Filed electronically with the Securities and Exchange
                          Commission on June 19, 2008

                                                               File No. 33-12938
                                                              File No. 811-05076

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM N-1A


             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933         /X/

                           Pre-Effective Amendment No.                       /_/
                         Post-Effective Amendment No. 26                     /X/
                                     and/or           --
                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940                      /X/

                                Amendment No. 27                             /X/
                                              --

                     TAX-EXEMPT CALIFORNIA MONEY MARKET FUND
                     ---------------------------------------
               (Exact Name of Registrant as Specified in Charter)

                       345 Park Avenue, New York, NY 10154
               --------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

       Registrant's Telephone Number, including Area Code: (212) 454-6778



                   John Millette, Vice President and Secretary
                                One Beacon Street
                           Boston, Massachusetts 02108
                           ---------------------------
                     (Name and Address of Agent for Service)

                            Copy to: David A. Sturms
                                Vedder Price P.C.
                            222 North LaSalle Street
                             Chicago, Illinois 60601

It is proposed that this filing will become effective (check appropriate box):

/_/      Immediately upon filing pursuant to paragraph (b)
/_/      On __________________ pursuant to paragraph (b)
/_/      60 days after filing pursuant to paragraph (a)(1)
/X/      On August 26, 2008  pursuant to paragraph (a)(1)
/_/      75 days after filing pursuant to paragraph (a)(2)
/_/      On __________________pursuant to paragraph (a)(2) of Rule 485

         If appropriate, check the following box:
/_/      This post-effective amendment designates a new effective date for a
         previously filed post-effective amendment


                                       1
<PAGE>



                                EXPLANATORY NOTE
                                ----------------

This post-effective amendment contains the prospectus and statement of
additional information relating to the following series and class of the
registrant:

o        Tax-Exempt California Money Market Fund -- Institutional Shares

This post-effective amendment is not intended to update or amend any other
prospectuses or statements of additional information of the registrant's other
series or classes.


                                       2
<PAGE>

                                AUGUST 26, 2008







                                   PROSPECTUS
                              ------------------

                              INSTITUTIONAL SHARES


--------------------------------------------------------------------------------



                    TAX-EXEMPT CALIFORNIA MONEY MARKET FUND


As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.


                                     RESHAPING INVESTING. [DWS INVESTMENTS LOGO]
                                                             Deutsche Bank Group

<PAGE>

CONTENTS




<TABLE>
<S>      <C>
  2      The Fund's Main Investment
         Strategy
  4      The Main Risks of Investing in
         the Fund
  7      The Fund's Performance
         History
  8      How Much Investors Pay
  9      Other Policies and Risks
 10      Who Manages and Oversees
         the Fund


</TABLE>
<TABLE>
<S>      <C>
 11      Financial Highlights

HOW TO INVEST IN THE FUND

 13      Policies You Should Know
         About
 23      Understanding Distributions
         and Taxes
 25      Appendix
</TABLE>

<PAGE>


<TABLE>
<S>                                            <C>
                                                 Institutional Shares
  fund number

    TAX-EXEMPT CALIFORNIA MONEY MARKET FUND


</TABLE>

            THE FUND'S MAIN INVESTMENT STRATEGY

            The fund seeks maximum current income that is exempt from federal
            and State of California income taxes to the extent consistent with
            stability of capital.

            To pursue its goal, the fund normally invests at least 80% of net
            assets, plus the amount of any borrowings for investment purposes,
            in municipal securities and other securities whose income is free
            from California and federal income tax and from the federal
            alternative minimum tax (AMT).

            This fund is designed for investors in a moderate to high tax
            bracket who are interested in federal tax-free income along with
            the liquidity and stability that a money fund is designed to offer.


            While the fund's Advisor gives priority to earning income and
            maintaining the value of the fund's principal at $1.00 per share,
            all money market instruments, including US government obligations,
            can change in value when interest rates change or an issuer's
            creditworthiness changes.

            The fund maintains a dollar-weighted average maturity of 90 days or
            less. The fund is managed in accordance with Rule 2a-7 under the
            Investment Company Act of 1940, as amended.

            The fund follows policies designed to maintain a stable share
            price:

            -  Fund securities are valued in US dollars and have remaining
               maturities of 397 days (about 13 months) or less at the time of
               purchase. The fund may also invest in securities that have
               features that have the effect of reducing their maturities to
               397 days or less at the time of purchase

            -  The fund buys short-term municipal obligations that at the time
               of purchase:


                                    Tax-Exempt California Money Market Fund  | 2
<PAGE>

            -  have received one of the two highest short-term ratings from
               two nationally recognized statistical rating organizations
               (NRSROs) or one NRSRO if that NRSRO is the only NRSRO that
               rates such obligations;

            -  are unrated, but are deemed by the Advisor to be of comparable
               quality to one of the two highest short-term ratings; or

            -  have no short-term rating, but are rated in one of the top two
               highest long-term rating categories by a NRSRO, and are deemed
               by the Advisor to be of comparable quality.


            Principal investments

            The fund primarily invests in the following types of
            investments:

            -  Municipal trust receipts ("MTRs"). MTRs are sometimes called
               municipal asset-backed securities, synthetic short-term
               derivatives, floating rate trust certificates, or municipal
               securities trust receipts. MTRs are typically structured by a
               bank, broker-dealer or other financial institution by depositing
               municipal securities into a trust or partnership coupled with a
               conditional right to sell, or put, the holder's interest in the
               underlying securities at par plus accrued interest to a
               financial institution. MTRs may be issued as fixed or variable
               rate instruments. These trusts are organized so that the
               purchaser of the MTR is considered to be investing in the
               underlying municipal securities. This structure is intended to
               allow the tax-exempt status of interest generated by the
               underlying asset to pass through to the purchaser. The fund may
               invest up to 50% of its net assets in MTRs. An additional 10% of
               the fund's net assets may be invested in MTRs on a temporary
               basis at the Advisor's discretion to manage inflows into the
               fund.

            -  General obligation notes and bonds, which an issuer backs with
               its full faith and credit. That means the government entity will
               repay the bond out of its general tax revenues.

            -  Revenue notes and bonds, which are payable from specific revenue
               sources. These are often tied to the public works projects the
               bonds are financing, but are not generally backed by the
               issuer's taxing power.

            -  Tax-exempt commercial paper, which is tax-exempt debt of
               borrowers that typically matures in 270 days or less.

3 | Tax-Exempt California Money Market Fund
<PAGE>

            -  Short-term municipal notes, such as tax anticipation notes, that
               are issued in anticipation of the receipt of tax revenues.

            -  Municipal obligations backed by letters of credit (a document
               issued by a bank guaranteeing the issuer's payments for a stated
               amount), general bank guarantees or municipal bond insurance.

            -  Floating rate bonds, whose interest rates vary with changes in
               specified market rates or indices. The fund may invest in high
               quality floating rate bonds with maturities of one year or more
               if it has the right to sell them back at their face value within
               397 days of purchase.

            -  Tax-exempt private activity bonds, which are revenue bonds that
               finance non-governmental activities, such as private industry
               construction and which meet certain tax law requirements.

            Working in consultation with the portfolio managers, a credit team
            screens potential securities and develops a list of those that the
            fund may buy. The portfolio managers, looking for attractive yield
            and weighing considerations such as credit quality, economic
            outlooks and possible interest rate movements, then decide which
            securities on this list to buy. The portfolio managers may adjust
            the fund's exposure to interest rate risk, typically seeking to
            take advantage of possible rises in interest rates and to preserve
            yield when interest rates appear likely to fall.


            THE MAIN RISKS OF INVESTING IN THE FUND

            There are several risk factors that could reduce the yield you get
            from the fund or cause the fund's performance to trail that of
            other investments.

            INTEREST RATE RISK. Money market instruments, like all debt
            securities, face the risk that the securities will decline in value
            because of changes in interest rates. Generally, investments
            subject to interest rate risk will decrease in value when interest
            rates rise and increase in value when interest rates decline. To
            minimize such price fluctuations, the fund limits the
            dollar-weighted average maturity of the securities held by the fund
            to 90 days or less. Generally, the price of short-term investments
            fluctuates less than longer-term investments. Income earned on
            floating or variable rate securities may vary as interest rates
            decrease or increase.


                                    Tax-Exempt California Money Market Fund  | 4
<PAGE>

            CREDIT RISK. A money market instrument's credit quality depends on
            the issuer's ability to pay interest on the security and repay the
            debt; the lower the credit rating, the greater the risk that the
            security's issuer will default, or fail to meet its payment
            obligations. The credit risk of a security may also depend on the
            credit quality of any bank or financial institution that provides
            credit enhancement for it. To reduce credit risk, the fund only
            buys high quality securities. Also, the fund only buys securities
            with remaining maturities of 397 days (about 13 months) or less.
            This reduces the risk that the issuer's creditworthiness will
            change, or that the issuer will default on the principal and
            interest payments of the obligation.

            FOCUSED INVESTING RISK. The fact that the fund focuses on
            investments from the state of California increases risk, because
            factors affecting the state, such as economic or fiscal problems,
            could affect a large portion of the fund's securities in a similar
            manner. For example, California residents' high sensitivity to
            taxes could make it hard to raise taxes in order to meet
            obligations or the state's economy could be hurt by natural
            disasters. States that face severe fiscal difficulties due to an
            economic downturn could experience increased expenditures on
            domestic security and reduced monetary support from the federal
            government. Over time, these issues may impair the state's ability
            to repay its obligations.

            As of June 15, 2008, the S&P rating of California's general
            obligation bonds was "A+," Moody's rating was "A1" and Fitch's
            rating was "A+." Should the financial condition of California
            deteriorate, its credit ratings could be downgraded, and the market
            value and marketability of all outstanding notes and bonds issued
            by California, its public authorities or local governments could be
            adversely affected. For more information, see the Statement of
            Additional Information, under "State Specific Risk Factors."

            MARKET RISK. Although individual securities may outperform the
            market, the entire market may decline as a result of rising
            interest rates, regulatory developments or deteriorating economic
            conditions. In addition, the municipal securities market is
            narrower, less liquid and has fewer investors than the taxable
            market.


5 | Tax-Exempt California Money Market Fund
<PAGE>

            SECURITY SELECTION RISK. While the fund invests in short-term
            securities, which by their nature are relatively stable
            investments, the risk remains that the securities in which the fund
            invests will not perform as expected. This could cause the fund's
            returns to lag behind those of similar money market mutual funds.

            MUNICIPAL TRUST RECEIPTS RISK. The fund's investment in MTRs is
            subject to similar risks as other investments in debt obligations,
            including interest rate risk, credit risk and security selection
            risk. Additionally, investments in MTRs raise certain tax issues
            that may not be presented by direct investments in municipal bonds.
            There is some risk that certain issues could be resolved in a
            manner that could adversely impact the performance of the fund.

            SPECIAL TAX FEATURES. Political or legal actions could change the
            tax-exempt status of the fund's dividends. Also, to the extent that
            the fund invests in taxable securities, a portion of its income
            would be subject to regular federal income taxation.

            PREPAYMENT RISK. A bond issuer, such as an issuer of asset-backed
            securities, may retain the right to pay off a high yielding bond
            before it comes due. In that event, the fund may have to reinvest
            the proceeds at lower interest rates. Thus, prepayment may reduce
            the fund's income. It may also create a capital gains tax
            liability, because bond issuers usually pay a premium for the right
            to pay off bonds early.

            TEMPORARY DEFENSIVE POSITION. In response to adverse political,
            economic or market events, or when acceptable short term municipal
            securities are not available the fund may adopt a temporary
            defensive position in which it places more than 20% of the fund's
            assets in high quality money market investments that are subject to
            federal income tax. To the extent that the fund might do so, it may
            not meet its goal of a high level of current tax-free income.

            An investment in the fund is not insured or guaranteed by the FDIC
            or any other government agency. Although the fund seeks to preserve
            the value of your investment at $1.00 per share, this share price
            isn't guaranteed and you could lose money by investing in the fund.



                                    Tax-Exempt California Money Market Fund  | 6
<PAGE>

THE FUND'S PERFORMANCE HISTORY

While a fund's past performance isn't necessarily a sign of how it will do in
the future, it can be valuable for an investor to know.

The bar chart shows how the performance of the fund has varied from year to
year, which may give some idea of risk. The table shows how the fund's returns
over different periods average out. The "total return" of a fund is the change
in the value of an investment in the fund over a given period. Average annual
returns are calculated by averaging the year-by-year returns of the fund over a
given period. All figures include the effects of the fund's expenses and assume
reinvestment of dividends and distributions. As always, past performance is no
guarantee of future results.

The 7-DAY YIELD, which is often referred to as the "current yield," is the
income generated by the fund over a seven-day period. This amount is then
annualized, which means that we assume the fund generates the same income every
week for a year. To learn the current yield, investors may call (800) 730-1313.

Institutional Shares commenced operations on or about August 26, 2008. In the
bar chart and table, the performance figures reflect the historical performance
of the fund's original share class; Premier Shares. Although the fund's Premier
Shares are not offered in this prospectus, they are invested in the same
portfolio and the annual total return would differ only to the extent that the
classes have different fees and expenses.

Tax-Exempt California Money Market Fund

ANNUAL TOTAL RETURN (%) AS OF 12/31 EACH YEAR - Premier Class

[BAR GRAPHIC APPEARS HERE]


<TABLE>
<S>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
 2.52      2.26      2.89      1.70      0.54      0.33      0.54      1.67      2.39     2.70
1998      1999      2000      2001      2002       2003     2004      2005      2006      2007
</TABLE>





<TABLE>
<CAPTION>
FOR THE PERIODS INCLUDED IN THE BAR CHART:

<S>                                        <C>
BEST QUARTER: 0.79%, Q2 2000               WORST QUARTER: 0.08%, Q3 2003
</TABLE>


AVERAGE ANNUAL TOTAL RETURNS (%) as of 12/31/2007



<TABLE>
<CAPTION>
      1 YEAR           5 YEARS      10 YEARS
<S>                   <C>          <C>
             2.70         1.57         1.78
</TABLE>


Does not  reflect the effect of a  nonrecurring  expense  adjustment  and waiver
arrangement in effect from 9/12/2002  through  9/30/2003.  With this adjustment,
the fund's annual total return as of 12/31 for 2003 was 0.57%.

Total returns would have been lower if operating expenses hadn't been reduced.

7 | Tax-Exempt California Money Market Fund
<PAGE>

HOW MUCH INVESTORS PAY

The table below describes the fees and expenses that you may pay if you buy and
hold Institutional Shares of the fund. This information doesn't include any fees
that may be charged by your financial advisor.


<TABLE>
<CAPTION>
FEE TABLE
<S>                                       <C>
 SHAREHOLDER FEES, paid directly from
 your investment                                    None
______________________________________
 ANNUAL OPERATING EXPENSES, deducted
 from fund assets
______________________________________
 Management Fee 1                                    0.12%
 Distribution/Service (12b-1) Fee                    None
 Other Expenses 2                                    0.19
 TOTAL ANNUAL OPERATING EXPENSES                     0.31
 Less Expense Waiver/Reimbursement 3                 0.06
 NET ANNUAL OPERATING EXPENSES 3                     0.25
</TABLE>


1   Management fee became effective on May 1, 2008.

2   "Other Expenses" include an administrative services fee paid to the Advisor
   in the amount of 0.10%.

3    Through August 26, 2009, the Advisor has contractually agreed to waive all
     or a portion of its management fee and reimburse or pay operating expenses
     of the fund to the extent necessary to maintain the fund's Institutional
     Shares total annual operating expenses at 0.25%, excluding certain
     expenses such as extraordinary expenses, taxes, brokerage and interest.

Based on the costs above, including one year of capped expenses, this example
helps you compare the expenses of the share class to those of other mutual
funds. This example assumes operating expenses remain the same. It also assumes
that you invested $10,000, earned 5% annual returns and reinvested all
dividends and distributions and sold you shares at the end of each period. This
is only an example; actual expenses will be different.


<TABLE>
<CAPTION>
1 YEAR       3 YEARS      5 YEARS      10 YEARS
<S>         <C>          <C>          <C>
   $            $            $            $
</TABLE>



                                    Tax-Exempt California Money Market Fund  | 8
<PAGE>

OTHER POLICIES AND RISKS

           While the previous pages describe the main points of the fund's
           strategy and risks, there are a few other issues to know about:

           -  Although major changes tend to be infrequent, the fund's Board
              could change the fund's investment objective without seeking
              shareholder approval. However, the fund's policy of investing at
              least 80% of net assets, plus the amount of any borrowings for
              investment purposes, in municipal securities and other securities
              whose income is free from California and federal income tax and
              from AMT for the fund cannot be changed without shareholder
              approval.


           For more information

           This prospectus doesn't tell you about every policy or risk of
           investing in the fund.

           If you want more information on the fund's allowable securities and
           investment practices and the characteristics and risks of each one,
           you may want to request a copy of the Statement of Additional
           Information (the back cover tells you how to do this).

           Keep in mind that there is no assurance that the fund will achieve
           its objective.

           A complete list of the fund's portfolio holdings is posted as of
           each month end on or after the 14th day of the following month on
           www.dws-scudder.com (the Web site does not form a part of this
           prospectus). This posted information generally remains accessible at
           least until the date on which the fund files its Form N-CSR or N-Q
           with the Securities and Exchange Commission for the period that
           includes the date as of which the posted information is current. The
           fund may also post on the Web site, on a more frequent basis, a
           percentage breakdown of the holdings of the fund by type of
           security. The fund's Statement of Additional Information includes a
           description of the fund's policies and procedures with respect to
           the disclosure of the fund's portfolio holdings.


9 | Other Policies and Risks
<PAGE>

WHO MANAGES AND OVERSEES THE FUND


           The investment advisor

           Deutsche Investment Management Americas Inc. ("DIMA" or the
           "Advisor"), with headquarters at 345 Park Avenue, New York, NY
           10154, is the investment advisor for the fund. Under the oversight
           of the Board, the Advisor makes investment decisions, buys and sells
           securities for the fund and conducts research that leads to these
           purchase and sale decisions. The Advisor provides a full range of
           global investment advisory services to institutional and retail
           clients.

           DWS Investments is part of Deutsche Bank's Asset Management division
           and, within the US, represents the retail asset management
           activities of Deutsche Bank AG, Deutsche Bank Trust Company
           Americas, DIMA and DWS Trust Company.

           Deutsche Asset Management 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.

           The Advisor 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 funds, retail, private and commercial banking,
           investment banking and insurance.

           MANAGEMENT FEE. The Advisor receives a management fee from the fund.
           Below is the actual rate paid by the fund for the most recent fiscal
           year, as a percentage of the fund's average daily net assets.


<TABLE>
<CAPTION>
FUND NAME                                                FEE PAID
<S>                                                     <C>
Tax-Exempt California Money Market Fund                  0.12%
</TABLE>


           Effective May 1, 2008, the fund pays the Advisor under the
           investment management agreement a fee, calculated daily and paid
           monthly, at the annual rate of 0.120% of the fund's average daily
           net assets up to $500 million, 0.100% of the next $500 million,
           0.075% of the next $1.0 billion and 0.050% thereafter.


                                         Who Manages and Oversees the Fund  | 10
<PAGE>

           A discussion regarding the basis for the Board's approval of the
           fund's investment management agreement is contained in the most
           recent shareholder report for the annual period ended September 30
           and the semi-annual period ended March 31 (see "Shareholder reports"
           on the back cover).

           Under a separate administrative services agreement between the fund
           and the Advisor, the fund pays the Advisor for providing most of the
           fund's administrative services.


           The portfolio managers

           A group of investment professionals is responsible for the
           day-to-day management of the fund. These investment professionals
           have a broad range of experience managing money market funds.


FINANCIAL HIGHLIGHTS

           Since the share class is newly offered, financial highlights
           information is not available.


11 | Financial Highlights
<PAGE>

HOW TO INVEST IN THE FUND

The following pages describe the main POLICIES associated with buying and
selling shares of the fund. There is also information on DIVIDENDS AND TAXES
and other matters that may affect you as the shareholder.

Because the fund is available only through a FINANCIAL ADVISOR, such as a
broker or financial institution, you should contact a representative of your
financial advisor for instructions on how to buy or sell fund shares.
<PAGE>

POLICIES YOU SHOULD KNOW ABOUT

           Along with the information on the previous pages, the policies below
           may affect you as a shareholder. Some of this information, such as
           the section on distributions and taxes, applies to all investors,
           including those investing through a financial advisor.

           If you are investing through a financial advisor or through a
           retirement plan, check the materials you received from them about
           how to buy and sell shares because particular financial advisors or
           other intermediaries may adopt policies, procedures or limitations
           that are separate from those described by the fund. Please note that
           a financial advisor may charge fees separate from those charged by
           the fund and may be compensated by the fund.

           In order to reduce the amount of mail you receive and to help reduce
           expenses, we generally send a single copy of any shareholder report
           and prospectus to each household. If you do not want the mailing of
           these documents to be combined with those for other members of your
           household, please contact your financial advisor or call (800)
           730-1313.


           Financial intermediary support payments

           The Advisor, DWS Scudder Distributors, Inc. (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
           selected 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 ("revenue sharing"). Such revenue
           sharing payments are in addition to any distribution or service fees
           payable under any Rule 12b-1 or service plan of the 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 charge, commissions, non-cash compensation
           arrangements expressly permitted under applicable rules of the
           Financial Industry Regulatory Authority or other concessions
           described in the fee table or elsewhere in this prospectus or the
           Statement of Additional Information 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


13 | Policies You Should Know About
<PAGE>

           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 revenue sharing 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,
           .10% to .25% of sales of the fund attributable to the financial
           advisor, a flat fee of $13,350 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 the 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 the fund. Additional information regarding these
           revenue sharing payments is included in the fund's Statement of
           Additional Information, which is available to you on request at no
           charge (see the back cover of this prospectus for more information
           on how to request a copy of the Statement of Additional
           Information).


                                            Policies You Should Know About  | 14
<PAGE>

           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
           Investments 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.

           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.


           Policies about transactions


           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. What this means to you:
           When you open an account, we will ask for your name, address, date
           of birth and other information that will allow us to identify you.
           Some or all of this information will be used to verify the identity
           of all persons opening an account.

           We might request additional information about you (which may include
           certain documents, such as articles of incorporation for companies)
           to help us verify your identity and, in some cases, the information
           and/or documents may be required to conduct the verification. The
           information and documents will be used solely to verify your
           identity.


15 | Policies You Should Know About
<PAGE>

           We will attempt to collect any missing required and requested
           information by contacting you or your financial advisor. If we are
           unable to obtain this information within the time frames established
           by the fund, then we may reject your application and order.

           The fund will not invest your purchase until all required and
           requested identification information has been provided and your
           application has been submitted in "good order." After we receive all
           the information, your application is deemed to be in good order and
           we accept your purchase, you will receive the net asset value per
           share next calculated.

           If we are unable to verify your identity within time frames
           established by the fund, after a reasonable effort to do so, you
           will receive written notification.

           With certain limited exceptions, only US residents may invest in the
           fund.

           Because orders placed through a financial advisor must be forwarded
           to the transfer agent before they can be processed, you'll need to
           allow extra time. Your financial advisor should be able to tell you
           approximately when your order will be processed. It is the
           responsibility of your financial advisor to forward your order to
           the transfer agent in a timely manner.

           SUB-MINIMUM BALANCES. The fund may close your account and send you
           the proceeds if your balance falls below $50,000; we will give you
           60 days' notice so you can either increase your balance or close
           your account.

           TRANSACTION PROCESSING. Orders for the purchase of shares by wire
           transfer will normally be effective at the share price next computed
           after receipt of the wire transfer of the amount to be invested. If
           a wire transfer purchase order is received in good order before
           12:00 p.m. Eastern time, it will normally receive the dividend for
           that day.

           Shareholders known to the fund may notify the transfer agent in
           advance of their wire transfer purchase by calling the transfer
           agent prior to the 12:00 p.m. Eastern time cut-off time and
           providing the amount of the order. The investor will receive a
           confirmation number for the trade. If the fund receives the wire
           transfer before the close of the Federal Funds wire system, the
           trade will be entitled to that day's dividend. If the fund does not
           receive the wire transfer by the close of the Federal Funds wire
           system, the trade may not receive the dividend for that day and,


                                            Policies You Should Know About  | 16
<PAGE>

           depending upon the circumstances, the trade may receive the dividend
           for the following business day or may be canceled or rejected and,
           in any case, the investor may be charged for any losses or fees that
           result, which may be paid by deductions from their account or
           otherwise. The fund's Distributor may refuse to allow any investor
           to trade with the fund in this manner and may require that the wire
           transfer of purchase proceeds be received before the trade is
           considered in good order.

           Investments by check will be effective on the business day following
           receipt and will earn dividends the following business day. If you
           pay for shares by check and the check fails to clear, we have the
           right to cancel your order, hold you liable or charge you or your
           account for any losses or fees the fund or its agents have incurred.


           Orders processed through dealers or other financial services firms
           via Fund/SERV will be effected at the share price calculated on the
           trade day (normally the date the order is received). Purchases
           processed via Fund/SERV will begin earning dividends on the day the
           fund receives the payment (typically the next business day). For
           redemptions processed via Fund/SERV, you generally will receive
           dividends accrued up to, but not including, the business day that
           payment for your shares is made.

           When selling shares, shareholders generally receive dividends up to,
           but not including, the business day following the day on which the
           shares were sold. To sell shares, you must state whether you would
           like to receive the proceeds by wire or check.

           In order to receive proceeds by wire, contact the transfer agent
           before 12:00 p.m. Eastern time. After you inform the transfer agent
           of the amount of your redemption, you will receive a trade
           confirmation number. If the fund receives a sell request before
           12:00 p.m. Eastern time and the request calls for proceeds to be
           sent out by wire, the proceeds will normally be wired on the same
           day. However, the shares sold will not earn that day's dividend.

           As noted elsewhere in the prospectus, proceeds of a redemption may
           be delayed. The ability to receive "same day" wire redemption
           proceeds can be affected by a variety of circumstances including the
           time that the request is made, the level of redemption requests and
           purchase orders and general market


17 | Policies You Should Know About
<PAGE>

           conditions. Requests for same day wire that are received earlier in
           the day will be given priority over requests received later in the
           day in the event that it is necessary to limit the amount of same
           day wire redemptions.

           CHECKWRITING enables you to sell shares of the fund by writing a
           check. Your investment keeps earning dividends until your check
           clears. Please note that we will not accept checks for less than
           $250; however, your financial advisor may set its own minimums.
           Please note that you should not write checks for more than
           $5,000,000. Note as well that we can't honor any check larger than
           your balance at the time the check is presented to us. It is not a
           good idea to close out an account using a check because the account
           balance could change between the time you write the check and the
           time it is processed. Please keep in mind that if you make a
           purchase by check and that check has not yet cleared, those funds
           will not be available for immediate redemption.

           THE FUND ACCEPTS AUTOMATED CLEARING HOUSE ("ACH") debit entries for
           accounts that have elected the checkwriting redemption privilege.
           Upon receipt of an ACH debit entry referencing your account number
           you authorize us to redeem shares in your account to pay the entry
           to the third party originating the debit. Your fund account
           statement will show all ACH debit entries in your account. IN CASE
           OF ERRORS OR QUESTIONS ABOUT YOUR TRANSACTIONS OR PRE-AUTHORIZED
           TRANSFERS please contact your financial advisor as soon as possible
           if you believe your statement reflects an improper charge or if you
           need more information about an ACH debit entry transaction. Your
           financial advisor must contact the Shareholder Service Agent within
           sixty (60) days of the fund sending you the first fund account
           statement on which an improper charge appears.

           THE FUND DOES NOT ISSUE SHARE CERTIFICATES. However, if you
           currently have shares in certificated form, you must include the
           share certificates properly endorsed or accompanied by a duly
           executed stock power when exchanging or redeeming shares. You may
           not exchange or redeem shares in certificate form by telephone or
           via the Internet.

           THE FUND ACCEPTS PAYMENT FOR SHARES ONLY IN US DOLLARS by check,
           bank or Federal Funds wire transfer or by electronic bank transfer.
           Please note that the fund does not accept cash, money orders,
           traveler's checks, starter checks, third party checks (except checks
           for retirement plan asset transfers and rollovers


                                            Policies You Should Know About  | 18
<PAGE>

           or for Uniform Gifts to Minors Act/Uniform Transfers to Minors Act
           accounts), checks drawn on foreign banks or checks issued by credit
           card companies or Internet-based companies. Thus, subject to the
           foregoing exceptions for certain third party checks, checks that are
           otherwise permissible must be drawn by the account holder on a
           domestic bank and must be payable to the fund.

           SIGNATURE GUARANTEE. When you want to sell more than $100,000 worth
           of shares or send proceeds to a third party or to a new address,
           you'll usually need to place your order in writing and include a
           signature guarantee. However, if you want money wired to a bank
           account that is already on file with us, you don't need a signature
           guarantee. Also, generally you don't need a signature guarantee for
           an exchange, although we may require one in certain other
           circumstances.

           A signature guarantee is simply a certification of your signature -
           a valuable safeguard against fraud. You can get a signature
           guarantee from an eligible guarantor institution, including
           commercial banks, savings and loans, trust companies, credit unions,
           member firms of a national stock exchange or any member or
           participant of an approved signature guarantor program. Note that
           you can't get a signature guarantee from a notary public and we must
           be provided the original guarantee.

           SELLING SHARES OF TRUST ACCOUNTS AND BUSINESS OR ORGANIZATION
           ACCOUNTS may require additional documentation. Please call (800)
           730-1313 or contact your financial advisor for more information.

           MONEY FROM SHARES YOU SELL is normally sent out within one business
           day of when your order is processed (not when it is received),
           although it could be delayed for up to seven days. There are
           circumstances when it could be longer, including, but not limited
           to, when you are selling shares you bought recently by check or ACH
           (the funds will be placed under a 10 calendar day hold to ensure
           good funds) or when unusual circumstances prompt the SEC to allow
           further delays. Certain expedited redemption processes (e.g.,
           redemption proceeds by wire) may also be delayed or unavailable when
           you are selling shares recently purchased or in the event of closing
           of the Federal Reserve wire payment system. 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


19 | Policies You Should Know About
<PAGE>

           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 the
           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. For additional rights reserved
           by the fund, please see "Other rights we reserve."

           You may obtain additional information about other ways to sell your
           shares by contacting your financial advisor.

           YOUR FINANCIAL ADVISOR MAY SET ITS OWN MINIMUM INVESTMENTS, although
           those set by the fund are as follows:

           -  Minimum initial investment: $100,000

           -  Minimum additional investment: No minimum amount

           IF YOUR SHARES ARE REGISTERED DIRECTLY with the fund's transfer
           agent, you can sell them by sending a written request (with a
           signature guarantee) to:

           DWS Scudder Investments Service Company
           Attention: Transaction Processing
           P.O. Box 219151
           Kansas City, MO 64121

           SHORT-TERM TRADING. Since money market funds hold short-term
           instruments and are intended to provide liquidity to shareholders,
           the Advisor does not monitor or limit short-term or excessive
           trading activity in the fund and, accordingly, the Board of the fund
           has not approved any policies and procedures designed to limit this
           activity. However, the fund reserves the right to and may reject or
           cancel a purchase or exchange order into the fund for any reason,
           including if, in the opinion of the Advisor, there appears to be a
           pattern of short-term or excessive trading by an investor in another
           DWS fund.


           How the fund calculates share price

           To calculate net asset value, or NAV, each share class uses the
           following equation:


<TABLE>
<S>                                                     <C> <C>
            TOTAL ASSETS - TOTAL LIABILITIES
           -----------------------------------------    =    NAV
               TOTAL NUMBER OF SHARES OUTSTANDING
</TABLE>



                                            Policies You Should Know About  | 20
<PAGE>

           The price at which you buy and sell shares is based on the NAV per
           share next calculated after the order is received by the transfer
           agent.

