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)



345 Park Avenue

New York, NY 10154-0004

(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 10154-0004

(Name and Address of Agent for Service)



Date of fiscal year end:
        08/31




Date of reporting period:
        08/31/08






ITEM 1.REPORT TO STOCKHOLDERS








|AUGUST 31, 2008
Annual Report
to Shareholders
|---------------------------------------------
|                                             
|DWS California Tax-Free
Income Fund          
|ctf_cover360                                 

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 hereShareholder Meeting Results
click hereSummary of Management Fee Evaluation by Independent
Fee Consultant
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 Investments is part of Deutsche Bank's Asset Management division and, within the US,
represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust
Company Americas, 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, 2008

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-investments.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 front-end sales
charge 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 dated
December 1, 2007 are 1.31%, 2.11% and 2.09% 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, 2008.

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 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 8/31/08
|-----------------------------------------------------------------------
|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:
8/31/08                                                       
|8/31/07                                                                        
|Distribution Information:
Twelve Months as of 8/31/08:Income Dividends         
|Capital Gain Distributions                                                     
|August Income Dividend                                                         
|SEC 30-day Yield as of 8/31/08++                                               
|Tax Equivalent Yield as of 8/31/08++                                           
|Current Annualized Distribution Rate (Based on Net
Asset Value) as of 8/31/08++

|Class A Lipper Rankings  California Municipal Debt Funds Categoryas of
8/31/08
|-------------------------------------------------------------------------------
|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_g10k2e0                                                                            
|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 8/31/08
|--------------------------------------------------------------------
|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-investments.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 dated
December 1, 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, 2008.

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 S 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 Returnsas of 8/31/08
|-----------------------------------------
|DWS California Tax-Free Income Fund      
|Class S                                  
|Lehman Brothers Municipal Bond Index+    

|Net Asset Value and Distribution Information                          
|----------------------------------------------------------------------
|                                                                      
|Net Asset Value:
8/31/08                                              
|8/31/07                                                               
|Distribution Information:
Twelve Months as of 8/31/08:Income Dividends
|Capital Gain Distributions                                            
|August Income Dividend                                                
|SEC 30-day Yield as of 8/31/08++                                      
|Tax Equivalent Yield as of 8/31/08++                                  
|Current Annualized Distribution Rate as of 8/31/08++                  

|Class S Lipper Rankings  California Municipal Debt Funds Categoryas of
8/31/08
|-------------------------------------------------------------------------------
|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_g10k2d0                                                                            
|Yearly periods ended August 31                                                         

|Comparative Resultsas of 8/31/08     
|-------------------------------------
|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, the Fund limited these expenses; had it 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, 2008 to August 31, 2008).

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. An account maintenance fee of $6.25
per quarter for Class S shares may apply for certain accounts whose
balances do not meet the applicable minimum initial investment. This fee is
not included in these tables. If it was, the estimate of expenses paid for
Class S shares during the period would be higher, and account value during
the period would be lower, by this amount.

|Expenses and Value of a $1,000 Investment (including interest expense)*for the six months ended August 31, 2008
|---------------------------------------------------------------------------------------------------------------
|Actual Fund Return                                                                                             
|Beginning Account Value 3/1/08                                                                                 
|Ending Account Value 8/31/08                                                                                   
|Expenses Paid per $1,000**                                                                                     
|Hypothetical 5% Fund Return                                                                                    
|Beginning Account Value 3/1/08                                                                                 
|Ending Account Value 8/31/08                                                                                   
|Expenses Paid per $1,000**                                                                                     

|Annualized Expense Ratios           | Class A | Class B | Class C | Class S
|----------------------------------- | ------- | ------- | ------- | -------
|DWS California Tax-Free Income Fund | 1.21%   | 1.98%   | 1.98%   | .98%   

|Expenses and Value of a $1,000 Investment (excluding interest expense)*for the six months ended August 31, 2008
|---------------------------------------------------------------------------------------------------------------
|Actual Fund Return                                                                                             
|Beginning Account Value 3/1/08                                                                                 
|Ending Account Value 8/31/08                                                                                   
|Expenses Paid per $1,000**                                                                                     
|Hypothetical 5% Fund Return                                                                                    
|Beginning Account Value 3/1/08                                                                                 
|Ending Account Value 8/31/08                                                                                   
|Expenses Paid per $1,000**                                                                                     

|Annualized Expense Ratios           | Class A | Class B | Class C | Class S
|----------------------------------- | ------- | ------- | ------- | -------
|DWS California Tax-Free Income Fund | .86%    | 1.63%   | 1.63%   | .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 31 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 21 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 17 years of investment industry experience.

• BS, Pennsylvania State University; MS, Boston College.

In the following interview, the portfolio management team discusses
DWS California Tax-Free Income Fund's performance for the 12-month
period and the market environment for municipal bonds.

The views expressed in the following discussion reflect those of the portfolio management
team 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, 2008?

A:Over the full period, municipal bonds provided positive results,
while modestly underperforming their taxable counterparts. The
municipal bond market, as measured by the Lehman Brothers
Municipal Bond Index, returned 4.48% for the 12-month period
ended August 31, 2008.1 This compared to a positive 5.86% return
for the broad taxable bond market for the same period, as measured
by the Lehman Brothers U.S. Aggregate Index.2 Of course, past
performance is no guarantee of future results.

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.
Supply was robust early in the period, but trailed off mid-period in
the wake of concerns over the credit status of leading bond
insurers. Over the latter part of the period, supply spiked upward
dramatically, driven by the conversion of auction-rate issues to
fixed-rate structures. On the demand side, retail interest in individual
bonds was strong, and flows into tax-free mutual funds were
generally positive. Support from insurance companies was in line
with historical levels. Demand was undercut by decreased support
from broker dealers and the unwinding of positions by institutional
investors who had been using leveraging and hedging strategies in
an attempt to benefit from disparities between the tax-free and
taxable markets. These factors contributed to a significant
dislocation between municipal supply and demand that at times
resulted in a severe decline in market liquidity.

The US Federal Reserve Board (the Fed) responded to the liquidity
crisis in all of the credit markets by dropping the federal funds rate
 the overnight interbank lending rate and a benchmark for interest
rates generally  seven times over the 12-month period. As a
result, the federal funds rate declined from 5.25% to 2.00%. During
the period, yields on short- and intermediate-term municipals fell
significantly, while yields on longer-term issues ended the period
somewhat higher. Since a bond's yield moves in the opposite
direction of its price, this meant that intermediate-term municipal
bonds generally provided the best returns.

The overall result of a decline in short-term yields and an 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
fell by 156 basis points while bonds with 30-year maturities
experienced a yield increase of 9 basis points, resulting in a total
steepening of 165 basis points (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.)

|Municipal Bond Yield Curve(as of 8/31/07 and 8/31/08)
|-----------------------------------------------------
|ctf_yield260                                         

Source: Municipal Market Data as of August 31, 2008. For illustrative purposes only; not meant
to represent the performance of any DWS product.

With respect to credit quality, conditions in the municipal market
have shown signs of deteriorating in a weakening economy. In
addition, many insured issues, which have historically made up
more than half of the municipal market, have been trading on the
basis of the creditworthiness of the underlying issuer, leading to
additional spread widening. During the period, leading insurers
MBIA and AMBAC both lost their AAA ratings and FGIC was
downgraded to junk status by Moody's and S&P.4 In some cases,
insured issues have actually experienced additional weakness as
buyers avoid "headline risk."5 In addition, the proportion of new
issues with insurance has been halved in recent months. The net
result has been an increase in non-AAA product and spread
widening. Among high-yield issues, spread widening was dramatic
on tobacco- and, especially, airline-related bonds.

The bond market's continued flight to quality resulted in lower yields
for Treasury bonds and historically high municipal yields relative to
Treasuries. In fact, at the end of August, municipals were yielding
almost as much, and in some cases, more than Treasuries, even
before taking into account the tax advantage of municipals. For
example, 30-year and 10-year AAA municipals were yielding 106.6%
and 94.5%, respectively, of comparable Treasury issues, before
taking into account the tax advantage of municipals.

Q: How did DWS California Tax-Free Income Fund perform for the
annual period ended August 31, 2008?

A:DWS California Tax-Free Income Fund's Class A shares posted a
return for the 12-month period of 3.09% (Returns are unadjusted for
sales charges. If sales charges had been included, returns would
have been lower. Past performance is no guarantee of future
results. Please see pages 4 through 9 for the performance of
other share classes and more complete performance information.)
This return compares with 4.48% for the fund's benchmark, the
Lehman Brothers Municipal Bond Index. The fund outperformed the
1.25% average return  of its peer group, the Lipper California
Municipal Debt Funds category.6

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
minimized 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. Our maturity positioning helped
performance over the period as the curve steepened dramatically,
driven by both falling short-term yields and rising yields (and falling
prices) on longer-term issues. Given the recent steepening, we have
increasingly been looking for opportunities to move out on the curve
to take advantage of the improved yield differentials available.

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
helped the fund's relative performance as spreads widened and
prices of lower-quality issues generally fell. In this vein, the fund has
had very low exposure to land development issues dependent on
revenues from specific future projects, and this helped returns as
spreads on narrowly financed issues were particularly impacted by
spread widening. The fund's exposure to the state's general
obligation (GO) bonds slightly constrained performance as credit
spreads widened. The fund's position in Puerto Rico issues, which
are tax-exempt in all states, suffered as a result of insurer
downgrades.

As yields on lower-quality issues have become more attractive
relative to higher-quality issues, we have continued to use intensive
credit analysis to selectively increase exposure to this segment. It is
important to note, however, that the reduction of AAA-rated bonds
represented in the fund's portfolio is primarily the result of
downgrades experienced by leading bond insurers, rather than any
shift in fund strategy.

We hedged a portion of the fund's assets against interest rate
changes using LIBOR (London Inter Bank Offering Rate, a
benchmark for taxable interest rates). In doing so, the fund's
holdings of 15-20 year municipal issues was offset by taking a short
position in the 17 year region of the LIBOR yield curve. This held
back performance as municipals underperformed the taxable
market.

