automatically until the shareholder or the Fund terminates the privilege.            Exchanges are subject to the terms and conditions described above.

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

**DIVIDENDS**

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

 

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by            an excise tax provision of the Code, the Fund may be subject to that excise tax. In            certain circumstances, the Fund may determine that it is in the interest of            shareholders to distribute less than the required amount.

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

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

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

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

| 1. | To receive income and short-term capital gain dividends                            in cash and long-term capital gain dividends in shares of the same                            class at net asset value; or |
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| 2. | To receive income and capital gain dividends in                            cash. |
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Dividends will be reinvested in shares of the same class of the Fund            unless shareholders indicate in writing that they wish to receive them in cash or in            shares of other DWS Funds with multiple classes of shares or DWS Funds as provided in            the prospectus. See “Combined Purchases” for a listing of such other funds.            To use this privilege of investing dividends of the Fund in shares of another DWS Fund,            shareholders must maintain a minimum account value of $1,000 in the Fund distributing            the dividends. The Fund will reinvest dividend checks (and future dividends) in shares            of that same Fund and class if checks are returned as undeliverable. Dividends and            other distributions of the Fund in the aggregate amount of $10 or less are            automatically reinvested in shares of the Fund unless the shareholder requests that            such policy not be applied to the shareholder’s account.

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

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

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

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

 

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**TAXES**

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

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

| (a) | The Fund must derive at least 90% of its gross income in                            each taxable year from dividends, interest, payments with respect to                            certain securities loans, and gains from the sale of stock, securities                            and foreign currencies, or other income (including but not limited to                            gains from options, futures, or forward contracts) derived with respect                            to its business of investing in such stock, securities, or currencies                            and net income derived from interests in “qualified publicly                            traded partnerships”                            (*i*.*e*., partnerships that are traded on an                            established securities market or tradable on a secondary market, other                            than partnerships that derives 90% of their income from interest,                            dividends, capital gains, and other traditional permitted mutual fund                            income). |
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| (b) | The Fund must diversify its holdings so that, at the end                            of each quarter of its taxable year, (i) at least 50% of the market                            value of the Fund’s assets is represented by cash and cash items,                            US government securities, securities of other regulated investment                            companies and other securities limited in respect of any one issuer of                            such other securities to a value not greater than 5% of the value of                            the Fund’s total assets and to not more than 10% of the                            outstanding voting securities of such issuer, and (ii) not more than                            25% of the value of its assets is invested in the securities (other                            than those of the US Government or other regulated investment                            companies) of any one issuer, of two or more issuers of which the Fund                            ownes 20% or more of the voting securitites 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. |
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| (c) | The Fund is required to distribute to its shareholders                            at least 90% of its taxable and tax-exempt net investment income                            (including the excess of net short-term capital gain over net long-term                            capital losses) and generally is not subject to federal income tax to                            the extent that it distributes annually such net investment income and                            net realized capital gains in the manner required under the                            Code. |
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Fund investments in partnerships, including in qualified publicly traded            partnerships, may result in the Fund's being subject to state, local or foreign income,            franchise or withholding tax liabilities.

If            for any taxable year the Fund does not qualify for the special federal income tax            treatment afforded regulated investment companies, all of its taxable income will be            subject to federal income tax at regular corporate rates (without any deduction for            distributions to its shareholders), and all distributions from earnings and profits,            including any distributions of net tax-exempt income and net long-term capital gains,            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.            If the Fund fails to qualify as a regulated investment company for a period greater            than two taxable years, the Fund may be required to recognize any net built-in gains            with respect to certain of its assets            (*i.e.*, the excess of the aggregate            gains, including items of income, over aggregate losses that would have been realized            with respect to such assets if the Fund had been liquidated) if it qualifies as a            regulated investment company in a subsequent year.

 

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

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

Long-term capital gain rates applicable to individuals have been            temporarily reduced — in general, to 15% with a lower rate applying to taxpayers            in the 10% and 15% rate brackets — for taxable years beginning before            January 1, 2011.

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

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

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

If            an individual receives a regular dividend qualifying for the long-term capital gains            rates and such dividend constitutes an “extraordinary dividend,” and the            individual subsequently recognizes a loss on the sale or exchange of stock in respect            of which the extraordinary dividend was paid, then the loss will be long-term capital            loss to the

 

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extent of such extraordinary dividend. An “extraordinary            dividend” on common stock for this purpose is generally a dividend (i) in an            amount greater than or equal to 10% of the taxpayer’s tax basis (or trading            value) in a share of stock, aggregating dividends with ex-dividend dates within an            85-day period or (ii) in an amount greater than 20% of the taxpayer’s tax            basis (or trading value) in a share of stock, aggregating dividends with ex-dividend            dates within a 365-day period.