           IN VALUING SECURITIES, we typically use amortized cost (the method
           used by most money market funds) to account for any premiums or
           discounts above or below the face value of any securities the fund
           buys, and round the per share NAV to the nearest whole cent.

           THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange
           (the "Exchange") is open. Normally, the fund calculates its share
           price once every business day as of the close of regular trading on
           the Exchange (typically 4:00 p.m. Eastern time, but sometimes
           earlier, as in the case of scheduled half-day trading or unscheduled
           suspensions of trading). In the event of scheduled partial day
           trading or unscheduled suspensions of trading on the Exchange, the
           calculation of share price shall be as of the close of trading on
           the Exchange. In such instances, the latest time for receipt of wire
           purchase transactions entitled to receive same day dividend
           treatment and for receipt of redemption orders for same day wire
           transfer of proceeds will be the earlier of (a) 12:00 p.m. Eastern
           time or (b) the early closing time of the Exchange. The fund seeks
           to maintain a stable $1.00 share price.

           The fund may, but is not required to, accept certain types of
           purchase and redemption orders (not including exchanges) on days
           that the Exchange is closed, or beyond an Exchange early closing
           time (referred to as a "Limited Trading Period") if: (a) the Federal
           Reserve system is open, (b) the primary trading markets for the
           fund's portfolio instruments are open and (c) the Advisor believes
           there will be adequate liquidity in the short-term markets. During
           any such Limited Trading Period, the fund will only accept purchase
           orders by wire with advance telephone notification and telephone
           redemption orders with proceeds to be sent by wire, ACH or check and
           will not accept orders by any other means. (Automated Telephone Line
           orders are not permitted.) If redemption proceeds are requested by
           ACH or check, the transmission of the ACH payment or the mailing of
           the check, as the case may be, will be delayed by at least one
           business day in comparison to normal trading periods. Orders
           submitted by other means will be processed on the next day that the
           Exchange is open. The calculation of share price will be as set
           forth in the prospectus for normal trading days. Orders must be
           submitted by the cut-off times for receipt of wire


21 | Policies You Should Know About
<PAGE>

           purchases entitled to that day's dividend and for receipt of
           telephone redemption orders for same day wire transfer, which will
           be the earlier of: (a) the times set forth in the prospectus for
           normal trading days or (b) such earlier times that the fund
           determines based on the criteria described above. If redemption
           proceeds are requested by ACH or check, orders must be received
           prior to the calculation of share price. Please call (877) 237-1131
           or visit our Web site at www.dws-scudder.com for additional
           information about whether the fund will be open for business on a
           particular day. Information concerning the intention of the fund to
           be open for a Limited Trading Period will be available at least one
           business day prior to the applicable day that the Exchange is closed
           or is closing early in the case of scheduled closings and as soon as
           practical in the case of unscheduled closings.


           Other rights we reserve

           You should be aware that we may do any of the following:

           -  withdraw or suspend the offering of shares at any time

           -  withhold a portion of your distributions and redemption proceeds
              for federal income tax purposes if we have been notified by the
              IRS that you are subject to backup withholding or if you fail to
              provide us with a correct taxpayer ID number and certain
              certifications including certification that you are not subject
              to backup withholding

           -  reject a new account application if you don't provide any
              required or requested identifying information, or for any other
              reason

           -  refuse, cancel, limit or rescind any purchase or exchange order,
              without prior notice; freeze any account (meaning you will not be
              able to purchase fund shares in your account); suspend account
              services; and/or involuntarily redeem your account if we think
              that the account is being used for fraudulent or illegal
              purposes; one or more of these actions will be taken when, at our
              sole discretion, they are deemed to be in the fund's best
              interests or when the fund is requested or compelled to do so by
              governmental authority or by applicable law


                                            Policies You Should Know About  | 22
<PAGE>

           -  close and liquidate your account if we are unable to verify your
           identity, or for other reasons; if we decide to close your account,
           your fund shares will be redeemed at the net asset value per share
           next calculated after we determine to close your account; you may
           recognize a gain or loss on the redemption of your fund shares and
           you may incur a tax liability

           -  pay you for shares you sell by "redeeming in kind," that is, by
              giving you securities (which typically will involve brokerage
              costs for you to liquidate) rather than cash, but which will be
              taxable to the same extent as a redemption for cash; the fund
              generally won't make a redemption in kind unless your requests
              over a 90-day period total more than $250,000 or 1% of the value
              of the fund's net assets, whichever is less

           -  change, add or withdraw various services, fees and account
              policies (for example, we may adjust the fund's investment
              minimums at any time). All orders to purchase shares of the fund
              are subject to acceptance and are not binding until confirmed or
              accepted in writing


UNDERSTANDING DISTRIBUTIONS AND TAXES

           The fund intends to distribute to its shareholders virtually all of
           its net earnings. The fund can earn money in two ways: by receiving
           interest, dividends or other income from securities it holds and by
           selling securities for more than it paid for them. (The fund's
           earnings are separate from any gains or losses stemming from your
           own purchase and sale of shares.) The fund may not always pay a
           dividend or distribution for a given period.

           THE FUND'S INCOME DIVIDENDS ARE DECLARED DAILY AND PAID MONTHLY TO
           SHAREHOLDERS. The fund may take into account capital gains and losses
           in its daily dividend declarations. The fund may make additional
           distributions for tax purposes if necessary.

           Dividends or distributions declared to shareholders of record in the
           last quarter of a given calendar year are treated for federal income
           tax purposes as if they were received on December 31 of that year,
           provided such dividends or distributions are paid by the end of the
           following January.




THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS

Because each  shareholder's  tax situation is unique,  ask your tax professional
about the tax  consequences of your  investments,  including any state and local
tax consequences.




23 | Understanding Distributions and Taxes
<PAGE>

           YOU CAN CHOOSE HOW TO RECEIVE YOUR DIVIDENDS AND DISTRIBUTIONS. You
           may have them all automatically reinvested in fund shares (at NAV),
           all deposited directly to your bank account or all sent to you by
           check, have one type reinvested and the other sent to you by check
           or have them invested in a different fund. Tell us your preference
           on your application. If you don't indicate a preference, your
           dividends and distributions will all be reinvested.

           Distributions are treated the same for federal income tax purposes
           whether you receive them in cash or reinvest them in additional
           shares. For federal income tax purposes, an exchange is treated the
           same as a sale.

           Because the fund seeks to maintain a stable share price, you are
           unlikely to have capital gains or losses when you sell fund shares.

           For most shareholders, dividends from the fund are generally exempt
           from federal and California state and local income tax. However,
           there are a few exceptions:

           -  A portion of the fund's dividends may be taxable as ordinary
              income if it came from investments in taxable securities,
              tax-exempt market discount bonds, or as the result of short or
              long-term capital gains.

           -  Because the fund can invest up to 20% of assets in securities
              whose income is subject to the federal alternative minimum tax
              (AMT), you may owe taxes on a portion of your dividends if you
              are among those investors who must pay AMT. In addition, if you
              receive social security or railroad retirement benefits, you
              should consult your tax advisor to determine what effect, if any,
              an investment in the fund may have on the federal taxation of
              your benefits.

           Your fund will send you detailed federal income tax information
           every January. These statements tell you the amount and the federal
           income tax classification of any dividends or distributions you
           received. They also have certain details on your purchases and sales
           of shares.

           The above discussion is applicable to shareholders who are US
           persons. If you are a non-US person, please consult your own tax
           advisor with respect to the US tax consequences to you of an
           investment in the fund.


                                     Understanding Distributions and Taxes  | 24
<PAGE>

APPENDIX
--------------------------------------------------------------------------------
           Hypothetical Expense Summary


           Using the annual fund operating expense ratios presented in the fee
           tables in the fund prospectus, the Hypothetical Expense Summary
           shows the estimated fees and expenses, in actual dollars, that would
           be charged on a hypothetical investment of $10,000 in the fund held
           for the next 10 years and the impact of such fees and expenses on
           fund returns for each year and cumulatively, assuming a 5% return
           for each year. The tables also assume that all dividends and
           distributions are reinvested. The annual fund expense ratios shown
           are net of any contractual fee waivers or expense reimbursements, if
           any, for the period of the contractual commitment. The tables
           reflect the maximum initial sales charge, if any, but do not reflect
           any contingent deferred sales charge or redemption fees, if any,
           which may be payable upon redemption. If contingent deferred sales
           charges or redemption fees were shown, the "Hypothetical Year-End
           Balance After Fees and Expenses" amounts shown would be lower and
           the "Annual Fees and Expenses" amounts shown would be higher. Also,
           please note that if you are investing through a third party
           provider, that provider may have fees and expenses separate from
           those of the fund that are not reflected here. Mutual fund fees and
           expenses fluctuate over time and actual expenses may be higher or
           lower than those shown.

           The Hypothetical Expense Summary should not be used or construed as
           an offer to sell, a solicitation of an offer to buy or a
           recommendation or endorsement of any specific mutual fund. You
           should carefully review the fund's prospectus to consider the
           investment objectives, risks, expenses and charges of the fund prior
           to investing.


25 | Appendix
<PAGE>

Tax-Exempt California Money Market Fund - Institutional Shares



<TABLE>
<CAPTION>
              MAXIMUM           INITIAL HYPOTHETICAL                 ASSUMED RATE
           SALES CHARGE:             INVESTMENT:                      OF RETURN:
               0.00%                   $10,000                            5%
                                                              HYPOTHETICAL
             CUMULATIVE        ANNUAL       CUMULATIVE          YEAR-END
           RETURN BEFORE        FUND       RETURN AFTER      BALANCE AFTER      ANNUAL FEES
              FEES AND        EXPENSE        FEES AND           FEES AND            AND
YEAR          EXPENSES         RATIOS        EXPENSES           EXPENSES         EXPENSES
<S>       <C>                <C>          <C>               <C>                <C>
   1            5.00%           %               %                  $                 $
   2           10.25%           %               %                  $                 $
   3           15.76%           %               %                  $                 $
   4           21.55%           %               %                  $                 $
   5           27.63%           %               %                  $                 $
   6           34.01%           %               %                  $                 $
   7           40.71%           %               %                  $                 $
   8           47.75%           %               %                  $                 $
   9           55.13%           %               %                  $                 $
  10           62.89%           %               %                  $                 $
  TOTAL                                                                              $
</TABLE>



                                                                  Appendix  | 26
<PAGE>

TO GET MORE INFORMATION

SHAREHOLDER REPORTS - These include commentary from the fund's management team
about recent market conditions and the effects of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and its financial statements. Shareholders get these reports
automatically.

STATEMENT OF ADDITIONAL INFORMATION (SAI) - This tells you more about the
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's legally part of
this prospectus).

For a free copy of any of these documents or to request other information about
the fund, call (800) 730-1313, or contact DWS Investments at the address listed
below. The fund's SAI and shareholder reports are also available through the
DWS Investments Web site at www.dws-scudder.com. These documents and other
information about the fund are available from the EDGAR Database on the SEC's
Internet site at www.sec.gov. If you like, you may obtain copies of this
information, after paying a copying fee, by e-mailing a request to
publicinfo@sec.gov or by writing the SEC at the address listed below. You can
also review and copy these documents and other information about the fund,
including the fund's SAI, at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the SEC's Public Reference Room may be
obtained by calling (800) SEC-0330.


<TABLE>
<CAPTION>
DWS INVESTMENTS          SEC                     DISTRIBUTOR
---------------------    --------------------    -------------------------------
<S>                      <C>                     <C>
PO Box 219669            100 F Street, N.E.      DWS Scudder Distributors, Inc.
Kansas City, MO          Washington, D.C.        222 South Riverside Plaza
64121-9669               20549-0102              Chicago, IL 60606-5808
WWW.DWS-SCUDDER.COM      WWW.SEC.GOV             (800) 621-1148
(800) 730-1313           (800) SEC-0330
</TABLE>



<TABLE>
<S>                   <C>                                          <C>
SEC FILE NUMBER:
                        Tax-Exempt California Money Market Fund    811-5076
</TABLE>




(08/15/08) INST

[RECYCLE GRAPHIC APPEARS HERE]
                                                          [DWS INVESTMENTS LOGO]
                                                             Deutsche Bank Group


<PAGE>

                     TAX-EXEMPT CALIFORNIA MONEY MARKET FUND

                    (Premier Shares and Institutional Shares)














                       STATEMENT OF ADDITIONAL INFORMATION

                  February 1, 2008, As Revised August 26, 2008

This Statement of Additional Information ("SAI") is not a prospectus and should
be read in conjunction with the prospectuses for Tax-Exempt California Money
Market Fund (the "Fund"), dated February 1, 2008 (Premier Shares), and August
22, 2008 (Institutional Shares), as amended from time to time, a copy of which
may be obtained without charge by contacting (800) 730-1313 or DWS Scudder
Distributors, Inc., 222 South Riverside Plaza, Chicago, Illinois 60606, (800)
621-1148, or from the firm from which this SAI was obtained, and is also
available along with other related materials, on the Securities and Exchange
Commission's Internet Web site at http://www.sec.gov.

Portions of the Annual Report to Shareholders for the year ended September 30,
2007, are incorporated herein by reference as specified herein. A copy of the
Fund's Annual Report may be obtained without charged by calling the Fund at the
toll-free number (800)-621-1048.

This SAI is incorporated by reference into the corresponding prospectuses.


<PAGE>

                                TABLE OF CONTENTS
                                                                         Page

INVESTMENT RESTRICTIONS....................................................1

INVESTMENT POLICIES AND TECHNIQUES.........................................2
   Investment Techniques...................................................2
   Portfolio Holdings Information.........................................30

MANAGEMENT OF THE FUND....................................................31
   Investment Advisor.....................................................31

FUND SERVICE PROVIDERS....................................................36
   Administrator..........................................................36
   Underwriter............................................................36
   Custodian..............................................................38
   Transfer Agent and Shareholder Service Agent...........................38
   Legal Counsel..........................................................39
   Independent Registered Public Accounting Firm..........................39

PORTFOLIO TRANSACTIONS....................................................39

PURCHASE AND REDEMPTION OF SHARES.........................................41

NET ASSET VALUE...........................................................51

TAXES.....................................................................51

BOARD MEMBERS.............................................................56

FUND ORGANIZATION.........................................................64

PROXY VOTING GUIDELINES...................................................66

FINANCIAL STATEMENTS......................................................67

ADDITIONAL INFORMATION....................................................68


<PAGE>

                             INVESTMENT RESTRICTIONS

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

In addition, as a matter of fundamental policy, the Fund may not:

(1)    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.

(2)    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.

(3)    Engage in the business of underwriting securities issued by others,
       except to the extent that a Fund may be deemed to be an underwriter in
       connection with the disposition of portfolio securities.

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

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

(6)    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; or

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

The Fund has adopted certain investment restrictions which cannot be changed
without approval by holders of a majority of its outstanding voting shares. As
defined in the 1940 Act, this means the lesser of the vote of (a) 67% of the
Fund's shares present at a meeting where more than 50% of the outstanding shares
are present in person or by proxy; or (b) more than 50% of the Fund's shares.

If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation. The Fund may
invest more than 25% of its total assets in industrial development bonds.

For temporary defensive purposes or when acceptable short-term municipal
securities are not available, more than 20% of the Fund's assets may be held in
cash or invested in short-term taxable investments, including US Government
obligations and money market instruments. The Fund's distributions from interest
on certain municipal securities may be subject to the federal alternative
minimum tax ("AMT") depending upon investors' particular situations. However, no
more than 20% of the Fund's net assets will normally be invested in municipal
securities whose interest income, when distributed to shareholders, is subject
to the AMT applicable to individuals. In addition, state and local taxes may
apply, depending on your state tax laws.

The Fund may invest more than 25% of its assets in municipal securities that are
repayable out of revenue streams generated from economically related projects or
facilities, if such investment is deemed necessary or appropriate by the Fund's
investment advisor. To the extent that the Fund's assets are concentrated in
municipal securities payable from revenues on economically related projects and
facilities, the Fund will be subject to the risks presented by such projects to
a greater extent than it would be if the Fund's assets were not so concentrated.
For purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity, bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry.

From time to time, a significant portion of the Fund's securities is supported
by credit and liquidity enhancements from third party banks and other financial
institutions, and as a result, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.

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

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

                       INVESTMENT POLICIES AND TECHNIQUES

Investment Techniques

Descriptions in this SAI of a particular investment practice or technique in
which the Fund may engage are meant to describe the spectrum of investments that
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.

The Fund seeks to maintain a net asset value of $1.00 per share.

Under normal market conditions, the Fund attempts to invest 100%, and normally
invests at least 80%, of its net assets, plus the amount of any borrowings for
investment purposes, in municipal securities and other securities whose income
is free from California and federal income tax and from the AMT. This includes
securities issued by or on behalf of the State of California ("California
Municipal Securities") and other states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies and instrumentalities (together with the California Municipal
Securities, "Municipal Securities"). In compliance with the position of the
staff of the Securities and Exchange Commission (the "SEC"), the Fund does not
consider "private activity" bonds as Municipal Securities for purposes of the
80% limitation. This is a fundamental policy as it relates to federal income
taxes so long as the staff maintains its position, after which it would become
non-fundamental. Dividends to the extent of interest income received on
California Municipal Securities will be exempt from both federal and State of
California income tax provided that, at the close of each quarter of its taxable
year, at least 50% of the Fund's total assets are invested in California
Municipal Securities. Such dividend income may be subject to local taxes. The
Fund's assets will consist of Municipal Securities, temporary investments, as
described below, and cash.

The Fund will normally invest only in Municipal Securities that at the time of
purchase: (a) have received one of the two highest short-term ratings from two
nationally recognized statistical rating organizations (NRSROs) such as Moody's
Investors Service, Inc. ("Moody's") (P-1) or assigned by Standard & Poor's
Corporation ("S&P") (A-1+) or assigned by Fitch Investor Services Inc.(F-1+);
(b) are guaranteed or insured by the US Government as to the payment of
principal and interest; (c) are fully collateralized by an escrow of US
Government securities; (d) have at the time of purchase Moody's short-term
municipal securities rating of MIG-2 or higher or a municipal commercial paper
rating of P-2 or higher, or S&P's municipal commercial paper rating of A-2 or
SP-2 or higher, or Fitch's municipal commercial paper rating of F-2 or higher;
(e) are unrated, if longer term municipal securities of that issuer are rated
within one of the two highest rating categories by Moody's or S&P; (f) are
judged by the investment Advisor to be of comparable quality at the time of
purchase or (g) have received one of the two highest short-term ratings from one
NRSRO (if only one organization rates the security). In addition, the Fund
limits its investment to securities that meet the quality and diversification
requirements of Rule 2a-7 under the 1940 Act. The municipal securities market is
narrower and less liquid, with fewer investors than the taxable market.

The investment objective of the Fund, its investment policy of investing at
least 80% of net assets, plus the amount of any borrowings for investment
purposes, in municipal securities and other securities whose income is free from
California and federal income tax and from the AMT and the investment policies
set forth in "Investment Restrictions" are fundamental and may not be changed
without the affirmative vote of a majority of the outstanding shares of the
Fund, as defined above.

From time to time, as a defensive measure or when acceptable short-term
Municipal Securities are not available, the Fund may invest in taxable
"temporary investments" that include: obligations of the US Government, its
agencies or instrumentalities; debt securities rated within the highest grade by
Moody's or S&P; commercial paper rated in the highest grade by either of such
rating services; certificates of deposit of domestic banks with assets of $1
billion or more; and any of the foregoing temporary investments subject to
repurchase agreements.

Adjustable Rate Securities. The interest rates paid on the adjustable rate
securities in which the Fund invests generally are readjusted at intervals of
one year or less to an increment over some predetermined interest rate index.
There are three main categories of indices: those based on US Treasury
securities, those derived from a calculated measure such as a cost of a Fund's
index and those based on a moving average of mortgage rates. Commonly used
indices include the one-year, three-year and five-year constant maturity
Treasury rates, the three-month Treasury bill rate, the 180-day Treasury bill
rate, rates on longer-term Treasury securities, the 11th District Federal Home
Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month,
three-month, six-month or one-year London Interbank Offered Rate ("LIBOR"), the
prime rate of a specific bank or commercial paper rates. Some indices, such as
the one-year constant maturity Treasury rate, closely mirror changes in market
interest rate levels. Others, such as the 11th District Home Loan Bank Cost of
Funds index, tend to lag behind changes in market rate levels and tend to be
somewhat less volatile.

The asset backed securities that include pools of mortgages ("Mortgage-Backed
Securities"), either issued or guaranteed by GNMA, FHLMC or FNMA
("Certificates"), are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA's, FHLMC's or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., the Fund). The principal and interest on GNMA
securities are guaranteed by GNMA and backed by the full faith and credit of the
US Government. FNMA guarantees full and timely payment of all interest and
principal, while FHLMC guarantees timely payment of interest and ultimate
collection of principal. Mortgage-Backed Securities from FNMA and FHLMC are not
backed by the full faith and credit of the United States; however, they are
generally considered to offer minimal credit risks. The yields provided by these
Mortgage-Backed Securities have historically exceeded the yields on other types
of US Government securities with comparable maturities in large measure due to
the prepayment risk discussed below.

If prepayments of principal are made on the underlying mortgages during periods
of rising interest rates, the Fund generally will be able to reinvest such
amounts in securities with a higher current rate of return. However, the Fund
will not benefit from increases in interest rates to the extent that interest
rates rise to the point where they cause the current coupon of adjustable rate
mortgages held as investments by the Fund to exceed the maximum allowable annual
or lifetime reset limits (or "cap rates") for a particular mortgage. Also, the
Fund's net asset value could vary to the extent that current yields on
Mortgage-Backed Securities are different than market yields during interim
periods between coupon reset dates.

During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Fund. Further, because of
this feature, the value of adjustable rate mortgages is unlikely to rise during
periods of declining interest rates to the same extent as fixed-rate
instruments. As with other Mortgage-Backed Securities, interest rate declines
may result in accelerated prepayment of mortgages, and the proceeds from such
prepayments must be reinvested at lower prevailing interest rates.

One additional difference between adjustable rate mortgages and fixed rate
mortgages is that for certain types of adjustable rate mortgage securities, the
rate of amortization of principal, as well as interest payments, can and does
change in accordance with movements in a specified, published interest rate
index. The amount of interest due to an adjustable rate mortgage security holder
is calculated by adding a specified additional amount, the "margin," to the
index, subject to limitations or "caps" on the maximum and minimum interest that
is charged to the mortgagor during the life of the mortgage or to maximum and
minimum changes to that interest rate during a given period.

Bank and Savings and Loan Obligations. These obligations include negotiable
certificates of deposit, bankers' acceptances, deposit notes, fixed time
deposits or other short-term bank obligations. Certificates of deposit are
negotiable certificates evidencing the obligations of a bank to repay funds
deposited with it for a specified period of time. The Fund may invest in
certificates of deposit of large domestic banks and their foreign branches,
large US regulated subsidiaries of large foreign banks (i.e., banks which at the
time of their most recent annual financial statements show total assets in
excess of $1 billion), and of smaller banks. Although the Fund recognizes that
the size of a bank is important, this fact alone is not necessarily indicative
of its creditworthiness.

Certificates of Deposit and Bankers' Acceptances. The Fund may also invest in
certificates of deposit issued by banks and savings and loan institutions which
had, at the time of their most recent annual financial statements, total assets
of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the US Government, (ii) at
no time will the Fund hold more than $100,000 principal amount of certificates
of deposit of any one such bank, and (iii) at the time of acquisition, no more
than 10% of the Fund's assets (taken at current value) are invested in
certificates of deposit of such banks having total assets not in excess of $1
billion.

Banker's acceptances are credit instruments evidencing the obligations of a bank
to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and of the drawer to pay the face amount of the
instrument upon maturity.

Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Time deposits which
may be held by the Fund will not benefit from insurance from the Bank Insurance
Fund or the Savings Association Insurance Fund administered by the Federal
Deposit Insurance Corporation. Fixed time deposits may be withdrawn on demand by
the investor, but may be subject to early withdrawal penalties that vary with
market conditions and the remaining maturity of the obligation. Fixed time
deposits subject to withdrawal penalties maturing in more than seven calendar
days are subject to the Fund's limitation on investments in illiquid securities.

Certificates of Participation. The Fund may purchase high quality certificates
of participation ("Certificates of Participation") in trusts that hold Municipal
Securities. A Certificate of Participation gives the Fund an undivided interest
in the Municipal Security in the proportion that the Fund's interest bears to
the total principal amount of the Municipal Security. These Certificates of
Participation may be variable rate or fixed rate. A Certificate of Participation
may be backed by an irrevocable letter of credit or guarantee of a financial
institution that satisfies rating agencies as to the credit quality of the
Municipal Security supporting the payment of principal and interest on the
Certificate of Participation. Payments of principal and interest would be
dependent upon the underlying Municipal Security and may be guaranteed under a
letter of credit to the extent of such credit. The quality rating by a rating
service of an issue of Certificates of Participation is based primarily upon the
rating of the Municipal Security held by the trust and the credit rating of the
issuer of any letter of credit and of any other guarantor providing credit
support to the issue. The Fund's Advisor considers these factors as well as
others, such as any quality ratings issued by the rating services identified
above, in reviewing the credit risk presented by a Certificate of Participation
and in determining whether the Certificate of Participation is appropriate for
investment by the Fund. It is anticipated by the Fund's Advisor that, for most
publicly offered Certificates of Participation, there will be a liquid secondary
market or there may be demand features enabling the Fund to readily sell its
Certificates of Participation prior to maturity to the issuer or a third party.
As to those instruments with demand features, the Fund intends to exercise its
right to demand payment from the issuer of the demand feature only upon a
default under the terms of the Municipal Security, as needed to provide
liquidity to meet redemptions, or to maintain a high quality investment
portfolio.

Collateralized Mortgage Obligations ("CMOs"). CMOs are aggregated pools of
pass-through securities whose cash flows are configured into various "tranches"
with specific coupon, average life, or payment characteristics. Similar to a
bond, interest and prepaid principal are paid, in most cases, monthly. CMOs may
be collateralized by whole mortgage loans but are more typically collateralized
by trusts composed of pools of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or Fannie Mae, and their income streams. The underlying collateral
may be fixed or floating rate loans.

CMOs are structured into multiple classes, each typically bearing a different
weighted average life profile. Actual maturity and average life will depend upon
the prepayment experience of the collateral and the structure of the tranche
within the CMO. Some CMO tranches provide for a modified form of call protection
through formulaic cash flow routing of the underlying pool of mortgages
according to how quickly the loans are repaid and where the tranche factors into
the overall CMO structure. Monthly payment of principal received from the pool
of underlying mortgages, including prepayments, is returned to investors based
on the characteristics of the tranche that they purchased. In the case of a
sequential structure, early, shorter maturity tranches will be paid first, and
longer tranches will receive cash flows after these tranches are paid off. An
investor is partially guarded against a sooner than desired return of principal
because of the sequential payments. The prices of certain CMOs, depending on
their structure and the rate of prepayments, can be volatile. Some CMOs may also
not be as liquid as other securities.

In a typical CMO transaction, a trust issues multiple series (e.g., A, B, C, Z),
or tranches of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to
pay for the mortgages or mortgage pass-through certificates ("Collateral"). The
Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments in the case of a sequential CMO structure,
Collateral is used to pay principal on the Bonds in the order A, B, C, Z. The
Series A, B, and C bonds all bear current interest. Interest on the Series Z
Bond is accrued and added to principal and a like amount is paid as principal on
the Series A, B, or C Bond currently being paid off. When the Series A, B, and C
Bonds are paid in full, interest and principal on the Series Z Bond begins to be
paid currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.

The principal risk of CMOs results from the rate of prepayments on underlying
mortgages serving as collateral and from the structure of the deal. An increase
or decrease in prepayment rates will affect the yield, average life and price of
CMOs.

Commercial Paper. Commercial paper consists of short-term, unsecured promissory
notes issued to finance short-term credit needs. The commercial paper purchased
by the Fund will consist only of direct obligations issued by domestic and
foreign entities.

Subject to its investment objective and policies, the Fund may invest in
commercial paper issued by major corporations under the Securities Act of 1933,
as amended (the "1933 Act") in reliance on the exemption from registration
afforded by Section 3(a)(3) thereof. Such commercial paper may be issued only to
finance current transactions and must mature in nine months or less. Trading of
such commercial paper is conducted primarily by institutional investors through
investment dealers, and individual investor participation in the commercial
paper market is very limited. The Fund also may invest in commercial paper
issued in reliance on the so-called "private placement" exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 ("Section
4(2) paper"). Section 4(2) paper is restricted as to disposition under the
federal securities laws, and generally is sold to institutional investors such
as the Fund who agree that they are purchasing the paper for investment and not
with a view to public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) paper normally is resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in the Section 4(2) paper, thus providing
liquidity. The Advisor considers the legally restricted but readily saleable
Section 4(2) paper to be liquid; however, pursuant to procedures approved by the
Fund's Board, if a particular investment in Section 4(2) paper is not determined
to be liquid, that investment will be included within the limitation of the Fund
on illiquid securities. The Advisor monitors the liquidity of its investments in
Section 4(2) paper on a continuing basis.

Illiquid Securities and Restricted Securities. The Fund may purchase securities
that are subject to legal or contractual restrictions on resale ("restricted
securities"). Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.

Restricted securities are often illiquid, but they may also be liquid. For
example, restricted securities that are eligible for resale under Rule 144A are
often deemed to be liquid.

The Board has approved guidelines for use by the Advisor in determining whether
a security is liquid or illiquid. Among the factors the Advisor may consider in
reaching liquidity decisions relating to Rule 144A securities are: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the market for the security (i.e.,
the time needed to dispose of the security, the method of soliciting offers, and
the mechanics of the transfer). Issuers of restricted securities may not be
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. Where a registration
statement is required for the resale of restricted securities, the Fund may be
required to bear all or part of the registration expenses. The Fund may be
deemed to be an "underwriter" for purposes of the 1933 Act, when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.

The Fund may also purchase securities that are not subject to legal or
contractual restrictions on resale, but that are deemed illiquid. Such
securities may be illiquid, for example, because there is a limited trading
market for them.

The Fund may be unable to sell a restricted or illiquid security. In addition,
it may be more difficult to determine a market value for restricted or illiquid
securities. Moreover, if adverse market conditions were to develop during the
period between the Fund's decision to sell a restricted or illiquid security and
the point at which the Fund is permitted or able to sell such security, the Fund
might obtain a price less favorable than the price that prevailed when it
decided to sell. This investment practice, therefore, could have the effect of
increasing the level of illiquidity of the Fund.

Impact of Large Redemptions and Purchases of Fund shares. From time to time,
shareholders of the Fund (which may include affiliated and/or non-affiliated
registered investment companies that invest in 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 capital gains
and could also increase transaction costs, which may impact the Fund's expense
ratio.

Industrial Development and Pollution Control Bonds. Industrial Development and
Pollution Control Bonds (which are types of private activity bonds), although
nominally issued by municipal authorities, are generally not secured by the
taxing power of the municipality but are secured by the revenues of the
authority derived from payments by the industrial user. Under federal tax
legislation, certain types of Industrial Development Bonds and Pollution Control
Bonds may no longer be issued on a tax-exempt basis, although previously issued
bonds of these types and certain refundings of such bonds are not affected. For
the purposes of the Fund's investment limitation regarding concentration of
investments in any one industry, industrial development or other private
activity bonds ultimately payable by companies within the same industry will be
considered as if they were issued by issuers in the same industry.