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

A:The state of California's general obligation debt continues to be
rated A+ by Standard & Poor's Corporation and A1 by Moody's
Investors Service, Inc. While the credit quality health of California
remains stable, the state has fared worse than much of the rest of
the country in the current economic downturn. Following several
years of rising revenues and increasing surpluses, the state has
been significantly impacted by the national housing downturn.
Legislative deadlock has so far prevented California from passing a
budget for the fiscal year that began July 1, 2008, and the state will
need to address a significant gap in order to do so. The governor's
budget proposed a variety of measures to address projected
shortfalls, including cutting expenditures by 10% almost across the
board. In addition, the governor has proposed a constitutional
amendment that would attempt to smooth out the volatility that
now exists in the budgeting process by putting extra revenue from
strong years into a stabilization fund. While California continues to
face structural deficits, the state has sufficient flexibility to finance
them. In addition, the state's pension system is relatively well
funded. We remain constructive with respect to the long-term
outlook for the state's debt.

Portfolio Summary

|Asset Allocation         | 8/31/08 | 8/31/07
|------------------------ | ------- | -------
|                         |         |        
|Revenue Bonds            | 63%     | 60%    
|US Government Secured    | 17%     | 21%    
|General Obligation Bonds | 20%     | 19%    
|                         | 100%    | 100%   

|Quality   | 8/31/08 | 8/31/07
|--------- | ------- | -------
|          |         |        
|AAA       | 21%     | 69%    
|AA        | 21%     | 6%     
|A         | 40%     | 9%     
|BBB       | 7%      | 2%     
|Not Rated | 11%     | 14%    
|          | 100%    | 100%   

|Effective Maturity | 8/31/08 | 8/31/07
|------------------ | ------- | -------
|                   |         |        
|Less than 1 year   | 13%     | 7%     
|1-4.99 years       | 26%     | 31%    
|5-9.99 years       | 46%     | 45%    
|10-14.99 years     | 10%     | 13%    
|15+ years          | 5%      | 4%     
|                   | 100%    | 100%   

|Interest Rate Sensitivity | 8/31/08   | 8/31/07  
|------------------------- | --------- | ---------
|                          |           |          
|Duration                  | 6.5 years | 6.6 years

Weighted average effective maturity: 6.8 years and 6.7 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 20. A quarterly Fact
Sheet is available upon request. A complete list of the fund's portfolio holdings is posted as of
the month end on www.dws-investments.com on or about the 15th day of the following
month. More frequent posting of portfolio holdings information may be made from time to time
on www.dws-investments.com. 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, 2008