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

**Sale or Redemption of Shares.**The sale,            exchange or redemption of Fund shares may give rise to a gain or loss. In general, any            gain or loss realized upon a taxable disposition of shares will be treated as long-term            capital gain or loss if the shares have been held for more than one year. Otherwise,            the gain or loss on the taxable disposition of Fund shares will be treated as            short-term capital gain or loss. However, any loss realized upon a taxable disposition            of shares held for six months or less will be treated as long-term, rather than            short-term, to the extent of any long-term capital gain distributions received (or            deemed received) by the shareholder with respect to the shares. All or a portion of any            loss realized upon a taxable disposition of Fund shares will be disallowed if other            substantially identical shares of the Fund are purchased within 15 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 a shareholder incurs a sales charge in            acquiring shares of the Fund, disposes of those shares within 90 days and then acquires            shares in a mutual Fund for which the otherwise applicable sales charge is reduced by            reason of a reinvestment right (*e.g.,*an exchange privilege), the original sales charge will not be taken into            account in computing gain/loss on the original shares to the extent the subsequent            sales charge is reduced. Instead, the disregarded portion of the original sales charge            will be added to the tax basis of the newly acquired shares. Furthermore, the same rule            also applies to a disposition of the newly acquired shares made within 90 days of the            second acquisition. This provision prevents a shareholder from immediately deducting            the sales charge by shifting his or her investment within a family of mutual            funds.

**Dividends Received Deduction.**It is not            anticipated that dividends from domestic corporations will comprise a substantial part            of the Fund’s gross income. If any such dividends constitute a portion of the            Fund’s gross income, a portion of the income distributions of the Fund may be            eligible for the 70% deduction for dividends received by corporations. Shareholders            will be informed of the portion of dividends which so qualify. The dividends-received            deduction is reduced to the extent the shares of the Fund with respect to which the            dividends are received are treated as debt-financed under federal income tax law and is            eliminated if either those shares or the shares of the Fund are deemed to have been            held by the Fund or the shareholder, as the case may be, for fewer than 46 days during            the 91-day period beginning 45 days before the shares become ex-dividend.

**Foreign Taxation.**Foreign withholding or            other foreign taxes with respect to income (possibly including, in some cases, capital            gains) on certain foreign securities may occur. These taxes may be reduced or            eliminated under the terms of an applicable US income tax treaty. The Fund may elect            for US income tax purposes to treat foreign taxes paid by it as paid by its            shareholders if more than 50% of the Fund’s total assets at the close of its            taxable year consists of stock or securities of foreign corporations. The Fund may            qualify for and make this election in some, but not necessarily all, of its taxable            years. If the Fund were to make such an election, shareholders of the Fund would be            required to take into account an amount equal to their pro rata portions of such            foreign taxes in computing their taxable income and then treat an amount equal to those            foreign taxes as a US federal income tax deduction or as a foreign tax credit against            their US federal income taxes. No deduction for foreign taxes may be claimed by a            shareholder who does not itemize deductions. Certain limitations will be imposed on the            extent to which the credit (but not the deduction) for foreign taxes may be            claimed.

**Passive Foreign Investment Companies.**Equity investments by the Fund in certain “passive foreign            investment companies” (“PFICs”) could potentially subject the Fund to            a US federal income tax (including interest charges) on distributions received from the            company or on proceeds received from the disposition of shares in the company, which            tax cannot be eliminated by making distributions to the Fund shareholders. However, the            Fund may elect to

 

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

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

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

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

Certain types of income received by the Fund from REITs, real estate            mortgage investment conduits ("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 "unrelated business taxable income" ("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 Code Section 514(b). If a            charitable remainder trust (as defined in Code Section 664) realizes any UBTI for a            taxable year, it will lose its tax-exempt status for the year. The Fund may invest in            REITs that hold residual interests in REMICs.

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.

In            general, gain or loss on a short sale is recognized when the Fund closes the sale by            delivering the borrowed property to the lender, not when the borrowed property is sold.            Gain or loss from a short sale is generally considered as capital gain or loss to the            extent that the property used to close the short sale constitutes a capital asset in            the Fund’s hands. Except with respect to certain situations where the property            used by the Fund to close a short

 

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sale has a long-term holding period on the date of the short sale,            special rules would generally treat the gains on short sales as short-term capital            gains. These rules may also terminate the running of the holding period of            “substantially identical property” held by the Fund. Moreover, a loss on a            short sale will be treated as a long-term capital loss if, on the date of the short            sale, “substantially identical property” has been held by the Fund for more            than one year. In general, the Fund will not be permitted to deduct payments made to            reimburse the lender of securities for dividends paid on borrowed stock if the short            sale is closed on or before the 45th day after the short sale is entered            into.

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.