Interfund Borrowing and Lending Program. The Fund has received exemptive relief
from the SEC, which permits the Fund to participate in an interfund lending
program among certain investment companies advised by the Advisor. The interfund
lending program allows participating funds to borrow money from and loan money
to each other for temporary or emergency purposes. The program is subject to a
number of conditions designed to ensure fair and equitable treatment of all
participating funds, including the following: (1) no Fund may borrow money
through the program unless it receives a more favorable interest rate than a
rate approximating the lowest interest rate at which bank loans would be
available to any of the participating funds under a loan agreement; and (2) no
Fund may lend money through the program unless it receives a more favorable
return than that available from an investment in repurchase agreements and, to
the extent applicable, money market cash sweep arrangements. In addition, the
Fund may participate in the program only if and to the extent that such
participation is consistent with the Fund's investment objectives and policies
(for instance, money market funds would normally participate only as lenders and
tax exempt funds only as borrowers). Interfund loans and borrowings may extend
overnight, but could have a maximum duration of seven days. Loans may be called
on one day's notice. The Fund may have to borrow from a bank at a higher
interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending Fund could result in a lost investment opportunity or
additional costs. The program is subject to the oversight and periodic review of
the Boards of the participating funds. To the extent the Fund is actually
engaged in borrowing through the interfund lending program, the Fund, as a
matter of fundamental policy, may not borrow for other than temporary purposes
(and not for leveraging).

Letters of Credit. Municipal obligations, including certificates of
participation, commercial paper and other short-term obligations, may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for
payment of principal and interest in the event of default by the issuer. Only
banks which, in the opinion of the Advisor, are of investment quality comparable
to other permitted investments of the Fund may be used for letter of credit
backed investments.

Maintenance of $1.00 Net Asset Value, Credit Quality and Fund Maturity. The Fund
effects sales, redemptions and repurchases at the net asset value per share,
normally $1.00. In fulfillment of their responsibilities under Rule 2a-7 of the
1940 Act, the Board has approved policies established by the Advisor reasonably
calculated to prevent the Fund's net asset value per share from deviating from
$1.00 except under unusual or extraordinary circumstances and the Board will
periodically review the Advisor's operations under such policies at regularly
scheduled Board meetings. Those policies include a weekly monitoring by the
Advisor of unrealized gains and losses in the Fund, and when necessary, in an
effort to avoid deviation, taking corrective action, such as adjusting the
maturity of the Fund, or, if possible, realizing gains or losses to offset in
part unrealized losses or gains. The result of those policies may be that the
yield on shares of the Fund will be lower than would be the case if the policies
were not in effect. Such policies also provide for certain action to be taken
with respect to Fund securities which experience a downgrade in rating or suffer
a default.

Securities eligible for investment by the Fund are those securities which are
generally rated (or issued by an issuer with comparable securities rated) in the
highest short-term rating category by at least two rating services (or by one
rating service, if no other rating agency has issued a rating with respect to
that security). These securities are known as "first tier securities."
Securities generally rated (or issued by an issuer with comparable securities
rated) in the top two categories by at least two rating agencies (or one, if
only one rating agency has rated the security) which do not qualify as first
tier securities are known as "second tier securities."

The Fund must meet the diversification requirements of Rule 2a-7 under the 1940
Act. Rule 2a-7 currently provides that a single state money Fund shall not, as
to 75% of its total assets, invest more than 5% of its assets in the securities
of an individual issuer, provided that the Fund may not invest more than 5% of
its assets in the securities of an individual issuer unless the securities are
First Tier Securities (as defined in Rule 2a-7). This allows the Fund, as to 25%
of its assets, to invest more than 5% of its assets in the securities of an
individual issuer. Since the Fund emphasizes securities issued by a particular
state or entities within that state and may invest a significant percentage of
its assets in the securities of a single issuer, an investment in the Fund may
be subject to more risk.

The assets of the Fund consist entirely of cash items and investments having a
stated maturity date of 397 days or less from the date of purchase (including
investment in repurchase agreements, in which case maturity is measured by the
repurchase date, without respect to the maturity of the obligation). The
portfolio of the Fund will be managed so that the average maturity of all
instruments (on a dollar-weighted basis) will be 90 days or less. The average
maturity of the Fund will vary according to management's appraisal of money
market conditions.

Municipal Lease Obligations and Participation Interests. Participation interests
represent undivided interests in municipal leases, installment purchase
contracts, conditional sales contracts or other instruments. These are typically
issued by a trust or other entity which has received an assignment of the
payments to be made by the state or political subdivision under such leases or
contracts. They may be variable rate or fixed rate.

The Fund may purchase from banks participation interests in all or part of
specific holdings of municipal obligations, provided the participation interest
is fully insured. Each participation is backed by an irrevocable letter of
credit or guarantee of the selling bank that the Advisor has determined meets
the prescribed quality standards of the Fund. Therefore, either the credit of
the issuer of the municipal obligation or the selling bank, or both, will meet
the quality standards of the Fund. The Fund has the right to sell the
participation back to the bank after seven days' notice for the full principal
amount of the Fund's interest in the municipal obligation plus accrued interest,
but only (i) as required to provide liquidity to the Fund, (ii) to maintain a
high quality investment portfolio or (iii) upon a default under the terms of the
municipal obligation. The selling bank will receive a fee from the Fund in
connection with the arrangement. The Fund will not purchase participation
interests unless in the opinion of bond counsel, counsel for the issuers of such
participations or counsel selected by the Advisor, the interest from such
participations is exempt from regular federal income tax and state income tax
for the Fund.

A municipal lease obligation may take the form of a lease, installment purchase
contract or conditional sales contract which is issued by a state or local
government and authorities to acquire land, equipment and facilities. Income
from such obligations is generally exempt from state and local taxes in the
state of issuance. Municipal lease obligations frequently involve special risks
not normally associated with general obligation or revenue bonds. Leases and
installment purchase or conditional sale contracts (which normally provide for
title in the leased asset to pass eventually to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting the constitutional and statutory requirements for the issuance
of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of "non-appropriation" clauses that
relieve the governmental issuer of any obligation to make future payments under
the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. In addition,
such leases or contracts may be subject to the temporary abatement of payments
in the event the issuer is prevented from maintaining occupancy of the leased
premises or utilizing the leased equipment. Although the obligations may be
secured by the leased equipment or facilities, the disposition of the property
in the event of nonappropriation or foreclosure might prove difficult, time
consuming and costly, and result in a delay in recovery or the failure to fully
recover the Fund's original investment.

Certain municipal lease obligations and participation interests may be deemed
illiquid for the purpose of the Fund's limitation on investments in illiquid
securities. Other municipal lease obligations and participation interests
acquired by the Fund may be determined by the Advisor to be liquid securities
for the purpose of such limitation. In determining the liquidity of municipal
lease obligations and participation interests, the Advisor will consider a
variety of factors including: (1) the willingness of dealers to bid for the
security; (2) the number of dealers willing to purchase or sell the obligation
and the number of other potential buyers; (3) the frequency of trades or quotes
for the obligation; and (4) the nature of the marketplace trades. In addition,
the Advisor will consider factors unique to particular lease obligations and
participation interests affecting the marketability thereof. These include the
general creditworthiness of the issuer, the importance to the issuer of the
property covered by the lease and the likelihood that the marketability of the
obligation will be maintained throughout the time the obligation is held by the
Fund.

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

Municipal Securities. Municipal Securities generally are classified as "general
obligation" or "revenue" issues. General obligation bonds are secured by the
issuer's pledge of its full credit and taxing power for the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Industrial development bonds held by the Fund are in
most cases revenue bonds and generally are not payable from the unrestricted
revenues of the issuer, and do not constitute the pledge of the credit of the
issuer of such bonds. Among other types of instruments, the Fund may purchase
tax-exempt commercial paper, warrants and short-term municipal notes such as tax
anticipation notes, bond anticipation notes, revenue anticipation notes,
construction loan notes and other forms of short-term loans. Such notes are
issued with a short-term maturity in anticipation of the receipt of tax
payments, the proceeds of bond placements or other revenues. The Fund may invest
in short-term "private activity" bonds.

Municipal Securities such as industrial development bonds are issued by or on
behalf of public authorities to obtain funds for purposes including privately
operated airports, housing, conventions, trade shows, ports, sports, parking or
pollution control facilities or for facilities for water, gas, electricity or
sewage and solid waste disposal. Such obligations, which may include lease
arrangements, are included within the term Municipal Securities if the interest
paid thereon qualifies as exempt from federal income tax. Other types of
industrial development bonds, the proceeds of which are used for the
construction, equipment, repair or improvement of privately operated industrial
or commercial facilities, may constitute Municipal Securities, although current
federal tax laws place substantial limitations on the size of such issues.

Municipal Securities which the Fund may purchase include, without limitation,
debt obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, public utilities, schools,
streets, and water and sewer works. Other public purposes for which Municipal
Securities may be issued include refunding outstanding obligations, obtaining
funds for general operating expenses and obtaining funds to loan to other public
institutions and facilities.

Tax anticipation notes typically are sold to finance working capital needs of
municipalities in anticipation of receiving property taxes on a future date.
Bond anticipation notes are sold on an interim basis in anticipation of a
municipality issuing a longer-term bond in the future. Revenue anticipation
notes are issued in expectation of receipt of other types of revenue such as
those available under the Federal Revenue Sharing Program. Construction loan
notes are instruments insured by the Federal Housing Administration with
permanent financing by Fannie Mae or "Ginnie Mae" (the Government National
Mortgage Association) at the end of the project construction period.
Pre-refunded municipal bonds are bonds which are not yet refundable, but for
which securities have been placed in escrow to refund an original municipal bond
issue when it becomes refundable. Tax-free commercial paper is an unsecured
promissory obligation issued or guaranteed by a municipal issuer. The Fund may
purchase other Municipal Securities similar to the foregoing, which are or may
become available, including securities issued to pre-refund other outstanding
obligations of municipal issuers.

The Fund's assets generally will consist of Municipal Securities, taxable
temporary investments as described below and cash. The Fund considers short-term
Municipal Securities to be those that mature in 12 months or less. Examples of
Municipal Securities that are issued with original maturities of one year or
less are short-term tax anticipation notes, bond anticipation notes, revenue
anticipation notes, construction loan notes, pre-refunded municipal bonds,
warrants and tax-free commercial paper.

The federal bankruptcy statutes relating to the adjustments of debts of
political subdivisions and authorities of states of the United States provide
that, in certain circumstances, such subdivisions or authorities may be
authorized to initiate bankruptcy proceedings without prior notice to or consent
of creditors, which proceedings could result in material adverse changes in the
rights of holders of obligations issued by such subdivisions or authorities.

Litigation challenging the validity under state constitutions of present systems
of financing public education has been initiated or adjudicated in a number of
states and legislation has been introduced to effect changes in public school
finances in some states. In other instances, there has been litigation
challenging the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law that ultimately could affect the
validity of those Municipal Securities or the tax-free nature of the interest
thereon.

Municipal Trust Receipts. The Fund may invest up to 50% of its net assets in
municipal trust receipts ("MTRs"). An additional 10% of the Fund's net assets
may also be invested in MTRs on a temporary basis at the Advisor's discretion to
manage inflows into the Fund. MTRs are sometimes called municipal asset-backed
securities, floating rate trust certificates, or municipal securities trust
receipts. MTRs are typically structured by a bank, broker-dealer or other
financial institution by depositing municipal securities into a trust or
partnership, coupled with a conditional right to sell, or put, the holder's
interest in the underlying securities at par plus accrued interest to a
financial institution. MTRs may be issued as fixed or variable rate instruments.
These trusts are organized so that the purchaser of the MTR would be considered
to be investing in the underlying municipal securities. This structure is
intended to allow the tax-exempt status of interest generated by the underlying
asset to pass through to the purchaser. The Fund's investments in MTRs are
subject to similar risks as other investments in debt obligations, including
interest rate risk, credit risk and security selection risk. Additionally,
investments in MTRs raise certain tax issues that may not be presented by direct
investments in municipal bonds. There is some risk that certain issues could be
resolved in a manner that could adversely impact the performance of the Fund.
The Fund expects to invest in MTRs for which a legal opinion has been given to
the effect that the income from an MTR is tax exempt to the same extent as the
underlying bond(s), although it is possible that the Internal Revenue Service
(the "IRS") will take a different position and there is a risk that the interest
paid on such MTRs would be deemed taxable.

State Specific Risk Factors

As described in the Fund's prospectuses, the Fund will invest in bonds issued by
the State of California or its political subdivisions. The Fund is therefore
subject to various statutory, political and economic factors unique to the State
of California. Discussed below are some of the more significant factors that
could affect the ability of the bond issuers to repay interest and principal on
California Municipal Securities owned by the Fund. The information is derived
from various public sources, all of which are available to investors generally,
and which the Fund believes to be accurate.

The following information constitutes only a brief summary, does not purport to
be a complete description, and is based on information available as of the date
of this SAI from official statements and prospectuses relating to securities
offerings of the State of California and various local agencies in California.
While such information has not been independently verified, the Advisor has no
reason to believe that such information is not correct in all material respects.

State Budget Process

The State's fiscal year begins on July 1st and ends on June 30th of the
following year. Under the State Constitution, money may be drawn from the
Treasury only through an appropriation made by law. The primary source of the
annual expenditure is the annual Budget Act as approved by the Legislature and
signed by the Governor. The annual budget is proposed by the Governor by January
10th of each year for the next fiscal year (the "Governor's Budget"). State law
requires the annual proposed Governor's Budget to provide for projected revenues
equal to or in excess of projected expenditures for the ensuing fiscal year.
Following the submission of the Governor's Budget, the Legislature takes up the
proposal. During late spring, usually in May, the Department of Finance submits
revised revenue and expenditure estimates for both the current and budget years
to the Legislature. This update process is referred to as the May Revision. The
Budget Act, which follows the May Revision, must be approved by a two-thirds
majority vote of each House of the Legislature.

Appropriations also may be included in legislation other than the Budget Act.
With limited exceptions, bills containing General Fund appropriations must be
approved by a two-thirds majority vote in each House of the Legislature and be
signed by the Governor. Continuing appropriations, available without regard to
fiscal year, may also be provided by statute or the State Constitution.

The Governor may reduce or eliminate specific line items in the Budget Act or
any other appropriations bill without vetoing the entire bill. Such individual
line-item vetoes are subject to override by a two-thirds majority vote of each
House of the Legislature.

Fiscal Year 2006-07 Budget

The 2006-07 Governor's Budget, released on January 10, 2006, revised various
revenue and expenditure estimates for 2005-06. Under the 2006-07 Governor's
Budget, General Fund expenditures for fiscal year 2005-06 were projected at
$90.3 billion, an increase of $0.3 billion compared with 2005 Budget Act
estimates. This included the following significant changes since the 2005 Budget
Act: a $273 million loss of expenditure savings due to not issuing pension
obligation bonds as a result of pending litigation contesting their issuance;
$137 million in additional expenditures for employee compensation; a $153
million decrease in the Medi-Cal program; a $1.829 billion increase in
Proposition 98 expenditures; and a $174 million decrease in non-Proposition 98
K-12 expenditures.

The 2006-07 Governor's Budget estimated that the operating deficit for 2006-07
would be $6.3 billion. However, the Budget was balanced by using a large part of
the 2005-06 ending fund balance. After taking into consideration the adjustments
of $1.6 billion for the repayment or prepayment of prior obligations, including
$460 million to prepay the Economic Recovery Bonds, the effective operating
deficit for 2006-07 was projected at $4.7 billion. The 2006-07 Governor's Budget
also projected a $613 million total reserve at the end of fiscal year 2006-07,
including $460 million in the newly created Budget Stabilization Account
pursuant to Proposition 58. General Fund revenues and transfers for fiscal year
2006-07 were projected at $91.5 billion, an increase of $3.9 billion compared
with revised estimates for fiscal year 2005-06. The 2006-07 Governor's Budget
estimated that General Fund revenues in 2006-07 would amount to $50.9 billion in
personal income tax, $28.1 billion in sales tax, and $10.5 billion in
corporation tax. The 2006-07 Governor's Budget also projected General Fund
expenditures for fiscal year 2006-07 at $97.9 billion, an increase of $7.6
billion, or 8.4 percent, compared with revised estimates for 2005-06. The
increase was due to: $5.3 billion in additional mandated program cost (70
percent of total increase); $1.7 billion to prepay Proposition 98 maintenance
factor (22 percent); $0.3 billion to prepay or repay prior obligations (4
percent); and $0.3 billion in policy choices (4 percent).

The 2006-07 May Revision projected that the State would end fiscal year 2005-06
with a budgetary reserve of $8.8 billion, up $7.5 billion from estimates made at
the time of the 2005 Budget Act. This increase in the budgetary reserve estimate
was a result of $2.3 billion higher revenues in 2004-05, and projected increases
in revenues in 2005-06 of $3.2 billion. The following were significant
adjustments since the 2005 Budget Act: a $8.196 billion increase in major tax
revenues due to an improved economic forecast; a $245 million increase due to
higher State Lands Royalties and Unclaimed Property revenues; and a $252 million
loss in revenues due to not issuing pension obligation bonds as a result of
pending litigation contesting their issuance.

2006 Budget Act

The 2006 Budget Act was adopted by the Legislature on June 27, 2006, along with
a number of implementing measures, and was signed by the Governor on June 30,
2006. In approving the budget, the Governor vetoed $112 million in
appropriations (including $62 million in General Fund appropriations). Under the
2006 Budget Act, revenues and transfers were projected to increase 1.2 percent,
from $92.7 billion in fiscal year 2005-06 to $93.9 billion in fiscal year
2006-07. As of November 2006, revenues and transfers were instead projected to
increase 1.5 percent, from $93.4 billion in fiscal year 2005-06 to $94.8 billion
in fiscal year 2006-07. The revenue projections assumed continued but moderating
growth in California's economy as reflected in several key indicators. The 2006
Budget Act contained General Fund appropriations of $101.3 billion, compared to
$92.7 billion in 2005-06. The difference between revenues and expenditures in
fiscal year 2006-07 was expected to be funded by using a large part of the
2005-06 ending fund balance, projected as of November 2006 to be $10.9 billion.
The June 30, 2007 reserve was projected to be $2.1 billion, compared to an
estimated June 30, 2006 reserve of $9.5 billion. The 2006 Budget Act also
included special fund expenditures of $26.6 billion and bond fund expenditures
of $3.6 billion. The State has issued $1.5 billion of Revenue Anticipation Notes
("RANS") to meet the State's short-term cash flow needs for fiscal year 2006-07.
This was the smallest State RAN borrowing since 2000-01.

Both the 2006 May Revision and 2006-07 Budget as it was enacted listed revenues
and transfers of $93.9 billion. The expenditures reflected in the 2006 May
Revision of $100.9 billion were increased in the 2006-07 Budget as enacted to
$101.3 billion. The Special Fund for Economic Uncertainties was reduced from the
2006 May Revision amount of $1.7 billion to $1.6 billion.

The 2006 Budget Act set aside a combined total of more than $4.9 billion to
address the state's debt, or 4.7 percent of total General Fund resources
available, and established a budget reserve of $2.1 billion and early debt
repayments of $2.8 billion. The 2006 Budget Act compared to the 2004 Budget Act
provided an increase of more than $8.1 billion for K-14 education, for a total
of nearly $55.1 billion. Estimated Proposition 98 funding per pupil increased to
$11,264 in 2006-07, an increase of $1,287 per pupil from the revised 2004-05
level.

The 2006 Budget Act provided for $256 million to improve services to abused and
neglected children; $214 million to improve the capacity of hospitals to handle
disaster and epidemic related surges in demand for hospital care; and $196
million for law enforcement initiatives, including funding to help police
departments cover the costs of booking fees, enhancements to law enforcement
subventions, funding for methamphetamine eradication, funding for sexual assault
felony enforcement grants to local governments, and grants to help county
sheriffs and probation officers manage mentally ill offenders.

In addition, the Budget provided for improvements to California's transportation
system, including $1.4 billion to fully fund for the second consecutive year the
Proposition 42 provision for sales taxes on gasoline to be used for
transportation projects, and an additional $1.4 billion for the early repayment
of past loans from Proposition 42, for a total of $2.8 billion. Of the $1.4
billion repayment, $446 million is designated for cities and counties for local
road and street maintenance that would otherwise not be funded. The Budget also
provided $250 million for deferred maintenance in the state park system.

The 2006 Budget Act forecasted that General Fund revenues and transfers would be
$92.7 billion during 2005-06 and $93.9 billion in 2006-07. The 2006 Budget Act
estimate that the 2006-07 revenues and transfers would include a transfer of
$472 million to the Budget Stabilization Account as required by Proposition 58,
a one-time repayment of $177 million to retire debts owed to special funds, and
a $200 million transfer of sales tax "spillover" funds from the General Fund to
the Transportation Deferred Investment Fund.

The 2006 Budget Act also reflected a 10.5 percent increase in General Fund
expenditures for legislative, judicial and executive agencies combined. Support
for business, transportation and housing was increased by approximately $1.3
billion, or 75.8 percent over 2005-06. The 2006 Budget Act also reflected
increases of 11.6 percent in expenditures for corrections and rehabilitation and
11.3 percent for labor and workforce development. The budget included total
Medi-Cal expenditures of $35.1 billion ($13.8 billion General Fund), an increase
of $1.8 billion ($946 million General Fund) over the revised 2005 Budget Act
level. The average monthly Medi-Cal caseload is expected to be 6,664,700
beneficiaries in 2006-07. This represents an increase of 1.29 percent above the
revised 2005 Budget Act level.

The 2006-07 Budget estimated that General Fund revenues in 2006-07 would amount
to $50.9 billion in personal income tax, $28.1 billion in sales tax, and $10.5
billion in corporation tax. These tax revenues were forecasted to be $39.5
billion, $25.1 billion, and $8.6 billion, respectively, in 2005-06.

Fiscal Year 2007-08 Budget

The 2007-08 Governor's Budget, released on January 10, 2007, revised various
revenue and expenditure estimates for 2006-07. The 2007-08 Governor's Budget
projected that California will end fiscal year 2006-07 with a total reserve of
$2.9 billion, an increase of $823 million from estimates made at the time the
2006 Budget Act was enacted. The Governor's Budget projected General Fund
revenues and transfers for the 2007-08 fiscal year of $101.3 billion, an
increase of 7.1 percent from the prior year, and expenditures of $103.1 billion,
an increase of 1.0 percent, with the difference made up from prior year's
available reserves.

As of the 2007-08 Governor's Budget, General Fund revenues and transfers for
fiscal year 2006-07 were projected at $94.5 billion, an increase of $637 million
compared with 2006 Budget Act estimates. This increase was primarily due to
higher major tax revenues of $512 million. As of the 2007-08 Governor's Budget,
General Fund expenditures for fiscal year 2006-07 were projected at $102.1
billion, an increase of $876 million compared with 2006 Budget Act estimates.

The 2007-08 Governor's Budget projected to end fiscal year 2007-08 with a $2.1
billion total reserve, including $1.5 billion in the Budget Stabilization
Account. General Fund revenues and transfers for fiscal year 2007-08 were
projected at $101.3 billion, an increase of $6.8 billion compared with revised
estimates for fiscal year 2006-07. The 2007-08 Governor's Budget reflected,
among other assumptions, an increase in 2007-08 major revenues of $5.8 billion,
or 6.2 percent, due to continued economic growth and, to a lesser extent,
certain revenue proposals. The 2007-08 Governor's Budget also reflected $506
million in revenues from Indian Gaming compacts that are pending legislative
approval.

General Fund expenditures for fiscal year 2007-08 were projected at $103.1
billion, an increase of $1 billion, or 1 percent, compared with the revised
estimates for 2006-07. This increase reflected, among other things, $2.6 billion
in policy decisions to reduce expenditures, including a $1.1 billion reduction
by expanding the use of revenue sources for public transportation costs.

The May Revision to the 2007-08 Governor's Budget (the "2007 May Revision")
reflected that General Fund revenues were expected to be $95.685 billion in
2006-07 and $101.253 billion in 2007-08. This represents an increase of $1.166
billion in 2006-07 and a reduction of $24 million compared to the Governor's
January budget. These totals reflect transfers to the Budget Stabilization
Account of $472 million in 2006-07 and $1.023 billion in 2007-08. The 2007 May
Revision proposed to increase General Fund expenditures in 2007-08 by $1.5
billion or 1.5 percent over the level of spending in 2006-07, most of which
spending is non-discretionary. Consequently, the 2007 May Revision reflects few
discretionary spending increases and proposed legislation to reduce various
state programs for total savings of $2.5 billion. The 2007 May Revision proposed
additional program reductions for $430 million in additional savings, of which
$230 million would be in the budget year, with the remainder occurring in the
2006-07 fiscal year. The May Revision also proposed full funding of the state's
Proposition 98 obligation to education, full funding of the Governor's compacts
with higher education and the judiciary, full funding of public safety,
continuing efforts to reform the prison system and protecting economic growth by
not raising taxes.

2007 Budget Act

The 2007 Budget Act was adopted by the Legislature on August 22, 2007, along
with a number of implementing measures, and was signed by Governor
Schwarzenegger on August 24, 2007. The 2007 Budget Act included the largest
reserve of any budget act in the State's history. The May Revision proposed a
total reserve of $2.2 billion, but due to the shortfall in revenue collections
that came to light in June, and in recognition of the State's continuing
structural deficit and other potential threats, the Legislature took actions to
reduce spending and increase funds available, thereby increasing the total
reserve to an unprecedented $3.4 billion. The Governor further reduced spending
with $703 million in General Fund vetoes, raising the total reserve to $4.1
billion. As a result, General Fund spending growth in the 2007-08 budget is held
to $0.6 billion, or 0.6 percent. These actions eliminate the gap between
spending and revenues in 2007-08, after discounting the $1.023 billion of
transfers to the Budget Stabilization Account.

The 2007 Budget Act contained General Fund expenditures of $102.3 billion,
compared to $101.7 billion in 2006-07, and Special Fund expenditures of $2.6
billion, compared to $3.6 billion in 2006-07. Total revenues and transfers for
2007-08 are expected to be $101.2 billion, compared to $95.54 billion in
2006-07. A total of $2.1 billion will be transferred to the Budget Stabilization
Account pursuant to Proposition 58; half of the transferred amount will remain
in the Budget Stabilization Account for future purposes and the other half will
be further transferred for the purpose of early retirement of Economic Recovery
Bonds.

Most General Fund spending is non-discretionary. As of the May Revision to the
Governor's Budget, of the total spending proposed, $1.7 billion was for paying
debt and $1 billion was proposed for policy choices. The remainder was required
either by the State Constitution, federal laws, statutory entitlements, binding
labor agreements or court orders. The 2007 Budget Act contains the following
major General Fund components: $1.0 billion in prepayments of the Economic
Recovery Bonds ("ERBs"); Proposition 98 General Fund expenditures of $41.1
billion; $66.8 billion ($41.4 billion General Fund and $25.4 billion other
funds) for K-12 education programs in 2007-08, which reflects an increase of
$3.5 billion ($1.6 billion General Fund and $1.9 billion other funds) over the
2006-07 revised budget; and $28.3 billion in health and human services programs.

The above discussion of the fiscal years 2006-07 and 2007-08 budgets is based on
estimates and projections of revenues and expenditures for the current fiscal
year and must not be construed as statements of fact. These estimates and
projections are based upon various assumptions, which may be affected by
numerous factors, including future economic conditions in the State and the
nation, and there can be no assurance that the estimates will be achieved.

Recent Developments

California's General Economic Conditions. California's economy, the largest
among the 50 states and one of the largest in the world, has major components in
high technology, trade, entertainment, agriculture, manufacturing, tourism,
construction and services. US economic growth was slower than expected in the
first half of 2001, and the California economy began to slow in the spring of
2001. The State finally showed the impact of the national recession, coupled
with a cyclical downturn in the high-technology sector, and entered a mild
recession. The terrorist attacks on September 11, 2001 resulted in a further,
but mostly temporary, weakening of the economy in tourism-based areas. The
economy then stabilized with 887,100 jobs gained between July 2003 and March
2007 compared with 367,600 jobs lost between January 2001 and July 2003.
California's population as of July 2006 of over 37 million represented over 12
percent of the total United States population.

Both the California economy and the national economy improved in 2005 and the
first ten months of 2006. The output of the national economy, adjusted for
inflation, has grown more strongly, and job growth has improved more recently.
Between August 2005 and August 2006, California nonfarm payroll employment grew
by 1.3 percent, the same as the nation as a whole. In August 2006, non-farm
payroll employment rose above 15 million for the first time. Over the 12 months
from July 2006 to July 2007, California non-farm payroll employment grew 1.1
percent. The job growth was broad-based, as seven of California's eleven major
industry sectors gained jobs. The State's unemployment rate averaged 4.9 percent
in 2006, and increased to 5.2 percent as of July 1, 2007.

In October 2006, the State's unemployment rate of 4.5 percent was the lowest in
at least 30 years. California began 2007 with job losses in January, but
February and March saw positive job gains. The annual benchmark revision of
employment statistics in March 2007 revealed that considerably more jobs were
created in the State during 2006 than were initially reported. California added
275,000 jobs in 2006, the best gain since 2000. Nine out of the 11 major
industry sectors saw employment grow in 2006. An important development has been
improved job growth in the San Francisco Bay Area. The region had the strongest
percentage job growth of major California regional economies in 2006. The
Department of Finance projected in April 2006 that unemployment will remain at
or below 4.9 percent throughout 2008. As of June 2007, the State's unemployment
rate was 5.2 percent while the national unemployment rate was 4.5 percent.

California personal income gained 6.1 percent in 2006, but is expected by the
Governor's office to drop to 5.3 percent in 2007 before improving to 5.5 percent
in 2008 and 5.8 percent in 2009. Taxable sales slowed considerably, however, in
the second half of 2006. For the year as a whole, taxable sales increased 3.9
percent in 2006 compared to 7.4 percent in 2005.

Fluctuations in General Fund revenues are more pronounced than the volatility in
California's overall economy and more substantial than the revenue fluctuations
in other states, according to a January 2005 study by the Legislative Analyst's
Office ("LAO"), a nonpartisan agency. The budgetary stresses resulting from
dependence on cyclical revenue sources have been compounded by an underlying
budget imbalance in which anticipated revenues fall short of spending
commitments, some of which increase annually by law regardless of revenue.

The housing sector has continued to slow the national and California economies.
A sharp drop in home building caused the national economy to grow at its slowest
pace in four years in the first quarter of 2007. In California, housing permits
were 40 percent below the peak level reached in the third quarter of 2005. As of
October 2007, the effects of the ongoing housing slump and recent financial
turmoil were evident in a variety of economic data releases. In recent
employment estimates, the construction and finance sectors were notable sources
of weakness. Home building and home sales remained sluggish through the second
quarter of 2007. It is not clear that recent questions about the strength of the
sub-prime mortgage market have yet been reflected in the performance of the
housing market.

The outlook for the California economy is for slower growth in 2007 followed by
improved growth in 2008 and 2009. Personal income is projected to grow 5.3
percent in 2007, 5.5 percent in 2008, and 5.8 percent in 2009, as compared to
6.1 percent in 2006. California non-farm payroll employment is forecasted to
increase 1.3 percent in 2007, 1.2 percent in 2008 and 1.6 percent in 2009, as
compared to 1.9 percent in 2006. As of September 2007, Preliminary General Fund
agency cash for September 2007 was $809 million below the 2007 Budget Act
forecast of $11 billion, and year-to-date revenues were $777 million below the
$22.7 billion that was expected.

Taxable sales slowed considerably in the second half of 2006. Taxable sales
increased 3.9 percent in 2006 compared to 7.4 percent in 2005.
Made-in-California exports grew by 9.4 percent to a new record level of $127.7
billion in 2006. In addition, high-tech exports grew 6.7 percent in 2006.
Exports of chemicals, miscellaneous manufactured products, and food and kindred
products all grew at double-digit rates.

In the 2007-08 May Revision to the Governor's Budget, the Department of Finance
projected that the struggling housing sector will continue to weigh on the State
and national economies for the 2007 calendar year and to a lesser extent in
2008, but economic growth should steadily improve beginning in the third quarter
of 2007. The economic forecasts of the Department of Finance are prepared using
national economic activity forecasts; major national and California economic
indicators; revenue estimates; legislative, judicial and administrative changes;
and recent cash results.

