UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549  FORM N-CSR  Investment Company Act file number
        811-3657
  DWS State Tax-Free Income Series (Exact Name of Registrant as Specified in Charter)  222 South Riverside Plaza Chicago, IL  60606 (Address of principal executive offices)             (Zip code)  Registrants Telephone Number, including Area Code:(212) 454-7190  Paul Schubert 345 Park Avenue New York, NY 10154 (Name and Address of Agent for Service)  Date of fiscal year end:
        8/31
  Date of reporting period:
        8/31/07
   ITEM 1.REPORT TO STOCKHOLDERS


AUGUST 31, 2007

# Annual Report
to Shareholders

DWS California Tax-Free
Income Fund

|ctf_cover300
|------------

Contents

click herePerformance Summary

click hereInformation About Your Fund's Expenses

click herePortfolio Management Review

click herePortfolio Summary

click hereInvestment Portfolio

click hereFinancial Statements

click hereFinancial Highlights

click hereNotes to Financial Statements

click hereReport of Independent Registered Public Accounting Firm

click hereTax Information

click hereTrustees and Officers

click hereAccount Management Resources

This report must be preceded or accompanied by a prospectus. To obtain a
prospectus for any of our funds, refer to the Account Management Resources
information provided in the back of this booklet. We advise you to consider the
fund's objectives, risks, charges and expenses carefully before investing. The
prospectus contains this and other important information about the fund. Please
read the prospectus carefully before you invest.

Investments in mutual funds involve risk. Some funds have more risk than others. The
fund invests in individual bonds whose yields and market values fluctuate so that your
investment may be worth more or less than its original cost. Bond investments are
subject to interest rate risk such that when interest rates rise, the prices of bonds, and
thus the value of the fund, can decline and the investor can lose principal value.
Additionally, this fund is nondiversified and can take larger positions in fewer issuers,
increasing its overall potential risk. A portion of the fund's returns may be subject to
federal, state, local and alternative minimum tax. Please read this fund's prospectus for
specific details regarding its investments and risk profile. Please refer to the
prospectus for further details.

DWS Scudder is part of Deutsche Asset Management, which is the marketing name in
the US for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust
Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust
Company.

NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

Performance SummaryAugust 31, 2007

Classes A, B and C

All performance shown is historical, assumes reinvestment of all dividend and
capital gain distributions, and does not guarantee future results. Investment
return and principal value fluctuate with changing market conditions so that,
when redeemed, shares may be worth more or less than their original cost.
Current performance may be lower or higher than the performance quoted.
Please visit www.dws-scudder.com for the Fund's most recent month-end
performance.

The maximum sales charge for Class A shares is 4.5%. For Class B shares, the
maximum contingent deferred sales charge (CDSC) is 4% within the first year
after purchase, declining to 0% after six years. Class C shares have no adjustment
for front-end sales charges but redemptions within one year of purchase may be
subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and
would have been lower if they had.

The total annual fund operating expense ratios, gross of any fee waivers or
expense reimbursements, as stated in the fee table of the prospectus sticker
dated April 30, 2007 are 1.32%, 2.20% and 2.12% for Class A, Class B and Class C
shares, respectively. Please see the Information About Your Fund's Expenses, the
Financial Highlights and Notes to the Financial Statements (Note C, Related
Parties) sections of this report for gross and net expense related disclosure for
the period ended August 31, 2007.

To discourage short-term trading, the Fund imposes a 2% redemption fee on
shareholders redeeming shares held less than 15 days, which has the effect of
lowering total return.

Returns and rankings during all periods shown for Class B and C shares reflect a fee
waiver and/or expense reimbursement. Without this waiver/reimbursement, returns
and rankings would have been lower.

Performance figures do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. Returns and rankings may differ
by share class.

A portion of the Fund's distributions may be subject to federal, state and local tax and
the alternative minimum tax.

|Average Annual Total Returns(Unadjusted for Sales Charge) as of 8/31/07
|-----------------------------------------------------------------------
|DWS California Tax-Free Income Fund                                    
|Class A                                                                
|Class B                                                                
|Class C                                                                
|Lehman Brothers Municipal Bond Index+                                  

Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.

|Net Asset Value and Distribution Information                                   
|-------------------------------------------------------------------------------
|                                                                               
|Net Asset Value:
8/31/07                                                       
|8/31/06                                                                        
|Distribution Information:
Twelve Months as of 8/31/07:Income Dividends         
|Capital Gain Distributions                                                     
|August Income Dividend                                                         
|SEC 30-day Yield as of 8/31/07++                                               
|Tax Equivalent Yield as of 8/31/07 ++                                          
|Current Annualized Distribution Rate (Based on Net
Asset Value) as of 8/31/07++

|Class A Lipper Rankings  California Municipal Debt Funds Categoryas of 8/31/07
|-------------------------------------------------------------------------------
|Period                                                                         
|1-Year                                                                         
|3-Year                                                                         
|5-Year                                                                         
|10-Year                                                                        

Source: Lipper Inc. Rankings are historical and do not guarantee future results.
Rankings are based on total return unadjusted for sales charges with distributions
reinvested. If sales charges had been included, results might have been less favorable.
Rankings are for Class A shares; other share classes may vary.

|Growth of an Assumed $10,000 Investment(Adjusted for Maximum Sales Charge)             
|---------------------------------------------------------------------------------------
|[]DWS California Tax-Free Income Fund  Class A
[]Lehman Brothers Municipal Bond Index+
|ctf_g10k290                                                                            
|Yearly periods ended August 31                                                         

The Fund's growth of an assumed $10,000 investment is adjusted for the maximum
sales charge of 4.5%. This results in a net initial investment of $9,550.

|Comparative Results(Adjusted for Maximum Sales Charge) as of 8/31/07
|--------------------------------------------------------------------
|DWS California Tax-Free Income Fund                                 
|Class A                                                             
|Average annual total return                                         
|Class B                                                             
|Average annual total return                                         
|Class C                                                             
|Average annual total return                                         
|Lehman Brothers
Municipal Bond Index+                               
|Average annual total return                                         

The growth of $10,000 is cumulative.

Class S

Class S shares are generally not available to new investors except under certain
circumstances. (Please refer to the Fund's Statement of Additional Information.)

All performance shown is historical, assumes reinvestment of all dividend and
capital gain distributions, and does not guarantee future results. Investment
return and principal value fluctuate with changing market conditions so that,
when redeemed, shares may be worth more or less than their original cost.
Current performance may be lower or higher than the performance quoted.
Please visit www.dws-scudder.com for the Fund's most recent month-end
performance.

The total annual fund operating expense ratio, gross of any fee waivers or
expense reimbursements, as stated in the fee table of the prospectus sticker
dated April 30, 2007 is 1.10% for Class S shares. Please see the Information About
Your Fund's Expenses, the Financial Highlights and Notes to the Financial
Statements (Note C, Related Parties) sections of this report for gross and net
expense related disclosure for the period ended August 31, 2007.

To discourage short-term trading, the Fund imposes a 2% redemption fee on
shareholders redeeming shares held less than 15 days, which has the effect of
lowering total return.

Performance figures do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares. Returns and rankings may differ
by share class.

A portion of the Fund's distributions may be subject to federal, state and local tax and the
alternative minimum tax.

|Average Annual Total Returnsas of 8/31/07
|-----------------------------------------
|DWS California Tax-Free Income Fund      
|Class S                                  
|Lehman Brothers Municipal Bond Index+    

|Net Asset Value and Distribution Information                          
|----------------------------------------------------------------------
|                                                                      
|Net Asset Value:
8/31/07                                              
|8/31/06                                                               
|Distribution Information:
Twelve Months as of 8/31/07:Income Dividends
|Capital Gain Distributions                                            
|August Income Dividend                                                
|SEC 30-day Yield as of 8/31/07++                                      
|Tax Equivalent Yield as of 8/31/07++                                  
|Current Annualized Distribution Rate as of 8/31/07++                  

|Class S Lipper Rankings  California Municipal Debt Funds Categoryas of 8/31/07
|-------------------------------------------------------------------------------
|Period                                                                         
|1-Year                                                                         
|3-Year                                                                         
|5-Year                                                                         

Source: Lipper Inc. Rankings are historical and do not guarantee future results.
Rankings are based on total return with distributions reinvested. Rankings are for
Class S shares; other share classes may vary.

|Growth of an Assumed $10,000 Investment                                                
|---------------------------------------------------------------------------------------
|[]DWS California Tax-Free Income Fund  Class S
[]Lehman Brothers Municipal Bond Index+
|ctf_g10k280                                                                            
|Yearly periods ended August 31                                                         

|Comparative Resultsas of 8/31/07     
|-------------------------------------
|DWS California Tax-Free Income Fund  
|Class S                              
|Average annual total return          
|Lehman Brothers
Municipal Bond Index+
|Average annual total return          

The growth of $10,000 is cumulative.

Information About Your Fund's Expenses

As an investor of the Fund, you incur two types of costs: ongoing
expenses and transaction costs. Ongoing expenses include management
fees, distribution and service (12b-1) fees and other Fund expenses.
Examples of transaction costs include sales charges (loads), redemption
fees and account maintenance fees, which are not shown in this section.
The following tables are intended to help you understand your ongoing
expenses (in dollars) of investing in the Fund and to help you compare
these expenses with the ongoing expenses of investing in other mutual
funds. In the most recent six-month period, Class B and C shares limited
these expenses; had they not done so, expenses would have been higher.
The example in the table is based on an investment of $1,000 invested at
the beginning of the six-month period and held for the entire period(March 1, 2007 to August 31, 2007).

The tables illustrate your Fund's expenses in two ways:

Actual Fund Return. This helps you estimate the actual dollar amount
of ongoing expenses (but not transaction costs) paid on a $1,000
investment in the Fund using the Fund's actual return during the
period. To estimate the expenses you paid over the period, simply
divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.6), then multiply the result by the number
in the "Expenses Paid per $1,000" line under the share class you hold.

Hypothetical 5% Fund Return. This helps you to compare your Fund's
ongoing expenses (but not transaction costs) with those of other
mutual funds using the Fund's actual expense ratio and a hypothetical
rate of return of 5% per year before expenses. Examples using a 5%
hypothetical fund return may be found in the shareholder reports of
other mutual funds. The hypothetical account values and expenses
may not be used to estimate the actual ending account balance or
expenses you paid for the period.

Please note that the expenses shown in these tables are meant to
highlight your ongoing expenses only and do not reflect any transaction
costs. The "Expenses Paid per $1,000" line of the tables is useful in
comparing ongoing expenses only and will not help you determine the
relative total expense of owning different funds. If these transaction costs
had been included, your costs would have been higher.

|Expenses and Value of a $1,000 Investment (including interest
expense)*for the six months ended August 31, 2007
|---------------------------------------------------------------------------------------------------------------
|Actual Fund Return                                                                                             
|Beginning Account Value 3/1/07                                                                                 
|Ending Account Value 8/31/07                                                                                   
|Expenses Paid per $1,000**                                                                                     
|Hypothetical 5% Fund Return                                                                                    
|Beginning Account Value 3/1/07                                                                                 
|Ending Account Value 8/31/07                                                                                   
|Expenses Paid per $1,000**                                                                                     

|Annualized Expense Ratios           | Class A | Class B | Class C | Class S
|----------------------------------- | ------- | ------- | ------- | -------
|DWS California Tax-Free Income Fund | 1.32%   | 2.05%   | 2.11%   | 1.12%  

|Expenses and Value of a $1,000 Investment (excluding interest
expense)*for the six months ended August 31, 2007
|---------------------------------------------------------------------------------------------------------------
|Actual Fund Return                                                                                             
|Beginning Account Value 3/1/07                                                                                 
|Ending Account Value 8/31/07                                                                                   
|Expenses Paid per $1,000**                                                                                     
|Hypothetical 5% Fund Return                                                                                    
|Beginning Account Value 3/1/07                                                                                 
|Ending Account Value 8/31/07                                                                                   
|Expenses Paid per $1,000**                                                                                     

|Annualized Expense Ratios           | Class A | Class B | Class C | Class S
|----------------------------------- | ------- | ------- | ------- | -------
|DWS California Tax-Free Income Fund | .83%    | 1.55%   | 1.62%   | .63%   

For more information, please refer to the Fund's prospectus.

Portfolio Management Review

DWS California Tax-Free Income Fund:
A Team Approach to Investing

Deutsche Investment Management Americas Inc. ("DIMA" or the
"Advisor"), which is part of Deutsche Asset Management, is the
investment advisor for DWS California Tax-Free Income Fund. DIMA and
its predecessors have more than 80 years of experience managing mutual
funds and DIMA provides a full range of investment advisory services to
institutional and retail clients.

Deutsche Asset Management is a global asset management organization
that offers a wide range of investing expertise and resources. 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 funds, retail, private and commercial banking, investment banking
and insurance.

Portfolio Management Team

Philip G. Condon

Managing Director of Deutsche Asset Management and Co-Lead Portfolio Manager of
the fund.

Joined Deutsche Asset Management in 1983 and the fund in 2000.

Over 30 years of investment industry experience.

BA and MBA, University of Massachusetts at Amherst.

Eleanor R. Lynch, CFA

Director of Deutsche Asset Management and Co-Lead Portfolio Manager of the fund.

Joined Deutsche Asset Management in 1995 and the fund in 1999.

Over 20 years of investment industry experience.

BS, Ursinus College; MS, Drexel University.

Matthew J. Caggiano, CFA

Director of Deutsche Asset Management and Portfolio Manager of the fund.

Joined Deutsche Asset Management in 1989 and the fund in 1999.

Over 15 years of investment industry experience.

BS, Pennsylvania State University; MS, Boston College.

Philip G. Condon and Eleanor R. Lynch serve as co-lead portfolio
managers of DWS California Tax-Free Income Fund. Matthew J.
Caggiano is a portfolio manager. In the following interview, the
municipal bond team discusses the fund's performance and the
recent market environment for municipal bonds.

The views expressed in the following discussion reflect those of the portfolio managers only
through the end of the period of the report as stated on the cover. The management team's
views are subject to change at any time based on market and other conditions and should
not be construed as a recommendation. Past performance is no guarantee of future results.