**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 Internal Revenue Service a disclosure            statement on Form 8886. Direct shareholders of portfolio securities are in many cases            excepted from this reporting requirement, but under current guidance, shareholders of a            regulated investment company are not excepted. The fact that a loss is reportable under            these regulations does not affect the legal determination of whether the            taxpayer’s treatment of the loss is proper. Shareholders should consult their tax            advisors to determine the applicability of these regulations in light of their            individual circumstances.

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

 

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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.

A            distribution from the Fund to foreign shareholders who have held more than 5% of the            Fund at any time during the one-year period ending on the date of distribution is            treated as real property gain subject to 35% withholding tax and treated as income            effectively connected to a US trade or business with certain tax filing requirements            applicable, if such distribution is attributable to a distribution received by the Fund            from a REIT. A distribution paid prior to 2008 attributable to the Fund’s sale of            a REIT or other US real property holding company will also be treated as real property            gain if 50% or more of the value of the Fund’s assets are invested in REITs and            other US real property holding corporations and if the foreign shareholder has held            more than 5% of a class of stock at any time during the one-year period ending on the            date of the distribution.

**NET ASSET VALUE**

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

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

Debt securities are valued as follows. Money market instruments            purchased with an original or remaining maturity of 60 days or less, maturing at par,            are valued at amortized cost. Other money market instruments are valued based 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 pricing agent (which are intended to reflect the mean between the bid and asked            prices), if available, and otherwise at the mean of the most recent bid and asked            quotations or evaluated prices, as applicable, based on quotations or evaluated prices            obtained from one or more broker-dealers. Privately placed debt securities, other than            Rule 144A debt securities, initially are valued at cost and thereafter based on all            relevant factors, including type of security, size of holding and restrictions on            disposition. Municipal debt securities are valued at prices supplied by an approved            pricing agent (which are intended to reflect the mean between the bid and asked            prices), if available, and otherwise at the mean of the most recent bid and asked            quotations or evaluated price obtained from a broker-dealer. Other debt securities are            valued at prices supplied by an approved pricing agent, if available, and otherwise at            the most recent bid quotation or evaluated price, as applicable, obtained from one            or more broker-dealers. If it is not possible to value a particular debt security            pursuant to the above methods, the security is valued on the basis of factors including            (but not limited to) maturity, coupon, creditworthiness, currency denomination, and the            movement of the market in which the security is normally traded.

 

----

 

An            exchange-traded option contract on securities, currencies and other financial            instruments is valued at its most recent sale price on the relevant exchange. Lacking            any sales, the option contract is valued at the Calculated Mean. If it is not possible            to determine the Calculated Mean, the option contract is valued at the most recent bid            quotation in the case of a purchased option contract or the most recent asked quotation            in the case of a written option contract, in each case as of the Value Time. An option            contract on securities, currencies and other financial instruments traded in the OTC            market is valued on the Value Date at the evaluated price provided by the broker-dealer            with which it was traded. Futures contracts (and options thereon) are valued at the            most recent settlement price, if available, on the security’s primary exchange.            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            NYSE. For stock index futures contracts which 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 persons” (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 since1996  | 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**                                                                                                                                                                                                                                                                                                                                                                  |
|-------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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) |

 

 

----

 

 

| John                            Millette(6) (1962)Vice President and Secretary, 2003-present                                        | Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                                  |
|-------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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)         |
| 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)                                                                                                                                                           |
| Elisa                            D. Metzger(5) (1962)Assistant Secretary, 2005-present                                              | Director(4), Deutsche Asset Management (since                            September 2005); Counsel, Morrison and Foerster LLP                            (1999-2005)                                                                                                                                                                                                                                |
| Caroline Pearson(6) (1962)Assistant Secretary, 2002-present                                                                         | Managing Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                         |
| 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)                                                                                                                                                                                                   |
| Kathleen Sullivan D’Eramo(6)(1957)Assistant Treasurer, 2003-present                                                           | Director(4), Deutsche Asset                            Management                                                                                                                                                                                                                                                                                                                                  |
| Jason                            Vazquez(5) (1972)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)                                                                                                      |
| 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)                            |
| 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) |

             

| (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 [June 2004/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 Funds and received no compensation from            the Funds or any fund in the DWS fund complex during the relevant periods.

 

| **Name of Board Member**        | **Aggregate Compensation****from DWS International Select Equity                            Fund** | **Total** **Compensation** **from                            Fund** **and** **DWS Fund                            Complex(1)** |
|---------------------------------|----------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|                            |                                                                                               |                                                                                                                                               |
| Henry P. Becton, Jr.(3)(5)      | $474                                                                                               | $189,000                                                                                                                                           |
| Dawn-Marie Driscoll(2)(3)(4)(5) | $632                                                                                               | $251,000                                                                                                                                           |
| Keith R. Fox(3)(4)(5)           | $481                                                                                               | $195,000                                                                                                                                           |
| Kenneth C. Froewiss(3)(4)(5)    | $533                                                                                               | $234,988                                                                                                                                           |

 

 