Cash Flow Requirements. The State Treasurer is responsible for the sale of debt
obligations of the State and its various authorities and agencies. Current State
debt obligations include:

o    General Obligation Bonds. The State Constitution  prohibits the creation of
     general  obligation  indebtedness  of the State  unless a bond  measure  is
     approved by a majority of the  electorate  voting at a general  election or
     direct primary.  General  obligation bond acts provide that debt service on
     general  obligation  bonds shall be appropriated  annually from the General
     Fund and all debt  service  on  general  obligation  bonds is paid from the
     General  Fund.  Under the  State  Constitution,  debt  service  on  general
     obligation  bonds is the  second  charge  to the  General  Fund  after  the
     application  of moneys in the  General  Fund to the  support  of the public
     school system and public institutions of higher education.  Certain general
     obligation bond programs  receive revenues from sources other than the sale
     of bonds or the investment of bond  proceeds.  As of September 1, 2007, the
     State had  outstanding  approximately  $51.5  billion  aggregate  principal
     amount  of   long-term   general   obligation   bonds,   and  unused  voter
     authorization  for  future  issuance  of  approximately  $68.01  billion of
     long-term general obligation bonds. In response to the Governor's  proposal
     for a $220 billion  infrastructure  investment  plan, which would have used
     $68 billion in new general obligation bonds, the Legislature  approved four
     bond measures,  totaling  approximately  $37.3  billion,  all of which were
     approved by voters at the November 7, 2006 general election.

o    Commercial  Paper  Program.   Pursuant  to  legislation  enacted  in  1995,
     voter-approved  general  obligation  indebtedness  may, in some  cases,  be
     issued as commercial paper notes.  Commercial paper notes may be renewed or
     refunded by the issuance of  long-term  bonds.  Commercial  paper notes are
     deemed issued upon  authorization  by the  respective  finance  committees,
     whether or not such notes are actually issued. Pursuant to the terms of the
     bank  credit  agreement   presently  in  effect,   the  general  obligation
     commercial paper program may have up to $1.5 billion in aggregate principal
     and  interest  commitments  outstanding  at any time.  This  amount  may be
     increased or decreased in the future. As of September 1, 2007 approximately
     $16 million  aggregate  principal amount of general  obligation  commercial
     paper notes had been issued and were outstanding.

o    Lease-Purchase  Obligations.  The  State  builds  and  acquires  facilities
     through  the use of  lease  purchase  borrowing,  in  addition  to  general
     obligation bonds. Under these  arrangements,  the State Public Works Board,
     another State or local agency or a joint powers  authority  issues bonds to
     pay  for  the  construction  of  facilities,   such  as  office  buildings,
     university  buildings or correctional  institutions.  These  facilities are
     leased to a State agency or the University of California  under a long-term
     lease  that  provides  the  source of  payment  of the debt  service on the
     lease-purchase   bonds.  Certain  of  the  lease-purchase   financings  are
     supported  by special  funds  rather than the General  Fund.  The State had
     approximately   $7.7  billion   General   Fund-supported   lease   purchase
     obligations outstanding as of August 1, 2007. The State Public Works Board,
     which is authorized to sell lease revenue bonds,  had  approximately  $10.9
     billion authorized and unissued as of September 1, 2007, which includes new
     authorizations described below. In addition, as of that date, certain joint
     powers were authorized to issue  approximately $81 million of revenue bonds
     to be secured by State leases.  On May 3, 2007, the Governor  signed AB 900
     (Chapter  7,  Statutes  of 2007)  which  authorized  issuance of up to $7.4
     billion  of  lease-revenue  bonds  to  finance   acquisition,   design  and
     construction  of new  facilities  at state prisons and county jails and for
     local  re-entry  facilities.  Litigation  has been  filed  challenging  the
     legality of the financing plan in AB 900, as discussed below.

o    Non-Recourse   Debt.   Certain  agencies  and  authorities   issue  revenue
     obligations  for which the General  Fund has no  liability.  Revenue  bonds
     represent obligations payable from State revenue-producing  enterprises and
     projects,  which  are not  payable  from  the  General  Fund,  and  conduit
     obligations  payable only from revenues paid by private users of facilities
     financed by the bonds. The enterprises and projects include  transportation
     projects,  various public works  projects,  public and private  educational
     facilities,  housing,  health facilities and pollution control  facilities.
     State agencies and authorities had  approximately  $49.8 billion  aggregate
     principal  amount of revenue bonds and notes which are  non-recourse to the
     General Fund outstanding as of June 30, 2007.

o    Economic  Recovery  Bonds.  The  California   Economic  Recovery  Bond  Act
     ("Proposition 57") was approved by voters on March 2, 2004.  Proposition 57
     authorizes the issuance of up to $15 billion in economic  recovery bonds to
     finance the negative  General Fund reserve  balance and other  General Fund
     obligations.  Repayment  of the  economic  recovery  bonds is  secured by a
     pledge of revenues from a one-quarter cent increase in the State's sale and
     use tax starting July 1, 2004. In addition, the economic recovery bonds are
     secured  by the  State's  full  faith and  credit;  however,  moneys in the
     General Fund will only be used in the event the dedicated sales and use tax
     revenue is insufficient to repay the bonds.

     The state has issued $10.9 billion  principal  amount of Economic  Recovery
     Bonds,  resulting  in the deposit of net  proceeds  to the General  Fund of
     approximately  $11.3 billion during the 2003-04 fiscal year (of which,  for
     budgetary  purposes,  approximately $9.2 billion was applied to the 2002-03
     fiscal year and  approximately  $2.0  billion was applied to offset  fiscal
     year  2004-05  General Fund  expenditures).  The state may issue about $3.3
     billion of the  remainder  of  authorized  Economic  Recovery  Bonds in the
     future,  but the 2007 Budget Act assumes no Economic Recovery Bonds will be
     issued in fiscal year 2007-08.  The Department of Finance has now estimated
     that,  because of the repayment of other General Fund obligations  incurred
     before June 30, 2004, the full $3.746 billion of unused voter authorization
     cannot be sold.

     Three  different  sources of funds are  required to be applied to the early
     retirement  (generally  by purchase  or  redemption)  of economic  recovery
     bonds:  (i) all  proceeds  from the quarter cent sales tax in excess of the
     amounts  needed,  on a  semi-annual  basis,  to pay debt  service and other
     required  costs of the bonds,  (ii) all  proceeds  from the sale of surplus
     State property,  and (iii) fifty percent of each annual  deposit,  up to $5
     billion in the aggregate, of future deposits in the reserve fund created by
     the California Balanced Budget Act. Funds from these sources have been used
     for early retirement of approximately $1.716 billion of bonds during fiscal
     years  2005-06  and  2006-07,  including  use of  $472  million  which  was
     transferred from the BSA in 2006-07.

     The 2007  Budget Act  provides $1 billion  from the BSA to retire  Economic
     Recovery  Bonds  in  the  2007-08  fiscal  year.  In  addition,  there  was
     approximately  $394 million of excess  sales tax  revenues  from the period
     January 1-June 30, 2007 which will be used for early retirement of economic
     recovery  bonds,  together  with  excess  sales tax  revenues  which may be
     generated  for the period July 1- December  31,  2007,  and any proceeds of
     excess  property  sales.  In total,  the  Administration  anticipates  that
     approximately  $2.6 billion of economic  recovery  bonds will be retired in
     the 2007-08 fiscal year, including almost $2.2 billion in early repayments.

     Tobacco  Settlement  Revenue  Bonds.  In 1998 the state signed a settlement
     agreement  (the  "Master  Settlement  Agreement"  or "MSA") with four major
     cigarette manufacturers (the "participating manufacturers" or "PMs"). Under
     the MSA,  the  participating  manufacturers,  the  cigarette  manufacturers
     agreed to make payments to the State in perpetuity, such payments amounting
     to  approximately  $25  billion  over the first 25 years.  Under a separate
     Memorandum  of  Understanding,  half of the payments  made by the cigarette
     manufacturers will be paid to the State and half to local governments.  The
     specific  amount to be  received  by the state  and  local  governments  is
     subject to  adjustment.  The MSA  allows  reduction  of the  manufacturers'
     payments  for  decreases  in  cigarette  shipment  volumes by the  settling
     manufacturers,  payments owed to certain  "Previously  Settled  States" and
     certain  types of  offsets  for  disputed  payments,  among  other  things.
     However,  settlement  payments are adjusted  upward each year by at least 3
     percent for inflation, compounded annually.

     The  Tobacco   Securitization   Law,   enacted  in  2002,   authorized  the
     establishment of a special purpose trust to purchase those assets. The bill
     also  authorized  that trust to issue  revenue bonds secured by the tobacco
     settlement  revenues  received  beginning in the 2003-04  fiscal  year.  An
     initial sale of 56.57 percent of the State's  tobacco  settlement  revenues
     producing  $2.5 billion in proceeds was  completed in January 2003 ("Series
     2003A").

     A  second  sale of the  remaining  43.43  percent  of the  State's  tobacco
     settlement revenues, which produced $2.3 billion in proceeds, was completed
     in September  2003 ("Series  2003B").  The Tobacco  Securitization  Law was
     amended in 2003 to require the Governor to request an  appropriation in the
     annual  Budget  Act to pay debt  service  and  other  related  costs of the
     tobacco  settlement  revenue  bonds  secured  by the  second  (and only the
     second) sale of tobacco  settlement  revenues when such tobacco  settlement
     revenues are  insufficient  therefor.  The  Legislature is not obligated to
     make any such  requested  appropriation.  In August  2005 the Series  2003B
     Bonds were  refinanced,  retaining  all of the  covenants  of the  original
     issue,  including  the  covenant  regarding  the request for a General Fund
     appropriation  in the event  tobacco  revenues  fall  short.  In return for
     providing this  covenant,  the State was paid a credit  enhancement  fee of
     $525  million  as part of the  refinancing,  which was  deposited  into the
     General Fund.

     In March 2007,  the state  completed a refunding of all of the Series 2003A
     Bonds. This refunding generated additional proceeds of approximately $1.258
     billion  which are  intended to be used (i) to offset the General Fund cost
     for the initial  years of a  litigation  settlement  related to the 2004-05
     suspension of the  Proposition  98 guarantee  and (ii) for other  purposes,
     such as funding capital  projects.  See "STATE FINANCES - Proposition  98."
     Some of these moneys have been used for General Fund expenses in 2007-08.

     In early 2006,  the PMs asserted that they had lost market share in 2003 to
     the non-participating  manufacturers ("NPMs"). A nationally recognized firm
     of  economic  consultants  confirmed  the  assertion  that  the  MSA  was a
     significant  factor  contributing to the market share loss.  Under the MSA,
     the PMs are  authorized  to  withhold  up to three times the amount of lost
     market  share  (adjusted  downward  by 2 percent)  until such time as it is
     proven that the various  states  diligently  enforced  their model statutes
     that govern the NPMs. As a result,  the amount of tobacco revenues received
     by the State was reduced in 2006 by $50.9 million. Nevertheless, the amount
     of tobacco  revenues  received  were still in excess of the  required  debt
     service payments.  Therefore, it is anticipated that the need to invoke the
     provisions  included in the State's budget for Series 2005A is unlikely and
     there will be no impact to the General  Fund for the 2007-08  fiscal  year.
     Furthermore,  the Series  2005A Bonds have  reserve  funds in excess of one
     year's debt  service  payments,  which would be used  before  General  Fund
     moneys.  In  April  2006,  a  similar  filing  was  made by the PMs for the
     calendar year 2004  payments and the economic  consultants  also  confirmed
     that the MSA was a  significant  factor  contributing  to the market  share
     loss, but it is likewise  anticipated  that there was and will be no impact
     to the General Fund for the 2007-08 fiscal year. The State Attorney General
     is working in tandem with the other states'  Attorney  Generals,  under the
     terms of the MSA,  to compel  the PMs to pay given  that the state has been
     diligently enforcing the statutes as required in the MSA.

     Tobacco  settlement revenue bonds are neither general nor legal obligations
     of the State or any of its political subdivisions and neither the faith and
     credit nor the taxing  power nor any other  assets or revenues of the State
     or of any  political  subdivision  is or shall be pledged to the payment of
     any such bonds.

o    Flood  Litigation  Settlement.  In 2006,  the state  settled  three related
     lawsuits  arising from liability for past flood damages through  stipulated
     judgments. The largest settlement (referred to as the Paterno case), in the
     amount of $428 million,  provided for the state to make annual  payments of
     $42.8 million,  plus interest,  for ten years;  the payments are subject to
     annual  appropriation  by the  Legislature.  The first  year's  payment was
     included in the 2005 Budget Act and each subsequent budget act has included
     the  required  installment.  This  matter is not treated as a "debt" of the
     state for any legal or constitutional purposes.

o    Cash Flow Borrowings. As part of its cash management program, the State has
     regularly issued short-term  obligations to meet cash flow needs. The State
     has issued RANs in 19 of the last 20 fiscal years to partially  fund timing
     differences  between receipts and  disbursements.  By law, RANs must mature
     prior to the end of the fiscal year of  issuance.  If  additional  external
     cash  flow   borrowings   are  required,   the  State  has  issued  revenue
     anticipation  warrants  ("RAWs"),  which can mature in a subsequent  fiscal
     year.  RANs and RAWs are both  payable  from any  "Unapplied  Money" in the
     General Fund on their  maturity date,  subject to the prior  application of
     such  money  in the  General  Fund  to  pay  Priority  Payments.  "Priority
     Payments"  are  payments as and when due to: (i) support the public  school
     system and public  institutions of higher education (as provided in Section
     8 of Article XVI of the  Constitution of the State);  (ii) pay principal of
     and interest on general obligation bonds and general obligation  commercial
     paper notes of the state; (iii) provide reimbursement from the General Fund
     to any special fund or account to the extent such  reimbursement is legally
     required to be made to repay  borrowings  therefrom  pursuant to California
     Government  Code  Sections  16310 or 16418;  and (iv) pay state  employees'
     wages and  benefits,  state  payments to pension  and other state  employee
     benefit trust funds, state Medi-Cal claims, and any amounts determined by a
     court of  competent  jurisdiction  to be  required  to be paid  with  state
     warrants  that can be cashed  immediately.  The state  plans to issue  $7.0
     billion of RANs in November 2007 in order to maintain  adequate reserves to
     manage the state's cash flow requirements during fiscal year 2007-08.

     Between  November  2006  and  August  2007,   voters  and  the  Legislature
     authorized more than $50 billion of new general  obligation bonds and lease
     revenue  bonds,  increasing  the  amount of  General  Fund  supported  debt
     authorized  and unissued to almost $75 billion as of September 1, 2007.  In
     order to address the program needs for these new authorizations, along with
     those which existed  before 2006,  the state expects the volume of issuance
     of both of these categories of bonds to increase substantially, compared to
     previous  years,  starting  in  fiscal  year  2007-08.  Based  on  existing
     Legislative  appropriations  and current  projections of program needs, the
     Department  of Finance has  estimated  that annual new money  issuance  for
     these  obligations  in the five  fiscal  years  from  2007-08  to 2011-12 -
     primarily  as  general  obligation  bonds - will  total  approximately  $10
     billion,   $12  billion,   $16  billion,   $12  billion,  and  $8  billion,
     respectively.  In  addition,  if  the  voters  or the  Legislature  approve
     additional new bond  authorizations in 2008 and beyond, the amount of bonds
     issued may be higher than these estimates.

     Based on the current  Department of Finance  projections  of bond issuance,
     without taking into account any future  authorizations which may occur, the
     aggregate amount of outstanding  general obligation and lease revenue bonds
     would peak at about $98 billion by the middle of the next decade,  compared
     to the current total  outstanding  amount of about $49 billion.  The annual
     debt  service  costs on this  amount  of debt  would  peak at  around  $8.4
     billion,  compared to about $4.7 billion  budgeted for fiscal year 2007-08.
     (These estimates do not include Economic  Recovery Bonds,  described above,
     nor do they take into  account  potential  benefits  from future  refunding
     opportunities.) The actual amounts and timing of future issuance of general
     obligation  and lease  revenue  obligations  will  depend  on a variety  of
     factors, including the timing of funding needs for the various programs for
     which such  obligations  are to be issued,  interest  rate and other market
     conditions  at the  time  of  issuance,  and  the  timing  and  amounts  of
     additional  general  obligation bonds or lease revenue bonds approved.  The
     Governor  has  proposed  substantial  additional  general  obligation  bond
     programs.

     Since  the  enactment  of the  2007  Budget  Act,  the  Administration  has
     projected that the total budgetary  reserve will be about $4.069 billion at
     June 30, 2008. However, subsequent developments could reduce that amount. A
     number of  elements  of the 2007 Budget Act may not occur in the amounts or
     in the time anticipated.

     The Administration has estimated that, although the 2007 Budget Act (absent
     subsequent  developments  discussed  herein) was in an  operating  balance,
     there is a projected  operating  deficit of about $6.1  billion for 2008-09
     absent  further  corrective  actions.  This is partly  caused by the use of
     about $3.5 billion of one-time budget solutions in 2007-08, which cannot be
     replicated in 2008-09.

Bond Ratings

S&P, Moody's and Fitch assign ratings to California's long-term general
obligation bonds. The ratings of S&P, Moody's and Fitch represent their opinions
as to the quality of the municipal bonds they rate. The ratings are general and
not absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields while obligations with the
same maturity and coupon with different ratings may have the same yield.

The financial difficulties experienced by California and municipal issuers
during the recession of the early 1990's resulted in the credit ratings of
certain of their obligations being downgraded significantly by the major rating
agencies. The ratings on California's long-term general obligation bonds were
reduced in the early 1990's from "AAA" levels that had existed prior to the
recession of the early 1990's. After 1996, the three major rating agencies
raised their ratings of California's general obligation bonds. However, major
rating agencies, underwriters and investors have had major concerns about
California's creditworthiness. The major rating agencies have cited over the
years, among other things, concerns about California's missed budget deadlines
and ongoing structural budget impediments, resulting in reductions of the
ratings of the State's general obligation bonds by S&P, Moody's and Fitch. In
April 2001, Fitch placed the State's rating on rating watch - negative. Although
S&P placed California's senior ratings on its "credit watch" list in January
2001, it removed the State from the list in June 2001, but warned that the
State's financial outlook remained negative.

In December 2002, the ratings of the State's general obligation bonds were
further reduced by S&P to "A" and by Fitch to "A." In the summer of 2003, the
ratings of S&P and Moody's were reduced to "BBB" and "A3" respectively. In
December 2003, Moody's again reduced its rating of the State's general
obligation bonds to "Baa1," citing concerns over the State's recent action to
cut the vehicle licensing fee, as well as the State's continuing inability to
reach political consensus on solutions to its budget and financial difficulties.

In May 2004, Moody's upgraded California's rating to "A3." In August 2004, S&P
upgraded California's rating to "A" and Fitch removed California's rating from
rating watch - negative and upgraded its rating to "A-." The ratings of these
bonds have continued to improve, and as of December 27, 2007, the S&P rating of
California's general obligation bonds was A+, Moody's was A1, and Fitch's rating
was A+.

The ratings of certain related debt of other issuers for which California has an
outstanding lease purchase, guarantee or other contractual obligation (such as
for State-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California deteriorate, its credit
ratings could be reduced, and the market value and marketability of all
outstanding notes and bonds issued by California, its public authorities or
local governments could be adversely affected.

There can be no assurance that such ratings will be maintained in the future.
The State's credit rating, and any future revisions or withdrawal of a credit
rating, could have a negative effect on the market price of the State's general
obligation bonds, as well as notes and bonds issued by California's public
authorities and local governments. Lower ratings make it more expensive for the
State to raise revenue, and in some cases, could prevent the State from issuing
general obligation bonds in the quantity otherwise desired. Further, downgrades
can negatively impact the marketability and price of securities in the Fund's
portfolio.

Litigation

The State is a party to numerous legal proceedings, many of which normally occur
in governmental operations. In addition, the State is involved in certain other
legal proceedings (described in the State's recent financial statements) that,
if decided against the State might require the State to make significant future
expenditures or substantially impair future revenue sources. Because of the
prospective nature of these proceedings, it is not presently possible to predict
the outcome of such litigation, estimate the potential impact on the ability of
the State to pay debt service costs on its obligations, or determine what
impact, if any, such proceedings may have on the Fund. The following summarizes
several significant legal proceedings to which the State is a party:

Matter Seeking Recalculation of Minimum School Funding Guarantee. On August 8,
2005, a lawsuit titled California Teachers Association et al. v. Arnold
Schwarzenegger et al. was filed. Plaintiffs - California Teachers Association,
California Superintendent of Public Instruction Jack O'Connell, and various
other individuals - allege that the California Constitution's minimum school
funding guarantee was not followed for the 2004-2005 fiscal year and the 2005-06
fiscal year in the aggregate amount of approximately $3.1 billion. Plaintiffs
seek a writ of mandate requiring the State to recalculate the minimum-funding
guarantee in compliance with the California Constitution. On May 10, 2006,
counsel for all parties executed a settlement agreement, and the action has been
stayed pending implementation legislation. The settlement calls for payment of
the outstanding balance of the minimum funding obligation to school districts
and community college districts (approximately $3 billion in the aggregate)
through the 2013-14 fiscal year.

Matter Seeking Validation of Pension Obligation Bonds. Although the Legislature
had authorized the Pension Obligation Bond Committee ("Committee") to issue
bonds to fund all or a portion of the State's pension obligation in any two
fiscal years, the Sacramento County Superior Court ruled on November 15, 2005
that the bonds were not valid under the State's debt limit. On July 3, 2007, the
Court of Appeal for the Third Appellate District ruled that the Legislature's
authorization to issue bonds to pay a portion of the state's pension obligation
is invalid. The state is not planning to appeal the decision. The 2007 Budget
Act did not include pension obligation bonds.

Prison Healthcare Reform. Plaintiffs in this class action regarding all prison
medical care in California alleged that the State was not providing
constitutionally adequate medical care as required by the Eighth Amendment to
the U.S. Constitution. The case was settled in 2002, but the federal court
retained jurisdiction to enforce the terms of a stipulated judgment. The
district court appointed a Receiver, who took office in April 2006, to run and
operate the approximately $1.3 billion adult health care delivery system
(excluding mental health and dental care) of the California Department of
Corrections and Rehabilitation, affecting approximately 32 prisons throughout
the State (excluding Pelican Bay Prison). At this time it is unknown what
financial impact such an unprecedented decision would have on the General Fund.

Constitutional, Legislative and Other Factors

Certain California constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could produce the
adverse effects described below, among others.

Revenue Distribution. Certain debt obligations held by the Fund may be
obligations of issuers which rely in whole or in part on California State
revenues for payment of these obligations. Property tax revenues and a portion
of the State's General Fund surplus are distributed to counties, cities and
their various taxing entities and the State assumes certain obligations
theretofore paid out of local funds. Whether and to what extent a portion of the
State's General Fund will be distributed in the future to counties, cities and
their various entities is unclear.

Health Care Legislation. Certain debt obligations held by the Fund may be
obligations which are payable solely from the revenues of health care
institutions. Certain provisions under California law may adversely affect these
revenues and, consequently, payment on those debt obligations.

The Federally sponsored Medicaid program for health care services to eligible
welfare beneficiaries in California is known as the Medi-Cal program.
Historically, the Medi-Cal program provided for a cost-based system of
reimbursement for inpatient care furnished to Medi-Cal beneficiaries by any
hospital wanting to participate in the Medi-Cal program, provided such hospital
met applicable requirements for participation. California law now provides that
the State of California shall selectively contract with hospitals to provide
acute inpatient services to Medi-Cal patients. Medi-Cal contracts currently
apply only to acute inpatient services. Generally, such selective contracting is
made on a flat per diem payment basis for all services to Medi-Cal
beneficiaries, and generally such payment has not increased in relation to
inflation, costs or other factors. Other reductions or limitations maybe imposed
on payment for services rendered to Medi-Cal beneficiaries in the future.

Under this approach, in most geographical areas of California, only those
hospitals which enter into a Medi-Cal contract with the State of California will
be paid for non-emergency acute inpatient services rendered to Medi-Cal
beneficiaries. The State may also terminate these contracts without notice under
certain circumstances and is obligated to make contractual payments only to the
extent the California legislature appropriates adequate Funding therefor.

California enacted legislation in 1982 that authorizes private health plans and
insurers to contract directly with hospitals for services to beneficiaries on
negotiated terms. Some insurers have introduced plans known as "preferred
provider organizations" ("PPOs"), which offer financial incentives for
subscribers who use only the hospitals which contract with the plan. Under an
exclusive provider plan, which includes most health maintenance organizations
("HMOs"), private payors limit coverage to those services provided by selected
hospitals. Discounts offered to HMOs and PPOs may result in payment to the
contracting hospital of less than actual cost and the volume of patients
directed to a hospital under an HMO or PPO contract may vary significantly from
projections. Often, HMO or PPO contracts are enforceable for a stated term,
regardless of provider losses or of bankruptcy of the respective HMO or PPO. It
is expected that failure to execute and maintain such PPO and HMO contracts
would reduce a hospital's patient base or gross revenues. Conversely,
participation may maintain or increase the patient base, but may result in
reduced payment and lower net income to the contracting hospitals.

These debt obligations may also be insured by the State of California pursuant
to an insurance program implemented by the Office of Statewide Health Planning
and Development for health facility construction loans. If a default occurs on
insured debt obligations, the State Treasurer will issue debentures payable out
of a reserve Fund established under the insurance program or will pay principal
and interest on an unaccelerated basis from unappropriated State funds. The
Office of Statewide Health Planning and Development commissioned various
studies, commencing in December 1983, to evaluate the adequacy of the reserve
Fund established under the insurance program and based on certain formulations
and assumptions, found the reserve Fund substantially underfunded. The most
recent study, completed in February 2003 by Milliman USA, concluded, among other
things, that reserves were sufficient and, assuming "normal and expected"
conditions, the Health Facility Construction Loan Insurance Fund, as of June 30,
2002, should maintain a positive balance over the projection period of 15 years.

Mortgages and Deeds. Certain debt obligations in the Fund may be obligations
which are secured in whole or in part by a mortgage or deed of trust on real
property. California law limits the remedies of a creditor secured by a mortgage
or deed of trust. State law limits the creditor's right to obtain a deficiency
judgment and a deficiency judgment is barred when the foreclosure is
accomplished by means of a nonjudicial trustee's sale. In addition, a deficiency
judgment is barred when the foreclosed mortgage or deed of trust secures certain
purchase money obligations. State law requires creditors secured by real
property to exhaust their real property security by foreclosure before bringing
a personal action against the debtor and limits any deficiency judgment obtained
by a creditor secured by real property following a judicial sale of such
property to the excess of the outstanding debt over the fair value of the
property at the time of the sale, thus preventing the creditor from obtaining a
large deficiency judgment against the debtor as the result of low bids at a
judicial sale. State law also gives a debtor the right to redeem the real
property from any judicial foreclosure sale as to which a deficiency judgment
may be ordered against the debtor.

Upon the default of a mortgage or deed of trust with respect to California real
property, the creditor's nonjudicial foreclosure rights under the power of sale
contained in the mortgage or deed of trust are subject to the constraints
imposed by California law upon transfers of title to real property by private
power of sale. During the three-month period beginning with the filing of a
formal notice of default, the debtor is entitled to reinstate the mortgage by
making any overdue payments. Under standard loan servicing procedures, the
filing of the formal notice of default does not occur unless at least three full
monthly payments have become due and remain unpaid. The power of sale is
exercised by posting and publishing a notice of sale after expiration of the
three-month reinstatement period, which notice of sale must be given at least 20
days before the scheduled sale date. The debtor may reinstate the mortgage, in
the manner described above, up to five business days prior to the scheduled sale
date. Therefore, the effective minimum period for foreclosing on a mortgage
could be in excess of seven months after the initial default. Such time delays
in collections could disrupt the flow of revenues available to an issuer for the
payment of debt service on the outstanding obligations if such defaults occur
with respect to a substantial number of mortgages or deeds of trust securing an
issuer's obligations.

In addition, a court could find that there is sufficient involvement of the
issuer in the nonjudicial sale of property securing a mortgage for such private
sale to constitute "State action," and could hold that the private-right-of-sale
proceedings violate the due process requirements of the Federal or State
Constitutions, consequently preventing an issuer from using the nonjudicial
foreclosure remedy described above.

Certain debt obligations in the Fund may be obligations which finance the
acquisition of single-family home mortgages for low and moderate-income
mortgagors. These obligations may be payable solely from revenues derived from
the home mortgages, and are subject to California's statutory limitations
described above applicable to obligations secured by real property. Under
California antideficiency legislation, there is no personal recourse against a
mortgagor of a single-family residence purchased with the loan secured by the
mortgage, regardless of whether the creditor chooses judicial or nonjudicial
foreclosure.

Under California law, mortgage loans secured by single-family owner-occupied
dwellings may be prepaid at any time. Prepayment charges on such mortgage loans
may be imposed only with respect to voluntary prepayments made during the first
five years during the term of the mortgage loan, and then only if the borrower
prepays an amount in excess of 20 percent of the original principal amount of
the mortgage loan in a 12-month period; a prepayment charge cannot in any event
exceed six months' advance interest on the amount prepaid during the 12-month
period in excess of 20 percent of the original principal amount of the loan.
This limitation could affect the flow of revenues available to an issuer for
debt service on the outstanding debt obligations which financed such home
mortgages.

Proposition 9. On November 6, 1979, an initiative known as "Proposition 9" or
the "Gann Initiative" was approved by the California voters, which added Article
XIIIB to the California Constitution. Under Article XIIIB, State and local
governmental entities have an annual "appropriations limit" and are not allowed
to spend certain moneys called "appropriations subject to limitation" in an
amount higher than the "appropriations limit." Article XIIIB does not affect the
appropriation of moneys which are excluded from the definition of
"appropriations subject to limitation," including debt service on indebtedness
existing or authorized as of January 1, 1979, or bonded indebtedness
subsequently approved by the voters. In general terms, the "appropriations
limit" is required to be based on certain 1978/79 expenditures, and is to be
adjusted annually to reflect changes in consumer prices, population, and certain
services provided by these entities. Article XIIIB also provides that if these
entities' revenues in any year exceed the amounts permitted to be spent, the
excess is to be returned by revising tax rates or fee schedules over the
subsequent two years.

Proposition 13. Certain of the debt obligations may be obligations of issuers
who rely in whole or in part on ad valorem real property taxes as a source of
revenue. On June 6, 1978, California voters approved an amendment to the
California Constitution known as Proposition 13, which added Article XIIIA to
the California Constitution. The effect of Article XIIIA was to limit ad valorem
taxes on real property and to restrict the ability of taxing entities to
increase real property tax revenues.

Section 1 of Article XIIIA, as amended, limits the maximum ad valorem tax on
real property to 1 percent of full cash value to be collected by the counties
and apportioned according to law. The 1 percent limitation does not apply to ad
valorem taxes or special assessments to pay the interest and redemption charges
on any bonded indebtedness for the acquisition or improvement of real property
approved by two-thirds of the votes cast on the proposition. Section 2 of
Article XIIIA defines "full cash value" to mean "the County Assessor's valuation
of real property as shown on the 1975/76 tax bill under `full cash value' or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The full cash value may be adjusted annually to reflect inflation at a rate not
to exceed 2 percent per year, or reduction in the consumer price index or
comparable local data, or reduced in the event of declining property value
caused by damage, destruction or other factors.

Legislation enacted by the California Legislature to implement Article XIIIA
provides that notwithstanding any other law, local agencies may not levy any ad
valorem property tax except to pay debt service on indebtedness approved by the
voters prior to July 1, 1978, and that each county will levy the maximum tax
permitted by Article XIIIA.