Q: Can you characterize conditions in the municipal bond
market during the annual period ended August 31, 2007?

A:Over the period, both the taxable and municipal bond markets
provided positive results, although municipals significantly
underperformed their taxable counterparts. The municipal bond
market, as measured by the Lehman Brothers Municipal Bond
Index, returned 2.30% for the 12-month period ended August 31,
2007.1 This compared to 5.26% for the broad taxable bond market
for the same period, as measured by the Lehman Brothers US
Aggregate Index.2

The relationship between supply of and demand for municipal
issues can be an important factor in the performance of this
market. High demand or low supply can drive municipal bond
prices higher, while low demand or high supply can have the
reverse effect. During the period, municipal supply was relatively
high, driven in large part by refunding activity. On the demand
side, for most of the period, the municipal market continued to be
supported by institutional investors using nontraditional strategies
to benefit in a leveraged fashion from disparities between the
tax-free and taxable markets. This source of support wavered in
August, as the fallout from the subprime mortgage loan crisis
generated a need for increased liquidity among many of these
investors. Mutual fund shareholder flows were generally positive
over the period, before turning negative in August in the wake of
the subprime contagion.

The US Federal Reserve Board (the Fed) held the fed funds rate
steady over the fiscal period. This means that the overnight
interbank lending rate, and benchmark for interest rates generally,
remained at 5.25% throughout the year. During the period, yields
on municipals rose, with the biggest increases occurring on the
long end of the curve. Since a bond's yield moves in the opposite
direction of its price, this meant that shorter-term municipal bonds
generally provided the best returns.

The overall result of a modest rise in short-term yields and a more
significant increase in long-term yields was a steepening of the
tax-free yield curve over the period.3 On the municipal bond
curve, yields on two-year issues increased by nine basis points
while bonds with 30-year maturities experienced a yield increase
of 37 basis points, resulting in a total steepening of 28 basis
points. Most of the curve steepening occurred between five and
15 years. (100 basis points equals one percentage point. See the
accompanying graph for a depiction of municipal bond yield
changes between the beginning and end of the period.)

With respect to credit quality, the trend in the municipal market
over the period continued to be positive. Nonetheless, credit
spreads widened during the latter part of the period, reversing an
extended trend in the direction of high-yield outperformance. The

|Municipal Bond Yield Curve(as of 8/31/06 and 8/31/07)
|-----------------------------------------------------
|ctf_yield210                                         

Source: Municipal Market Data as of August 31, 2007. For illustrative purposes only; not
meant to represent the performance of any DWS product.

bond market's overall flight to quality in July and August resulted
in lower yields for Treasury bonds and a particularly attractive
relative valuation for municipals. At the end of August, 10-year
municipals were yielding 87.4% of the yield on comparable
US Treasury issues.

Q: How did DWS California Tax-Free Income Fund perform for
the annual period ended August 31, 2007?

A:DWS California Tax-Free Income Fund posted a positive return
for the 12-month period of 1.71% (Returns are for Class A shares,
unadjusted for sales charges. If sales charges had been included,
returns would have been lower. Past performance is no guarantee
of future results.) This return compares with 2.30% for the fund's
benchmark, the Lehman Brothers Municipal Bond Index. The
fund outperformed the 0.66% average of its peer group of
116 funds, the Lipper California Debt Funds category.4 (Please
see pages 4 through 9 for the performance of other share
classes and more complete performance information.)

Q: How was the fund positioned and how did this positioning
impact performance over the period?

A:We do not attempt to predict the direction of interest rates,
and instead seek to maintain a neutral duration and corresponding
sensitivity to interest-rate changes. While we attempt to maintain
a neutral interest-rate posture overall, within this framework we
will make judgments about which maturities present the most
attractive opportunities. Along these lines, for much of the period
we continued to minimize exposure to long-term bonds, as we did
not believe they provided a favorable risk/reward profile. Given a
relatively flat yield curve, we did not view the modest income
advantage offered by long-term issues as attractive. Instead, we
generally favored higher coupon issues in the 15- to 20-year area
of the curve, as we viewed this structure as less vulnerable to any
increase in rates. We also added exposure to floating-rate notes
with three-month resets tied to LIBOR that offered attractive
yields and low duration, allowing us to gain incremental yield
without going out on the curve.5 Our maturity positioning helped
performance over the full period as the curve eventually
steepened, driven primarily by rising yields (and falling prices) on
longer-term issues. Toward the end of the period, we began to
move out on the curve to take advantage of the improved yield
differentials available.

We have been somewhat overweight California state general
obligation (GO) bonds, reflecting our constructive outlook for the
state's credit profile.6 This was essentially a neutral factor in
terms of performance, as GO spreads versus insured issues were
relatively stable over the period. The fund's exposure to
tobacco-revenue bonds helped as these experienced refundings
and associated credit quality upgrades.

More broadly, for much of the period we maintained the fund's
relatively low exposure to lower-quality sectors, based on the
narrow yield advantage they provided by historical standards. This
positioning initially dampened performance, as credit spreads
were relatively stable. As the period progressed, spreads widened
and prices of lower-quality issues generally fell, and as a result
this credit positioning helped the fund's relative performance over
the full 12 months. In our view, lower-quality issues have now
become attractive relative to higher-quality issues, and we have
begun to selectively increase exposure to this segment. For
example, late in the period, we added hospital-related holdings in
the A and AA quality range.

Q: What is your current assessment of the California municipal
bond market?

A:The fiscal health of California remains stable, which is reflected
in the assessments of the major ratings agencies over the period.
The state's general obligation debt is currently rated A+ by
Standard & Poor's Corporation and A1 by Moody's Investors
Service, Inc., with Standard & Poor's putting California on a
positive outlook as of June 2007.7 The state continues to benefit
from a recovery in its large and broadly diversified economy, with
particular strength in southern California. Most sectors of the
state's economy have displayed growth above the national
average, and this growth has had a positive impact on the state's
tax revenues. While California still faces structural deficits, these
have been on a downward trend in recent years, and the state has
sufficient flexibility to finance them. In addition, the state's
pension system is relatively well funded.

Portfolio Summary

|Asset Allocation         | 8/31/07 | 8/31/06
|------------------------ | ------- | -------
|                         |         |        
|Revenue Bonds            | 60%     | 61%    
|US Government Secured    | 21%     | 23%    
|General Obligation Bonds | 19%     | 16%    
|                         | 100%    | 100%   

|Quality   | 8/31/07 | 8/31/06
|--------- | ------- | -------
|          |         |        
|AAA       | 69%     | 67%    
|AA        | 6%      | 3%     
|A         | 9%      | 8%     
|BBB       | 2%      | 4%     
|Not Rated | 14%     | 18%    
|          | 100%    | 100%   

|Effective Maturity | 8/31/07 | 8/31/06
|------------------ | ------- | -------
|                   |         |        
|Less than 1 year   | 7%      | 24%    
|1-4.99 years       | 31%     | 24%    
|5-7.99 years       | 29%     | 24%    
|8-19.99 years      | 33%     | 28%    
|                   | 100%    | 100%   

|Interest Rate Sensitivity | 8/31/07   | 8/31/06  
|------------------------- | --------- | ---------
|                          |           |          
|Duration                  | 6.6 years | 6.1 years

Weighted average effective maturity: 6.7 years and 6.0 years, respectively.

Asset allocation, quality, effective maturity and interest rate sensitivity are subject to change.

The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P
represent their opinions as to the quality of the securities they rate. Ratings are relative and
subjective and are not absolute standards of quality. The Fund's credit quality does not
remove market risk.

For more complete details about the Fund's investment portfolio, see page 19. A quarterly
Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund
as of month end will be posted to www.dws-scudder.com on or after the last day of the
following month. Please see the Account Management Resources section for contact
information.

Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form will be
available on the SEC's Web site at www.sec.gov, and it also may be
reviewed and copied 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.