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| Martin J. Gruber(3)(5)          | $1,600 | $188,000 |
|---------------------------------|--------|----------|
| Richard J. Herring(3)(4)(5)     | $1,605 | $184,000 |
| Graham E. Jones(3)(4)(5)        | $1,777 | $206,000 |
| Rebecca W. Rimel(3)(5)          | $1,614 | $185,000 |
| Philip Saunders, Jr.(3)(4)(5)   | $1,806 | $207,000 |
| William N. Searcy, Jr.(3)(4)(5) | $1,777 | $206,000 |
| Jean Gleason Stromberg(3)(4)(5) | $517   | $202,000 |
| Carl W. Vogt(3)(5)              | $474   | $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 International                            Select****Equity 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.          | $0                                                                                                                | Over $100,000                                                                                                                                |
| Dawn-Marie Driscoll           | $ 0                                                                                                               | Over $100,000                                                                                                                                |
| Keith R. Fox                  | $ 0                                                                                                               | Over $100,000                                                                                                                                |
| Kenneth C. Froewiss           | $ 0                                                                                                               | Over $100,000                                                                                                                                |
| Martin J. Gruber              | $ 0                                                                                                               | Over $100,000                                                                                                                                |
| Richard J. Herring            | $10,001-$50,000                                                                                                   | Over $100,000                                                                                                                                |
| Graham E. Jones               | $10,001-$50,000                                                                                                   | Over $100,000                                                                                                                                |
| Rebecca W. Rimel              | $ 0                                                                                                               | Over $100,000                                                                                                                                |
| Philip Saunders, Jr.          | $ 0                                                                                                               | Over $100,000                                                                                                                                |

 

 

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| William N. Searcy, Jr.       | $1-$10,000 | Over $100,000 |
|------------------------------|------------|---------------|
| Jean Gleason Stromberg       | $0         | Over $100,000 |
| Carl W. Vogt                 | $0         | Over $100,000 |
|                         |       |          |
| **Interested Board Member:** |       |          |
|                         |       |          |
| Axel Schwarzer               | $0         | 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 Funds, 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.                              |                                          | None        |                  |                                             |                                          |
| Dawn-Marie Driscoll                               |                                          | None        |                  |                                             |                                          |
| Keith R. Fox                                      |                                          | None        |                  |                                             |                                          |
| Kenneth C. Froewiss                               |                                          | None        |                  |                                             |                                          |
| Martin J. Gruber                                  |                                          | None        |                  |                                             |                                          |
| Richard J. Herring                                |                                          | None        |                  |                                             |                                          |
| Graham E. Jones                                   |                                          | None        |                  |                                             |                                          |
| Rebecca W. Rimel                                  |                                          | None        |                  |                                             |                                          |
| Philip Saunders, Jr.                              |                                          | None        |                  |                                             |                                          |
| William N. Searcy, Jr.                            |                                          | None        |                  |                                             |                                          |
| Jean                            Gleason Stromberg |                                          | None        |                  |                                             |                                          |
| Carl                            W. Vogt           |                                          | None        |                  |                                             |                                          |

 

***Securities Beneficially Owned***

As            of February 8, 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 February 8, 2007, no person owned of            record or beneficially 5% or more of any class of the Fund’s outstanding shares,            except as noted below.

 

----

 

 

| **Name and Address of Investor                            Ownership**                                                    | **Shares**   | **% of Total Shares**         |
|--------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------------|
|                                                                                                                     |         |                          |
| AST TRUST COMPANY NA TTEE

FBO RANGE RESOURCES CORPORATION

DEFERRED COMPENSATION PLAN

A/C XXXXX

PHOENIX AZ 85072-2129 | 640,131.06   | 8.89% of Class A              |
|                                                                                                                     |         |                          |
| DEUTSCHE BANK SECURITIES INC.

FBO 906-20821-11

ATTN: MUTUAL FUND DEPT 26TH FL

NEW YORK NY 10020-1104                  | 1,410,966.79 | 22.47% of Institutional Class |
|                                                                                                                     |         |                          |
| T ROWE PRICE RETIREMENT PLAN

SERVICES FBO RETIREMENT PLAN

CLIENTS

OWINGS MILLS MD 21117-4903                          | 1,164,389.65 | 18.54% of Institutional Class |
|                                                                                                                     |         |                          |
| CHARLES SCHWAB & CO INC

SPECIAL CUSTODY ACCOUNT

MUTUAL FUNDS DEPARTMENT

SAN FRANCISCO CA 94104-4151               | 610,794.92   | 9.73% of Institutional Class  |
|                                                                                                                     |         |                          |
| MID SUPPLEMENTAL RETIREMENT PLAN

MODESTO CA 95352-4060                                                                  | 565,285.39   | 9.00% of Institutional Class  |
|                                                                                                                     |         |                          |
| STATE STREET BANK & TRUST CO