Subsequent to the adoption of Proposition 13, the State provided aid to local
governments from the General Fund; however, during the recession of the early
1990s, the Legislature eliminated most components of aid to local government
entities but provided additional revenue sources, such as sales taxes, and
reduced certain mandates for local services. The 2004 Budget Act, related
legislation and the enactment of Senate Constitutional Amendment No. 4
dramatically changed the State-local fiscal relationship. These statutory and
Constitutional changes implemented an agreement negotiated between the Governor
and local government officials (the "state-local agreement") in connection with
the 2004 Budget Act. One such change relates to the reduction of the vehicle
license fee ("VLF") rate from 2 percent to 0.65 percent of the market value of
the vehicle. In order to protect local governments, which have previously
received all VLF revenues, the reduction in VLF revenue to cities and counties
from this rate change was replaced by an increase in the amount of property tax
they receive.

As part of the state-local agreement, Senate Constitutional Amendment No. 4 was
enacted by the Legislature and subsequently approved by voters as Proposition 1A
at the November 2004 election. Proposition 1A amended the State Constitution to,
among other things, reduce the Legislature's authority over local government
revenue sources by placing restrictions on the State's access to local
governments' property, sales and VLF revenues as of November 3, 2004. Per the
amendment, beginning with fiscal year 2008-09, the State will be able to borrow
up to 8 percent of local property tax revenues, but only if the Governor
proclaims such action is necessary due to a severe State fiscal hardship,
two-thirds of both Houses of the Legislature approve the borrowing, and the
amount borrowed is required to be paid back within three years. The State also
will not be able to borrow from local property tax revenues for more than two
fiscal years within a period of 10 fiscal years, and only if previous borrowings
have been repaid.

In addition, the State cannot reduce the local sales tax rate or restrict the
authority of local governments to impose or change the distribution of the
statewide local sales tax. Proposition 1A also prohibits the State from
mandating activities on cities, counties or special districts without providing
for the funding needed to comply with the mandates. Beginning in fiscal year
2005-06, if the State does not provide funding for the activity that has been
determined to be mandated, the requirement on cities, counties or special
districts to abide by the mandate will be suspended. In addition, Proposition 1A
expanded the definition of what constitutes a mandate to encompass State action
that transfers financial responsibility to cities, counties and special
districts for a required program for which the State previously had partial or
complete responsibility. The State mandate provisions of Proposition 1A do not
apply to schools or community colleges or to mandates relating to employee
rights.

However, proposals related to Proposition 1A were a ballot measure passed in the
November 7, 2006 election, officially titled "Transportation Funding Protection,
Legislative Constitutional Amendment." The measure protects transportation
funding for traffic congestion relief projects, safety improvements, and local
streets and roads. It seeks to prohibit the State sales tax on motor vehicle
fuels from being used for any purpose other than transportation improvements,
and will authorize loans of these funds only in the case of severe State fiscal
hardship. The measure will require loans of revenues from State sales tax on
motor vehicle fuels to be fully repaid within three years and restrict loans to
no more than two in any 10-year period. The California Legislative Analyst's
Office (the "Office") estimates that the net State and local government fiscal
impact will not amount to any direct revenue or cost effects. The Office also
reports that the measure will increase stability of funding for State and local
transportation uses in 2007 and thereafter, and will reduce somewhat the State's
authority to use these funds for other, non-transportation priorities.

Proposition 58. Shortly after being elected in October 2003, Governor
Schwarzenegger asked the California Legislature to send to California voters a
proposal to amend the California Constitution to impose a spending limit which
would require that expenditures not exceed revenues. The Legislature approved
this proposal in mid-December 2003, and accordingly the measure appeared on the
March 2004 primary ballot. Voters approved the measure.

The measure, known as Proposition 58, amended Article XIIIB of the California
Constitution. The amendment provides for the following:

1.   Requires  enactment of a balanced budget where General Fund expenditures do
     not exceed estimated General Fund revenues;

2.   Allows  the   Governor  to  proclaim  a  fiscal   emergency   in  specified
     circumstances,  and  submit  proposed  legislation  to  address  the fiscal
     emergency;

3.   Requires  the  Legislature  to stop  other  action  and act on  legislation
     proposed to address the emergency;

4.   Establishes a budget reserve;

5.   Provides that the California Economic Recovery Bond Act (Proposition 57) is
     for a single object or work; and

6.   Prohibits any future deficit bonds.

In addition to Proposition 58, a number of other laws and constitutional
amendments have been enacted over the years, often through voter initiatives,
which have, among other things, made it more difficult to raise State taxes,
restricted the use of State General Fund or special fund revenues, or otherwise
limited the Legislature and Governor's discretion in enacting budgets. Examples
of constraints on the budget process include Proposition 13, as discussed above
(requiring a two-thirds vote in each House of the Legislature to change State
taxes enacted for the purpose of increasing revenues collected), Proposition 98,
as discussed below (requiring a minimum percentage of General Fund revenues be
spent on local education), Proposition 49 (requiring expanded State funding for
before and after school programs), Proposition 10 (raising taxes on tobacco
products but mandating the expenditure of such revenues) and Proposition 63
(imposing a 1 percent tax surcharge on taxpayers with annual taxable income of
more than $1 million in order to fund mental health services and limiting the
Legislature or Governor from redirecting funds now used for mental health
services).

The net State fiscal effects will vary year by year and depend in part on
actions of future Legislatures. Reserve provisions may smooth State spending,
with reductions during economic expansions and increases during downturns. The
balanced budget and debt limitation provisions could result in more immediate
actions to correct budgetary shortfalls.

Proposition 62. On November 4, 1986, California voters approved an initiative
statute known as Proposition 62. This initiative provided the following:

1.   Requires that any tax for general  governmental  purposes  imposed by local
     governments be approved by resolution or ordinance  adopted by a two-thirds
     vote of the governmental  entity's  legislative body and by a majority vote
     of the electorate of the governmental entity;

2.   Requires  that any  special  tax  (defined  as taxes  levied for other than
     general  governmental  purposes) imposed by a local governmental  entity be
     approved by a two-thirds vote of the voters within that jurisdiction;

3.   Restricts the use of revenues from a special tax to the purposes or for the
     service for which the special tax was imposed;

4.   Prohibits  the  imposition  of ad valorem  taxes on real  property by local
     governmental entities except as permitted by Article XIIIA;

5.   Prohibits the imposition of  transaction  taxes and sales taxes on the sale
     of real property by local governments;

6.   Requires  that any tax imposed by a local  government on or after August 1,
     1985 be ratified by a majority vote of the  electorate  within two years of
     the adoption of the initiative;

7.   Requires  that,  in the event a local  government  fails to comply with the
     provisions  of this  measure,  a reduction  in the amount of  property  tax
     revenue allocated to such local government occurs in an amount equal to the
     revenues  received  by  such  entity  attributable  to the  tax  levied  in
     violation of the initiative; and

8.   Permits  these  provisions to be amended  exclusively  by the voters of the
     State of California.

In September 1988, the California Court of Appeal in City of Westminster v.
County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App. 1988),
held that Proposition 62 is unconstitutional to the extent that it requires a
general tax by a general law city, enacted on or after August 1, 1985 and prior
to the effective date of Proposition 62, to be subject to approval by a majority
of voters. The Court held that the California Constitution prohibits the
imposition of a requirement that local tax measures be submitted to the
electorate by either referendum or initiative. It is impossible to predict the
impact of this decision on special taxes or on new taxes imposed after the
effective date of Proposition 62. The California Court of Appeal in City of
Woodlake v. Logan, (1991) 230 Cal. App. 3d 1058, subsequently held that
Proposition 62's popular vote requirements for future local taxes also provided
for an unconstitutional referenda. The California Supreme Court declined to
review both the City of Westminster and the City of Woodlake decisions.

In Santa Clara Local Transportation Authority v. Guardino, (Sept. 28, 1995) 11
Cal. 4th 220, reh'g denied, modified (Dec. 14, 1995) 12 Cal. 4th 344, the
California Supreme Court upheld the constitutionality of Proposition 62's
popular vote requirements for future taxes, and specifically disapproved of the
City of Woodlake decision as erroneous. The Court did not determine the
correctness of the Westminster decision because that case appeared
distinguishable, was not relied on by the parties in Guardino, and involved
taxes not likely to still be at issue. It is impossible to predict the impact of
the Supreme Court's decision on taxes imposed in reliance on the Woodlake case.

In Traders Sports, Inc. et al. v. City of San Leandro, 93 Cal. App. 4th 37 (Cal.
Ct. App.  2001),  the Court held that Section  53724(b) of the Government  Code,
which is the part of Proposition 62 that requires tax measures to be approved by
two-thirds of the legislative body of the local government  before such measures
can be placed  before  the  voters  in an  election,  does not apply to  charter
cities.  In that case, a tax  ordinance  that was approved by only a majority of
the local  city  counsel  was  placed  before  the  residents  of the  city,  in
accordance with the city's municipal code and charter.

In McBrearty v. City of Brawley,  59 Cal. App. 4th 1441,  (Cal. Ct. App.  1997),
the Court of Appeals  held that the city of Brawley must either hold an election
or cease collection of utility taxes that were not submitted to a vote. In 1991,
the city of Brawley adopted an ordinance imposing a utility tax on its residents
and began collecting the tax without first seeking voter approval.  In 1996, the
taxpayer  petitioned for writ of mandate contending that Proposition 62 required
the  city  to  submit  its  utility  tax on  residents  to a vote  of the  local
electorate. The trial court issued a writ of mandamus and the city appealed.

First, the Court of Appeal held that the taxpayer's cause of action accrued for
statute of limitation purposes at the time of the Guardino decision rather than
at the time when the city adopted the tax ordinance in July 1991. This holding
has been rejected by the California Supreme Court. Howard Jarvis Taxpayers
Association et al. v. City of La Habra, 25 Cal. 4th 809 (2001). In City of La
Habra, which is a case similar to City of Brawley, the Supreme Court held that
the taxpayer's cause of action accrued each time the tax was collected,
regardless of when the tax measure was adopted.

Second, in the City of Brawley decision, the Court held that the voter approval
requirement in Proposition 62 was not an invalid mechanism under the State
constitution for the involvement of the electorate in the legislative process.
Third, the Court rejected the city's argument that Guardino should only be
applied on a prospective basis. Finally, the Court held Proposition 218 (see
discussion below) did not impliedly protect any local general taxes imposed
before January 1, 1995 against challenge.

Proposition 87. On November 8, 1988, California voters approved Proposition 87.
Proposition 87 amended Article XVI, Section 16, of the California Constitution
by authorizing the California Legislature to prohibit redevelopment agencies
from receiving any of the property tax revenue raised by increased property tax
rates levied to repay bonded indebtedness of local governments approved by
voters on or after January 1, 1989.

Proposition 98. On November 8, 1988, voters of the State approved Proposition
98, a combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act." Proposition 98
changed State Funding of public education below the university level and the
operation of the State Appropriations Limit, primarily by guaranteeing K-14
schools a minimum share of General Fund revenues. Under Proposition 98 (modified
by Proposition 111 as discussed below), K-14 schools are guaranteed the greater
of (a) in general, a fixed percent of General Fund revenues ("Test 1"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted for changes in
the cost of living (measured as in Article XIIIB by reference to State per
capita personal income) and enrollment ("Test 2"), or (c) a third test, which
would replace Test 2 in any year when the percentage growth in per capita
General Fund revenues from the prior year plus one half of one percent is less
than the percentage growth in State per capita personal income ("Test 3"). Under
Test 3, schools would receive the amount appropriated in the prior year adjusted
for changes in enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If Test 3 is used in any year, the
difference between Test 3 and Test 2 would become a "credit" to schools which
would be the basis of payments in future years when per capita General Fund
revenue growth exceeds per capita personal income growth.

Proposition 98 permits the Legislature -- by two-thirds vote of both Houses,
with the Governor's concurrence -- to suspend the K-14 schools' minimum Funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIIIB limit to
K-14 schools.

Proposition 111. On June 30, 1989, the California Legislature enacted Senate
Constitutional Amendment 1, a proposed modification of the California
Constitution to alter the spending limit and the education Funding provisions of
Proposition 98. Senate Constitutional Amendment 1 -- on the June 5, 1990 ballot
as Proposition 111 -- was approved by the voters and took effect on July 1,
1990. Among a number of important provisions, Proposition 111 recalculated
spending limits for the State and for local governments, allowed greater annual
increases in the limits, allowed the averaging of two years' tax revenues before
requiring action regarding excess tax revenues, reduced the amount of the
Funding guarantee in recession years for school districts and community college
districts (but with a floor of 40.9 percent of State General Fund tax revenues),
removed the provision of Proposition 98 which included excess moneys transferred
to school districts and community college districts in the base calculation for
the next year, limited the amount of State tax revenue over the limit which
would be transferred to school districts and community college districts, and
exempted increased gasoline taxes and truck weight fees from the State
appropriations limit. Additionally, Proposition 111 exempted from the State
appropriations limit Funding for capital outlays.

Proposition 218. On November 5, 1996, the voters of the State approved
Proposition 218, a constitutional initiative, entitled the "Right to Vote on
Taxes Act" ("Proposition 218"). Proposition 218 adds Articles XIIIC and XIIID to
the California Constitution and contains a number of interrelated provisions
affecting the ability of local governments to levy and collect both existing and
future taxes, assessments, fees and charges. Proposition 218 became effective on
November 6, 1996. The Sponsors are unable to predict whether and to what extent
Proposition 218 may be held to be constitutional or how its terms will be
interpreted and applied by the courts. Proposition 218 could substantially
restrict certain local governments' ability to raise future revenues and could
subject certain existing sources of revenue to reduction or repeal, and increase
local government costs to hold elections, calculate fees and assessments, notify
the public and defend local government fees and assessments in court. For
example, as discussed below, a California appellate court in the case of
Consolidated Fire Protection Dist. et al. v. Howard Jarvis Taxpayers' Assoc., 63
Cal. App. 4th 211 (1998) upheld one of the provisions of Proposition 218 that
allows a majority of affected property owners to defeat local government
attempts to increase certain property-based fees or charges.

Article XIIIC of Proposition 218 requires majority voter approval for the
imposition, extension or increase of general taxes and two-thirds voter approval
for the imposition, extension or increase of special taxes, including special
taxes deposited into a local government's general Fund.

Article XIIIC of Proposition 218 also expressly extends the initiative power to
give voters the power to reduce or repeal local taxes, assessments, fees and
charges, regardless of the date such taxes, assessments, fees or charges were
imposed. This extension of the initiative power to some extent
constitutionalizes the March 6, 1995 State Supreme Court decision in Rossi v.
Brown, which upheld an initiative that repealed a local tax and held that the
State constitution does not preclude the repeal, including the prospective
repeal, of a tax ordinance by an initiative, as contrasted with the State
constitutional prohibition on referendum powers regarding statutes and
ordinances which impose a tax. Generally, the initiative process enables
California voters to enact legislation upon obtaining requisite voter approval
at a general election. Proposition 218 extends the authority stated in Rossi v.
Brown by expanding the initiative power to include reducing or repealing
assessments, fees and charges, which had previously been considered
administrative rather than legislative matters and therefore beyond the
initiative power.

The initiative power granted under Article XIIIC of Proposition 218, by its
terms, applies to all local taxes, assessments, fees and charges and is not
limited to local taxes, assessments, fees and charges that are property related.

Article XIIID of Proposition 218 adds several new requirements making it
generally more difficult for local agencies to levy and maintain "assessments"
for municipal services and programs. "Assessment" is defined to mean any levy or
charge upon real property for a special benefit conferred upon the real
property.

Article XIIID of Proposition 218 also adds several provisions affecting "fees"
and "charges" which are defined as "any levy other than an ad valorem tax, a
special tax, or an assessment, imposed by a local government upon a parcel or
upon a person as an incident of property ownership, including a user fee or
charge for a property related service." All new and, after June 30, 1997,
existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which (i) generate revenues
exceeding the funds required to provide the property related service, (ii) are
used for any purpose other than those for which the fees and charges are
imposed, (iii) are for a service not actually used by, or immediately available
to, the owner of the property in question, or (iv) are used for general
governmental services, including police, fire or library services, where the
service is available to the public at large in substantially the same manner as
it is to property owners. Further, before any property related fee or charge may
be imposed or increased, written notice must be given to the record owner of
each parcel of land affected by such fee or charges. The local government must
then hold a hearing upon the proposed imposition or increase of such property
based fee, and if written protests against the proposal are presented by a
majority of the owners of the identified parcels, the local government may not
impose or increase the fee or charge. This aspect of Proposition 218, section 4
of Article XIIID, was found not to constitute an unlawful referendum pursuant to
Article II, section 9 of the California Constitution. The court held that these
"balloting procedures" were constitutional. Consolidated Fire Protection Dist.,
supra, at 225-26. Moreover, except for fees or charges for sewer, water and
refuse collection services, no property related fee or charge may be imposed or
increased without majority approval by the property owners subject to the fee or
charge or, at the option of the local agency, two-thirds voter approval by the
electorate residing in the affected area.

Reverse Repurchase Agreement. The Fund may also engage in "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
securities, agrees to repurchase them at an agreed upon time and price. Reverse
repurchase agreements will only be used by the Fund to raise cash on a temporary
basis to meet redemptions when it would like to retain the Municipal Securities
in its portfolio and it expects to be able to repurchase them in a short time
with funds from maturing investments and from net sales of Fund shares. Use of
reverse repurchase agreements, because of the lower transaction costs involved,
is often preferable to a regular sale and later repurchase of the securities.

Securities Backed by Guarantees. The Fund may invest in securities backed by
guarantees from banks, insurance companies and other financial institutions. A
money market fund's ability to maintain a stable share price may depend upon
such guarantees, which are not supported by federal deposit insurance.
Consequently, changes in the credit quality of these institutions could have an
adverse impact on securities they have guaranteed or backed, which could cause
losses to a portfolio and affect its share price.

Stand-by Commitments. A stand-by commitment is a right acquired by the Fund,
when it purchases a municipal obligation from a broker, dealer or other
financial institution ("seller"), to sell up to the same principal amount of
such securities back to the seller, at the Fund's option, at a specified price.
Stand-by commitments are also known as "puts." The exercise by the Fund of a
stand-by commitment is subject to the ability of the other party to fulfill its
contractual commitment.

Stand-by commitments acquired by the Fund will have the following features: (1)
they will be in writing and will be physically held by the Fund's custodian; (2)
the fund's right to exercise them will be unconditional and unqualified; (3)
they will be entered into only with sellers which in the Advisor's opinion
present a minimal risk of default; (4) although stand-by commitments will not be
transferable, municipal obligations purchased subject to such commitments may be
sold to a third party at any time, even though the commitment is outstanding;
and (5) their exercise price will be (i) the Fund's acquisition cost (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date.

The Fund expects that stand-by commitments generally will be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund will pay for stand-by commitments, either separately in cash
or by paying a higher price for Fund securities which are acquired subject to
the commitments.

It is difficult to evaluate the likelihood of use or the potential benefit of a
stand-by commitment. Therefore, it is expected that the Advisor will determine
that stand-by commitments ordinarily have a "fair value" of zero, regardless of
whether any direct or indirect consideration was paid. However, if the market
price of the security subject to the stand-by commitment is less than the
exercise price of the stand-by commitment, such security will ordinarily be
valued at such exercise price. Where the Fund has paid for a stand-by
commitment, its cost will be reflected as unrealized depreciation for the period
during which the commitment is held.

The Advisor understands that the IRS has issued a favorable revenue ruling to
the effect that, under specified circumstances, a registered investment company
will be the owner of tax-exempt municipal obligations acquired subject to a put
option. The IRS has also issued private letter rulings to certain taxpayers
(which do not serve as precedent for other taxpayers) to the effect that
tax-exempt interest received by a regulated investment company with respect to
such obligations will be tax-exempt in the hands of the company and may be
distributed to its shareholders as exempt-interest dividends. The IRS has
subsequently announced that it will not ordinarily issue advance ruling letters
as to the identity of the true owner of property in cases involving the sale of
securities or participation interests therein if the purchaser has the right to
cause the security, or the participation interest therein, to be purchased by
either the seller or a third party. The Fund intends to take the position that
it owns any municipal obligations acquired subject to a Stand-by Commitment and
that tax-exempt interest earned with respect to such municipal obligations will
be tax-exempt in its hands. There is no assurance that the IRS will agree with
such position in any particular case.

Impact of Sub-Prime Mortgage Market. The Fund may invest in mortgage-backed,
asset-backed and other fixed-income securities whose value and liquidity may be
adversely affected by the critical downturn in the sub-prime mortgage lending
market in the US. Sub-prime loans, which have higher interest rates, are made to
borrowers with low credit ratings or other factors that increase the risk of
default. Concerns about widespread defaults on sub-prime loans have also created
heightened volatility and turmoil in the general credit markets. As a result,
the Fund's investments in certain fixed-income securities may decline in value,
their market value may be more difficult to determine, and the Fund may have
more difficulty disposing of them.

Third Party Puts. The Fund may purchase long-term fixed rate bonds that have
been coupled with an option granted by a third party financial institution
allowing the Fund at specified intervals to tender (or "put") the bonds to the
institution and receive the face value thereof (plus accrued interest). These
third party puts are available in several different forms, may be represented by
custodial receipts or trust certificates and may be combined with other features
such as interest rate swaps. The Fund receives a short-term rate of interest
(which is periodically reset), and the interest rate differential between that
rate and the fixed rate on the bond is retained by the financial institution.
The financial institution granting the option does not provide credit
enhancement, and in the event that there is a default in the payment of
principal or interest, or downgrading of a bond or a loss of the bond's
tax-exempt status, the put option will terminate automatically, the risk to the
Fund will be that of holding such a long-term bond and the weighted average
maturity of the Fund's bond would be adversely affected.

These bonds coupled with puts may present the same tax issues as are associated
with Stand-By Commitments. As with any Stand-By Commitments acquired by the
Fund, the Fund intends to take the position that it is the owner of any
municipal obligation acquired subject to a third-party put, and that tax-exempt
interest earned with respect to such municipal obligations will be tax-exempt in
its hands. There is no assurance that the IRS will agree with such position in
any particular case. Additionally, the federal income tax treatment of certain
other aspects of these investments, including the treatment of tender fees and
swap payments, in relation to various regulated investment company tax
provisions is unclear. However, the Advisor seeks to manage the Fund in a manner
designed to minimize any adverse impact from these investments.

US Government Securities. There are two broad categories of US
Government-related debt instruments: (a) direct obligations of the US Treasury,
and (b) securities issued or guaranteed by US Government agencies.

Examples of direct obligations of the US Treasury are Treasury Bills, Notes,
Bonds and other debt securities issued by the US Treasury. These instruments are
backed by the "full faith and credit" of the United States. They differ
primarily in interest rates, the length of maturities and the dates of issuance.
Treasury bills have original maturities of one year or less. Treasury notes have
original maturities of one to ten years and Treasury bonds generally have
original maturities of greater than ten years.

Some agency securities are backed by the full faith and credit of the United
States (such as Maritime Administration Title XI Ship Financing Bonds and Agency
for International Development Housing Guarantee Program Bonds) and others are
backed only by the rights of the issuer to borrow from the US Treasury (such as
Federal Home Loan Bank Bonds and Federal National Mortgage Association Bonds),
while still others, such as the securities of the Federal Farm Credit Bank, are
supported only by the credit of the issuer. With respect to securities supported
only by the credit of the issuing agency or by an additional line of credit with
the US Treasury, there is no guarantee that the US Government will provide
support to such agencies and such securities may involve risk of loss of
principal and interest.

US Government securities may include "zero coupon" securities that have been
stripped by the US Government of their unmatured interest coupons and
collateralized obligations issued or guaranteed by a US Government agency or
instrumentality.

Interest rates on US Government obligations may be fixed or variable. Interest
rates on variable rate obligations are adjusted at regular intervals, at least
annually, according to a formula reflecting then current specified standard
rates, such as 91-day US Treasury bill rates. These adjustments generally tend
to reduce fluctuations in the market value of the securities.

The government guarantee of the US Government securities in the Fund does not
guarantee the net asset value of the shares of the Fund. There are market risks
inherent in all investments in securities and the value of an investment in the
Fund will fluctuate over time. Normally, the value of investments in US
Government securities varies inversely with changes in interest rates. For
example, as interest rates rise the value of investments in US Government
securities will tend to decline, and as interest rates fall the value of the
Fund's investments will tend to increase. In addition, the potential for
appreciation in the event of a decline in interest rates may be limited or
negated by increased principal prepayments with respect to certain
Mortgage-Backed Securities, such as GNMA Certificates. Prepayments of high
interest rate Mortgage-Backed Securities during times of declining interest
rates will tend to lower the return of the Fund and may even result in losses to
the Fund if some securities were acquired at a premium. Moreover, during periods
of rising interest rates, prepayments of Mortgage-Backed Securities may decline,
resulting in the extension of the Fund's average maturity. As a result, the Fund
may experience greater volatility during periods of rising interest rates than
under normal market conditions.

Variable Rate Securities. The Fund may invest in Variable Rate Securities,
instruments having rates of interest that are adjusted periodically or that
"float" continuously according to formulae intended to minimize fluctuation in
values of the instruments. The interest rate of Variable Rate Securities
ordinarily is determined by reference to or is a percentage of an objective
standard such as a bank's prime rate, the 90-day US Treasury Bill rate, or the
rate of return on commercial paper or bank certificates of deposit. Generally,
the changes in the interest rate on Variable Rate Securities reduce the
fluctuation in the market value of such securities. Accordingly, as interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than for fixed-rate obligations. Some Variable Rate
Securities ("Variable Rate Demand Securities") have a demand feature entitling
the purchaser to resell the securities at an amount approximately equal to
amortized cost or the principal amount thereof plus accrued interest. As is the
case for other Variable Rate Securities, the interest rate on Variable Rate
Demand Securities varies according to some objective standard intended to
minimize fluctuation in the values of the instruments. The Fund determines the
maturity of Variable Rate Securities in accordance with Rule 2a-7, which allows
the Fund to consider certain of such instruments as having maturities shorter
than the maturity date on the face of the instrument.

When-Issued Securities. The Fund may purchase and sell securities on a
when-issued or delayed delivery basis. A when-issued or delayed delivery
transaction arises when securities are bought or sold for future payment and
delivery to secure what is considered to be an advantageous price and yield to
the Fund at the time it enters into the transaction. In determining the maturity
of portfolio securities purchased on a when-issued or delayed delivery basis,
the Fund will consider them to have been purchased on the date when it committed
itself to the purchase.

A security purchased on a when-issued basis, like all securities held by the
Fund, is subject to changes in market value based upon changes in the level of
interest rates and investors' perceptions of the creditworthiness of the issuer.
Generally such securities will appreciate in value when interest rates decline
and decrease in value when interest rates rise. Therefore if, in order to
achieve higher interest income, the Fund remains substantially fully invested at
the same time that it has purchased securities on a when-issued basis, there
will be a greater possibility that the market value of the Fund's assets will
vary from $1.00 per share because the value of a when-issued security is subject
to market fluctuation and no interest accrues to the purchaser prior to
settlement of the transaction.

The Fund will only make commitments to purchase Municipal Securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, but the Fund reserves the right to sell these securities before
the settlement date if deemed advisable. The sale of these securities may result
in the realization of gains that are not exempt from federal income tax.

Portfolio Holdings Information

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
prospectuses. 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 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 certain third parties, such as securities
lending agents, financial printers, proxy voting firms, mutual fund analysts and
rating and tracking agencies, or to shareholders in connection with in-kind
redemptions (collectively, "Authorized Third Parties").

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

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

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

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

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

                             MANAGEMENT OF THE FUND

Investment Advisor

Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is
part of DeAM, is the investment advisor for the Fund. Under the supervision of
the Fund's Board of Trustees, with headquarters at 345 Park Avenue, New York,
New York, 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 the Fund's Board of Trustees. 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.

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 the Advisor and its affiliates to the DWS Mutual Funds.

Investment Management Agreement

The Board and the Fund's shareholders 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 Fund's assets. In addition to the
investment management of the Fund's assets, 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 SAI, or as adopted by the Fund's Board. The Advisor will also monitor, to
the extent not monitored by the Fund's administrator or other agent, the Fund's
compliance with its investment and tax guidelines and other compliance policies.

The Advisor provides assistance to the Fund's Board in valuing the securities
and other instruments held by the Fund, to the extent reasonably required by
valuation policies and procedures that may be adopted by the Fund.

Pursuant to the Investment Management Agreement, (unless otherwise provided in
the agreement or as determined by the Fund's Board and to the extent permitted
by applicable law), the Advisor pays the compensation and expenses of all the
Board Members, officers, and executive employees of the Fund, including the
Fund's share of payroll taxes, who are affiliated persons of the Advisor.

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

The Investment Management Agreement allows the Advisor to delegate any of its
duties under the Investment Management Agreement to a subadvisor, subject to a
majority vote of the Board of the Fund, including a majority of the Board who
are not interested persons of the Fund, and, if required by applicable law,
subject to a majority vote of the Fund's shareholders.

The Investment Management 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 Investment Management 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
Investment Management 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.

Effective May 1, 2008, for all services provided under the Investment Management
Agreement, the Fund pays the Advisor a fee, computed daily and paid monthly, at
the annual rate as a percentage of net assets shown below:

                   -------------------------------------------
                             0.120% to $500 million
                            0.100% next $500 million
                            0.075% next $1.0 billion
                            0.060% next $1.0 billion
                                0.050% thereafter
                   -------------------------------------------

Prior to May 1, 2008, the Fund paid a monthly investment management fee on a
graduated basis of 1/12 of the following annual fee: 0.22% of the first $500
million of average daily net assets, 0.20% of the next $500 million, 0.175% of
the next $1 billion, 0.16% of the next $1 billion and 0.15% of average daily net
assets over $3 billion.

The Fund paid the Advisor fees of $207,355, $260,985 and $292,260 for the fiscal
years ended September 30, 2007, 2006 and 2005, respectively.

Through September 30, 2008, the Advisor has contractually agreed to waive all or
a portion of its management fee and reimburse or pay operating expenses of the
Fund's Premier Shares to the extent necessary to maintain the Premier Shares
total annual operating expenses at 0.90%, excluding certain expenses such as
extraordinary expenses, taxes, brokerage and interest.

Through August 26, 2009 the Advisor has contractually agreed to waive all or a
portion of its management fee and will reimburse or pay operating expenses of
the Fund's Institutional Shares to the extent necessary to maintain the total
operating expenses of the Institutional Shares at 0.25%, excluding certain
expenses such as extraordinary expenses, taxes, brokerage and interest.

The Advisor provides investment services 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.

In certain cases, the investments for the Fund are managed by the same
individuals who manage one or more other mutual funds advised by the Advisor
that have similar names, objectives and investment styles. You should be aware
that the Fund is likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Fund can be expected to vary from those of these other mutual funds.

Certain investments may be appropriate for the Fund and also for other clients
advised by the Advisor. Investment decisions for the Fund and other clients are
made with a view of 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. Frequently, a
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one client but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. 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 equitable to each. In some cases, this
procedure could have an adverse 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.

In reviewing the terms of the Agreement and in discussions with the Advisor
concerning such Agreement, the Trustees of the Fund who are not "interested
persons" of the Advisor are represented by independent counsel at the Fund's
expense.