Investment Portfolioas of August 31, 2007

|                                                                                                                                                                                 | Principal
Amount ($) | Value ($) 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------
|                                                                                                                                                                                 |                     
|Municipal Bonds and Notes 85.3%                                                                                                                                                 
|California 77.9%                                                                                                                                                                
|ABAG Finance Authority For Non Profit Corps., CA,
Certificates of Participation, Stanford Health Services,
ETM, 6.0%, 11/1/2007 (a)                                              | 605,000              | 607,214   
|ABAG Finance Authority For Non Profit Corps., CA,
Multi-Family Housing Revenue, California Hill Apartments,
Series A, AMT, 4.0%*, 12/15/2032                                     | 1,150,000            | 1,150,000 
|Anaheim, CA, Other General Obligation Lease, Public
Financing Authority, Public Improvements Project:                                                                            |                      |           
|Series C, Zero Coupon, 9/1/2017 (a)                                                                                                                                              | 1,455,000            | 937,238   
|Series C, Zero Coupon, 9/1/2018 (a)                                                                                                                                              | 1,000,000            | 609,830   
|Series C, 6.0%, 9/1/2014 (a)                                                                                                                                                     | 1,000,000            | 1,127,690 
|Series C, 6.0%, 9/1/2016 (a)                                                                                                                                                     | 1,000,000            | 1,138,330 
|Series A, 6.0%, 9/1/2024 (a)                                                                                                                                                     | 3,500,000            | 4,062,695 
|Benicia, CA, School District General Obligation, Unified
School District:                                                                                                        |                      |           
|Series A, Zero Coupon, 8/1/2017 (a)                                                                                                                                              | 1,735,000            | 1,130,543 
|Series A, Zero Coupon, 8/1/2018 (a)                                                                                                                                              | 1,510,000            | 933,331   
|Beverly Hills, CA, School District General Obligation, Unified
School District:                                                                                                  |                      |           
|Series A, 5.375%, 8/1/2019                                                                                                                                                       | 1,000,000            | 1,080,470 
|Series A, 5.375%, 8/1/2021                                                                                                                                                       | 1,230,000            | 1,328,978 
|Burbank, CA, School District General Obligation, Unified
School District, Series B, Zero Coupon, 8/1/2014 (a)                                                                    | 3,000,000            | 2,273,430 
|Cabrillo, CA, County General Obligation Lease, Unified
School District, Series A, Zero Coupon, 8/1/2019 (a)                                                                      | 4,000,000            | 2,342,760 
|California, Center Unified School District, Series C,
Zero Coupon, 9/1/2014 (a)                                                                                                  | 2,240,000            | 1,691,827 
|California, Electric Revenue, Department of Water
Resources and Power Supply:                                                                                                    |                      |           
|Series A, 5.375%, 5/1/2021                                                                                                                                                       | 2,000,000            | 2,167,000 
|Series A, 5.375%, 5/1/2022                                                                                                                                                       | 10,000,000           | 10,835,000
|California, Higher Education Revenue,
5.25%, 11/1/2019 (a) (b)                                                                                                                   | 3,500,000            | 3,709,650 
|California, Higher Education Revenue, Educational
Facilities Authority, University of San Diego,
Zero Coupon, 10/1/2014 (a)                                                      | 1,470,000            | 1,106,557 
|California, Hospital & Healthcare Revenue, Communities
Development Authority, 6.5%, 8/1/2012                                                                                     | 13,265,000           | 14,017,523
|California, Hospital & Healthcare Revenue, Health Facilities
Finance Authority, Series A, Zero Coupon, 10/1/2012 (a)                                                             | 4,900,000            | 4,036,522 
|California, Hospital & Healthcare Revenue, Statewide
Community Development Authority, 6.0%, 6/1/2010 (a)                                                                         | 1,000,000            | 1,059,740 
|California, Housing Finance Agency Revenue, Home
Mortgage, Series H, AMT, 3.92%*, 8/1/2033 (a)                                                                                   | 2,000,000            | 2,000,000 
|California, Housing Finance Agency Revenue, Multi-Family
Housing, Series C, AMT, 4.23%*, 2/1/2037                                                                                | 2,465,000            | 2,465,000 
|California, Residential Efficiency Financing Authority
Certificates of Participation, Capital Improvements,
Series 2007, 5.5%, 4/1/2017 (a)                                      | 35,000               | 35,747    
|California, Resource Recovery Revenue, Tobacco
Securitization Authority, Series A, 5.375%, 6/1/2041                                                                              | 5,000,000            | 5,308,100 
|California, Senior Care Revenue, Statewide Community
Development Authority, ETM, 5.6%, 11/15/2013                                                                                | 4,750,000            | 5,029,822 
|California, Senior Care Revenue, Statewide Community
Development Authority, California Lutheran Homes, ETM,
5.5%, 11/15/2008                                                     | 790,000              | 798,556   
|California, Single Family Housing Revenue, Mortgage
Finance Authority, AMT, Series B, 7.3%, 6/1/2031                                                                             | 35,000               | 36,012    
|California, Special Assessment Revenue, Golden State
Tobacco Securitization Corp.:                                                                                               |                      |           
|Series A-1, 5.0%, 6/1/2033                                                                                                                                                       | 10,000,000           | 9,066,200 
|Series B, 5.5%, 6/1/2043                                                                                                                                                         | 9,950,000            | 10,744,806
|Series B, 5.625%, 6/1/2038                                                                                                                                                       | 13,655,000           | 14,832,744
|Series A-1, 5.75%, 6/1/2047                                                                                                                                                      | 1,665,000            | 1,620,478 
|Series 2003-A-1, 6.75%, 6/1/2039                                                                                                                                                 | 16,750,000           | 19,248,765
|California, State Agency General Obligation Lease, Public
Works Board, Department of Corrections:                                                                                |                      |           
|Series A, 7.4%, 9/1/2010 (a)                                                                                                                                                     | 1,000,000            | 1,105,380 
|Series A-2, 7.4%, 9/1/2010                                                                                                                                                       | 3,365,000            | 3,711,965 
|California, State Economic Recovery:                                                                                                                                             |                      |           
|Series C-5, 3.79%*, 7/1/2023                                                                                                                                                     | 1,695,000            | 1,695,000 
|Series C-16, 3.86%*, 7/1/2023 (a)                                                                                                                                                | 2,000,000            | 2,000,000 
|California, State General Obligation:                                                                                                                                            |                      |           
|5.0%, 2/1/2013                                                                                                                                                                   | 1,250,000            | 1,309,125 
|5.0%, 9/1/2032                                                                                                                                                                   | 10,000,000           | 10,059,100
|5.125%, 4/1/2024                                                                                                                                                                 | 7,400,000            | 7,637,318 
|5.125%, 11/1/2024                                                                                                                                                                | 1,000,000            | 1,030,280 
|5.25%, 12/1/2019                                                                                                                                                                 | 1,000,000            | 1,051,540 
|5.5%, 3/1/2016                                                                                                                                                                   | 9,000,000            | 9,492,570 
|Prerefunded, 5.875%, 10/1/2019                                                                                                                                                   | 8,925,000            | 9,414,358 
|Prerefunded, Series 2006, 5.875%, 10/1/2019                                                                                                                                      | 785,000              | 828,693   
|Series 2006, 5.875%, 10/1/2019                                                                                                                                                   | 290,000              | 306,141   
|6.5%, 9/1/2010                                                                                                                                                                   | 1,305,000            | 1,407,286 
|California, State General Obligation, Public Kindergarten
University, Series B-4, 3.83%*, 5/1/2034, Citibank NA (c)                                                              | 1,290,000            | 1,290,000 
|California, State Public Works Board Lease Revenue,
University of California Projects, Series F,
5.0%, 11/1/2018                                                                 | 5,405,000            | 5,611,255 
|California, State Public Works Board, Lease Revenue,
Department of Mental Health, Series A, 5.5%, 6/1/2022                                                                       | 2,600,000            | 2,766,062 
|California, State University Revenue:                                                                                                                                            |                      |           
|Series C, 5.0%, 11/1/2019 (a)                                                                                                                                                    | 18,245,000           | 19,166,920
|Series A, 5.0%, 11/1/2024 (a)                                                                                                                                                    | 5,000,000            | 5,123,500 
|Series A, 5.25%, 11/1/2021 (a)                                                                                                                                                   | 3,090,000            | 3,275,091 
|California, State University Revenue & Colleges, Series A,
5.0%, 11/1/2033 (a)                                                                                                   | 2,290,000            | 2,314,755 
|California, Statewide Communities Development Authority,
Certificates of Participation, 6.0%, 8/15/2017 (a)                                                                      | 1,000,000            | 1,050,550 
|California, Statewide Communities Development
Authority Revenue, Kiaser Permanente, Series B,
4.371%**, 4/1/2036                                                                 | 5,000,000            | 4,661,750 
|California, University of California Revenues, Series F,
5.0%, 5/15/2019 (a)                                                                                                     | 2,000,000            | 2,085,660 
|California, Water & Sewer Revenue, Series W,
5.5%, 12/1/2014 (a)                                                                                                                 | 12,000,000           | 13,247,040
|California, Water & Sewer Revenue, Department of
Water Research Center Valley Project, Series X,
5.5%, 12/1/2017 (a)                                                             | 5,500,000            | 6,161,265 
|California, Water & Sewer Revenue, Metropolitan Water
District of Southern California:                                                                                           |                      |           
|Series A, 5.25%, 7/1/2014                                                                                                                                                        | 5,210,000            | 5,540,158 
|Series A, 5.25%, 3/1/2017                                                                                                                                                        | 7,300,000            | 7,770,850 
|Capistrano, CA, School District General Obligation, Unified
School District, Improvement District No. 1, Series A,
6.25%, 8/1/2018 (a)                                           | 1,000,000            | 1,078,980 
|Carlsbad, CA, School District General Obligation, Unified
School District, Zero Coupon, 11/1/2018 (a)                                                                            | 3,050,000            | 1,864,129 
|Chino Basin, CA, Water & Sewer Revenue, Regional
Financing Authority, 5.9%, 8/1/2011 (a)                                                                                         | 1,290,000            | 1,394,258 
|Contra Costa County, CA, GNMA Mortgage Backed
Securities Program, AMT, ETM, 7.75%, 5/1/2022                                                                                      | 2,715,000            | 3,374,962 
|Corona, CA, Sales & Tax Revenue, Community Facilities
District, Series 90-1-A, 5.5%, 9/1/2015 (a)                                                                                | 9,240,000            | 10,087,123
|Corona-Norco, CA, Sales & Tax Revenue, Unified School
District Public Financing Authority, Series A,
5.75%, 9/1/2014 (a)                                                         | 2,750,000            | 2,781,982 
|Dry Creek, CA, School District General Obligation, Joint
Elementary School District:                                                                                             |                      |           
|Series A, Zero Coupon, 8/1/2016 (a)                                                                                                                                              | 555,000              | 381,252   
|Series A, Zero Coupon, 8/1/2021 (a)                                                                                                                                              | 1,920,000            | 1,009,939 
|Series A, Zero Coupon, 5/1/2022 (a)                                                                                                                                              | 1,385,000            | 698,705   
|Encinitas, CA, State General Obligation, Unified School
District, Zero Coupon, 8/1/2017 (a)                                                                                      | 4,000,000            | 2,606,440 
|Escondido, CA, School District General Obligation, Unified
High School District:                                                                                                 |                      |           
|Zero Coupon, 5/1/2015 (a)                                                                                                                                                        | 3,165,000            | 2,311,716 
|Zero Coupon, 5/1/2016 (a)                                                                                                                                                        | 3,335,000            | 2,315,757 
|ETM, Zero Coupon, 11/1/2017 (a)                                                                                                                                                  | 5,500,000            | 3,558,830 
|Zero Coupon, 11/1/2018 (a)                                                                                                                                                       | 4,605,000            | 2,814,530 
|Escondido, CA, Unified High School District, ETM,
Zero Coupon, 11/1/2020 (a)                                                                                                     | 7,000,000            | 3,861,130 
|Foothill, CA:                                                                                                                                                                    |                      |           
|ETM, Zero Coupon, 1/1/2018 (a)                                                                                                                                                   | 10,000,000           | 6,384,400 
|ETM, Zero Coupon, 1/1/2020 (a)                                                                                                                                                   | 10,000,000           | 5,741,400 
|Series A, Prerefunded, 7.15%, 1/1/2013                                                                                                                                           | 975,000              | 1,069,517 
|Foothill, CA, Eastern Corridor Agency, Series A, ETM,
Zero Coupon, 1/1/2020                                                                                                      | 6,100,000            | 3,502,254 
|Foothill, CA, School District General Obligation,
Zero Coupon, 8/1/2016 (a)                                                                                                      | 4,755,000            | 3,266,400 
|Foothill, CA, Transportation/Tolls Revenue, Eastern
Corridor Agency:                                                                                                             |                      |           
|Step-up Coupon, 0% to 7/15/2009, 5.8% to 1/15/2020 (a)                                                                                                                           | 6,500,000            | 6,419,530 
|Step-up Coupon, 0% to 7/15/2009,
5.875% to 1/15/2026 (a)                                                                                                                         | 5,000,000            | 4,666,800 
|Zero Coupon, 1/15/2017 (a)                                                                                                                                                       | 5,975,000            | 3,756,064 
|Zero Coupon, 1/15/2018 (a)                                                                                                                                                       | 6,250,000            | 3,697,625 
|Zero Coupon, 1/15/2025                                                                                                                                                           | 10,000,000           | 3,673,400 
|Series A, Prerefunded, 6.0%, 1/1/2016                                                                                                                                            | 6,000,000            | 6,321,240 
|Series A, Prerefunded, 7.1%, 1/1/2011                                                                                                                                            | 6,000,000            | 6,575,520 
|Series A, Prerefunded, 7.15%, 1/1/2014                                                                                                                                           | 2,875,000            | 3,153,702 
|Fresno, CA, School District General Obligation, Unified
School District:                                                                                                         |                      |           
|Series C, 5.9%, 2/1/2017 (a)                                                                                                                                                     | 1,760,000            | 2,007,421 
|Series A, 6.4%, 8/1/2016 (a)                                                                                                                                                     | 2,000,000            | 2,301,160 
|Grossmont, CA, Union High School District, Election of
2004, 5.375%, 8/1/2017 (a)                                                                                                | 2,840,000            | 3,072,426 
|Hayward, CA, Multi-Family Housing Revenue, Timbers
Apartments, Series A, AMT, 3.97%*, 3/15/2033                                                                                  | 300,000              | 300,000   
|Healdsburg, CA, School District General Obligation, Unified
School District, Zero Coupon, 7/15/2014 (a)                                                                          | 400,000              | 303,664   
|Las Virgenes, CA, School District General Obligation, Unified
School District:                                                                                                   |                      |           
|Series A, Zero Coupon, 11/1/2013 (a)                                                                                                                                             | 2,150,000            | 1,689,212 
|Series A, Zero Coupon, 11/1/2014 (a)                                                                                                                                             | 1,050,000            | 787,763   
|Series A, Zero Coupon, 11/1/2015 (a)                                                                                                                                             | 1,275,000            | 912,377   
|Zero Coupon, 11/1/2016 (a)                                                                                                                                                       | 1,500,000            | 1,019,430 
|Long Beach, CA, Bond Finance Authority Revenue,
Redevelopment Housing & Gas Utilities Financing, Series
A-1, 5.0%, 8/1/2025 (a)                                                  | 2,300,000            | 2,344,321 
|Long Beach, CA, Port Authority Revenue, AMT:                                                                                                                                     |                      |           
|Series A, 5.75%, 5/15/2016                                                                                                                                                       | 12,570,000           | 13,246,140
|Series A, 6.0%, 5/15/2017 (a)                                                                                                                                                    | 1,500,000            | 1,694,265 
|Series A, 6.0%, 5/15/2018 (a)                                                                                                                                                    | 4,000,000            | 4,525,000 
|Los Angeles County, CA, Core City General Obligation
Lease, Convention and Exhibition Center Authority,
Series A, 6.125%, 8/15/2011 (a)                                          | 1,000,000            | 1,089,410 
|Los Angeles County, CA, General Obligation Lease, Disney
Parking Project, Zero Coupon, 3/1/2008                                                                                  | 2,780,000            | 2,724,289 
|Los Angeles County, CA, Sanitation Districts Financing
Authority Revenue, Capital Project, Series A,
5.0%, 10/1/2021 (a)                                                         | 11,900,000           | 12,342,561
|Los Angeles, CA, Airport Revenue, AMT, Series B,
5.5%, 8/1/2016 (a)                                                                                                              | 6,500,000            | 6,875,115 
|Los Angeles, CA, Core City General Obligation Lease,
General Services, State Building Authority, Series A,
5.6%, 5/1/2008                                                        | 7,000,000            | 7,088,970 
|Los Angeles, CA, Pollution Control Revenue,
6.0%, 6/1/2021 (a)                                                                                                                   | 2,000,000            | 2,348,880 
|Los Angeles, CA, State General Obligation,
5.5%, 7/1/2014 (a)                                                                                                                    | 10,000,000           | 10,787,100
|Los Angeles, CA, Transportation/Tolls Revenue, Series B,
5.25%, 7/1/2015 (a)                                                                                                     | 11,800,000           | 12,547,766
|Los Angeles, CA, Unified School District, Series A,
5.375%, 7/1/2018 (a)                                                                                                         | 1,030,000            | 1,119,445 
|Lucia Mar, CA, School District General Obligation, Series A,
Zero Coupon, 8/1/2016 (a)                                                                                           | 1,000,000            | 686,940   
|Merced, CA, School District General Obligation, High
School District:                                                                                                            |                      |           
|Series A, Zero Coupon, 8/1/2014 (a)                                                                                                                                              | 2,045,000            | 1,549,721 
|Series A, Zero Coupon, 8/1/2015 (a)                                                                                                                                              | 2,090,000            | 1,510,986 
|Series A, Zero Coupon, 8/1/2016 (a)                                                                                                                                              | 2,140,000            | 1,470,052 
|Midpeninsula Regional Open Space District, CA, Other
General Obligation Lease, Zero Coupon, 9/1/2020 (a)                                                                         | 1,190,000            | 659,677   
|Millbrae, CA, Senior Care Revenue, Magnolia of Millbrae
Project, AMT, Series A, 7.375%, 9/1/2027                                                                                 | 3,660,000            | 3,773,204 
|Modesto, CA, General Obligation Lease, Community
Project, Series A, 5.6%, 11/1/2014 (a)                                                                                          | 1,370,000            | 1,487,108 
|Montebello, CA, School District General Obligation, Unified
School District, Zero Coupon, 8/1/2013 (a)                                                                           | 1,945,000            | 1,543,163 
|Moreno Valley, CA, Special Assessment Revenue,
Towngate Community Facilities District, Special Tax:                                                                              |                      |           
|6.5%, 12/1/2009                                                                                                                                                                  | 2,340,000            | 2,350,694 
|7.125%, 10/1/2023                                                                                                                                                                | 2,810,000            | 2,814,159 
|Murrieta Valley, CA, Unified School District:                                                                                                                                    |                      |           
|Series A, Zero Coupon, 9/1/2016 (a)                                                                                                                                              | 2,500,000            | 1,711,175 
|5.0%, 9/1/2026 (a)                                                                                                                                                               | 7,155,000            | 7,431,755 
|Northern California, Power Agency, Prerefunded,
7.0%, 7/1/2016                                                                                                                   | 210,000              | 254,342   
|Oakland, CA, Port Authority Revenue, AMT,
5.75%, 11/1/2014 (a)                                                                                                                   | 2,500,000            | 2,613,150 
|Palmdale, CA, School District General Obligation, School
Building Project, Zero Coupon, 10/1/2019 (a)                                                                            | 1,420,000            | 818,687   
|Pomona, CA, Unified School District, Series B, ETM,
6.25%, 8/1/2014 (a)                                                                                                          | 1,020,000            | 1,174,255 
|Redondo Beach, CA, Project Revenue, South Bay Center
Redevelopment Project:                                                                                                      |                      |           
|7.0%, 7/1/2016                                                                                                                                                                   | 925,000              | 935,721   
|7.125%, 7/1/2026                                                                                                                                                                 | 2,000,000            | 2,022,680 
|Redwood City, CA, School District General Obligation,
Elementary School District, Zero Coupon, 8/1/2017 (a)                                                                      | 1,635,000            | 1,065,382 
|Richmond, CA, Other General Obligation Lease, Joint
Powers Finance Authority, 6.6%, 9/1/2016                                                                                     | 1,000,000            | 1,011,620 
|Richmond, CA, Water & Sewer Revenue,
Zero Coupon, 8/1/2020 (a)                                                                                                                   | 2,495,000            | 1,388,343 
|Riverside County, CA, Hospital & Healthcare Revenue,
Asset Leasing Corp.:                                                                                                        |                      |           
|Zero Coupon, 6/1/2015 (a)                                                                                                                                                        | 1,750,000            | 1,264,217 
|Zero Coupon, 6/1/2016 (a)                                                                                                                                                        | 2,395,000            | 1,642,946 
|Sacramento County, CA, Resource Recovery Revenue,
Sanitation District Financing Authority, Series A,
6.0%, 12/1/2014                                                             | 5,000,000            | 5,393,300 
|Sacramento County, CA, Sales & Special Tax Revenue,
Community Facilities District No. 1:                                                                                         |                      |           
|5.5%, 12/1/2010                                                                                                                                                                  | 1,085,000            | 1,100,353 