CUST FBO SCUDDER PATHWAY SERIES

GROWTH PORTFOLIO

QUINCY MA 02171-2105                | 346,244.41   | 5.51% of Institutional Class  |
|                                                                                                                     |         |                          |
| CITIGROUP GLOBAL MARKETS INC

XXXXXXXXXX

ATTN PETER BOOTH 7TH FL

NEW YORK NY 10001-2402                                | 85,701.77    | 9.14% of Class B              |
|                                                                                                                     |         |                          |
| MLPF&S FOR THE SOLE BENEFIT OF

ITS CUSTOMERS

ATTN FUND ADM (97HB0)

JACKSONVILLE FL 32246-6484                     | 76,485.85    | 8.16% of Class B              |
|                                                                                                                     |         |                          |
| MLPF&S FOR THE SOLE BENEFIT OF

ITS CUSTOMERS

ATTN FUND ADM (97HB0)

JACKSONVILLE FL 32246-6484                     | 136,222.93   | 10.03% of Class C             |
|                                                                                                                     |         |                          |
| CITIGROUP GLOBAL MARKETS INC

XXXXXXXXXX

ATTN PETER BOOTH 7TH FL

NEW YORK NY 10001-2402                                | 109,040.67   | 8.03% of Class C              |
|                                                                                                                     |         |                          |
| HARTFORD LIFE INSURANCE

COMPANY SEPARATE ACCOUNT

HARTFORD CT 06104-2999                                                | 26,015.84    | 67.57% of Class R             |

 

 

----

 

 

|                                                                                                       |         |              |
|------------------------------------------------------------------------------------------------------------|--------------|-------------------|
| STATE STREET BANK & TRUST TTEE

FBO ADP/DWS SCUDDER CHOICE 401(K)

PRODUCT

FLORHAM PARK NJ 07932-1502 | 8,902.14     | 23.12% of Class R |
|                                                                                                       |         |              |
| JP MORGAN CHASE CUST

FBO ADP MID MARKET PRODUCT

ATTN LISA GLENN

BROOKLYN NY 11245-0001                  | 1,001,228.27 | 26.85% of Class S |
|                                                                                                       |         |              |
| MLPF&S FOR THE SOLE BENEFIT OF

ITS CUSTOMERS

ATTN FUND ADM (97HB0)

JACKSONVILLE FL 32246-6484       | 755,303.44   | 20.26% of Class S |
|                                                                                                       |         |              |
| DWS TRUST COMPANY

FBO CARR FUTURES 401(K) SAVINGS PL

ATTN ASSET RECON DEPT # 063167

SALEM NH 03079-1143 | 200,441.29   | 5.38% of Class S  |

 

***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 Trustees and their immediate family members of certain securities as of            December 31, 2005. 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 an investment advisor or principal underwriter of the Fund and            any persons (other than a registered investment company) directly or indirectly            controlling, controlled by, or under common control with an investment advisor or            principal underwriter of the Fund (including Deutsche Bank AG).

 

| **Independent Trustee** | **Owner and Relationship****to Trustee** | **Company** | **Title                            of****Class** | **Value of Securities on an Aggregate****Basis** | **Percent of Class on an Aggregate****Basis** |
|-------------------------|------------------------------------------|-------------|--------------------------------------------------|--------------------------------------------------|-----------------------------------------------|
|                    |                                     |        |                                             |                                             |                                          |
| Henry P. Becton Jr.     |                                     | None        |                                             |                                             |                                          |
| Dawn-Marie Driscoll     |                                     | None        |                                             |                                             |                                          |

 

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

In            addition to customary indemnification rights provided by the governing instruments of            the Trust, Trustees may be eligible to seek indemnification from the Advisor in            connection with certain matters as follows. In connection with litigation or regulatory            action related to possible improper market timing or other improper trading activity or            possible improper marketing and sales activity in the Fund, the Fund’s investment            advisor has agreed, subject to applicable law and regulation, to indemnify and hold            harmless the Fund against any and all loss, damage, liability and expense, arising from            market timing or marketing and sales matters alleged in any enforcement actions brought            by governmental authorities involving or potentially affecting the Fund or the            investment adviser (“Enforcement Actions”) or that are the basis for            private actions brought by shareholders of the Fund against the Fund, their Board            Members and officers, the investment adviser and/or certain other parties            (“Private Litigation”), or any proceedings or actions that may be            threatened or commenced in the future by any person (including governmental            authorities), arising from or similar to the matters alleged in the Enforcement Actions            or Private Litigation. In recognition of its undertaking to indemnify the Funds and in            light of the rebuttable presumption generally afforded to Independent

 

----

 