|                                                                                                                                                                                 | Principal
Amount ($) | Value ($) 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------
|                                                                                                                                                                                 |                     
|Municipal Bonds and Notes 90.5%                                                                                                                                                 
|California 79.4%                                                                                                                                                                
|Anaheim, CA, Other General Obligation Lease, Public Financing
Authority, Public Improvements Project:                                                                            |                      |           
|Series C, Zero Coupon, 9/1/2017 (a)                                                                                                                                              | 1,455,000            | 985,195   
|Series C, Zero Coupon, 9/1/2018 (a)                                                                                                                                              | 1,000,000            | 639,590   
|Series C, 6.0%, 9/1/2014 (a)                                                                                                                                                     | 1,000,000            | 1,153,060 
|Series C, 6.0%, 9/1/2016 (a)                                                                                                                                                     | 1,000,000            | 1,151,530 
|Series A, 6.0%, 9/1/2024 (a)                                                                                                                                                     | 3,500,000            | 4,006,975 
|Anaheim, CA, Redevelopment Agency Tax Allocation, Merged
Redevelopment Project Area, Series A, 5.0%, 2/1/2025 (a)                                                                | 5,000,000            | 5,182,300 
|Benicia, CA, School District General Obligation, Unified School
District:                                                                                                        |                      |           
|Series A, Zero Coupon, 8/1/2017 (a)                                                                                                                                              | 1,735,000            | 1,156,013 
|Series A, Zero Coupon, 8/1/2018 (a)                                                                                                                                              | 1,510,000            | 947,177   
|Big Bear Lake, CA, Water Revenue:                                                                                                                                                |                      |           
|6.0%, 4/1/2015 (a)                                                                                                                                                               | 3,400,000            | 3,776,584 
|6.0%, 4/1/2022 (a)                                                                                                                                                               | 13,500,000           | 15,399,315
|Burbank, CA, School District General Obligation, Unified School
District, Series B, Zero Coupon, 8/1/2014 (a)                                                                    | 3,000,000            | 2,373,750 
|Cabrillo, CA, County General Obligation Lease, Unified School
District, Series A, Zero Coupon, 8/1/2019 (a)                                                                      | 4,000,000            | 2,406,680 
|California, Center Unified School District, Series C,
Zero Coupon, 9/1/2014 (a)                                                                                                  | 2,240,000            | 1,772,400 
|California, Eastern Municipal Water District, Certificates of
Participation, Water & Sewer Revenue, Series G,
1.7%*, 7/1/2038                                                    | 9,500,000            | 9,500,000 
|California, Health Facilities Financing Authority Revenue, Sutter
Health, Series A, 5.25%, 8/15/2022                                                                             | 1,665,000            | 1,722,409 
|California, Higher Education Revenue, Educational
Facilities Authority, University of San Diego,
Zero Coupon, 10/1/2014 (a)                                                      | 1,470,000            | 1,165,401 
|California, Hospital & Healthcare Revenue, Communities
Development Authority, 6.5%, 8/1/2012                                                                                     | 11,060,000           | 11,887,509
|California, Hospital & Healthcare Revenue, Health Facilities
Finance Authority, Series A, Zero Coupon, 10/1/2012 (a)                                                             | 4,900,000            | 4,265,597 
|California, Hospital & Healthcare Revenue, Statewide
Community Development Authority, 6.0%, 6/1/2010 (a)                                                                         | 1,000,000            | 1,054,750 
|California, Housing Finance Agency Revenue, AMT:                                                                                                                                 |                      |           
|Series K, 2.2%*, 8/1/2037                                                                                                                                                        | 1,700,000            | 1,700,000 
|Series D, 2.45%*, 2/1/2043                                                                                                                                                       | 3,000,000            | 3,000,000 
|California, Residential Efficiency Financing Authority
Certificates of Participation, Capital Improvements,
Series 2007, 5.5%, 4/1/2017 (a)                                      | 35,000               | 35,431    
|California, Resource Recovery Revenue, Tobacco Securitization
Authority, Series A, Prerefunded, 5.375%, 6/1/2041                                                                 | 5,000,000            | 5,412,950 
|California, Senior Care Revenue, Statewide Community
Development Authority, ETM, 5.6%, 11/15/2013                                                                                | 4,750,000            | 5,106,772 
|California, Senior Care Revenue, Statewide Community
Development Authority, California Lutheran Homes, ETM,
5.5%, 11/15/2008                                                     | 405,000              | 408,390   
|California, Single Family Housing Revenue, Mortgage Finance
Authority, AMT, Series B, 7.3%, 6/1/2031                                                                             | 25,000               | 25,933    
|California, Special Assessment Revenue, Golden State Tobacco
Securitization Corp.:                                                                                               |                      |           
|Series A-1, 5.0%, 6/1/2033                                                                                                                                                       | 10,000,000           | 7,937,800 
|Series B, Prerefunded, 5.5%, 6/1/2043                                                                                                                                            | 9,950,000            | 10,963,109
|Series B, Prerefunded, 5.625%, 6/1/2038                                                                                                                                          | 13,655,000           | 15,120,181
|Series A-1, 5.75%, 6/1/2047                                                                                                                                                      | 4,815,000            | 4,030,829 
|Series 2003-A-1, Prerefunded, 6.75%, 6/1/2039                                                                                                                                    | 16,750,000           | 19,372,715
|California, State Agency General Obligation Lease, Public
Works Board, Department of Corrections:                                                                                |                      |           
|Series A, 7.4%, 9/1/2010 (a)                                                                                                                                                     | 1,000,000            | 1,096,960 
|Series A-2, 7.4%, 9/1/2010                                                                                                                                                       | 3,365,000            | 3,692,650 
|California, State General Obligation:                                                                                                                                            |                      |           
|5.0%, 11/1/2027                                                                                                                                                                  | 12,000,000           | 12,122,280
|5.0%, 9/1/2032                                                                                                                                                                   | 10,000,000           | 9,930,900 
|5.125%, 4/1/2024                                                                                                                                                                 | 7,400,000            | 7,552,662 
|5.125%, 11/1/2024                                                                                                                                                                | 1,000,000            | 1,018,790 
|California, State General Obligation, Various Purposes, 5.0%,
3/1/2027                                                                                                           | 10,000,000           | 10,087,100
|California, State Public Works Board, Lease Revenue,
Department of Mental Health, Series A, 5.5%, 6/1/2022                                                                       | 2,600,000            | 2,729,012 
|California, State Public Works Board, Lease Revenue,
University of California Projects, Series F, 5.0%, 11/1/2018                                                                | 5,405,000            | 5,754,920 
|California, State University Revenue:                                                                                                                                            |                      |           
|Series C, 5.0%, 11/1/2019 (a) (c)                                                                                                                                                | 18,245,000           | 19,336,781
|Series A, 5.0%, 11/1/2024 (a)                                                                                                                                                    | 5,000,000            | 5,078,700 
|California, Statewide Communities Development Authority,
Certificates of Participation, 6.0%, 8/15/2017 (a)                                                                      | 1,000,000            | 1,043,640 
|California, Statewide Communities Development
Authority Revenue, Kaiser Permanente, Series B, 2.65%**,
4/1/2036                                                                  | 5,000,000            | 3,632,500 
|California, Statewide Communities Development Authority
Revenue, North Peninsula Jewish Campus, 2.25%*,
7/1/2034, Bank of America NA (b)                                         | 1,000,000            | 1,000,000 
|California, Statewide Communities Development Authority
Revenue, St. Joseph, 5.125%, 7/1/2024 (a)                                                                                | 10,000,000           | 10,072,300
|Capistrano, CA, School District General Obligation, Unified
School District, Improvement District No. 1, Series A,
6.25%, 8/1/2018 (a)                                           | 1,000,000            | 1,061,750 
|Carlsbad, CA, School District General Obligation, Unified School
District, Zero Coupon, 11/1/2018 (a)                                                                            | 3,050,000            | 1,932,236 
|Chino Basin, CA, Water & Sewer Revenue, Regional Financing
Authority, 5.9%, 8/1/2011 (a)                                                                                         | 1,290,000            | 1,406,126 
|Chino Valley, CA, Unified School District, Election 2002, Series
C, 5.25%, 8/1/2030 (a)                                                                                          | 5,000,000            | 5,089,750 
|Contra Costa County, CA, GNMA Mortgage-Backed Securities
Program, AMT, ETM, 7.75%, 5/1/2022                                                                                      | 2,715,000            | 3,414,031 
|Corona, CA, Sales & Tax Revenue, Community Facilities
District, Series 90-1-A, 5.5%, 9/1/2015 (a)                                                                                | 9,240,000            | 10,113,734
|Corona-Norco, CA, Sales & Tax Revenue, Unified
School District Public Financing Authority, Series A, 5.75%,
9/1/2014 (a) (c)                                                     | 2,365,000            | 2,371,244 
|Dry Creek, CA, School District General Obligation, Joint
Elementary School District:                                                                                             |                      |           
|Series A, Zero Coupon, 8/1/2016 (a)                                                                                                                                              | 555,000              | 405,061   
|Series A, Zero Coupon, 8/1/2021 (a)                                                                                                                                              | 1,920,000            | 1,040,179 
|Series A, Zero Coupon, 5/1/2022 (a)                                                                                                                                              | 1,385,000            | 715,463   
|Encinitas, CA, State General Obligation, Unified School District,
Zero Coupon, 8/1/2017 (a)                                                                                      | 4,000,000            | 2,690,840 
|Escondido, CA, School District General Obligation, Unified High
School District:                                                                                                 |                      |           
|Zero Coupon, 5/1/2015 (a)                                                                                                                                                        | 3,165,000            | 2,379,732 
|Zero Coupon, 5/1/2016 (a)                                                                                                                                                        | 3,335,000            | 2,372,152 
|ETM, Zero Coupon, 11/1/2017 (a)                                                                                                                                                  | 5,500,000            | 3,837,460 
|Zero Coupon, 11/1/2018 (a)                                                                                                                                                       | 4,605,000            | 2,840,134 
|Escondido, CA, Unified High School District, ETM,
Zero Coupon, 11/1/2020 (a)                                                                                                     | 7,000,000            | 4,096,680 
|Foothill, CA:                                                                                                                                                                    |                      |           
|ETM, Zero Coupon, 1/1/2018 (a)                                                                                                                                                   | 10,000,000           | 6,845,300 
|ETM, Zero Coupon, 1/1/2020 (a)                                                                                                                                                   | 10,000,000           | 6,077,800 
|Series A, Prerefunded, 7.15%, 1/1/2013                                                                                                                                           | 975,000              | 1,061,921 
|Foothill, CA, Eastern Corridor Agency, Series A, ETM,
Zero Coupon, 1/1/2020                                                                                                      | 6,100,000            | 3,707,458 
|Foothill, CA, School District General Obligation, Zero Coupon,
8/1/2016 (a)                                                                                                      | 4,755,000            | 3,401,061 
|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            | 6,697,340 
|Step-up Coupon, 0% to 7/15/2009, 5.875% to 1/15/2026                                                                                                                             | 5,000,000            | 4,738,450 
|Zero Coupon, 1/15/2017 (a)                                                                                                                                                       | 5,975,000            | 3,666,439 
|Zero Coupon, 1/15/2018 (a)                                                                                                                                                       | 6,250,000            | 3,601,625 
|Zero Coupon, 1/15/2025                                                                                                                                                           | 10,000,000           | 3,527,200 
|Fresno, CA, School District General Obligation, Unified School
District:                                                                                                         |                      |           
|Series C, 5.9%, 2/1/2017 (a)                                                                                                                                                     | 1,760,000            | 1,969,810 
|Series A, 6.4%, 8/1/2016 (a)                                                                                                                                                     | 2,000,000            | 2,319,280 
|Healdsburg, CA, School District General Obligation, Unified
School District, Zero Coupon, 7/15/2014 (a)                                                                          | 400,000              | 315,252   
|Las Virgenes, CA, School District General Obligation, Unified
School District:                                                                                                   |                      |           
|Series A, Zero Coupon, 11/1/2013 (a)                                                                                                                                             | 2,150,000            | 1,794,691 
|Series A, Zero Coupon, 11/1/2014 (a)                                                                                                                                             | 1,050,000            | 840,263   
|Series A, Zero Coupon, 11/1/2015 (a)                                                                                                                                             | 1,275,000            | 969,217   
|Zero Coupon, 11/1/2016 (a)                                                                                                                                                       | 1,500,000            | 1,082,640 
|Long Beach, CA, Harbor Revenue, AMT:                                                                                                                                             |                      |           
|Series A, 6.0%, 5/15/2016 (a)                                                                                                                                                    | 8,430,000            | 9,212,220 
|Series A, 6.0%, 5/15/2019 (a)                                                                                                                                                    | 10,600,000           | 11,500,152
|Long Beach, CA, Port Authority Revenue, AMT:                                                                                                                                     |                      |           
|Series A, 5.75%, 5/15/2016                                                                                                                                                       | 12,570,000           | 13,323,320
|Series A, 6.0%, 5/15/2017 (a)                                                                                                                                                    | 1,500,000            | 1,637,055 
|Series A, 6.0%, 5/15/2018 (a)                                                                                                                                                    | 4,000,000            | 4,353,520 
|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            | 1,098,330 
|Los Angeles, CA, Airport Revenue, AMT, Series B,
5.5%, 8/1/2016 (a)                                                                                                              | 6,500,000            | 6,944,275 
|Los Angeles, CA, Pollution Control Revenue, 6.0%, 6/1/2021 (a)                                                                                                                   | 2,000,000            | 2,311,800 
|Lucia Mar, CA, School District General Obligation, Series A,
Zero Coupon, 8/1/2016 (a)                                                                                           | 1,000,000            | 709,740   
|Merced, CA, School District General Obligation, High
School District:                                                                                                            |                      |           
|Series A, Zero Coupon, 8/1/2014 (a)                                                                                                                                              | 2,045,000            | 1,610,601 
|Series A, Zero Coupon, 8/1/2015 (a)                                                                                                                                              | 2,090,000            | 1,559,495 
|Series A, Zero Coupon, 8/1/2016 (a)                                                                                                                                              | 2,140,000            | 1,510,626 
|Midpeninsula Regional Open Space District, CA, Other General
Obligation Lease, ETM, Zero Coupon, 9/1/2020 (a)                                                                    | 1,190,000            | 698,280   
|Millbrae, CA, Senior Care Revenue, Magnolia of Millbrae
Project, AMT, Series A, 7.375%, 9/1/2027                                                                                 | 3,560,000            | 3,595,458 
|Modesto, CA, General Obligation Lease, Community Project,
Series A, 5.6%, 11/1/2014 (a)                                                                                          | 1,370,000            | 1,498,314 
|Montebello, CA, School District General Obligation, Unified
School District, Zero Coupon, 8/1/2013 (a)                                                                           | 1,945,000            | 1,613,455 
|Murrieta Valley, CA, General Obligation, Unified School District:                                                                                                                |                      |           
|Series A, Zero Coupon, 9/1/2016 (a)                                                                                                                                              | 2,500,000            | 1,757,600 
|5.0%, 9/1/2026 (a)                                                                                                                                                               | 7,155,000            | 7,422,812 
|Northern California, Power Agency, Prerefunded,
7.0%, 7/1/2016                                                                                                                   | 210,000              | 261,427   
|Oakland, CA, Port Authority Revenue, AMT, 5.75%, 11/1/2014
(a)                                                                                                                   | 2,500,000            | 2,540,425 
|Palmdale, CA, School District General Obligation, School
Building Project, Zero Coupon, 10/1/2019 (a)                                                                            | 1,420,000            | 862,423   
|Rancho, CA, Water District Financing Authority Revenue:                                                                                                                          |                      |           
|Series A, 5.0%, 8/1/2027 (a)                                                                                                                                                     | 14,100,000           | 13,646,967
|Series A, 5.0%, 8/1/2029 (a)                                                                                                                                                     | 8,400,000            | 8,042,412 
|Redwood City, CA, School District General Obligation,
Elementary School District, Zero Coupon, 8/1/2017 (a)                                                                      | 1,635,000            | 1,096,055 
|Richmond, CA, Water & Sewer Revenue, ETM, Zero Coupon,
8/1/2020 (a)                                                                                                              | 2,495,000            | 1,444,006 
|Riverside County, CA, Hospital & Healthcare Revenue, Asset
Leasing Corp.:                                                                                                        |                      |           
|Zero Coupon, 6/1/2015 (a)                                                                                                                                                        | 1,750,000            | 1,327,270 
|Zero Coupon, 6/1/2016 (a)                                                                                                                                                        | 2,395,000            | 1,719,945 
|Sacramento County, CA, Sales & Special Tax Revenue,
Community Facilities District No. 1:                                                                                         |                      |           
|5.5%, 12/1/2010                                                                                                                                                                  | 1,085,000            | 1,099,865 
|6.0%, 9/1/2011                                                                                                                                                                   | 850,000              | 863,949   
|6.125%, 9/1/2014                                                                                                                                                                 | 605,000              | 613,040   
|6.3%, 9/1/2021                                                                                                                                                                   | 1,500,000            | 1,507,635 
|Sacramento County, CA, Water Finance Authority Revenue,
Water Agency Zones 40 & 41:                                                                                              |                      |           
|Series B, 2.367%**, 6/1/2039 (a)                                                                                                                                                 | 10,000,000           | 7,502,500 
|Series A, 5.0%, 6/1/2026 (a)                                                                                                                                                     | 11,435,000           | 11,514,816
|Sacramento, CA, Electric Revenue, Municipal Utility District:                                                                                                                    |                      |           
|Series K, 5.75%, 7/1/2018 (a) (c)                                                                                                                                                | 5,170,000            | 5,874,826 