|6.0%, 9/1/2011                                                                                                                                                                   | 850,000              | 869,967   
|6.125%, 9/1/2014                                                                                                                                                                 | 605,000              | 621,141   
|6.3%, 9/1/2021                                                                                                                                                                   | 1,500,000            | 1,529,790 
|Sacramento County, CA, Water Finance Authority Revenue,
Water Agency Zones 40 & 41:                                                                                              |                      |           
|Series B, 4.158%**, 6/1/2039 (a)                                                                                                                                                 | 10,000,000           | 9,613,800 
|Series A, 5.0%, 6/1/2026 (a)                                                                                                                                                     | 11,435,000           | 11,867,700
|Sacramento, CA, Electric Revenue, Municipal Utility District:                                                                                                                    |                      |           
|Series K, 5.75%, 7/1/2018 (a) (b)                                                                                                                                                | 5,170,000            | 5,873,482 
|Series G, 6.5%, 9/1/2013 (a)                                                                                                                                                     | 1,270,000            | 1,402,613 
|Sacramento, CA, Other General Obligation Lease, City
Financing Authority:                                                                                                        |                      |           
|Series B, 5.0%, 11/1/2014                                                                                                                                                        | 4,200,000            | 4,385,766 
|Series A, 5.4%, 11/1/2020 (a)                                                                                                                                                    | 5,000,000            | 5,516,450 
|Sacramento, CA, Project Revenue, City Financing Authority,
Convention Center Hotel, Series A, 6.25%, 1/1/2030                                                                    | 9,965,000            | 9,992,105 
|Sacramento, CA, Sales & Special Tax Revenue, Finance
Authority, Series B, Zero Coupon, 11/1/2016 (a)                                                                             | 2,685,000            | 1,824,780 
|Saddleback Valley, CA, Sales & Special Tax Revenue,
Unified School District, Public Financing Authority:                                                                         |                      |           
|Series A, 6.0%, 9/1/2013 (a)                                                                                                                                                     | 1,000,000            | 1,112,630 
|Series A, 6.0%, 9/1/2014 (a)                                                                                                                                                     | 2,195,000            | 2,463,866 
|Series A, 6.0%, 9/1/2015 (a)                                                                                                                                                     | 1,000,000            | 1,133,730 
|Salinas, CA, Other General Obligation Lease, Capital
Improvement Projects, Series A, 5.625%, 10/1/2017                                                                           | 2,000,000            | 2,042,900 
|Salinas, CA, School District General Obligation, Series A,
5.375%, 6/1/2022 (a) (b)                                                                                              | 2,700,000            | 2,933,496 
|San Bernardino, CA, County General Obligation, Medical
Center Financing Project:                                                                                                 |                      |           
|5.5%, 8/1/2017 (a)                                                                                                                                                               | 3,965,000            | 4,295,721 
|6.0%, 8/1/2009 (a)                                                                                                                                                               | 2,085,000            | 2,148,759 
|San Bernardino, CA, Other Revenue Lease:                                                                                                                                         |                      |           
|Series A, 5.25%, 11/1/2013 (a)                                                                                                                                                   | 3,115,000            | 3,348,033 
|Series A, 5.25%, 11/1/2014 (a)                                                                                                                                                   | 2,330,000            | 2,507,406 
|San Bruno Park, CA, School District, General Obligation:                                                                                                                         |                      |           
|Zero Coupon, 8/1/2014 (a)                                                                                                                                                        | 1,010,000            | 765,388   
|Zero Coupon, 8/1/2016 (a)                                                                                                                                                        | 1,000,000            | 686,940   
|Zero Coupon, 8/1/2017 (a)                                                                                                                                                        | 1,000,000            | 651,610   
|Zero Coupon, 8/1/2019 (a)                                                                                                                                                        | 1,100,000            | 644,259   
|San Diego CA, School District General Obligation,
5.25%, 7/1/2018 (a)                                                                                                            | 1,600,000            | 1,729,200 
|San Diego, CA, School District General Obligation,
Election of 1998:                                                                                                             |                      |           
|Series B, 6.0%, 7/1/2019 (a)                                                                                                                                                     | 3,350,000            | 3,890,556 
|Series B, 6.05%, 7/1/2018 (a)                                                                                                                                                    | 770,000              | 893,716   
|San Francisco, CA, Bay Area Rapid Transit District,
Sales Tax Revenue:                                                                                                           |                      |           
|Prerefunded, 5.25%, 7/1/2016 (a)                                                                                                                                                 | 845,000              | 895,244   
|5.25%, 7/1/2016 (a)                                                                                                                                                              | 305,000              | 321,680   
|San Francisco, CA, Bay Area Rapid Transportation District,
Election of 2004, Series B, 5.0%, 8/1/2027                                                                            | 5,085,000            | 5,276,094 
|San Francisco, CA, City & County Redevelopment Agency,
Multi-Family Housing Revenue, Derek Silva Community,
Series D, AMT, 4.01%*, 12/1/2019, Citibank NA (c)                    | 795,000              | 795,000   
|San Joaquin Hills, CA, Transportation Corridor Agency:                                                                                                                           |                      |           
|ETM, Zero Coupon, 1/1/2010                                                                                                                                                       | 1,500,000            | 1,374,495 
|ETM, Zero Coupon, 1/1/2014                                                                                                                                                       | 3,680,000            | 2,865,395 
|San Joaquin Hills, CA, Transportation/Tolls Revenue,
Transportation Corridor Agency:                                                                                             |                      |           
|Series A, Zero Coupon, 1/15/2015 (a)                                                                                                                                             | 12,065,000           | 8,932,202 
|Series A, Zero Coupon, 1/15/2016 (a)                                                                                                                                             | 3,485,000            | 2,458,772 
|Series A, Zero Coupon, 1/15/2017 (a)                                                                                                                                             | 3,965,000            | 2,653,854 
|Series A, Zero Coupon, 1/15/2018 (a)                                                                                                                                             | 2,640,000            | 1,677,535 
|Series A, Zero Coupon, 1/15/2019 (a)                                                                                                                                             | 3,185,000            | 1,911,573 
|San Jose, CA, School District General Obligation, Unified
School District:                                                                                                       |                      |           
|Series A, Zero Coupon, 8/1/2015 (a)                                                                                                                                              | 2,570,000            | 1,860,012 
|Series A, Zero Coupon, 8/1/2017 (a)                                                                                                                                              | 1,350,000            | 883,103   
|San Juan, CA, San Juan Project, Series D, ETM,
6.75%, 7/1/2020 (a)                                                                                                               | 1,680,000            | 1,967,028 
|San Ysidro, CA, School District General Obligation,
6.125%, 8/1/2021 (a)                                                                                                         | 1,400,000            | 1,583,008 
|Santa Ana, CA, Other General Obligation, Police
Administration and Holding Facility, Series A,
6.25%, 7/1/2024 (a)                                                               | 2,000,000            | 2,391,700 
|Santa Barbara, CA, High School District, Election 2000,
Series B, 5.0%, 8/1/2029 (a)                                                                                             | 6,430,000            | 6,605,539 
|Santa Clara County, CA, Hospital & Healthcare Revenue,
Financing Authority, VMC Replacement Project, Series A,
7.75%, 11/15/2008 (a)                                             | 3,250,000            | 3,404,212 
|Santa Cruz County, CA, County General Obligation Lease,
Capital Facilities Project:                                                                                              |                      |           
|5.5%, 9/1/2017 (a)                                                                                                                                                               | 1,005,000            | 1,114,947 
|5.5%, 9/1/2018 (a)                                                                                                                                                               | 1,060,000            | 1,177,925 
|5.6%, 9/1/2019 (a)                                                                                                                                                               | 1,115,000            | 1,251,777 
|5.6%, 9/1/2020 (a)                                                                                                                                                               | 1,180,000            | 1,325,907 
|5.65%, 9/1/2024 (a)                                                                                                                                                              | 1,445,000            | 1,638,196 
|5.65%, 9/1/2025 (a)                                                                                                                                                              | 1,520,000            | 1,726,994 
|5.65%, 9/1/2026 (a)                                                                                                                                                              | 1,605,000            | 1,826,859 
|Santa Margarita/Dana Point, CA, Special Assessment
Revenue, Improvement District Authority:                                                                                      |                      |           
|Series B, 7.25%, 8/1/2012 (a)                                                                                                                                                    | 3,675,000            | 4,248,925 
|Series B, 7.25%, 8/1/2013 (a)                                                                                                                                                    | 3,400,000            | 4,012,238 
|Santaluz, CA, Sales & Special Tax Revenue, Santaluz
Community Facilities No. 2:                                                                                                  |                      |           
|6.25%, 9/1/2021                                                                                                                                                                  | 1,995,000            | 2,005,753 
|6.375%, 9/1/2030                                                                                                                                                                 | 4,940,000            | 4,963,070 
|Southern California, Electric Revenue, Public Power
Authority, Power Project, 6.75%, 7/1/2010                                                                                    | 6,000,000            | 6,458,280 
|Southern California, Electric Revenue, Public Power
Authority, Transmission Project, Zero Coupon, 7/1/2015                                                                       | 2,000,000            | 1,424,400 
|Southern California, Metropolitan Water District,
Waterworks Revenue:                                                                                                            |                      |           
|Series A, 5.75%, 7/1/2021                                                                                                                                                        | 1,120,000            | 1,270,987 
|Series A, ETM, 5.75%, 7/1/2021                                                                                                                                                   | 880,000              | 986,022   
|Tahoe Truckee, CA, School District General Obligation,
Unified School District Capital Improvement, Series A,
Zero Coupon, 8/1/2022 (a)                                          | 3,600,000            | 1,795,068 
|Temple City, CA, School District General Obligation,
Series A, Zero Coupon, 8/1/2015 (a)                                                                                         | 1,250,000            | 903,700   
|Ukiah, CA, School District General Obligation, Unified School
District, Zero Coupon, 8/1/2016 (a)                                                                                | 2,000,000            | 1,373,880 
|West Covina, CA, Sales & Special Tax Revenue, Fashion
Plaza, 5.75%, 9/1/2009                                                                                                     | 595,000              | 606,918   
|                                                                                                                                                                                 | 669,528,196         
|Puerto Rico 6.5%                                                                                                                                                                
|Commonwealth of Puerto Rico, Public Improvement,
Series A, 5.25%, 7/1/2022                                                                                                       | 2,000,000            | 2,074,980 
|Puerto Rico, Electric Revenue, Electric Power Authority:                                                                                                                         |                      |           
|Series JJ, 5.375%, 7/1/2017 (a)                                                                                                                                                  | 10,605,000           | 11,730,297
|Series KK, 5.5%, 7/1/2016 (a)                                                                                                                                                    | 10,000,000           | 11,141,800
|Puerto Rico, Industrial Development Revenue, Industrial
Tourist Educational, Medical & Environmental Central
Facilities:                                                         |                      |           
|Series A, 5.625%, 7/1/2015 (a)                                                                                                                                                   | 2,190,000            | 2,301,997 
|Series A, 5.625%, 7/1/2016 (a)                                                                                                                                                   | 2,215,000            | 2,328,873 
|5.625%, 7/1/2017 (a)                                                                                                                                                             | 2,345,000            | 2,466,213 
|Puerto Rico, Public Buildings Authority Revenue,
Government Facilities, Series A, ETM,
6.25%, 7/1/2013 (a)                                                                       | 1,000,000            | 1,130,110 
|Puerto Rico, Sales & Special Tax Revenue,
Commonwealth Infrastructure Finance Authority,
Series A, 5.5%, 10/1/2020                                                               | 2,000,000            | 2,108,320 
|Puerto Rico, Sales & Special Tax Revenue, Highway &
Transportation Authority:                                                                                                    |                      |           
|Series Z, 6.0%, 7/1/2018 (a)                                                                                                                                                     | 7,250,000            | 8,399,995 
|Series Z, 6.25%, 7/1/2014 (a)                                                                                                                                                    | 1,000,000            | 1,145,200 
|Series A, 6.25%, 7/1/2016 (a)                                                                                                                                                    | 750,000              | 877,837   
|Puerto Rico, State General Obligation:                                                                                                                                           |                      |           
|5.5%, 7/1/2015 (a)                                                                                                                                                               | 3,665,000            | 4,061,260 
|5.65%, 7/1/2015 (a)                                                                                                                                                              | 1,000,000            | 1,100,500 
|6.5%, 7/1/2015 (a)                                                                                                                                                               | 4,000,000            | 4,697,400 
|                                                                                                                                                                                 | 55,564,782          
|Virgin Islands 0.9%                                                                                                                                                             
|Virgin Islands, Sales & Special Tax Revenue, Public Finance
Authority, Series A, 6.5%, 10/1/2024                                                                                 | 7,500,000            | 8,185,950 
|Total Municipal Bonds and Notes (Cost $690,749,016)                                                                                                                              | 733,278,928         
|                                                                                                                                                                                
|Municipal Inverse Floating Rate Notes 30.6%                                                                                                                                     
|California 24.3%                                                                                                                                                                
|Big Bear Lake, CA, Water Revenue, 6.0%, 4/1/2015 (a) (d)                                                                                                                         | 3,400,000            | 3,783,129 
|Trust: Big Bear Lake, CA, Water & Sewer Revenue,
RITES-PA 597A, Series B, 144A, 7.735%, 10/1/2010,
Leverage Factor at purchase date: 2 to 1                                      |                      |           
|Big Bear Lake, CA, Water Revenue, 6.0%, 4/1/2022 (a) (d)                                                                                                                         | 13,500,000           | 15,660,473
|Trust: Big Bear Lake, CA, Water & Sewer Revenue,
RITES-PA 597B, Series A, 144A, 7.735%, 4/1/2015,
Leverage Factor at purchase date: 2 to 1                                       |                      |           
|California, Bay Area Toll Authority, Toll Bridge Revenue,
San Francisco Bay Area, Series F, 5.0%, 4/1/2025 (d)                                                                   | 13,870,000           | 14,410,418
|Trust: California, Bay Area Toll Authority, Toll Bridge
Revenue, Series 1962-3,144A, 7.488%, 4/1/2014,
Leverage Factor at purchase date: 4 to 1                                  |                      |           
|California, Bay Area Toll Authority, Toll Bridge Revenue,
San Francisco Bay Area, Series F, 5.0%, 4/1/2031 (d)                                                                   | 11,475,000           | 11,801,262
|Trust: California, Bay Area Toll Authority, Toll Bridge
Revenue, Series 1962, 144A, 7.489%, 4/1/2014, Leverage
Factor at purchase date: 4 to 1                                   |                      |           
|California, Bay Area Toll Authority, Toll Bridge Revenue,
San Francisco Bay Area, Series F, 5.0%, 4/1/2026 (d)                                                                   | 17,205,000           | 17,834,004
|Trust: California, Bay Area Toll Authority, Toll Bridge
Revenue, Series 1962-2, 144A, 7.491%, 4/1/2014,
Leverage Factor at purchase date: 4 to 1                                 |                      |           
|California, State Department Water Resource, Power Supply
Revenue, Series A, 5.375%, 5/1/2018 (a) (d)                                                                            | 15,000,000           | 16,252,500
|Trust: California, State Department Water Supply
Revenue, Series 309, 144A, 6.515%, 5/1/2018, Leverage
Factor at purchase date: 2 to 1                                           |                      |           
|California, State Economic Recovery, Series A,
5.0%, 7/1/2015 (a) (d)                                                                                                            | 15,300,000           | 16,333,362
|Trust: California, State Economic Recovery, RITES-PA
1262, 144A, 5.72%, 1/1/2012, Leverage Factor at
purchase date: 2 to 1                                                       |                      |           
|California, State General Obligation, 5.0%, 3/1/2027 (d)                                                                                                                         | 10,000,000           | 10,162,700
|Trust: California, UBS Municipal (CRVS), Various States,
Series 2007-1031C, 144A, 8.24%, 6/1/2014,Leverage
Factor at purchase date: 5 to 1                                       |                      |           
|Long Beach, CA, Harbor Revenue, Series A,
6.0%, 5/15/2016 (a) (d)                                                                                                                | 8,430,000            | 9,451,842 
|Trust: Long Beach, CA, Sales & Special Tax Revenue,
RITES-PA 651A, 144A, AMT, 7.745%, 11/15/2012,
Leverage Factor at purchase date: 2 to 1                                       |                      |           
|Long Beach, CA, Harbor Revenue, Series A,
6.0%, 5/15/2019(a) (d)                                                                                                                 | 10,600,000           | 12,014,146
|Trust: Long Beach, CA, Sales & Special Tax Revenue,
RITES-PA 651B, 144A, AMT, 7.745%, 5/15/2015,
Leverage Factor at purchase date: 2 to 1                                        |                      |           
|Los Angeles, CA, Unified School District, Series A,
5.25%, 7/1/2013 (a) (d)                                                                                                      | 6,250,000            | 6,752,094 
|Trust: Los Angeles, CA, Higher Education Revenue,
Unified School District, RITES-PA 117, 144A, 6.22%,
1/1/2011, Leverage Factor at purchase date: 2 to 1                         |                      |           
|Los Angeles, CA, Unified School District, Series A,
6.0%, 7/1/2015 (a) (d)                                                                                                       | 6,340,000            | 6,998,789 
|Trust: Los Angeles, CA, School District General Obligation
Lease, Unified School District, RITES-PA 589A, 144A,
7.735%, 7/1/2009, Leverage Factor at purchase date:
2 to 1       |                      |           
|Los Angeles, CA, Unified School District, Series A,
6.0%, 7/1/2012 (a) (d)                                                                                                       | 2,970,000            | 3,319,510 
|Trust: Los Angeles, CA, School District General Obligation
Lease, Unified School District, RITES-PA 589B, 144A,
7.735%, 7/1/2010, Leverage Factor at purchase date:
2 to 1       |                      |           
|Los Angeles, CA, Unified School District, Series A,
6.0%, 7/1/2013 (a) (d)                                                                                                       | 5,820,000            | 6,570,780 
|Trust: Los Angeles, CA, School District General Obligation
Lease, Unified School District, RITES-PA 589C, 144A,
7.735%, 7/1/2011, Leverage Factor at purchase date:
2 to 1       |                      |           
|Los Angeles, CA, Unified School District, Series A,
6.0%, 7/1/2014 (a) (d)                                                                                                       | 7,120,000            | 8,128,192 
|Trust: Los Angeles, CA, School District General Obligation
Lease, Unified School District, RITES-PA 589D, 144A,
7.735%, 1/1/2012, Leverage Factor at purchase date:
2 to 1       |                      |           
|Rancho, CA, Water District Financing Authority Revenue,
Series A, 5.0%, 8/1/2027 (a) (d)                                                                                         | 14,100,000           | 14,582,394
|Rancho, CA, Water District Financing Authority Revenue,
Series A, 5.0%, 8/1/2029 (a) (d)                                                                                         | 8,400,000            | 8,675,012 
|Trust: Rancho, CA, Water District Financing Authority
Revenue, Series 1999, 144A, 7.49%, 8/1/2015, Leverage
Factor at purchase date: 4 to 1                                      |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT,Series 24A,
5.75%, 5/1/2012 (a) (d)                                                     | 2,570,000            | 2,710,335 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662B, 144A, 7.235%, 5/1/2012, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 25,
5.75%, 5/1/2012 (a) (d)                                                     | 2,890,000            | 3,047,808 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662H, 144A, 7.235%, 5/1/2012, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 24A,
5.75%, 5/1/2013 (a) (d)                                                    | 2,730,000            | 2,874,608 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662C, 144A, 7.235%, 5/1/2013, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT,Series 25,
5.75%, 5/1/2013 (a) (d)                                                      | 3,070,000            | 3,232,618 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662I, 144A, 7.235%, 5/1/2013, Leverage Factor
at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 24A,
5.75%, 5/1/2014 (a) (d)                                                    | 2,890,000            | 3,043,083 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662D, 144A, 7.235%, 5/1/2014, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 24A,
5.75%, 5/1/2015 (a) (d)                                                    | 3,060,000            | 3,208,425 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662E, 144A, 7.235%, 5/1/2015, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 24A,
5.875%, 5/1/2016 (a) (d)                                                   | 3,250,000            | 3,417,798 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662F, 144A, 7.485%, 5/1/2016, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 24A,
6.0%, 5/1/2011 (a) (d)                                                     | 2,160,000            | 2,295,043 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662A, 144A, 7.735%, 5/1/2011, Leverage
Factor at purchase date: 2 to 1 |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 25,
6.0%, 5/1/2011 (a) (d)                                                      | 2,730,000            | 2,900,680 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT,
RITES-PA 662G, 144A, 7.735%, 5/1/2011, Leverage
Factor at purchase date: 2 to 1 |                      |           
|                                                                                                                                                                                 | 209,461,005         
|Puerto Rico 6.3%                                                                                                                                                                
|Puerto Rico, Electric Power Authority, Power Revenue,
Series KK, 5.5%, 7/1/2015 (a) (d)                                                                                          | 25,000,000           | 27,703,000
|Trust: Puerto Rico, Electric Revenue, Electric Power
Authority, RITES-PA 1044, 144A, 9.319%, 7/1/2012,
Leverage Factor at purchase date: 4 to 1                                  |                      |           
|Puerto Rico, Commonwealth, 6.0%, 7/1/2014 (a) (d)                                                                                                                                | 10,000,000           | 11,302,850
|Trust: Puerto Rico, Sales & Special Tax Revenue,
RITES-PA 620B, 144A, 7.785%, 7/1/2011, Leverage
Factor at purchase date: 2 to 1                                                 |                      |           
|Puerto Rico, Commonwealth, Series A,
5.5%, 7/1/2020 (a) (d)                                                                                                                      | 13,250,000           | 14,825,756
|Trust: Puerto Rico, Sales & Special Tax Revenue,
Municipal Finance Agency, RITES-PA 944B, 144A, 6.8%,
7/1/2016, Leverage Factor at purchase date: 2 to 1                         |                      |           
|                                                                                                                                                                                 | 53,831,606          
|Total Municipal Inverse Floating Rate Notes (Cost $252,950,473)                                                                                                                  | 263,292,611         
|                                                                                                                                                                                
|Government & Agency Obligations 0.0%                                                                                                                                            
|US Treasury Bill, 4.1%***, 10/18/2007 (e) (Cost $350,120)                                                                                                                        | 352,000              | 350,320   