Board Members of investment companies that they have not engaged in            disabling conduct, the Fund’s investment adviser has also agreed, subject to            applicable law and regulation, to indemnify the Fund’s Independent Board Members            against certain liabilities the Independent Board Members may incur from the matters            alleged in any Enforcement Actions or Private Litigation or arising from or similar to            the matters alleged in the Enforcement Actions or Private Litigation, and advance            expenses that may be incurred by the Independent Board Members in connection with any            Enforcement Actions or Private Litigation. The Fund’s investment adviser is not,            however, required to provide indemnification and advancement of expenses: (1) in            connection with any proceeding or action with respect to which the Fund’s Board            determines that the Independent Board Member ultimately would not be entitled to            indemnification or (2) for any liability of the Independent Board Member to the Fund or            its shareholders to which the Independent Board Member would otherwise be subject by            reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the            Independent Board Members’ duties as a director or trustee of the Fund as            determined in a final adjudication in such action or proceeding. The estimated amount            of any expenses that may be advanced to the Independent Board Members or indemnity that            may be payable under the indemnity agreements is currently unknown. These agreements by            the investment adviser will survive the termination of the investment management            agreements between the applicable Deutsche Asset Management entity and the            Fund.

**TRUST ORGANIZATION**

The            Fund is a series of DWS Advisor Funds (the “Trust”). The Trust is a            Massachusetts business trust organized under the laws of Massachusetts and is governed            by an Amended and Restated Declaration of Trust dated June 27, 2006, as may be further            amended from time to time (the “Declaration of Trust”). The Trust was            organized on July 21, 1986 under the laws of The Commonwealth of Massachusetts. The            Trust was organized under the name BT Tax-Free Investment Trust and assumed its former            name of BT Investment Funds on May 16, 1988. The Trust’s name was changed to            Scudder Advisor Funds effective May 16, 2003. The Trust’s name was changed to DWS            Advisor Funds effective February 6, 2006. The Board of Trustees of the Trust is            responsible for the overall management and supervision of the affairs of the Trust. The            Declaration of Trust authorizes the Board of Trustees to create a separate investment            series or portfolios of shares. On or about July 10, 2006, International Select Equity            Predecessor Fund will transfer all its assets and liabilities from DWS Investments            Trust, a Delaware statutory trust, into a new series of the Trust, under the same fund            name. The Trust offers shares of beneficial interest of separate series, par value            $0.001 per share. The shares of the other series of the Trust are offered through            separate prospectuses and statements of additional information. No series of shares has            any preference over any other series. The trust also reserves the right to issue more            than one class of shares of the Fund. All shares issued and outstanding are fully paid            and non-assessable, transferable, have no pre-emptive or conversion rights (except as            may be determined by the Board of Trustees) and are redeemable as described in the SAI            and a Fund’s prospectus. Each share has equal rights with each other share of the            same class of the Fund as to voting, dividends, exchanges, conversion features and            liquidation. Shareholders are entitled to one vote for each full share held and            fractional votes for fractional shares held.

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

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

 

----

 

The            Declaration of Trust provides that the Board of Trustees may, in its discretion,            establish minimum investment amounts for shareholder accounts, impose fees on accounts            that do not exceed a minimum investment amount and involuntarily redeem shares in any            such account in payment of such fees. The Board of Trustees, in its sole discretion,            also may cause the Trust to redeem all of the shares of the Trust or one or more series            or classes held by any shareholder for any reason, to the extent permissible by the            1940 Act, including (a) if the shareholder owns shares having an aggregate net asset            value of less than a specified minimum amount, (b) if a particular shareholder’s            ownership of shares would disqualify a series from being a regulated investment            company, (c) upon a shareholder’s failure to provide sufficient identification to            permit the Trust to verify the shareholder’s identity, (d) upon a            shareholder’s failure to pay for shares or meet or maintain the qualifications            for ownership of a particular class or series of shares, (e) if the Board of Trustees            determines (or pursuant to policies established by the Board it is determined) that            share ownership by a particular shareholder is not in the best interests of remaining            shareholders, (f) when a Fund is requested or compelled to do so by governmental            authority or applicable law and (g) upon a shareholder’s failure to comply with a            request for information with respect to the direct or indirect ownership of shares of            the Trust. The Declaration of Trust also authorizes the Board of Trustees to terminate            a Fund or any class without shareholder approval, and the Trust may suspend the right            of shareholders to require the Trust to redeem shares to the extent permissible under            the 1940 Act.

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

**PROXY VOTING GUIDELINES**

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

| **•** | Shareholder Rights—                            DeAM, Inc. generally votes against proposals that restrict shareholder                            rights. |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Corporate Governance— DeAM, Inc. 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— DeAM, Inc. 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. |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **•** | Routine Matters—                            DeAM, Inc. 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. DeAM, Inc.            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 DeAM, Inc. or an affiliate serves            as

 

----

 

investment advisor or principal underwriter (“affiliated            investment companies”). DeAM, Inc. 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).