The Board and the Fund's shareholders recently approved a new subadvisor policy
for the Fund (the "Subadviser Approval Policy"). The Subadviser Approval Policy
permits the Advisor, subject to the approval of the Board, including a majority
of the Independent Board Members, to terminate an existing subadvisor or
sub-subadvisor and hire another subadvisor or sub-subadvisor, as applicable, and
materially amend an existing subadvisory agreement or sub-subadvisory agreement
without obtaining shareholder approval. The Fund could not implement the
Subadviser Approval Policy without the SEC granting the Fund exemptive relief. A
number of other mutual fund complexes have obtained exemptive relief with
respect to an advisor's ability to appoint, replace or amend the subadvisory
agreement with unaffiliated subadvisors and subadvisors that are wholly owned
subsidiaries of the advisor. However, exemptive relief with regard to an
advisor's ability to appoint, replace or amend the subadvisory agreement with a
subadvisor, who is affiliated with, but not wholly owned subsidiary of the
advisor, without shareholder approval, would be more expansive relief than
previously granted by the SEC. In addition, exemptive relief with regard to an
advisor's ability to appoint, replace or amend a sub-subadvisory agreement with
a sub-advisor, without shareholder approval, would be more expansive relief than
previously obtained by other mutual fund complexes. Accordingly, there can be no
assurance that the Fund's exemptive application will be granted by the SEC or
that it will be sufficiently broad to allow the Fund to implement the Subadviser
Approval Policy as described above. The SEC also has proposed Rule 15a-5 under
the 1940 Act in October 2003 to permit the appointment and termination of
subadvisors and amendment to subadvisory agreements without shareholder
approval. No action has been taken on proposed Rule 15a-5 under the 1940 Act
since it proposal and there is no assurances that the rule will be adopted as
proposed. The Fund and the Advisor will be subject to the conditions imposed by
the SEC (either by an exemptive order or as part of the final rule) whenever the
Advisor acts under the Subadviser Approval Policy, including any shareholder
notice requirements.

Officers and employees of the Advisor from time to time may have transactions
with various banks, including the Fund's custodian bank. It is the Advisor's
opinion that the terms and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other fund
relationships.

The Advisor may serve as advisor to other funds with investment objectives and
policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.

None of the officers or Trustees of the Fund may have dealings with the Fund as
principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.

The term DWS Scudder Investments is the designation given to the services
provided by the Advisor and its affiliates to the DWS Family of Funds. Under a
separate agreement between Deutsche Bank AG and the Fund, Deutsche Bank AG has
granted a license to the Fund to utilize the trademark "DWS."

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

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

Code of Ethics

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

Regulatory Matters and Legal Proceedings

On December 21, 2006, Deutsche Asset Management ("DeAM") settled proceedings
with the SEC and the New York Attorney General on behalf of Deutsche Asset
Management, Inc. ("DAMI") and DIMA, the investment advisors to many of the DWS
Scudder funds, regarding allegations of improper trading of fund shares at DeAM
and at the legacy Scudder and Kemper organizations prior to their acquisition by
DeAM in April 2002. These regulators alleged that although the prospectuses for
certain funds in the regulators' view indicated that the funds did not permit
market timing, DAMI and DIMA breached their fiduciary duty to those funds in
that their efforts to limit trading activity in the funds were not effective at
certain times. The regulators also alleged that DAMI and DIMA breached their
fiduciary duty to certain funds by entering into certain market timing
arrangements with investors. These trading arrangements originated in businesses
that existed prior to the currently constituted DeAM organization, which came
together as a result of various mergers of the legacy Scudder, Kemper and
Deutsche fund groups, and all of the arrangements were terminated prior to the
start of the regulatory investigations that began in the summer of 2003. No
current DeAM employee approved these trading arrangements. Under the terms of
the settlements, DAMI and DIMA neither admitted nor denied any wrongdoing.

The terms of the SEC settlement, which identified improper trading in the legacy
Deutsche and Kemper mutual funds only, provide for payment of disgorgement in
the amount of $17.2 million. The terms of the settlement with the New York
Attorney General provide for payment of disgorgement in the amount of $102.3
million, which is inclusive of the amount payable under the SEC settlement, plus
a civil penalty in the amount of $20 million. The total amount payable by DeAM,
approximately $122.3 million, will be distributed to shareholders of the
affected funds in accordance with a distribution plan to be developed by a
distribution consultant. The funds' investment advisors do not believe these
amounts will have a material adverse financial impact on them or materially
affect their ability to perform under their investment management agreements
with the DWS funds. The above-described amounts are not material to Deutsche
Bank, and have already been reserved.

Among the terms of the settled orders, DeAM is subject to certain undertakings
regarding the conduct of its business in the future, including formation of a
Code of Ethics Oversight Committee to oversee all matters relating to issues
arising under the advisors' Code of Ethics; establishment of an Internal
Compliance Controls Committee having overall compliance oversight responsibility
of the advisors; engagement of an Independent Compliance Consultant to conduct a
comprehensive review of the advisors' supervisory compliance and other policies
and procedures designed to prevent and detect breaches of fiduciary duty,
breaches of the Code of Ethics and federal securities law violations by the
advisors and their employees; and commencing in 2008, the advisors shall undergo
a compliance review by an independent third party.

In addition, DeAM is subject to certain further undertakings relating to the
governance of the mutual funds, including that at least 75% of the members of
the Boards of Trustees overseeing the DWS Funds continue to be independent of
DeAM; the Chairmen of the DWS Funds' Boards of Trustees continue to be
independent of DeAM; DeAM maintain existing management fee reductions for
certain funds for a period of five years and not increase management fees for
these certain funds during this period; the funds retain a senior officer (or
independent consultants, as applicable) responsible for assisting in the review
of fee arrangements and monitoring compliance by the funds and the investment
advisors with securities laws, fiduciary duties, codes of ethics and other
compliance policies, the expense of which shall be borne by DeAM; and periodic
account statements, fund prospectuses and the mutual funds' web site contain
additional disclosure and/or tools that assist investors in understanding the
fees and costs associated with an investment in the funds and the impact of fees
and expenses on fund returns.

DeAM has also settled proceedings with the Illinois Secretary of State regarding
market timing matters. The terms of the Illinois settlement provide for investor
education contributions totaling approximately $4 million and a payment in the
amount of $2 million to the Securities Audit and Enforcement Fund.

On September 28, 2006, the SEC and the National Association of Securities
Dealers ("NASD") (now known as the Financial Industry Regulatory Authority, or
"FINRA") announced final agreements in which 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 Boards.

Additional information announced by DeAM regarding the terms of the settlements
is available at www.dws-scudder.com/regulatory_settlements.

The matters alleged in the regulatory settlements described above also serve as
the general basis of a number of private class action lawsuits involving the DWS
funds. These lawsuits name as defendants various persons, including certain DWS
funds, the funds' investment advisors and their affiliates, and certain
individuals, including in some cases fund Trustees, officers, and other parties.
Each DWS fund's investment advisor has agreed to indemnify the applicable DWS
funds in connection with these lawsuits, or other lawsuits or regulatory actions
that may be filed making similar allegations.

Based on currently available information, the funds' investment advisors believe
the likelihood that the pending lawsuits will have a material adverse financial
impact on a DWS fund is remote and such actions are not likely to materially
affect their ability to perform under their investment management agreements
with the DWS funds.

                             FUND SERVICE PROVIDERS

Administrator

The Fund recently entered into a new administrative services agreement with the
Advisor (the "Administrative Services Agreement"), pursuant to which the Advisor
provides 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, computed daily and paid monthly, of
0.100% of the Fund's net assets.

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

Underwriter

Pursuant to an underwriting and distribution agreement ("Distribution
Agreement"), DWS-SDI (the "Distributor"), 222 South Riverside Plaza, Chicago,
Illinois 60606, an affiliate of the Advisor, serves as distributor and principal
underwriter in the continuous offering of shares for the Fund to provide
information and services for existing and potential shareholders. The
Distribution Agreement provides that DWS-SDI shall appoint various firms to
provide cash management services for their customers or clients through the
Fund.

As principal underwriter for the Fund, DWS-SDI acts as agent of the Fund in the
sale of its shares of the Fund. DWS-SDI pays all its expenses under the
Distribution Agreement. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
DWS-SDI pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. DWS-SDI also
pays for supplemental sales literature and advertising costs. DWS-SDI has
related selling group agreements with various firms to provide distribution
services for Fund shareholders. DWS-SDI may, from time to time, pay or allow
discounts, commissions or promotional incentives, in the form of cash, to firms
that sell shares of the Fund. For Institutional Shares, DWS-SDI receives no
compensation from the Fund under the Distribution Agreement.

The Distribution Agreement will continue in effect from year to year thereafter
so long as its continuance is approved at least annually by a vote of the Board
of Trustees of the Fund, including the Independent Trustees. The Distribution
Agreement automatically terminates in the event of its assignment and may be
terminated at any time without penalty by the Trust or by DWS-SDI upon 60 days'
written notice. Termination of the Distribution Agreement by the Fund may be by
vote of a majority of the Board of Trustees, or a majority of the Trustees who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the agreement, or a "majority of the outstanding voting
securities" of the Fund as defined under the 1940 Act.

DWS-SDI has related administration services and selling group agreements with
various broker-dealer firms to provide cash management and other services for
the Fund shareholders. Such services and assistance may include, but are not
limited to, establishing and maintaining shareholder accounts and records,
processing purchase and redemption transactions, providing automatic investment
in Fund shares of client account balances, answering routine inquiries regarding
the Fund, assisting clients in changing account options, designations and
addresses, and such other services as may be agreed upon from time to time and
as may be permitted by applicable statute, rule or regulation. DWS-SDI also has
services agreements with banking firms to provide the above listed services, for
their clients who wish to invest in the Fund. DWS-SDI also may provide some of
the above services for the Fund. DWS-SDI normally pays the firms at an annual
rate ranging from 0.15% to 0.33% of average daily net assets of those accounts
that they maintain and service. In addition, DWS-SDI may, from time to time,
from its own resources, pay certain firms additional amounts for such services
including, without limitation fixed dollar amounts and amounts based upon a
percentage of net assets or increased net assets in those Fund accounts that
said firms maintain and service. DWS-SDI may also reimburse firms for costs
associated with the transfer of client balances to the Fund. DWS-SDI may elect
to keep a portion of the total administration fee to compensate itself for
functions performed for the Fund or to pay for sales materials or other
promotional activities.


Rule 12b-1 Plan -- Premier Shares only

The Fund's Premier Shares has adopted a plan in accordance with Rule 12b-1 of
the 1940 Act (the "12b-1 Plan"). The rule regulates the manner in which an
investment company may, directly or indirectly, bear the expenses of
distributing its shares. The Fund's Premier Shares pays for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
DWS-SDI pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. DWS-SDI pays
for supplemental sales literature and advertising. For its services as
distributor, and pursuant to the 12b-1 Plan, the Fund's Premier Shares pays
DWS-SDI an annual distribution services fee, payable monthly, of 0.33% of
average daily net assets of the Fund's Premier Shares. The distribution
agreement and the 12b-1 Plan continue in effect from year to year so long as its
continuation is approved at least annually by a majority of the trustees who are
not parties to such agreement or interested persons of the Fund and who have no
direct or indirect financial interest in the agreement or in any agreement
related thereto. The distribution agreement automatically terminates in the
event of its assignment and may be terminated at any time without penalty by the
Fund or by DWS-SDI upon 60 days' written notice. Termination by the Fund may be
by vote of a majority of the Board of Trustees, or a majority of the Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the agreement, or a majority vote of the outstanding
shares. The fee payable pursuant to the 12b-1 Plan may not be increased without
shareholder approval and all material amendments must in any event be approved
by the Board of Trustees in the manner described above with respect to the
continuation of the 12b-1 Plan. If additional Funds or series are authorized by
the Board of Trustees, the provisions concerning the continuation, amendment and
termination of the distribution services agreement and the 12b-1 Plan will be on
a Fund-by-Fund basis.

For the fiscal year ended September 30, 2007, the distribution fee aggregated
$311,032, of which $33,091 was unpaid as of September 30, 2007. For the fiscal
year ended September 30, 2006, Premier Shares incurred distribution fees of
$391,478. For the fiscal year ended September 30, 2005, DWS-SDI incurred
distribution expenses including advertising and literature and marketing and
sales expenses for a total of $438,390. A portion of the aforesaid marketing,
sales and operating expenses could be considered overhead expense; however,
DWS-SDI has made no attempt to differentiate between expenses that are overhead
and those that are not.

Custodian

State Street Bank and Trust Company ("SSB"), 225 Franklin Street, Boston,
Massachusetts 02110, as custodian, has custody of all securities and cash of the
Fund. It attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Fund.

Transfer Agent and Shareholder Service Agent

DWS Scudder Investments Service Company, an affiliate of the Advisor, is the
Fund's transfer agent, dividend paying and shareholder services agent
("DWS-SISC" or the "Transfer Agent").

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 $3.60 per account
(as of 2007, 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.

For the year ended September 30, 2005, Premier Shares* paid shareholder
servicing and distribution fees as follows:

<TABLE>
<CAPTION>
Fund                                                            2005                     Amount Waived
----                                                            ----                     -------------

<S>                                                          <C>                                 <C>
Tax-Exempt California Money Market Fund                      $294,955                             --

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

Fund                                                           Total                     Amount Waived
----                                                           -----                     -------------

Tax-Exempt California Money Market Fund                       $58,330                             --

For the year ended September 30, 2007, Premier Shares* paid shareholder
servicing and distribution fees as follows:

Fund                                                           Total                     Amount Waived
----                                                           -----                     -------------

Tax-Exempt California Money Market Fund                      $202,399                             --
</TABLE>

*    Institutional  Shares commenced operations on August 26, 2008.

Pursuant to a sub-transfer agency agreement between DWS-SISC and DST Systems,
Inc. ("DST"), DWS-SISC has delegated certain transfer agent, dividend paying
agent and shareholder servicing agent functions to DST. The costs and expenses
of such delegation are borne by DWS-SISC, not by the Fund.

Legal Counsel

Vedder Price P.C., 222 North LaSalle Street, Chicago, Illinois 60601, serves as
legal counsel to the Fund and as co-counsel for the Independent Trustees of the
Fund. Ropes and Gray LLP, One International Place, Boston, MA 02110, serves as
co-counsel for the Independent Trustees of the Fund.

Independent Registered Public Accounting Firm

The financial highlights of the Fund included in the Fund's prospectus for
Premier Shares and the Financial Statements incorporated by reference in this
SAI have been so included or incorporated by reference in reliance on the report
of ______________________________________________________, Independent
Registered Public Accounting Firm, given on the authority of said firm as
experts in auditing and accounting. ______________________ audits the financial
statements of the Fund and provides other audit, tax and related services.
Shareholders will receive annual audited financial statements and semi-annual
unaudited financial statements.

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

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

The Advisor is permitted by Section 28(e) of the Securities Exchange Act of
1934, as amended ("1934 Act"), when placing portfolio transactions for a Fund,
to cause the Fund to pay brokerage commissions in excess of that which another
broker-dealer might charge for executing the same transaction in order to obtain
research and brokerage services if the Advisor determines that such commissions
are reasonable in relation to the overall services provided. The Advisor may
from time to time, in reliance on Section 28(e) of the 1934 Act, execute
portfolio transactions with broker-dealers that provide research and brokerage
services to the Advisor. Consistent with the Advisor's policy regarding best
execution, where more than one broker is believed to be capable of providing
best execution for a particular trade, the Advisor may take into consideration
the receipt of research and brokerage services in selecting the broker-dealer to
execute the trade. Although certain research and brokerage services from
broker-dealers may be useful to a Fund and to the Advisor, it is the opinion of
the Advisor that such information only supplements its own research effort since
the information must still be analyzed, weighed and reviewed by the Advisor's
staff. To the extent that research and brokerage services of value are received
by the Advisor, the Advisor may avoid expenses that it might otherwise incur.
Research and brokerage services received from a broker-dealer may be useful to
the Advisor and its affiliates in providing investment management services to
all or some of its clients, which includes the Fund. Services received from
broker-dealers that executed securities transactions for a Portfolio will not
necessarily be used by the Advisor specifically to service the Fund.

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

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

Research and brokerage services may include products obtained from third parties
if the Advisor determines that such product or service constitutes brokerage and
research as defined in Section 28(e) and interpretations thereunder.

The Advisor may use brokerage commissions to obtain certain brokerage products
or services that have a mixed use (i.e., it also serves a function that does not
relate to the investment decision-making process). In those circumstances, the
Advisor will make a good faith judgment to evaluate the various benefits and
uses to which it intends to put the mixed use product or service and will pay
for that portion of the mixed use product or service that it reasonably believes
does not constitute research and brokerage services with its own resources.

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

Investment decisions for 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.

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

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

Deutsche Bank AG or one of its affiliates 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.

Money market instruments are normally purchased in principal transactions
directly from the issuer or from an underwriter or market maker. There usually
are no brokerage commissions paid by the Fund for such purchases. During the
last three fiscal years the Fund paid no portfolio brokerage commissions.
Purchases from underwriters will include a commission or concession paid by the
issuer to the underwriter, and purchases from dealers serving as market makers
will include the spread between the bid and asked prices.

                        PURCHASE AND REDEMPTION OF SHARES

General Information

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

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 Fund 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. However, 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 close of its business day will be confirmed at a price
based on the net asset value effective on that day ("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 ("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. 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-SISC (the "Transfer Agent")
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. The Fund has authorized
the Shareholder Service Agent to pay other Firms, out of the Fund's assets, up
to 25 basis points for Premier shares and 2 basis points for Institutional
shares for services and other expenses relating to these nominee accounts
including all of the individual sub-accounting necessary for the processing of
purchases and redemptions as part of the brokerage sweep, processing of daily
dividends and monthly payment/reinvestment of accrued dividends, providing
periodic statements, tax reporting, changing account information for customers,
administering daily wire transfers and reconciliations with the Fund and other
similar functions. These Firms also coordinate with the Fund's transfer agent in
connection with the Fund's check writing program. 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.

DWS-SDI 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 financial advisors, who in turn
may recommend that investors 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
-- "Strategic," "Tactical" or "all other funds" -- taking into consideration,
among other things, the following criteria, where applicable:


o    The Fund's consistency with DWS Scudder's branding and long-term strategy.

o    The Fund's competitive performance;

o    The Fund's Morningstar rating;

o    The  length  of  time  the  Fund's  Portfolio  Managers  have  managed  the
     Fund/Strategy

o    Market size for the fund category;

o    The Fund's size, including sales and redemptions of the Fund's shares

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
Strategic and Tactical 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 at www.dws-scudder.com, approximately one month after the end of
each quarter. DWS Scudder Wholesalers receive the highest compensation for
Strategic funds, less for Tactical funds and the lowest for all other funds. The
level of compensation among these categories may differ significantly.

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 Strategic or Tactical funds over all other funds. The Plan, however, will
not change the price that investors 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.

Share Pricing. The Fund is open for business each day the Exchange is open.
Normally, the fund calculates its share price once every business day as of the
close of regular trading on the Exchange (typically 4:00 p.m. Eastern time, but
sometimes earlier, as in the case of scheduled half-day trading or unscheduled
suspensions of trading). In the event of scheduled partial day trading or
unscheduled suspensions of trading on the Exchange, the calculation of share
price shall be as of the close of trading on the Exchange and the latest time
for receipt of wire purchase transactions entitled to receive same day dividend
treatment and for receipt of redemption orders for same day wire transfer of
proceeds will be the earlier of (a) 4:00 p.m. Eastern time or (b) the early
closing time of the Exchange. The Fund seeks to maintain a stable $1.00 share
price.

The Fund may, but is not required to, accept certain types of purchase and
redemption orders (not including exchanges) on days that the Exchange is closed,
or beyond an Exchange early closing time (referred to as a "Limited Trading
Period") if: (a) the Federal Reserve system is open, (b) the primary trading
markets for the Fund's portfolio instruments are open and (c) the Advisor
believes there will be adequate liquidity in the short-term markets. During any
such Limited Trading Period, the Fund will only accept purchase orders by wire
with advance telephone notification and telephone redemption orders with
proceeds to be sent by wire, ACH or check and will not accept orders by any
other means (Automated Telephone Line orders are not permitted). If redemption
proceeds are requested by ACH or check, the transmission of the ACH payment or
the mailing of the check, as the case may be, will be delayed by at least one
business day in comparison to normal trading periods. Orders submitted by other
means will be processed on the next day that the Exchange is open. The
calculation of share price will be once every business day as of the close of
regular trading on the Exchange (typically 4:00 p.m. Eastern time) for normal
trading days. Orders must be submitted in good form prior to 12:00 p.m. Eastern
time to be entitled to that day's dividend and for receipt of telephone
redemption orders for same day wire transfer, which will be the earlier of: (a)
12:00 p.m. Eastern time for normal trading days or (b) early closing of the
Exchange. If redemption proceeds are requested by ACH or check, orders must be
received prior to the calculation of share price. Please call (800) 730-1313 or
visit our Web site at www.dws-scudder.com for additional information about
whether the Fund will be open for business on a particular day. Information
concerning the intention of the Fund to be open for a Limited Trading Period
will be available at least one business day prior to the applicable day that the
Exchange is closed or is closing early in the case of scheduled closings and as
soon as practical in the case of unscheduled closings.

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 its shares to new
investors. During the period of such suspension, persons who are already
shareholders of the Fund may be permitted to continue to purchase additional
shares 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.

The Fund reserves the right to waive the minimum account balance requirement for
employee and director accounts.

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 each
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 each 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 FINRA 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 each Fund with "shelf space" or access to a
third party platform or fund offering list, or other marketing programs
including, without limitation, inclusion of each 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 each 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
$13,350 up to $500,000, or any combination thereof. These amounts are annual
figures typically paid on a quarterly basis and 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, each 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

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)
Deutsche Bank group
First Clearing/Wachovia Securities
Fiserv Trust Company
HD Vest Investment Securities, Inc.
ING Group
John Hancock Distributors LLC
LPL Financial
M.L. Stern & Co.
Marsh Insurance and Investment Company
Meridien Financial Group
Merrill Lynch, Pierce, Fenner & Smith Inc.
Morgan Stanley
Oppenheimer & Co., Inc.
Raymond James & Associates
Raymond James Financial Services
RBC Dain Rauscher, Inc
Securities America, Inc.
UBS Financial Services
Wachovia Securities
Wells Fargo Investments, LLC

Channel: Cash Product Platform

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
D.A. Davidson & Company
Deutsche Bank Group
Emmett A. Larkin Company
Fiduciary Trust Co. -- International
First Southwest Company
Huntleigh Securities
Lincoln Investment Planning
LPL Financial
Mellon Financial Markets LLC
Penson Financial Services
Pershing Choice Platform
ProFunds Distributors, Inc.
Ridge Clearing & Outsourcing Solutions
Romano Brothers and Company
SAMCO Capital Markets
Smith Moore & Company
Sungard Institutional Brokerage Inc.
US Bancorp
UBS
William Blair & Company

Channel: Third Party Insurance Platforms

Allstate Life Insurance Company of New York
Ameritas Life Insurance Group
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
First Great West Life and Annuity 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
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
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 Group
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 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.

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

Redemptions

The Fund may suspend the right of redemption or delay payment more than seven
days (a) during any period when the Exchange is closed other than customary
weekend and holiday closings or during any period in which trading on the
Exchange is restricted, (b) during any period when an emergency exists as a
result of which (i) disposal of the Fund's investments is not reasonably
practicable, or (ii) it is not reasonably practicable for the Fund to determine
the value of its net assets, or (c) for such other periods as the SEC may by
order permit for the protection of the Fund's shareholders.

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

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

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

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

Automatic Withdrawal Plan. The owner of $5,000 or more of a class of the Fund's
shares at the offering price may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to IRAs. The minimum periodic payment is $50. Shares are
redeemed so that the payee should receive payment approximately the first of the
month. Investors using this Plan must reinvest Fund distributions.

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 readily
marketable 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.

Checkwriting. All new investors and existing shareholders who apply for checks
may use them to pay any person for not more than $5 million. Shareholders should
not write redemption checks in an amount less than $250 since a $10 service fee
is charged. By using the checks, the shareholder will receive daily dividend
credit on his or her shares until the check has cleared the banking system.
Investors who purchased shares by check may write checks against those shares
only after they have been on the Fund's book for ten business days. Shareholders
who use this service may also use other redemption procedures. No shareholder
may write checks against certificated shares. The share class pays the bank
charges for this service. However, the Fund will review the cost of operation
periodically and reserve the right to determine if direct charges to the persons
who avail themselves of this service would be appropriate. The Fund, DWS Scudder
Investments Service Company and UMB Bank reserve the right at any time to
suspend or terminate the Checkwriting procedure.

This privilege may not be available through some firms that distribute shares of
the Fund. In addition, firms may impose minimum balance requirements in order to
offer this feature. Firms may also impose fees to investors for this privilege
or establish variations of minimum check amounts.

Unless one signer is authorized on the Account Application, Redemption Checks
must be signed by all account holders. Any change in the signature authorization
must be made by written notice to the Shareholder Service Agent. Shares
purchased by check or through certain Automated Clearing House ("ACH")
transactions may not be redeemed by Redemption Check until the shares have been
owned for at least 10 days. Shareholders may not use this procedure to redeem
shares held in certificated form. The Fund reserves the right to terminate or
modify this privilege at any time.

The Fund may refuse to honor Redemption Checks whenever the right of redemption
has been suspended or postponed, or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption Check is presented to redeem
Fund shares in excess of the value of a Fund account or in an amount less than
$250; when a Redemption Check is presented that would require redemption of
shares that were purchased by check or certain ACH transactions within 10 days;
or when "stop payment" of a Redemption Check is requested.

Redemption by Check/ACH Debit Disclosure. The Fund accepts ACH debit entries for
accounts that have elected the checkwriting redemption privilege. An example of
an ACH debit is a transaction in which you have given your insurance company,
mortgage company, credit card company, utility company, health club, etc., the
right to withdraw your monthly payment from your fund account or the right to
convert your mailed check into an ACH debit. Sometimes, you may give a merchant
from whom you wish to purchase goods the right to convert your check to an ACH
debit. You may also authorize a third party to initiate an individual payment in
a specific amount from your account by providing your account information and
authorization to such third party via the Internet or telephone. You authorize
the Fund upon receipt of an ACH debit entry referencing your account number, to
redeem Fund shares in your account to pay the entry to the third party
originating the debit. The Fund will make the payment on the basis of the
account number that you provide to your merchant and will not compare this
account number with the name on the account. The Fund, the Transfer Agent, the
Shareholder Service Agent or any other person or system handling the transaction
are not required to determine if there is a discrepancy between the name and the
account number shown on the transfer instructions.

The payment of any ACH debit entry will be subject to sufficient funds being
available in the designated account; the Fund will not be able to honor an ACH
debit entry if sufficient funds are not available. ACH debit entry transactions
to your fund account should not be initiated or authorized by you in amounts
exceeding the amount of Shares of the Fund then in the account and available for
redemption. The Fund may refuse to honor ACH debit entry transactions whenever
the right of redemption has been suspended or postponed, or whenever the account
is otherwise impaired. Your Fund account statement will show any ACH debit
entries in your account; you will not receive any other separate notice.
(Merchants are permitted to convert your checks into ACH debits only with your
prior consent.)

You may authorize payment of a specific amount to be made from your account
directly by the Fund to third parties on a continuing periodic basis. To arrange
for this service, you should contact the person or company you will be paying.
Any preauthorized transfers will be subject to sufficient funds being available
in the designated account. A preauthorized transfer will continue to be made
from the account in the same amount and frequency as initially established until
you terminate the preauthorized transfer instructions with the person or company
whom you have been paying. If regular preauthorized payments may vary in amount,
the person or company you are going to pay should tell you ten (10) days before
each payment will be made and how much the payment will be. If you have told the
Fund in advance to make regular payments out of your account, you may stop any
of these payments by writing or calling your financial advisor or investment
firm in time for them to receive your request three (3) business days or more
before the payment is scheduled to be made. If you call, the Fund may also
require that you put your request in writing so that the Fund will receive it
within 14 days after you call. If you order the Fund to stop one of these
payments three (3) business days or more before the transfer is scheduled and
the Fund does not do so, the Fund will be liable for your loss or damages but
not in an amount exceeding the amount of the payment. A stop payment order will
stop only the designated periodic payment. If you wish to terminate the periodic
preauthorized transfers, you should do so with the person or company to whom you
have been making payments.

In case of errors or questions about your ACH debit entry transactions please
contact your financial advisor or investment firm as soon as possible if you
think your statement is wrong or shows an improper transfer or if you need more
information about a transfer listed on the statement. The Shareholder Service
Agent must hear from you no later than 60 days after the Fund sent you the first
fund account statement on which the problem or error appeared. If the
Shareholder Service Agent is not notified by you within sixty (60) days after
the Fund sends you the account statement, you may not get back any money you
have lost, and you may not get back any additional money you lose after the
sixty (60) days if the Fund or Shareholder Service Agent could have stopped
someone from taking that money if you had notified the Shareholder Service Agent
in time.

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

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

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

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

Exchanges

Shareholders may request a taxable exchange of their shares for shares 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, Money Market Fund -- Investment Class, Cash Management Fund
Institutional, Cash Reserves Fund Institutional, 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 DIDI. 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.

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

Purchase of Institutional Shares. Information on how to buy Institutional Shares
is set forth in the section entitled "Buying and Selling Shares" in the Fund's
prospectus. The following supplements that information. The minimum initial
investment for Institutional Shares is $100,000. The minimum initial investment
may be waived in certain circumstances. The minimum amounts may be changed at
any time in management's discretion.

Dividends are declared daily and paid monthly. Shareholders will receive
dividends in additional shares unless they elect to receive cash. Dividends will
be reinvested monthly in shares of the Fund at the net asset value normally on
the last business day of the month. The Fund will pay shareholders who redeem
their entire accounts all unpaid dividends at the time of the redemption not
later than the next dividend payment date. Upon written request to the
Shareholder Service Agent, a shareholder may elect to have Fund dividends
invested without sales charge in shares of another DWS Mutual Fund offering this
privilege at the net asset value of such other Fund. If a shareholder has
elected to reinvest any dividends and/or other distributions, such distributions
will be made in shares of the Fund and confirmations will be mailed to each
shareholder. If a shareholder has chosen to receive cash, a check will be sent.
Distributions of investment company taxable income and net realized capital
gains are taxable, whether made in shares or cash.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal income 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 net capital
gain income in order to satisfy the minimum distribution requirements contained
in the Internal Revenue Code of 1986, as amended (the "Code").

                                 NET ASSET VALUE

The Fund values its portfolio instruments at amortized cost, which does not take
into account unrealized capital gains or losses. This involves initially valuing
an instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. Calculations are made to compare the value of
the Fund's investments valued at amortized cost with market values. Market
valuations are obtained by using actual quotations provided by market makers,
estimates of market value, or values obtained from yield data relating to
classes of money market instruments published by reputable sources at the mean
between the bid and asked prices for the instruments. If a deviation of 1/2 of
1% or more were to occur between the net asset value per share calculated by
reference to market values and the Fund's $1.00 per share net asset value, or if
there were any other deviation that the Board of Trustees of the Fund believed
would result in a material dilution to shareholders or purchasers, the Board of
Trustees would promptly consider what action, if any, should be initiated. If
the Fund's net asset value per share (computed using market values) declined, or
were expected to decline, below $1.00 (computed using amortized cost), the Board
of Trustees of the Fund might temporarily reduce or suspend dividend payments in
an effort to maintain the net asset value at $1.00 per share. As a result of
such reduction or suspension of dividends or other action by the Board of
Trustees, an investor would receive less income during a given period than if
such a reduction or suspension had not taken place. Such action could result in
investors receiving no dividend for the period during which they hold their
shares and receiving, upon redemption, a price per share lower than that which
they paid. On the other hand, if the Fund's net asset value per share (computed
using market values) were to increase, or were anticipated to increase above
$1.00 (computed using amortized cost), the Board of Trustees of the Fund might
supplement dividends in an effort to maintain the net asset value at $1.00 per
share. Redemption orders received in connection with the administration of
checkwriting programs by certain dealers or other financial services firms prior
to the determination of the Fund's net asset value also may be processed on a
confirmed basis in accordance with the procedures established by DWS-SDI.

                                      TAXES

Certain Federal Income Tax Matters

The following is intended to be a general summary of certain US 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. This discussion reflects the applicable tax laws of the
United States as of the date of this SAI, which tax laws may change or be
subject to new interpretations by the courts or the IRS, possibly with
retroactive effect. Investors are therefore advised to consult with their tax
advisors before making an investment in the Fund.