|                                               | % of Net
Assets | Value ($)    
|---------------------------------------------- | --------------- | -------------
|                                               |                
|Total Investment Portfolio(Cost $944,049,609)+ | 115.9           | 996,921,859  
|Other Assets and Liabilities, Net              | (15.9)          | (137,070,760)
|Net Assets                                     | 100.0           | 859,851,099  

|Insurance Coverage                   | As a % of Total
Investment Portfolio
|------------------------------------ | ------------------------------------
|Ambac Financial Group                | 5.8                                 
|Financial Guaranty Insurance Company | 14.8                                
|Financial Security Assurance, Inc.   | 13.9                                
|MBIA Corporation                     | 26.5                                
|Radian Asset Assurance, Inc.         | 1.2                                 
|XL Capital Assurance, Inc.           | 1.2                                 

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933.
These securities may be resold in transactions exempt from registration, normally to
qualified institutional buyers.

AMT: Subject to alternative minimum tax.

CRVS: Custodial Residual and Variable Securities

ETM: Bonds bearing the description ETM (escrow to maturity) are collateralized usually by
US Treasury securities which are held in escrow and used to pay principal and interest on
bonds so designated.

Prerefunded: Bonds which are prerefunded are collateralized usually by US Treasury
securities which are held in escrow and used to pay principal and interest on tax-exempt
issues and to retire the bonds in full at the earliest refunding date.

RITES: Residual Interest Tax Exempt Security

At August 31, 2007, open futures contracts sold were as follows:

|Futures                  | Expiration
Date | Contracts | Aggregated
Face
Value ($) | Value ($)  | Unrealized
Depreciation ($)
|------------------------ | --------------- | --------- | ------------------------- | ---------- | ---------------------------
|10 Year US
Treasury Note | 9/19/2007       | 390       | 41,954,283                | 42,698,906 | (744,623)                  

At August 31, 2007, open interest rate swaps were as follows:

|Effective/
Expiration
Date                   | Notional
Amount ($) | Cash Flows Paid
by the Fund | Cash Flows
Received by the
Fund | Unrealized
Depreciation ($)
|-------------------------------------------- | ------------------- | --------------------------- | ------------------------------- | ---------------------------
|2/13/2008
2/13/2022                          | 14,900,0001         | Fixed  5.62%               | Floating  LIBOR                | (390,235)                  
|Counterparty:1Citigroup Global Markets, Inc.

LIBOR: Represents the London InterBank Offered Rate.

The accompanying notes are an integral part of the financial statements.

Financial Statements

|Statement of Assets and Liabilitiesas of August 31, 2007    
|------------------------------------------------------------
|Assets                                                      
|Investments in securities, at value (cost $944,049,609)     
|Cash                                                        
|Receivable for investments sold                             
|Interest receivable                                         
|Receivable for Fund shares sold                             
|Other assets                                                
|Total assets                                                
|Liabilities                                                 
|Payable for floating rate notes issued                      
|Dividends payable                                           
|Payable for daily variation margin on open futures contracts
|Payable for Fund shares redeemed                            
|Unrealized depreciation on interest rate swap contracts     
|Accrued management fee                                      
|Other accrued expenses and payables                         
|Total liabilities                                           
|Net assets, at value                                        
|Net Assets Consist of                                       
|Undistributed net investment income                         
|Net unrealized appreciation (depreciation) on:Investments   
|Futures                                                     
|Interest rate swaps                                         
|Accumulated net realized gain (loss)                        
|Paid-in capital                                             
|Net assets, at value                                        

The accompanying notes are an integral part of the financial statements.

|Statement of Assets and Liabilitiesas of August 31, 2007 (continued)                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Net Asset Value                                                                                                                                                                                                                            
|Class A
Net Asset Value and redemption price(a) per share
($612,315,488 ÷ 83,272,930 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized)                                                     
|Maximum offering price per share (100 ÷ 95.50 of $7.35)                                                                                                                                                                                    
|Class B
Net Asset Value, offering and redemption price(a) (subject to contingent
deferred sales charge) per share ($5,317,457 ÷ 721,818 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares
authorized)  
|Class C
Net Asset Value, offering and redemption price(a) (subject to contingent
deferred sales charge) per share ($9,173,077 ÷ 1,255,338 outstanding
shares of beneficial interest, $.01 par value, unlimited number of shares
authorized)
|Class S
Net Asset Value, offering and redemption price(a)per share
($233,045,077 ÷ 31,747,421 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized)                                            

The accompanying notes are an integral part of the financial statements.