Although the Guidelines set forth DeAM, Inc.’s general voting            positions on various proposals, DeAM, Inc. 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 company(ies)            within the Deutsche Bank organization or of the investment companies for which DeAM,            Inc. or an affiliate serves as investment advisor or sponsor.

DeAM, Inc. 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 DeAM, Inc. resolves conflicts            of interest. To resolve conflicts, DeAM, Inc. under normal circumstances, votes proxies            in accordance with its Guidelines. If DeAM, Inc. 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 DeAM, Inc. will vote            the proxy. Before voting any such proxy, however, DeAM, Inc. 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 DeAM, Inc. 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            DeAM, Inc. has a material conflict, or fewer than three voting members are eligible to            participate in the proxy vote, typically DeAM, Inc. 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 DeAM, Inc. may not be able to vote            proxies or DeAM, Inc. may find that the expected economic costs from voting outweigh            the benefits associated with voting. For example, DeAM, Inc. may not vote proxies on            certain foreign securities due to local restrictions or customs. DeAM, Inc. 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 for all            classes.

**FINANCIAL STATEMENTS**

International Select Equity Predecessor Fund’s audited financial            statements, for the classes of shares it makes available, for the year ended October            31, 2006 are included in, and incorporated by reference into, this Statement of            Additional Information from the Annual Report to Shareholders of the Fund in reliance            upon the reports of PricewaterhouseCoopers LLP, the Fund’s independent registered            public accounting firm, as experts in accounting and auditing. The Board of Trustees of            International Select Equity Predecessor Fund approved a 1.82569632-for-1 stock split of            the Class R shares of International Select Equity Predecessor Fund, a 1.81761006-for-1            stock split of the Institutional Class shares of International Select Equity            Predecessor Fund, a 1.79424978-for-1 stock split of the Investment Class shares of            International Select Equity Predecessor Fund and a 1.80772686-for-1 stock split of the            Premier Class shares of International Select Equity Predecessor Fund which was            effective November 11, 2005. The share and per share data presented in the financial            statements incorporated by reference into this Statement of Additional Information have            not been restated for this split.

Shareholders of the Fund receive an annual report containing audited            financial statements and a semi-annual report. All transactions in shares of the Fund            and dividends and distributions paid by the Fund are reflected in confirmations issued            by the Transfer Agent at the time of the transaction and/or in monthly statements            issued by the Transfer Agent. A year-to-date statement will be provided by the Transfer            Agent.

 

----

 

***Internet Access***

*World Wide Web Site —*The address of            the DWS Fund site is www.dws-scudder.com. This site offers guidance on global investing            and developing strategies to help meet financial goals and provides access to the DWS            Funds’ investor relations department via e-mail. The site also enables users to            access or view Fund Prospectuses and profiles with links between summary information in            Fund Summaries and details in the Prospectuses. Users can fill out new account forms            on-line, order free software, and request literature on the Fund.

*Account Access*— DWS Fund is among            the first mutual fund families to allow shareholders to manage their fund accounts            through the World Wide Web. DWS Fund shareholders can view a snapshot of current            holdings, review account activity and move assets between DWS Fund accounts.

DWS            Fund’s personal portfolio capabilities — known as SEAS (Scudder Electronic            Account Services) — are accessible only by current DWS Fund shareholders who have            set up a Personal Page on DWS Scudder’s Web site. Using a secure Web browser,            shareholders sign on to their account with their Social Security number and their SAIL            password. As an additional security measure, users can change their current password or            disable access to their portfolio through the World Wide Web.

An            Account Activity option reveals a financial history of transactions for an account,            with trade dates, type and amount of transaction, share price and number of shares            traded. For users who wish to trade shares between DWS Fund, the Fund Exchange option            provides a step-by-step procedure to exchange shares among existing fund accounts or to            new DWS Fund accounts.

**ADDITIONAL INFORMATION**

The            CUSIP numbers for each class of the Fund are:

 

| DWS International Select Equity Fund | Institutional Class:

Class A Shares:

Class B Shares:

Class C Shares:

Class R Shares: | 23339E103

23339E400

23339E509

23339E608

23339E806 |
|--------------------------------------|------------------------------------------------------------------------------------------|-------------------------------------------------------|

 

The            Fund has a fiscal year end of October 31.

 

----

 

**APPENDIX**

***Moody’s Investors Service, Inc.’s Short-Term Debt            Ratings***

Moody’s short-term debt ratings are opinions of the ability of            issuers to repay punctually promissory obligations not having an original maturity in            excess of one year.

Issuers rated**Prime-1 or P-1**(or supporting institutions) have a superior ability for repayment of            senior short-term debt obligations. Prime-1 or P-1 repayment ability will often be            evidenced by many of the following characteristics:

Leading market positions in well established industries.

High rates of return on Fund employed.