The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
has qualified as such since its inception. The Fund intends to continue to so
qualify in each taxable year so that it will not be subject to federal income
tax on the income and gains that it distributes to shareholders. In order to
qualify as a regulated investment company, the Fund must meet certain
requirements regarding the source of its income and the diversification of its
assets. The Fund is required to distribute to its shareholders at least 90
percent of its taxable (including net short-term capital gains) and tax-exempt
net investment income and generally is not subject to federal income tax to the
extent that it distributes annually such net investment income and net realized
capital gain in the manner required under the Code. Distributions of investment
company taxable income by the Fund, unless otherwise exempt, are generally
expected to be taxable to shareholders as ordinary income.

If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders), and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, will be taxable to shareholders as dividends. Such
dividends however would generally be eligible (i) to be treated as "qualified
dividend income" in the case of individual and other noncorporate shareholders,
and (ii) for the 70% dividends received deduction in the case of corporate
shareholders.

The Fund is subject to a nondeductible 4% federal excise tax on amounts required
to be but 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 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 any 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 and
excise tax on) a portion of its capital gains or other income if it appears to
be in the interest of the Fund.

Subchapter M of the Code permits the character of tax-exempt interest
distributed by a regulated investment company to flow-through as tax-exempt
interest to its shareholders, provided that at least 50% of the value of the
Fund's assets at the end of each quarter of the taxable year is invested in
state, municipal and other obligations the interest on which is excluded from
gross income under Section 103(a) of the Code. The Fund intends to satisfy this
50% requirement in order to permit distributions of tax-exempt interest to be
treated as such for federal income tax purposes in the hands of its
shareholders. These distributions may be subject to the individual or corporate
alternative minimum tax.
 Discount from certain stripped tax-exempt obligations or their coupons may be
taxable.

Since the Fund seeks to maintain a stable share price, you are unlikely to have
a gain when you sell shares. However, gain, if any, resulting from the sale or
exchange of Fund shares generally would be taxable as capital gains. If a
shareholder held such shares for more than one year, the gain will be a
long-term capital gain. Long-term capital gain rates applicable to individuals
have been temporarily reduced, in general, to 15% with lower rates applying to
taxpayers in the 10% and 15% rate brackets, for taxable years beginning on or
before December 31, 2010. Any loss realized upon the redemption of shares held
for six months or less at the time of redemption will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain during such six-month period. Furthermore, any loss from the sale
or redemption of shares held six months or less generally will be disallowed to
the extent that tax-exempt interest dividends were paid on such shares.

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.

Interest on indebtedness incurred by shareholders to purchase or carry shares of
the Fund will not be deductible for federal income tax purposes. Under rules
used by the IRS to determine when borrowed funds are used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.

Section 147(a) of the Code prohibits exemption from federal income taxation of
interest on certain governmental obligations to persons who are "substantial
users" (or persons related thereto) of facilities financed by such obligations.
The Fund has not undertaken any investigation as to the users of the facilities
financed by bonds in its portfolio.

Tax legislation in recent years has included several provisions that may affect
the supply of, and the demand for, tax-exempt bonds, as well as the tax-exempt
nature of interest paid thereon. It is not possible to predict with certainty
the effect of these recent tax law changes upon the tax-exempt bond market,
including the availability of obligations appropriate for investment, nor is it
possible to predict any additional restrictions that may be enacted in the
future.

"Exempt-interest" dividends are included as income for purposes of determining
whether the amount of a shareholder's total social security benefits and
railroad retirement benefits are subject to tax.

Investors are advised to consult their own tax advisors with respect to their
own circumstances of the above-described general federal income taxation rules
and with respect to other federal, state and local tax consequences before
making an investment in the Fund.

Certain California State Taxation Matters

In any year in which the Fund qualifies as a regulated investment company under
Subchapter M of the Code and is exempt from federal income tax, the Fund will
also be relieved of liability for California state franchise and corporate
income tax to the extent its earnings are distributed to their shareholders. The
Fund may be taxed on its undistributed taxable income (including interest income
on California municipal securities for franchise tax purposes). If for any year
the Fund does not qualify for the special tax treatment afforded regulated
investment companies, then all of the Fund's taxable income may be subject to
California state franchise or income tax at regular corporate rates.

If at the close of each quarter of its taxable year, at least 50% of the value
of the total assets of a regulated investment company (or series thereof)
consists of obligations the interest on which, if held by an individual, is
exempt from taxation by California, then the regulated investment company (or
series thereof) will be qualified to pay dividends exempt from California
personal income tax (hereinafter referred to as "California exempt-interest
dividends"). The Fund intends to qualify under the above requirements so it can
pay California exempt-interest dividends. However, if the Fund fails to so
qualify, then no part of its dividends to shareholders will be exempt from
California personal income tax.

Within 60 days after the close of its taxable year, the Fund will notify each
shareholder of the portion of the dividends paid by the Fund with respect to
such taxable year which is exempt from California state personal income tax.
Interest on obligations of Puerto Rico and other US possessions, as well as
interest on obligations of the State of California or its political
subdivisions, may be distributed as California exempt-interest dividends.
Distributions from the Fund which are attributable to sources other than those
described in the preceding sentence generally are taxable to such shareholders
as ordinary income. However, distributions derived from interest on US
Government obligations, if any, may also be designated by the Fund and treated
by shareholders as exempt under the California personal income tax provided the
50% requirement of the preceding paragraph is satisfied.

To the extent, if any, dividends paid to shareholders of the Fund are derived
from the excess of net long-term capital gains over net short-term capital
losses, such dividends will not constitute California exempt-interest dividends.
Such dividends will generally be taxed as long-term capital gains under rules
similar to those regarding the treatment of capital gain dividends for federal
income tax purposes; provided that California has not adopted the federal rule
that allows a regulated investment company to elect to treat such capital gains
as having been distributed even though no capital gain dividend has actually
been paid. In the case where the Fund makes this election for federal income tax
purposes, any such capital gains may be subject to tax at the Fund level for
California franchise or corporate income tax purposes.

Shares of the Fund are not subject to the California property tax.

Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Fund is not deductible for California personal income tax
purposes. In addition, any loss realized by a shareholder of the Fund upon the
sale of shares held for six months or less may be disallowed to the extent of
any exempt-interest dividends received with respect to such shares. Moreover,
any loss realized upon the redemption of shares within six months from the date
of purchase of such shares and following receipt of a long-term capital gains
distribution on such shares is treated as long-term capital loss to the extent
of such long-term capital gains distribution. Finally, any loss realized upon
the redemption shares within 30 days before or after the acquisition of other
shares of the same Fund may be disallowed under the "wash sale" rules.

The foregoing is only a summary of some of the important California state
personal income tax considerations generally affecting the Fund and its
shareholders. No attempt is made to present a detailed explanation of the
California state personal income tax treatment of the Fund or its shareholders,
and this discussion is not intended as a substitute for careful planning.
Further, it should be noted that the portion of the Fund dividends constituting
California exempt-interest dividends is excludable for California state personal
income tax only. Any dividends paid to shareholders subject to California state
franchise or California state corporate income tax may therefore be taxed as
ordinary dividends to such shareholders notwithstanding that all or a portion of
dividends is exempt from California state personal income tax. Accordingly,
potential investors in the Fund, excluding, in particular, corporate investors
which may be subject to either California franchise tax or California corporate
income tax, should consult their tax advisors with respect to the application of
such taxes to the receipt of Fund dividends and as to their own California state
tax situation, in general.

Tax-Exempt Versus Taxable Yield. You may want to determine which investment --
tax-exempt or taxable -- will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the
tax-exempt investment by the sum of 1 minus your marginal tax rate. The tables
below are provided for your convenience in making this calculation for selected
tax-exempt yields and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield that the
Fund may generate. Both tables are based upon current law as to the 2007 tax
rates schedules.


CALIFORNIA
Tax Equivalent Yields
2007 California and Federal Personal Income Tax Rates
<TABLE>
<CAPTION>
------------------------------- ----------- ---------- ------------ --------------------------- ---------- ---------- ------------
                                                          Combined                                                       Combined
                                             Effective   California                                        Effective    California
                                 Effective    Federal   and Federal                             Effective   Federal    and Federal
     Taxable Income Single*       CA Rate       Rate    Tax Bracket      Taxable Income Joint*   CA Rate     Rate      Tax Bracket
------------------------------- ----------- ---------- ------------ -------------------------- ----------  ---------- ------------
Over              But not over                                      Over          But not over
----              ------------                                      ----          ------------

----------------- ------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------
<S>   <C>              <C>             <C>        <C>          <C>       <C>         <C>          <C>       <C>         <C>
      $35,460          $44,814         8%         25%          31%       $51,088     $63,700      6%        15%         20.1%
----------------- ------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------
      $44,814          $77,100       9.3%         25%       31.98%       $63,700     $70,920      6%        25%         29.5%
----------------- ------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------
      $77,100         $160,850       9.3%         28%        34.7%       $70,920     $89,628      8%        25%         31.00%
----------------- ------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------
     $160,850         $349,700       9.3%         33%       39.23%       $89,628    $195,850    9.3%        28%         34.70%
------------------------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------
Over $349,700                        9.3%         35%       41.05%      $195,850    $349,700    9.3%        33%         39.23%
------------------------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------
                                                                        Over $349,700           9.3%        35%         41.05%
------------------------------- ----------- ---------- ------------ ------------- ------------ ---------- ---------- -------------

*        Brackets based on 2007 federal brackets combined with 2007 California brackets.

If your combined federal and state effective rate in 2007 is:
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
                                         20.1%          29.5%         31%            31.98%      34.7%    39.23%     41.05%
------------------------------- --------------------------------------------------------------------------------------------
to match these tax-free yields: Your taxable investment would have to earn the following yield:
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
2.00%                                     2.5%         2.84%          2.90%           2.94%      3.06%     3.29%      3.39%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
3.00%                                    3.75%         4.26%          4.35%           4.41%      4.59%     4.94%      5.09%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
4.00%                                    5.01%         5.67%          5.80%           5.88%      6.58%     6.58%      6.78%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
5.00%                                    6.26%         7.09%          7.25%           7.35%      8.23%     8.23%      8.48%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
6.00%                                    7.51%         8.51%          8.70%           8.82%      9.87%     9.87%     10.18%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
7.00%                                    8.76%         9.93%         10.14%          10.29%     11.52%    11.52%     11.87%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
8.00%                                   10.01%        11.35%         11.59%          11.76%     13.16%    13.16%     13.57%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
9.00%                                   11.26%        12.77%         13.04%          13.23%     14.81%    14.81%     15.27%
------------------------------- --------------- ------------- -------------- --------------- ---------- --------- ----------
</TABLE>

Please note:

1)       This chart does not take into consideration any local or city tax
         rates.

2)       The  effective  state and federal tax rates are  calculated  using the
         highest  marginal tax rate within the applicable tax bracket.

3)       The combined effective tax rate reflects a deduction for state income
         taxes on the federal return.

4)       Taxable income amounts represent taxable income as defined in the
         Internal Revenue Code. It is assumed that the definition of taxable
         income is the same under the California personal income tax law;
         however, California taxable income may vary due to differences in
         exemptions, itemized deductions, and other items.


                                  BOARD MEMBERS

The following table presents certain information regarding the Board Members of
the Trust. Each Board Member's year of birth is set forth in parentheses after
his or her name. Unless otherwise noted, (i) each Board Member has engaged in
the principal occupation(s) noted in the table for at least the most recent five
years, although not necessarily in the same capacity, and (ii) the address of
each Board Member that is not an "interested person" (as defined in the 1940
Act) of the Trust or the Advisor (each, an "Independent Board Member") is c/o
Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. The term of office for
each Board Member is until the election and qualification of a successor, or
until such Board Member sooner dies, resigns, is removed or as otherwise
provided in the governing documents of the Trust. Because the Fund does not hold
an annual meeting of shareholders, each Board Member will hold office for an
indeterminate period. The Board Members may also serve in similar capacities
with other funds in the DWS fund complex.

Independent Board Members

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
 Name, Year of Birth, Position                                                                   Number of Funds
 with the Trust and Length of     Business Experience and                                        in DWS Fund
 Time Served(1)                   Directorships During the Past 5 Years                          Complex Overseen
--------------------------------------------------------------------------------------------------------------------
<S>                               <C>
Dawn-Marie Driscoll (1946)        President, Driscoll Associates (consulting firm); Executive         133
Chairperson since 2004,(2) and    Fellow, Center for Business Ethics, Bentley College;
Board Member since 1987           formerly: Partner, Palmer & Dodge (1988-1990); Vice President
                                  of Corporate Affairs and General Counsel, Filene's
                                  (1978-1988); Directorships: Trustee of 8 open-end mutual
                                  funds managed by Sun Capital Advisers, Inc. (since 2007);
                                  Director of ICI Mutual Insurance Company (since 2007);
                                  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)
--------------------------------------------------------------------------------------------------------------------
Paul K. Freeman                   Consultant, World Bank/Inter-American Development Bank;
(1950)                            formerly: Project Leader, International Institute for Applied       131
Vice Chairperson since 2008, and  Systems Analysis (1998-2001); Chief Executive Officer, The
Board Member since 1993           Eric Group, Inc. (environmental insurance) (1986-1998)
--------------------------------------------------------------------------------------------------------------------
John W. Ballantine (1946)         Retired; formerly: Executive Vice President and Chief Risk
Board Member since 1999           Management Officer, First Chicago NBD Corporation/The First         133
                                  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
--------------------------------------------------------------------------------------------------------------------
 Henry P. Becton, Jr. (1943)      Vice Chair, WGBH Educational Foundation; Directorships:             133
 Board Member since               Association of Public Television Stations; Becton Dickinson
 1990                             and Company(3) (medical technology company); Belo
                                  Corporation(3) (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
--------------------------------------------------------------------------------------------------------------------
Keith R. Fox (1954)               Managing General Partner, Exeter Capital Partners (a series         133
Board Member since                of private equity funds); Directorships: Progressive Holding
1996                              Corporation (kitchen goods importer and distributor); Natural
                                  History, Inc. (magazine publisher); Box Top Media Inc.
                                  (advertising); The Kennel Shop (retailer)
--------------------------------------------------------------------------------------------------------------------
Kenneth C. Froewiss               Clinical Professor of Finance, NYU Stern School of Business         133
(1945)                            (1997-present); Member, Finance Committee, Association for
Board Member since                Asian Studies (2002-present); Director, Mitsui Sumitomo
2001                              Insurance Group (US) (2004-present); prior thereto, Managing
                                  Director, J.P. Morgan (investment banking firm) (until 1996)
--------------------------------------------------------------------------------------------------------------------
Richard J. Herring                Jacob Safra Professor of International Banking and Professor,       133
(1946)                            Finance Department, The Wharton School, University of
Board Member since                Pennsylvania (since July 1972); Co-Director, Wharton
1990                              Financial Institutions Center (since July 2000); Director,
                                  Japan Equity Fund, Inc. (since September 2007), Thai Capital
                                  Fund, Inc. (since September 2007), Singapore Fund, Inc.
                                  (since September 2007); formerly: Vice Dean and Director,
                                  Wharton Undergraduate Division (July 1995-June 2000);
                                  Director, Lauder Institute of International Management
                                  Studies (July 2000-June 2006)
--------------------------------------------------------------------------------------------------------------------
William McClayton (1944)          Chief Administrative Officer, Diamond Management & Technology
Board Member since 2004           Consultants, Inc. (global management consulting firm)               133
                                  (2001-present); Directorship: Board of Managers, YMCA of
                                  Metropolitan Chicago; formerly: Senior Partner, Arthur
                                  Andersen LLP (accounting) (1966-2001); Trustee, Ravinia
                                  Festival
--------------------------------------------------------------------------------------------------------------------
Rebecca W. Rimel                  President and Chief Executive Officer, The Pew Charitable           133
(1951)                            Trusts (charitable organization) (1994 to present); Trustee,
Board Member since                Thomas Jefferson Foundation (charitable organization) (1994
1995                              to present); Trustee, Executive Committee, Philadelphia
                                  Chamber of Commerce (2001 to 2007); Trustee,
                                  Pro Publica (2007-present) (charitable
                                  organization); formerly: Executive Vice
                                  President, The Glenmede Trust Company
                                  (investment trust and wealth management) (1983
                                  to 2004); Board Member, Investor Education
                                  (charitable organization) (2004-2005);
                                  Director, Viasys Health Care(3) (January
                                  2007-June 2007)
--------------------------------------------------------------------------------------------------------------------
William N. Searcy, Jr.            Private investor since October 2003; Trustee of 8 open-end          133
(1946)                            mutual funds managed by Sun Capital Advisers, Inc. (since
Board Member since                October 1998); formerly: Pension & Savings Trust Officer,
1993                              Sprint Corporation(3) (telecommunications) (November
                                  1989-September 2003)
--------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg            Retired; formerly: Consultant (1997-2001); Director, US
(1943)                            Government Accountability Office (1996-1997); Partner,              133
Board Member since                Fulbright & Jaworski, L.L.P. (law firm) (1978-1996);
1997                              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)
--------------------------------------------------------------------------------------------------------------------
Robert H. Wadsworth (1940)        President, Robert H. Wadsworth & Associates, Inc. (consulting
Board Member since 1999           firm) (1983 to present).                                            136
--------------------------------------------------------------------------------------------------------------------

Interested Board Member

--------------------------------------------------------------------------------------------------------------------
 Name, Year of Birth, Position    Business Experience and                                        Number of Funds
 with the Trust and Length of                                                                    in DWS Fund
 Time Served(1)                   Directorships During the Past 5 Years                          Complex Overseen
--------------------------------------------------------------------------------------------------------------------
 Axel Schwarzer(4)                Managing Director(5), Deutsche Asset Management; Head of              133
 (1958)                           Deutsche Asset Management Americas; CEO of DWS Investments;
 Board Member since               formerly: board member of DWS Investments, Germany
 2006                             (1999-2005); Head of Sales and Product Management for the
                                  Retail and Private Banking Division of
                                  Deutsche Bank in Germany (1997-1999); 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)
--------------------------------------------------------------------------------------------------------------------

Officers(6)

--------------------------------------------------------------------------------------------------------------------
 Name, Year of Birth, Position    Business Experience and
 with the Trust and Length of
 Time Served(7)                   Directorships During the Past 5 Years
--------------------------------------------------------------------------------------------------------------------
 Michael G. Clark(8) (1965)       Managing Director(5), Deutsche Asset Management (2006-present); President of
 President, 2006-present          DWS family of funds; Director, ICI Mutual Insurance Company (since
                                  October 2007); 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(9) (1962)          Director(5), Deutsche Asset Management
 Vice President and Secretary,
 1999-present
--------------------------------------------------------------------------------------------------------------------
 Paul H. Schubert(8) (1963)       Managing Director(5), Deutsche Asset Management (since July 2004); formerly:
 Chief Financial Officer,         Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family
 2004-present                     of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS
 Treasurer, 2005-present          Global Asset Management (1994-1998)
--------------------------------------------------------------------------------------------------------------------
 Patricia DeFilippis(10) (1963)   Vice President, Deutsche Asset Management (since June 2005); formerly: Counsel,
 Assistant Secretary,             New York Life Investment Management LLC (2003-2005); legal associate, Lord,
 2005-present                     Abbett & Co. LLC (1998-2003)
--------------------------------------------------------------------------------------------------------------------
 Elisa D. Metzger(10)  (1962)     Director(5), Deutsche Asset Management (since September 2005); formerly:
 Assistant Secretary,             Counsel, Morrison and Foerster LLP (1999-2005)
 2005-present
--------------------------------------------------------------------------------------------------------------------
 Caroline Pearson(9) (1962)       Managing Director(5), Deutsche Asset Management
 Assistant Secretary,
 1997-present
--------------------------------------------------------------------------------------------------------------------
 Paul Antosca(9)                  Director(5), Deutsche Asset Management (since 2006); formerly: Vice President,
 (1957)                           The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)
 Assistant Treasurer,
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Jack Clark (9)                   Director(5), Deutsche Asset Management (since 2007); formerly: Vice President,
 (1967)                           State Street Corporation (2002-2007)
 Assistant Treasurer,
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Kathleen Sullivan D'Eramo(9)     Director(5), Deutsche Asset Management
 (1957)
 Assistant Treasurer,
 2003-present
--------------------------------------------------------------------------------------------------------------------
 Diane Kenneally(9)               Director(5), Deutsche Asset Management
 (1966)
 Assistant Treasurer,
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Jason Vazquez(10) (1972)         Vice President, Deutsche Asset Management (since 2006); formerly: AML
 Anti-Money Laundering            Operations Manager for Bear Stearns (2004-2006); Supervising Compliance
 Compliance Officer,              Principal and Operations Manager for AXA Financial (1999-2004)
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Robert Kloby(10) (1962)          Managing Director(5), Deutsche Asset Management (2004-present); formerly: Chief
 Chief Compliance Officer,        Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President,
 2006-present                     The Prudential Insurance Company of America (1988-2000); E.F. Hutton and
                                  Company (1984-1988)
--------------------------------------------------------------------------------------------------------------------
 J. Christopher Jackson(10)       Director(5), Deutsche Asset Management (2006-present); formerly: Director,
 (1951)                           Senior Vice President, General Counsel, and Assistant Secretary, Hansberger
 Chief Legal Officer,             Global Investors, Inc. (1996-2006); Director, National Society of Compliance
 2006-present                     Professionals (2002-2005) (2006-2009)
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      The length of time served represents the year in which the Board Member
         joined the board of one or more DWS funds currently overseen by the
         Board.

(2)      Represents the year in which Ms. Driscoll was first appointed
         Chairperson of certain DWS funds.

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

(4)      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. As an interested person, Mr. Schwarzer
         receives no compensation from the Fund.

(5)      Executive title, not a board directorship.

(6)      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 Fund.

(7)      The length of time served represents the year in which the officer was
         first elected in such capacity for one or more DWS funds.

(8)      Address:  345 Park Avenue, New York, New York 10154.

(9)      Address: One Beacon Street, Boston, Massachusetts 02108.

(10)     Address:  280 Park Avenue, New York, New York 10017.

Certain officers hold 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

Board Members' Responsibilities. The officers of the Trust manage its day-to-day
operations under the direction of the Board. The primary responsibility of the
Board is to represent the interests of the Fund and to provide oversight of the
management of the Fund.

Board Committees. The Board has established the following standing committees:
Audit Committee, Nominating and Governance Committee, Contract Committee, Equity
Oversight Committee, Fixed-Income and Quant Oversight Committee, Marketing and
Shareholder Services Committee, and Operations Committee. For each committee,
the Board has adopted a written charter setting forth each committee's
responsibilities. Each committee was reconstituted effective April 1, 2008.

Audit Committee: The Audit Committee, which consists entirely of Independent
Board Members, assists the Board in fulfilling its responsibility for oversight
of (1) the integrity of the financial statements, (2) the Fund's accounting and
financial reporting policies and procedures, (3) the Fund's compliance with
legal and regulatory requirements related to accounting and financial reporting
and (4) the qualifications, independence and performance of the independent
registered public accounting firm for the Fund. It also approves and recommends
to the Board the appointment, retention or termination of the independent
registered public accounting firm for the Fund, reviews the scope of audit and
internal controls, considers and reports to the Board on matters relating to the
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
William McClayton (Chair), Kenneth C. Froewiss (Vice Chair), John W. Ballantine,
Henry P. Becton, Jr., Keith R. Fox and William N. Searcy, Jr. During the
calendar year 2007, the Audit Committee of the Fund's Board held eight (8)
meetings.

Nominating and Governance Committee: The Nominating and Governance Committee,
which consists entirely of Independent Board Members, recommends individuals for
membership on the Board, nominates officers, board and committee chairs, vice
chairs and committee members, and oversees the operations of the Board. The
Nominating and Governance Committee also reviews recommendations by shareholders
for candidates for Board positions. Shareholders may recommend candidates for
Board positions by forwarding their correspondence by US mail or courier service
to Dawn-Marie Driscoll, P.O. Box 100176, Cape Coral, FL 33904. The members of
the Nominating and Governance Committee are Henry P. Becton, Jr. (Chair),
Rebecca W. Rimel (Vice Chair), Paul K. Freeman and William McClayton. During the
calendar year 2007, the Nominating and Governance Committee of the Fund's Board
performed similar functions and held six (6) meetings.

Contract Committee: The Contract Committee, which consists entirely of
Independent Board Members, reviews at least annually, (a) the Fund's financial
arrangements with DIMA and its affiliates, and (b) the Fund's expense ratios.
The members of the Contract Committee are Robert H. Wadsworth (Chair), Keith R.
Fox (Vice Chair), Henry P. Becton, Jr., Richard J. Herring, William McClayton
and Jean Gleason Stromberg. During the calendar year 2007, the Contract Review
Committee of the Fund's Board performed similar functions and held two (2)
meetings.

Equity Oversight Committee: The Equity Oversight Committee reviews the
investment operations of those funds that primarily invest in equity securities
(except for those funds managed by a quantitative investment team). The members
of the Equity Oversight Committee are John W. Ballantine (Chair), William
McClayton (Vice Chair), Henry P. Becton, Jr., Keith R. Fox, Richard J. Herring
and Rebecca W. Rimel. During the calendar year 2007, the Equity Oversight
Committee of the Fund's Board performed similar functions and held five (5)
meetings.

Fixed-Income and Quant Oversight Committee: The Fixed-Income and Quant Oversight
Committee reviews the investment operations of those funds that primarily invest
in fixed-income securities or are managed by a quantitative investment team. The
members of the Fixed-Income and Quant Oversight Committee are William N. Searcy,
Jr. (Chair), Jean Gleason Stromberg (Vice Chair), Dawn-Marie Driscoll, Paul K.
Freeman, Kenneth C. Froewiss and Robert H. Wadsworth. During the calendar year
2007, the Fixed-Income Oversight Committee of the Fund's Board performed similar
functions and held five (5) meetings.

Marketing and Shareholder Services Committee: The Marketing and Shareholder
Services Committee reviews the Fund's marketing program, sales practices and
literature and shareholder services. The members of the Marketing and
Shareholder Services Committee are Richard J. Herring (Chair), Dawn-Marie
Driscoll (Vice Chair), Paul K. Freeman, Rebecca W. Rimel, Jean Gleason Stromberg
and Robert H. Wadsworth.

The Operations Committee: The Operations Committee reviews the administrative
operations, legal affairs and general compliance matters of the Fund. The
Operations Committee reviews administrative matters related to the operations of
the Fund, policies and procedures relating to portfolio transactions, custody
arrangements, fidelity bond and insurance arrangements, valuation of Fund assets
and securities and such other tasks as the full Board deems necessary or
appropriate. The Operations Committee also oversees the valuation of the Fund's
securities and other assets and determines, as needed, the fair value of Fund
securities or other assets under certain circumstances as described in the
Fund's Valuation Procedures. The Operations Committee has appointed a Valuation
Sub-Committee, which may make determinations of fair value required when the
Operations Committee is not in session. The members of the Operations Committee
are Paul K. Freeman (Chair), Dawn-Marie Driscoll (Vice Chair), John W.
Ballantine, Kenneth C. Froewiss, Rebecca W. Rimel and William N. Searcy, Jr. The
members of the Valuation Sub-Committee are Kenneth C. Froewiss (Chair), John W.
Ballantine, Dawn-Marie Driscoll (Alternate), Paul K. Freeman (Alternate),
Rebecca W. Rimel (Alternate) and William N. Searcy, Jr. (Alternate). During the
calendar year 2007, the Operations Committee and Valuation Committee performed
similar functions and each held six (6) meetings and one (1) meeting,
respectively.

Ad Hoc Committees. In addition to the standing committees described above, from
time to time the Board may also form ad hoc committees to consider specific
issues.

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.

Board Members who are officers, directors, employees or stockholders of Deutsche
Asset Management or its affiliates receive no direct compensation from the 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
Fund. The following tables show compensation from the Fund and aggregate
compensation from all of the funds in the DWS fund complex received by each
Independent Board Member during the calendar year 2007. Mr. Schwarzer is an
interested person of the Fund and received no compensation from the Fund or any
fund in the DWS fund complex during the relevant periods.

<TABLE>
<CAPTION>
                                  Aggregate Compensation              Total Compensation
                             from Tax-Exempt California Money            from Fund and
  Name of Board Member                 Market Fund                    DWS Fund Complex(1)
  --------------------                 -----------                    -------------------

<S>                                       <C>                                <C>
  John W. Ballantine                      $2,210                             $215,000
  Henry P. Becton, Jr.(2)                   $0                               $200,000
  Dawn-Marie Driscoll(2)(3)                 $0                               $253,000
  Keith R. Fox(2)                           $0                               $203,000
  Paul K. Freeman(4)                      $2,727                             $265,000
  Kenneth C. Froewiss(2)                    $0                               $200,000
  Richard J. Herring(2)                     $0                               $195,000
  William McClayton(5)                    $2,110                             $205,000
  Rebecca W. Rimel(2)                       $0                               $194,000
  William N. Searcy, Jr.(2)                 $0                               $200,000
  Jean Gleason Stromberg(2)                 $0                               $189,000
  Robert H. Wadsworth                     $2,110                             $245,250
</TABLE>

(1)      The DWS fund complex is composed of 138 funds as of December 31, 2007.

(2)      Aggregate compensation includes amounts paid to the Board Members for
         special meetings of ad hoc committees of the board in connection with
         the consolidation of the DWS fund boards and various funds, meetings
         for considering fund expense simplification initiatives, and
         consideration of issues specific to the Fund's direct shareholders
         (i.e., those shareholders who did not purchase shares through financial
         intermediaries). Such amounts totaled $1,000 for Mr. Becton, $1,000 for
         Ms. Driscoll, $1,000 for Mr. Fox, $1,000 for Mr. Froewiss, $1,000 for
         Dr. Herring, $5,000 for Ms. Rimel, $1,000 for Mr. Searcy and $1,000 for
         Ms. Stromberg. These meeting fees were borne by the Advisor.

(3)      Includes  $50,000 in annual  retainer fees received by Ms. Driscoll as
         Chairperson of certain DWS funds.

(4)      Includes $25,000 paid to Dr. Freeman for numerous special meetings of
         an ad hoc committee in connection with board consolidation initiatives
         and $50,000 in annual retainer fees received by Dr. Freeman as
         Chairperson of certain DWS funds.

(5)      Does not include $15,000 to be paid to Mr. McClayton in calendar year
         2008 for numerous special meetings of an ad hoc committee of the former
         Chicago Board in connection with board consolidation initiatives.

Dr. Freeman, prior to his service as Independent Board Member, served as a board
member of certain funds in the Deutsche Bank complex ("DB Funds"). In connection
with his  resignation  and the resignation of certain other board members of the
DB  Funds  on  July  30,  2002  (the  "Effective  Date"),  which  was  part of a
restructuring of the boards overseeing the DB Funds,  Deutsche Asset Management,
Inc.  ("DAMI")  agreed to  recommend,  and, if necessary  obtain,  directors and
officers  ("D&O")  liability  insurance  coverage  for the prior board  members,
including Dr. Freeman, that is at least as equivalent in scope and amount to the
D&O  coverage  provided  to the prior  board  members  for the  six-year  period
following  the Effective  Date. In the event that D&O insurance  coverage is not
available in the commercial marketplace on commercially  reasonable terms from a
conventional   third  party   insurer,   DeAM  reserved  the  right  to  provide
substantially  equivalent  protection  in the form of an  indemnity or financial
guarantee  from an  affiliate  of DeAM.  The D&O  policy in effect  prior to the
Effective Date provided aggregate coverage of $25,000,000, subject to a $250,000
per claim deductible.

Board Member Ownership in the Fund

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,
2007.