|Statement of Operationsfor the year ended August 31, 2007          
|-------------------------------------------------------------------
|Investment Income                                                  
|Income:Interest                                                    
|Expenses:Management fee                                            
|Distribution service fees                                          
|Services to shareholders                                           
|Custodian fee                                                      
|Auditing                                                           
|Legal                                                              
|Trustees' fees and expenses                                        
|Reports to shareholders                                            
|Registration fees                                                  
|Interest expense and fees on floating rate notes                   
|Other                                                              
|Total expenses before expense reductions                           
|Expense reductions                                                 
|Total expenses after expense reductions                            
|Net investment income (loss)                                       
|Realized and Unrealized Gain (Loss)                                
|Net realized gain (loss) from:Investments                          
|Interest rate swaps                                                
|                                                                   
|Change in net unrealized appreciation (depreciation) on:Investments
|Futures                                                            
|Interest rate swaps                                                
|                                                                   
|Net gain (loss)                                                    
|Net increase (decrease) in net assets resulting from operations    

The accompanying notes are an integral part of the financial statements.

|Statement of Cash Flowsfor the year ended August 31, 2007                                                                         
|----------------------------------------------------------------------------------------------------------------------------------
|Cash Flows from Operating Activities:                                                                                             
|Investment income received*                                                                                                       
|Payment of operating expenses                                                                                                     
|Payment of interest expense                                                                                                       
|Proceeds from sales and maturities of investments                                                                                 
|Purchases of investments                                                                                                          
|Purchases of short-term investments                                                                                               
|Net receipt (payment) on futures contracts                                                                                        
|Cash provided (used) by operating activities                                                                                      
|Cash Flows from Financing Activities:                                                                                             
|Proceeds from shares sold                                                                                                         
|Cost of shares redeemed                                                                                                           
|Distributions paid (net of reinvestment of distributions)                                                                         
|Increase (decrease) in payable for floating rate notes issued                                                                     
|Cash provided (used) by financing activities                                                                                      
|Increase (decrease) in cash                                                                                                       
|Cash overdraft at beginning of period                                                                                             
|Cash at end of period                                                                                                             
|Reconciliation of Net Increase (Decrease) in Net Assets Resulting from Operations to
Cash Provided (Used) by Operating Activities:
|Net increase (decrease) in net assets resulting from operations                                                                   
|Net (increase) decrease in cost of investments                                                                                    
|Net (increase) decrease in unrealized appreciation (depreciation) on
investments                                                  
|(Increase) decrease in receivable for investments sold                                                                            
|(Increase) decrease in interest receivable                                                                                        
|(Increase) decrease in other assets                                                                                               
|Increase (decrease) in payable for daily variation margin on open
futures contracts                                               
|Increase (decrease) in depreciation on swap contracts                                                                             
|Increase (decrease) in other accrued expenses and payables                                                                        
|Cash provided (used) by operating activities                                                                                      
|Non-Cash Financing Activities:                                                                                                    
|Reinvestment of distributions                                                                                                     

The accompanying notes are an integral part of the financial statements.

|Statement of Changes in Net Assets                                                                                
|------------------------------------------------------------------------------------------------------------------
|Increase (Decrease) in Net Assets                                                                                 
|2007                                                                                                              
|Operations:Net investment income                                                                                  
|Net realized gain (loss)                                                                                          
|Change in net unrealized appreciation (depreciation)                                                              
|Net increase (decrease) in net assets resulting from
operations                                                   
|Distributions to shareholders from:Net investment income:Class A                                                  
|Class B                                                                                                           
|Class C                                                                                                           
|Class S                                                                                                           
|Net realized gains:Class A                                                                                        
|Class B                                                                                                           
|Class C                                                                                                           
|Class S                                                                                                           
|Fund share transactions:Proceeds from shares sold                                                                 
|Reinvestment of distributions                                                                                     
|Cost of shares redeemed                                                                                           
|Redemption fees                                                                                                   
|Net increase (decrease) in net assets from Fund share
transactions                                                
|Increase (decrease) in net assets                                                                                 
|Net assets at beginning of period                                                                                 
|Net assets at end of period (including undistributed
net investment income of $435,133 and $429,092,
respectively)

The accompanying notes are an integral part of the financial statements.

Financial Highlights

|Class A
Years Ended August 31,                                                                                                                                                                                                                                                                                                                                                          | 2007      | 2006      | 2005      | 2004      | 2003     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                    | $    7.53 | $    7.61 | $    7.57 | $    7.42 | $    7.66
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                        | .31       | .32       | .33       | .33       | .34      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                 | (.18)     | (.08)     | .04       | .15       | (.24)    
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                        | .13       | .24       | .37       | .48       | .10      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                          | (.31)     | (.32)     | (.33)     | (.33)     | (.34)    
|Net realized gains                                                                                                                                                                                                                                                                                                                                                                      | (.00)*    |          |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                     | (.31)     | (.32)     | (.33)     | (.33)     | (.34)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                         | .00*      | .00*      | .00*      |          |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                          | $    7.35 | $    7.53 | $    7.61 | $    7.57 | $    7.42
|Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                       | 1.71      | 3.27      | 5.01      | 6.59      | 1.27     
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                     
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                  | 612       | 613       | 617       | 652       | 677      
|Ratio of expenses (including interest
expense) (%)c                                                                                                                                                                                                                                                                                                                                     | 1.31      | 1.32      | 1.10      | .94       | .93      
|Ratio of expenses (excluding interest
expense) (%)                                                                                                                                                                                                                                                                                                                                      | .83       | .83       | .83       | .81       | .79      
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                                      | 4.14      | 4.30      | 4.34      | 4.42      | 4.40     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                             | 37        | 32        | 23        | 25        | 33       
|aBased on average shares outstanding during the period.bTotal return does not reflect the effect of any sales charges.cInterest expense represents interest and fees on short term floating rate notes issued
in conjunction with inverse floating rate securities. Interest income from such
transactions is included in income from investment operations.*Amount is less than $.005.

|Class B
Years Ended August 31,                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2007      | 2006      | 2005      | 2004      | 2003     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                              | $    7.54 | $    7.62 | $    7.58 | $    7.43 | $    7.67
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                                                                                                  | .26       | .27       | .28       | .28       | .27      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                           | (.18)     | (.08)     | .04       | .15       | (.24)    
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                                                                                                  | .08       | .19       | .32       | .43       | .03      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                    | (.25)     | (.27)     | (.28)     | (.28)     | (.27)    
|Net realized gains                                                                                                                                                                                                                                                                                                                                                                                                                                                | (.00)*    |          |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                                                                                               | (.25)     | (.27)     | (.28)     | (.28)     | (.27)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                                                                                                   | .00*      | .00*      | .00*      |          |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                                                                                                    | $    7.37 | $    7.54 | $    7.62 | $    7.58 | $    7.43
|Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 1.10c     | 2.57c     | 4.17c     | 5.94c     | .40      
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                                                                                               
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                                                                                            | 5         | 8         | 10        | 16        | 24       
|Ratio of expenses before expense
reductions (including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                     | 2.11      | 2.20      | 1.96      | 1.76      | 1.79     
|Ratio of expenses after expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                      | 2.04      | 2.00      | 1.78      | 1.65      | 1.79     
|Ratio of expenses after expense reductions
(excluding interest expense) (%)                                                                                                                                                                                                                                                                                                                                                                                       | 1.57      | 1.51      | 1.51      | 1.52      | 1.65     
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                                                                                                                | 3.40      | 3.61      | 3.66      | 3.71      | 3.54     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                                                                                                       | 37        | 32        | 23        | 25        | 33       
|aBased on average shares outstanding during the period.bTotal return does not reflect the effect of any sales charges.cTotal return would have been lower had certain expenses not been reduced.dInterest expense represents interest and fees on short term floating rate notes issued
in conjunction with inverse floating rate securities. Interest income from such
transactions is included in income from investment operations.*Amount is less than $.005.

|Class C
Years Ended August 31,                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2007      | 2006      | 2005      | 2004      | 2003     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                              | $    7.48 | $    7.56 | $    7.52 | $    7.37 | $    7.62
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                                                                                                  | .26       | .26       | .27       | .28       | .27      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                           | (.18)     | (.08)     | .04       | .14       | (.25)    
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                                                                                                  | .08       | .18       | .31       | .42       | .02      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                    | (.25)     | (.26)     | (.27)     | (.27)     | (.27)    
|Net realized gain                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (.00)*    |          |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                                                                                               | (.25)     | (.26)     | (.27)     | (.27)     | (.27)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                                                                                                   | .00*      | .00*      | .00*      |          |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                                                                                                    | $    7.31 | $    7.48 | $    7.56 | $    7.52 | $    7.37
|Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 1.05c     | 2.52c     | 4.26c     | 5.82c     | .20      
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                                                                                               
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                                                                                            | 9         | 9         | 9         | 8         | 8        
|Ratio of expenses before expense
reductions (including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                     | 2.09      | 2.12      | 1.91      | 1.73      | 1.83     
|Ratio of expenses after expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                      | 2.09      | 2.04      | 1.82      | 1.69      | 1.83     
|Ratio of expenses after expense reductions
(excluding interest expense) (%)                                                                                                                                                                                                                                                                                                                                                                                       | 1.61      | 1.55      | 1.55      | 1.56      | 1.69     
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                                                                                                                | 3.35      | 3.57      | 3.62      | 3.67      | 3.50     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                                                                                                       | 37        | 32        | 23        | 25        | 33       
|aBased on average shares outstanding during the period.bTotal return does not reflect the effect of any sales charges.cTotal return would have been lower had certain expenses not been reduced.dInterest expense represents interest and fees on short term floating rate notes issued
in conjunction with inverse floating rate securities. Interest income from such
transactions is included in income from investment operations.*Amount is less than $.005.

|Class S
Years Ended August 31,                                                                                                                                                                                                                                                                                           | 2007      | 2006      | 2005      | 2004      | 2003     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                 
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                     | $    7.52 | $    7.59 | $    7.56 | $    7.42 | $    7.66
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                         | .33       | .33       | .34       | .35       | .35      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                  | (.19)     | (.06)     | .04       | .15       | (.24)    
|Total from investment operations                                                                                                                                                                                                                                                                                         | .14       | .27       | .38       | .50       | .11      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                           | (.32)     | (.34)     | (.35)     | (.36)     | (.35)    
|Net realized gains                                                                                                                                                                                                                                                                                                       | (.00)*    |          |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                      | (.32)     | (.34)     | (.35)     | (.36)     | (.35)    
|Redemption fees                                                                                                                                                                                                                                                                                                          | .00*      | .00*      | .00*      |          |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                           | $    7.34 | $    7.52 | $    7.59 | $    7.56 | $    7.42
|Total Return (%)                                                                                                                                                                                                                                                                                                         | 1.92      | 3.63      | 5.10      | 6.81      | 1.36     
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                      
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                   | 233       | 251       | 272       | 281       | 298      
|Ratio of expenses (including interest
expense) (%)b                                                                                                                                                                                                                                                                      | 1.10      | 1.10      | .89       | .74       | .82      
|Ratio of expenses (excluding interest
expense) (%)                                                                                                                                                                                                                                                                       | .62       | .61       | .62       | .61       | .68      
|Ratio of net investment income (loss) (%)                                                                                                                                                                                                                                                                                | 4.35      | 4.51      | 4.55      | 4.62      | 4.51     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                              | 37        | 32        | 23        | 25        | 33       
|aBased on average shares outstanding during the period.bInterest expense represents interest and fees on short term floating rate notes issued
in conjunction with inverse floating rate securities. Interest income from such
transactions is included in income from investment operations.*Amount is less than $.005.

Notes to Financial Statements

A. Significant Accounting Policies

DWS California Tax-Free Income Fund (the "Fund") is a non-diversified
series of DWS State Tax-Free Income Series (the "Trust") which is
registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company organized
as a Massachusetts business trust.

The Fund offers multiple classes of shares which provide investors with
different purchase options. Class A shares are offered to investors subject
to an initial sales charge. Class B shares are offered without an initial sales
charge but are subject to higher ongoing expenses than Class A shares
and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after
issuance. Class C shares are offered to investors without an initial sales
charge but are subject to higher ongoing expenses than Class A shares
and a contingent deferred sales charge payable upon certain redemptions
within one year of purchase. Class C shares do not convert into another
class. Class S shares are not subject to initial or contingent deferred sales
charges and are generally not available to new investors except under
certain circumstances.

Investment income, realized and unrealized gains and losses, and certain
fund-level expenses and expense reductions, if any, are borne pro rata on
the basis of relative net assets by the holders of all classes of shares,
except that each class bears certain expenses unique to that class such as
distribution service fees, services to shareholders and certain other
class-specific expenses. Differences in class-level expenses may result in
payment of different per share dividends by class. All shares of the Fund
have equal rights with respect to voting subject to class-specific
arrangements.

The Fund's financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
which require the use of management estimates. Actual results could
differ from those estimates. The policies described below are followed
consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the
close of regular trading on the New York Stock Exchange on each day the
exchange is open for trading. Debt securities are valued by independent
pricing services approved by the Trustees of the Fund. If the pricing
services are unable to provide valuations, the securities are valued at the
mean of the most recent bid quotation or evaluated price, as applicable,
obtained from a broker dealer. Such services may use various pricing
techniques which take into account appropriate factors such as yield,
quality, coupon rate, maturity, type of issue, trading characteristics and
other data, as well as broker quotes.

Money market instruments purchased with an original or remaining
maturity of sixty days or less, maturing at par, are valued at amortized
cost.

Securities and other assets for which market quotations are not readily
available or for which the above valuation procedures are deemed not to
reflect fair value are valued in a manner that is intended to reflect their fair
value as determined in accordance with procedures approved by the
Trustees.

In September 2006, the Financial Accounting Standards Board ("FASB")
released Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("FAS 157"). FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair
value measurements. FAS 157 is effective for fiscal years beginning after
November 15, 2007. As of August 31, 2007, management does not believe
the adoption of FAS 157 will impact the amounts reported in the financial
statements, however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of
certain of the measurements reported in the statement of operations for
a fiscal period.