|Series G, 6.5%, 9/1/2013 (a)                                                                                                                                                     | 1,270,000            | 1,401,420 
|Sacramento, CA, Other General Obligation Lease, City
Financing Authority:                                                                                                        |                      |           
|Series B, 5.0%, 11/1/2014                                                                                                                                                        | 4,200,000            | 4,454,100 
|Series A, 5.4%, 11/1/2020 (a) (c)                                                                                                                                                | 5,000,000            | 5,360,150 
|Sacramento, CA, Project Revenue, City Financing
Authority, Convention Center Hotel, Series A, Prerefunded,
6.25%, 1/1/2030                                                       | 9,900,000            | 10,391,238
|Sacramento, CA, Sales & Special Tax Revenue, Finance
Authority, Series B, Zero Coupon, 11/1/2016 (a)                                                                             | 2,685,000            | 1,878,372 
|Saddleback Valley, CA, Sales & Special Tax Revenue, Unified
School District, Public Financing Authority:                                                                         |                      |           
|Series A, 6.0%, 9/1/2013 (a)                                                                                                                                                     | 1,000,000            | 1,137,480 
|Series A, 6.0%, 9/1/2014 (a) (c)                                                                                                                                                 | 2,195,000            | 2,530,967 
|Series A, 6.0%, 9/1/2015 (a)                                                                                                                                                     | 1,000,000            | 1,162,900 
|San Bernardino, CA, County General Obligation, Medical Center
Financing Project:                                                                                                 |                      |           
|5.5%, 8/1/2017 (a)                                                                                                                                                               | 3,965,000            | 4,334,023 
|6.0%, 8/1/2009 (a)                                                                                                                                                               | 1,045,000            | 1,078,241 
|San Bernardino, CA, Other Revenue Lease:                                                                                                                                         |                      |           
|Series A, 5.25%, 11/1/2013 (a)                                                                                                                                                   | 3,115,000            | 3,366,785 
|Series A, 5.25%, 11/1/2014 (a)                                                                                                                                                   | 2,330,000            | 2,519,825 
|San Bruno Park, CA, School District, General Obligation:                                                                                                                         |                      |           
|Zero Coupon, 8/1/2014 (a)                                                                                                                                                        | 1,010,000            | 816,060   
|Zero Coupon, 8/1/2016 (a)                                                                                                                                                        | 1,000,000            | 729,840   
|Zero Coupon, 8/1/2017 (a)                                                                                                                                                        | 1,000,000            | 691,170   
|Zero Coupon, 8/1/2019 (a)                                                                                                                                                        | 1,100,000            | 676,841   
|San Diego, CA, School District General Obligation, Election of
1998:                                                                                                             |                      |           
|Series B, 6.0%, 7/1/2019 (a)                                                                                                                                                     | 3,350,000            | 3,929,550 
|Series B, 6.05%, 7/1/2018 (a)                                                                                                                                                    | 770,000              | 912,812   
|San Francisco, CA, Bay Area Rapid Transit District, Election of
2004, Series B, 5.0%, 8/1/2027                                                                                   | 5,085,000            | 5,300,350 
|San Joaquin Hills, CA, Transportation Corridor Agency:                                                                                                                           |                      |           
|ETM, Zero Coupon, 1/1/2010                                                                                                                                                       | 1,500,000            | 1,453,800 
|ETM, Zero Coupon, 1/1/2014                                                                                                                                                       | 3,680,000            | 3,075,413 
|San Joaquin Hills, CA, Transportation/Tolls Revenue,
Transportation Corridor Agency:                                                                                             |                      |           
|Series A, Zero Coupon, 1/15/2015 (a)                                                                                                                                             | 12,065,000           | 9,156,611 
|Series A, Zero Coupon, 1/15/2016 (a)                                                                                                                                             | 3,485,000            | 2,500,278 
|Series A, Zero Coupon, 1/15/2017 (a)                                                                                                                                             | 3,965,000            | 2,673,084 
|Series A, Zero Coupon, 1/15/2018 (a)                                                                                                                                             | 2,640,000            | 1,673,602 
|Series A, Zero Coupon, 1/15/2019 (a)                                                                                                                                             | 3,185,000            | 1,892,400 
|San Jose, CA, School District General Obligation, Unified
School District:                                                                                                       |                      |           
|Series A, ETM, Zero Coupon, 8/1/2015 (a)                                                                                                                                         | 2,570,000            | 2,005,525 
|Series A, ETM, Zero Coupon, 8/1/2017 (a)                                                                                                                                         | 1,350,000            | 952,034   
|San Juan, CA, San Juan Project, Series D, ETM,
6.75%, 7/1/2020 (a)                                                                                                               | 1,595,000            | 1,908,465 
|San Ysidro, CA, School District General Obligation,
6.125%, 8/1/2021 (a)                                                                                                         | 1,400,000            | 1,583,974 
|Santa Ana, CA, Other General Obligation, Police Administration
and Holding Facility, Series A, 6.25%, 7/1/2024 (a)                                                               | 2,000,000            | 2,312,940 
|Santa Clara County, CA, Hospital & Healthcare Revenue,
Financing Authority, VMC Replacement Project, Series A,
7.75%, 11/15/2008 (a)                                             | 3,250,000            | 3,289,617 
|Santa Cruz County, CA, County General Obligation Lease,
Capital Facilities Project:                                                                                              |                      |           
|5.5%, 9/1/2017 (a)                                                                                                                                                               | 1,005,000            | 1,111,409 
|5.5%, 9/1/2018 (a)                                                                                                                                                               | 1,060,000            | 1,167,717 
|5.6%, 9/1/2019 (a)                                                                                                                                                               | 1,115,000            | 1,253,528 
|5.6%, 9/1/2020 (a)                                                                                                                                                               | 1,180,000            | 1,323,040 
|5.65%, 9/1/2024 (a)                                                                                                                                                              | 1,445,000            | 1,619,050 
|5.65%, 9/1/2025 (a)                                                                                                                                                              | 1,520,000            | 1,704,938 
|5.65%, 9/1/2026 (a)                                                                                                                                                              | 1,605,000            | 1,797,199 
|Santa Margarita/Dana Point, CA, Special Assessment Revenue,
Improvement District Authority:                                                                                      |                      |           
|Series B, 7.25%, 8/1/2012 (a)                                                                                                                                                    | 3,675,000            | 4,265,462 
|Series B, 7.25%, 8/1/2013 (a)                                                                                                                                                    | 3,400,000            | 4,044,062 
|Santaluz, CA, Sales & Special Tax Revenue, Santaluz
Community Facilities No. 2:                                                                                                  |                      |           
|6.25%, 9/1/2021                                                                                                                                                                  | 1,985,000            | 1,990,121 
|6.375%, 9/1/2030                                                                                                                                                                 | 4,890,000            | 4,900,758 
|Southern California, Electric Revenue, Public Power Authority,
Power Project, 6.75%, 7/1/2010                                                                                    | 6,000,000            | 6,487,980 
|Southern California, Electric Revenue, Public Power Authority,
Transmission Project, Zero Coupon, 7/1/2015                                                                       | 2,000,000            | 1,537,780 
|Southern California, Metropolitan Water District, Waterworks
Revenue:                                                                                                            |                      |           
|Series A, ETM, 5.75%, 7/1/2021                                                                                                                                                   | 880,000              | 1,005,770 
|Series A, 5.75%, 7/1/2021                                                                                                                                                        | 1,120,000            | 1,281,258 
|Southern California, Public Power Authority, Natural
Gas Project Revenue, Project No. 1, Series A,
5.25%, 11/1/2024                                                              | 5,000,000            | 4,988,800 
|Tahoe Truckee, CA, School District General Obligation, Unified
School District Capital Improvement, Series A, Zero Coupon,
8/1/2022 (a)                                          | 3,600,000            | 1,759,212 
|Temple City, CA, School District General Obligation, Series A,
Zero Coupon, 8/1/2015 (a)                                                                                         | 1,250,000            | 937,150   
|Ukiah, CA, School District General Obligation, Unified School
District, Zero Coupon, 8/1/2016 (a)                                                                                | 2,000,000            | 1,415,080 
|West Covina, CA, Sales & Special Tax Revenue, Fashion Plaza,
5.75%, 9/1/2009                                                                                                     | 305,000              | 310,426   
|                                                                                                                                                                                 | 600,517,080         
|Puerto Rico 10.0%                                                                                                                                                               
|Commonwealth of Puerto Rico, Aqueduct & Sewer Authority
Revenue, Series A, 6.0%, 7/1/2038                                                                                        | 5,000,000            | 5,241,800 
|Commonwealth of Puerto Rico, Public Improvement, Series A:                                                                                                                       |                      |           
|5.25%, 7/1/2022                                                                                                                                                                  | 2,000,000            | 2,002,400 
|5.5%, 7/1/2020 (a)                                                                                                                                                               | 13,250,000           | 13,745,550
|Puerto Rico, Electric Revenue, Electric Power Authority:                                                                                                                         |                      |           
|Series JJ, 5.375%, 7/1/2017 (a)                                                                                                                                                  | 10,605,000           | 11,207,576
|Series KK, 5.5%, 7/1/2016 (a)                                                                                                                                                    | 10,000,000           | 10,708,300
|Puerto Rico, Industrial Development Revenue, Industrial Tourist
Educational, Medical & Environmental Central Facilities:                                                         |                      |           
|Series A, 5.625%, 7/1/2015 (a)                                                                                                                                                   | 2,190,000            | 2,266,519 
|Series A, 5.625%, 7/1/2016 (a)                                                                                                                                                   | 2,215,000            | 2,292,392 
|5.625%, 7/1/2017 (a)                                                                                                                                                             | 2,345,000            | 2,426,934 
|Puerto Rico, Industrial Tourist Educational, Medical &
Environmental Central Facilities, Bristol-Myers Squibb
Project, AMT, 1.89%*, 12/1/2030                                    | 2,800,000            | 2,800,000 
|Puerto Rico, Public Buildings Authority Revenue, Government
Facilities, Series A, ETM, 6.25%, 7/1/2013 (a)                                                                       | 1,000,000            | 1,159,240 
|Puerto Rico, Sales & Special Tax Revenue,
Commonwealth Infrastructure Finance Authority, Series A,
5.5%, 10/1/2020                                                               | 2,000,000            | 2,088,940 
|Puerto Rico, Sales & Special Tax Revenue, Highway &
Transportation Authority:                                                                                                    |                      |           
|Series Z, 6.0%, 7/1/2018 (a)                                                                                                                                                     | 7,250,000            | 8,289,288 
|Series Z, 6.25%, 7/1/2014 (a)                                                                                                                                                    | 1,000,000            | 1,106,470 
|Series A, 6.25%, 7/1/2016 (a)                                                                                                                                                    | 750,000              | 864,180   
|Puerto Rico, State General Obligation:                                                                                                                                           |                      |           
|5.5%, 7/1/2015 (a)                                                                                                                                                               | 3,665,000            | 3,854,224 
|5.65%, 7/1/2015 (a)                                                                                                                                                              | 1,000,000            | 1,060,340 
|6.5%, 7/1/2015 (a)                                                                                                                                                               | 4,000,000            | 4,513,800 
|                                                                                                                                                                                 | 75,627,953          
|Virgin Islands 1.1%                                                                                                                                                             
|Virgin Islands, Sales & Special Tax Revenue, Public Finance
Authority, Series A, Prerefunded, 6.5%, 10/1/2024                                                                    | 7,500,000            | 8,230,425 
|Total Municipal Bonds and Notes (Cost $657,535,753)                                                                                                                              | 684,375,458         
|                                                                                                                                                                                
|Municipal Inverse Floating Rate Notes (d) 24.0%                                                                                                                                 
|California 20.3%                                                                                                                                                                
|San Diego County, CA, Water Authority Revenue, Certificates
of Participation, Series 2008-A, 5.0%, 5/1/2027 (a) (e)                                                              | 2,135,312            | 2,209,966 
|San Diego County, CA, Water Authority Revenue, Certificates
of Participation, Series 2008-A, 5.0%, 5/1/2028 (a) (e)                                                              | 1,943,016            | 2,010,948 
|Trust: San Diego County, CA, Series 2008-1104,
144A. 13.186%, 5/1/2027, Leverage Factor at purchase date:
4 to I                                                                 |                      |           
|Santa Clara County, CA, San Jose Unified School District,
Election of 2002, Series D, 5.0%, 8/1/2032 (e)                                                                         | 10,000,000           | 10,203,550
|Trust: Santa Clara County, CA, San Jose Unified School
District, Series 1158, 144A, 13.58%. 8/1/2032, Leverage
Factor at purchase date: 4 to 1                                   |                      |           
|California, State Community Center, College District, Election
of 2002, Series A, 5.0%, 8/1/2026 (a) (e)                                                                         | 10,630,000           | 11,025,010
|Trust: California, State Community Center, Series
2008-1154, 144A, 13.18%, 8/1/2026, Leverage Factor at
purchase date: 4 to 1                                                    |                      |           
|California, Bay Area Toll Authority, Toll Bridge Revenue, Series
F, 5.0%, 4/1/2025 (e)                                                                                           | 13,870,000           | 14,409,516
|Trust: California, Bay Area Toll Authority, Toll Bridge
Revenue, Series 1962-3, 144A, 13.991%, 4/1/2025,
Leverage Factor at purchase date: 4 to 1                                |                      |           
|California, Bay Area Toll Authority, Toll Bridge Revenue, Series
F, 5.0%, 4/1/2031 (e)                                                                                           | 11,475,000           | 11,626,364
|Trust: California, Bay Area Toll Authority, Toll Bridge
Revenue, Series 1962, 144A, 13.995%, 4/1/2031, Leverage
Factor at purchase date: 4 to 1                                  |                      |           
|California, Bay Area Toll Authority, Toll Bridge Revenue, Series
F, 5.0%, 4/1/2026 (e)                                                                                           | 17,205,000           | 17,811,386
|Trust: California, Bay Area Toll Authority, Toll Bridge
Revenue, Series 1962-2, 144A, 14.003%, 4/1/2026,
Leverage Factor at purchase date: 4 to 1                                |                      |           
|California, State Department of Water Resources, Power
Supply Revenue, Series A, 5.375%, 5/1/2018 (a) (e)                                                                        | 15,000,000           | 16,688,100
|Trust: California, State Department of Water Resources,
Power Supply Revenue, Series 309, 144A, 8.565%,
5/1/2018, Leverage Factor at purchase date: 2 to 1                       |                      |           
|California, State Department of Water Resources,
Water Revenue, Central Valley Project, Series AE,
5.0%, 12/1/2023 (e)                                                           | 3,158,944            | 3,347,208 
|California, State Department of Water Resources,
Water Revenue, Central Valley Project, Series AE,
5.0%, 12/1/2024 (e)                                                           | 2,257,732            | 2,392,287 
|California, State Department of Water Resources,
Water Revenue, Central Valley Project, Series AE,
5.0%, 12/1/2025 (e)                                                           | 1,881,443            | 1,993,573 
|Trust: California, State Department of Water Resources,
Water Revenue, Series 2705, 144A, 30.913%, 12/1/2023,
Leverage Factor at purchase date: 10 to 1                          |                      |           
|California, State Economic Recovery, Series A, 5.0%, 7/1/2015
(a) (e)                                                                                                            | 15,300,000           | 16,729,938
|Trust: California, State Economic Recovery, RITES-PA 1262,
144A, 7.78%, 7/1/2015, Leverage Factor at purchase date: 2
to 1                                                       |                      |           
|Sacramento, CA, Municipal Utility District, Electric Revenue,
Series U, 5.0%, 8/15/2026 (a) (e)                                                                                  | 2,615,144            | 2,689,823 
|Sacramento, CA, Municipal Utility District, Electric Revenue,
Series U, 5.0%, 8/15/2027 (a) (e)                                                                                  | 2,026,590            | 2,084,462 
|Sacramento, CA, Municipal Utility District, Electric Revenue,
Series U, 5.0%, 8/15/2028 (a) (e)                                                                                  | 2,044,931            | 2,103,326 
|Trust: Sacramento, CA, Municipal Utility District Electric
Revenue, Series 2815, 144A, 15.513%, 8/15/2026, Leverage
Factor at purchase date: 5 to 1                              |                      |           
|San Francisco, CA, Bay Area Rapid Transit District, Election of
2004, Series B, 5.0%,8/1/2032 (e)                                                                                | 10,000,000           | 10,238,200
|Trust: San Francisco, CA, Bay Area Rapid Transit District,
Series 2665, 144A, 30.92%, 8/1/2032, Leverage Factor at
purchase date: 10 to 1                                        |                      |           
|San Francisco, CA, City & County Airports Commission,
International Airport Revenue, AMT, Series 24A,
5.75%, 5/1/2012 (a) (e)                                                    | 2,570,000            | 2,663,818 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662B, 144A, 8.795%, 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) (e)                                                     | 2,890,000            | 2,995,499 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662H, 144A, 8.795%, 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) (e)                                                    | 2,730,000            | 2,888,927 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662C, 144A, 8.795%, 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) (e)                                                     | 3,070,000            | 3,248,720 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662I, 144A, 8.795%, 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) (e)                                                    | 2,890,000            | 3,058,241 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662D, 144A, 8.795%, 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) (e)                                                    | 3,060,000            | 3,155,992 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662E, 144A, 8.795%, 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) (e)                                                   | 3,250,000            | 3,350,782 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662F, 144A, 9.045%, 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) (e)                                                     | 2,160,000            | 2,255,753 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662A, 144A, 9.295%, 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) (e)                                                      | 2,730,000            | 2,851,021 
|Trust: San Francisco, CA, City & County Airports
Commission, International Airport Revenue, AMT, RITES-PA
662G, 144A, 9.295%, 5/1/2011, Leverage Factor at purchase
date: 2 to 1 |                      |           
|                                                                                                                                                                                 | 154,032,410         
|Puerto Rico 3.7%                                                                                                                                                                
|Puerto Rico, Electric Power Authority Revenue, Series KK,
5.5%, 7/1/2015 (a) (e)                                                                                                 | 25,000,000           | 27,727,626
|Trust: Puerto Rico, Electric Power Authority Revenue,
RITES-PA 1044, 144A, 13.879%  7/1/2015, Leverage Factor
at purchase date: 4 to 1                                           |                      |           
|Total Municipal Inverse Floating Rate Notes (Cost $175,642,714)                                                                                                                  | 181,760,036         