Conservative capitalization structure 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 P-2 (or supporting institutions) have a strong ability for repayment            of senior short-term debt 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, may be more subject to variation. Capitalization characteristics,            while still appropriate, may be more affected by external conditions. Ample alternate            liquidity is maintained.

Standard & Poor’s Division of The McGraw-Hill Companies, Inc.            (“Standard & Poor's”) Corporate Bond Ratings

Investment Grade

**AAA**: Debt rated AAA has the highest rating            assigned by S&P’s 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 than bonds in            higher rated categories.

**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 a weakened capacity to pay interest and repay principal for            debt in this category than in higher rated categories.

Speculative Grade

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly            speculative characteristics with respect to capacity to pay interest and repay            principal. BB indicates the least degree of speculation and C the highest. While such            debt will likely have some quality and protective characteristics, these are outweighed            by large uncertainties or major exposures to adverse conditions.

**BB**: Debt rated 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. The            BB rating category is also used for debt subordinated to senior debt that is assigned            an actual or implied BBB- rating.

 

----

 

**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 or 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.

The            CCC rating category is also used for debt subordinated to senior debt that is assigned            an actual or implied B or B- rating.

**CC**: The rating 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.

**C1:**The Rating C1 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 Standard &            Poor’s believes that such payments will be made during such grace period. The D            rating also will 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.

**NY:**Bonds may lack a S&P’s rating            because no public rating has been requested, because there is insufficient information            on which to base a rating, or because S&P’s does not rate a particular type            of obligation as a matter of policy.

Standard & Poor’s Commercial Paper Ratings

**A:**S&P’s commercial paper rating            is a current assessment of the likelihood of timely payment of debt considered            short-term in the relevant market.

**A-1:**This highest category indicates that            the degree of safety regarding timely payment is strong. Those issues determined to            possess extremely strong safety characteristics are denoted with a plus (+) sign            designation.

**A-2:**Capacity for timely payment on issues            with this designation is satisfactory. However, the relative degree of safety is not as            high as for issues designated “A-1”.

**A-3**: Issues carrying this designation have            adequate capacity for timely payment. They are, however, more vulnerable to the adverse            effects of changes in circumstances than obligations carrying the higher            designations.

Fitch Investors Service, Inc. Short-Term Ratings

Investment Grade

 

----

 

**AAA:**Highest credit quality. The risk            factors are negligible, being only slightly more than for risk-free US Treasury            debt.

**AA+, AA,**and AA-: High credit quality.            Protection factors are strong. Risk is modest but may vary slightly from time to time            because of economic conditions.

**A+, A, and A**-: Protection factors are            average but adequate. However, risk factors are more variable and greater in periods of            economic stress.

**BBB+, BBB, and BBB-:**Below average            protection factors but still considered sufficient for prudent investment. Considerable            variability in risk during economic cycles.

High Yield Grade

**BB+, BB, and BB-:**Below investment grade            but deemed likely to meet obligations when due. Present or prospective financial            protection factors fluctuate according to industry conditions or company fortunes.            Overall quality may move up or down frequently within this category.

**B+, B, and B-:**Below investment grade and            possessing risk that obligations will not be met when due. Financial protection factors            will fluctuate widely according to economic cycles, industry conditions and/or company            fortunes. Potential exists for frequent changes in the rating within this category or            into a higher or lower rating grade.

**CCC:**Well below investment grade            securities. Considerable uncertainty exists as to timely payment of principal interest            or preferred dividends. Protection factors are narrow and risk can be substantial with            unfavorable economic/industry conditions, and/or with unfavorable company            developments.

Preferred stocks are rated on the same scale as bonds but the preferred            rating gives weight to its more junior position in the capital structure. Structured            financings are also rated on this scale.

 

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**DWS            ADVISOR FUNDS**

345            Park Avenue

New            York, NY 10154

 

**INVESTMENT ADVISOR**

Deutsche Investment Management Amercias Inc.

345            Park Avenue

New            York, NY 10154

 

**ADMINISTRATOR**

Deutsche Investment Management Americas, Inc.

345            Park Avenue

New            York, NY 10154

 

**DISTRIBUTOR**

DWS            Scudder Distributors, Inc.

222            South Riverside Plaza

Chicago, IL 60606

 

**CUSTODIAN**

Brown            Brothers Harriman & Co.

40            Water Street

Boston,            MA 02109

 

**TRANSFER AGENT**

DWS            Scudder Investments Service Company

222            South Riverside Plaza

Chicago, IL 60606

 

**INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

PricewaterhouseCoopers LLP

125            High Street

Boston,            MA 02110

 

**LEGAL COUNSEL**

Willkie            Farr & Gallagher LLP

787            Seventh Ave.

New            York, NY 10019

 

**SERVICE INFORMATION**

Existing accounts, new accounts, Prospectuses, the SAI, applications,            service forms, telephone exchanges, share price and performance —            1-800-621-1048.