Inverse Floaters.Inverse floating rate notes are debt instruments with a
weekly floating rate of interest that bears an inverse relationship to
changes in short-term market interest rates. Investments in this type of
instrument involve special risks as compared to investments in a fixed rate
municipal security. The debt instrument in which the Fund may invest is a
tender option bond trust (the "trust") which can be established by the
Fund, a financial institution, or a broker consisting of underlying municipal
obligations with intermediate to long maturities and a fixed interest rate.
Other investors in the trust usually consist of money market fund
investors receiving weekly floating interest rate payments who have put
options with the financial institutions. The Fund may enter into shortfall
and forbearance agreements by which the Fund agrees to reimburse the
trust, in certain circumstances, for the difference between the liquidation
value of the fixed rate municipal security held by the trust and the
liquidation value of the floating rate notes. These transactions are
considered a form of financing for accounting purposes. As a result, the
Fund includes the original transferred bond and a corresponding liability
equal to the floating rate note issued. The Fund does not consider the
Fund's investment in inverse floaters borrowing within the meaning of the
Investment Company Act of 1940. Inverse floating rate notes exhibit
added interest rate sensitivity compared to other bonds with a similar
maturity. Moreover, since these securities are in a trust form, a sale may
take longer to settle than the standard two days after the trade date.

The weighted average outstanding daily balance of the floating rate notes
issued during the year ended August 31, 2007 was approximately
$103,332,000, with a weighted average interest rate of 3.88%.

Swap Agreements. The Fund may enter into interest rate swap
transactions to reduce the interest rate risk inherent in the Fund's
underlying investments. The use of interest rate swaps is a highly
specialized activity that involves investment techniques and risks different
from those associated with ordinary portfolio security transactions. In an
interest rate swap, the Fund would agree to pay to the other party to the
interest rate swap (which is known as the "counterparty") a fixed rate
payment in exchange for the counterparty agreeing to pay to the Fund a
variable rate payment, or the Fund would agree to receive from the
counterparty a fixed rate payment in exchange for the counterparty
agreeing to receive from the Fund a variable rate payment. The payment
obligations would be based on the notional amount of the swap. Certain
risks may arise when entering into swap transactions including
counterparty default, liquidity or unfavorable changes in interest rates.
Payments received or made at the end of the measurement period are
recorded as realized gain or loss in the Statement of Operations. The
value of the swap is adjusted daily based upon a price supplied by the
counterparty and the change in value is recorded as unrealized
appreciation or depreciation.

Futures Contracts. A futures contract is an agreement between a buyer or
seller and an established futures exchange or its clearinghouse in which
the buyer or seller agrees to take or make a delivery of a specific amount
of a financial instrument at a specified price on a specific date (settlement
date). The Fund may enter into futures contracts as a hedge against
anticipated interest rate or fixed income market changes and for duration
management, risk management or return enhancement purposes.

Upon entering into a futures contract, the Fund is required to deposit with
a financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund
dependent upon the daily fluctuations in the value of the underlying
security and are recorded for financial reporting purposes as unrealized
gains or losses by the Fund. When entering into a closing transaction, the
Fund will realize a gain or loss equal to the difference between the value
of the futures contract to sell and the futures contract to buy. Futures
contracts are valued at the most recent settlement price.

Certain risks may arise upon entering into futures contracts, including the
risk that an illiquid secondary market will limit the Fund's ability to close
out a futures contract prior to the settlement date and that a change in the
value of a futures contract may not correlate exactly with the changes in
the value of the securities hedged. When utilizing futures contracts to
hedge, the Fund gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.

Federal Income Taxes. The Fund's policy is to comply with the
requirements of the Internal Revenue Code, as amended, which are
applicable to regulated investment companies, and to distribute all of its
taxable and tax-exempt income to its shareholders. Accordingly, the Fund
paid no federal income taxes and no federal income tax provision was
required.

In July 2006, FASB issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes  an interpretation of FASB Statement
No. 109" (the "Interpretation"). The Interpretation establishes for the
Fund a minimum threshold for financial statement recognition of the
benefit of positions taken in filing tax returns (including whether the Fund
is taxable in certain jurisdictions), and requires certain expanded tax
disclosures. The Interpretation is effective for fiscal years beginning after
December 15, 2006. On December 22, 2006, the SEC indicated that they
would not object if a Fund implements FIN 48 in the first required financial
statement reporting period for its fiscal year beginning after December 15,
2006. Management is evaluating the application of the Interpretation to
the Fund and is not in a position at this time to estimate the significance
of its impact, if any, on the Fund's financial statements.

Distribution of Income and Gains. Net investment income of the Fund, if
any, is declared as a daily dividend and distributed to shareholders
monthly. Net realized gains from investment transactions, in excess of
available capital loss carryforwards, would be taxable to the Fund if not
distributed, and, therefore, will be distributed to shareholders at least
annually.

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from accounting principles generally
accepted in the United States of America. These differences primarily
relate to accretion of market discount on debt securities. As a result, net
investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically
make reclassifications among certain of its capital accounts without
impacting the net asset value of the Fund.

At August 31, 2007 the Fund's components of distributable earnings
(accumulated losses) on a tax basis are as follows:

|Undistributed tax-exempt income            | $       829,684   
|------------------------------------------ | ------------------
|Undistributed net long-term capital gains  | $       2,105,446 
|Net unrealized appreciation on investments | $       53,493,937

In addition, the tax character of distributions paid to shareholders by the
Fund is summarized as follows:

|                                           | Years Ended August 31,
|------------------------------------------ | ----------------------
|                                           | 2007                  
|Distributions from tax-exempt income       | $       35,561,057    
|Distributions from long-term capital gains | $115,120              

Redemption Fees. The Fund imposes a redemption fee of 2% of the total
redemption amount on the Fund shares redeemed or exchanged within 15
days of buying them, either by purchase or exchange. This fee is assessed
and retained by the Fund for the benefit of the remaining shareholders.
The redemption fee is accounted for as an addition to paid-in capital.

Expenses. Expenses of the Trust arising in connection with a specific
Fund are allocated to that Fund. Other Trust expenses which cannot be
directly attributed to a Fund are apportioned among the Funds in the Trust.

Contingencies. In the normal course of business, the Fund may enter into
contracts with service providers that contain general indemnification
clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against
the Fund that have not yet been made. However, based on experience,
the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one
basis for daily net asset value calculations. However, for financial reporting
purposes, investment security transactions are reported on trade date.
Interest income is recorded on the accrual basis. Realized gains and
losses from investment transactions are recorded on an identified cost
basis. All premiums and discounts are amortized/accreted for financial
reporting purposes.

Statement of Cash Flows. Information of financial transactions which
have been settled through the receipt and disbursement of cash is
presented in the Statement of Cash Flows. The end of period cash
amount shown in the Statement of Cash Flows represents the cash
position in the Fund's custodian bank at August 31, 2007.

B. Purchases and Sales of Securities

During the year ended August 31, 2007, purchases and sales of
investment securities (excluding short-term investments) aggregated
$360,647,123 and $320,897,974, respectively.

C. Related Parties

Management Agreement. Under the Investment Management
Agreement with Deutsche Investment Management Americas Inc.
("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of
Deutsche Bank AG, the Advisor directs the investments of the Fund in
accordance with its investment objectives, policies and restrictions. The
Advisor determines the securities, instruments and other contracts
relating to investments to be purchased, sold or entered into by the Fund.
In addition to portfolio management services, the Advisor provides certain
administrative services in accordance with the Investment Management
Agreement.

The Fund pays a monthly management fee, computed and accrued daily
and payable monthly at the following annual rates:

|First $250 million of the Fund's average daily net assets | .55%
|--------------------------------------------------------- | ----
|Next $750 million of such net assets                      | .52%
|Next $1.5 billion of such net assets                      | .50%
|Next $2.5 billion of such net assets                      | .48%
|Next $2.5 billion of such net assets                      | .45%
|Next $2.5 billion of such net assets                      | .43%
|Next $2.5 billion of such net assets                      | .41%
|Over $12.5 billion of such net assets                     | .40%

For the period from September 1, 2006 through September 30, 2006, the
Advisor had contractually agreed to waive all or a portion of its
management fee (excluding certain expenses such as extraordinary
expenses, taxes, brokerage and interest) to the extent necessary to
maintain operating expenses of certain classes as follows:

|Class B | 1.51%
|------- | -----
|Class C | 1.55%

For the period from October 1, 2006 through September 30, 2007, the
Advisor has contractually agreed to waive all or a portion of its
management fee to the extent necessary to maintain operating expenses
at 1.61% for Class B shares (excluding certain expenses such as
extraordinary expenses, taxes, brokerage and interest).

Effective February 1, 2007 through September 30, 2007, the Advisor has
contractually agreed to waive all or a portion of its management fee
(excluding certain expenses such as extraordinary expenses, taxes,
brokerage, interest and organizational and offering expenses) to the extent
necessary to maintain operating expenses of certain classes as follows:

|Class C | 1.63%
|------- | -----
|Class S | .63% 

Accordingly, for the year ended August 31, 2007, the fee pursuant to the
Investment Management Agreement was equivalent to an annual
effective rate of 0.53% of the Fund's average daily net assets.

Service Provider Fees. DWS Scudder Investments Service Company
("DWS-SISC"), an affiliate of the Advisor, is the transfer agent,
dividend-paying agent and shareholder service agent for the Fund. Prior to
April 1, 2007, DWS Scudder Service Corporation ("DWS-SSC"), an affiliate
of the Advisor, was the transfer agent, dividend-paying agent and
shareholder service agent for Class S shares of the Fund. Effective April 1,
2007, DWS-SSC merged with DWS-SISC. The Board of the Fund approved
a new transfer agency agreement between the Fund and DWS-SISC. The
new transfer agency agreement is identical in substance to the previous
transfer agency agreement for the Fund, except for the named transfer
agent. Pursuant to a sub-transfer agency agreement among DWS-SISC,
DWS-SSC (through March 31, 2007) and DST Systems, Inc. ("DST"),
DWS-SISC and DWS-SSC have delegated certain transfer agent and
dividend paying agent functions to DST. DWS-SISC and DWS-SSC
compensate DST out of the shareholder servicing fee they receive from
the Fund. For the year ended August 31, 2007, the amounts charged to
the Fund by DWS-SISC and DWS-SSC (through March 31, 2007) were as
follows:

|Services to Shareholders | Total
Aggregated | Waived     | Unpaid at
August 31, 2007
|------------------------ | ---------------- | ---------- | -------------------------
|Class A                  | $       166,827  | $         | $       31,116           
|Class B                  | 3,142            | 3,142      |                         
|Class C                  | 2,789            | 525        | 605                      
|Class S                  | 67,396           |           | 15,812                   
|                         | $    240,154     | $    3,667 | $    47,533              

Distribution Service Agreement. Under the Distribution Service
Agreement, in accordance with Rule 12b-1 under the 1940 Act, DWS
Scudder Distributors, Inc. ("DWS-SDI"), an affiliate of the Advisor,
receives a fee ("Distribution Fee") of 0.75% of average daily net assets of
Class B and C shares. Pursuant to the agreement, DWS-SDI enters into
related selling group agreements with various firms at various rates for
sales of Class B and C shares. For the year ended August 31, 2007, the
Distribution Fee was as follows:

|Distribution Fee | Total
Aggregated | Unpaid at
August 31, 2007
|---------------- | ---------------- | -------------------------
|Class B          | $       49,271   | $       3,719            
|Class C          | 69,653           | 5,535                    
|                 | $    118,924     | $    9,254               

In addition, DWS-SDI provides information and administrative services for
a fee ("Service Fee") to the Fund at an annual rate of up to 0.25% of
average daily net assets for Class A, B and C shareholders. DWS-SDI in
turn has various agreements with financial services firms that provide
these services and pays these fees based upon the assets of shareholder
accounts the firms service. For the year ended August 31, 2007, the
Service Fee was as follows:

|Service Fee | Total
Aggregated  | Waived     | Unpaid at
August 31, 2007 | Annual
Effective Rate
|----------- | ----------------- | ---------- | ------------------------- | ---------------------
|Class A     | $       1,256,451 | $         | $       134,553           | .21%                 
|Class B     | 16,340            | 1,127      | 311                       | .23%                 
|Class C     | 23,074            |           | 388                       | .25%                 
|            | $    1,295,865    | $    1,127 | $    135,252              |                      

Underwriting and Contingent Deferred Sales Charge. DWS-SDI is the
principal underwriter for the Fund. Underwriting commissions paid in
connection with the distribution of Class A shares for the year ended
August 31, 2007 aggregated $24,803.

In addition, DWS-SDI receives any contingent deferred sales charge
("CDSC") from Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. There is no such charge upon redemption of any share
appreciation or reinvested dividends. The CDSC is based on declining
rates ranging from 4% to 1% for Class B and 1% for Class C, of the value
of the shares redeemed. For the year ended August 31, 2007, the CDSC
for Class B and C shares was $20,007 and $2,945, respectively. A
deferred sales charge of up to 0.85% is assessed on certain redemptions
of Class A shares. For the year ended August 31, 2007, DWS-SDI received
$4,144 for Class A shares.

Typesetting and Filing Service Fees. Under an agreement with DIMA,
DIMA is compensated for providing typesetting and certain regulatory
filing services to the Fund. For the year ended August 31, 2007, the
amount charged to the Fund by DIMA included in the Statement of
Operations under "reports to shareholders" aggregated $36,804, of
which $11,974 is unpaid.

Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated
with the Advisor retainer fees plus specific amounts for various
committee services and for the Board Chairperson.

D. Fee Reductions

For the year ended August 31, 2007, the Advisor agreed to reimburse the
Fund $10,951, which represents a portion of the fee savings expected to
be realized by the Advisor related to the outsourcing by the Advisor of
certain administrative services to an unaffiliated service provider.

In addition, the Fund has entered into an arrangement with its custodian
and transfer agent whereby credits realized as a result of uninvested cash
balances are used to reduce a portion of the Fund's custodian expenses.
During the year ended August 31, 2007, the Fund's custodian fees were
reduced by $583 and $21,121, respectively, for custody and transfer agent
credits earned.

E. Line of Credit

The Fund and other affiliated funds (the "Participants") share in a
$750 million revolving credit facility administered by JPMorgan Chase
Bank N.A. for temporary or emergency purposes, including the meeting of
redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual
commitment fee which is allocated, based upon net assets, among each
of the Participants. Interest is calculated at the Federal Funds Rate plus
0.35 percent. The Fund may borrow up to a maximum of 33 percent of its
net assets under the agreement.