|                                               | % of Net
Assets | Value ($)    
|---------------------------------------------- | --------------- | -------------
|                                               |                
|Total Investment Portfolio(Cost $833,178,467)+ | 114.5           | 866,135,494  
|Other Assets and Liabilities, Net              | (14.5)          | (109,976,468)
|Net Assets                                     | 100.0           | 756,159,026  

|Insurance Coverage                   | As a % of Total
Investment Portfolio
|------------------------------------ | ------------------------------------
|Ambac Financial Group, Inc.          | 6.1                                 
|Financial Guaranty Insurance Company | 11.9                                
|Financial Security Assurance, Inc.   | 13.9                                
|MBIA Corporation                     | 27.1                                
|Radian Asset Assurance, Inc.         | 1.5                                 
|XL Capital Assurance, Inc.           | 1.3                                 

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.

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.

GNMA: Government National Mortgage Association

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, 2008, open interest rate swaps were as follows:

|Effective/
Expiration
Date                                                                  | Notional
Amount ($) | Cash Flows Paid
by the Fund | Cash Flows
Received by the
Fund | Unrealized
Depreciation ($)
|------------------------------------------------------------------------------------------- | ------------------- | --------------------------- | ------------------------------- | ---------------------------
|2/17/2009
2/17/2023                                                                         | 17,300,0001         | Fixed  4.915%              | Floating  LIBOR                | (422,405)                  
|12/10/2008
12/10/2023                                                                       | 11,500,0002         | Fixed  5.06%               | Floating  LIBOR                | (449,167)                  
|12/10/2008
12/10/2023                                                                       | 11,350,0003         | Fixed  5.048%              | Floating  LIBOR                | (428,359)                  
|Total unrealized depreciation                                                               | (1,299,931)        
|Counterparties:1Goldman Sachs & Co.2Citigroup Global Markets, Inc.3Morgan Stanley Co., 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, 2008 
|---------------------------------------------------------
|Assets                                                   
|Investments in securities, at value (cost $833,178,467)  
|Cash                                                     
|Receivable for investments sold                          
|Receivable for Fund shares sold                          
|Interest receivable                                      
|Due from Advisor                                         
|Other assets                                             
|Total assets                                             
|Liabilities                                              
|Payable for floating rate notes issued                   
|Dividends payable                                        
|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
|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, 2008 (continued)                                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Net Asset Value                                                                                                                                                                                                                             
|Class A
Net Asset Value and redemption price(a) per share
($497,944,069 ÷ 68,820,864 outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized)                                                      
|Maximum offering price per share (100 ÷ 95.50 of $7.24)                                                                                                                                                                                     
|Class B
Net Asset Value, offering and redemption price(a) (subject to contingent
deferred sales charge) per share ($2,903,841 ÷ 400,659 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 ($11,296,184 ÷ 1,571,026 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
($244,014,932 ÷ 33,784,462 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, 2008          
|-------------------------------------------------------------------
|Investment Income                                                  
|Income:Interest                                                    
|Expenses:Management fee                                            
|Administration fee                                                 
|Distribution and service fees                                      
|Services to shareholders                                           
|Custodian fee                                                      
|Professional fees                                                  
|Trustees' fees and expenses                                        
|Reports to shareholders and shareholder meeting                    
|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                          
|Futures                                                            
|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, 2008                                                                         
|----------------------------------------------------------------------------------------------------------------------------------
|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                                                                                                          
|Net receipt (payment) on interest rate swap contracts                                                                             
|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 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 unrealized depreciation on interest rate
swap contracts                                                    
|(Increase) decrease in receivable for investments sold                                                                            
|(Increase) decrease in interest receivable                                                                                        
|(Increase) decrease in other assets                                                                                               
|Increase (decrease) in daily variation margin payable on open
futures 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                                                                                 
|2008                                                                                                              
|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                                                                                                           
|Total distributions                                                                                               
|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 $516,935 and $435,133,
respectively)