<TABLE>
<CAPTION>
                                            Dollar Range of Beneficial             Aggregate Dollar Range of
                                                     Ownership                Ownership in all Funds Overseen by
                                          in Tax-Exempt California Money                 Board Member
Board Member                                        Market Fund                   in the DWS Fund Complex(1)
------------                                        -----------                   --------------------------

Independent Board Member:
-------------------------

<S>                                                    <C>                                  <C>
John W. Ballantine                                     None                                 Over $100,000
Henry P. Becton, Jr.                                   None                                 Over $100,000
Dawn-Marie Driscoll                                 $1-$10,000                              Over $100,000
Keith R. Fox                                           None                                 Over $100,000
Paul K. Freeman                                        None                                 Over $100,000
Kenneth C. Froewiss                                    None                                 Over $100,000
Richard J. Herring                                     None                                 Over $100,000
William McClayton                                      None                                 Over $100,000
Rebecca W. Rimel                                       None                                 Over $100,000
William N. Searcy, Jr.                                 None                                 Over $100,000
Jean Gleason Stromberg                                 None                                 Over $100,000
Robert H. Wadsworth                                    None                                 Over $100,000

Interested Board Member:

Axel Schwarzer                                         None                                 Over $100,000
</TABLE>

(1)      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 and over
         $100,000.

Ownership in Securities of the Advisor and Related Companies

As reported to the Fund, the information in the following table reflects
ownership by the Independent Board Members and their immediate family members of
certain securities as of December 31, 2007. Immediate family members 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).

<TABLE>
<CAPTION>
                                                                                   Value of        Percent of
                                   Owner and                                     Securities on     Class on an
Independent                     Relationship to                     Title of     an Aggregate       Aggregate
Board Member                      Board Member         Company        Class          Basis            Basis
------------                      ------------         -------        -----          -----            -----

<S>     <C>    <C>    <C>    <C>    <C>    <C>
John W. Ballantine                                      None
Henry P. Becton, Jr.                                    None
Dawn-Marie Driscoll                                     None
Keith R. Fox                                            None
Paul K. Freeman                                         None
Kenneth C. Froewiss                                     None
Richard J. Herring                                      None
William McClayton                                       None
Rebecca W. Rimel                                        None
William N. Searcy, Jr.                                  None
Jean Gleason Stromberg                                  None
Robert H. Wadsworth                                     None
</TABLE>

Securities Beneficially Owned

As of [Date within 30 days of filing], the Board Members and officers of the
Fund owned, as a group, less than 1% of the outstanding shares of the Fund.

To the best of the Fund's knowledge, as of [Date within 30 days of filing], no
person owned of record or beneficially 5% or more of any class of the Fund's
outstanding shares, except as noted below.

Agreement to Indemnify Independent Trustees for Certain Expenses

In connection with litigation or regulatory action related to possible improper
market timing or other improper trading activity or possible improper marketing
and sales activity in certain DWS Funds (the "Affected Funds"), DIMA has agreed
to indemnify and hold harmless the Affected Funds ("Fund Indemnification
Agreement") 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 Affected Funds or DIMA ("Enforcement Actions") or that are the basis for
private actions brought by shareholders of the Affected Funds against the
Affected Funds, their directors and officers, DIMA 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 Affected
Funds and in light of the rebuttable presumption generally afforded to
independent directors/trustees of investment companies that they have not
engaged in disabling conduct, DIMA has also agreed, subject to applicable law
and regulation, to indemnify certain (or, with respect to certain Affected
Funds, all) of the Independent Trustees of the Affected Funds, against certain
liabilities the Independent Trustees may incur from the matters alleged in any
Enforcement Actions or Private Litigation or arising from or similar to the
matters alleged in the Enforcement Actions or Private Litigation, and advance
expenses that may be incurred by the Independent Trustees in connection with any
Enforcement Actions or Private Litigation. DIMA is not, however, required to
provide indemnification and advancement of expenses: (1) with respect to any
proceeding or action which the Affected Funds' Board determines that the
Independent Trustees ultimately would not be entitled to indemnification or (2)
for any liability of the Independent Trustees to the Funds or their shareholders
to which the Independent Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
Independent Trustee's duties as a director or trustee of the Affected Funds as
determined in a final adjudication in such action or proceeding. The estimated
amount of any expenses that may be advanced to the Independent Trustees or
indemnity that may be payable under the indemnity agreements is currently
unknown. These agreements by DIMA will survive the termination of the investment
management agreements between DIMA and the Affected Funds.

                                FUND ORGANIZATION

The Fund is an open-end diversified management investment company, organized as
a business trust under the laws of Massachusetts on February 25, 1987. The Fund
may issue an unlimited number of shares of beneficial interest in one or more
series or "Portfolios," all having no par value. The Fund is divided into two
Portfolios: Premier Shares and Institutional Shares. The Board of Trustees may
authorize the issuance of additional Portfolios if deemed desirable, each with
its own investment objective, policies and restrictions. Since the Fund may
offer multiple Portfolios, it is known as a "series company." Shares of a
Portfolio have equal noncumulative voting rights and equal rights with respect
to dividends, assets and liquidation of such Portfolio. Shares are fully paid
and nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights.

Organizational Description

The Trust is a Massachusetts business trust organized under the laws of
Massachusetts and is governed by an Amended and Restated Declaration of Trust
that was approved by shareholders in the second quarter of 2008, as may be
further amended from time to time (the "Declaration of Trust"). All shares
issued and outstanding are fully paid and non-assessable, transferable, have no
pre-emptive or conversion rights (except as may be determined by the Board of
Trustees) and are redeemable as described in the SAI and the Fund's
prospectuses. 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 the
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; (e) a merger, consolidation or sale of assets; (f)
the adoption of an investment advisory or management contract; (g) the
incorporation of the Trust or any series; (h) any plan adopted pursuant to Rule
12b-1 (or any successor rule) under the 1940 Act; and (i) 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 as the Trustees may
determine to be necessary or desirable. Shareholders also vote upon changes in
fundamental policies or restrictions.

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

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

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

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

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

                             PROXY VOTING GUIDELINES

The Fund has delegated proxy voting responsibilities to the 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:

o    Shareholder  Rights -- The Advisor  generally votes against  proposals that
     restrict shareholder rights.

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

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

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

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

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

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

The Guidelines on a particular issue may or may not reflect the view of
individual members of the Board or of a majority of the Board. In addition, the
Guidelines may reflect a voting position that differs from the actual practices
of the public companies within the Deutsche Bank organization or of the
investment companies for which the Advisor or an affiliate serves as investment
advisor or sponsor.

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

As mentioned above, the Policies describe the way in which the Advisor resolves
conflicts of interest. To resolve conflicts, the advisor, under normal
circumstances, votes proxies in accordance with its Guidelines.

If the Advisor departs from the Guidelines with respect to a particular proxy or
if the Guidelines do not specifically address a certain proxy proposal, a proxy
voting committee established by the advisor will vote the proxy. Before voting
any such proxy, however, the Advisor's conflicts review committee will conduct
an investigation to determine whether any potential conflicts of interest exist
in connection with the particular proxy proposal. If the conflicts review
committee determines that the Advisor has a material conflict of interest, or
certain individuals on the proxy voting committee should be recused from
participating in a particular proxy vote, it will inform the proxy voting
committee. If notified that the Advisor has a material conflict, or fewer than
three voting members are eligible to participate in the proxy vote, typically
the Advisor will engage an independent third party to vote the proxy or follow
the proxy voting recommendations of an independent third party.

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

You may obtain information about how the Fund voted proxies related to its
portfolio securities during the 12-month period ended June 30 by visiting the
SEC's Web site at www.sec.gov or by visiting our Web site at: dws-scudder.com
(click on "proxy voting" at the bottom of the page).

                              FINANCIAL STATEMENTS

The financial statements together with the Report of Independent Registered
Public Accounting Firm, Financial Highlights and notes to financial statements
in the Annual Report to the Shareholders of the Fund's Premier Shares dated
September 30, 2007 are incorporated herein by reference and are hereby deemed to
be a part of this SAI. Because the Fund's Institutional Shares commenced
operations on or about August 26, 2008, no financial statements are available.

                             ADDITIONAL INFORMATION

The CUSIP number of Tax-Exempt California Money Market Fund -- Institutional
Shares is _________.

The CUSIP number of Tax-Exempt California Money Market Fund -- Premier Shares is
_________.

The Fund has a fiscal year end of September 30.

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

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


                             RATINGS OF INVESTMENTS

Standard & Poor's Corporation Bond Ratings

AAA. Debt rated AAA had the highest rating assigned by Standard & Poor's.
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 debt 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.

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

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

D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.

Moody's Investors Service, Inc. Bond Ratings

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

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

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

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

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

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

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

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

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

Fitch Long-Term Debt Ratings

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

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

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

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

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

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

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

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

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

Fitch Short-Term Debt Ratings

F1. Highest credit quality. Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally strong
credit feature.

F2. Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.

F3. Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.

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

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

D. Default. Denotes actual or imminent payment default.

Commercial Paper Ratings

Commercial paper rated by Standard & Poor's Ratings Services ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1 or A-2.

The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investors Service, Inc. ("Moody's"). Among the factors
considered by it in assigning ratings are the following: (1) evaluation of the
management of the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations which may be present or may
arise as a result of public interest questions and preparations to meet such
obligations. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated Prime-1 or 2.

Municipal Notes

Moody's: The highest ratings for state and municipal short-term obligations are
"MIG 1," "MIG 2," and "MIG 3" (or "VMIG 1," "VMIG 2" and "VMIG 3" in the case of
an issue having a variable rate demand feature). Notes rated "MIG 1" or "VMIG 1"
are judged to be of the "best quality". Notes rated "MIG 2" or "VMIG 2" are of
"high quality," with margins or protection "ample although not as large as in
the preceding group". Notes rated "MIG 3" or "VMIG 3" are of "favorable
quality," with all security elements accounted for but lacking the strength of
the preceding grades.

S&P: The "SP-1" rating reflects a "very strong or strong capacity to pay
principal and interest". Notes issued with "overwhelming safety characteristics"
will be rated "SP-1+". The "SP-2" rating reflects a "satisfactory capacity" to
pay principal and interest.

Fitch: The highest ratings for state and municipal short-term obligations are
"F-1+," "F-1," and "F-2."


<PAGE>


                     TAX-EXEMPT CALIFORNIA MONEY MARKET FUND

                            PART C. OTHER INFORMATION

<TABLE>
<CAPTION>
   Item 23.       Exhibits
   --------       --------
                     <S>                                   <C>
                   (a)(1)                   Amended and Restated Declaration of Trust of Tax-Exempt California Money
                                            Market Fund dated June 2, 2008.
                                            (To be filed by subsequent amendment.)

                   (a)(2)                   Restated Designation of Series and Classes of Shares of Beneficial Interest.
                                            (To be filed by subsequent amendment.)

                   (b)(1)                   By-laws.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 9 to
                                            Registrant's Registration Statement on Form N-1A filed on January 2, 1996.)

                   (b)(2)                   Amendment to By-laws.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 16 to
                                            Registrant's Registration Statement on Form N-1A filed on February 1, 2001.)

                   (b)(3)                   Amendment to By-Laws. (Incorporated herein by reference to Post-Effective
                                            Amendment No. 19 to Registrant's Registration Statement on Form N-1A filed
                                            on January 28, 2004.)

                   (b)(4)                   Amendment to By-Laws, dated September 24, 2004.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 23 to
                                            Registrant's Registration Statement on Form N-1A filed on January 27, 2006.)

                    (c)                     Text of Share Certificate.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 9 to
                                            Registrant's Registration Statement on Form N-1A filed on January 2, 1996.)

                    (d)                     Amended and Restated Investment Management Agreement between the Registrant
                                            and Deutsche Investment Management Americas Inc., dated May 1, 2008.  (Filed
                                            herein.)

                    (e)                     Underwriting and Distribution Services Agreement between the Registrant and
                                            Scudder Distributors, Inc., dated April 5, 2002.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 18 to
                                            Registrant's Registration Statement on Form N-1A filed on January 28, 2003.)

                    (f)                     Inapplicable.

                    (g)                     Master Custodian Agreement between the Registrant and State Street Bank and
                                            Trust Company dated April 1, 2007. (Filed herein.)

                   (h)(1)                   Agency Agreement dated April 1, 2007 between the Registrant and DWS Scudder
                                            Investment Services Company. (Filed herein.)

                   (h)(2)                   Letter of Indemnity to the Scudder Funds dated September 10, 2004.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 21 to
                                            Registrant's Registration Statement on Form N-1A filed on December 3, 2004.)


                                       3
<PAGE>

                   (h)(3)                   Letter of Indemnity to the Scudder Funds dated September 10, 2004.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 21 to
                                            Registrant's Registration Statement on Form N-1A filed on December 3, 2004.)

                   (h)(4)                   Letter of Indemnity to the Independent Directors/Trustees dated September
                                            10, 2004. (Incorporated herein by reference to Post-Effective Amendment No.
                                            21 to Registrant's Registration Statement on Form N-1A filed on December 3,
                                            2004.)

                   (h)(5)                   Form of Mutual Fund Rule 22c-2 Information Sharing Agreement between DWS
                                            Scudder Distributors, Inc. and certain financial intermediaries.
                                            (Filed herein.)

                   (h)(6)                   Form of Expense Limitation Agreement between the Fund and Deutsche
                                            Investment Management Americas Inc.
                                            (Filed herein.)

                   (h)(7)                   Administrative Services Agreement dated as of May 1, 2008 between the
                                            Registrant and Deutsche Investment Management Americas Inc. (Filed herein.)

                    (i)                     Legal Opinion and Consent of Counsel.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 18 to
                                            Registrant's Registration Statement on Form N-1A filed on January 28, 2003.)

                    (j)                     Inapplicable.

                    (k)                     Inapplicable.

                    (l)                     Inapplicable.

                    (m)                     Amended and Restated Rule 12b-1 Plan dated August 1, 1998.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 12 to
                                            Registrant's Registration Statement on Form N-1A filed on December 3, 1998.)

                    (n)                     Inapplicable.

                   (p)(1)                   Code of Ethics for Deutsche Asset Management - U.S., dated January 1, 2008.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 25 to
                                            Registrant's Registration Statement on Form N-1A filed on January 25, 2008.)

                   (p)(2)                   Consolidated Fund Code of Ethics.
                                            (Incorporated herein by reference to Post-Effective Amendment No. 23 to
                                            Registrant's Registration Statement on Form N-1A filed on January 27, 2006.)


                                       4
<PAGE>

</TABLE>


Item 24.          Persons Controlled by or under Common Control with Fund
--------          -------------------------------------------------------

                  None


Item 25.          Indemnification
--------          ---------------

                           Article VIII of the Registrant's Agreement and
                  Declaration of Trust (Exhibit (a)(1) hereto, which is
                  incorporated herein by reference) provides in effect that the
                  Registrant will indemnify its officers and trustees under
                  certain circumstances. However, in accordance with Section
                  17(h) and 17(i) of the Investment Company Act of 1940 and its
                  own terms, said Article of the Agreement and Declaration of
                  Trust does not protect any person against any liability to the
                  Registrant or its shareholders to which such Trustee would
                  otherwise be subject by reason of willful misfeasance, bad
                  faith, gross negligence, or reckless disregard of the duties
                  involved in the conduct of his or her office.

                           Each of the trustees who is not an "interested
                  person" (as defined under the Investment Company Act of 1940)
                  of Registrant (a "Non-interested Trustee") has entered into an
                  indemnification agreement with Registrant, which agreement
                  provides that the Registrant shall indemnify the
                  Non-interested Trustee against certain liabilities which such
                  Trustee may incur while acting in the capacity as a trustee,
                  officer or employee of the Registrant to the fullest extent
                  permitted by law, now or in the future, and requires
                  indemnification and advancement of expenses unless prohibited
                  by law. The indemnification agreement cannot be altered
                  without the consent of the Non-interested Trustee and is not
                  affected by amendment of the Agreement and Declaration of
                  Trust. In addition, the indemnification agreement adopts
                  certain presumptions and procedures which may make the process
                  of indemnification and advancement of expenses, more timely,
                  efficient and certain. In accordance with Section 17(h) of the
                  Investment Company Act of 1940, the indemnification agreement
                  does not protect a Non-interested Trustee against any
                  liability to the Registrant or its shareholders to which such
                  Trustee would otherwise be subject by reason of willful
                  misfeasance, bad faith, gross negligence, or reckless
                  disregard of the duties involved in the conduct of his or her
                  office.

                           The Registrant has purchased insurance policies
                  insuring its officers and trustees against certain liabilities
                  which such officers and trustees may incur while acting in
                  such capacities and providing reimbursement to the Registrant
                  for sums which it may be permitted or required to pay to its
                  officers and trustees by way of indemnification against such
                  liabilities, subject to certain deductibles.

                           On April 5, 2002, Zurich Scudder Investments, Inc.
                  ("Scudder"), the investment adviser, now known as Deutsche
                  Investment Management Americas Inc., was acquired by Deutsche
                  Bank AG, not including certain U.K. Operations (the
                  "Transaction"). In connection with the Trustees' evaluation of
                  the Transaction, Deutsche Bank agreed to indemnify, defend and
                  hold harmless Registrant and the trustees who were not
                  "interested persons" of Scudder, Deutsche Bank or Registrant
                  (the "Independent Trustees") for and against any liability and
                  claims and expenses based upon or arising from, whether in
                  whole or in part, or directly or indirectly, any untrue
                  statement or alleged untrue statement of a material fact made
                  to the Independent Trustees by Deutsche Bank in connection
                  with the Independent Trustees' consideration of the
                  Transaction, or any omission or alleged omission of a material
                  fact necessary in order to make statements made, in light of
                  the circumstances under which they were made, not misleading.

                           Deutsche Investment Management Americas Inc.
                  ("DIMA"), the investment advisor, has agreed, subject to
                  applicable law and regulation, to indemnify and hold harmless
                  the Registrant against any loss, damage, liability and
                  expense, including, without limitation, the advancement and
                  payment, as incurred, of reasonable fees and expenses of
                  counsel (including counsel to the Registrant and counsel to
                  the Non-interested Trustees) and consultants, whether retained
                  by the Registrant or the



                                       5
<PAGE>



                  Non-interested Trustees, and other customary costs and
                  expenses incurred by the Registrant in connection with any
                  litigation or regulatory action related to possible improper
                  market timing or other improper trading activity or possible
                  improper marketing and sales activity in the Registrant
                  ("Private Litigation and Enforcement Actions"). In the event
                  that this indemnification is unavailable to the Registrant for
                  any reason, then DIMA has agreed to contribute to the amount
                  paid or payable by the Registrant as a result of any loss,
                  damage, liability or expense in such proportion as is
                  appropriate to reflect the relative fault of DIMA and the
                  Registrant with respect to the matters which resulted in such
                  loss, damage, liability or expense, as well as any other
                  relevant equitable considerations; provided, however, if no
                  final determination is made in such action or proceeding as to
                  the relative fault of DIMA and the Registrant, then DIMA shall
                  pay the entire amount of such loss, damage, liability or
                  expense.

                           In recognition of its undertaking to indemnify the
                  Registrant, DIMA has also agreed, subject to applicable law
                  and regulation, to indemnify and hold harmless each of the
                  Non-interested Trustees against any and all loss, damage,
                  liability and expense, including without limitation the
                  advancement and payment as incurred of reasonable fees and
                  expenses of counsel and consultants, and other customary costs
                  and expenses incurred by the Non-interested Trustees, arising
                  from the Private Litigation and Enforcement, including without
                  limitation:

                           1. all reasonable legal and other expenses incurred
                           by the Non-interested Trustees in connection with the
                           Private Litigation and Enforcement Actions, and any
                           actions that may be threatened or commenced in the
                           future by any person (including any governmental
                           authority), arising from or similar to the matters
                           alleged in the Private Litigation and Enforcement
                           Actions, including without limitation expenses
                           related to the defense of, service as a witness in,
                           or monitoring of such proceedings or actions;

                           2. all liabilities and expenses incurred by any
                           Non-interested Trustee in connection with any
                           judgment resulting from, or settlement of, any such
                           proceeding, action or matter;

                           3. any loss or expense incurred by any Non-interested
                           Trustee as a result of the denial of, or dispute
                           about, any insurance claim under, or actual or
                           purported rescission or termination of, any policy of
                           insurance arranged by DIMA (or by a representative of
                           DIMA acting as such, acting as a representative of
                           the Registrant or of the Non-interested Trustees or
                           acting otherwise) for the benefit of the
                           Non-interested Trustee, to the extent that such
                           denial, dispute or rescission is based in whole or in
                           part upon any alleged misrepresentation made in the
                           application for such policy or any other alleged
                           improper conduct on the part of DIMA, any of its
                           corporate affiliates, or any of their directors,
                           officers or employees;

                           4. any loss or expense incurred by any Non-interested
                           Trustee, whether or not such loss or expense is
                           otherwise covered under the terms of a policy of
                           insurance, but for which the Non-interested Trustee
                           is unable to obtain advancement of expenses or
                           indemnification under that policy of insurance, due
                           to the exhaustion of policy limits which is due in
                           whole or in part to DIMA or any affiliate thereof
                           having received advancement of expenses or
                           indemnification under that policy for or with respect
                           to a matter which is the subject of the
                           indemnification agreement; provided, however, the
                           total amount which DIMA will be obligated to pay
                           under this provision for all loss or expense, will
                           not exceed the amount that DIMA and any of its
                           affiliate actually receive under that policy or
                           insurance for or with respect to a matter which is
                           the subject of the indemnification agreement; and

                           5. all liabilities and expenses incurred by any
                           Non-interested Trustee in connection with any
                           proceeding or action to enforce his or her rights
                           under the agreement, unless DIMA prevails on the
                           merits of any such dispute in a final, nonappealable
                           court order.

                                       6
<PAGE>

                           DIMA is not required to pay costs or expenses or
                  provide indemnification to or for any individual
                  Non-interested Trustee (i) with respect to any particular
                  proceeding or action as to which the Board of the Registrant
                  has determined that such Non-interested Trustee ultimately
                  will not be entitled to indemnification with respect thereto,
                  or (ii) for any liability of the Non-interested Trustee to the
                  Registrant or its shareholders to which such Non-interested
                  Trustee would otherwise be subject by reason of willful
                  misfeasance, bad faith, gross negligence, or reckless
                  disregard of the Non-interested Trustee's duties as a Trustee
                  of the Registrant as determined in a final adjudication in
                  such proceeding or action. In addition, to the extent that
                  DeAM has paid costs or expenses under the agreement to any
                  individual Non-interested Trustee with respect to a particular
                  proceeding or action, and there is a final adjudication in
                  such proceeding or action of the Non-interested Trustee's
                  liability to the Registrant or its shareholders by reason of
                  willful misfeasance, bad faith, gross negligence, or reckless
                  disregard of the Non-interested Trustee's duties as a Trustee
                  of the Registrant, such Non-interested Trustee has undertaken
                  to repay such costs or expenses to DIMA.


Item 26.          Business and Other Connections of Investment Advisor
--------          ----------------------------------------------------

                  During the last two fiscal years, no director or officer of
                  Deutsche Investment Management Americas Inc., the investment
                  advisor, has engaged in any other business, profession,
                  vocation or employment of a substantial nature other than that
                  of the business of investment management and, through
                  affiliates, investment banking.

Item 27.          Principal Underwriters
--------          ----------------------

                  (a)

                  DWS Scudder Distributors, Inc. acts as principal underwriter
                  of the Registrant's shares and acts as principal underwriter
                  for registered open-end management investment companies other
                  funds managed by Deutsche Investment Management Americas Inc.

                  (b)

                  Information on the officers and directors of DWS Scudder
                  Distributors, Inc., principal underwriter for the Registrant,
                  is set forth below. The principal business address is 222
                  South Riverside Plaza, Chicago, Illinois 60606.

<TABLE>
<CAPTION>
                      (1)                             (2)                                  (3)
          DWS Scudder Distributors, Inc.
          Name and Principal             Positions and Offices with               Positions and
          Business Address               DWS Scudder Distributors, Inc.           Offices with Registrant
          ----------------               ------------------------------           -----------------------
                <S>                              <C>                                      <C>
         Philipp Hensler                Director, Chairman of the Board and CEO   None
         345 Park Avenue
         New York, NY 10154

         Michael Colon                  Director and Chief Operating Officer      None
         345 Park Avenue
         New York, NY 10154

         Thomas Winnick                 Director and President                    None
         345 Park Avenue
         New York, NY 10154




                                       7
<PAGE>
                      (1)                             (2)                                  (3)
          DWS Scudder Distributors, Inc.
          Name and Principal             Positions and Offices with               Positions and
          Business Address               DWS Scudder Distributors, Inc.           Offices with Registrant
          ----------------               ------------------------------           -----------------------

         Cliff Goldstein                Chief Financial Officer and Treasurer     None
         60 Wall Street
         New York, NY 10005

         Robert Froehlich               Vice President                            None
         222 South Riverside Plaza
         Chicago, IL 60606

         Paul Schubert                  Vice President                            Chief Financial Officer
         345 Park Avenue                                                          and Treasurer
         New York, NY 10154

         Mark Perrelli                  Vice President                            None
         222 South Riverside Plaza
         Chicago, IL 60606

         Donna White                    Chief Compliance Officer                  None
         345 Park Avenue
         New York, NY 10154

         Jason Vazquez                  Vice President and AML Compliance Officer Anti-Money Laundering
         345 Park Avenue                                                          Compliance Officer
         New York, NY 10154

         Caroline Pearson               Secretary                                 Assistant Secretary
         One Beacon Street
         Boston, MA 02108

         Philip J. Collora              Assistant Secretary                       None
         222 South Riverside Plaza
         Chicago, IL 60606

         Anjie LaRocca                  Assistant Secretary                       None
         345 Park Avenue
         New York, NY 10154
</TABLE>

         (c)      Not applicable

Item 28.          Location of Accounts and Records
--------          --------------------------------

                  Accounts, books and other documents are maintained at the
                  offices of the Registrant; the offices of Registrant's
                  investment adviser, Deutsche Investment Management Americas
                  Inc., 222 South Riverside Plaza, Chicago, Illinois 60606; at
                  the offices of the Registrant's principal underwriter, Scudder
                  Distributors, Inc., 222 South Riverside Plaza, Chicago,
                  Illinois 60606; in the case of records concerning custodial
                  and transfer agency functions, at the offices of the custodian
                  and transfer agent, State Street Bank and Trust Company
                  ("State Street"), 225 Franklin Street, Boston, Massachusetts
                  02110; or, in the case of records concerning shareholder
                  service agency functions, at the office of the


                                       8
<PAGE>

                  shareholder service agent, DWS Scudder Investments Service
                  Company, 811 Main Street, Kansas City, Missouri 64105.



Item 29.          Management Services
--------          -------------------

                  Inapplicable.

Item 30.          Undertakings
--------          ------------

                  None.



                                       9
<PAGE>


                                   SIGNATURES
                                   ----------

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York and the State of New York on
the 10th day of June 2008.

                                   TAX-EXEMPT CALIFORNIA MONEY MARKET FUND

                                            By: /s/Michael G. Clark
                                                __________________________
                                                Michael G. Clark
                                                President

         Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE                                  TITLE                                        DATE
---------                                  -----                                        ----
<S>                                               <C>                                      <C>
/s/Michael G. Clark
-------------------------------------
Michael G. Clark                           President                                    June 10, 2008

/s/Paul H. Schubert
-------------------------------------
Paul H. Schubert                           Chief Financial Officer and Treasurer        June 10, 2008

/s/John W. Ballantine
-------------------------------------
John W. Ballantine*                        Trustee                                      June 10, 2008

/s/Henry P. Becton, Jr.
-------------------------------------
Henry P. Becton, Jr.*                      Trustee                                      June 10, 2008

/s/Dawn-Marie Driscoll
-------------------------------------
Dawn-Marie Driscoll*                       Chairperson and Trustee                      June 10, 2008

/s/Keith R. Fox
-------------------------------------
Keith R. Fox*                              Trustee                                      June 10, 2008

/s/Paul K. Freeman
-------------------------------------
Paul K. Freeman*                           Vice Chairperson and Trustee                 June 10, 2008

/s/Kenneth C. Froewiss
-------------------------------------
Kenneth C. Froewiss*                       Trustee                                      June 10, 2008

/s/Richard J. Herring
-------------------------------------
Richard J. Herring*                        Trustee                                      June 10, 2008

/s/William McClayton
-------------------------------------
William McClayton*                         Trustee                                      June 10, 2008

/s/Rebecca W. Rimel
-------------------------------------
Rebecca W. Rimel*                          Trustee                                      June 10, 2008

/s/William N. Searcy, Jr.
-------------------------------------
William N. Searcy, Jr.*                    Trustee                                      June 10, 2008

/s/Jean Gleason Stromberg
-------------------------------------
Jean Gleason Stromberg*                    Trustee                                      June 10, 2008


<PAGE>
SIGNATURE                                  TITLE                                        DATE
---------                                  -----                                        ----

/s/Robert H. Wadsworth
-------------------------------------
Robert H. Wadsworth*                       Trustee                                      June 10, 2008

/s/Axel Schwarzer
-------------------------------------
Axel Schwarzer*                            Trustee                                      June 10, 2008
</TABLE>

*By:     /s/Caroline Pearson
         ------------------------------
         Caroline Pearson**
         Assistant Secretary

**       Attorney-in-fact pursuant to the powers of attorney as filed herein.












                                       2
<PAGE>


                     TAX-EXEMPT CALIFORNIA MONEY MARKET FUND

                                Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that the following persons, whose signatures
appear below, do hereby constitute and appoint Thomas Connors, John Millette and
Caroline Pearson, and each of them, severally, or if more than one acts, a
majority of them, their true and lawful attorney and agent to execute in their
name, place and stead (in such capacity) any and all amendments to enable
TAX-EXEMPT CALIFORNIA MONEY MARKET FUND (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a trustee of the Fund such Registration Statement and any and
all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.

---------------------------------- ----------------------------- ---------------
SIGNATURES                         TITLE                         DATE
---------------------------------- ----------------------------- ---------------

/s/John W. Ballantine
-------------------------
John W. Ballantine                 Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Henry P. Becton, Jr.
-------------------------
Henry P. Becton, Jr.               Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Dawn-Marie Driscoll
-------------------------
Dawn-Marie Driscoll                Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Keith R. Fox
-------------------------
Keith R. Fox                       Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Paul K. Freeman
-------------------------
Paul K. Freeman                    Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Kenneth C. Froewiss
-------------------------
Kenneth C. Froewiss                Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Richard J. Herring
-------------------------
Richard J. Herring                 Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/William McClayton
-------------------------
William McClayton                  Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Rebecca W. Rimel
-------------------------
Rebecca W. Rimel                   Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/William N. Searcy, Jr.
-------------------------
William N. Searcy, Jr.             Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Jean Gleason Stromberg
-------------------------
Jean Gleason Stromberg             Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Robert H. Wadsworth
-------------------------
Robert H. Wadsworth                Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

/s/Axel Schwarzer
-------------------------
Axel Schwarzer                     Trustee                       April 1, 2008
---------------------------------- ----------------------------- ---------------

<PAGE>

                                                               File No. 33-12938
                                                              File No. 811-05076


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    EXHIBITS

                                       TO

                                    FORM N-1A

                         POST-EFFECTIVE AMENDMENT NO. 26
                            TO REGISTRATION STATEMENT

                                      UNDER

                           THE SECURITIES ACT OF 1933

                                       AND

                                AMENDMENT NO. 27

                            TO REGISTRATION STATEMENT

                                      UNDER

                       THE INVESTMENT COMPANY ACT OF 1940


                     TAX-EXEMPT CALIFORNIA MONEY MARKET FUND


                                       10
<PAGE>


                     TAX-EXEMPT CALIFORNIA MONEY MARKET FUND

                                  EXHIBIT INDEX
                                  -------------

                                       (d)
                                       (g)
                                     (h)(1)
                                     (h)(5)
                                     (h)(6)
                                     (h)(7)




                                       11