F. Share Transactions

The following table summarizes share and dollar activity in the Fund:

|                                                               | Year Ended August 31, 2007 | Year Ended August 31, 2006
|-------------------------------------------------------------- | -------------------------- | --------------------------
|                                                               | Shares                     | Dollars                   
|Shares sold                                                   
|Class A                                                        | 11,662,696                 | $       85,856,167        
|Class B                                                        | 94,290                     | 704,999                   
|Class C                                                        | 224,828                    | 1,672,454                 
|Class S                                                        | 1,345,205                  | 10,047,019                
|                                                               |                            | $    98,280,639           
|Shares issued to shareholders in reinvestment of distributions
|Class A                                                        | 1,903,397                  | $       14,204,545        
|Class B                                                        | 18,686                     | 139,817                   
|Class C                                                        | 27,532                     | 204,095                   
|Class S                                                        | 937,920                    | 6,988,456                 
|                                                               |                            | $    21,536,913           
|Shares redeemed                                               
|Class A                                                        | (11,773,245)               | $       (87,600,190)      
|Class B                                                        | (459,696)                  | (3,442,477)               
|Class C                                                        | (217,457)                  | (1,612,258)               
|Class S                                                        | (3,969,652)                | (29,565,389)              
|                                                               |                            | $    (122,220,314)        
|Redemption fees                                                | $    613                   |                           
|Net increase (decrease)                                       
|Class A                                                        | 1,792,848                  | $       12,461,036        
|Class B                                                        | (346,720)                  | (2,597,661)               
|Class C                                                        | 34,903                     | 264,291                   
|Class S                                                        | (1,686,527)                | (12,529,815)              
|                                                               |                            | $    (2,402,149)          

G. Regulatory Matters and Litigation

Regulatory Settlements. On December 21, 2006, Deutsche Asset
Management ("DeAM") settled proceedings with the Securities and
Exchange Commission ("SEC") and the New York Attorney General on
behalf of Deutsche Asset Management, Inc. ("DAMI") and Deutsche
Investment Management Americas Inc. ("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, would be distributed 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/Directors overseeing the DWS Funds
continue to be independent of DeAM; the Chairmen of the DWS Funds'
Boards of Trustees/Directors 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") announced final agreements in which
Deutsche Investment Management Americas Inc. ("DIMA"), Deutsche
Asset Management, Inc. ("DAMI") and Scudder Distributors, Inc. ("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
fund Boards and to shareholders relating to 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 SDI
neither admitted nor denied any of the regulators' findings, DIMA, DAMI
and 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.
Based on the prescribed settlement order, the Fund was not entitled to a
portion of the settlement.

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

Private Litigation Matters. 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/Directors, 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.

Report of Independent Registered
Public Accounting Firm

To the Trustees of DWS State Tax-Free Income Series and Shareholders
of DWS California Tax-Free Income Fund:

We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of the DWS California Tax-Free Income
Fund (the "Fund"), one of the series of the DWS State Tax-Free Income
Series (the "Trust"), as of August 31, 2007, and the related statements of
operations and cash flows for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are free of
material misstatement. We were not engaged to perform an audit of the
Fund's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial highlights, assessing the accounting principals used and
significant estimates made by management, and evaluating the overall
financial statement presentation, Our procedures included confirmation of
securities owned as of August 31, 2007, by correspondence with the
custodian and brokers. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
DWS California Tax-Free Income Fund, a series of the DWS State Tax-Free
Income Series, at August 31, 2007, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.

|Boston, Massachusetts
October 19, 2007 |  | ctf_eny0
|-------------------------------------- |  | --------

Tax Information(Unaudited)

The Fund paid distributions of $.001 per share from net long-term capital
gains during its year ended August 31, 2007, of which 100% represents
15% rate gains.

Pursuant to Section 852 of the Internal Revenue Code, the Fund
designates $2,319,000 as capital gain dividends for its year ended
August 31, 2007, of which 100% represents 15% rate gains.

Of the dividends paid from net investment income of the Fund for the
taxable year ended August 31, 2007, 100% are designated as exempt
interest dividends for federal income tax purposes.

Please consult a tax advisor if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have
specific questions about your account, please call (800) 621-1048.

Trustees and Officers

The following table presents certain information regarding the Board
Members and Officers of the fund as of August 31, 2007. Each individual's
year of birth is set forth in parentheses after his or her name. Unless
otherwise noted; (i) each individual 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
individual is c/o Deutsche Asset Management, 222 South Riverside Plaza,
Chicago, Illinois 60606. Each Board Member's term of office extends until
the next shareholders' meeting called for the purpose of electing such
Board Members and until the election and qualification of a successor, or
until such Board Member sooner dies, retires, resigns or is removed as
provided in the governing documents of the fund.

|Independent Board Members                                                     
|------------------------------------------------------------------------------
|Name, Year of
Birth, Position(s)
Held with the
Fund and Length
of Time Served1
|Paul K. Freeman
(1950)Chairperson since
2007, and Board
Member,
2002-present  
|John W. Ballantine
(1946)Board Member,
1999-present                           
|Donald L. Dunaway
(1937)Board Member,
1980-present                            
|James R. Edgar
(1946)Board Member,
1999-present                               
|Robert B. Hoffman
(1936)Board Member,
1981-present                            
|William McClayton
(1944)Board Member,
2004-present                            
|Shirley D. Peterson
(1941)Board Member,
1995-present                          
|Robert H.
Wadsworth(1940)Board Member,
2004-present                           

|Officers2                                                                           
|------------------------------------------------------------------------------------
|Name, Year of
Birth, Position(s)
Held with the
Fund and Length
of Time Served1      
|Michael G. Clark4
(1965)President,
2006-present                                     
|Philip J. Collora
(1945)Vice President and
Assistant Secretary,
1986-present        
|Paul H. Schubert4
(1963)Chief Financial
Officer,
2004-presentTreasurer,
2005-present
|John Millette5
(1962)Secretary,
2001-present                                        
|Patricia DeFilippis4(1963)Assistant Secretary,
2005-present                         
|Elisa D. Metzger4,(1962)Assistant Secretary
2005-present                            
|Caroline Pearson5
(1962)Assistant Secretary,
1998-present                           
|Paul Antosca5
(1957)Assistant Treasurer,
2007-present                               
|Kathleen Sullivan
D'Eramo5(1957)Assistant Treasurer,
2003-present                   
|Jason Vazquez4
(1972)Anti-Money
Laundering
Compliance Officer,
2007-present         
|Robert Kloby4(1962)Chief Compliance
Officer,
2006-present                           

The fund's Statement of Additional Information ("SAI") includes additional information about
the Board Members. The SAI is available, without charge, upon request. If you would like to
request a copy of the SAI, you may do so by calling the following toll-free number:
(800) 621-1048.

Account Management Resources

|                      
|----------------------
|For More
Information  
|Web Site              
|Written
Correspondence
|Proxy Voting          
|Principal
Underwriter 

|              | Class A    | Class B    | Class C    | Class S   
|------------- | ---------- | ---------- | ---------- | ----------
|Nasdaq Symbol | KCTAX      | KCTBX      | KCTCX      | SDCSX     
|CUSIP Number  | 23337H-108 | 23337H-207 | 23337H-306 | 23337H-405
|Fund Number   | 9          | 209        | 309        | 2409      

Notes

Notes

Notes

Notes

Notes

Notes

Notes

ctf_backcover0

ITEM 2.
        CODE OF ETHICSAs of the end of the period, August 31, 2007, DWS California Tax-Free Income Fund has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.

There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.

A copy of the code of ethics is filed as an exhibit to this Form N-CSR.ITEM 3.
        AUDIT COMMITTEE FINANCIAL EXPERTThe Funds Board of Directors/Trustees has determined that the Fund has at least one audit committee financial expert serving on its audit  committee: Mr. William McClayton, Mr. Donald Dunaway and Mr. Robert Hoffman. Each of these audit committee members is independent, meaning that he is not an interested person of the Fund (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940) and he does not accept any consulting, advisory, or other compensatory fee from the Fund (except in the capacity as a Board or committee member).

An audit committee financial expert is not an expert for any purpose, including for purposes of Section 11 of the Securities Act of 1933, as a result of being designated as an audit committee financial expert. Further, the designation of a person as an audit committee financial expert does not mean that the person has any greater duties, obligations, or liability than those imposed on the person without the audit committee financial expert designation. Similarly, the designation of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.ITEM 4.
        PRINCIPAL ACCOUNTANT FEES AND SERVICES
  DWS CALIFORNIA TAX FREE INCOME FUND FORM N-CSR DISCLOSURE RE: AUDIT FEES The following table shows the amount of fees that Ernst & Young, LLP (E&Y), the Funds Independent Registered Public Accountant, billed to the Fund during the Funds last two fiscal years.  The Audit Committee approved in advance all audit services and non-audit services that E&Y provided to the Fund. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). Services that the Funds Independent Registered Public Accountant Billed to the Fund  Fiscal YearEndedAugust 31
        Audit Fees Billed to Fund
        Audit-RelatedFees Billed to Fund
        Tax Fees Billed to Fund
        AllOther Fees Billed to Fund2007
        $48,880
        $0
        $6,665
        $02006
        $46,972
        $0
        $6,367
        $0
  The above "Tax Fees" were billed for professional services rendered for tax return preparation.   Services that the Funds Independent Registered Public Accountant Billed to the Adviser and Affiliated Fund Service Providers

The following table shows the amount of fees billed by E&Y to Deutsche Investment Management Americas, Inc. (DeIM or the Adviser), and any entity controlling, controlled by or under common control with DeIM (Control Affiliate) that provides ongoing services to the Fund (Affiliated Fund Service Provider), for engagements directly related to the Funds operations and financial reporting, during the Funds last two fiscal years.




Fiscal YearEndedAugust 31
        Audit-RelatedFees Billedto Adviser and Affiliated Fund Service Providers
        Tax Fees Billed to Adviser and Affiliated Fund Service Providers
        AllOther Fees Billed to Adviser and Affiliated Fund Service Providers2007
        $250,000
        $486,614
        $02006
        $182,000
        $316,254
        $0



The Audit-Related Fees were billed for services in connection with agreed upon procedures related to fund mergers and the above Tax Fees were billed in connection with tax compliance services and agreed upon procedures.

Non-Audit Services

The following table shows the amount of fees that E&Y billed during the Funds last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that E&Y provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Funds operations and financial reporting. The Audit Committee requested and received information from E&Y about any non-audit services that E&Y rendered during the Funds last fiscal year to the Adviser and any Affiliated Fund Service Provider.  The Committee considered this information in evaluating E&Ys independence.




Fiscal YearEndedAugust 31
        TotalNon-Audit Fees Billed to Fund
(A)
        Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund)
(B)
        Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements)
(C)
        Total of (A), (B)and (C)2007
        $6,665
        $486,614
        $1,519,326
        $2,012,6052006
        $6,367
        $316,254
        $510,763
        $833,384



All other engagement fees were billed for services in connection with internal control reviews, agreed upon procedures and tax compliance for DeIM and other related entities that provide support for the operations of the fund.



***



In connection with the audit of the 2006 and 2007 financial statements, the Fund entered into an engagement letter with E&Y.  The terms of the engagement letter required by E&Y, and agreed to by the Audit Committee, include provisions in which the parties consent to the sole jurisdiction of federal courts in New York, Boston or the Northern District of Illinois, as well as a waiver of right to a trial by jury and an exclusion of punitive damages.



***

E&Y recently advised the Funds Audit Committee that certain arrangements between the Ernst & Young member firm in Germany (E&Y Germany) and Deutsche Bank AG (DB) had been determined to be inconsistent with the SEC auditor independence rules.  DB is within the Investment Company Complex (as defined by SEC rules) and therefore covered by the SEC auditor independence rules applicable to the Fund.  In 2006 and 2007, DB provided standard overdraft protection on a depository account and a guarantee of certain lease deposits to E&Y Germany.  E&Y advised the Audit Committee that while neither of these arrangements was ever utilized by E&Y Germany, they could constitute lending type arrangements in violation of Rule 2-01 of Regulation S-X.  (Rule 2-01(c)(1)(ii)(A) provides that an accountant is not independent when
an accounting firm has a loan to or from an audit client.)  E&Y advised the Audit Committee that E&Y believes its independence has not been impacted as it relates to the audits of the Fund.  In reaching this conclusion, E&Y noted a number of factors, including that neither of the arrangements was ever utilized and, accordingly, E&Y Germany never had amounts outstanding to DB, these arrangements were immaterial to E&Y Germany and DB and the E&Y professionals responsible for the Funds audits were not aware of these arrangements.  E&Y informed the Audit Committee that E&Y Germany has cancelled the overdraft arrangements and is in the process of terminating the guarantee on the lease deposits.




ITEM 5.
        AUDIT COMMITTEE OF LISTED REGISTRANTSNot ApplicableITEM 6.
        SCHEDULE OF INVESTMENTSNot ApplicableITEM 7.
        DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIESNot applicable.ITEM 8.
        PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIESNot applicable.




ITEM 9.
        PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERSNot Applicable.




ITEM 10.
        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSThe primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Procedures and Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to the Fund's Secretary for the attention of the Chairman of the Nominating and Governance Committee, Two International Place, Boston, MA 02110. Suggestions for candidates must include a resume of the candidate.





ITEM 11.
        CONTROLS AND PROCEDURES(a)          The Chief Executive and Financial Officers concluded that the Registrants Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.(b)          There have been no changes in the registrants internal control over financial reporting that occurred during the registrants last half-year (the registrants second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal controls over financial reporting.ITEM 12.
        EXHIBITS(a)(1)     Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH.(a)(2)     Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.(b)         Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.


Form N-CSR Item F  SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  Registrant:
        DWS California Tax-Free Income Fund, a series of DWS State Tax-Free Income Series
  By:
        /s/Michael G. Clark
 Michael G. Clark
 President  Date:
        October 29, 2007
   Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  Registrant:
        DWS California Tax-Free Income Fund, a series of DWS State Tax-Free Income Series
  By:
        /s/Michael G. Clark
 Michael G. Clark
 President  Date:
        October 29, 2007
   By:
        /s/Paul Schubert
 Paul Schubert
 Chief Financial Officer and Treasurer  Date:
        October 29, 2007