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

Financial Highlights

|Class A
Years Ended August 31,                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2008      | 2007      | 2006      | 2005      | 2004     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                              | $    7.35 | $    7.53 | $    7.61 | $    7.57 | $    7.42
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                                                                                                  | .31       | .31       | .32       | .33       | .33      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                           | (.09)     | (.18)     | (.08)     | .04       | .15      
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                                                                                                  | .22       | .13       | .24       | .37       | .48      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                    | (.31)     | (.31)     | (.32)     | (.33)     | (.33)    
|Net realized gains                                                                                                                                                                                                                                                                                                                                                                                                                                                | (.02)     | (.00)*    |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                                                                                               | (.33)     | (.31)     | (.32)     | (.33)     | (.33)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                                                                                                   | .00*      | .00*      | .00*      | .00*      |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                                                                                                    | $    7.24 | $    7.35 | $    7.53 | $    7.61 | $    7.57
|Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 3.09c     | 1.71      | 3.27      | 5.01      | 6.59     
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                                                                                               
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                                                                                            | 498       | 612       | 613       | 617       | 652      
|Ratio of expenses before expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                     | 1.35      | 1.31      | 1.32      | 1.10      | .94      
|Ratio of expenses after expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                      | 1.34      | 1.31      | 1.32      | 1.10      | .94      
|Ratio of expenses after expense reductions
(excluding interest expense) (%)                                                                                                                                                                                                                                                                                                                                                                                       | .85       | .83       | .83       | .83       | .81      
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                                                                                                                | 4.29      | 4.14      | 4.30      | 4.34      | 4.42     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                                                                                                       | 56        | 37        | 32        | 23        | 25       
|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 B
Years Ended August 31,                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2008      | 2007      | 2006      | 2005      | 2004     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                              | $    7.37 | $    7.54 | $    7.62 | $    7.58 | $    7.43
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                                                                                                  | .26       | .26       | .27       | .28       | .28      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                           | (.10)     | (.18)     | (.08)     | .04       | .15      
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                                                                                                  | .16       | .08       | .19       | .32       | .43      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                    | (.26)     | (.25)     | (.27)     | (.28)     | (.28)    
|Net realized gains                                                                                                                                                                                                                                                                                                                                                                                                                                                | (.02)     | (.00)*    |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                                                                                               | (.28)     | (.25)     | (.27)     | (.28)     | (.28)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                                                                                                   | .00*      | .00*      | .00*      | .00*      |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                                                                                                    | $    7.25 | $    7.37 | $    7.54 | $    7.62 | $    7.58
|Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 2.14c     | 1.10c     | 2.57c     | 4.17c     | 5.94c    
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                                                                                               
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                                                                                            | 3         | 5         | 8         | 10        | 16       
|Ratio of expenses before expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                     | 2.15      | 2.11      | 2.20      | 1.96      | 1.76     
|Ratio of expenses after expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                      | 2.12      | 2.04      | 2.00      | 1.78      | 1.65     
|Ratio of expenses after expense reductions
(excluding interest expense) (%)                                                                                                                                                                                                                                                                                                                                                                                       | 1.63      | 1.57      | 1.51      | 1.51      | 1.52     
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                                                                                                                | 3.51      | 3.40      | 3.61      | 3.66      | 3.71     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                                                                                                       | 56        | 37        | 32        | 23        | 25       
|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,                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2008      | 2007      | 2006      | 2005      | 2004     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                              | $    7.31 | $    7.48 | $    7.56 | $    7.52 | $    7.37
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                                                                                                  | .26       | .26       | .26       | .27       | .28      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                                                                                           | (.11)     | (.18)     | (.08)     | .04       | .14      
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                                                                                                  | .15       | .08       | .18       | .31       | .42      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                                                                                                    | (.25)     | (.25)     | (.26)     | (.27)     | (.27)    
|Net realized gain                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (.02)     | (.00)*    |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                                                                                               | (.27)     | (.25)     | (.26)     | (.27)     | (.27)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                                                                                                   | .00*      | .00*      | .00*      | .00*      |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                                                                                                    | $    7.19 | $    7.31 | $    7.48 | $    7.56 | $    7.52
|Total Return (%)b                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 2.15c     | 1.05c     | 2.52c     | 4.26c     | 5.82c    
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                                                                                               
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                                                                                            | 11        | 9         | 9         | 9         | 8        
|Ratio of expenses before expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                     | 2.13      | 2.09      | 2.12      | 1.91      | 1.73     
|Ratio of expenses after expense reductions
(including interest expense) (%)d                                                                                                                                                                                                                                                                                                                                                                                      | 2.12      | 2.09      | 2.04      | 1.82      | 1.69     
|Ratio of expenses after expense reductions
(excluding interest expense) (%)                                                                                                                                                                                                                                                                                                                                                                                       | 1.63      | 1.61      | 1.55      | 1.55      | 1.56     
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                                                                                                                | 3.51      | 3.35      | 3.57      | 3.62      | 3.67     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                                                                                                       | 56        | 37        | 32        | 23        | 25       
|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,                                                                                                                                                                                                                                                                                                                                                                     | 2008      | 2007      | 2006      | 2005      | 2004     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | --------- | --------- | ---------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                                                           
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                                                               | $    7.34 | $    7.52 | $    7.59 | $    7.56 | $    7.42
|Income (loss) from investment operations:
Net investment incomea                                                                                                                                                                                                                                                                                                                                   | .33       | .33       | .33       | .34       | .35      
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                                                            | (.10)     | (.19)     | (.06)     | .04       | .15      
|Total from investment operations                                                                                                                                                                                                                                                                                                                                                                   | .23       | .14       | .27       | .38       | .50      
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                                                     | (.33)     | (.32)     | (.34)     | (.35)     | (.36)    
|Net realized gains                                                                                                                                                                                                                                                                                                                                                                                 | (.02)     | (.00)*    |          |          |         
|Total distributions                                                                                                                                                                                                                                                                                                                                                                                | (.35)     | (.32)     | (.34)     | (.35)     | (.36)    
|Redemption fees                                                                                                                                                                                                                                                                                                                                                                                    | .00*      | .00*      | .00*      | .00*      |         
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                                                     | $    7.22 | $    7.34 | $    7.52 | $    7.59 | $    7.56
|Total Return (%)                                                                                                                                                                                                                                                                                                                                                                                   | 3.17b     | 1.92      | 3.63      | 5.10      | 6.81     
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                                                
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                                                             | 244       | 233       | 251       | 272       | 281      
|Ratio of expenses before expense reductions
(including interest expense) (%)c                                                                                                                                                                                                                                                                                                                      | 1.15      | 1.10      | 1.10      | .89       | .74      
|Ratio of expenses after expense reductions
(including interest expense) (%)c                                                                                                                                                                                                                                                                                                                       | 1.12      | 1.10      | 1.10      | .89       | .74      
|Ratio of expenses after expense reductions
(excluding interest expense) (%)                                                                                                                                                                                                                                                                                                                        | .63       | .62       | .61       | .62       | .61      
|Ratio of net investment income (loss) (%)                                                                                                                                                                                                                                                                                                                                                          | 4.51      | 4.35      | 4.51      | 4.55      | 4.62     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                                                        | 56        | 37        | 32        | 23        | 25       
|aBased on average shares outstanding during the period.bTotal return would have been lower had certain expenses not been reduced.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.

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 and 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.

New Accounting Pronouncements. 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, 2008, 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 levels of 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.

In addition, in March 2008, the FASB issued Statement of Financial
Accounting Standards No. 161 ("FAS 161"), "Disclosures about Derivative
Instruments and Hedging Activities". FAS 161 requires enhanced disclosure
about an entity's derivative and hedging activities including qualitative
disclosures about the objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. FAS 161 is effective for fiscal years and
interim periods beginning after November 15, 2008. Management is
currently evaluating the impact the adoption of FAS 161 will have on the
Fund's financial statement disclosures.

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
("underlying bond"). 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 underlying bond in its investment portfolio and a
corresponding liability in the statement of assets and liabilities equal to the
floating rate note issued. When a trust is terminated and/or collapsed by
either party, the related fixed rate securities held by the trust are delivered
back to the Fund where they are either held or sold, and the related liability
of the floating rate note issued is adjusted. 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, 2008 was approximately
$132,009,000, with a weighted average interest rate of 3.10%.

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 accruals for which would begin at a
specified date in the future (the "effective date"). 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. The Fund generally intends,
but is not obligated, to terminate its interest rate swaps before the effective
date. Payments received or made 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.

The Fund has reviewed the tax positions for the open tax years as of August
31, 2008 and has determined that no provision for income tax is required in
the Fund's financial statements. The Fund's federal tax returns for the prior
three fiscal years remain subject to examination by the Internal Revenue
Service.

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, 2008, the Fund's components of distributable earnings
(accumulated losses) on a tax basis are as follows:

|Undistributed tax-exempt income            | $       1,067,353 
|------------------------------------------ | ------------------
|Undistributed net long-term capital gains  | $       9,882,259 
|Net unrealized appreciation on investments | $       33,627,359

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

|                                           | Years Ended August 31,
|------------------------------------------ | ----------------------
|                                           | 2008                  
|Distributions from tax-exempt income       | $       35,610,846    
|Distributions from long-term capital gains | 2,346,946             

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, 2008. Non-cash activity from market discount
accretion and premium amortization has been excluded from Statement of
Cash Flows.

B. Purchases and Sales of Securities

During the year ended August 31, 2008, purchases and sales of investment
securities (excluding short-term investments) aggregated $521,924,750 and
$649,835,532, 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.

Prior to May 1, 2008, under the Investment Management Agreement, the
Fund paid 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%

Effective May 1, 2008, under the Amended and Restated 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 | .45%
|--------------------------------------------------------- | ----
|Next $750 million of such net assets                      | .42%
|Next $1.5 billion of such net assets                      | .40%
|Next $2.5 billion of such net assets                      | .38%
|Next $2.5 billion of such net assets                      | .35%
|Next $2.5 billion of such net assets                      | .33%
|Next $2.5 billion of such net assets                      | .31%
|Over $12.5 billion of such net assets                     | .30%

Accordingly, for the year ended August 31, 2008, the fee pursuant to the
Investment Management Agreement was equivalent to an annual effective
rate of 0.50% of the Fund's average daily net assets.

For the period from September 1, 2007 through September 30, 2007, the
Advisor had 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 B | 1.61%
|------- | -----
|Class C | 1.63%
|Class S | .63% 

Effective October 1, 2007 through September 30, 2008, the Advisor has
contractually agreed to waive all or a portion of its management fee and
reimburse or pay certain operating expenses of the Fund (excluding certain
expenses such as extraordinary expenses, taxes, brokerage and interest) to
the extent necessary to maintain the operating expenses of certain classes
as follows:

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

Administration Fee. Effective May 1, 2008, pursuant to an Administrative
Services Agreement, DIMA provides most administrative services to the
Fund. For all services provided under the Administrative Services
Agreement, the Fund pays the Advisor an annual fee ("Administration Fee")
of 0.10% of the Fund's average daily net assets, computed and accrued daily
and payable monthly. For the period from May 1, 2008 through August 31,
2008, the Advisor received an Administration Fee of $262,317, of which
$63,753 is unpaid.

Service Provider Fees. DWS Investments Service Company ("DISC"), an
affiliate of the Advisor, is the transfer agent, dividend-paying agent and
shareholder service agent of the Fund. Pursuant to a sub-transfer agency
agreement between DISC and DST Systems, Inc. ("DST"), DISC has
delegated certain transfer agent, dividend-paying agent and shareholder
service agent functions to DST. DISC compensates DST out of the
shareholder servicing fee it receives from the Fund. For the year ended
August 31, 2008, the amounts charged to the Fund by DISC were as
follows:

|Services to Shareholders | Total
Aggregated | Waived      | Unpaid at
August 31, 2008
|------------------------ | ---------------- | ----------- | -------------------------
|Class A                  | $       143,852  | $          | $       34,140           
|Class B                  | 2,466            | 769         | 1,168                    
|Class C                  | 2,171            |            | 583                      
|Class S                  | 61,441           | 55,120      |                         
|                         | $    209,930     | $    55,889 | $    35,891              

Distribution and Service Fees. Under the Fund's Class B and Class C  12b-1
Plans, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the
Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net
assets of each of Class B and C shares. In accordance with the Fund's
Underwriting and Distribution Services Agreement, DIDI enters into related
selling group agreements with various firms at various rates for sales of
Class B and C shares, respectively. For the year ended August 31, 2008, the
Distribution Fee was as follows:

|Distribution Fee | Total
Aggregated | Unpaid at
August 31, 2008
|---------------- | ---------------- | -------------------------
|Class B          | $       33,291   | $       2,161            
|Class C          | 76,002           | 6,794                    
|                 | $    109,293     | $    8,955               

In addition, DIDI 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. DIDI 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, 2008, the Service Fee was as
follows:

|Service Fee | Total
Aggregated  | Unpaid at
August 31, 2008 | Annual
Effective Rate
|----------- | ----------------- | ------------------------- | ---------------------
|Class A     | $       1,243,296 | $       122,166           | .21%                 
|Class B     | 11,015            | 728                       | .25%                 
|Class C     | 25,226            | 324                       | .25%                 
|            | $    1,279,537    | $    123,218              |                      

Underwriting and Contingent Deferred Sales Charge. DIDI 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, 2008
aggregated $31,781.

In addition, DIDI 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, 2008, the CDSC for Class B and C shares was
$3,880 and $1,810, respectively. A deferred sales charge of up to 0.85% is
assessed on certain redemptions of 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, 2008, the amount
charged to the Fund by DIMA included in the Statement of Operations
under "reports to shareholders and shareholder meeting" aggregated
$34,132, of which $19,411 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 and Vice Chairperson.

In connection with the board consolidation on April 1, 2008, of the two DWS
Funds Boards of Trustees, certain Independent Board Members retired prior
to their normal retirement date, and received a one-time retirement benefit.
DIMA has agreed to reimburse the Funds for the cost of this benefit. During
the period ended August 31, 2008, the Fund paid its allocated portion of the
retirement benefit of $42,128 to the non-continuing Independent Board
Members, and the Fund was reimbursed by DIMA for this payment.

D. Fee Reductions

For the year ended August 31, 2008, the Advisor agreed to reimburse the
Fund $3,496, which represented a portion of the expected fee savings for
the Advisor through December 31, 2007 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, 2008, the Fund's custodian fee was
reduced by $3,031 and $7,430, respectively, for custody and transfer agent
credits earned.

E. Line of Credit

The Fund and other affiliated funds (the "Participants") share in a
$490 million revolving credit facility provided by a syndication of banks. The
Fund may borrow 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 on 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, 2008 | Year Ended August 31, 2007
|-------------------------------------------------------------- | -------------------------- | --------------------------
|                                                               | Shares                     | Dollars                   
|Shares sold                                                   
|Class A                                                        | 6,859,296                  | $       50,146,486        
|Class B                                                        | 43,959                     | 321,675                   
|Class C                                                        | 439,832                    | 3,206,101                 
|Class S                                                        | 5,038,293                  | 36,377,909                
|                                                               |                            | $    90,052,171           
|Shares issued to shareholders in reinvestment of distributions
|Class A                                                        | 2,009,907                  | $       14,723,822        
|Class B                                                        | 13,753                     | 101,089                   
|Class C                                                        | 32,568                     | 236,953                   
|Class S                                                        | 972,446                    | 7,110,268                 
|                                                               |                            | $    22,172,132           
|Shares redeemed                                               
|Class A                                                        | (23,321,269)               | $       (169,485,541)     
|Class B                                                        | (378,871)                  | (2,773,184)               
|Class C                                                        | (156,712)                  | (1,138,710)               
|Class S                                                        | (3,973,698)                | (29,085,945)              
|                                                               |                            | $    (202,483,380)        
|Redemption fees                                                |                            | $    10,954               
|Net increase (decrease)                                       
|Class A                                                        | (14,452,066)               | $       (104,608,724)     
|Class B                                                        | (321,159)                  | (2,350,420)               
|Class C                                                        | 315,688                    | 2,304,344                 
|Class S                                                        | 2,037,041                  | 14,406,677                
|                                                               |                            | $    (90,248,123)         

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 DWS California Tax-Free Income Fund
(the "Fund"), one of the series of DWS State Tax-Free Income Series (the
"Trust"), as of August 31, 2008, 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, 2008, 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
DWS California Tax-Free Income Fund at August 31, 2008, 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 23, 2008 |  | ctf_eny0
|-------------------------------------- |  | --------

Tax Information(Unaudited)

The Fund paid distributions of $0.0202 per share from net long-term capital
gains during its year ended August 31, 2008, of which 100% represents
15% rate gains.

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$11,136,000 as capital gain dividends for its year ended August 31, 2008, 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, 2008, 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.

Shareholder Meeting Results(Unaudited)

The Special Meeting of Shareholders of DWS California Tax-Free Income
Fund (the "Fund") was held on March 31, 2008 at the offices of Deutsche
Asset Management, 345 Park Avenue, New York, NY 10154. The following
matters were voted upon by the shareholders of said Fund (the resulting
votes are presented below):

1.       Election of the Board of Trustees.

|                       | Number of Votes:
|---------------------- | ----------------
|Trustee                | For             
|John W. Ballantine     | 83,959,459.0340 
|Henry P. Becton, Jr.   | 83,879,895.7880 
|Dawn-Marie Driscoll    | 83,950,511.5570 
|Keith R. Fox           | 83,930,075.0160 
|Paul K. Freeman        | 83,958,533.7380 
|Kenneth C. Froewiss    | 83,949,768.8840 
|Richard J. Herring     | 83,941,714.9010 
|William McClayton      | 83,923,686.2780 
|Rebecca W. Rimel       | 83,981,925.4220 
|William N. Searcy, Jr. | 83,882,524.6730 
|Jean Gleason Stromberg | 83,913,575.3790 
|Robert H. Wadsworth    | 83,887,711.1540 
|Axel Schwarzer         | 83,942,958.8180 

2-A.     Approval of an Amended and Restated Investment Management
Agreement.

|Number of Votes:
|----------------
|For             
|59,712,880.1900 

2-B.     Approval of a Subadvisor Approval Policy.

|Number of Votes:
|----------------
|For             
|61,184,639.5820 

3.      Approval of a Revised Fundamental Investment Policy Regarding
Commodities.

|Number of Votes:
|----------------
|For             
|60,235,570.4010 

4-A.     Approval of Amended and Restated Declaration of Trust.

|Number of Votes:
|----------------
|For             
|61,198,386.2670 

Summary of Management Fee Evaluation by
Independent Fee Consultant

October 26, 2007

Pursuant to an Order entered into by Deutsche Investment Management
Americas and affiliates (collectively, "DeAM") with the Attorney General of
New York, I, Thomas H. Mack, have been appointed the Independent Fee
Consultant for the DWS Scudder Funds. My duties include preparing an
annual written evaluation of the management fees DeAM charges the
Funds, considering among other factors the management fees charged by
other mutual fund companies for like services, management fees DeAM
charges other clients for like services, DeAM's costs of supplying services
under the management agreements and related profit margins, possible
economies of scale if a Fund grows larger, and the nature and quality of
DeAM's services, including fund performance. This report summarizes my
evaluation for 2007, including my qualifications, the evaluation process for
each of the DWS Scudder Funds, consideration of certain complex-level
factors, and my conclusions.

Qualifications

For more than 30 years I have served in various professional capacities
within the investment management business. I have held investment
analysis and advisory positions, including securities analyst, portfolio
strategist and director of investment policy with a large investment firm. I
have also performed business management functions, including business
development, financial management and marketing research and analysis.

Since 1991, I have been an independent consultant within the asset
management industry. I have provided services to over 125 client
organizations, including investment managers, mutual fund boards, product
distributors and related organizations. Over the past several years I have
completed a number of assignments for mutual fund boards, specifically
including assisting boards with management contract renewal.

I hold a Master of Business Administration degree, with highest honors,
from Harvard University; and Master of Science and Bachelor of Science
(highest honors) degrees from the University of California at Berkeley. I am
an independent director and audit committee financial expert for two
closed-end mutual funds, serve on the board of directors of a private market
research company, and have served in various leadership and financial
oversight capacities with non-profit organizations.

Evaluation of Fees for each DWS Scudder Fund

My work focused primarily on evaluating, fund-by-fund, the fees charged to
each of the 136 Fund portfolios in the DWS Scudder Fund family. For each
Fund, I considered each of the key factors mentioned above, as well as any
other relevant information. In doing so I worked closely with the Funds'
Independent Directors in their annual contract renewal process, as well as in
their approval of contracts for several new funds (documented separately).

In evaluating each Fund's fees, I reviewed comprehensive materials provided
by or on behalf of DeAM, including expense information prepared by Lipper
Analytical, comparative performance information, profitability data, manager
histories, and other materials. I also accessed certain additional information
from the Lipper, Strategic Insight, and Morningstar databases and drew on
my industry knowledge and experience.

To facilitate evaluating this considerable body of information, I prepared for
each Fund a document summarizing the key data elements in each area as
well as additional analytics discussed below. This made it possible to
consider each key data element in the context of the others.

In the course of contract renewal, DeAM agreed to implement a number of
fee and expense adjustments requested by the Independent Directors
which will favorably impact future fees and expenses, and my evaluation
includes the effects of these changes.

Fees and Expenses Compared with Other Funds

The competitive fee and expense evaluation for each fund focused on two
primary comparisons:

The Fund's contractual management fee (the advisory fee plus the
administration fee where applicable) compared with those of a group of
typically 12-15 funds in the same Lipper investment category (e.g. Large
Capitalization Growth) having similar distribution arrangements and being
of similar size.

The Fund's total expenses compared with a broader universe of funds
from the same Lipper investment category and having similar distribution
arrangements.

These two comparisons provide a view of not only the level of the fee
compared with funds of similar scale but also the total expense the Fund
bears for all the services it receives, in comparison with the investment
choices available in the Fund's investment category and distribution channel.
The principal figure-of-merit used in these comparisons was the subject
Fund's percentile ranking against peers.

DeAM's Fees for Similar Services to Others

DeAM provided management fee schedules for all of its US domiciled fund
and non-fund investment management accounts in any of the investment
categories where there is a DWS Scudder Fund. These similar products
included the other DWS Scudder Funds, non-fund pooled accounts,
institutional accounts and sub-advisory accounts. Using this information, I
calculated for each Fund the fee that would be charged to each similar
product, at the subject Fund's asset level.

Evaluating information regarding non-fund products is difficult because there
are varying levels of services required for different types of accounts, with
mutual funds generally requiring considerably more regulatory and
administrative types of service as well as having more frequent cash flows
than other types of accounts. Also, while mutual fund fees for similar fund
products can be expected to be similar, there will be some differences due
to different pricing conditions in different distribution channels (e.g. retail
funds versus those used in variable insurance products), differences in
underlying investment processes and other factors.

Costs and Profit Margins

DeAM provided a detailed profitability analysis for each Fund. After making
some adjustments so that the presentation would be more comparable to
the available industry figures, I reviewed profit margins from investment
management alone, from investment management plus other fund services
(excluding distribution) provided to the Funds by DeAM (principally
shareholder services), and DeAM profits from all sources, including
distribution. A later section comments on overall profitability.

Economies of Scale

Economies of scale  an expected decline in management cost per dollar
of fund assets as fund assets grow  are very rarely quantified and
documented because of inherent difficulties in collecting and analyzing
relevant data. However, in virtually every investment category that I
reviewed, larger funds tend to have lower fees and lower total expenses
than smaller funds. To see how each DWS Scudder Fund compares with
this industry observation, I reviewed:

The trend in Fund assets over the last five years and the accompanying
trend in total expenses. This shows if the Fund has grown and, if so,
whether total expense (management fees as well as other expenses)
have declined as a percent of assets.

Whether the Fund has break-points in its management fee schedule, the
extent of the fee reduction built into the schedule and the asset levels
where the breaks take effect, and in the case of a sub-advised Fund how
the Fund's break-points compare with those of the sub-advisory fee
schedule.

How the Fund's contractual fee schedule compares with trends in the
industry data. To accomplish this, I constructed a chart showing how
actual latest-fiscal-year contractual fees of the Fund and of other similar
funds relate to average fund assets, with the subject Fund's contractual
fee schedule superimposed.

Quality of Service  Performance

The quality-of-service evaluation focused on investment performance, which
is the principal result of the investment management service. Each Fund's
performance was reviewed over the past 1, 3, 5 and 10 years, as applicable,
and compared with that of other funds in the same investment category and
with a suitable market index.

In addition, I calculated and reviewed risk-adjusted returns relative to an
index of similar mutual funds' returns and a suitable market index. The
risk-adjusted returns analysis provides a way of determining the extent to
which the Fund's return comparisons are mainly the product of investment
value-added (or lack thereof) or alternatively taking considerably more or less
risk than is typical in its investment category.

I also received and considered the history of portfolio manager changes for
each Fund, as this provided an important context for evaluating the
performance results.

Complex-Level Considerations

While this evaluation was conducted mainly at the individual fund level,
there are some issues relating to the reasonableness of fees that can
alternatively be considered across the whole fund complex:

I reviewed DeAM's profitability analysis for all DWS Scudder funds, with a
view toward determining if the allocation procedures used were
reasonable and how profit levels compared with public data for other
investment managers.

I considered whether DeAM and affiliates receive any significant ancillary
or "fall-out" benefits that should be considered in interpreting the direct
profitability results. These would be situations where serving as the
investment manager of the Funds is beneficial to another part of the
Deutsche Bank organization.

I considered how aggregated DWS Scudder Fund expenses had varied
over the years, by asset class and in the context of trends in asset levels.

I reviewed the structure of the DeAM organization, trends in staffing
levels, and information on compensation of investment management and
other professionals compared with industry data.

Findings

Based on the process and analysis discussed above, which included
reviewing a wide range of information from management and external data
sources and considering among other factors the fees DeAM charges other
clients, the fees charged by other fund managers, DeAM's costs and profits
associated with managing the Funds, economies of scale, possible fall-out
benefits, and the nature and quality of services provided, in my opinion the
management fees charged the DWS Scudder Funds are reasonable.

ctf_mack10Thomas H. Mack

Trustees and Officers

The following table presents certain information regarding the Board
Members and Officers of the Trust as of August 31, 2008. Each Board
Member's year of birth is set forth in parentheses after his or her name.
Unless otherwise noted, (i) each Board Member has engaged in the
principal occupation(s) noted in the table for at least the most recent five
years, although not necessarily in the same capacity; and (ii) the address of
each Independent Board Member is c/o Dawn-Marie Driscoll, PO Box
100176, Cape Coral, FL 33904. Except as otherwise noted below, the term
of office for each Board Member is until the election and qualification of a
successor, or until such Board Member sooner dies, resigns, is removed or
as otherwise provided in the governing documents of the fund. Because the
fund does not hold an annual meeting of shareholders, each Board Member
will hold office for an indeterminate period. The Board Members may also
serve in similar capacities with other funds in the fund complex. The Length
of Time Served represents the year in which the Board Member joined the
board of one or more DWS funds now overseen by the Board.

|Independent Board Members                                               
|------------------------------------------------------------------------
|Name, Year of
Birth, Position
with the Fund
and Length of
Time Served1  
|Dawn-Marie
Driscoll (1946)Chairperson since
20042Board Member
since 1987
|Paul K. Freeman
(1950)Vice Chairperson
since 2008Board Member
since 1993
|John W.
Ballantine (1946)Board Member
since 1999                        
|Henry P. Becton,
Jr. (1943)Board Member
since 1990                      
|Keith R. Fox
(1954)Board Member
since 1996                              
|Kenneth C.
Froewiss (1945)Board Member
since 2001                       
|Richard J. Herring
(1946)Board Member
since 1990                        
|William
McClayton (1944)Board Member
since 2004                         
|Rebecca W.
Rimel (1951)Board Member
since 1995                          
|William N. Searcy,
Jr. (1946)Board Member
since 1993                    
|Jean Gleason
Stromberg (1943)Board Member
since 1997                    
|Robert H.
Wadsworth(1940)Board Member
since 1999                        

|Interested Board Member                                               
|----------------------------------------------------------------------
|Name, Year of
Birth, Position
with the Fund
and Length of
Time Served1
|Axel Schwarzer4(1958)Board Member
since 2006                          

|Officers6                                                                           
|------------------------------------------------------------------------------------
|Name, Year of Birth,
Position with the Fund and
Length of Time Served7              
|Michael G. Clark8 (1965)President, 2006-present                                     
|John Millette9 (1962)Vice President and Secretary,
1999-present                     
|Paul H. Schubert8 (1963)Chief Financial Officer,
2004-presentTreasurer, 2005-present
|Patricia DeFilippis10(1963)Assistant Secretary,
2005-present                        
|Elisa D. Metzger10 (1962)Assistant Secretary
2005-present                           
|Caroline Pearson9 (1962)Assistant Secretary,
1997-present                           
|Paul Antosca9 (1957)Assistant Treasurer,
2007-present                               
|Jack Clark9 (1967)Assistant Treasurer,
2007-present                                 
|Kathleen Sullivan D'Eramo9
(1957)Assistant Treasurer,
2003-present                  
|Diane Kenneally9(1966)Assistant Treasurer,
2007-present                             
|Jason Vazquez10 (1972)Anti-Money Laundering
Compliance Officer,
2007-present        
|Robert Kloby10 (1962)Chief Compliance Officer,
2006-present                         
|J. Christopher Jackson10
(1951)Chief Legal 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

ctf_backcover0




ITEM 2.

                        CODE OF ETHICSAs of the end of the period, August 31, 2008, 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 Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there
                            are several “audit committee financial experts” (as such term has been defined by the Regulations) serving on the Funds’ audit committee including Mr. William McClayton, the chair of the Funds’ audit committee. The SEC has stated that an audit committee financial expert is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an audit
                            committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.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 Fund2008

                        $62,044

                        $0

                        $8,460

                        $02007

                        $48,880

                        $0

                        $6,665

                        $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 YearEndedJuly 31,

                        Audit-RelatedFees Billed to 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 Providers2008

                        $0

                        $382,000

                        $02007

                        $250,000

                        $486,614

                        $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)2008

                        $8,460

                        $382,000

                        $1,474,733

                        $1,865,1932007

                        $6,665

                        $486,614

                        $1,519,326

                        $2,012,605
   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 2007 and 2008 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 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 has terminated 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 Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Chairman of the Board, P.O.
                            Box 100176, Cape Coral, FL 33910.
  
  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 second fiscal quarter of the period covered by this 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 30, 2008
   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 30, 2008
   By:
        /s/Paul Schubert
 Paul Schubert
 Chief Financial Officer and Treasurer  Date:
        October 30, 2008